Add
ZAP to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| ZAP > SEC Filings for ZAP > Form 10-K on 4-Mar-2009 | All Recent SEC Filings |
4-Mar-2009
Annual Report
The following is a discussion of the Company's financial condition and results of operations. This discussion should be read in conjunction with the Company's Consolidated Financial Statements included in Item 8 of this Report. This discussion contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed above in "Part I, Item 1A., Risk Factors," as well as those discussed in this section and elsewhere in this report.
Overview
Zapata is a holding company which has approximately $154.7 million in consolidated cash, cash equivalents and short-term investments at December 31, 2008 and currently owns 98% of Zap.Com Corporation, a public shell company. In December 2006, the Company completed the disposition of its 57% ownership interest in Omega Protein common stock.
Since the December 2006 sale of its Omega shares, Zapata has held substantially all of its cash, cash equivalents and short-term investments in U.S. Government Agency or Treasury securities, and has held no "investment securities" (as that term is defined in the Investment Company Act of 1940 (the "1940 Act")). In addition, Zapata has not held, and does not hold, itself out as an investment company. During this time, Zapata has conducted a good faith search for a merger or acquisition candidate, and has repeatedly and publicly disclosed its intention to acquire such a business. Based on the foregoing, Zapata believes that it is not an investment company under the 1940 Act.
The Company has not focused and does not intend to focus its acquisition efforts solely on any particular industry. Additionally, while the Company generally focuses its attention in the United States, the Company may investigate acquisition opportunities outside of the United States when management believes that such opportunities might be attractive. The Company does not yet know the structure of any acquisition. The Company may pay consideration in the form of cash, securities of the Company or a combination of both. The Company may raise capital through the issuance of equity or debt and may utilize non-investment grade securities as a part of an acquisition strategy. These types of investments often involve a high degree of risk and may be considered highly speculative.
The Company's two executive officers currently spend a significant amount of their time searching for suitable acquisition candidates. The Company's process for searching for acquisition candidates includes the ongoing development of relationships with a network of investment banks and related firms. In addition, other sources may introduce target businesses that they believe may interest the Company as Zapata is known to be looking for acquisition candidates. As a result of these relationships, contacts and personal networks, potential acquisition candidates are periodically brought to the Company's attention for evaluation. In evaluating a prospective acquisition opportunity, the Company may consider, among other factors, the following:
• Cost and perceived value of purchase price;
• Financial condition, results of operations and cash flows;
• Capital requirements and anticipated availability of required funds;
• Growth potential;
• Experience and skill of management;
• Whether, and the extent to which, the target will likely be required to raise debt and/or equity financing in the future;
• Competitive position as compared to other firms and experience within the industry;
• Barriers to entry;
• The diversity of, and historical revenues generated by, any products, processes, services or other sources;
• Proprietary features and degree of intellectual property or other protection of the products, processes or services.
In identifying, evaluating and selecting a target business, the Company may encounter intense competition from other entities having similar business objectives such as private equity groups and special purpose acquisition corporations. Many of these entities are well established and have extensive experience identifying and effecting business combinations directly or through affiliates. Many of these competitors possess greater technical, human and other resources than Zapata, and Zapata's financial resources will be relatively limited when contrasted with many of these competitors. Any of these factors may place Zapata at a competitive disadvantage in successfully negotiating a business combination. Management believes, however, that Zapata's status as a public entity and potential access to the public equity markets may give the Company a competitive advantage over privately-held entities with a similar business objective to acquire a target business on favorable terms.
As of the date of this Report, due to a variety of factors including the current global economic and financial market conditions and the significant deterioration of the credit markets, competitive pressures, and Zapata's limited funds (as compared to many competitors) available for such a transaction, the Company has been unable to consummate an acquisition. Additionally, as of the date of this Report, Zapata is not a party to any agreements providing for the acquisition of an operating business, business combination or for the sale or other transaction related to any of its subsidiaries. Also, as of the date of this Report, Zapata has not formally engaged any investment banks or related firms, although it may do so in the future, in which the Company may pay a finder's fee or other compensation in an amount and on such terms to be determined at the time of the engagement in an arm's length negotiation. There can be no assurance that any of these possible transactions will occur or that they will ultimately be advantageous to Zapata or enhance Zapata stockholder value.
In December 2002, the Board of Directors authorized the Company to purchase up to 4.0 million shares of its outstanding common stock in the open market or privately negotiated transactions. No time limit has been placed on the duration of the program and no minimum number or value of shares to be repurchased has been fixed. As of the date of this Report, no shares have been repurchased under this program.
Zap.Com
Zap.Com is a public shell company which does not have any existing 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.
Discontinued Operations
Omega Protein is the largest processor, marketer and distributor of fish meal and fish oil products in the United States. During the fourth quarter of fiscal 2006, Zapata sold all of its Omega shares in two separate transactions for $75.8 million in the aggregate. For the year ended December 31, 2006, Zapata recorded total transaction related losses of $10.3 million ($7.2 million net of tax adjustments) related to these transactions. Based on the sale of Zapata's Omega shares, all amounts and disclosures throughout this document related to Omega have been classified as "Discontinued Operations" in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets".
Consolidated Results of Operations
The following tables summarize Zapata's consolidating results of operations (in thousands, except per share amounts).
Zapata
Corporate Zap.Com Consolidated
Year Ended December 31, 2008
Revenues $ - $ - $ -
Cost of revenues - - -
Gross profit - - -
Operating expense:
General and administrative 3,153 84 3,237
Operating loss (3,153 ) (84 ) (3,237 )
Other income:
Interest income 2,983 30 3,013
Other, net 107 6 113
3,090 36 3,126
Loss before income taxes and minority interest (63 ) (48 ) (111 )
Benefit for income taxes 98 - 98
Minority interest in net loss of consolidated
subsidiaries(2) - 1 1
Net income (loss) $ 35 $ (47 ) $ (12 )
Diluted loss per share $ 0.00
|
Zapata
Corporate Zap.Com Consolidated
Year Ended December 31, 2007
Revenues $ - $ - $ -
Cost of revenues - - -
Gross profit - - -
Operating expense:
General and administrative 3,228 160 3,388
Operating loss (3,228 ) (160 ) (3,388 )
Other income:
Interest income 7,596 85 7,681
Other, net 570 - 570
8,166 85 8,251
Income (loss) before income taxes and minority interest 4,938 (75 ) 4,863
Provision for income taxes (2,313 ) - (2,313 )
Minority interest in net loss of consolidated
subsidiaries(2) - 1 1
Net income (loss) $ 2,625 $ (74 ) $ 2,551
Diluted income per share $ 0.13
|
Zapata Discontinued
Corporate Zap.Com Operations(1) Consolidated
Year Ended December 31, 2006
Revenues $ - $ - $ - $ -
Cost of revenues - - - -
Gross profit - - - -
Operating expense:
General and administrative 4,597 133 - 4,730
Operating loss (4,597 ) (133 ) - (4,730 )
Other income
Interest income 3,975 84 - 4,059
Other, net 580 - - 580
4,555 84 - 4,639
Loss before income taxes and minority
interest (42 ) (49 ) - (91 )
Provision for income taxes (183 ) - - (183 )
Minority interest in net loss of
consolidated subsidiaries(2) - 1 - 1
Loss from continuing operations (225 ) (48 ) - (273 )
Discontinued operations:
(Loss) income before taxes and minority
interest (including loss on disposal) (10,270 ) - 6,358 (3,912 )
Benefit (provision) for income taxes 3,054 - (1,480 ) 1,574
Minority interest(2) - - (2,052 ) (2,052 )
(Loss) income from discontinued operations (7,216 ) - 2,826 (4,390 )
Net (loss) income $ (7,441 ) $ (48 ) $ 2,826 $ (4,663 )
Diluted loss per share $ (0.24 )
|
(1) Results of operations related to Omega Protein have been disclosed within discontinued operations in accordance with SFAS No. 144.
(2) Minority interest represents the minority stockholders' interest in the net income (loss) of each segment.
For information affecting period to period comparability see the notes to the selected financial data included in "Item 6 - Selected Financial Data." For more information concerning segments, see Note 17 to the Company's Consolidated Financial Statements included in Item 8 of this Report.
2008 Compared to 2007
Zapata reported a consolidated net loss of $12,000 or $0.00 per diluted share for the year ended December 31, 2008 as compared to consolidated net income of $2.6 million or $0.13 per diluted share in 2007. On a consolidated basis, the change from net income to net loss resulted primarily from decreased interest income during 2008 as compared to 2007.
The following presents a more detailed discussion of the consolidated operating results:
Revenues. For the years ended December 31, 2008 and 2007, Zapata had no revenues from continuing operations. Since the Company sold its remaining operating business in December 2006, the Company does not expect to recognize revenues until the Company acquires one or more operating businesses.
Cost of revenues. For the years ended December 31, 2008 and 2007, Zapata had no cost of revenues from continuing operations.
General and administrative expenses. Consolidated general and administrative expenses consist primarily of salaries and benefits, professional fees (including legal and accounting incurred in connection with ongoing regulatory compliance as a public company, financial statement audits and defense of pending litigation), occupancy costs for corporate offices, insurance costs and general corporate expenses. For the year ended December 31, 2008, general and administrative expenses totaled $3.2 million and had decreased $151,000 from the prior year as a result of decreases in professional fees and costs.
The Company expects to recognize approximately $1.0 million of pension expense during 2009 as compared to approximately $122,000 during 2008. The projected increase is primarily attributable to a decrease in the expected return on plan assets which was caused by (1) a substantial decline in the market value of the plan assets during 2008 and (2) a decrease in the assumption used for the expected long-term return on plan assets.
Interest income. Consolidated interest income decreased $4.7 million from $7.7 million for the year ended December 31, 2007 to $3.0 million for the year ended December 31, 2008. This decrease was primarily attributable to sustained lower interest rates on cash equivalents and investments during 2008 as compared to 2007. In July 2008, due to market conditions and in an effort to preserve principal, the Company liquidated its U.S. Government Agency securities and purchased U.S. Treasury securities with the proceeds. On the date of liquidation, the Company realized a consolidated loss of approximately $90,000. Although the Treasury securities generally have lower yields, they are fully insured by the U.S. Government against risk of loss. Accordingly, while the Company's funds are invested in Treasury securities, interest income will be less than it would have been before this change.
Income taxes. The Company recorded a consolidated benefit for income taxes of $98,000 for the year ended December 31, 2008 as compared to a provision for income taxes of $2.3 million for the prior year. On a consolidated basis, the change from a provision to a benefit for income taxes was primarily attributable to a decrease in interest income recognized during the year ended December 31, 2008 as compared to the prior year. Additionally, a decline in interest income in 2008 caused the Company to not have any personal holding company income tax due at year end. Accordingly, no accrual for a 15% tax on undistributed personal holding company income was required for the year ended December 31, 2008 as was required for the prior year.
2007 Compared to 2006
Zapata reported consolidated net income of $2.6 million or $0.13 per diluted share for the year ended December 31, 2007 as compared to a consolidated net loss of $4.7 million or $(.24) per diluted share in 2006. On a
consolidated basis, the change from net loss to net income resulted from increased interest income at Zapata Corporate, as well as not recognizing discontinued operations and loss on sale related to Omega Protein during 2007 as compared to 2006.
The following presents a more detailed discussion of the consolidated operating results:
Revenues from continuing operations. For the years ended December 31, 2007 and 2006, Zapata had no revenues from continuing operations.
Cost of revenues from continuing operations. For the years ended December 31, 2007 and 2006, Zapata had no cost of revenues from continuing operations.
General and administrative expenses from continuing operations. Consolidated general and administrative expenses decreased $1.3 million from $4.7 million in 2006 to $3.4 million in 2007. General and administrative expenses for 2006 included $490,000 of consulting expenses paid to Malcolm Glazer (Zapata's former Chairman of the Board of Directors) prior to the expiration of his consulting agreement and a curtailment loss of approximately $147,000 related to the freezing of the Zapata qualified defined benefit pension plan. These expenses were not incurred during 2007. The remaining decrease resulted primarily from a current period decrease in actuarially determined pension expenses of $197,000, a decrease of $125,000 in stock based compensation charges as certain option grants became fully vested during the prior year and a decrease in professional fees.
Interest income from continuing operations. Consolidated interest income increased $3.6 million to $7.7 million for the year ended December 31, 2007. This increase was primarily attributable to increases at Zapata Corporate resulting from increased cash balances available for investment after selling its common stock holdings in Omega Protein in December of 2006.
Income taxes from continuing operations. The Company recorded a consolidated provision for income taxes of $2.3 million for the year ended December 31, 2007 as compared to $183,000 for the prior year. On a consolidated basis, the increase in the provision for income taxes was primarily attributable to a significant increase in interest income, the recognition of a 15% tax on undistributed personal holding company income, and decreases in general and administrative expenses during the year ended December 31, 2007 as compared to the comparable period in the prior year.
Net income from discontinued operations. Pursuant to the Zapata Board of Directors' approval of the plan to sell the Company's shares of Omega Protein and the subsequent sale of these shares in December 2006, all operating results related to Omega were reclassified and included in discontinued operations. For the year ended December 31, 2006, the Company recognized a net loss from discontinued operations of $4.4 million, as compared to no amounts related to discontinued operations in 2007 due to the timing of the sale.
Liquidity and Capital Resources
Zapata and Zap.Com are separate public companies. Accordingly, the capital resources and liquidity of Zap.Com is independent of Zapata. The working capital and other assets of Zap.Com are dedicated to Zap.Com and are not expected to be readily available for the general corporate purposes of Zapata, except for any dividends that may be declared and paid to its stockholders. Zapata has never received any dividends from Zap.Com. In addition, Zapata does not have any investment commitments to Zap.Com.
Zapata Corporate's liquidity needs are primarily for salaries and benefits, professional fees (including legal and accounting incurred in connection with ongoing regulatory compliance as a public company, financial statement audits and defense of pending litigation), occupancy costs for corporate offices, insurance costs and general corporate expenses. The Company may also utilize a significant portion of its cash, cash equivalents and short-term investments to fund all or a portion of the cost of any future acquisitions.
The following table summarizes information about Zapata's consolidated contractual obligations (in thousands) as of December 31, 2008 and the effect such obligations are expected to have on its consolidated liquidity and cash flow in future periods:
Payments Due by Period
Less than 1 to 3 3 to 5 More than
Zapata Consolidated Contractual Obligations(1) Total 1 Year Years Years 5 Years
Pension liabilities(2) $ 3,008 $ 104 $ 186 $ 169 $ 2,549
Consulting agreement(3) 455 113 225 117 -
Operating lease obligations(4) 121 76 45 - -
Total contractual obligations $ 3,584 $ 292 $ 456 $ 286 $ 2,550
|
(1) The Company also has $748,000 of potential obligations related to uncertain tax positions for which the timing and amount of payment can not be reasonably estimated due to the nature of the uncertainties. See Note 10 to the Company's Consolidated Financial Statements Included in Item 8 of this Report.
(2) For more information concerning pension liabilities, see Note 12 to the Company's Consolidated Financial Statements included in Item 8 of this Report.
(3) Amounts in this category relate to a consultancy and retirement agreement entered into in 1981 with a former executive officer of the Company.
(4) For more information concerning operating leases, see Note 11 to the Company's Consolidated Financial Statements included in Item 8 of this Report.
Zapata's current source of liquidity is its cash, cash equivalents and short-term investments and the interest income it earns on these funds. Zapata expects these assets to continue to be a source of liquidity except to the extent that they may be used to fund the acquisition of operating businesses, funding of start-up proposals and possible stock repurchases. As of December 31, 2008, Zapata Corporate's cash, cash equivalents and short-term investments totaled $154.7 million as compared to $154.3 million as of December 31, 2007. This increase resulted primarily from an excess of interest payments received, primarily those received during the first half of 2008, over cash used by Zapata Corporate's operations during 2008.
Based on current levels of operations, Zapata management believes that the Company's cash, cash equivalents and short-term investments on hand will be adequate to fund its operational and capital requirements for at least the next twelve months. Depending on the size and terms of future acquisitions of operating companies, Zapata may raise additional capital through the issuance of equity or debt. There is no assurance, however, that such capital will be available at the time, in the amounts necessary or with terms satisfactory to Zapata.
Off-Balance Sheet Arrangements
The Company and its subsidiaries do not have any off-balance sheet arrangements that are material to its financial position, results of operations or cash flows. The Company is a party to agreements with its officers, directors and to certain outside parties. For further discussion of these guarantees, see Note 11 to the Consolidated Financial Statements included in Item 8 of this Report.
Summary of Cash Flows
The following table summarizes Zapata's consolidating cash flow information (in
thousands) for the last three fiscal years:
Zapata
Corporate Zap.Com Consolidated
Year Ended December 31, 2008
Cash provided by (used in)
Operating activities $ 479 $ (90 ) $ 389
Investing activities 3,054 - 3,054
Net increase (decrease) in cash and cash equivalents $ 3,533 $ (90 ) $ 3,443
|
Zapata
Corporate Zap.Com Consolidated
Year Ended December 31, 2007
Cash provided by (used in)
Operating activities $ 2,219 $ (37 ) $ 2,182
Investing activities 180 - 180
Net increase (decrease) in cash and cash equivalents $ 2,399 $ (37 ) $ 2,362
|
Zapata Discontinued
Corporate Zap.Com Operations(1) Consolidated
Year Ended December 31, 2006
. . .
|
|
|