Spectrum Brands - 10-Q quarterly report FY

 

(Exact name of Registrant as specified in its charter)

(Registrant’s telephone number, including area code)

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 whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definitions of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o               Accelerated filer þ               Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o or No þ

As of October 26, 2007, the Registrant had outstanding 19,276,334 shares of common stock, $0.01 par value.

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

The accompanying notes are an integral part of the condensed consolidated financial statements.

The accompanying notes are an integral part of the condensed consolidated financial statements.

The unaudited condensed consolidated financial statements included herein have been prepared by Zapata Corporation (“Zapata” or the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission. The financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of such information. All such adjustments are of a normal recurring nature. Although Zapata believes that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures, including a description of significant accounting policies normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to such rules and regulations. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The interim financial statements should be read in conjunction with the financial statements and the notes thereto included in Zapata’s 2006 Annual Report on Form 10-K filed with the Securities and Exchange Commission and with the information presented by Zap.Com Corporation in their 2006 Annual Report on Form 10-K. The results of operations for the three month and nine month periods ended September 30, 2007 are not necessarily indicative of the results for any subsequent quarter or the entire fiscal year ending December 31, 2007.

Zapata Corporation is a holding company which has approximately $153.6 million in consolidated cash, cash equivalents and short and long-term investments at September 30, 2007 and currently owns 98% of Zap.Com Corporation (“Zap.Com”), a public shell company. On December 4, 2006, the Company completed the disposition of its 14,501,000 shares of Omega Protein Corporation (“Omega Protein” or “Omega”) common stock.

Zap.Com 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. Zap.Com trades on the over-the-counter electronic bulletin board under the symbol “ZPCM.”

As used throughout this report, “Zapata Corporate” is defined as Zapata Corporation exclusive of its majority owned subsidiary Zap.Com, and its former majority owned subsidiary, Omega Protein.

At times the Company may purchase short-term or long-term investments comprised of U.S. Government securities with maturities greater than three months or one year. 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.

Effective January 1, 2006, Zapata and Zap.Com each adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment,” using the modified prospective application transition method. Under this transition method, compensation cost in 2006 includes the portion vesting in the period for (1) all share-based payments granted prior to, but not vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123 and (2) all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123(R). Share-based compensation expense recognized in the Condensed Consolidated Statements of Operations is based on awards ultimately expected to vest, reduced for estimated forfeitures. Under the modified prospective application transition method, no cumulative effect of change in accounting principle charge was required, and results for prior periods were not restated. SFAS No. 123(R) also requires excess tax benefits be reported as a financing cash inflow rather than an operating cash inflow.

Omega Protein is the largest processor, marketer and distributor of fish meal and fish oil products in the United States. Omega produces and sells a variety of protein and oil products derived from menhaden, a species of wild herring-like fish found along the Gulf of Mexico and Atlantic coasts. During the fourth quarter of fiscal 2006, Zapata sold all of its Omega shares in two separate 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 SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

Zapata’s first sale of Omega shares closed on November 28, 2006, pursuant to a stock purchase agreement dated September 8, 2006 between Zapata, as seller, and Omega Protein, as purchaser, whereby Omega repurchased 9,268,292 Omega shares held by Zapata at a price of $5.125 per share, or $47.5 million in the aggregate. Zapata’s second sale of Omega shares occurred on December 4, 2006, pursuant to a stock purchase agreement dated December 1, 2006 among Zapata and a group of institutional investors whereby Zapata sold its remaining 5,232,708 Omega shares at a purchase price of $5.55 per share (less commission), or $28.3 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.

Operating results of discontinued operations are as follows:

As of September 30, 2007, the Company had held-to-maturity investments with original maturities from eight to twelve months. Total amortized cost of short-term investments includes approximately $518,000 and $28,000 of interest receivable at September 30, 2007 and December 31, 2006, respectively.

Interest on the above investments ranged between 4.71% and 5.24% at September 30, 2007.

Interest on the above investment was 5.11% at December 31, 2006.

As of September 30, 2007, the Company had held-to-maturity investments with original maturities greater than one year. Total amortized cost of long-term investments at September 30, 2007 includes approximately $131,000 of interest receivable. The Company did not have any long-term investments at December 31, 2006.

Interest on the above investments ranged between 5.16% and 5.21% at September 30, 2007.

Accrued expenses and other current liabilities are summarized as follows:

The following table details the potential common shares excluded from the calculation of diluted earnings per share because the effect would be antidilutive to the net loss for the period or because the exercise price was greater than the average market price for the period (in thousands, except per share amounts):

The Company’s consolidated effective tax rate for the three month and nine month periods ended September 30, 2007 was 58% and 52%, respectively, as compared to 30% and 35% from the comparable periods of the prior year. The higher effective tax rate was primarily the result of Zapata Corporate’s recognition of a provision for income taxes to reflect an anticipated 15% tax on undistributed personal holding company income.

On January 1, 2007, the Company adopted the provisions of the Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109” (“FIN 48”). There was no cumulative effect as a result of applying FIN 48 and no adjustment was made to the opening balance of retained earnings.

Unrecognized tax benefits were approximately $732,000 as of January 1, 2007 and September 30, 2007, respectively, the reversal of which will reduce the Company’s effective tax rate when recognized. The Company does not expect that the amount of unrecognized tax benefits will change significantly in the next 12 months.

Accrued interest expense and penalties, if any, related to the above unrecognized tax benefits are recorded as a component of income tax expense. As of January 1, 2007 and September 30, 2007, the amount of accrued interest expense was $0 and $139,000, respectively, with no accrual for penalties. The Company files federal and state consolidated income tax returns and is subject to income tax examinations for years after 2003.

The components of other comprehensive income (loss) are as follows:

Zapata is involved in litigation relating to claims arising out of its past and current operations in the normal course of business. Zapata maintains insurance coverage against such potential ordinary course claims in an amount in which it believes to be adequate. While the results of any ultimate resolution cannot be predicted, in the opinion of Zapata’s management, based upon discussions with counsel, any losses resulting from these matters will not have a material adverse effect on Zapata’s results of consolidated operations, cash flow or financial position.

During the third quarter of 2005, Zapata was notified by Weatherford International Inc. (“Weatherford”) of a claim for reimbursement of approximately $200,000 in connection with the investigation and cleanup of purported environmental contamination at two properties formerly owned by a non-operating Zapata subsidiary. The claim was made under an indemnification provision given by Zapata to Weatherford in a 1995 asset purchase agreement and relates to alleged environmental contamination that purportedly existed on the properties prior to the date of the sale.

Weatherford has also advised the Company that it anticipates that further remediation and cleanup may be required, although they have not provided any information regarding the cost of any such future clean up.

Zapata has challenged any responsibility to indemnify Weatherford. The Company believes that it has meritorious defenses to the claim, including that the alleged contamination occurred after the sale of the property, and intends to vigorously defend against it.

As it is probable that some costs could be incurred related to this site, the Company has accrued $100,000 related to this claim. This reserve represents the lower end of a range of possible outcomes as no other amount within the range is considered more likely than any other. There can be no assurance however that the Company will not incur material costs and expenses in excess of our reserve in connection with any further investigation and remediation at the site.

Zapata and its subsidiaries are subject to various possible claims and lawsuits regarding environmental matters in addition to those discussed above. Zapata’s management believes that costs, if any, related to these matters will not have a material adverse effect on the consolidated results of operations, cash flows or financial position of the Company.

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. Throughout its history, the Company has entered into numerous transactions relating to the sale, disposal or spin-off of past operations. Pursuant to certain of these transactions, the Company may be obligated to indemnify other parties to these agreements. These potential obligations include indemnifications for losses incurred by such parties arising out of the operations of such businesses prior to these transactions or 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.

Additionally, in connection with the Company’s sale to private institutional investors of a portion of our Omega Protein shares in 2006, Zapata agreed, subject to certain conditions and obligations of Omega and generally for a period of two years from the December 2006 closing date, to reimburse Omega for liquidated damages that they may be required to pay to the purchasers if Omega Protein fails to continuously maintain a registration statement as effective throughout a specified term and certain other conditions are met. See Note 3 “Discontinued Operations — Omega Protein” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 for further description of this agreement. As of December 31, 2006 and September 30, 2007, no liabilities have been recorded for these liquidated damages.

Since its inception, Zap.Com has utilized the services of the Zapata’s management and staff 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. Under the sublease agreement, annual rental payments are allocated on a cost basis. Zapata has waived its rights under the shared services agreement to be reimbursed for these expenses since May 1, 2000. As a result, for the three months ended September 30, 2007 and 2006, approximately $3,000 was recorded as contributed capital for these services, as compared to $10,000 for the nine months ended September 30, 2007 and 2006.

During 2002, the Company finalized the terms of a consulting agreement with its former Chairman of the Board of Directors, Malcolm Glazer. Subject to the terms of the agreement, the Company paid Malcolm Glazer $122,500 per month until April 30, 2006. The agreement also provided for health and medical benefits for Mr. Glazer and his wife. Although the consulting agreement was not renewed, the Company continued to provide health and medical benefits for Mr. Glazer and his wife under the Company’s Senior Executive Retiree Health Care Benefit Plan. These health insurance benefits were consistent with Zapata’s existing benefits available to employees. However, during the third quarter of 2006 the Company was subsequently notified that Mr. Glazer and his wife elected not to participate in the Senior Executive Retiree Health Care Benefit Plan. As of December 31, 2006 and September 30, 2007, there were no participants in this plan.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This Standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The adoption of SFAS No. 157 is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Liabilities.” SFAS 159 is effective as of the beginning of the first fiscal year beginning after November 15, 2007. This Statement provides entities with an option to report selected financial assets and liabilities at fair value, with the objective to reduce both the complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. The Company is in the process of evaluating this standard and therefore has not yet determined the impact that the adoption of SFAS 159 will have on its financial position, results of operations or cash flows.

Zapata has a noncontributory defined benefit pension plan (the “Plan”) covering certain U.S. employees. In 2005, Zapata Corporation’s Board of Directors authorized the Pension Committee to freeze the Plan in accordance with ERISA rules and regulations so that new employees, after January 15, 2006, will not be eligible to participate in the pension plan and further benefits will no longer accrue for existing participants. The freezing of the pension plan had the effect of vesting all existing participants in their pension benefits in the plan. During the first quarter of 2006, the Company recognized a curtailment loss of approximately $147,000 which represented the balance of the unamortized prior service cost.

Additionally, Zapata has an unfunded supplemental pension plan, which provides supplemental retirement payments to Thomas Bowersox and Ronald Lassiter who are former senior executives of Zapata. Effective December 1994, the supplemental pension plan was frozen.

Zapata plans to make no contributions to its pension plan in 2007.

The amounts shown below reflect the consolidated defined benefit pension plan expense, including the supplemental pension plan expense.

The condensed consolidated statements of operations for the three months and nine months ended September 30, 2007 and 2006 included $4,000 and $38,000 and $13,000 and $113,000, respectively, of share-based compensation costs. The total income tax benefit recognized in the condensed consolidated statements of operations for share-based compensation arrangements was $300 and $12,000 and $900 and $36,000 for the three months and nine months ended September 30, 2007 and 2006, respectively. As of September 30, 2007, there was $1,000 of total unrecognized compensation cost related to nonvested share-based compensation that is expected to be recognized over a weighted average period of less than one year.

Zapata Corporate had no share-based grants in the nine months ended September 30, 2007. A summary of option activity under the Zapata Corporate Plans as of September 30, 2007, and changes during the nine months then ended is presented below:

A summary of the status of Zapata Corporate’s nonvested shares as of September 30, 2007 and changes during the nine months then ended is presented below:

As of September 30, 2007, there was no unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Zapata Corporate Plans. Based on current grants, total share-based compensation cost for fiscal year 2007 is expected to be $3,000.

Zap.Com had no share-based grants in the nine months ended September 30, 2007. A summary of option activity under the Zap.Com Plan as of September 30, 2007, and changes during the nine months then ended is presented below:

A summary of the status of Zap.Com’s nonvested shares as of September 30, 2007 and changes during the nine months then ended is presented below:

As of September 30, 2007, there was $1,000 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Zap.Com Plan. That cost is expected to be recognized over a weighted —average period of less than one year. Based on current outstanding grants, total share-based compensation cost for fiscal year 2007 is expected to be $11,000.

The following summarizes certain financial information of each segment for the three and nine months ended September 30, 2007 and 2006:

Forward-looking statements in this Form 10-Q, future filings by the Company with the Securities and Exchange Commission (“Commission”), the Company’s press releases and oral statements by authorized officers of the Company are intended to be subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that all forward-looking statements involve risks and uncertainty, including without limitation those identified from time to time in press releases and other communications with stockholders by the Company and the filings made with the Commission by the Company and by Zap.Com Corporation (“Zap.Com”), such as those disclosed under the caption “Risk Factors” appearing in Item 1A of Part II of this Report and in Item 1A of Part I of the Company’s Annual Report on Form 10-K filed with the Commission, for the fiscal year ended December 31, 2006. The Company believes that forward-looking statements made by it are based on reasonable expectations. However, no assurances can be given that actual results will not differ materially from those contained in such forward-looking statements. 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.

Zapata Corporation (“Zapata” or “the Company”) was incorporated in Delaware in 1954 and was reincorporated in Nevada in April 1999. The Company’s principal executive offices are at 100 Meridian Centre, Suite 350, Rochester, New York 14618. Zapata’s common stock is listed on the New York Stock Exchange (“NYSE”) and trades under the symbol “ZAP.”

Zapata is a holding company which has approximately $153.6 million in consolidated cash, cash equivalents short-term and long-term investments at September 30, 2007 and currently owns 98% of Zap.Com Corporation, a public shell company that trades on the over-the-counter electronic bulletin board (“OTCBB”) under the symbol “ZPCM.” On December 4, 2006, the Company completed the disposition of its 14,501,000 shares of Omega Protein Corporation (“Omega Protein” or “Omega”) common stock.

Zapata has disclosed that at least since the December 4, 2006 sale of its Omega shares, it might be deemed to be an investment company subject to the Investment Company Act of 1940, as amended (the “1940 Act”) because of its portfolio of U.S. Government securities. Zapata, however, has not intended to be, and believes that it has not been, an investment company under the 1940 Act.

As a precautionary measure, Zapata’s Board of Directors made an election under Rule 3a-2 under the 1940 Act, which exempted Zapata from being an investment company for up to one year, and Zapata has relied on that exemption. Zapata has disclosed this election under Rule 3a-2, its intended reliance thereon, and its intent to seek an extension from the Securities and Exchange Commission (“SEC”) of the Rule 3a-2 exemption at the end of the one-year period, if necessary. This exemption expires on November 28, 2007.

Since the December 4, 2006 sale of its Omega shares, Zapata has held substantially all of its assets in cash, cash equivalents and U.S. Government securities, and has held no “investment securities” (as that term is defined in 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. However, as of the date of this Report, due to competitive pressures in the market and Zapata’s limited funds (as compared to many competitors) available for such an acquisition, it has been unable to consummate such a transaction. Based on the foregoing, notwithstanding its Rule 3a-2 election, Zapata believes that since December 4, 2006 it is has not been an investment company under the 1940 Act.

If Zapata were required to register as an investment company, doing so could have a significant and adverse effect on the Company. Among other things, Zapata would become subject to disclosure and accounting rules geared toward investment, rather than operating, companies; Zapata would be limited in its ability to borrow money, issue options, issue multiple classes of stock and debt, and engage in transactions with affiliates; Zapata might have to change some of the members of its board of directors and certain of its operations; and Zapata might be required to undertake significant costs and expenses to meet the disclosure and regulatory requirements to which it would be subject as a registered investment company. The Company believes that, in light of its current and proposed business activities, the protections of the 1940 Act are not necessary or appropriate for the protection of Zapata’s shareholders, and that the increased costs and restrictions associated with investment company registration would have an adverse impact on Zapata’s shareholders and business prospects.

Accordingly, Zapata believes that it is not an investment company under the 1940 Act. Therefore, Zapata has not obtained, and no longer plans to obtain, an order or other formal ruling or interpretation from the SEC with respect to its status as an investment company under the 1940 Act.

As part of its acquisition efforts, Zapata has been searching for candidates for acquisition. The Company has not focused and does not intend to focus its acquisition efforts solely on any particular industry. Additionally, while the Company 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.

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. 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 is a public shell company that 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.

Omega Protein is the largest processor, marketer and distributor of fish meal and fish oil products in the United States. Omega produces and sells a variety of protein and oil products derived from menhaden, a species of wild herring-like fish found along the Gulf of Mexico and Atlantic coasts. During the fourth quarter of fiscal 2006, Zapata sold all of its Omega shares in two separate 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 SFAS No. 144.

Zapata’s first sale of Omega shares closed on November 28, 2006, pursuant to a stock purchase agreement dated September 8, 2006 between Zapata, as seller, and Omega Protein, as purchaser, whereby Omega repurchased 9,268,292 Omega shares held by Zapata at a price of $5.125 per share, or $47.5 million in the aggregate. Zapata’s second sale of Omega shares occurred on December 4, 2006, pursuant to a stock purchase agreement dated December 1, 2006 among Zapata and a group of institutional investors whereby Zapata sold its remaining 5,232,708 Omega shares at a purchase price of $5.55 per share (less commission), or $28.3 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.

Additionally, in connection with the sale of a portion of our Omega shares to a group of institutional investors, Zapata agreed, subject to certain conditions and obligations of Omega and generally for a period of two years from the December 2006 closing date, to reimburse Omega for liquidated damages that they may be required to pay to the purchasers if Omega fails to continuously maintain a registration statement as effective throughout a specified term and certain other conditions are met. See Note 3 “Discontinued Operations — Omega Protein” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 for a further description of this agreement. As of December 31, 2006 and September 30, 2007, no liabilities have been recorded for these liquidated damages.

The following tables summarize Zapata’s consolidating results of operations (in thousands, except per share amounts). Certain reclassifications of prior information have been made to conform to the current presentation.

For more information concerning segments, see Note 14 to the Company’s Consolidated Financial Statements included in Item 1 of this Report.

Zapata reported consolidated net income of $490,000 or $0.03 per diluted share for the three months ended September 30, 2007 as compared to a consolidated net loss of $5.8 million or $(0.30) per diluted share for the three months ended September 30, 2006. The following is a more detailed discussion of Zapata’s consolidated operating results:

Revenues from continuing operations. For the three months ended September 30, 2007 and 2006, 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 from continuing operations. For the three months ended September 30, 2007 and 2006, Zapata had no cost of revenues from continuing operations.

Selling, general and administrative expenses from continuing operations. Consolidated selling, general, and administrative expenses increased $233,000 from $633,000 for the three months ended September 30, 2006 to $866,000 for the three months ended September 30, 2007. This increase was primarily attributable to Zapata Corporate’s third quarter of 2006 reversal of liabilities of $831,000 related to health and medical benefits for Malcolm Glazer and his wife under the Company’s Senior Executive Retiree Health Care Benefit Plan (See Note 11 to the Company’s Condensed Consolidated Financial Statements included in Item 1 of this Report), largely offset by decreased professional expenses of $507,000 primarily associated with the Company’s 2006 efforts to sell its Omega Protein common stock.

Interest income from continuing operations. Consolidated interest income increased $1.0 million from $992,000 for the three months ended September 30, 2006 to $2.0 million for the current quarter. This increase resulted from higher interest rates on investments and an increase in cash balances available for investment at Zapata Corporate after selling its common stock holdings in Omega Protein.

Income taxes from continuing operations. The Company recorded a consolidated provision for income taxes of $663,000 for the three months ended September 30, 2007 as compared to a provision of $123,000 for the comparable period of 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 recognized during the quarter ended September 30, 2007 as compared to the comparable period in the prior year.

The Company’s consolidated effective tax rate for the three months ended September 30, 2007 was 57.6% as compared to 30% from the comparable period of the prior year. The high effective rate recognized during the quarter ended September 30, 2007 was primarily the result of Zapata Corporate’s recognition of a $161,000 provision for income taxes to reflect an anticipated 15% tax on undistributed personal holding company income.

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, all operating results related to Omega have been reclassified and included in discontinued operations. For the three months ended September 30, 2006, the Company recognized net loss from discontinued operations of $6.1 million. Because the sale of Omega Protein closed in the fourth quarter of 2006, no amounts related to discontinued operations were included in the three months ended September 30, 2007.

Zapata reported consolidated net income of $1.6 million or $0.08 per diluted share for the nine months ended September 30, 2007 as compared to a net loss of $5.7 million or $0.30 per diluted share for the nine months ended September 30, 2006. The following is a more detailed discussion of Zapata’s consolidated operating results:

Revenues from continuing operations. For the nine months ended September 30, 2007 and 2006, 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 from continuing operations. For the nine months ended September 30, 2007 and 2006, Zapata had no cost of revenues from continuing operations.

Selling, general and administrative expenses from continuing operations. Consolidated selling, general, and administrative expenses decreased $1.7 million from $4.2 million for the nine months ended September 30, 2006 to