UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
| | | |
þ | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | | For the fiscal year ended December 31, 2008 |
OR |
o | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | | For the transition period from to |
Commission file number:000-27729
Zap.Com Corporation
(Exact name of Registrant as specified in its charter)
| | | |
Nevada
(State or other jurisdiction of
incorporation or organization) | | 76-0571159
(I.R.S. Employer
Identification No.) |
100 Meridian Centre, Suite 350
Rochester, NY
(Address of principal executive offices) | | 14618
(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 if the registrant is a well-know seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o or No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o or No þ
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 þ or No o.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act. (Check one):
| | | | | | | |
Large accelerated filer o | | Accelerated filer o | | Non-accelerated filer o
(Do not check if a smaller
reporting company) | | Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Act). Yes þ or No o
The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2008 (the last business day of the registrant’s most recently completed second fiscal quarter) was $39,300. For the sole purpose of making this calculation, the term“non-affiliate” has been interpreted to exclude directors, corporate officers and holders of 10% or more of the Company’s common stock. As of February 24, 2009, the Registrant had outstanding 50,004,474 shares common stock, $0.001 par value.
Documents Incorporated By Reference: Portions of the Company’s Information Statement to be delivered to the Company’s shareholders in connection with the Company’s 2009 Annual Meeting of Stockholders, which the Company plans to file with the Securities and Exchange Commission pursuant to regulation 14C promulgated under the Securities Exchange Act of 1934, on or prior to April 30, 2009, are incorporated by reference in Part III (Items 10, 11, 12, 13 and 14) of thisForm 10-K.
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” 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 “believes,” “expects,” “intends,” “anticipates,” “plans,” “seeks,” “estimates,” “projects,” “may,” “could” or similar expressions. The ability of the Company to predict results or the actual effect of future plans or strategies is inherently uncertain. Important factors which may cause actual results to differ materially from the forward-looking statements contained herein or in other public statements by the Company are described, among other places, under the caption of this report titled “Part I — Item 1A. Risk Factors” and other risks identified from time to time in the Company’s filings with the Securities and Exchange Commission (“SEC”), press releases and other communications. 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.
PART I
General
Zapata Corporation (“Zapata”) formed Zap.Com Corporation (“Zap.Com” or “the Company”) for the purpose of creating and operating a global network of independently owned web sites. Zapata is the holder of approximately 98 percent of Zap.Com’s outstanding common stock, and other than complying with its reporting requirements under the Exchange Act, Zap.Com has no business operations. Zap.Com is searching for assets or businesses that it can acquire so that it can become an operating company and may also consider developing a new business suitable for its situation. Zap.Com’s stock is traded on the NASD’s OTC Electronic Bulletin Board under the symbol “ZPCM.”
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 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 use cash, debt or equity in making acquisitions and it may use a combination thereof. The form of 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. There is no assurance that any such financing will be available or available on terms favorable or acceptable to the Company. Additionally, our ability to obtain such financing may be made more difficult due to the current global financial crisis and its effect on the capital markets.
If the Company raises additional funds through the issuance of equity 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. Additionally, 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. Additionally, numerous companies throughout the United States will compete vigorously with Zap.Com for target acquisition
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candidates. Venture capital companies as well as established corporations and entities, most of which have greater resources than the Company does, will vie for such acquisition candidates
The Company is categorized as a “shell company” as that term is used in the SEC’s rules. These rules prohibit the use ofForm S-8 by a shell company, and require a shell company to file aForm 8-K to report the same type of information that would be required if it were filing to register a class of securities under the Exchange Act whenever the shell company is reporting the event that caused it to cease being a shell company. Being a shell company may adversely impact the Company’s ability to offer its stock to officers, directors and consultants, and thereby make it more difficult to attract and retain qualified individuals to perform services for the Company, and it will likely increase the costs of registration compliance following the completion of a business combination.
Available Information
The Company files annual, quarterly and current reports and other information with the SEC. The Company’s annual reports onForm 10-K, quarterly reports onForm 10-Q, current reports onForm 8-K and amendments to these reports filed under the Exchange Act, as well as Section 16 filings by officers and directors, are available free of charge atwww.sec.gov as soon as reasonably practicable after they are filed with the SEC. The Company will provide a copy of these documents to stockholders upon request. The Company does not maintain a website.
In addition, the public may read and copy any materials filed by the Company with the SEC at the SEC’s Public Reference Room at 100 F Street, NE., Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at its website.
The Company has adopted a Code of Ethics and Business Conduct that applies to all of the Company’s directors and key employees, including the Company’s principal executive officer, principal accounting officer or controller, or persons performing similar functions. The Company will provide without charge, upon request, a copy of the Code of Business Conduct and Ethics. Anyone wishing to obtain a copy should write to Zap.Com Corporation Investor Relations, 100 Meridian Centre Suite 350, Rochester, NY 14618.
Financial Information About Industry Segments
The Company follows the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosures about Segments of an Enterprise and Related Information,” which establishes standards for the way companies report information about operating segments in annual financial statements. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company has determined that it does not have any separately reportable business segments.
Intellectual Property
Zap.Com owns certain intellectual property rights related to the Company’s previous business operations. In connection with the foregoing rights, Zap.Com currently has an issued U.S. patent and a patent application pending before the United States Patent and Trademark Office for a business method which is directed to a unique Internet-based commerce method underlying the business model. Zap.Com also owns various federal registrations for service marks including ZAP.COM, the Z design, and the Z ZAP.COM design.
Employees
Since terminating its Internet operations, Zap.Com has had two employees, Avram Glazer, President and CEO, and Leonard DiSalvo, VP-Finance and Chief Financial Officer. Neither Mr. Glazer nor Mr. DiSalvo receive a salary or bonus from Zap.Com and currently devote a significant portion of their business time to Zapata, where they hold the same offices. Both of these officers, however, will devote such time to Zap.Com’s affairs as is required to perform their duties to Zap.Com.
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We have limited assets and no source of revenue.
We have limited assets and have had no significant revenue since inception, nor will we receive any operating revenues until we complete an acquisition, reorganization, merger or successfully develop a new business. We can provide no assurance that any acquired business will produce any material revenues for the Company or its stockholders or that any such business will operate on a profitable basis.
We have not selected a specified industry in which to acquire or develop a business.
To date, we have not identified any particular industry or business in which to concentrate our acquisition efforts. Accordingly, the Company’s current stockholders and prospective investors have no basis to evaluate the comparative risks and merits of investing in the industry or business in which we may acquire. To the extent that we may acquire a business in a high-risk industry, the Company will become subject to those risks. Similarly, if we acquire a financially unstable business or a business that is in the early stages of development, the Company will become subject to the numerous risks to which such businesses are subject. Although management intends to consider the risks inherent in any industry and business in which it may become involved, there can be no assurance that it will correctly assess such risks.
There is an absence of substantive disclosure relating to prospective new businesses.
Because we have not yet identified any assets, property or business that we may acquire or develop, our current stockholders and potential investors in the Company have virtually no substantive information about any such new business upon which to base a decision whether to invest in the company. We can provide no assurance that any investment in the Company will ultimately prove to be favorable. In any event, stockholders and potential investors will not have access to any information about any new business until such time as a transaction is completed and we have filed a report with the SEC disclosing the nature of such transactionand/or business.
If an acquisition is consummated, stockholders will not know its structure and will likely suffer dilution.
Our management has had no contact or discussions regarding, and there are no present plans, proposals or arrangements to acquire any specific assets, property or business. Accordingly, it is unclear whether such an acquisition would take the form of an exchange of capital stock, a merger or an asset acquisition. However, because we have limited resources as of the date hereof, such acquisition is likely to involve the issuance of our stock.
We currently have 1,500,000,000 authorized shares of common stock and 150,000,000 authorized shares of preferred stock. As of the date of this report, we have 50,004,474 shares of common stock outstanding and no outstanding preferred stock. We will be able to issue significant amounts of additional shares of common stock without obtaining stockholder approval, provided we comply with the rules and regulations of any exchange or national market system on which our shares are then listed. As of the date of this report, we are not subject to the rules of any exchange that would require stockholder approval. To the extent we issue additional common stock in the future, existing stockholders will experience dilution in percentage ownership.
As of the date of this report, we have reserved 3,000,000 shares for options issued or to be issued pursuant to our 1999 Long-Term Incentive Plan. The outstanding options have a weighted average exercise price of $.08. The issuance of shares upon the exercise of the above securities may have a dilutive effect in the future on our common stock, which may adversely affect the price of our common stock.
Management devotes insignificant time to activities of the Company.
Members of the Company’s management are not required to and do not devote their full time to the affairs of the Company. Because of their time commitments to Zapata, as well as the fact that we have no business operations, our members of management anticipate that they will not devote a significant amount of time to the activities of the Company, except in connection with identifying a suitable acquisition target or business to develop.
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Zapata and Zap.Com’s officers may have conflicts of interest.
Although we have not identified any potential acquisition target or new business opportunities, the possibility exists that we may acquire or merge with a business or company in which our executive officers, directors, beneficial owners or their affiliates may have an ownership interest. A transaction of this nature would present a conflict of interest for those parties with a managerial positionand/or an ownership interest in both the Company and the acquired entity. An independent appraisal of the acquired company may or may not be obtained in the event a related party transaction is contemplated.
There is significant competition for acquisition candidates.
Our management believes that there are numerous companies, most of which have greater resources than the Company does, that are also seeking merger or acquisition transactions. These entities will present competition to Zap.com in its search for a suitable transaction candidate, and we make no assurance that we will be successful in that search.
There is no assurance of continued public trading market and being a low priced security may affect the market value of stock.
To date, there has been only a limited public market for our common stock. Our common stock is currently quoted on the OTCBB. As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations as to the market value of our stock. Our stock is subject to the low-priced security or so called “penny stock” rules of the SEC that impose additional sales practice requirements on broker/dealers who sell such securities. Some of such requirements are discussed below.
A broker/dealer selling “penny stocks” must, at least two business (2) days prior to effecting a customer’s first transaction in a “penny stock,” provide the customer with a document containing information mandated by the SEC regarding the risks of investing in our stock, and the broker/dealer must receive a signed and dated written acknowledgement of the customer’s receipt of that document prior to effecting a customer’s first transaction in a “penny stock.”
Subject to limited exceptions, a broker/dealer must obtain information from a customer concerning the customer’s financial situation, investment experience and investment objectives and, based on the information and any other information known by the broker/dealer, the broker/dealer must reasonably determine that transactions in “penny stocks” are suitable for the customer, that the customer has sufficient knowledge and experience in financial matters, and that the customer reasonably may be expected to be capable of evaluating the risks of transactions in “penny stocks.” A broker/dealer must, at least two business (2) days prior to effecting a customer’s first purchase of a “penny stock” send a statement of this determination, together with other disclosures required by the SEC, to the customer, and the broker/dealer must receive a signed and dated copy of the statement prior to effecting the customer’s first purchase of a “penny stock.”
Subject to limited exceptions, a broker/dealer must also, at least two business (2) days prior to effecting a customer’s purchase of a “penny stock,” deliver to the customer an agreement to the transaction that sets forth the identity and quantity of the “penny stock” to be purchased, and the broker/dealer must receive the customer’s agreement to the transaction prior to effecting the transaction.
A broker/dealer must also, orally or in writing, disclose prior to effecting a customer’s transaction in a “penny stock” (and thereafter confirm in writing):
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| | • | the bid and offer price quotes in and for the “penny stock,” and the number of shares to which the quoted prices apply, |
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| | • | the brokerage firm’s compensation for the trade, and |
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| | • | the compensation received by the brokerage firm’s sales person for the trade. |
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| | • | In addition, subject to limited exceptions, a brokerage firm must send to its customers trading in “penny stocks” a monthly account statement that gives an estimate of the value of each “penny stock” in the customer’s account. |
Accordingly, the Commission’s rules may limit the number of potential purchasers of the shares of our common stock.
Resale restrictions on transferring “penny stocks” are sometimes imposed by some states, which may make transaction in our stock more difficult and may reduce the value of the investment. Various state securities laws pose restrictions on transferring “penny stocks” and as a result, investors in our common stock may have the ability to sell their shares of our common stock impaired.
There can be no assurance we will have market makers in our stock. If the number of market makers in our stock should decline, the liquidity of our common stock could be impaired, not only in the number of shares of common stock which could be bought and sold, but also through possible delays in the timing of transactions, and lower prices for the common stock than might otherwise prevail. Furthermore, the lack of market makers could result in persons being unable to buy or sell shares of the common stock on any secondary market.
Zapata’s control and the presence of interlocking directors and officers create potential conflicts of interest and could prevent a change of control.
As of the date of this report, Zapata owns approximately 98 percent of our outstanding common stock. As a result, Zapata’s directors and officers will be able to control the outcome of substantially all matters submitted to the stockholders for approval, including the election of directors and any proposed merger, liquidation, transfer or encumbrance of a substantial portion of its assets, or amendment to our charter to change our authorized capitalization. This concentration of ownership may also have the effect of delaying or preventing a change in control of Zap.Com even if it would be beneficial to our stockholders.
In addition, our executive officers also are directors, officers or employees of Zapata and, in most cases, either own, or hold an option to purchase, equity securities of Zapata. In addition, the Malcolm I. Glazer Family Limited Partnership, controls and beneficially owns approximately 51 percent of Zapata’s outstanding common stock. As a result, these executive officers and the Malcolm I. Glazer Family Limited Partnership have inherent potential conflicts of interest when making decisions related to transactions between Zapata and us. Zapata’s ability to control matters listed above together with the potential conflicts of interest of its executive officers who also serve as executive officers of Zap.Com and our Chairman of the Board could adversely affect the trading price and liquidity of our common stock. These factors could limit the price that investors might be willing to pay for our common stock in the future.
We have liabilities as a member of Zapata’s consolidated tax group.
We have been, and expect to continue to be for the foreseeable future, a member of Zapata’s consolidated tax group under federal income tax law until the Zap.Com securities held by Zapata do not constitute either 80 percent or greater of the voting power or the market value of Zap.Com’s outstanding stock. Each member of a consolidated group for federal income tax purposes is jointly and severally liable for the federal income tax liability of each other member of the consolidated group. Similar rules may apply under state income tax laws. Although we have entered into a tax sharing and indemnity agreement with Zapata, if Zapata or members of its consolidated tax group (other than us) fail to pay tax liabilities arising prior to the time that we are no longer a member of Zapata’s consolidated tax group, we could be required to make payments in respect of these tax liabilities and these payments could materially adversely affect our financial condition.
Because we do not intend to pay any cash dividends on our common stock, holders of our common stock will not be able to receive a return on their shares unless they sell their shares.
We have paid no dividends on our common stock. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. Unless we pay dividends, holders of our common stock will not be able to receive a return on their shares unless they sell them, which could be difficult unless a more active market develops
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in our stock. See Item 5 of Part II of this report titled, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”
Our anti-takeover provisions in our corporate documents may have an adverse effect on the market price of our common stock.
If Zapata were ever to lose voting control over us, provisions within our charter and by-laws could make it more difficult for a third party to gain control of us. This would be true even if a change in control might be beneficial to our stockholders. This could adversely affect the market price of our common stock. These provisions include:
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| | • | the elimination of the right to act by written consent by stockholders after Zapata no longer holds a controlling interest in us; |
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| | • | the elimination of the right to call special meetings of the stockholders by stockholders except that Zapata may do so as long as it holds a controlling interest in us; |
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| | • | the creation of a staggered board of directors; and, |
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| | • | the ability of the board of directors to designate, determine the rights and preferences of, and to issue preferred stock, without stockholder consent, which could adversely affect the rights of our common stockholders. |
A substantial amount of our common stock is eligible for sale into the market and this could depress our stock price.
Sales of a substantial number of shares of our common stock in the future could cause the market price of our common stock to decline. As of the date of this document, we have outstanding 50,004,474 shares of common stock, of which Zapata owns 48,972,258 shares, Malcolm Glazer owns 707,907 shares, Avram Glazer owns 50,000 shares with the remainder owned by public stockholders. Additionally, we have 3,000,000 shares of common stock reserved for issuance under our 1999 Long-Term Incentive Plan. As of December 31, 2008, the company had 511,300 stock options outstanding and 2,488,700 shares available for issuance under the plan.
All of our shares distributed by Zapata to its stockholders on November 12, 1999 are freely tradable without restriction or further registration under the federal securities laws unless acquired by our “affiliates,” as that term is defined in Rule 144 under the Securities Act of 1933. All of the shares held by Zapata (other than 1,000,000 shares available for sale by Zapata under an effective registration statement), acquired by “affiliates” in Zapata’s distribution or by the Glazers in connection with their November 1999 investment are “restricted securities” under the Securities Act and available for resale upon compliance with Rule 144, including the one year holding period and the timing, manner and volume of sales of these shares. In the absence of Rule 144’s availability, these shares may only be publicly resold if they are registered or another exemption is available.
We have registered 1,000,000 shares of our common stock for resale by Zapata from time to time under a separate registration statement. We have also granted Zapata registration rights with respect to all of its shares. These registration rights effectively allow Zapata to register and publicly sell all of its shares at any time and to participate as a selling stockholder in future public offerings by Zap.Com.
Section 404 of the Sarbanes-Oxley Act of 2002 requires us to document and test our internal controls over financial reporting and to report on our assessment as to the effectiveness of these controls. Any delays or difficulty in satisfying these requirements or negative reports concerning our internal controls could adversely affect our future results of operations and our stock price.
We may in the future discover areas of our internal controls that need improvement, particularly with respect to business that we may acquire in the future. We cannot be certain that any remedial measures we take will ensure that we implement and maintain adequate internal controls over our financial reporting processes and reporting in the future. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could harm our operating results or cause us to fail to meet our reporting obligations. If we are unable to
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conclude that we have effective internal controls over financial reporting, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the value of our common stock. Failure to comply with Section 404 could potentially subject us to sanctions or investigations by the SEC, or other regulatory authorities, which could also result in a decrease in the value of our common stock.
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| Item 1B. | Unresolved Staff Comments |
None.
Zap.Com’s headquarters are located in Rochester, New York, in space subleased to it by Zapata on a month-to-month basis. Zapata has advised Zap.Com that it has waived its rights to collect rent until future notice.
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| Item 3. | Legal Proceedings |
None.
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| Item 4. | Submission of Matters to a Vote of Security Holders |
None.
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PART II
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| Item 5. | Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Market Information and Dividends
Zap.Com’s common stock began trading on November 30, 1999 on the OTCBB under the symbol “ZPCM.” The OTCBB is a regulated quotation service that displays real-time quotes, last-sale prices and volume information in over-the-counter equity securities. The OTCBB market quotations reflect inter-dealer prices, without retail mark up, mark down or commission, are not necessarily representative of actual transactions, and may not be indicative of the value of the common stock or the existence of an active market. Historically, the level of trading in the Company’s common stock has been sporadic and limited and there is no assurance that an active trading market will develop which will provide liquidity for the Company’s stockholders.
The following table presents quarterly high and low bid information for the Company’s common stock reported by the OTCBB for the quarter ended on:
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| | | 12/31/08 | | | 9/30/08 | | | 6/30/08 | | | 3/31/08 | | | 12/31/07 | | | 9/30/07 | | | 6/30/07 | | | 3/31/07 | |
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High bid | | $ | 0.05 | | | $ | 0.10 | | | $ | 0.08 | | | $ | 0.10 | | | $ | 0.18 | | | $ | 0.18 | | | $ | 0.18 | | | $ | 0.18 | |
Low bid | | | 0.04 | | | | 0.04 | | | | 0.04 | | | | 0.08 | | | | 0.10 | | | | 0.17 | | | | 0.18 | | | | 0.18 | |
As of February 24, 2009, there were approximately 1,324 holders of record of our common stock. This number does not include the stockholders for whom shares are held in a “nominee” or “street” name.
Zap.Com has never declared or paid cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future. The payment of any future dividends will be at the discretion of the Board of Directors and will depend upon a number of factors including future earnings, the success of its business activities, capital requirements, the general financial conditions and future prospects of any business that is acquired, general business conditions and such other factors as the Board of Directors may deem relevant.
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth information as of December 31, 2008, with respect to compensation plans under which equity securities of the Company are authorized for issuance:
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| | | Number of Securities to be
| | | Weighted-Average
| | | Number of Securities Remaining
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| | | Issued Upon Exercise of
| | | Exercise Price of
| | | Available for Future Issuance Under
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| | | Outstanding Options,
| | | Outstanding Options,
| | | Equity Compensation Plans (Excluding
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| | | Warrants and Rights
| | | Warrants and Rights
| | | Securities Reflected in Column (a))
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Plan Category | | (a) | | | (b) | | | (c) | |
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| Equity compensation plans approved by security holders | | | 511,300 | | | $ | 0.08 | | | | 2,488,700 | |
| Equity compensation plans not approved by security holders | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Total | | | 511,300 | | | $ | 0.08 | | | | 2,488,700 | |
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| Item 6. | Selected Financial Data |
The following tables set forth certain selected financial data derived from Zap.Com’s financial statements for the periods and as of the dates presented. The following information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and notes thereto included in Item 7 of this report.
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| | | For the Year Ended December 31, | |
| | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | 2004 | |
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Income Statement Data: | | | | | | | | | | | | | | | | | | | | |
| Revenues | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Loss from operations | | | (84,147 | ) | | | (160,451 | ) | | | (133,135 | ) | | | (132,279 | ) | | | (165,741 | ) |
| Interest income | | | 29,743 | | | | 84,902 | | | | 83,947 | | | | 53,784 | | | | 23,744 | |
| Net loss | | | (48,207 | ) | | | (75,549 | ) | | | (49,188 | ) | | | (78,495 | ) | | | (141,997 | ) |
| Per share data (basic and diluted) Net loss per share | | | (.00 | ) | | | (.00 | ) | | | (.00 | ) | | | (.00 | ) | | | (.00 | ) |
| Weighted average common shares and common share equivalents outstanding | | | 50,004,474 | | | | 50,004,474 | | | | 50,004,474 | | | | 50,004,474 | | | | 50,004,474 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | December 31, | |
| | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | 2004 | |
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Balance Sheet Data: | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 1,597,007 | | | $ | 1,686,624 | | | $ | 1,724,351 | | | $ | 1,758,501 | | | $ | 1,814,887 | |
| Total assets | | | 1,597,007 | | | | 1,689,460 | | | | 1,728,350 | | | | 1,765,676 | | | | 1,825,373 | |
| Total liabilities | | | 3,018 | | | | 60,988 | | | | 52,618 | | | | 67,271 | | | | 61,079 | |
| Total stockholders’ equity | | | 1,593,989 | | | | 1,628,472 | | | | 1,675,732 | | | | 1,698,405 | | | | 1,764,294 | |
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| |
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operation |
Overview
Zapata Corporation formed Zap.Com for the purpose of creating and operating a global network of independently owned web sites. Currently, the Company has no business operations, other than complying with its reporting requirements under the Exchange Act. Zap.Com is searching for assets or businesses that it can acquire so that it can become an operating company and may also consider developing a new business suitable for its situation.
The following discussion of the financial condition and results of operations of Zap.Com should be read in conjunction with the financial statements and notes thereto included elsewhere in this report. This discussion contains forward-looking statements which involve risks and uncertainties. The Company’s actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under “Part 1 — Item 1A. Risk Factors.”
Results of Operations
For the year ended December 31, 2008 as compared to the year ended December 31, 2007, operations consisted of the following:
Revenues and Cost of revenues. Since ceasing internet operations, Zap.Com has not generated any revenue and has not incurred any cost of revenues.
General and administrative expenses. General and administrative expenses consist primarily of legal and accounting services, insurance premiums, printing and filing costs, costs allocated by Zapata pursuant to a services agreement, and various other costs. General and administrative expenses for the year ended December 31, 2008 were $84,000 as compared to $160,000 for the year ended December 31, 2007. The decrease in general and administrative expenses is due primarily to a decrease in auditing fees, printing and filing costs, and stock-based compensation charges as option grants became fully vested in the prior year.
Interest income. Interest income is generated on cash reserves which are invested in short-term U.S. Government Agency and Treasury securities. Interest earned for the year ended December 31, 2008 and 2007 was $30,000 and $85,000, respectively. Interest rates on short-term U.S. Government Agency and Treasury securities decreased significantly for the year ended December 31, 2008 as compared to the prior year.
For the year ended December 31, 2007 as compared to the year ended December 31, 2006, operations consisted of the following:
Revenues and Cost of revenues. Since ceasing internet operations, Zap.Com has not generated any revenue and has not incurred any cost of revenues.
General and administrative expenses. General and administrative expenses consist primarily of legal and accounting services, insurance premiums, printing and filing costs, costs allocated by Zapata pursuant to a services agreement, and various other costs. General and administrative expenses for the year ended December 31, 2007 were $160,000 as compared to $133,000 for the year ended December 31, 2006. The increase in general and administrative expenses was due primarily to an increase in auditing fees and printing and filing costs.
Interest income. Interest income is generated on cash reserves, which are invested in short-term U.S. Government Agency and Treasury securities. Interest earned for the year ended December 31, 2007 and 2006 was $85,000 and $84,000, respectively. Interest rates on short-term U.S. Government Agency and Treasury securities were relatively constant for the year ended December 31, 2007 as compared to the prior year.
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 from Zapata Corporation and two Zapata directors, and thereafter, the interest income generated on cash reserves invested in US Government Agency and Treasury securities. As of December 31, 2008, Zap.Com’s cash and cash equivalents were $1.6 million.
12
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 each of the years ended December 31, 2008, 2007, and 2006 the Company recorded approximately $14,000, $13,000 and $13,000, respectively, as contributed capital for these services. Zapata has renewed the waiver through December 31, 2009. However, should Zapata not renew its waiver, Zap.Com may incur future cash payments under the shared services agreement.
The Company does not have any contractual obligations as of December 31, 2008 that have or are reasonably likely to have a current or future material effect on the Company’s financial position, results of operations or cash flows. Zap.Com believes that is 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. Additionally, our ability to obtain such financing may be made more difficult due to the current global financial crisis and its effect on the capital markets.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements as of December 31, 2008 that have or are reasonably likely to have a current or future material effect on the Company’s financial position, results of operations or cash flows.
Summary of Cash Flows
Cash used in operating activities was $90,000 for the year ended December 31, 2008 as compared to $38,000 for the year ended December 31, 2007. The increase in cash used in operating activities resulted primarily from the timing of payments of accounts payable and accrued liabilities during the current year as compared to the prior year.
Cash used in operating activities was $38,000 for the year ended December 31, 2007 as compared to $34,000 for the year ended December 31, 2006. The increase in cash used in operating activities resulted primarily from an increase in the net loss recognized by the Company, partially offset by the timing of payments of accounts payable and accrued liabilities during the current year as compared to the prior year.
Net cash from investing activities is the result of a purchase and maturity of short-term investments that were held to maturity for the years ended December 31, 2008, and 2007. The Company had no cash flows from investing activities for the year ended December 31, 2006. All highly liquid investments with original maturities of three months or less are considered to be cash equivalents and all investments with original maturities greater than three months are classified as either short or long-term investments.
Zap.com had no cash flows from financing activities for the years ended December 31, 2008, 2007 and 2006.
Recent Accounting Pronouncements
In 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) 141(R), “Business Combinations.” SFAS No. 141(R) requires the acquiring entity in a business combination to recognize the full fair value of assets acquired and liabilities assumed in the transaction (whether a full or partial acquisition); establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; requires expensing of most transaction and restructuring costs; and requires the acquirer to disclose the information needed to evaluate and understand the nature and financial effect of the business combination. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after January 1, 2009. The impact of SFAS No. 141(R) on our consolidated financial statements will depend upon the nature, terms and size of the acquisitions we consummate after the effective date.
13
In 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of Accounting Research Bulletin No. 51”. SFAS No. 160 requires reporting entities to present noncontrolling (minority) interests as equity (as opposed to as a liability) and provides guidance on the accounting for transactions between an entity and noncontrolling interests. SFAS No. 160 applies prospectively as of January 1, 2009, except for the presentation and disclosure requirements which will be applied retrospectively for all periods presented. The Company does not expect the adoption of SFAS No. 160 to have a material impact on its financial position, results of operations or cash flows.
In February 2008, the FASB issuedFSP 157-2, “Effective Date of FASB Statement No. 157,” which delayed the effective date of SFAS 157, “Fair Value Measurements” for certain non-financial assets and non-financial liabilities to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Company does not expect the adoption of FSPNo. 157-2 to have a material effect on its financial position, results of operations or cash flows.
Critical Accounting Policies
The discussion and analysis of Zap.Com’s financial condition and results of operations are based upon financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect amounts reported therein. The estimates that require management’s most difficult, subjective or complex judgments are described below. The Company believes that the critical judgments impacting the financial statements include:
Valuation allowances for deferred income taxes. The Company reduces its deferred tax assets to an amount that it believes is more likely than not to be realized. In so doing, the Company estimates future taxable income in determining if any valuation allowance is necessary. As a result, the Company had a full valuation allowance against the deferred tax assets as of December 31, 2008 and 2007.
The Company also applies the provisions of FASB Interpretation No. 48 (“FIN 48”) which establishes a single model to address accounting for uncertain tax positions and clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.
| |
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
Market risks relating to the Company’s operations result primarily from changes in interest rates. Although the Company invests its cash, cash equivalents and short-term investments in U.S. Government Agency securities and Treasury securities with maturities generally not more than one year, the Company may be exposed to interest rate risk related to its investments in such securities. Accordingly, 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. Specifically, there is inherent roll-over risk for the Company’s investment grade securities as they mature and are renewed at current market rates. As of December 31, 2008 interest rates on the Company’s cash, cash equivalents and short-term investments were approximately 0%.
14
| |
| Item 8. | Financial Statements and Supplementary Data |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
of Zap.Com Corporation
Rochester, NY
We have audited the accompanying balance sheets of Zap.Com Corporation (the “Company”) as of December 31, 2008 and 2007, and the related statements of operations, stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements of the Company for the year ended December 31, 2006 were audited by other auditors whose report, dated March 13, 2007, expressed an unqualified opinion on those statements.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such 2008 and 2007 financial statements present fairly, in all material respects, the financial position of Zap.Com Corporation at December 31, 2008 and 2007, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Rochester, New York
March 4, 2009
15
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
of Zap.Com Corporation:
In our opinion, the statements of operations, stockholders’ equity and cash flows for the year ended December 31, 2006 present fairly, in all material respects, the results of operations and cash flows of Zap.Com Corporation for the year ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Rochester, New York
March 13, 2007
16
ZAP.COM CORPORATION
| | | | | | | | | |
| | | December 31,
| | | December 31,
| |
| | | 2008 | | | 2007 | |
| |
ASSETS: | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 1,597,007 | | | $ | 1,686,624 | |
| Other receivables | | | — | | | | 2,836 | |
| | | | | | | | | |
| Total current assets | | $ | 1,597,007 | | | $ | 1,689,460 | |
| | | | | | | | | |
| |
| LIABILITIES AND STOCKHOLDERS’ EQUITY: |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 2,868 | | | $ | 23,238 | |
| Accrued liabilities | | | 150 | | | | 37,750 | |
| | | | | | | | | |
| Total current liabilities | | | 3,018 | | | | 60,988 | |
| | | | | | | | | |
Commitments & Contingencies (Note 7) | | | | | | | | |
Stockholders’ Equity: | | | | | | | | |
| Preferred stock, $0.01 par value, 150,000,000 shares authorized, 0 shares issued and outstanding | | | — | | | | — | |
| Common stock, $0.001 par value, 1,500,000,000 shares authorized; 50,004,474 shares issued and outstanding | | | 50,004 | | | | 50,004 | |
| Additional paid in capital | | | 10,914,528 | | | | 10,900,804 | |
| Accumulated deficit | | | (9,370,543 | ) | | | (9,322,336 | ) |
| | | | | | | | | |
| Total stockholders’ equity | | | 1,593,989 | | | | 1,628,472 | |
| | | | | | | | | |
| Total liabilities and stockholders’ equity | | $ | 1,597,007 | | | $ | 1,689,460 | |
| | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
17
ZAP.COM CORPORATION
| | | | | | | | | | | | | |
| | | For the
| | | For the
| | | For the
| |
| | | Years Ended
| | | Years Ended
| | | Years Ended
| |
| | | December 31,
| | | December 31,
| | | December 31,
| |
| | | 2008 | | | 2007 | | | 2006 | |
| |
| Revenues | | $ | — | | | $ | — | | | $ | — | |
| Cost of revenues | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Gross profit | | | — | | | | — | | | | — | |
| Operating expenses: | | | | | | | | | | | | |
| General and administrative | | | 84,147 | | | | 160,451 | | | | 133,135 | |
| | | | | | | | | | | | | |
| Operating loss | | | (84,147 | ) | | | (160,451 | ) | | | (133,135 | ) |
| Other income: | | | | | | | | | | | | |
| Interest income | | | 29,743 | | | | 84,902 | | | | 83,947 | |
| Other, net | | | 6,197 | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Total other income | | | 35,940 | | | | 84,902 | | | | 83,947 | |
| Loss before income taxes | | | (48,207 | ) | | | (75,549 | ) | | | (49,188 | ) |
| Income taxes | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Net loss | | $ | (48,207 | ) | | $ | (75,549 | ) | | $ | (49,188 | ) |
| | | | | | | | | | | | | |
| Per share data (basic and diluted): | | | | | | | | | | | | |
| Net loss per share | | $ | (.00 | ) | | $ | (.00 | ) | | $ | (.00 | ) |
| | | | | | | | | | | | | |
| Weighted average number of common shares | | | 50,004,474 | | | | 50,004,474 | | | | 50,004,474 | |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
18
ZAP.COM CORPORATION
| | | | | | | | | | | | | |
| | | For the
| | | For the
| | | For the
| |
| | | Years Ended
| | | Years Ended
| | | Years Ended
| |
| | | December 31,
| | | December 31,
| | | December 31,
| |
| | | 2008 | | | 2007 | | | 2006 | |
| |
| Cash flows from operating activities: | | | | | | | | | | | | |
| Net loss | | $ | (48,207 | ) | | $ | (75,549 | ) | | $ | (49,188 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | | | |
| Depreciation and amortization | | | — | | | | — | | | | 302 | |
| Contributed capital from Zapata for unreimbursed management services and rent | | | 13,724 | | | | 13,260 | | | | 13,019 | |
| Stock-based compensation | | | — | | | | 15,029 | | | | 13,496 | |
| Changes in assets and liabilities: | | | | | | | | | | | | |
| Other receivables | | | 2,836 | | | | 315 | | | | 2,084 | |
| Prepaid expenses | | | — | | | | 848 | | | | 790 | |
| Accounts payable | | | (20,370 | ) | | | 13,220 | | | | 9,997 | |
| Accrued liabilities | | | (37,600 | ) | | | (4,850 | ) | | | (24,650 | ) |
| | | | | | | | | | | | | |
| Net cash used in operating activities | | | (89,617 | ) | | | (37,727 | ) | | | (34,150 | ) |
| | | | | | | | | | | | | |
| Cash flows from investing activities Purchases of short-term investments | | | (3,245,284 | ) | | | (3,330,568 | ) | | | — | |
| Proceeds from short-term investments | | | 3,245,284 | | | | 3,330,568 | | | | — | |
| | | | | | | | | | | | | |
| Net cash from investing activities | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Net change in cash and cash equivalents | | | (89,617 | ) | | | (37,727 | ) | | | (34,150 | ) |
| | | | | | | | | | | | | |
| Cash and cash equivalents at beginning of period | | | 1,686,624 | | | | 1,724,351 | | | | 1,758,501 | |
| | | | | | | | | | | | | |
| Cash and cash equivalents at end of period | | $ | 1,597,007 | | | $ | 1,686,624 | | | $ | 1,724,351 | |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
19
ZAP.COM CORPORATION
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Additional
| | | | | | Total
| |
| | | Common Stock | | | Paid In
| | | Accumulated
| | | Stockholders’
| |
| | | Shares | | | Amount | | | Capital | | | Deficit | | | Equity | |
| |
Balance, January 1, 2006 | | | 50,004,474 | | | $ | 50,004 | | | $ | 10,846,000 | | | $ | (9,197,599 | ) | | $ | 1,698,405 | |
| Contributed capital from Zapata for unreimbursed management services and rent | | | — | | | | — | | | | 13,019 | | | | — | | | | 13,019 | |
| Stock-based compensation | | | — | | | | — | | | | 13,496 | | | | — | | | | 13,496 | |
| Net loss | | | — | | | | — | | | | — | | | | (49,188 | ) | | | (49,188 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2006 | | | 50,004,474 | | | | 50,004 | | | | 10,872,515 | | | | (9,246,787 | ) | | | 1,675,732 | |
| Contributed capital from Zapata for unreimbursed management services and rent | | | — | | | | — | | | | 13,260 | | | | — | | | | 13,260 | |
| Stock-based compensation | | | — | | | | — | | | | 15,029 | | | | — | | | | 15,029 | |
| Net loss | | | — | | | | — | | | | — | | | | (75,549 | ) | | | (75,549 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2007 | | | 50,004,474 | | | | 50,004 | | | | 10,900,804 | | | | (9,322,336 | ) | | | 1,628,472 | |
| Contributed capital from Zapata for unreimbursed management services and rent | | | — | | | | — | | | | 13,724 | | | | — | | | | 13,724 | |
| Net loss | | | — | | | | — | | | | — | | | | (48,207 | ) | | | (48,207 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2008 | | | 50,004,474 | | | $ | 50,004 | | | $ | 10,914,528 | | | $ | (9,370,543 | ) | | $ | 1,593,989 | |
| | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
20
ZAP.COM CORPORATION
| |
| Note 1. | Business and Organization |
Zapata Corporation (“Zapata”) formed Zap.Com Corporation (“Zap.Com” or “the Company”) for the purpose of creating and operating a global network of independently owned web sites. Zapata is the holder of approximately 98 percent of Zap.Com’s outstanding common stock, and other than complying with its reporting requirements under the Exchange Act, Zap.com has no business operations. Zap.Com is searching for assets or businesses that it can acquire so that it can become an operating company and may also consider developing a new business suitable for its situation. Zap.Com’s stock is traded on the NASD’s OTC Electronic Bulletin Board under the symbol “ZPCM.”
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.
| |
| Note 2. | Significant Accounting Policies |
Basis of Presentation
General and administrative expenses reflected in the financial statements include allocations of certain corporate expenses from Zapata for management services and rent provided under a Shared Services Agreement. Management believes these allocations were made on a reasonable basis; however, they do not necessarily equal the costs that would have been or will be incurred by the Company prospectively. Zapata has waived its rights to receive these reimbursements since May 1, 2000. The Company records these waived amounts as contributed capital. See Note 8.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results reported in future periods could differ from these estimates.
Cash and Cash Equivalents
The Company invests certain of its excess cash in government instruments. All highly liquid investments with original maturities of three months or less are considered to be cash equivalents. The recorded amounts for cash equivalents approximate fair market value due to the short-term nature of these financial instruments.
Investments
The Company may purchase investments comprised of U.S. Government Agency and Treasury securities with maturities greater than three months. As the Company has both the intent and the ability to hold these securities to maturity, they are considered held-to-maturity investments. Investments are recorded at original cost plus accrued interest.
Income Taxes
The Company utilizes the liability method to account for income taxes. This method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of existing temporary differences between the financial reporting and tax-reporting basis of assets and liabilities, and operating loss and tax credit carry forwards for tax purposes. The Company is included in Zapata’s consolidated U.S. federal income tax return. The Zap.Com income tax provision is calculated under the separate return method and allocated to the Company based on its stand-alone contribution of taxable income to consolidated taxable income.
21
ZAP.COM CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
A valuation allowance is provided to reduce deferred tax assets to a level which, more likely than not, will be realized. Primary factors considered by management to determine the size of the allowance include the estimated taxable income level for future years and the limitations on the use of such carry forwards and expiration dates.
The Company also applies the provisions of the Financial Accounting Standards Board (“FASB”) Interpretation No. 48 (“FIN 48”) which establishes a single model to address accounting for uncertain tax positions and clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.
Recent Accounting Pronouncements
In 2007, the FASB issued Statement of Financial Accounting Standard (“SFAS”) 141(R), “Business Combinations.” SFAS No. 141(R) requires the acquiring entity in a business combination to recognize the full fair value of assets acquired and liabilities assumed in the transaction (whether a full or partial acquisition); establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; requires expensing of most transaction and restructuring costs; and requires the acquirer to disclose the information needed to evaluate and understand the nature and financial effect of the business combination. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after January 1, 2009. The impact of SFAS No. 141(R) on our consolidated financial statements will depend upon the nature, terms and size of the acquisitions we consummate after the effective date.
In 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of Accounting Research Bulletin No. 51”. SFAS No. 160 requires reporting entities to present noncontrolling (minority) interests as equity (as opposed to as a liability) and provides guidance on the accounting for transactions between an entity and noncontrolling interests. SFAS No. 160 applies prospectively as of January 1, 2009, except for the presentation and disclosure requirements which will be applied retrospectively for all periods presented. The Company does not expect the adoption of SFAS No. 160 to have a material impact on its financial position, results of operations or cash flows.
In February 2008, the FASB issuedFSP 157-2, “Effective Date of FASB Statement No. 157,” which delayed the effective date of SFAS 157, “Fair Value Measurements” for certain non-financial assets and non-financial liabilities to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Company does not expect the adoption of FSPNo. 157-2 to have a material effect on its financial position, results of operations or cash flows.
| |
| Note 3. | Accrued Liabilities |
Accrued liabilities consist of the following:
| | | | | | | | | |
| | | December 31,
| | | December 31,
| |
| | | 2008 | | | 2007 | |
| |
| Accrued audit and legal costs | | $ | 150 | | | $ | 250 | |
| Accrued printing costs | | | — | | | | 37,500 | |
| | | | | | | | | |
| Total accrued liabilities | | $ | 150 | | | $ | 37,750 | |
| | | | | | | | | |
22
ZAP.COM CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
As a result of net operating losses, the Company has not recorded a provision for income taxes. The components of the deferred tax assets and related valuation allowance at December 31, 2008 and 2007 are as follows:
| | | | | | | | | |
| | | December 31,
| | | December 31,
| |
| | | 2008 | | | 2007 | |
| |
| Deferred tax assets: | | | | | | | | |
| Assets and accruals not yet deductible | | $ | 10,036 | | | $ | 25,516 | |
| Net operating loss carryforwards | | | 2,835,080 | | | | 3,085,552 | |
| | | | | | | | | |
| Total deferred tax assets | | | 2,845,116 | | | | 3,111,068 | |
| Less: valuation allowance | | | (2,845,116 | ) | | | (3,111,068 | ) |
| | | | | | | | | |
| Net deferred taxes | | $ | — | | | $ | — | |
| | | | | | | | | |
The Company believes sufficient uncertainty exists regarding the realizability of the deferred tax assets such that a full valuation allowance is required. As of December 31, 2008 and 2007, Zap.Com had approximately $8.1 million and $8.0, respectively, of net operating loss carryforwards as calculated under the separate return method of SFAS No. 109, “Accounting for Income Taxes”. However, in accordance with the separate return method, these amounts do not reflect Zapata Corporation’s utilization of the majority of the Zap.Com’s net operating loss carryforwards in Zapata Corporation’s 2006 and 2007 consolidated tax return filings. Accordingly, Zap.Com will not recognize a significant future benefit from the utilization of its disclosed net operating losses as the majority have been utilized by Zapata Corporation in accordance with the provisions of the tax sharing agreement between the two companies. Actual net operating losses remaining as of December 31, 2008 and 2007, are approximately $108,000 and $19,000, respectively, which will begin to expire in 2025. In the event there is a change of control in the ownership of Zap.Com, as defined by the Internal Revenue Code, the annual utilization of the net operating losses could be limited.
On January 1, 2007, the Company adopted the provisions of FIN 48. There was no cumulative effect as a result of applying FIN 48 and no adjustment was made to the opening balance of accumulated deficit. Additionally, the Company did not have any unrecognized tax benefits or accrued amounts for interest and penalties as of December 31, 2008 or December 31, 2007, respectively. Future amounts of accrued interest expense and penalties, if any, will be recorded as a component of income tax expense. The Company does not expect that the amount of unrecognized tax benefits will change significantly in the next 12 months.
The Company has been, and expects to continue to be for the foreseeable future, a member of Zapata’s consolidated tax group and is subject to federal and state income tax examinations for years after 2004. Although the Company has entered into a tax sharing and indemnity agreement with Zapata, if Zapata or members of its consolidated tax group (other than the Company) fail to pay tax liabilities arising prior to the time that the Company is no longer a member of Zapata’s consolidated tax group, the Company could be required to make payments in respect of these tax liabilities and these payments could materially adversely affect its financial condition.
| |
| Note 5. | Stock Options and Stock Issuance Plans |
The Company’s 1999 Long-Term Incentive Plan (the “1999 Plan”) allows the Company to provide awards to existing and future officers, employees, consultants and directors of the Company from time to time. The 1999 Plan is intended to promote the long-term financial interests and growth of the Company by providing employees, officers, directors, and consultants of the Company with appropriate incentives and rewards to enter into and continue in the employment of, or relationship with, the Company and to acquire a proprietary interest in the long-term success of the Company.
23
ZAP.COM CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
Under the 1999 Plan, 3,000,000 shares of common stock are available for awards. As of December 31, 2008, there were 511,300 shares outstanding and 2,488,700 shares available for grant under the plan. The 1999 Plan provides for the grant of any or all of the following types of awards: stock options, stock appreciation rights, stock awards, cash awards, or other rights or interests. Allocations of awards are made by the Board of Directors at its sole discretion within the provisions of the 1999 Plan. As of December 31, 2008 and 2007, there were no cash awards or other rights or interest outstanding under the plan.
Stock appreciation rights are rights to receive, without payment to Zap.Com, cash or shares of common stock with a value determined by reference to the difference between the exercise or strike price of the stock appreciation rights and the fair market value or other specified valuation of the shares at the time of exercise. Stock appreciation rights may be granted in tandem with stock options or separately. As of December 31, 2008 and 2007, there were no stock appreciation rights outstanding.
Stock awards may consist of shares of common stock and may provide for voting rights and dividend equivalent rights. The Company may specify conditions for awards, including vesting service and performance conditions. Vesting conditions may include, without limitation, provision for acceleration in the case of achange-in-control of Zap.Com, vesting conditions and performance conditions, including, without limitation, performance conditions based on achievement of specific business objectives, increases in specified indices and attaining specified growth measures or rates. As of December 31, 2008 and 2007, there were no stock awards outstanding.
Net loss for the years ended December 31, 2008 and 2007 included approximately $0 and $15,000 of share-based compensation costs included in general and administrative expenses in the condensed statement of income. As of December 31, 2008, all stock-based compensation arrangements were fully vested, and therefore, there is no unrecognized compensation cost. Because of the Company’s loss position, a full valuation allowance has been recognized against any related tax benefits.
The Company had no share-based grants and no options were exercised in the years ended December 31, 2008, 2007 or 2006. Additionally, all shares were fully vested as of January 1, 2008. A summary of option activity as of December 31, 2008, and changes during the year then ended is presented below:
| | | | | | | | | | | | | | | | | |
| | | | | | | | | Weighted
| | | | |
| | | | | | Weighted
| | | Average
| | | | |
| | | | | | Average
| | | Remaining
| | | Aggregate
| |
| | | | | | Exercise
| | | Contractual
| | | Intrinsic
| |
| | | Shares | | | Price | | | Term | | | Value | |
| |
| Outstanding at January 1, 2008 | | | 511,300 | | | $ | 0.08 | | | | | | | | | |
| Granted | | | — | | | | — | | | | | | | | | |
| Exercised | | | — | | | | — | | | | | | | | | |
| Forfeited or expired | | | — | | | | — | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Outstanding at December 31, 2008 | | | 511,300 | | | $ | 0.08 | | | | 0.8 | | | $ | — | |
| | | | | | | | | | | | | | | | | |
| Exercisable at December 31, 2008 | | | 511,300 | | | $ | 0.08 | | | | 0.8 | | | $ | — | |
| | | | | | | | | | | | | | | | | |
| |
| Note 6. | Net Loss Per Share |
Basic net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding. Diluted earnings per share is based on the potential dilution that would occur on exercise or conversion of securities into common stock. For the years ended December 31, 2008, 2007 and 2006, all outstanding stock options were excluded from the computation of diluted net loss per share because to do so would have an antidilutive effect.
24
ZAP.COM CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
| |
| Note 7. | 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.
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 indemnifications 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 8. | Related Party Transactions |
Since its inception, the Company has utilized the services of the management and staff of its majority stockholder, Zapata, 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. The Company recorded approximately $14,000, $13,000 and $13,000 as contributed capital for services rendered for the years ended December 31, 2008, 2007 and 2006, respectively.
| |
| Note 9. | Quarterly Financial Information (Unaudited) |
| | | | | | | | | | | | | | | | | |
| | | Quarter Ended | |
| | | March 31,
| | | June 30,
| | | September 30,
| | | December 31,
| |
| | | 2008 | | | 2008 | | | 2008 | | | 2008 | |
| |
| Revenues | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Gross profit | | | — | | | | — | | | | — | | | | — | |
| Total operating expenses | | | 30,015 | | | | 15,663 | | | | 18,174 | | | | 20,295 | |
| Loss from operations | | | (30,015 | ) | | | (15,663 | ) | | | (18,174 | ) | | | (20,295 | ) |
| Interest income | | | 15,572 | | | | 8,237 | | | | 4,589 | | | | 1,345 | |
| Other, net | | | 6,197 | | | | — | | | | — | | | | — | |
| Net loss | | | (8,246 | ) | | | (7,426 | ) | | | (13,585 | ) | | | (18,950 | ) |
| Net loss per share (basic and diluted) | | | .00 | | | | .00 | | | | .00 | | | | .00 | |
| Weighted average shares outstanding | | | 50,004,474 | | | | 50,004,474 | | | | 50,004,474 | | | | 50,004,474 | |
25
ZAP.COM CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | | | | | |
| | | Quarter Ended | |
| | | March 31,
| | | June 30,
| | | September 30,
| | | December 31,
| |
| | | 2007 | | | 2007 | | | 2007 | | | 2007 | |
| |
| Revenues | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Gross profit | | | — | | | | — | | | | — | | | | — | |
| Total operating expenses | | | 28,042 | | | | 49,292 | | | | 47,623 | | | | 35,494 | |
| Loss from operations | | | (28,042 | ) | | | (49,292 | ) | | | (47,623 | ) | | | (35,494 | ) |
| Interest income | | | 21,923 | | | | 21,945 | | | | 21,564 | | | | 19,470 | |
| Net loss | | | (6,119 | ) | | | (27,347 | ) | | | (26,059 | ) | | | (16,024 | ) |
| Net loss per share (basic and diluted) | | | .00 | | | | .00 | | | | .00 | | | | .00 | |
| Weighted average shares outstanding | | | 50,004,474 | | | | 50,004,474 | | | | 50,004,474 | | | | 50,004,474 | |
26
| |
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Not applicable.
| |
| Item 9A(T). | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
The Company’s management has established disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within time periods specified in the Securities and Exchange Commission rules and forms. Such disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management to allow timely decisions regarding required disclosure.
Based on management’s evaluation as of the end of the period covered by this Annual Report onForm 10-K, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined inRules 13a-15(e) and15d-15(e) promulgated under the Exchange Act) were effective as of the end of the period covered by this Annual Report onForm 10-K.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is defined in Exchange ActRule 13a-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only with proper authorizations; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management, under the supervision of and with the participation of the Chief Executive Officer and the Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008 based on criteria for effective control over financial reporting described inInternal Control — Integrated Frameworkissued by the COSO. Based on this assessment, the Company’s management concluded that its internal control over financial reporting was effective as of December 31, 2008.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Changes in Internal Controls Over Financial Reporting
No significant changes in the Company’s internal controls over financial reporting occurred during the quarter ended December 31, 2008 that has materially affected or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
27
| |
| Item 9B. | Other Information |
None.
PART III
| |
| Item 10. | Directors, Executive Officers and Corporate Governance |
Pursuant to General Instruction G onForm 10-K, the information called for by Item 10 of Part III ofForm 10-K is incorporated by reference to the information set forth in the Company’s Information Statement relating to its 2009 Annual Meeting of Stockholders (the “2009 Information Statement”) to be filed pursuant to Regulation 14C under the Exchange Act in response to Items 401, 405, 406, 407(c)(3), 407(d)(4) and 407(d)(5) ofRegulation S-K under the Securities Act of 1933, as amended, and the Exchange Act(“Regulation S-K”).
| |
| Item 11. | Executive Compensation |
Pursuant to General Instruction G ofForm 10-K, the information called for by Item 11 of Part III ofForm 10-K is incorporated by reference to the information set forth in the 2009 Information Statement in response to Items 402 and 407 ofRegulation S-K, excluding the material concerning the report on executive compensation and the performance graph specified by paragraphs (k) and (l) of such Item.
| |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Pursuant to General Instruction G ofForm 10-K, the information called for by Item 12 of Part III ofForm 10-K is incorporated by reference to the information set forth in the 2009 Information Statement in response to Item 403 ofRegulation S-K.
| |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence |
Pursuant to General Instruction G ofForm 10-K, the information called for by Item 13 of Part III ofForm 10-K is incorporated by reference to the information set forth in the 2009 Information Statement in response to Items 404 and 407(a) ofRegulation S-K.
| |
| Item 14. | Principal Accounting Fees and Services |
Pursuant to General Instruction G ofForm 10-K, the information called for by Item 14 of Part III ofForm 10-K is incorporated by reference to the information set forth in the 2009 Information Statement in response to Item 9(e) of Schedule 14A.
PART IV
| |
| Item 15. | Exhibits, Financial Statement Schedules. |
| |
| (a) | List of Documents Filed |
| | | | | |
| Financial statements, Zap.Com Corporation. | | | | |
| | | 15 | |
| | | 17 | |
| | | 18 | |
| | | 19 | |
| | | 20 | |
| | | 21 | |
28
| |
| (2) | Financial Statement Schedules |
None.
| |
| (3) | Exhibits filed as part of this report. See (b) below. |
| | | | | |
Exhibit
| | |
No. | | Description of Exhibits |
| |
| | 3 | .1* | | Restated Articles of Incorporation of Zap.Com (Exhibit No. 3.1) |
| | 3 | .2* | | Amended and Restated By-laws of Zap.Com (Exhibit No. 3.2) |
| | 4 | .1* | | Specimen Stock Certificate (Exhibit No. 4.1) |
| | 4 | .2** | | Amended and Restated 1999 Long-Term Incentive Plan of Zap.Com |
| | 10 | .1* | | Investment and Distribution Agreement between Zap.Com and Zapata (Exhibit No. 10.1) |
| | 10 | .2* | | Services Agreement between Zap.Com and Zapata (Exhibit No. 10.2) |
| | 10 | .3*** | | Amended and Restated Tax Sharing and Indemnity Agreement between Zap.Com and Zapata |
| | 10 | .4* | | Registration Rights Agreement between Zap.Com and Zapata (Exhibit No. 10.4) |
| | 31 | .1 | | Certification of CEO as required byRule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | 31 | .2 | | Certification of CFO as required byRule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | 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 |
| | |
| * | | Incorporated by reference to the exhibit number referenced in parentheses and filed with Zap.Com’s Registration Statement onForm S-1 (FileNo. 333-76135) originally filed with the Securities and Exchange Commission on April 12, 1999, as amended. |
| |
| ** | | Incorporated by reference to Exhibit 4.2 of Zap.Com’s Annual Report onForm 10-K for the Year Ended December 31, 2005 as filed with the Securities and Exchange Commission on March 14, 2006(File No. 000-27729). |
| |
| *** | | Incorporated by reference to Exhibit 10.3 of Zap.Com’s Annual Report onForm 10-K for the Year Ended December 31, 2007 as filed with the Securities and Exchange Commission on March 7, 2008(File No. 000-27729). |
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
Name: Avram Glazer
Dated: March 4, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | | |
Signatures | | Title | | Date |
| |
| | | | | |
/s/ Avram Glazer
Avram Glazer | | President and Chief Executive Officer
(Principal Executive Officer) and Director | | March 4, 2009 |
| | | | | |
/s/ Leonard DiSalvo
Leonard DiSalvo | | Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) | | March 4, 2009 |
30
INDEX TO EXHIBITS
| | | | | |
Exhibit
| | |
No. | | |
| |
| | 31 | .1 | | Certification of CEO as required byRule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | 31 | .2 | | Certification of CFO as required byRule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | 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 |
31
