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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-27729
ZAP.COM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 74-0571159
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 MERIDIAN CENTRE, SUITE 350
ROCHESTER, NY 14618
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
(585) 242-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS: COMMON STOCK, $0.001 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] or No [ ].
Indicate by "X" whether the registrant is an accelerated filer (as defined in
Exchange Act Rule 12b-2). Yes [ ] No [X]
As of November 3, 2004, the Registrant had outstanding 50,004,474 shares common
stock, $0.001 par value.
ZAP.COM CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Balance Sheets as of September 30, 2004 (Unaudited) and December 31, 2003......... 3
Unaudited Condensed Statements of Operations for the Three Months and Nine Months Ended
September 30, 2004 and 2003................................................................. 4
Unaudited Condensed Statements of Cash Flows for the Nine Months Ended
September 30, 2004 and 2003................................................................. 5
Notes to Unaudited Condensed Financial Statements........................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................................................. 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..................................11
ITEM 4. CONTROLS AND PROCEDURES.....................................................................12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS...........................................................................12
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF
EQUITY SECURITIES ..........................................................................12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.............................................................12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........................................12
ITEM 5. OTHER INFORMATION...........................................................................12
ITEM 6. EXHIBITS ...................................................................................12
SIGNATURES ..........................................................................................14
EXHIBITS ..........................................................................................15
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS AND NOTES
ZAP.COM CORPORATION
CONDENSED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2004 2003
------------ ------------
(Unaudited)
ASSETS:
Current assets:
Cash and cash equivalents ................................................ $ 1,833,058 $ 1,910,345
Other receivables ........................................................ 851 8,407
Prepaid assets ........................................................... 3,335 33,350
------------ ------------
Total current assets .................................................. 1,837,244 1,952,102
Property and equipment, net of accumulated depreciation of $3,203 and $2,747 1,064 1,520
------------ ------------
Total assets .......................................................... $ 1,838,308 $ 1,953,622
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable ......................................................... $ 1,415 $ 2,485
Accrued liabilities ...................................................... 46,532 58,298
------------ ------------
Total current liabilities ............................................. $ 47,947 $ 60,783
------------ ------------
COMMITMENTS & CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 150,000,000 shares authorized, 0 shares
issued and outstanding ................................................ -- --
Common stock, $.001 par value, 1,500,000,000 shares authorized; 50,004,474
shares issued and outstanding ......................................... 50,004 50,004
Additional paid in capital ............................................... 10,830,224 10,819,942
Accumulated deficit ...................................................... (9,089,867) (8,977,107)
------------ ------------
Total stockholders' equity ............................................ 1,790,361 1,892,839
------------ ------------
Total liabilities and stockholders' equity ............................ $ 1,838,308 $ 1,953,622
============ ============
The accompanying notes are an integral part of these condensed financial
statements.
3
ZAP.COM CORPORATION
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
FOR THE FOR THE
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2004 2003
------------ ------------
Revenues ................................... $ -- $ --
Cost of revenues ........................... -- --
------------ ------------
Gross income ............................ -- --
Operating expenses:
General and administrative .............. 38,025 40,704
------------ ------------
Total operating expenses ............. 38,025 40,704
------------ ------------
Loss from operations ................. (38,025) (40,704)
Interest income ............................ 6,076 5,275
------------ ------------
Loss before income taxes ................... (31,949) (35,429)
Income taxes ............................... -- --
------------ ------------
Net loss ................................... $ (31,949) $ (35,429)
============ ============
Per share data (basic and diluted):
Net loss per share ......................... $ 0.00 $ 0.00
============ ============
Weighted average number of common shares and
common share equivalents outstanding ..... 50,004,474 50,004,474
============ ============
FOR THE FOR THE
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2004 2003
------------ ------------
Revenues ................................... $ -- $ --
Cost of revenues ........................... -- --
------------ ------------
Gross income ............................ -- --
Operating expenses:
General and administrative .............. 127,892 103,846
------------ ------------
Total operating expenses ............. 127,892 103,846
------------ ------------
Loss from operations ................. (127,892) (103,846)
Interest income ............................ 15,132 16,704
------------ ------------
Loss before income taxes ................... (112,760) (87,142)
Income taxes ............................... -- --
------------ ------------
Net loss ................................... $ (112,760) $ (87,142)
============ ============
Per share data (basic and diluted):
Net loss per share ......................... $ 0.00 $ 0.00
============ ============
Weighted average number of common shares and
common share equivalents outstanding ..... 50,004,474 50,004,474
============ ============
The accompanying notes are an integral part of these condensed financial
statements.
4
ZAP.COM CORPORATION
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE FOR THE
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2004 2003
------------ -------------
Cash flows from operating activities:
Net loss .......................................... $ (112,760) $ (87,142)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization .................. 456 440
Contributed capital from Zapata for unreimbursed
management services and rent ................. 10,282 9,063
Changes in assets and liabilities:
Other receivables .......................... 7,556 (986)
Prepaid assets ............................... 30,015 17,100
Accounts payable ............................. (1,070) (14,898)
Accrued liabilities .......................... (11,766) (29,614)
----------- -----------
Total adjustments ......................... 35,473 (18,895)
----------- -----------
Net cash used in operating activities .......... (77,287) (106,037)
----------- -----------
Net change in cash and cash equivalents .............. (77,287) (106,037)
Cash and cash equivalents at beginning of period ..... 1,910,345 2,063,812
----------- -----------
Cash and cash equivalents at end of period ........... $ 1,833,058 $ 1,957,775
=========== ===========
The accompanying notes are an integral part of these condensed financial
statements.
5
ZAP.COM CORPORATION
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF OPERATIONS AND BASIS OF PRESENTATION
The unaudited condensed financial statements included herein have been prepared
by Zap.Com Corporation ("Zap.Com" or the "Company") without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission ("SEC"). The
financial statements reflect all adjustments that are, in the opinion of
management, necessary to fairly present such information. All such adjustments
are of a normal recurring nature. Although Zap.Com believes that the disclosures
are adequate to make the information presented not misleading, certain
information and footnote disclosures, including a description of significant
accounting policies normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States,
have been condensed or omitted pursuant to such rules and regulations. These
unaudited condensed financial statements should be read in conjunction with the
financial statements and the notes thereto included in Zap.Com's latest Annual
Report on Form 10-K filed with the SEC. The results of the operations for the
three months and nine months ended September 30, 2004 are not necessarily
indicative of the results for any subsequent quarter or the entire year ending
December 31, 2004.
BUSINESS DESCRIPTION
Zapata Corporation ("Zapata") formed Zap.Com for the purpose of creating and
operating a global network of independently owned web sites. In April 1999,
Zap.Com announced its plan to establish the ZapNetwork by connecting web sites
through a proprietary multi-functional, portal-like Internet banner known as the
ZapBox. Zap.Com intended to distribute advertising and e-commerce opportunities
over this network. From its inception on April 2, 1998 through November 12,
1999, Zap.Com operated as a wholly owned subsidiary of Zapata. In November 1999,
Zapata and two of its directors invested $10.1 million of equity in Zap.Com. On
November 12, 1999, Zapata distributed to its stockholders 477,742 shares of
Zap.Com common stock, leaving Zapata as the holder of approximately 98 percent
of Zap.Com's outstanding common stock. On November 30, 1999, Zap.Com's stock
began to trade on the NASD's OTC Electronic Bulletin Board under the symbol
"ZPCM," establishing Zap.Com as a separate public company.
During 1999 and 2000, Zap.Com engaged primarily in the research and
investigation of the Internet industry, the development of the Company's
business model, the establishment of strategic relationships to provide Internet
connectivity and technology systems to support the ZapNetwork, the development
of the ZapBox and the Zap.Com homepage, the filing of patent and trademark
applications and the solicitation of web sites to join the ZapNetwork.
On December 15, 2000, the Zap.Com Board of Directors concluded that Zap.Com's
operations were not likely to become profitable in the foreseeable future and
therefore, it was in the best interest of the Company and its stockholders to
cease all Internet operations. Zap.Com terminated all salaried employees and all
third party contractual relationships entered into in connection with its
Internet business.
Since ceasing its Internet operations, the Company has had no existing business
operations, other than to comply with its reporting requirements under the
Securities Exchange Act of 1934. Currently, Zap.Com's principal activities are
exploring methods to enhance stockholder value. Zap.Com is likely to search for
assets or businesses that it can acquire so that it can become an operating
company. Zap.Com may also consider developing a new business suitable for its
situation.
Management believes that it has sufficient resources to satisfy its existing and
contingent liabilities and its anticipated operating expenses for at least the
next twelve months.
6
NOTE 2. STOCK-BASED COMPENSATION
The Company accounts for its employee stock-based compensation plans under
Accounting Principles Board ("APB") No. 25, "Accounting for Stock Issued to
Employees." Accordingly, no recognition of compensation expense is required for
stock options granted to employees for which the exercise price equals or
exceeds the fair market value of the stock at the grant date. The Company has
adopted the required disclosure provisions under SFAS No. 148, "Accounting for
Stock-Based Compensation -- Transition and Disclosure, an amendment of the
Financial Accounting Standards Board ("FASB") Statement No. 123," at December
31, 2002. SFAS No.
148 amends SFAS No.123, "Accounting for Stock-Based Compensation."
Had compensation expense for the 1999 Plan been determined based on fair value
at the grant date consistent with SFAS No. 123, the Company's net loss and net
loss per share (basic and diluted) would have been as follows:
THREE MONTHS ENDED
SEPTEMBER 30,
2004 2003
---------- ----------
Net loss, as reported .................................. $ (31,949) $ (35,429)
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards -- --
---------- ----------
Pro forma net loss ..................................... $ (31,949) $ (35,429)
========== ==========
Loss per share:
Basic and diluted - as reported .................. $ .00 $ .00
========== ==========
Basic and diluted - pro forma ................... $ .00 $ .00
========== ==========
NINE MONTHS ENDED
SEPTEMBER 30,
2004 2003
----------- ----------
Net loss, as reported .................................. $ (112,760) $ (87,142)
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards -- --
----------- ----------
Pro forma net loss ..................................... $ (112,760) $ (87,142)
=========== ==========
Loss per share:
Basic and diluted - as reported .................. $ .00 $ .00
=========== ==========
Basic and diluted - pro forma ................... $ .00 $ .00
=========== ==========
NOTE 3. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
SEPTEMBER 30, DECEMBER 31,
2004 2003
---- ----
Accrued audit and legal costs $22,279 $27,245
Accrued printing costs ...... 24,253 31,053
------- -------
Total accrued liabilities $46,532 $58,298
======= =======
7
NOTE 4. RELATED PARTY TRANSACTIONS
Since inception, the Company has utilized the services of the management and
staff of its majority stockholder, Zapata Corporation, under a shared services
agreement that allocated these costs on a percentage of time basis. Zap. Com
also subleases its office space in Rochester, New York from Zapata Corporation.
Under the sublease agreement, annual rental payments are allocated on a cost
basis. Zapata Corporation has waived its rights under the shared services
agreement to be reimbursed for these expenses since May 2000. For these
services, the Company recorded contributed capital of $3,000 in each of the
three month periods ending September 30, 2004 and 2003, respectively, and
$10,000 and $9,000 for the nine months ended September 30, 2004 and 2003,
respectively.
NOTE 5. COMMITMENTS AND CONTINGENCIES
The Company has applied the disclosure provisions of FASB Interpretation No. 45
(FIN 45), "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others," to its agreements
containing guarantee or indemnification clauses. These disclosure provisions
expand those required by SFAS No. 5, "Accounting for Contingencies," by
requiring a guarantor to disclose certain types of guarantees, even if the
likelihood of requiring the guarantor's performance is remote. The following is
a description of arrangements in which the Company is the guarantor.
Zap.Com's articles of incorporation, bylaws and certain other agreements contain
indemnification clauses for its officers and directors for losses incurred as a
result of claims made against such individuals arising out of, or because of
their service to the Company. The maximum potential amount of future payments
the Company could be required to make under these indemnification agreements is
unlimited; however, Zap.Com maintains Director and Officer Liability insurance
that limits this exposure. As a result of this insurance coverage, it is the
opinion of Zap.Com's management that the estimated fair value of any liabilities
under these indemnification agreements is minimal and should not materially
impact the Company's financial position, results of operations or cash flows.
These indemnification obligations were in effect prior to December 31, 2002 and
are therefore grandfathered under the provisions of FIN 45. Accordingly, no
liabilities have been recorded for the indemnification clauses in these
agreements.
Related to its 1999 initial public offering, the Company entered into numerous
transactions with third parties and with Zapata. Pursuant to certain of these
transactions, the Company may be obligated to indemnify other parties to these
agreements. These obligations include indemnification for losses incurred by
such parties arising out of the inaccuracy of representations of information
supplied by the Company in connection with such transactions. These
indemnification obligations were in effect prior to December 31, 2002 and are
therefore grandfathered under the provisions of FIN No. 45. Accordingly, no
liabilities have been recorded for the indemnification clauses in these
agreements.
NOTE 6. SUBSEQUENT EVENT
On November 2, 2004 Zap.Com issued 511,300 stock options to Zap.Com's sole Board
member, employees of Zapata Corporation and an officer of Zapata Corporation.
This issuance will be accounted for under the guidance of Emerging Issues Task
Force Issue No. 00-23, "Issues Related to the Accounting for Stock Compensation
under APB Opinion No. 25," and Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation-an Interpretation of APB Opinion No.
25." Options granted to Zap.Com's sole Board member will be accounted for in
accordance with APB Opinion No. 25. Accordingly, Zap.Com will adopt the required
disclosure provisions under Statement of Financial Accounting Standards No. 148.
As Zapata Corporation has the discretion to compel Zap.Com to enter into a
variety of transactions, stock option grants to Zapata employees and an officer
of Zapata will be accounted for as a stock dividend from Zap.Com to Zapata. As
Zap.Com has a retained deficit, these grants will not have an impact on the
Company's financial position, results of operations or cash flows.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. This document contains certain
"forward-looking statements"
8
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Company intends such forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995,
and includes this statement for purposes of such safe harbor provisions.
Forward-looking statements, which are based upon certain assumptions and
describe future plans, strategies and expectations of the Company, are generally
identifiable by use of the words like "may," "will," "should," "expect,"
"anticipate," "estimate," "plan," "intend," "believe," "predicts," "potential,"
"continue" and the negative of such terms or other similar or comparable
terminology. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot assure you that our
expectations will be correct. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels of activity, performance, or achievements expressed or implied
by these forward-looking statements. These risks are qualified in their entirety
by cautionary language and risk factors set forth in the Company's filings with
the Securities and Exchange Commission "SEC", including the Company's 2003
Annual Report on Form 10-K. The Company assumes no obligation to update
forward-looking statements or to update the reasons actual results could differ
from those projected in the forward-looking statements.
GENERAL
Zap.Com Corporation ("Zap.Com" or the "Company") was founded by Zapata
Corporation ("Zapata") (NYSE:ZAP) in April 1998 as a Nevada corporation.
Zap.Com's principal corporate offices are located at 100 Meridian Centre, Suite
350, Rochester, New York 14618.
Zapata formed Zap.Com for the purpose of creating and operating a global network
of independently owned web sites. In April 1999, Zap.Com announced its plan to
establish the ZapNetwork by connecting web sites through a proprietary
multi-functional, portal-like Internet banner known as the ZapBox. Zap.Com
intended to distribute advertising and e-commerce opportunities over this
network. From its inception on April 2, 1998 through November 12, 1999, Zap.Com
operated as a wholly owned subsidiary of Zapata. In November 1999, Zapata and
two of its directors invested $10.1 million of equity in Zap.Com. On November
12, 1999, Zapata distributed to its stockholders 477,742 shares of Zap.Com
common stock, leaving Zapata as the holder of approximately 98 percent of
Zap.Com's outstanding common stock. On November 30, 1999, Zap.Com's stock began
to trade on the NASD's OTC Electronic Bulletin Board under the symbol "ZPCM,"
establishing Zap.Com as a separate public company.
During 1999 and 2000, Zap.Com engaged primarily in the research and
investigation of the Internet industry, the development of the Company's
business model, the establishment of strategic relationships to provide Internet
connectivity and technology systems to support the ZapNetwork, the development
of the ZapBox and the Zap.Com homepage, the filing of patent and trademark
applications and the solicitation of web sites to join the ZapNetwork.
On December 15, 2000, the Zap.Com Board of Directors concluded that Zap.Com's
operations were not likely to become profitable in the foreseeable future and
therefore, it was in the best interest of the Company and its stockholders to
cease all Internet operations. Zap.Com terminated all salaried employees and all
third party contractual relationships entered into in connection with its
Internet business.
Since ceasing its Internet operations, the Company has had no existing business
operations, other than to comply with its reporting requirements under the
Securities Exchange Act of 1934. In the future Zap.Com may acquire an operating
company. Zap.Com may also consider developing a new business suitable for its
situation.
The Company will have broad discretion in identifying and selecting both the
industries and the possible acquisition candidates within those industries that
it will acquire. The Company has not identified a specific industry on which it
initially intends to focus and has no present plans, proposals, arrangements or
understandings with respect to the acquisition of any specific business. There
can be no assurance that the Company will be able to identify or successfully
complete any acquisitions.
The Company has no preference as a general matter as to whether to issue shares
of common stock or cash in making acquisitions and it may use either shares of
its common stock or cash, or a combination thereof. The form of
9
the consideration that the Company uses for a particular acquisition will depend
upon the form of consideration that the sellers of the business require and the
most advantageous way for the Company to account for, or finance the
acquisition. To the extent the Company uses common stock for all or a portion of
the consideration to be paid for future acquisitions, existing stockholders may
experience significant dilution.
In order to effect an acquisition, Zap.Com may need additional financing. There
is no assurance that any such financing will be available, or available on terms
favorable or acceptable to the Company. In particular, potential third party
equity investors may be unwilling to invest in Zap.Com due to Zapata's voting
control over Zap.Com and the significant potential for dilution of a potential
investor's ownership in the Company's common stock. Zapata's voting control may
be unattractive because it makes it more difficult for a third party to acquire
the Company even if a change of control could benefit the Company's stockholders
by providing them with a premium over the then current market price for their
shares. If the Company raises additional funds through the issuance of equity,
equity-related or debt securities, these securities may have rights, preferences
or privileges senior to those of the rights of Zap.Com's common stockholders,
who would then experience dilution.
In general, any new business development is difficult, and the Company's
particular realities impose significant constraints that make such an
undertaking even more difficult. These constraints include the following: the
need to acquire or develop the business without paying substantial cash or
taking on significant debt, unless it can be serviced by cash flow from the new
business; the handicap of not having actively traded stock to use to procure
this business; the requirement that, after launch, the new business should not
need a significant capital investment to fund its initial operations unless this
can be accomplished through cash flow from the new business; and the requirement
that the new business should produce a positive cash flow in the near term.
RESULTS OF OPERATIONS
For the three months ended September 30, 2004, Zap.Com recorded a net loss of
$32,000 as compared to a net loss of $35,000 for the three months ended
September 30, 2003. For the nine months ended September 30, 2004, Zap.Com
recorded a net loss of $113,000 as compared to a net loss of $87,000 for the
nine months ended September 30, 2003. Since inception (which commenced on April
2, 1998), Zap.Com has incurred a cumulative net loss of $9.1 million, including
$743,000 in non-cash charges associated with warrants issued to American
Internetwork Sports and all of the costs associated with the public registration
of Zap.Com's common stock and the development and wind-down of Internet
operations.
For the three month and nine month periods ended September 30, 2004 as compared
to the three month and nine month periods ended September 30, 2003, operations
consisted of the following:
REVENUES. Zap.Com did not generate any revenue for the three month and nine
month periods ended September 30, 2004 and 2003, nor does it presently have any
business from which it may generate revenue in the future.
COST OF REVENUES. As a result of ceasing all Internet operations, Zap.Com
incurred no cost of revenues for the three month and nine month periods ended
September 30, 2004 and 2003.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of legal and accounting services, insurance premiums, printing and
filing costs, salaries and wages (including non-cash charges allocated by Zapata
pursuant to a services agreement), and various other costs. General and
administrative expenses for the quarter ended September 30, 2004 were $38,000 as
compared to $41,000 for the quarter ended September 30, 2003. For the nine
months ended September 30, 2004, general and administrative expenses were
$128,000 as compared to $104,000 for the nine months ended September 30, 2003.
The increased general and administrative expenses for 2004 relates primarily to
an increase in legal expense recognized as compared to the prior year.
INTEREST INCOME. Interest income is generated on cash reserves which are
invested in short-term U.S. Government Agency securities. Interest earned for
the quarter ended September 30, 2004 and 2003 was $6,000 and $5,000,
respectively. Interest earned for the nine months ended September 30, 2004 was
$15,000 as compared to $17,000 for the nine months ended September 30, 2003.
Although interest rates increased slightly for the quarter ended September 30,
2004 as compared to the quarter ended September 30, 2003, the decrease in
interest income for the nine months ended September 30, 2004 was primarily a
result of lower interest rates on short-term U.S. Government Agency
10
securities as compared to rates during the same period in the prior year, as
well as declining cash available for investment.
LIQUIDITY AND CAPITAL RESOURCES
Zap.Com has not generated any significant revenue since its inception. As a
result, the Company's primary source of liquidity has been its initial
capitalization, and thereafter, the interest income generated on cash reserves
invested in short-term US Government Agency securities. As of September 30,
2004, Zap.Com's cash and cash equivalents were $1.8 million.
Since its inception, the Company has utilized services of the management and
staff and office space of its majority stockholder, Zapata Corporation, under a
shared services agreement that allocated these costs. Effective May 1, 2000,
Zapata has waived its rights under the services agreements to be reimbursed
these costs. For the three months ended September 30, 2004 and 2003, the Company
recorded approximately $3,000 and $3,000, respectively, and for the nine months
ended September 30, 2004 and 2003 the Company recorded approximately $10,000 and
$9,000, respectively, as contributed capital for these services. Should Zapata
not renew its waiver, Zap.Com may incur future cash payments under the shared
services agreement.
Zap.Com believes that it has sufficient resources to satisfy its existing and
contingent liabilities and its anticipated operating expenses for the next
twelve months. Until such time as a business combination is consummated, Zap.Com
expects these expenses to consist mainly of general and administrative expenses
incurred in connection with maintaining its status as a publicly traded company.
The Company has no commitments for capital expenditures and foresees none,
except for possible future acquisitions. In order to effect an acquisition,
however, Zap.Com may need additional financing. There is no assurance that any
such financing will be available or available on the terms favorable or
acceptable to the Company.
CASH FLOWS
Cash used in operating activities was $77,000 for the nine months ended
September 30, 2004 as compared to cash used of $106,000 for the comparable
period of the prior year. The decrease in cash used in operating activities
resulted in timing of payments made for certain prepaid assets, accounts payable
and accrued liabilities.
For the nine months ended September 30, 2004 and 2003, the Company had no cash
flows from investing or financing activities.
CRITICAL ACCOUNTING POLICIES
As of September 30, 2004, the Company's consolidated critical accounting
policies and estimates have not changed materially from those set forth in the
Company's Annual Report on Form 10-K for the year ended December 31, 2003.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to the Company's operations result primarily from changes
in interest rates. The Company invests its cash and cash equivalents in
short-term US Government Agency securities with maturities generally not more
than 90 days. Due to the short duration and conservative nature of these
instruments, the Company does not believe that the value of these instruments
have a material exposure to interest rate risk. However, changes in interest
rates do affect the investment income the Company earns on its cash equivalents
and marketable securities and, therefore, impacts its cash flows and results of
operations. Accordingly, there is inherent roll-over risk for the Company's
investment grade securities as they mature and are renewed at current market
rates. Using the investment grade security balance of $1.8 million at September
30, 2004 as a hypothetical constant cash balance, an adverse change of 1% in
interest rates would decrease interest income by approximately $5,000 and
$14,000 during a three month and nine month period, respectively.
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
An evaluation was performed under the supervision of the Company's management,
including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO),
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14(c) and
15-d-14(c)) as of the end of the period covered by this report. Based on that
evaluation, the Company's management, including the CEO and CFO, concluded that
the Company's disclosure controls and procedures were effective to ensure that
information we are required to disclose in reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms.
Changes in internal controls
No changes in internal control over financial reporting occurred during the
quarter ended September 30, 2004 that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS AND ISSUER
PURCHASES OF EQUITY SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
31.1 Certification of CEO Pursuant to SEC Rule 13a-14.
31.2 Certification of CFO Pursuant to SEC Rule 13a-14.
32.1 Certification of CEO Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of CFO Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ZAP.COM CORPORATION
(Registrant)
November 5, 2004
By: /s/ LEONARD DISALVO
--------------------------
(Vice President and
Chief Financial Officer)
13