Travelzoo Inc. - Amend. No. 2 on Form S-1 to Form S-3
| As Filed with the
Securities and Exchange Commission on August 26, 2003 |
| Registration No.
333-107304 |
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
| PRE-EFFECTIVE AMENDMENT NO. 2 ON FORM S-1 |
| TO |
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933 |
| TRAVELZOO INC. |
|
(Exact name of registrant as specified in its charter) |
DELAWARE
(State or other jurisdiction of
incorporation or organization) |
7373
(Primary Standard Industrial
Classification Code Number) |
36-4415727
I.R.S. Employer
Identification No.) |
590 Madison Avenue, 21st Floor
New York, New York 10022
(212) 521-4200
(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)
Ralph Bartel
Chief Executive Officer
Travelzoo Inc.
590 Madison Avenue, 21st Floor
New York, New York 10022
(212) 521-4200
Fax: (212) 521-4230
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies of all correspondence to:
Denis P. McCusker, Esq.
Bryan Cave LLP
One Metropolitan Square
211 North Broadway, Suite 3600
St. Louis, Missouri 63102-2750
(314) 259-2000
Fax: (314) 259-2020 |
Neil J Wertlieb, Esq.
Milbank, Tweed, Hadley & McCloy LLP
601 South Figueroa Street, 30th Floor
Los Angeles, California 90017
(213) 892-4410
Fax: (213) 892-4710 |
Approximate date of commencement of proposed sale to the public: From time to time after this registration
statement becomes effective.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act of 1933, check the following box. ý
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the
Securities Act, check the following box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the
following box and list the Securities Act registration statement number of the earlier effective registration
statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the
following box and list the Securities Act registration statement number of the earlier effective registration
statement for the same offering. ¨
If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. ¨
The registrant hereby amends this
registration statement on such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which specifically
states that this registration statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission, acting pursuant to
said Section 8(a), may determine.
SUBJECT TO COMPLETION,
DATED AUGUST 26, 2003
354,400 Shares
Common Stock
_________________
This
prospectus relates to resales of up to 354,400 shares of our common stock, par value
$.01 per share, by the selling stockholders listed in
this prospectus starting on page 33 .
Subject to the terms and conditions of the underwriting agreement described in this prospectus, Wedbush
Morgan Securities has agreed as underwriter to purchase from Ralph Bartel, our Chief Executive Officer, 300,000
shares of common stock owned by him. In connection with such underwriting arrangements, Mr. Bartel has agreed to issue to Wedbush Morgan Securities a
warrant to purchase up to 30,000 additional shares of our common stock at a purchase price equal to 120% of the
price to the public hereunder. The shares offered hereby include the shares issuable upon exercise of that warrant. Wedbush Morgan Securities is not purchasing the shares of common stock
offered by selling stockholders other than Mr. Bartel. See “Plan of Distribution – Underwriting” beginning on page 37 .
The selling stockholders other than Ralph Bartel or their transferees may sell their shares of common stock
from time to time in accordance with the plan of distribution described in this prospectus. See “Plan of
Distribution – Selling Stockholders Other than Mr. Bartel” beginning on page 37 .
Our shares are included
in the OTC Bulletin Board under the symbol “TVZO.” On July 23, 2003, the last reported
sale price of our common stock was $6.00 per share. We have submitted an application for listing on the
NASDAQ SmallCap Market under the symbol “TZOO.” This offering is intended primarily to allow Travelzoo to
satisfy the requirement for listing on the NASDAQ SmallCap Market that we have 300 round lot holders of our
common stock. A qualifying round lot holder is a
stockholder who owns at least 100 shares of Travelzoo stock. There can be no assurance
that our shares will be listed on the NASDAQ SmallCap Market upon consummation of this
offering or ever. See Risk Factors” beginning on page 5.
Investing in
these securities involves risks. You should carefully consider the risk factors
beginning
on page 5 of this prospectus before purchasing the common stock.
_________________
| |
|
|
Per Share |
|
Total |
|
|
| Price to the public (1) |
|
|
$ | ________ |
|
$ | ________ |
|
| Underwriting discount (1) | | |
| ________ |
|
| ________ |
|
| Proceeds to the selling stockholders (1)(2)(3) | | |
| ________ |
|
| ________ |
|
| (1) |
|
This
refers only to the shares covered by the underwriting agreement with Wedbush Morgan
Securities which are held by Ralph Bartel. The shares of the other selling
stockholders may be sold at varying prices from time to time, as described under
“Plan of Distribution.” |
| (2) |
|
Ralph Bartel has granted Wedbush Morgan Securities an option for 45 days to purchase up to an additional 45,000
shares of common stock held by Mr. Bartel at the public offering price per share, less the underwriting
discount, solely to cover overallotments. If such option is exercised in full, the total proceeds to the
selling stockholders will be $______________. See “Plan of Distribution – Underwriting.” |
| (3) |
|
We intend to pay the expenses of the offering, which are estimated to be $______________.
|
Neither
the Securities and Exchange Commission nor any state securities commission has approved or
disapproved of these securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal offense.
_________________
The date of this
prospectus is August __, 2003.
To
facilitate this offering, the Underwriter may engage in transactions that stabilize,
maintain or otherwise affect the market price of our common stock, including overalloting
shares of our common stock in connection with this offering and bidding for and purchasing
shares of our common stock at a level above that which might otherwise prevail in the open
market. Such stabilizing, if commenced, may be discontinued at any time. See “Plan of
Distribution – Underwriting.”
SUMMARY
This summary
highlights selected information contained elsewhere in this prospectus. This summary does
not contain all of the information you should consider before making an investment
decision. You should read the entire prospectus carefully, including “Risk Factors” beginning
on page 5, before making an investment decision.
TRAVELZOO INC.
Overview
We are an Internet media company that publishes
online advertisements of sales and specials for hundreds of travel companies. We
provide airlines, hotels, cruise lines, vacation packagers, and other travel companies with a fast, flexible, and
cost-effective way to reach millions of potential consumers. While our products provide advertising opportunities for travel
companies, they also provide Internet users with a free source of information on current sales and specials from
hundreds of travel companies.
Our products include the
Travelzoo website, the Travelzoo Top 20 e-mail newsletter, and the Weekend.com
e-mail newsletter. Our Travelzoo website at http://www.travelzoo.com lists sales and specials from approximately
200 travel companies and it reaches 5.1 million Internet users per month. Our Travelzoo Top 20 is a free weekly
e-mail newsletter that highlights attractive sales and specials from selected travel companies.
As of July 1, 2003, the Travelzoo Top 20 newsletter had 4.6 million subscribers. Our Weekend.com newsletter is a
free weekly e-mail newsletter that features ideas and travel opportunities for weekends. We launched this product in
November 2002 and as of July 1, 2003, it had 822,000 subscribers.
More than 200
companies purchase our advertising services, including American Airlines, American Express, Alamo
Rent-A-Car, Avis Rent-A-Car, British Airways, Carnival Cruise Lines, Liberty Travel, Delta Air Lines, Expedia,
Fairmont Hotels & Resorts, Hilton Hotels, JetBlue Airways, Marriott Hotels, Park Place Entertainment, Southwest
Airlines, Starwood Hotels & Resorts Worldwide, Royal Caribbean, United Airlines, and US Airways.
Our
revenues are generated from advertising sales. Our revenues have grown rapidly since we began
operations in 1998, primarily driven by an increasing number of travel companies listing their sales and specials
on the Travelzoo website and in the Travelzoo Top 20 newsletter. For the year ended December 31, 2002, revenues
were $9.8 million compared to $6.1 million in 2001, an increase of 61%. Net
income for 2002 was $853,071 versus $363,735 in the prior year. For the six months ended
June 30, 2003, revenues increased 92% to $8.0 million compared to $4.2 million for the
same period last year. For the six months ended June 30, 2003, net income increased to
$981,010 from $281,620 for the same period last year, an increase of 248%. For the year
ended December 31, 2002, our two largest clients accounted for 15% and 14% of our
revenues. In the six months ended June 30, 2003, we acquired 1,472,000 new subscribers
for our Travelzoo Top 20 newsletter in addition to the 2,385,000 new
subscribers we acquired in 2002.
Our Industry
According
to the Newspaper Association of America, travel companies spent $1.4 billion in 2002 on
national advertising in newspapers. We believe that newspapers are currently the
main medium for travel companies to advertise their sales and specials. However, we
believe that travel companies will increase their spending on Internet advertising of
sales and specials due to the following factors: first, market research shows that the
Internet has become consumers’ preferred information source for travel; second, Internet advertising provides travel companies
advantages compared to print advertising such as real-time listings, real-time updates,
and performance tracking; third, the Internet allows travel companies to advertise their
sales and specials in a fast, flexible, and cost-effective manner that has not been
possible before. Fourth, we believe that many travel suppliers prefer to sell their travel
services directly to consumers, as an alternative to distribution through travel agents.
1
Competitive Strengths
We
have developed our company to be a leader in the field of online advertising for travel
companies. We provide travel companies with the following key features:
-
Real-Time Listings of Special Offers. Our technology allows travel companies to advertise new special
offers on a real-time basis.
-
Real-Time Updates. Our technology allows travel companies to update their listings on a real-time basis.
-
Real-Time Performance Reports. We provide travel companies with real-time tracking of the performance
of their advertising campaigns. Our solution enables travel companies to optimize their campaigns by
removing or updating unsuccessful listings and further promoting successful listings.
-
Access to Millions of Consumers. We provide travel companies fast access to millions of travel shoppers.
-
National Reach. We offer travel companies access to Internet users across the U.S.
Furthermore,
our products and services provide consumers information on current special offers with the
following key features:
-
Aggregation of Offers from Many Companies. Our Travelzoo website and our
Travelzoo Top 20 e-mail newsletter aggregate information on current special offers from approximately 200 travel companies. This
saves the consumer time when searching for travel sales and specials.
-
Current Information. Compared to newspaper ads, we provide consumers with more current information,
since our technology enables travel companies to update their listings on a real-time basis.
-
Search Tools. We provide consumers with the ability to search for specific special offers.
Growth Strategy
Our
objective is to become the largest online publisher of sales and specials for travel
companies. Key elements of our strategy include:
-
Build Strong Brand Awareness. We believe that it is essential to establish a strong brand with Internet
users and within the travel industry. We currently utilize an online marketing program to promote our
brands to Internet users. In addition, we believe that we build brand awareness by product excellence
that is promoted by word-of-mouth. We utilize sponsorships at industry conferences and public relations
to promote our brands within the travel industry.
-
Increase Reach. In order to attract more users to our products, we intend to expand our advertising
campaigns as our business grows. We believe that we can also attract more users by product excellence
that is promoted by word-of-mouth.
-
Maintain Quality User Base. We believe that, in addition to increasing our reach, we need to maintain
the quality of our user base by producing high quality content.
-
Increase Number of Advertising Clients. We intend to continue to grow our advertising client base by
expanding the size of our sales force.
-
Provide Excellent Service. We believe it is important to provide our advertising clients with excellent service in terms of the development
and placement of their advertisements.
Corporate Information
Our
principal business office is located at 590 Madison Avenue, 21st Floor, New York, New York
10022 and our telephone number is (212) 521-4200. Our website is
http://www.travelzoo.com. Additionally, we have offices in Chicago, Miami, and Mountain View (California). Our local presence in these
regions allows us to better source and publish information on travel specials which are relevant to each regional
market. In addition, these regional offices provide local proximity for our sales force to better service
advertisers.
2
THE OFFERING
| Common stock offered by the selling stockholders |
354,400 shares
|
| Common stock outstanding |
19,425,147 shares as of June 30, 2003 (1)
|
| Purpose of offering |
To meet the NASDAQ SmallCap Market listing requirement of having 300 round lot holders. A qualifying round lot
holder is a stockholder who owns at least 100 shares of Travelzoo stock. There can be no assurance that we will
be listed on the NASDAQ SmallCap Market. See “Risk Factors” beginning on page 5.
|
| Selling Stockholders |
Of the shares offered hereby, 300,000 shares are held by Ralph Bartel,
our Chief Executive Officer, 24,400
shares are held by charitable organizations to which Mr. Bartel donated such shares, and 30,000 shares are
issuable on exercise of a warrant to be issued to Wedbush Morgan Securities by Mr. Bartel pursuant to the
underwriting agreement relating to this offering.
|
| Use of proceeds |
We will not receive any proceeds from the sale of shares offered
hereby. All such proceeds will be received by
the selling stockholders listed in this prospectus under “Principal and Selling Stockholders” beginning on page
33 .
|
| Dividend policy |
We have not paid, and do not anticipate paying,
dividends on our common stock. See “Price Range of
Common Stock and Dividend Information” on page 36 .
|
| Risk factors |
See “Risk Factors” beginning on page 5, for a
discussion of factors you should carefully consider
before deciding to invest in our common stock.
|
| OTC Bulletin Board symbol |
TVZO
|
| Proposed NASDAQ SmallCap Market Symbol |
TZOO |
| (1) |
|
Excludes
2,401,938 options, all of which are currently exercisable at a weighted average exercise
price of $1.12 per share. |
Common Stock Ownership
and Netsurfer Shares
Travelzoo
was originally incorporated as Travelzoo.com Corporation (“Travelzoo Bahamas”)
in the Commonwealth of The Bahamas. In a “Netsurfer Stockholder” offering,
Travelzoo Bahamas issued approximately 2.6 million shares of its common stock to
approximately 700,000 visitors who registered on the Travelzoo website. No cash
payments were required or received for any of the stock issued pursuant to the Netsurfer
Stockholder offering. The number of shares issued was doubled as a result of a subsequent
two-for-one stock split. In a series of transactions completed in 2002, Travelzoo Bahamas
was merged into Travelzoo Inc., a Delaware corporation, and each share of Travelzoo
Bahamas was converted into the right to receive one share of common stock of Travelzoo
Inc. As of June 30, 2003, 128,214 former stockholders of Travelzoo Bahamas have taken the
steps necessary to receive their shares in Travelzoo Inc., and 7,148,184 shares of common
stock have been issued. If all former stockholders of Travelzoo Bahamas accept their
shares in Travelzoo Inc., an additional 4,147,690 shares of common stock will be issued.
These shares are reported as outstanding in our financial statements.
3
The
following table sets forth summary consolidated financial data for the periods indicated.
It is important that you read this information together with the section entitled “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and our
consolidated financial statements and the notes to those financial statements beginning on page F-1. The historical results are not necessarily indicative of
results to be expected for future periods.
SUMMARY FINANCIAL DATA
Statements of
Operations: |
Period from
May 21, 1998
(inception) to
December 31,
1998 |
|
Year Ended December 31,
|
|
Six Months Ended
June 30,
|
|
| |
1999 | |
2000 | |
2001 | |
2002 | |
2002 | |
2003
| |
|
| |
| |
| |
| |
| |
| |
| |
| |
|
|
|
|
(unaudited) |
|
| Revenues* |
|
$ 84,101 |
|
$954,259 |
|
$3,949,517 |
|
$6,147,938 |
|
$9,847,820 |
|
$4,177,204 |
|
$8,004,936 |
|
| Cost of revenues | |
25,362 |
|
132,803 |
|
282,195 |
|
304,081 |
|
351,169 |
|
172,000 |
|
164,169 |
|
|
| |
| |
| |
| |
| |
| |
| |
| Gross profit | |
58,739 |
|
821,456 |
|
3,667,322 |
|
5,843,857 |
|
9,496,651 |
|
4,005,204 |
|
7,840,767 |
|
|
| |
| |
| |
| |
| |
| |
| |
| Operating expenses: | |
| Sales and marketing | |
1,595 |
|
350,720 |
|
1,484,495 |
|
3,274,747 |
|
5,726,557 |
|
2,312,316 |
|
4,218,442 |
|
| General and |
|
22,046 |
|
326,686 |
|
1,201,982 |
|
1,354,088 |
|
2,293,846 |
|
1,124,616 |
|
1,959,803 |
|
| administrative | |
| Merger expenses | |
— |
|
— |
|
231,303 |
|
332,721 |
|
54,538 |
|
54,538 |
|
— |
|
|
| |
| |
| |
| |
| |
| |
| |
| Total operating | |
23,641 |
|
677,406 |
|
2,917,780 |
|
4,961,556 |
|
8,074,941 |
|
3,491,470 |
|
6,178,245 |
|
| expenses | |
|
| |
| |
| |
| |
| |
| |
| |
| Income from operations | |
35,098 |
|
144,050 |
|
749,542 |
|
882,301 |
|
1,421,710 |
|
513,734 |
|
1,662,522 |
|
| Interest income | |
— |
|
— |
|
— |
|
2,702 |
|
3,971 |
|
1,487 |
|
5,137 |
|
|
| |
| |
| |
| |
| |
| |
| |
| Income before | |
35,098 |
|
144,050 |
|
749,542 |
|
885,003 |
|
1,425,681 |
|
515,221 |
|
1,667,659 |
|
| income taxes | |
| Income taxes | |
6,213 |
|
38,646 |
|
387,856 |
|
521,268 |
|
572,610 |
|
233,601 |
|
686,649 |
|
|
| |
| |
| |
| |
| |
| |
| |
| Net income | |
$ 28,885 |
|
$105,404 |
|
$ 361,686 |
|
$ 363,735 |
|
$ 853,071 |
|
$ 281,620 |
|
$ 981,010 |
|
|
| |
| |
| |
| |
| |
| |
| |
| Basic and diluted net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| income per share | |
— |
|
$ 0.01 |
|
$ 0.02 |
|
$ 0.02 |
|
$ 0.04 |
|
$ 0.01 |
|
$ 0.05 |
|
| Balance Sheet Data: |
As of December 31,
|
|
As of June 30,
|
|
| |
1998 | |
1999 | |
2000 | |
2001 | |
2002 | |
2002 | |
2003
| |
| | |
| |
| |
| |
| |
| |
| |
| |
| |
|
|
|
|
(unaudited) |
|
| Working capital |
|
$ 78,172 |
|
$171,282 |
|
$ 185,734 |
|
$ 425,147 |
|
$1,339,593 |
|
$ 696,634 |
|
$2,455,049 |
|
| Total assets | |
107,051 |
|
404,796 |
|
1,555,506 |
|
2,130,730 |
|
3,239,594 |
|
2,199,753 |
|
4,686,308 |
|
| Long-term debt | |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
| Stockholders’ equity | |
$ 88,885 |
|
$194,289 |
|
$ 574,148 |
|
$ 937,883 |
|
$1,790,954 |
|
$1,219,503 |
|
$2,771,964 |
|
| |
* |
|
Revenues
in 1998, 1999 and 2000 included commissions revenue of $26,774, $61,015
and $97,451, respectively. Commissions revenue in all other periods was not
material. |
4
RISK FACTORS
You
should carefully consider the risks described below and all other information contained
this prospectus before making an investment
decision. If any of the following risks, or other risks and uncertainties that are not
yet identified or that we currently think are immaterial, actually occur, our business,
financial condition and results of operations could be materially and adversely affected.
In that event, the trading price of our shares could decline, and you may lose part or
all of your investment.
Risks Related to Our
Financial Condition and Business Model
Our limited operating
history makes our business difficult to evaluate.
We
were incorporated and began generating revenues in May 1998. Accordingly, we have only a
limited operating history for you to consider in evaluating our business. As a young
company, we face risks and uncertainties relating to our ability to successfully implement
our business plan. You must consider the risks, expenses and uncertainties which can
materially affect the business of an early stage company like ours. These risks include
uncertainty whether we will be able to:
- increase awareness of the
Travelzoo brand;
- attract and retain additional
travel companies to list their special offers with us;
- attract additional Internet
users to the Travelzoo website;
- increase the functionality of
our products and services;
- maintain our current business relationships and develop new ones;
- respond effectively to
competitive pressures; and
- continue to develop and upgrade
our technology.
We cannot assure you
that we will sustain profitability.
Although
we have been profitable in the past, there is no assurance that we will continue to be
profitable. We forecast our future expense levels based on our operating plans and our
estimates of future revenues. We may find it necessary to accelerate expenditures
relating to our sales and marketing efforts or otherwise increase our financial
commitment to creating and maintaining brand awareness among travel companies and
Internet users. If our revenues grow at a slower rate than we anticipate, or if our
spending levels exceed our expectations or cannot be adjusted to reflect slower revenue
growth, we may not generate sufficient revenues to sustain profitability. In this case,
the value of Travelzoo’s shares could be reduced.
Fluctuations in our
operating results may negatively impact our stock price.
Our
quarterly operating results may fluctuate significantly in the future due to a variety of
factors that could affect our revenues or our expenses in any particular quarter. You
should not rely on quarter-to-quarter comparisons of our results of operations as an
indication of future performance. Factors that may affect our quarterly results include:
- mismatches between resource
allocation and client demand due to difficulties in predicting client demand in a
new market;
- changes in general economic
conditions that could affect marketing efforts generally and online
marketing efforts in particular;
- the magnitude and timing of
marketing initiatives;
- the maintenance and development of our strategic relationships;
- the introduction,
development, timing, competitive pricing and market acceptance of our products and
services and those of our competitors;
- our ability to attract and
retain key personnel;
- our ability to manage our
anticipated growth and expansion;
5
- our ability to attract traffic
to our website; and
- technical difficulties or
system downtime affecting the Internet generally or the operation of our
products and services specifically.
In
addition, we plan to significantly increase our operating expenses to expand our sales and
marketing, and production departments. If revenues fall below our expectations in any
quarter and we are unable to quickly reduce our spending in response, our operating
results would be lower than expected and our stock price may fall.
In
addition, we are required under generally accepted accounting principles to review our
intangible assets for impairment when events or changes in circumstances indicate the
carrying value may not be recoverable. We may be required to record a significant expense
or charge to earnings in our financial statements in the period any impairment of
intangible assets is determined.
We depend on two clients
for a substantial part of our revenues.
In the six months ended June 30, 2003, two clients accounted for 13% and 10%, respectively, of our revenues.
In the fiscal year ended December 31, 2002, two clients accounted for 15% and 14%, respectively, of our revenues.
The loss of one client or both clients may result in a significant decrease in our revenues and results of operations, which could have a
material adverse effect on our business.
Our business model is
unproven and may not be adaptable to a changing market.
Our
current revenue model depends on advertising fees from travel companies using our
products. If current clients decide not to continue advertising their sales and specials
with us and we are unable to replace them with new clients, our business may be adversely
affected. To be successful, we must provide online marketing solutions that achieve broad
market acceptance by travel companies. In addition, we must attract sufficient Internet
users with attractive demographic characteristics to our products. It is possible that we
will be required to further adapt our business model in response to changes in the online
advertising market or if our current business model is not successful. If we are not able
to anticipate changes in the online advertising market or if our business model is not
successful, our business could be materially adversely affected, which could reduce the
value of your shares.
We may not be able to
obtain sufficient funds to grow our business and any additional financing may be on terms
adverse to your interests.
We
intend to continue to grow our business, and intend to fund our current operations and our
anticipated growth from the cash flow generated from our operations and our retained
earnings. However, these sources may not be sufficient to meet our needs. We may not be
able to obtain additional financing on commercially reasonable terms, or at all.
If
additional financing is not available when required or is not available on acceptable
terms, we may be unable to fund our expansion, successfully promote our brand name,
develop or enhance our products and services, take advantage of business opportunities or
respond to competitive pressures, any of which could have a material adverse effect on our
business and the value of your shares.
If
we choose to raise additional funds through the issuance of equity securities, you may
experience significant dilution of your ownership interest, and holders of the additional
equity securities may have rights senior to those of the holders of our common stock. If
we obtain additional financing by issuing debt securities, the terms of these securities
could restrict or prevent us from paying dividends and could limit our flexibility in
making business decisions.
Our business may be
sensitive to recessions.
The
demand for online advertising may be linked to the level of economic activity and
employment in the U.S. and abroad. Specifically, our business is dependent on the spending
of travel companies. The current recession has decreased consumer travel and caused travel
companies to reduce or postpone their marketing spending generally, and their online
marketing spending in particular. If the current economic downturn continues or worsens in
the U.S. or abroad, our business and financial condition could be materially adversely
affected, which could reduce the value of your shares.
6
We may face significant
costs with respect to the delivery of paper copies of reports to our stockholders.
The
Securities Exchange Act of 1934 requires us to provide paper copies of certain reports to
our stockholders who do not consent to receiving electronic delivery. If a significant
number of our stockholders do not consent to electronic delivery of stockholder
communications or revoke such consent, we may face significant costs related to the
printing and mailing of such reports. These costs may drain our resources and may have a
material adverse effect on our business and the value of our shares.
Risks Related to Our
Markets and Strategy
The Internet is not a
proven marketing medium.
The
future of our business is dependent on the ongoing acceptance by travel companies of the
Internet as an effective marketing tool, and on the ongoing acceptance by consumers of the
Internet as a source for information on offers from travel companies. The adoption of
online marketing by travel companies, particularly among those that have historically
relied upon traditional advertising methods, requires the acceptance of a new way of
conducting business, marketing and advertising. Many of our potential clients have little
or no experience using the Internet as a marketing tool, and not all Internet users have
experience using the Internet to look for travel offers. As a result, we cannot be sure
that we will be able to effectively compete with traditional advertising methods. If we
are unable to compete with traditional advertising methods, our business and results of
operations could be materially adversely affected.
We may experience
reduced visitor traffic, reduced revenue and harm to our reputation in the event of
unexpected network interruptions caused by system failures.
Our
servers and software must be able to accommodate a high volume of traffic. Any substantial
increase in demands on our servers will require us to expand and adapt our network
infrastructure. If we are unable to add additional software and hardware to accommodate
increased demand, we could experience unanticipated system disruptions and slower response
times. Any catastrophic failure at our co-location facility could prevent us from serving
our web traffic for up to several days, and any failure of our Internet service provider
may adversely affect our network’s performance. Our clients may become dissatisfied
by any system failure that interrupts our ability to provide our products and services to
them or results in slower response times. We do not maintain business interruption
insurance. Any system failure, including network, software or hardware failure, that
causes an interruption in the delivery of our products and services or a decrease in
responsiveness of our services could result in reduced revenue and could materially
adversely affect our reputation and brand.
We may not be able to
develop awareness of our brand name.
We
believe that continuing to build awareness of the Travelzoo and the Weekend.com brand names is critical to
achieving widespread acceptance of our business. Brand recognition is a key differentiating factor among
providers of online advertising opportunities, and we believe it could become more important as competition in
our industry increases. In order to maintain and build brand awareness, we must succeed in our marketing efforts,
provide high quality service and increase the number of Internet users with favorable demographics using
Travelzoo and Weekend.com. If we fail to successfully promote and maintain our brands, incur significant expenses
in promoting our brands and fail to generate a corresponding increase in revenue as a result of our branding
efforts, or encounter legal obstacles which prevent our continued use of our brand names, our business and the
value of your shares could be materially adversely affected.
7
Our business may be
sensitive to events affecting the travel industry in general.
Events
like the war with Iraq or the terrorist attacks on the United States in 2001 have a negative impact on the
travel industry. We are not in a position to evaluate the net effect of these circumstances on our business. In
the longer term, our business might be negatively affected by financial pressures on the travel industry. If the
events result in a long-term negative impact on the travel industry, such impact could have a material adverse
effect on our business and the value of your shares.
We will not be able to
attract travel companies or Internet users if we do not continually enhance and develop
the content and features of our products and services.
To
remain competitive, we must continually improve the responsiveness, functionality and
features of our products and services. We may not succeed in developing features,
functions, products or services that travel companies and Internet users find attractive.
This could reduce the number of travel companies and Internet users using our products and
materially adversely affect our business and the value of your shares.
We may lose business if
we fail to keep pace with rapidly changing technologies and clients’ needs.
Our
success is dependent on our ability to develop new and enhanced software, services and
related products to meet rapidly evolving technological requirements for online
advertising. Our current technology may not meet the future technical requirements of
travel companies. Trends that could have a critical impact on our success include:
- rapidly changing technology in
online advertising;
- evolving industry standards,
including both formal and de facto standards relating to online
advertising;
- developments and changes
relating to the Internet;
- competing products and services
that offer increased functionality; and
- changes in travel company and
Internet user requirements.
If
we are unable to timely and successfully develop and introduce new products and
enhancements to existing products in response to our industry’s changing
technological requirements, our business and the value of your shares could be materially
adversely affected.
Our business and growth
will suffer if we are unable to hire and retain highly skilled personnel.
Our
future success depends on our ability to attract, train, motivate and retain highly
skilled employees. We may be unable to retain our skilled employees or attract, assimilate
and retain other highly skilled employees in the future. We have from time to time in the
past experienced, and we expect to continue to experience in the future, difficulty in
hiring and retaining highly skilled employees with appropriate qualifications. If we are
unable to hire and retain skilled personnel, our growth may be restricted, which could
adversely affect our future success and the value of your shares.
We may not be able to
effectively manage our expanding operations.
We
have recently experienced a period of rapid growth. In order to execute our business plan,
we must continue to grow significantly. As of July 1, 2003, we had 30 employees. We expect
that the number of our employees will continue to increase for the foreseeable future.
This growth has placed, and our anticipated future growth combined with the requirements
we face as a public company will continue to place, a significant strain on our
management, systems and resources. We expect that we will need to continue to improve our
financial and managerial controls and reporting systems and procedures. We will also need
to continue to expand and maintain close coordination among our technical, accounting,
finance and sales and marketing departments. We may not succeed in these efforts. Our
inability to expand our operations in an efficient manner could cause our expenses to grow
disproportionately to revenues, our revenues to decline or grow more slowly than expected
and otherwise have a material adverse effect on our business and the value of your shares.
8
Intense competition may
adversely affect our ability to achieve or maintain market share and operate profitably.
We
compete with large Internet portal sites, such as About.com, America Online, Lycos, MSN
and Yahoo!, that offer listings or other advertising opportunities for travel companies.
These companies have significantly greater financial, technical, marketing and other
resources and larger client bases than we do. In addition, we compete with newspapers,
magazines and other traditional media companies that provide online advertising
opportunities. We expect to face additional competition as other established and emerging
companies, including print media companies, enter the online advertising market.
We
believe that there will be rapid business consolidation in the online advertising
industry. Accordingly, new competitors may emerge and rapidly acquire significant market
share. The development of competing technologies by market participants or the emergence
of new industry standards may also adversely affect our competitive position. Competition
could result in reduced margins on our services, loss of market share or less use of
Travelzoo by travel companies and consumers. If we are not able to compete effectively
with current or future competitors as a result of these and other factors, our business
could be materially adversely affected.
Loss of any of our key
management personnel could negatively impact our business.
Our
future success depends to a significant extent on the continued service and coordination
of our management team, particularly Ralph Bartel, our Chairman, President, Chief
Executive Officer, Chief Financial Officer and Secretary. The loss or departure of any of
our officers or key employees could materially adversely affect our ability to implement
our business plan. We do not maintain key person life insurance for any member of our
management team. In addition, we expect new members to join our management team in the
future. These individuals will not previously have worked together and will be required to
become integrated into our management team. If our key management personnel are not able
to work together effectively or successfully, our business could be materially adversely
affected.
We may not be able to
access third-party technology upon which we depend.
We
use technology and software products from third parties including Microsoft. Technology
from our current or other vendors may not continue to be available to us on commercially
reasonable terms, or at all. Our business will suffer if we are unable to access this
technology, to gain access to additional products or to integrate new technology with our
existing systems. This could cause delays in our development and introduction of new
services and related products or enhancements of existing products until equivalent or
replacement technology can be accessed, if available, or developed internally, if
feasible. If we experience these delays, our business and the value of your shares could
be materially adversely affected.
Risks Related to the
Market for our Shares
We cannot be sure that
an active market for our shares will develop or be maintained in the future.
On
August 28, 2002, our shares commenced trading on the OTC Bulletin Board. However, there
has been only limited trading in the shares since that time, at widely varying prices, and
the trading to date has not resulted in an active market for our shares. We cannot assure
you that an active market for our shares will be established or maintained in the future.
If such market is not established or maintained, stockholders will not be able to readily
sell their shares.
We cannot be sure that our
application for listing on the NASDAQ SmallCap Market will be approved.
We
have submitted an application for listing on the NASDAQ SmallCap Market under the symbol
“TZOO.” There can be no assurance that our shares will be listed on the NASDAQ
SmallCap Market upon consummation of this offering or ever. In the event our shares are
not listed on the NASDAQ SmallCap Market, our shares will continue to trade on the OTC
Bulletin Board.
9
We are controlled by a
principal stockholder.
Ralph
Bartel, who founded Travelzoo and who is our Chairman of the Board, President, Chief Executive Officer, Chief Financial
Officer and Secretary, is our largest stockholder, holding approximately 72% of our outstanding shares with
options to increase his percentage ownership to 74% on a fully-diluted basis, assuming all former stockholders of
Travelzoo Bahamas receive shares of Travelzoo Inc. Based on the number of shares issued as of June 30, 2003 in
the merger with Travelzoo Bahamas, Mr. Bartel’s shares represent 92% of the outstanding shares. Assuming Mr.
Bartel sells all of the shares offered by him hereunder, Mr. Bartel will hold approximately 70% of our
outstanding shares, with options to increase his percentage ownership to 73% on a fully-diluted basis. Through
his share ownership, he is in a position to control Travelzoo and to elect our entire board of directors.
Investors may face
significant restrictions on the resale of our stock due to federal penny stock
regulations.
If
our shares trade at less than five dollars per share, since the shares are not listed on a
recognized national exchange or on NASDAQ, our common stock may be deemed to be a
“penny stock” under Rule 3a51-1 under the Securities Exchange Act of 1934.
Compliance with the requirements governing penny stocks may make it more difficult for
investors in our common stock to resell their shares to third parties or to otherwise
dispose of them.
Section
15(g) of the Exchange Act and Rule 15g-2 under the Exchange Act require broker-dealers
dealing in penny stocks to provide potential investors with a document disclosing the
risks of penny stocks and to obtain a manually signed and dated written receipt of the
document before effecting any transaction in a penny stock for the investor’s
account. Moreover, Rule 15g-9 promulgated under the Securities Exchange Act of 1934
requires broker-dealers in penny stocks to approve the account of any investor for
transactions in such stocks before selling any penny stock to that investor. These
requirements significantly increase the time necessary for a broker-dealer to sell a stock
and limit the available purchasers for a stock.
Risks Related to Legal
Uncertainty
We may become subject to
burdensome government regulations and legal uncertainties affecting the Internet which
could adversely affect our business.
To
date, governmental regulations have not materially restricted use of the Internet in our
markets. However, the legal and regulatory environment that pertains to the Internet is
uncertain and may change. Uncertainty and new regulations could increase our costs of
doing business, prevent us from delivering our products and services over the Internet or
slow the growth of the Internet. In addition to new laws and regulations being adopted,
existing laws may be applied to the Internet. New and existing laws may cover issues which
include:
- user privacy;
- consumer protection;
- copyright, trademark and patent
infringement;
- pricing controls;
- characteristics and quality of
products and services;
- sales and other taxes; and
- other claims based on the
nature and content of Internet materials.
We may be unable to
protect our registered trademark or other proprietary intellectual property rights.
Our
success depends to a significant degree upon the protection of the Travelzoo brand name.
We rely upon a combination of copyright, trade secret and trademark laws and
non-disclosure and other contractual arrangements to protect our intellectual property
rights. The steps we have taken to protect our proprietary rights, however, may not be
adequate to deter misappropriation of proprietary information.
10
The
U.S. Patent and Trademark Office registered the trademark for “Travelzoo” on
January 23, 2001. If we are unable to protect our rights in the mark, a key element of our
strategy of promoting Travelzoo as a brand could be disrupted and our business could be
adversely affected. We may not be able to detect unauthorized use of our proprietary
information or take appropriate steps to enforce our intellectual property rights. In
addition, the validity, enforceability and scope of protection of intellectual property in
Internet-related industries is uncertain and still evolving. The laws of other countries
in which we may market our services in the future are uncertain and may afford little or
no effective protection of our intellectual property. The unauthorized reproduction or
other misappropriation of our proprietary technology could enable third parties to benefit
from our technology and brand name without paying us for them. If this were to occur, our
business could be materially adversely affected.
We may face liability
from intellectual property litigation that could be costly to prosecute or defend and
distract management’s attention with no assurance of success.
We
cannot be certain that our products, content and brand names do not or will not infringe
valid patents, copyrights or other intellectual property rights held by third parties.
While we have a trademark for “Travelzoo,” many companies in the industry have
similar names including the word “travel.” We expect that infringement claims in
our markets will increase in number as more participants enter the markets. We may be
subject to legal proceedings and claims from time to time relating to the intellectual
property of others in the ordinary course of our business. We may incur substantial
expenses in defending against these third party infringement claims, regardless of their
merit, and such claims could result in a significant diversion of the efforts of our
management personnel. Successful infringement claims against us may result in monetary
liability or a material disruption in the conduct of our business.
We may be liable as a
result of information retrieved from or transmitted over the Internet.
We
may be sued for defamation, negligence, copyright or trademark infringement or other legal
claims relating to information that is published or made available in our products. These
types of claims have been brought, sometimes successfully, against online services in the
past. The fact that we distribute information via e-mail may subject us to potential
risks, such as liabilities or claims resulting from unsolicited e-mail or spamming, lost
or misdirected messages, security breaches, illegal or fraudulent use of e-mail or
interruptions or delays in e-mail service. In addition, we could incur significant costs
in investigating and defending such claims, even if we ultimately are not liable. If any
of these events occur, our business and the value of your shares could be materially
adversely affected.
11
CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING
INFORMATION
The
information in this prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Such statements are based upon current expectations,
assumptions, estimates and projections about us and our industry. These forward-looking
statements are subject to the many risks and uncertainties that exist in our operations
and business environment that may cause our actual results, performance or achievements
to be different from those expected or anticipated in the forward-looking statements. Any
statements contained herein that are not statements of historical fact may be deemed to
be forward-looking statements. For example, words such as “may,” “will,” “should,” “estimates,”
“predicts,” “potential,” “continue,” “strategy,” “believes,” “anticipates,”
“plans,” “expects,” “intends,” and
similar expressions are intended to identify forward-looking statements. Our actual
results and the timing of certain events could differ significantly from those
anticipated in such forward-looking statements. Factors that might cause or contribute to
such a discrepancy include, but are not limited to, those discussed elsewhere in this
prospectus in the section entitled “Risk Factors” and the risks discussed in
our other Securities and Exchange Commission (“SEC”) filings. The
forward-looking statements included in this prospectus reflect the beliefs of our
management on the date of this report. We undertake no obligation to update publicly any
forward-looking statements for any reason, even if new information becomes available or
other events or circumstances occur in the future.
USE OF PROCEEDS
We
will not receive any proceeds from the sale of shares sold by the selling stockholders
listed in this prospectus under “Principal and Selling Stockholders” beginning
on page 33 .
12
CAPITALIZATION
The
following table sets forth our capitalization as of June 30, 2003:
|
As of
June 30, 2003*
|
|
(unaudited)
|
| Cash and cash equivalents |
|
|
$ |
2,343,037
|
|
| Long-term debt, less current portion | | |
| — |
|
| Stockholders’ equity | | |
| Common stock, $.01 par value, authorized 40,000,000 shares; | | |
| issued and outstanding 19,425,147 shares | | |
| 194,251 |
|
| Additional paid-in capital | | |
| (116,078 |
) |
| Retained earnings | | |
| 2,693,791
|
|
| Total stockholders’ equity | | |
| 2,771,964
|
|
| Total capitalization |
| |
$ |
2,771,964
|
|
| |
* |
|
Our
capitalization will not change as a result of the sale of our stock by the selling
stockholders, except for the effect of costs of the offering paid by us, which will reduce our total stockholders’ equity. |
13
SELECTED FINANCIAL DATA
You
should read the following selected financial data along with “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and our
consolidated financial statements and the notes to those financial statements
beginning on page F-1. We derived the selected financial data as of and for each of the
four years ended December 31, 2002 and the period ended December 31, 1998 from our
audited financial statements. We derived the selected financial data as of and for
each of the six month periods ended June 30, 2003 and June 30, 2002 from our unaudited
financial statements. In our opinion, the unaudited financial information includes all
adjustments, consisting only of normal recurring adjustments, considered necessary for
a fair presentation of that information. Our results of operations for the six
month period ended June 30, 2003 are not necessarily indicative of the results that we
may achieve for the full year.
Statements of
Operations: |
Period from
May 21, 1998
(inception) to
December 31,
1998 |
|
Year Ended December 31,
|
|
Six Months Ended
June 30,
|
|
| |
1999 | |
2000 | |
2001 | |
2002 | |
2002 | |
2003
| |
|
| |
| |
| |
| |
| |
| |
| |
| |
|
|
|
|
(unaudited) |
|
| Revenues* |
|
$84,101 |
|
$954,259 |
|
$3,949,517 |
|
$6,147,938 |
|
$9,847,820 |
|
$4,177,204 |
|
$8,004,936 |
|
| Cost of revenues | |
25,362 |
|
132,803 |
|
282,195 |
|
304,081 |
|
351,169 |
|
172,000 |
|
164,169 |
|
|
| |
| |
| |
| |
| |
| |
| |
| Gross profit | |
58,739 |
|
821,456 |
|
3,667,322 |
|
5,843,857 |
|
9,496,651 |
|
4,005,204 |
|
7,840,767 |
|
|
| |
| |
| |
| |
| |
| |
| |
| Operating expenses: | |
| Sales and marketing | |
1,595 |
|
350,720 |
|
1,484,495 |
|
3,274,747 |
|
5,726,557 |
|
2,312,316 |
|
4,218,442 |
|
| General and | |
22,046 |
|
326,686 |
|
1,201,982 |
|
1,354,088 |
|
2,293,846 |
|
1,124,616 |
|
1,959,803 |
|
| administrative | |
| Merger expenses | |
— |
|
— |
|
231,303 |
|
332,721 |
|
54,538 |
|
54,538 |
|
— |
|
|
| |
| |
| |
| |
| |
| |
| |
| Total operating | |
23,641 |
|
677,406 |
|
2,917,780 |
|
4,961,556 |
|
8,074,941 |
|
3,491,470 |
|
6,178,245 |
|
| expenses | |
|
| |
| |
| |
| |
| |
| |
| |
| Income from operations | |
35,098 |
|
144,050 |
|
749,542 |
|
882,301 |
|
1,421,710 |
|
513,734 |
|
1,662,522 |
|
| Interest income | |
— |
|
— |
|
— |
|
2,702 |
|
3,971 |
|
1,487 |
|
5,137 |
|
|
| |
| |
| |
| |
| |
| |
| |
| Income before | |
35,098 |
|
144,050 |
|
749,542 |
|
885,003 |
|
1,425,681 |
|
515,221 |
|
1,667,659 |
|
| income taxes | |
| Income taxes | |
6,213 |
|
38,646 |
|
387,856 |
|
521,268 |
|
572,610 |
|
233,601 |
|
686,649 |
|
|
| |
| |
| |
| |
| |
| |
| |
| Net income | |
$ 28,885 |
|
$105,404 |
|
$ 361,686 |
|
$ 363,735 |
|
$ 853,071 |
|
$ 281,620 |
|
$ 981,010 |
|
|
| |
| |
| |
| |
| |
| |
| |
| Basic and diluted net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| income per share | |
— |
|
$ 0.01 |
|
$ 0.02 |
|
$ 0.02 |
|
$ 0.04 |
|
$ 0.01 |
|
$ 0.05 |
|
| Shares used in | |
| computing basic net | |
| income per share | |
9,431,741 |
|
19,323,064 |
|
19,372,791 |
|
19,425,147 |
|
19,425,147 |
|
19,425,147 |
|
19,425,147 |
|
| Shares used in | |
| computing diluted | |
| net income per share | |
9,431,741 |
|
19,355,147 |
|
19,466,810 |
|
19,425,147 |
|
19,896,353 |
|
19,425,147 |
|
20,501,602 |
|
| Balance Sheet Data: |
As of December 31,
|
|
As of June 30,
|
|
| |
1998 | |
1999 | |
2000 | |
2001 | |
2002 | |
2002 | |
2003
| |
| | |
| |
| |
| |
| |
| |
| |
| |
| |
|
|
|
|
(unaudited) |
|
| Working capital |
|
$ 78,172 |
|
$171,282 |
|
$ 185,734 |
|
$ 425,147 |
|
$1,339,593 |
|
$ 696,634 |
|
$2,455,049 |
|
| Total assets | |
107,051 |
|
404,796 |
|
1,555,506 |
|
2,130,730 |
|
3,239,594 |
|
2,199,753 |
|
4,686,308 |
|
| Long-term debt | |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
| Stockholders’ equity | |
$ 88,885 |
|
$194,289 |
|
$ 574,148 |
|
$ 937,883 |
|
$1,790,954 |
|
$1,219,503 |
|
$2,771,964 |
|
| |
* |
|
Revenues
in 1998, 1999 and 2000 included commissions revenue of $26,774, $61,015
and $97,451, respectively. Commissions revenue in all other periods was not
material. |
14
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with, and is qualified in its entirety by
reference to, the consolidated financial statements and the notes to those statements
beginning on page F-1.
Overview
Travelzoo
Inc. is an Internet media company that publishes online advertisements of sales and specials for hundreds of
travel companies. As the Internet is becoming consumers’ preferred medium to search
for travel offers, we provide airlines, hotels, cruise lines, vacation packagers, and
other travel companies with a fast, flexible, and cost-effective way to reach millions of
potential consumers. Our products include the Travelzoo website, the Travelzoo Top 20 newsletter, and
the Weekend.com newsletter.
Our
revenues are primarily derived from the sale of advertising on our Travelzoo website and
in our Travelzoo Top 20 e-mail newsletter.
Critical Accounting
Policies
We
believe that there are a number of accounting policies that are critical to understanding
our historical and future performance, as these policies affect the reported amounts of
revenue and the more significant areas involving management’s judgments and
estimates. These significant accounting policies relate to revenue recognition and the
provision for doubtful accounts. These policies, and our procedures related to these
policies, are described in detail below.
Revenue Recognition
Substantially
all of our revenues are advertising revenues, consisting of fees paid by travel
companies to advertise their special offers on the Travelzoo website, the Travelzoo
Top 20 e-mail newsletter, and the Weekend.com e-mail newsletter. Listing fees are
based on placement, number of listings, number of impressions, or number of
clickthroughs. Banner advertising rates are based on CPM rates (cost per thousand
impressions). Smaller advertising agreements – typically $2,000 or less per month –
typically renew automatically each month if they are not terminated by the client.
Larger agreements are typically related to advertising campaigns and are not
automatically renewed.
We
recognize advertising revenues in the period in which the advertisement is
displayed, provided that evidence of an arrangement exists, the fees are fixed and
determinable, no significant obligations remain at the end of the period, and
collection of the resulting receivable is deemed probable. If fixed-fee advertising
is displayed over a term greater than one month, revenues are recognized ratably
over the period. To the extent that any minimum guaranteed impressions are not
met during the contract period, we defer recognition of the corresponding revenues
until the guaranteed impressions are achieved. Fees for banner advertising and
other variable-fee advertising arrangements are recognized based on the number of
impressions displayed or clicks delivered during the period.
Under
these policies, no revenue is recognized unless persuasive evidence of an arrangement
exists, delivery has occurred, the fee is fixed or determinable, and collection is deemed
probable. We evaluate each of these criteria as follows:
- Evidence of an arrangement.
We consider a non-cancelable insertion order signed by the client to
be evidence of an arrangement.
- Delivery. Delivery is
considered to occur when the advertising has been displayed and, if applicable, the
clickthroughs have been delivered.
15
- Fixed or determinable fee. We
consider the fee to be fixed or determinable if the fee is not subject to refund or
adjustment.
- Collection is deemed probable.
We conduct a credit review for all significant transactions at the time of the arrangement to determine
the credit-worthiness of the client. Collection is deemed probable if we expect that the client will be
able to pay amounts under the arrangement as payments become due. If we determine that collection is not
probable, then we recognize the revenue upon cash collection, provided that the other criteria for
revenue recognition have been met.
Provision for Doubtful
Accounts
We
initially record a provision for doubtful accounts based on our historical experience of
write-offs and then adjust this provision at the end of each reporting period based on a
detailed assessment of our accounts receivable and allowance for doubtful accounts. In
estimating the provision for doubtful accounts, management considers the age of the
accounts receivable, our historical write-offs, the credit-worthiness of the client, the
economic conditions of the client’s industry, and general economic conditions, among
other factors. Should any of these factors change, the estimates made by management will also change, which
could impact the level of our future provision for doubtful accounts. Specifically, if
the financial condition of our clients were to deteriorate, affecting their ability to
make payments, additional provision for doubtful accounts may be required.
Results of Operations
The
following table sets forth, as a percentage of total revenues, the results of our
operations for the years ended December 31, 2002, 2001 and 2000 and the six-month
periods ended June 30, 2003 and 2002.
|
Year Ended
December 31,
| |
Six Months
Ended June 30,
| |
|
2000
| |
2001
| |
2002
| |
2002
| |
2003
| |
| Revenues: |
|
|
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
| |
| |
| |
| |
| |
|
|
|
|
|
|
| Cost of revenues | | |
| 7 |
|
| 5 |
|
| 4 |
|
| 4 |
|
| 2 |
|
|
|
|
|
|
|
|
| |
| |
| |
| |
| |
| Gross profit | | |
| 93 |
|
| 95 |
|
| 96 |
|
| 96 |
|
| 98 |
|
|
| |
| |
| |
| |
| |
| Operating expenses: | | |
| Sales and marketing | | |
| 38 |
|
| 53 |
|
| 58 |
|
| 55 |
|
| 53 |
|
| General and administrative | | |
| 30 |
|
| 22 |
|
| 23 |
|
| 27 |
|
| 24 |
|
| Merger expenses | | |
| 6 |
|
| 6 |
|
| 1 |
|
| 1 |
|
| – |
|
|
| |
| |
| |
| |
| |
| Total operating expenses | | |
| 74 |
|
| 81 |
|
| 82 |
|
| 83 |
|
| 77 |
|
| Income from operations | | |
| 19 |
|
| 14 |
|
| 14 |
|
| 13 |
|
| 21 |
|
| Interest income | | |
| – |
|
| – |
|
| – |
|
| – |
|
| – |
|
|
| |
| |
| |
| |
| |
| Income before income taxes | | |
| 19 |
|
| 14 |
|
| 14 |
|
| 13 |
|
| 21 |
|
| Income taxes | | |
| 10 |
|
| 8 |
|
| 5 |
|
| 6 |
|
| 9 |
|
|
| |
| |
| |
| |
| |
| Net income | | |
| 9 |
% |
| 6 |
% |
| 9 |
% |
| 7 |
% |
| 12 |
% |
|
| |
| |
| |
| |
| |
Six Months Ended June 30, 2003 and June 30, 2002
Acquisition of Subscribers
In
the six months ended June 30, 2003, we acquired 1,472,000 new subscribers for our
Travelzoo Top 20 product through advertising campaigns for the Travelzoo brand.
Subscription to the Travelzoo Top 20 e-mail newsletter is free. However, we believe that
these additional subscribers add significant value to our company because the additional
subscribers may allow us to increase our advertising rates in the future.
The
cost related to the acquisition of the new subscribers is included in our advertising
expenses. Advertising expenses are included in sales and marketing expenses. For the
six months ended June 30, 2003, our advertising expenses were $2.9 million.
16
Revenues
Our total revenues increased to $4.3 million for the three months ended June 30, 2003, from $2.2 million for the
three months ended June 30, 2002. Our total revenues increased to $8.0 million for the six months ended June 30,
2003, from $4.2 million for the six months ended June 30, 2002. The increase in our total revenues was due to
signing on new clients and increased spending from existing clients. During the three months ended June 30,
2003, we recognized revenue of $77,000 related to advertising delivered in the first quarter of 2003 for which
collectibility was not probable and therefore recognized on a cash-received basis. During the three months ended
June 30, 2003, we did not recognize revenue related to $35,000 of advertising delivered in the quarter that will
be recognized on a cash-received basis since collectibility is not probable.
Cost of Revenues
Cost
of revenues consists of network expenses, including fees we pay for co-location services, depreciation of
network equipment and salary expenses associated with network operations staff. Our cost of revenues decreased to $81,000 for the three months ended June 30, 2003, from $86,000 for the three
months ended June 30, 2002. Our cost of revenues decreased
to $164,000 for the six months ended June 30, 2003, from $172,000 for the six months ended June 30, 2002. As a
percentage of revenue, cost of revenues decreased to 2% for the six months ended June 30, 2003 from 4% for the
six months ended June 30, 2002. The decrease resulted primarily from an increase in revenues that was not offset
by an increase in our network operations costs.
Operating Expenses
- Sales and Marketing. Sales and marketing expenses consist primarily of advertising and promotional expenses, public relations
expenses, conference expenses, commission expenses, and salary expenses associated with sales and marketing
staff. Sales and marketing expenses increased to $2.3 million for the three months ended June 30, 2003 from $1.3 million
for the three months ended June 30, 2002. Sales and marketing expenses increased to $4.2 million for the six months ended June 30, 2003 from $2.3
million for the six months ended June 30, 2002. The increase in sales and marketing expenses was primarily due
to the increase in sales and marketing personnel and an increase of our advertising of the Travelzoo brand. In
the six months ended June 30, 2003 and 2002, advertising expenses accounted for 69% and 67%, respectively, of
sales and marketing expenses. Advertising activities during the two periods were of the same type (i.e., online
advertising). During the six months ended June 30, 2003 and 2002, $236,000 and $226,000, respectively, of
advertising services were purchased from our clients under non-barter arrangements.
- General and Administrative.
General and administrative expenses consist primarily of compensation for administrative and executive staff,
fees for professional services, rent, bad debt expense, amortization of intangible assets and general office
expense. General and administrative expenses increased to $903,000 for the three months ended June 30, 2003 from
$562,000 for the three months ended June 30, 2002. General and administrative expenses increased to $2.0 million
for the six months ended June 30, 2003 from $1.1 million for the six months ended June 30, 2002. General and
administrative expenses increased primarily due to an increase in expenses for office space and an increase in
expenses for professional services.
- Merger Expenses. Merger expenses consist of expenses relating to the registration statement and proxy statement filed with the SEC
relating to the merger of Travelzoo.com Corporation into Travelzoo Inc. Merger expenses were $-0- for both the
three months ended June 30, 2003 and June 30, 2002. There were no merger expenses for the six months ended June
30, 2003 compared to $55,000 for the six months ended June 30, 2002 as the merger was completed in 2002. The
expenses consisted mostly of fees for professional legal and accounting services.
17
Income Taxes
For the three months ended June 30, 2003, we recorded an income tax provision of $419,000. For the three months
ended June 30, 2002, we recorded an income tax provision of $101,000. For the six months ended June 30, 2003, we
recorded an income tax provision of $687,000. For the six months ended June 30, 2002, we recorded an income tax
provision of $234,000. Our income is generally taxed in the U.S. and our income tax provision reflects federal
and state statutory rates applicable to our levels of income and the effect of non-deductible merger expenses in
2002.
Fiscal Years Ended
December 31, 2002, 2001 and 2000
Acquisition of Subscribers
In
2002, we acquired 2,385,000 new subscribers for our Travelzoo Top 20 product through
advertising campaigns for the Travelzoo brand. Subscription to the Travelzoo Top 20
e-mail newsletter is free. However, we believe that these additional subscribers add
significant value to our company because the additional subscribers allow us to increase
our advertising rates.
The
cost related to the acquisition of the new subscribers is included in our expenses for
advertising campaigns for the Travelzoo brand. For the year 2002, our total advertising
expenses were $3.9 million.
Revenues
Our total revenues increased to $9.8 million for the year ended December 31, 2002 from $6.1 million for the year
ended December 31, 2001 and $3.9 million for the year ended December 31, 2000. The increase in our total
revenues was due to an increase in advertising revenues. Advertising revenue increased to $9.8 million for the
year ended December 31, 2002 from $6.1 million for the year ended December 31, 2001 and $3.9 million for the year
ended December 31, 2000. The increases resulted primarily from an increase in the number of travel companies
advertising on the Travelzoo website and in the Travelzoo Top 20 newsletter.
Cost of Revenues
Cost
of revenues consists of network expenses, including fees we pay for co-location services,
depreciation of network equipment and salary expenses associated with network operations
staff. Our cost of revenues increased to $351,000 for the year ended December 31, 2002
from $304,000 for the year ended December 31, 2001 and $282,000 for the year ended
December 31, 2000. As a percentage of revenue, cost of revenues decreased to 4% for the
year ended December 31, 2002 from 5% for the year ended December 31, 2001 and 7% for the
year ended December 31, 2000. The decreases resulted primarily from an increase in
revenues that was not offset by an increase in our network operations costs.
Operating Expenses
- Sales and Marketing. Sales
and marketing expenses consist primarily of advertising and promotional expenses,
public relations expenses, conference expenses, and salary expenses associated with
sales and marketing staff. Sales and marketing expenses increased to $5.7 million
for the year ended December 31, 2002 from $3.3 million for the year ended December
31, 2001 and $1.5 million for the year ended December 31, 2000. The increases in
sales and marketing expenses was due to the decision by our management to hire
more experienced sales personnel and increases of our advertising of the
Travelzoo brand. For the years ended December 31, 2002 and 2001, advertising
expenses accounted for 69% and 69%, respectively, of sales and marketing expenses.
Advertising activities during the two periods were of the same type (i.e., online
advertising).
- General and Administrative.
General and administrative expenses consist primarily of compensation for
administrative and executive staff, fees for professional services, rent, bad
debt expense, amortization of intangible assets and general office expense. General
and administrative expenses increased to $2.3 million for the year ended December
31, 2002 from $1.4 million for the year ended December 31, 2001 and $1.2 million for
the year ended December 31, 2000. General and administrative expenses
increased primarily due to increases in expenses for office space. General and
administrative expenses for the year ended December 31, 2001 include a credit of
$128,000 for a reduction to the bad debt reserve principally due to the collection of a
doubtful account.
18
- Merger Expenses. Merger
expenses consist of expenses relating to the registration statement and proxy
statement filed with the SEC relating to the merger of Travelzoo.com Corporation
into Travelzoo Inc. Merger expenses decreased to $55,000 for the year ended
December 31, 2002 from $333,000 for the year ended December 31, 2001 and $231,000
for the year ended December 31, 2000. The expenses consisted mostly of fees for
professional services, primarily legal and accounting.
Intangible Assets
As
of December 31, 2002, our long-lived assets included intangible assets of $212,000. The
intangible assets consist of the weekend.com and the weekends.com Internet domain names.
During 2002, we evaluated the recoverability of our intangible assets in accordance with
Statement of Financial Accounting Standards No. 144, “Impairment of Long-Lived
Assets,” which required us to assess these assets for recoverability when events or
circumstances indicate a potential impairment by estimating the undiscounted cash flows
to be generated from the use of these assets. No impairment losses were recorded related
to intangible assets in 2002. Any future impairment losses recorded in the future could
have a material adverse impact on our financial conditions and results of operations.
Income Taxes
For
the year ended December 31, 2002, we recorded an income tax provision of $573,000. For
the years ended December 31, 2001 and 2000, we recorded income tax provisions of $521,000
and $388,000, respectively. Our income is generally taxed in the U.S. and our income tax
provision reflects federal and state statutory rates applicable to our levels of income
and the effect of non-deductible merger expenses in 2000, 2001 and 2002.
Quarterly Financial Information
The following table sets forth, for the periods indicated, our consolidated financial information for the
last ten quarters. We prepared this information using our unaudited interim consolidated financial statements
that, in our opinion have been prepared on a basis consistent with our annual consolidated financial statements.
We believe that these interim consolidated financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of this information when read in conjunction with
our financial statements and notes to financial statements. The operating results for any quarter do not
necessarily indicate the results expected for any future period.
|
|
First
Quarter |
|
Second
Quarter |
|
Third
Quarter |
|
Fourth
Quarter |
|
Full
Year |
|
|
| |
(unaudited, in thousands, except per share amounts) |
| 2003 | |
|
|
|
|
|
|
|
|
|
|
| Revenues | |
$ 3,714 |
|
$ 4,291 |
|
n/a |
|
n/a |
|
n/a |
|
| Gross profit | |
3,630 |
|
4,210 |
|
n/a |
|
n/a |
|
n/a |
|
| Net income | |
385 |
|
596 |
|
n/a |
|
n/a |
|
n/a |
|
| Basic and diluted net income per share | |
$ 0.02 |
|
$ 0.03 |
|
n/a |
|
n/a |
|
n/a |
|
|
| 2002 | |
|
|
| Revenues | |
$ 1,966 |
|
$ 2,211 |
|
$ 2,538 |
|
$ 3,133 |
|
$ 9,848 |
|
| Gross profit | |
1,880 |
|
2,125 |
|
2,448 |
|
3,043 |
|
9,497 |
|
| Net income | |
136 |
|
146 |
|
246 |
|
326 |
|
853 |
|
| Basic and diluted net income per share | |
$ 0.00 |
|
$ 0.01 |
|
$ 0.01 |
|
$ 0.02 |
|
$ 0.04 |
|
|
| 2001 | |
|
|
| Revenues | |
$ 1,311 |
|
$ 1,539 |
|
$ 1,575 |
|
$ 1,723 |
|
$ 6,148 |
|
| Gross profit | |
1,234 |
|
1,465 |
|
1,501 |
|
1,644 |
|
5,844 |
|
| Net income | |
218 |
|
70 |
|
61 |
|
15 |
|
364 |
|
| Basic and diluted net income per share | |
$ 0.01 |
|
$ 0.01 |
|
$ 0.00 |
|
$ 0.00 |
|
$ 0.02 |
|
19
Liquidity and Capital
Resources
As
of June 30, 2003, we had $2.3 million in cash and cash equivalents. Cash and cash
equivalents increased from $1.3 million on December 31, 2002, primarily as a result of
operating income and an increase in accrued expenses offset by an increase in accounts
receivable. Cash and cash equivalents increased from $610,000 on December 31, 2001
primarily as a result of operating income and an increase in accounts payable and accrued
expenses offset by income tax payments and an increase in accounts receivable. Cash and
cash equivalents increased to $610,000 on December 31, 2001 from $46,000 on December 31,
2000 primarily as a result of operating income and an increase in accrued expenses and
income tax payable offset by an increase in accounts receivable and deposits. We expect
that cash flows generated from operations will continue to be sufficient to provide for
our working capital needs in the near future.
Net cash provided by operating activities in the six months ended June 30, 2003 was $1.1 million. Net cash used
in operating activities in the six months ended June 30, 2002 was $132,000. In the six months ended June 30,
2003, net cash provided by operating activities resulted primarily from operating income and an increase in
accrued expenses offset by an increase in accounts receivable. In the six months ended June 30, 2002, net cash
used in operating activities resulted primarily from a decrease in income tax payable and an increase in accounts
receivable offset by our net income, and an increase in deferred revenue.
Net
cash provided by operating activities in the year ended December 31, 2002 was $769,000.
Net cash provided by operating activities in the year ended December 31, 2001 was
$771,000. Net cash provided by operating activities in the year ended December 31, 2000
was $409,000. In the year ended December 31, 2002, net cash provided by operating
activities resulted primarily from operating income and an increase in accounts payable
and accrued expenses offset by income tax payments and an increase in accounts
receivable. In the year ended December 31, 2001, net cash provided by operating
activities resulted primarily from our net income, adjusted for certain non-cash items,
and a decrease in prepaid expenses offset by increase in deposits. In the year ended
December 31, 2000, net cash provided by operating activities resulted primarily from our
net income, adjusted for certain non-cash items, and an increase in income tax payable
offset by an increase in accounts receivable.
Net cash used in investing activities was $19,000 and $99,000 during the six months ended June 30, 2003 and 2002,
respectively. In both periods, net cash was used in investing activities for equipment purchases. Net cash used
in investing activities was $121,000, $156,000, and $428,000 during the years ended December 31, 2002, 2001 and
2000, respectively. In all periods, net cash was used in investing activities for equipment purchases, and in
2000 $125,000 was used for the purchase of a domain name.
There
were no cash flows related to financing activities in the six months ended June 30,
2003 and 2002 and the year ended December 31, 2002. Net cash used in financing activities
was $50,000 for the year ended December 31, 2001. Net cash provided by financing
activities was $54,000 for the year ended December 31, 2000. In the year ended December
31, 2001, net cash was used in financing activities for repayment of a loan made to
Travelzoo by Ralph Bartel, its principal stockholder. In the year ended December 31,
2000, net cash was provided by a loan by Mr. Bartel and exercise of stock options by an
employee.
Our
capital requirements will depend on a number of factors, including market acceptance of
our products and services, the amount of our resources we devote to the Travelzoo
website, the Travelzoo Top 20 newsletter, the Weekend.com newsletter and expansion of our
operations and the amount of our resources we devote to promoting awareness of the
Travelzoo brand. Consistent with our growth, we have experienced a substantial increase
in our sales and marketing expenses and capital expenditures since inception, and we
anticipate that these increases will continue for the foreseeable future. We believe cash
on hand and generated during those periods will be sufficient to pay such costs. In
addition, we will continue to evaluate possible investments in businesses, products and
technologies, the consummation of any of which would increase our capital requirements.
20
Although
we currently believe that we have sufficient capital resources to meet our anticipated
working capital and capital expenditure requirements beyond the next 12 months,
unanticipated events and opportunities may require us to sell additional equity or debt
securities or establish new credit facilities to raise capital in order to meet our
capital requirements. If we sell additional equity or convertible debt securities, the
sale could dilute the ownership of our existing stockholders. If we issue debt securities
or establish a new credit facility, our fixed obligations could increase, and we may be
required to agree to operating covenants that would restrict our operations. We cannot be
sure that any such financing will be available in amounts or on terms acceptable to us.
Quantitative and
Qualitative Disclosures About Market Risk
Our
accounts receivable are subject, in normal course of business, to collection risks. We
regularly assess these risks and have established policies and business practices to
minimize the adverse effects of collection risks. As a result, we do not anticipate any
material losses in this area.
21
BUSINESS
Travelzoo
Inc. is an Internet media company that publishes online advertisements of sales and specials for hundreds of
travel companies. As the Internet is becoming consumers’ preferred medium to search
for travel offers, we provide airlines, hotels, cruise lines, vacation packagers, and
other travel companies with a fast, flexible, and cost-effective way to reach millions of
potential consumers. Our products include the Travelzoo website, the Travelzoo Top 20 e-mail newsletter, and
the Weekend.com e-mail newsletter.
More than 200 companies purchase our services. Our clients include American Airlines, American Express, Alamo
Rent-A-Car, Apple Vacations, America West Vacations, Avis Rent-A-Car, British Airways, Carnival Cruise Lines,
Liberty Travel, Delta Air Lines, Expedia, Fairmont Hotels & Resorts, Hilton Hotels, JetBlue Airways, Marriott
Hotels, Park Place Entertainment, Pleasant Holidays, Spirit Airlines, Funjet Vacations, Southwest Airlines,
Starwood Hotels & Resorts Worldwide, Royal Caribbean, United Airlines, and US Airways.
Our
revenues are generated from advertising sales. Our revenues have grown rapidly since we
began operations in 1998, primarily driven by an increasing number of travel companies
listing their sales and specials on the Travelzoo website and in the Travelzoo Top 20
newsletter. Our revenues increased from approximately $84,000 for the period from May 21,
1998 (inception) to December 31, 1998, to approximately $9.8 million for the year ended
December 31, 2002.
Our
principal business office is located at 590 Madison Avenue, 21st Floor, New York, New
York 10022. Additionally, we have offices in Chicago, Miami, and Mountain View (California). Our local presence in these
regions allows us to better source and publish information on travel specials which are relevant to each regional
market. In addition, these regional offices provide local proximity for our sales force to better service
advertisers.
Travelzoo
was originally incorporated as Travelzoo.com Corporation (“Travelzoo
Bahamas”) in the Commonwealth of The Bahamas. In a “Netsurfer Stockholder”offering,
Travelzoo Bahamas issued approximately 2.6 million shares of its common stock to
approximately 700,000 visitors who registered on the Travelzoo website. No cash payments
were required or received for any of the stock issued pursuant to the Netsurfer
Stockholder offering. The number of shares issued was doubled as a result of a
subsequent two-for-one stock split.
In a series of transactions completed in 2002, Travelzoo Bahamas was merged into Travelzoo Inc., a Delaware
corporation, and each share of Travelzoo Bahamas was converted into the right to receive one share of common
stock of Travelzoo Inc. As of June 30, 2003, 128,214 former stockholders of Travelzoo Bahamas have taken the
steps necessary to receive their shares in Travelzoo Inc., and 7,148,184 shares of common stock have been issued.
If all former stockholders of Travelzoo Bahamas accept their shares in Travelzoo Inc., an additional 4,147,690
shares of common stock will be issued. These shares are reported as outstanding in our financial statements.
In August 2002, Travelzoo commenced
trading on the OTC Bulletin Board. Trading has been very limited. We have applied for the
listing of our common stock on the NASDAQ SmallCap Market under the symbol
“TZOO.” This offering is intended primarily to allow Travelzoo to satisfy the
requirement for listing on the NASDAQ SmallCap Market that we have 300 round lot holders
of our common stock. A qualifying round lot holder is a stockholder who owns at least 100
shares of Travelzoo stock We believe that subject to satisfying the requirement relating
to the round lot holders, our application for listing on the NASDAQ SmallCap Market will
be approved. However, we cannot provide any assurances in regard to approval of the
application. In the event we are unable to obtain approval for listing on the NASDAQ
SmallCap Market, our shares of common stock will continue to trade on the OTC Bulletin
Board. See “Risk Factors.”
22
Our Market
According
to the Newspaper Association of America, travel companies spent $1.4 billion in 2002 on
national advertising in newspapers (source: Market and Business Analysis, NAA, 2003).
We believe that newspapers are currently the
main medium for travel companies to advertise their sales and specials.
We
believe that several factors are causing and will continue to cause travel companies to
increase their spending on Internet advertising of sales and specials:
- The Internet
Is Consumers' Preferred Information Source. Market research shows that the Internet
has become consumers' preferred information source for travel (source: Forrester
Research, 2002).
- Benefits of
Internet Advertising vs. Print Advertising. Internet advertising provides travel
companies advantages compared to print advertising, including
real-time listings, real-time updates, and performance tracking. See “- Benefits
to Travel Companies.”
- New
Advertising Opportunities. The Internet allows travel companies to advertise
their sales and specials in a fast, flexible, and cost-effective manner that
has not been possible before. We believe this will lead to greater
expenditures by travel companies on advertising sales and specials.
- Suppliers
Selling Directly. We believe that many travel suppliers prefer to sell their travel
services directly to consumers, as an alternative to distribution
through travel agents. Travel suppliers can sell directly to consumers by
advertising sales and specials via the Internet that attract consumers to
suppliers’ websites.
Problems Travel Companies
Face and Limitations of Newspaper Advertising
We
believe that travel companies often face the challenge of being able to effectively
market and sell excess inventory (i.e., airline seats, hotel rooms, or cruise cabins that
are likely to be unfilled). The success of marketing excess inventory can have a
substantial impact on a travel company’s net income since almost all costs of travel
services are fixed, that is, the costs do not vary with sales. A relatively small amount
of unsold inventory can have a significant impact on the profitability of a travel
company.
Our
management believes that travel companies need a fast, flexible, and cost-effective
solution for marketing excess inventory. The solution must be fast, because travel
services are a quickly expiring commodity. The period between the time when a company
realizes that there is excess inventory and the time when the value of the travel service
becomes worthless is very short. The solution must be flexible, because the travel
industry is dynamic and the demand for excess inventory is difficult to forecast. It is
difficult for travel companies to price excess inventory. It is difficult for travel
companies to forecast the marketing effort needed to sell excess inventory. The marketing
must be cost-effective because excess inventory is often sold at highly discounted
prices, which lowers margins.
With respect to advertising excess travel inventory, our management believes that newspaper advertising suffers
from a number of limitations which do not apply to the Internet:
- typically ads
must be submitted 2 to 5 days prior to the publication date, which makes it difficult
to advertise last-minute inventory;
- once an ad is
published, it cannot be updated or deleted when an offer is sold out;
- once an ad is
published, the travel company cannot change a price;
- in many
markets, the small number of newspapers and other print media reduces competition,
resulting in high rates for newspaper advertising; and
- newspaper
advertising does not allow for detailed performance tracking.
23
Our Products and Services
We
provide airlines, hotels, cruise lines, vacation packagers, and other travel suppliers
with a fast, flexible, and cost-effective way to advertise their sales and specials to
millions of potential consumers. Our products include the Travelzoo website, the Travelzoo Top 20
newsletter, and the Weekend.com newsletter. While our products provide advertising
opportunities for travel companies, they also provide Internet users with a free source
of information on current sales and specials from hundreds of travel companies.
As
travel companies increasingly utilize the Internet to promote their special offers, we
believe that our products will enable them to take advantage of the lower cost and
real-time communication enabled by the Internet. Our listing management software allows
travel companies to add, update, and delete special offer listings on a real-time basis.
Our software also provides travel companies with real-time performance tracking, enabling
them to optimize their marketing campaigns.
Our
Travelzoo website at http://www.travelzoo.com lists sales and specials from approximately
200 travel companies and it reaches 5.1 million Internet users per month (source:
comScore Media Metrix, 3/2003).
Our
Travelzoo Top 20 is a free weekly e-mail newsletter that highlights attractive sales and specials from selected travel companies and as of July 1, 2003 it had 4.6 million subscribers.
Our
Weekend.com newsletter is a free weekly e-mail newsletter that features ideas and travel
opportunities for weekends. We launched this product in November 2002 and as of July 1, 2003, it had
822,000 subscribers.
Benefits to Travel
Companies
Key
features of our solution for travel companies include:
- Real-Time
Listings of Special Offers. Our technology allows travel companies to advertise new
special offers on a real-time basis.
- Real-Time
Updates. Our technology allows travel companies to update their listings on a real-time
basis.
- Real-Time
Performance Reports. We provide travel companies with real-time tracking of the
performance of their advertising campaigns. Our solution enables travel
companies to optimize their campaigns by removing or updating unsuccessful listings
and further promote successful listings.
- Access to
Millions of Consumers. We provide travel companies fast access to millions of travel
shoppers.
- National
Reach. We offer travel companies access to Internet users across the U.S.
Benefits to Consumers
Our
Travelzoo website, our Travelzoo Top 20 newsletter, and our Weekend.com newsletter
provide consumers information on current special offers at no cost to the consumer. Key
features of our products include:
- Aggregation
of Offers from Many Companies. Our Travelzoo website and our Travelzoo Top 20
e-mail newsletter aggregate information on current special offers from approximately
200 travel companies. This saves the consumer time when searching for travel sales and
specials.
- Current
Information. Compared to newspaper ads, we provide consumers with more current
information, since our technology enables travel companies to update their listings on
a real-time basis.
- Search Tools.
We provide consumers with the ability to search for specific special offers.
24
Our Strategy
Our
objective is to become the largest online publisher of sales and specials for travel
companies. Key elements of our strategy include:
- Build Strong
Brand Awareness. We believe that it is essential to establish a strong brand with
Internet users and within the travel industry. We currently utilize an online
marketing program to promote our brands to Internet users. In addition, we
believe that we build brand awareness by product excellence that is promoted by
word-of-mouth. We utilize sponsorships at industry conferences and public
relations to promote our brands within the travel industry.
- Increase
Reach. In order to attract more users to our products, we intend to expand our
advertising campaigns as our business grows. We believe that we also can
attract more users by product excellence that is promoted by word-of-mouth.
- Maintain Quality User
Base. We believe that, in addition to increasing our reach, we need to maintain the quality of our user base by producing high quality
content.
- Increase
Number of Advertising Clients. We intend to continue to grow our advertising client
base by expanding the size of our sales force. See “- Sales and Marketing.”
- Provide Excellent
Service. We believe it is important to provide our advertising clients with
excellent service in terms of the execution of their insertion orders.
Clients
As
of December 31, 2002, our client base included approximately 200 travel companies,
including airlines, hotels, cruise lines, vacations packagers, tour operators, car rental
companies, and travel agents. Some of our clients include:
| American Airlines |
Lufthansa |
| American Express |
Marriott Hotels |
| Alamo Rent-A-Car |
MyTravel Group |
| Apple Vacations |
Norwegian Cruise Line |
| America West Vacations |
Park Place Entertainment |
| Avis Rent-A-Car |
Pleasant Holidays |
| British Airways |
Spirit Airlines |
| Budget Rent A Car |
Starwood Hotels & Resorts Worldwide |
| Delta Air Lines |
Royal Caribbean |
| Expedia |
Travelocity.com |
| Funjet Vacations |
Southwest Airlines |
Hilton Hotels
JetBlue Airways |
United Airlines |
In the six months ended June 30, 2003, two clients accounted for 23% of our revenues. For the year ended
December 31, 2002, our two largest clients accounted for 15% and 14% of our revenues respectively, compared to
15% and 13% in 2001 and 22% and 11% in 2000, respectively. No other clients accounted for 10% or more of
revenues in 2000, 2001, 2002, or the six months ended June 30, 2003.
Sales and Marketing
As
of July 1, 2003, our direct sales force consisted of a Senior Vice President of Sales, a
Vice President of Business Development and three advertising sales managers.
We
currently utilize an online marketing program to promote our brands to Internet users. In
addition, we believe that we build brand awareness by product excellence that is promoted
by word-of-mouth. We utilize sponsorships at industry conferences and public relations to
promote our brands within the travel industry.
25
Technology
We
have designed our technology to serve a large volume of web traffic in an efficient and
scaleable manner. We
co-locate our production servers with Cable & Wireless, a global communications
company. Cable & Wireless’ facility includes features such as power redundancy,
multiple egress and peering to other ISPs, fire suppression and access to our own
separate physical space. We believe our arrangements with Cable & Wireless will allow
us to grow without being limited by our own physical and technological capacity, and will
also provide us with sufficient bandwidth for our anticipated needs. Because of the
design of our website, our users are not required to download or upload large files from
or to our website, which allows us to continue increasing the number of our visitors and
page views without adversely affecting our performance or requiring us to make
significant additional capital expenditures.
Our
software is written using open standards, such as Visual Basic Script, and HTML, and
interfaces with products from Microsoft. We have standardized our hardware platform on
Compaq servers and Cisco switches.
New Products and Services
In
June of 2003, we launched Newsflash, a new Travelzoo e-mail
product that allows travel companies to announce time-sensitive and newsworthy sales and
specials just as they are released.
Competition
We
compete with large Internet portal sites, such as About.com, America Online, Lycos, MSN
and Yahoo!, that offer listings or other advertising opportunities for travel companies.
We also compete with smaller sites that specialize in listing last-minute offers or list
deals for free, such as Smarterliving.com. In addition, we compete with newspapers,
magazines and other traditional media companies that operate websites which provide
advertising opportunities. We expect to face additional competition as other established
and emerging companies, including print media companies, enter our market.
Many
of our current and potential competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources and larger client bases than
we do. In addition, current and potential competitors may make strategic acquisitions or
establish cooperative relationships to expand their businesses or to offer more
comprehensive solutions.
New
technologies could increase the competitive pressures that we face. The development of
competing technologies by market participants or the emergence of new industry standards
may adversely affect our competitive position. Competition could result in reduced
margins on our services, loss of market share or less use of our products by travel
companies and consumers. If we are not able to compete effectively with current or future
competitors as a result of these and other factors, our business could be materially
adversely affected.
Government Regulation and
Legal Uncertainties
There
are increasing numbers of laws and regulations pertaining to the Internet, including laws
and regulations relating to user privacy, liability for information retrieved from or
transmitted over the Internet, online content regulation, user privacy and domain name
registration. Moreover, the applicability to the Internet of existing laws governing
issues such as intellectual property ownership and infringement, copyright, patent,
trademark, trade secret, obscenity, libel and personal privacy is uncertain and
developing.
26
Privacy
Concerns. Government agencies are considering adopting regulations regarding the
collection and use of personal identifying information obtained from individuals when
using Internet sites or e-mail services. While we have implemented and intend to
implement additional programs designed to enhance the protection of the privacy of our
users, these programs may not conform to any regulations adopted which may be adopted by
these agencies. In addition, these regulatory and enforcement efforts may adversely
affect our ability to collect demographic and personal information from users, which
could have an adverse effect on our ability to provide advertisers with demographic
information. The European Union (the “EU”) has adopted a directive that imposes
restrictions on the collection and use of personal data. The directive could impose
restrictions that are more stringent than current Internet privacy standards in the U.S.
The directive may adversely affect our activities to the extent that we may seek to
collect data from users in EU member countries.
Domain
Names. Domain names are the user’s Internet “addresses.” The current
system for registering, allocating and managing domain names has been the subject of
litigation and of proposed regulatory reform. We own the domain names for travelzoo.com,
travelzoo.net, travelzoo.org, travelzoo.ca, travelzoo.co.uk, weekend.com, and
weekends.com, and have registered “Travelzoo” and “Weekend.com” as
trademarks in the U.S. Because of these protections, it is unlikely, yet possible, that
third parties may bring claims for infringement against us for the use of our domain name
and trademark. In the event such claims are successful, we could lose the ability to use
our domain names. There can be no assurance that our domain name will not lose its value,
or that we will not have to obtain entirely new domain names in addition to or in lieu of
our current domain name if changes in overall Internet domain name rules result in a
restructuring in the current system of using domain names which include “.com,”
“.net,” “.gov,” “.edu” and
other extensions.
Jurisdictions. Due
to the global nature of the Internet, it is possible that, although our
transmissions over the Internet originate primarily in California, the
governments of other states and foreign countries might attempt to regulate our
business activities. In addition, because our service is available over the
Internet in multiple states and foreign countries, these jurisdictions may
require us to qualify to do business as a foreign corporation in each of these
states or foreign countries, which could subject us to taxes and other
regulations.
Intellectual Property
Our
success depends to a significant degree upon the protection of our brand names, including
Travelzoo, Travelzoo Top 20, and Weekend.com. If we were unable to protect the Travelzoo
and Travelzoo Top 20 brand names, our business could be materially adversely affected. We
rely upon a combination of copyright, trade secret and trademark laws to protect our
intellectual property rights. The steps we have taken to protect our proprietary rights,
however, may not be adequate to deter misappropriation of proprietary information.
We
may not be able to detect unauthorized use of our proprietary information or take
appropriate steps to enforce our intellectual property rights. In addition, the validity,
enforceability and scope of protection of intellectual property in Internet-related
industries is uncertain and still evolving. The laws of other countries in which we may
market our services in the future are uncertain and may afford little or no effective
protection of our intellectual property.
On
June 21, 1999, Mr. Bartel, our founder, filed with the U.S. Patent and Trademark Office (“PTO”)
to register the trademark “Travelzoo” for “providing information and news
in the field of travel via an on-line global communications network and travel agency
services, namely making reservations and booking for transportation,” “providing
information and news in the field of travel via an on-line global communications network
and travel agency services, namely making reservations and booking for temporary lodging,” and
“promoting the goods and services of others through the offer of travel goods and
services and shopping club services, namely providing information on travel goods and
services to members.” The PTO published that mark for opposition on October 31,
2000. On January 22, 2001, Mr. Bartel, who filed the trademark application as an
individual, transferred the ownership of the pending trademark “Travelzoo” to
Travelzoo Inc. The mark was registered by the PTO on January 23, 2001.
27
On
November 2, 2000, we filed with the PTO to register the trademark “Weekend.com”for
“providing information via websites on global computer networks in the field travel,” “providing
information via websites on global computer networks in the fields of entertainment,
recreation, and sports,” and “providing information via websites on global
computer networks in the fields of fashion, fitness, health and exercise.” The mark
was registered by the PTO on November 5, 2002.
On
March 18, 2002, we filed with the PTO to register the trademark “Top 20” for
“promoting the goods and services of others through the offer of travel goods and
services and shopping club services, namely providing information on travel goods and
services to members,” “providing information and news in the field of travel
via an on-line global communications network and travel agency services namely making
reservations and booking for transportation,” and “providing information and
news in the field of travel via an on-line global communications network and travel
agency services, namely, making reservations and booking for temporary travel lodging.” The
mark was registered by the PTO in the Supplemental Register on May 13, 2003.
Employees
As
of July 1, 2003, we had 30 employees, of whom 8 worked in sales, business development,
and marketing, 17 in production, 1 in network operations and 4 were involved in finance,
administration, and corporate operations. None of our employees is represented under
collective bargaining agreements. We consider our relations with our employees to be
good. Because of our anticipated further growth combined with the requirements we face as
a public company, we expect that the number of our employees will continue to increase
for the foreseeable future.
Properties
Our principal offices are located in approximately 2,000 square feet of office space in New York, New York
under an operating lease with HQ Global Workplaces, Inc. that expires on June 30, 2004. Our West Coast offices
are located in approximately 3,000 square feet of office space in Mountain View, California under an operating
lease with HQ Global Workplaces, Inc. that expires on December 31, 2003. Our Chicago offices are located in
approximately 300 square feet of office space in Chicago, Illinois under an operating lease with Regus Business Centres Corp.
that expires on July 31, 2005 and our Miami offices are located in approximately 200 square feet of office space
in Miami, Florida under an operating lease with Regus Business Centres Corp. that expires on May 31, 2004. We believe that our
leased facilities are adequate to meet our current needs; however, we intend to expand our operations and
therefore may require additional facilities in the future. We believe that such additional facilities are
available.
28
MANAGEMENT
The
following table sets forth certain information with respect to the directors and
executive officers of Travelzoo as of July 1, 2003.
| Name |
Age |
Position |
| Ralph Bartel |
37 |
President, Chief Executive Officer, and Chief Financial Officer and Chairman of the Board of Directors |
| Holger Bartel |
36 |
Executive Vice President |
| David J. Ehrlich |
40 |
Director |
| Kelly N. Ford |
36 |
Vice President of Marketing |
| Steven M. Ledwith |
45 |
Vice President of Engineering |
| Suzanna Mak |
34 |
Director |
| Donovan Neale-May |
51 |
Director |
| Lisa Su |
28 |
Controller (Chief Accounting Officer) |
| Shirley Tafoya |
40 |
Senior Vice President of Sales |
| Kelly M. Urso |
38 |
Director |
Ralph
Bartel founded Travelzoo in May 1998 and has served as our President, Chief Executive
Officer and Chairman of the Board of Directors since inception. Prior to his founding of
Travelzoo, from 1996 to 1997, Mr. Bartel served as Managing Assistant at Gruner + Jahr
AG, the magazine division of Bertelsmann AG. Mr. Bartel holds a Ph.D. in Communications
from the University of Mainz, Germany, an MBA in Finance and Accounting from the University
of St. Gallen, Switzerland, and a Master’s degree in Journalism from University of
Eichstaett, Germany.
Holger
Bartel has served as Executive Vice President since September 1999. From 1995 to 1998, Mr. Bartel worked as an
Engagement Manager at McKinsey & Company in Los Angeles. From 1992 to 1994, Mr. Bartel was a research fellow at
Harvard Business School. Mr. Bartel holds an MBA in Finance and Accounting and a Ph.D. in Economics from the
University of St. Gallen, Switzerland. He is the brother of Ralph Bartel.
David
J. Ehrlich has served as a director since February 1999. Since February 2003, Mr. Ehrlich
has been Vice President of Corporate Development for NetIQ Corporation. From 1998 to
2002, Mr. Ehrlich held the position of Vice President, Product Management and Strategic
Partnering for Visual Networks, Inc. Mr. Ehrlich holds a bachelor’s degree in
Sociology and a master’s degree in Industrial Engineering from Stanford University
and an MBA from Harvard Business School.
Kelly
N. Ford has served as Vice President of Marketing since December 2002. From February 2001 to December 2002, Mr.
Ford worked as Director of Media Strategy and Development at America Online Inc. From January 2000 to November
2000, Mr. Ford worked as Vice President of Marketing at ISalvage.com, Inc. From 1992 to 2000, Mr. Ford worked at
Campbell Soup Company as Marketing Director. Mr. Ford holds a bachelor's degree in Electrical Engineering with
Computer Science Specialty from Stanford University and an MBA from INSEAD.
Steven
M. Ledwith has served as Vice President of Engineering since January 2000. From January 1998 to January 2000, Mr. Ledwith
worked as Senior Mechanical Engineer at Radix Technologies, Inc. Mr. Ledwith holds a bachelor's degree in
Thermomechanical Engineering from University of Illinois at Chicago Circle.
Suzanna
Mak has served as a director since February 1999. Since March 2000, she has been employed
as a Deputy District Attorney for Yolo County. From 1998 to 1999, Ms. Mak served as a
Judicial Officer at Stanford University. Ms. Mak received her bachelor’s degree from
Stanford University and her Juris Doctor degree from Santa Clara University.
29
Donovan
Neale-May has served as a director since February 1999. Since 1987, Mr. Neale-May has
been President of Neale-May & Partners, a strategic marketing and public relations
firm with 80 full-time communications professionals headquartered in Palo Alto,
California.
Lisa Su
has served as Controller (Chief Accounting Officer) since October 2000. From April 1999 to September 2000, Ms.
Su was a Treasury Accountant for Webvan Group, Inc. Ms. Su holds a bachelor's degree in Economics/Accounting
from Claremont McKenna College and an MBA in Finance from California State University, Hayward.
Shirley
Tafoya has served as Senior Vice President of Sales since May 2001. From July 1999 to March 2001, Ms. Tafoya worked as
Director of Western Sales at Walt Disney Internet Group. From 1998 to 1999, Ms. Tafoya worked as Sales Manager
at IDG/International Data Group. From 1994 to 1998, Ms. Tafoya worked as Director, Global Accounts, at CMP
Media. Ms. Tafoya holds a bachelor's degree in Business Administration from Notre Dame de Namur University.
Kelly
M. Urso has served as a director since February 1999. Since July 2003, Ms. Urso has
been a principal at K. M. Urso & Company, LLC. From September 2001 to July 2003, Ms. Urso was
employed as a tax attorney by Reynolds & Rowella LLP. From 1997 to 2001, Ms.
Urso served as the leader of the expatriate tax group at General Electric International,
Inc. Ms. Urso holds a bachelor’s degree in business administration from the
University of Cincinnati and a Juris Doctor degree from the Thomas M. Cooley Law School
in Lansing, Michigan.
The
following table shows the amount of our common stock beneficially owned as of July 1,
2003, by each director and each of our executive officers listed in the Summary
Compensation Table on page 30 of this prospectus, all current directors and executive
officers as a group and all persons or entities that we know to beneficially own more
than 5% of our stock. In general, shares “beneficially owned” include those
shares a person has or shares the power to vote, or the power to dispose of. The table
also shows the number of options to purchase shares of our common stock that are
exercisable, either immediately or by August 29, 2003.
| |
|
Amount of Common Stock Beneficially Owned
|
| Name |
|
Number of
Shares (1) |
|
Exercisable
Options (2) |
|
Total |
|
% of Shares
Outstanding |
|
| Ralph Bartel |
|
14,019,074 |
|
2,193,349 |
|
16,212,423 |
|
74 |
% |
| Holger Bartel | |
16,263 |
|
— |
|
16,263 |
|
* |
|
| David J. Ehrlich | |
10,006 |
|
35,000 |
|
45,006 |
|
* |
|
| Kelly N. Ford | |
— |
|
— |
|
— |
|
— |
|
| Steven M. Ledwith | |
16 |
|
— |
|
16 |
|
* |
|
| Suzanna Mak | |
10,006 |
|
35,000 |
|
45,006 |
|
* |
|
| Donovan Neale-May | |
110,000 |
|
35,000 |
|
145,000 |
|
1 |
% |
| Lisa Su | |
6 |
|
— |
|
6 |
|
* |
|
| Shirley Tafoya | |
— |
|
— |
|
— |
|
— |
|
| Kelly M. Urso | |
10,010 |
|
35,000 |
|
45,010 |
|
* |
|
| Directors and executive officers as a group (10 persons) | |
14,175,381 |
|
2,333,349 |
|
16,508,730 |
|
76 |
% |
_________________
| |
* |
|
Represents
less than 1% of the outstanding shares of common stock. |
| |
(1) |
|
All
shares are held directly. |
| |
(2) |
|
Shares
that could be acquired by exercising stock options through August 29, 2003. |
30
Executive Compensation
The
following table sets forth summary information concerning all compensation we paid each
of our executive officers during the years ended December 31, 2000, 2001 and 2002.
Summary Compensation Table
|
| |
|
Fiscal Year
|
|
Annual Compensation
|
|
Long Term
Compensation
|
|
|
|
Name and Principal Position
|
|
|
|
Salary ($)
|
|
Bonus ($)
|
|
Shares
Underlying
Options(#)(1)
|
|
All Other
Compensation
|
|
| Ralph Bartel |
|
2002 |
|
$192,000 |
|
— |
|
5,000 |
|
— |
|
| Chairman, President, Chief | |
2001 | |
$192,000 |
|
$1,832 |
|
30,000 |
|
— |
|
| Executive Officer, and Secretary | |
2000 | |
$168,000 |
|
$9,739 |
|
— |
|
— |
|
| Holger Bartel | |
2002 | |
$240,000 |
|
— |
|
— |
|
— |
|
| Executive Vice President | |
2001 | |
$240,000 |
|
$1,832 |
|
— |
|
— |
|
| | |
2000 | |
$148,000 |
|
$9,739 |
|
— |
|
— |
|
| Steven Ledwith | |
2002 | |
$130,008 |
|
— |
|
— |
|
— |
|
| Vice President of Engineering | |
2001 | |
$120,000 |
|
$1,832 |
|
— |
|
— |
|
| | |
2000 | |
$ 97,089 |
|
$5,329 |
|
— |
|
— |
|
| Lisa Su | |
2002 | |
$103,337 |
|
— |
|
— |
|
— |
|
| Controller | |
2001 | |
$ 85,837 |
|
$1,832 |
|
— |
|
— |
|
| | |
2000 | |
$ 18,750 |
|
— |
|
— |
|
— |
|
| Shirley Tafoya | |
2002 | |
$294,275 |
|
— |
|
— |
|
— |
|
| Senior Vice President of Sales | |
2001 | |
$134,448 |
|
— |
|
— |
|
— |
|
|
|
|
|
|
|
_______________
| |
(1) |
|
The
options issued to Mr. Bartel during 2001 and 2002 constitute compensation for
participation on the Board of Directors. |
Employment Agreements
Ralph Bartel has entered into an employment agreement with us. His current employment agreement became effective
on October 1, 2000 and was amended effective July 1, 2003. The agreement provides for an annual salary of
$200,000 and an annual bonus of $60,000 if our budget goals are met. We may terminate the agreement with or
without cause by delivering two weeks’ advance written notice to Mr. Bartel. He may terminate his employment
agreement with or without cause by delivering two weeks’ advance written notice to us.
Mr.
Bartel has agreed not to compete with us, solicit our suppliers or
employees or reveal our confidential information during the term of his
employment agreement and for one year thereafter. In addition, Mr. Bartel is
bound by a proprietary inventions agreement which prohibits him from, among
other things, disseminating or using confidential information about our business
or clients in any way that would be adverse to us.
31
Option Grants in Last
Fiscal Year
The
following table contains information concerning options granted to our executive officers
during fiscal year 2002:
Option Grants In Last Fiscal Year
Individual Grants
|
Name
|
Number of
Securities
Underlying
Options Granted
(#)
|
% of Total
Options Granted
to Employees in
2001
|
Exercise
Price ($/Sh)
|
Expiration Date
|
Grant Date
Present Value (1)
($)
|
| Ralph Bartel |
5,000 |
100% |
$3.00 |
3/25/12 |
$0.06 |
| |
(1) |
|
The value of the options was
derived using the Black-Scholes option pricing
model in accordance with rules and regulations of the SEC and is not intended to
forecast the market value or future appreciation of our common share price. The
Black-Scholes model was used with the following assumptions: dividend yield of
0%; expected volatility of 51%; risk-free interest rate of 4.5%; expected life
of 5 years; and an underlying value of the common stock at the date of grant of
$0.56. Such share value was calculated using assumptions approved by our
management, which were based on our estimated earnings for 2001 before merger
expenses, various assumed multiples of price to earnings per share with
different probabilities assigned to each, and also taking into account our
estimated book value per share. |
Option Exercises and
Year-End Values
The
following table contains information concerning options exercised by our executive
officers during fiscal year 2002 and unexercised options held on December 31, 2002:
Name
|
Shares Acquired
on Exercise
|
Value Realized ($)
|
Number of Securities
Underlying Unexercised
Options at FY-end
|
Value of Unexercised in-the-
money Options at FY end ($)(1)
|
| |
|
|
Exercisable
|
Unexercisable
|
Exercisable
|
Unexercisable
|
| Ralph Bartel |
-- |
-- |
2,193,349 |
0 |
$6,540,047 |
$ 0 |
| |
(1) |
|
Calculated
by (A) determining the difference between (1) the average of the high and low trading
prices per share of Travelzoo's common stock on December 31, 2002 and (2) the
exercise price of the option and (B) multiplying such difference by the
total number of shares under option, net of the aggregate value of all option
exercise proceeds. |
Stock Option Plan
We
do not currently have any stock option plan or other equity based compensation plans in
effect.
CERTAIN TRANSACTIONS BETWEEN TRAVELZOO AND ITS AFFILIATES
Contribution of Shares of Silicon Channels Corporation to Travelzoo
Silicon Channels Corporation ("Silicon Channels"), formerly an affiliate of Travelzoo Bahamas and now a wholly-owned subsidiary
of Travelzoo, was incorporated in California on September 28, 1998 with Ralph Bartel as the sole stockholder.
Silicon Channels did business under the name "Travelzoo.com Sales, Inc." On January 22, 2001, Mr. Bartel,
formerly the sole stockholder of Silicon Channels, and Travelzoo entered into an agreement and completed a
transaction in which:
-
Mr. Bartel contributed all of the outstanding shares of Silicon Channels to Travelzoo;
-
Travelzoo issued an aggregate of 8,129,273 shares of common stock to Mr. Bartel; and
- Travelzoo issued to Mr. Bartel options to acquire 2,158,349 shares of common stock of Travelzoo at an
exercise price of $1.00 per share, exercisable at any time during the ten-year period following the date
of issuance.
32
Loan to Silicon Channels Corporation
In 2000, Mr. Bartel loaned Silicon Channels $50,000 on an unsecured basis. The loan did not bear interest
and was repayable on or before December 31, 2000. On December 31, 2000, Mr. Bartel agreed to extend the loan
until March 31, 2001. The loan was repaid on March 31, 2001.
PRINCIPAL AND SELLING
STOCKHOLDERS
The following table sets forth information regarding the ownership of our common stock by the selling
stockholders and the shares being offered under this prospectus.
The shares being offered by Ralph Bartel as shown below are being sold pursuant to an underwriting agreement
with Wedbush Morgan Securities, Inc. as described under “Plan of Distribution” on page 40. The shares held by the
other selling stockholders, all of which we believe are charitable organizations, represent shares which were
contributed to those organizations by Mr. Bartel.
The percentage owned prior to and after the offering reflects the outstanding common shares at the time of
the initial registration statement of which this prospectus is a part. The amount and percentage owned after the
offering assumes the sale of all of the common stock being registered on behalf of the selling stockholders.
Selling Stockholder
|
|
Ownership Prior to
Offering
| |
Shares
Offered Hereby
| |
Ownership After the
Offering
|
| |
|
Shares
|
|
%
|
|
|
|
Shares
|
|
%
|
|
| Ralph Bartel (1) |
|
14,019,074 |
|
72 |
% |
300,000 |
|
13,719,074 |
|
71 |
% |
| Wedbush Morgan Securities, Inc. (2) | |
— |
|
— |
|
30,000 |
|
— |
|
— |
|
| Art Museums (3) | |
2,600 |
|
* |
|
2,600 |
|
0 |
|
— |
|
| Arts Councils/Agencies (3) | |
200 |
|
* |
|
200 |
|
0 |
|
— |
|
| Arts Cultural Organizations – Multipurposes (3) | |
300 |
|
* |
|
300 |
|
0 |
|
— |
|
| Arts Education/Schools (3) | |
600 |
|
* |
|
600 |
|
0 |
|
— |
|
| Ballets/Dance Organizations (3) | |
600 |
|
* |
|
600 |
|
0 |
|
— |
|
| Children's Museums (3) | |
200 |
|
* |
|
200 |
|
0 |
|
— |
|
| Cultural Ethnic Awareness Organizations (3) | |
400 |
|
* |
|
400 |
|
0 |
|
— |
|
| Fund Raising/Fund Distribution Organizations (3) | |
400 |
|
* |
|
400 |
|
0 |
|
— |
|
| Historical Societies (3) | |
1,500 |
|
* |
|
1,500 |
|
0 |
|
— |
|
| History Museums (3) | |
400 |
|
* |
|
400 |
|
0 |
|
— |
|
| Humanities Organizations (3) | |
500 |
|
* |
|
500 |
|
0 |
|
— |
|
| Media Communications Organizations (3) | |
1,200 |
|
* |
|
1,200 |
|
0 |
|
— |
|
| Museums (3) | |
1,200 |
|
* |
|
1,200 |
|
0 |
|
— |
|
| Music Organizations (3) | |
200 |
|
* |
|
200 |
|
0 |
|
— |
|
| Natural History/Natural Science Museums (3) | |
400 |
|
* |
|
400 |
|
0 |
|
— |
|
| Operas (3) | |
600 |
|
* |
|
600 |
|
0 |
|
— |
|
| Other Art/Culture/Humanities Organizations N.E.C. (3) | |
700 |
|
* |
|
700 |
|
0 |
|
— |
|
| Performing Arts Organizations (3) | |
800 |
|
* |
|
800 |
|
0 |
|
— |
|
| Performing Arts Centers (3) | |
1,900 |
|
* |
|
1,900 |
|
0 |
|
— |
|
| Performing Arts Schools (3) | |
300 |
|
* |
|
300 |
|
0 |
|
— |
|
| Printing/Publishing Organizations (3) | |
1,100 |
|
* |
|
1,100 |
|
0 |
|
— |
|
| Professional Societies/Associations (3) | |
300 |
|
* |
|
300 |
|
0 |
|
— |
|
| Radio Organizations (3) | |
500 |
|
* |
|
500 |
|
0 |
|
— |
|
| Science & Technology Museums (3) | |
500 |
|
* |
|
500 |
|
0 |
|
— |
|
| Single Organization Support Organizations (3) | |
1,300 |
|
* |
|
1,300 |
|
0 |
|
— |
|
| Symphony Orchestras (3) | |
1,500 |
|
* |
|
1,500 |
|
0 |
|
— |
|
| Television Organizations (3) | |
1,700 |
|
* |
|
1,700 |
|
0 |
|
— |
|
| Theater Organizations (3) | |
2,200 |
|
* |
|
2,200 |
|
0 |
|
— |
|
| Visual Arts Organizations (3) | |
300 |
|
* |
|
300 |
|
0 |
|
— |
|
33
| |
(1) |
|
Mr. Bartel is our Chief Executive Officer and President. He was also the Chief Executive Officer and President
of our predecessor corporation, Travelzoo.com Corporation. If the overallotment option and the warrant held by
Wedbush Morgan Securities, Inc. are exercised, Mr. Bartel will own 13,644,074 shares and will hold 70% of our
outstanding common stock. Based on the number of shares issued as of June 30, 2003 in the merger with Travelzoo Bahamas, Mr.
Bartel’s shares represent 92% of the outstanding shares. |
| |
(2) |
|
Mr. Bartel granted Wedbush Morgan Securities, Inc. a warrant to purchase 30,000 shares of common stock held by
Mr. Bartel, subject to adjustment, at a price per share equal to 120% of the public offering price set forth on
the cover page of this prospectus. The warrant is exercisable for any or all of such shares, at any time
beginning on the first anniversary of the date of this prospectus and expiring five years from the date of this
prospectus. In addition to including such shares in the registration statement relating to this prospectus,
Travelzoo has granted Wedbush Morgan Securities, Inc. certain registration rights with respect such shares.
Other than such shares and the shares of our common stock being acquired in this offering, Wedbush Morgan
Securities, Inc. currently owns no shares, or rights to acquire shares, of our common stock. See “Plan of
Distribution.” |
| |
(3) |
|
These shares were donated by Ralph Bartel to
various charitable/civic organizations in the category described. The shares beneficially owned by and offered
by such organizations represent, in the aggregate, less than one percent of the shares being offered hereby. |
34
DESCRIPTION OF CAPITAL
STOCK
The
following description of our capital stock is subject to the Delaware General
Corporation Law and to provisions contained in our Certificate of Incorporation and
By-laws.
General
We
are authorized to issue 40,000,000 shares of our common stock, $.01 par value, and
5,000,000 shares of undesignated preferred stock, $.01 par value.
Common Stock
The
holders of our common stock are entitled to one vote per share on all matters to be voted
upon by our stockholders. Subject to preferences that may be applicable to any
outstanding preferred stock, the holders of our common stock are entitled to receive such
dividends, if any, as may be declared from time to time by our board of directors out of
funds legally available for that purpose. In the event of our liquidation, dissolution or
winding up, the holders of our common stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior distribution rights of our
preferred stock, if any, then outstanding. The holders of our common stock have no
preemptive or conversion rights or other subscription rights.
Preferred
Stock
Our
board of directors has the authority, without action by the stockholders, to designate
and issue our preferred stock in one or more series and to designate the rights,
preferences and privileges of each series, which may be greater than the rights of our
common stock. It is not possible to state the actual effect of the issuance of any shares
of our preferred stock upon the rights of holders of our common stock until the board of
directors determines the specific rights of the holders of our preferred stock. However,
the effects might include:
- restricting
dividends on our common stock;
- diluting the
voting power of our common stock;
- impairing the
liquidation rights of our common stock; or
- delaying or
preventing a change of control of us without further action by our stockholders.
No
shares of our preferred stock are outstanding, and we have no present plans to issue any
shares of our preferred stock.
Anti-Takeover Effects of Our
Certificate of Incorporation and By-laws and Delaware Law
Some
provisions of Delaware law and our certificate of incorporation and by-laws could make
the following more difficult:
- acquisition of
us by means of a tender offer;
- acquisition of
us by means of a proxy contest or otherwise; or
- removal of our
incumbent officers and directors.
These
provisions are intended to discourage coercive takeover practices and inadequate takeover
bids. These provisions also are designed to encourage persons seeking to acquire control
of us to first negotiate with our board of directors. We believe that the benefits of
increased protection give us the potential ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure us and outweigh the
disadvantages of discouraging such proposals because negotiation of such proposals could
result in an improvement of their terms.
Stockholder Meetings
Under
our by-laws, only our Chairman of the Board, our President or our board of directors may
call special meetings of our stockholders.
35
Requirements for Advance Notification of Stockholder Nominations and Proposals
Our
by-laws establish advance notice procedures with respect to stockholder proposals and
nomination of candidates for election as directors, other than nominations made by or at
the direction of our board of directors.
Delaware Anti-Takeover Law
Section
203 of the Delaware General Corporation Law generally prohibits a publicly held Delaware
corporation from engaging in a “business combination” with an “interested
stockholder” for a period of three years following the date the person became an
interested stockholder, unless the “business combination” or the transaction in
which the person became an interested stockholder is approved in a prescribed manner. A
“business combination” includes a merger, asset or stock sale, or other
transaction resulting in a financial benefit to the interested stockholder. An “interested
stockholder” is a person who, together with affiliates and associates, owns or,
within three years prior to the determination of interested stockholder status, did own,
15% or more of a corporation’s voting stock. Section 203 may have an anti-takeover
effect with respect to transactions not approved in advance by our board of directors,
and may discourage attempts that might result in a premium over the market price for the
shares of common stock held by stockholders.
No Cumulative Voting
Our
certificate of incorporation and by-laws do not provide for cumulative voting in the
election of directors.
Undesignated Preferred
Stock
The
authorization of undesignated preferred stock makes it possible for our board of
directors to issue our preferred stock with voting or other rights or preferences that
could impede the success of any attempt to change control of us. These and other
provisions may have the effect of deferring hostile takeovers or delaying changes of
control of our management.
PRICE RANGE OF COMMON
STOCK AND DIVIDEND INFORMATION
Our
common stock is included on the OTC Bulletin Board under the symbol “TVZO.” The
following table shows, for the periods indicated, the high and low sale prices per share
of the common stock based on published financial sources.
| |
High |
Low |
| 2002 |
|
|
| Third Quarter |
$6.00 |
$3.00 |
| Fourth Quarter |
7.00 |
6.00 |
| 2003 |
|
|
| First Quarter |
5.00 |
4.00 |
| Second Quarter |
5.60 |
4.00 |
Dividends
We
have not paid any dividends on our common stock in the past and do not expect to pay
dividends in the foreseeable future. We currently intend to retain future earnings to
finance the expansion or our business. The payment of dividends will be at the discretion
of our board of directors and will depend upon factors such as future earnings, capital
requirements, our financial condition and general business conditions.
36
PLAN OF DISTRIBUTION
Underwriting
Subject
to the terms and conditions of the underwriting agreement among the Company, Ralph Bartel,
our Chief Executive Officer, and Wedbush Morgan Securities, Inc. (the
“Underwriter”), a copy of which is filed as an exhibit to the registration
statement relating to this prospectus, the Underwriter has agreed to purchase from Mr.
Bartel and Mr. Bartel has agreed to sell to the Underwriter, an aggregate of 300,000
shares of common stock (“Mr. Bartel’s Offered Shares”). The selling
stockholders other than Mr. Bartel are not parties to the Underwriting Agreement, and the
Underwriter is not purchasing the shares of common stock offered hereby by such other
selling stockholders.
The
Underwriting Agreement provides that the obligation of the Underwriter to purchase Mr.
Bartel’s Offered Shares is subject to certain conditions precedent and that the
Underwriter will purchase all of Mr. Bartel’s Offered Shares if any of such shares
are purchased.
Mr.
Bartel has granted the Underwriter an option, exercisable not later than 45 days
after the date of this prospectus, to purchase up to an additional 45,000 shares
of common stock held by Mr. Bartel. This option may be exercised in whole or in
part from time to time during the 45-day period after the date of this
prospectus. To the extent that the Underwriter exercises such option, Mr. Bartel
will be obligated, pursuant to the option, to sell such shares to the
Underwriter. The Underwriter may exercise such option only to cover
overallotments made in connection with the sale of Mr. Bartel’s Offered
Shares offered hereby. If purchased, the Underwriter will offer such additional
shares on the same terms as those on which Mr. Bartel’s Offered Shares are
being offered.
The
Underwriting Agreement contains covenants of indemnity and contribution among the Company,
Mr. Bartel and the Underwriter with respect to certain liabilities, including liabilities
under the Securities Act of 1933.
We
and Mr. Bartel have been advised by the Underwriter that the Underwriter proposes to offer
Mr. Bartel’s Offered Shares to the public at the public offering price set forth on
the cover page of this prospectus. After this offering, the offering price and other
selling terms may be changed by the Underwriter.
In accordance with the Underwriting Agreement, we have agreed to pay or reimburse the Underwriter for certain of
the Underwriter's out-of-pocket expenses, including fees and expenses of the Underwriter's counsel. Such
expenses are estimated to be approximately $100,000. In addition, Mr. Bartel has agreed to grant the Underwriter
a warrant to purchase 30,000 shares of common stock held by Mr. Bartel, subject to adjustment, at a price per
share equal to 120% of the public offering price set forth on the cover page of this prospectus. The warrant is
exercisable for any or all of such shares, at any time beginning on the first anniversary of the date of this
prospectus and expiring five years from the date of this prospectus. In addition to including such shares in the
registration statement relating to this prospectus, the Company has granted the Underwriter certain registration
rights with respect to such shares, including certain demand registration rights and “piggyback” registration
rights that will expire no later than five and seven years, respectively, from the date of this prospectus.
37
The
following table summarizes the compensation and estimated expenses the Company and Mr.
Bartel will pay to or for the benefit of the Underwriter:
| | |
| |
Total
| |
| | |
Per Share
| |
Without Over-Allotment
| |
With Over-Allotment
| |
By the Company:
Underwriting Discounts and Commissions |
|
N/A |
|
N/A |
|
N/A |
|
| Expenses | |
$ 0.33 | |
$100,000.00 | |
$115,000.00 | |
| By Mr. Bartel: | |
| Underwriting Discounts and Commissions | |
$ | |
$ | |
$ | |
| Expenses | |
$ 0.00 | |
$ 0.00 | |
$ 0.00 | |
| Warrant (1) | |
$ | |
$ | |
$ | |
| (1) |
|
Calculated
in accordance with Rules of Fair Practice of the National Association of Securities
Dealers, Inc., based on the number of shares and exercise price, at 2.25% of
the public offering price set forth on the cover page of this prospectus. |
To
facilitate this offering, the Underwriter may engage in transactions that stabilize,
maintain or otherwise affect the market price of our common stock. Specifically, the
Underwriter may overallot shares of our common stock in connection with this offering,
thereby creating a short position in the Underwriter’s account. Additionally, to
cover such overallotments or to stabilize the market price of our common stock, the
Underwriter may bid for, and purchase, shares of our common stock at a level above that
which might otherwise prevail in the open market. The Underwriter is not required to
engage in these activities, and, if commenced, may discontinue such activities at any
time. The Underwriter may also reclaim selling concessions allowed to a dealer if the
Underwriter repurchases shares distributed by that dealer.
The
Underwriter has advised us that it may engage in passive market-making transactions in our
common stock in accordance with rules promulgated by the SEC. In general, a passive
market-maker may not bid for or purchase shares of common stock at a price that exceeds
the highest independent bid. In addition, the net daily purchases made by any passive
market-maker generally may not exceed 30% of its average daily trading volume in our
common stock during a specified two-month prior period or 200 shares, whichever is
greater. A passive market-maker must identify passive market-making bids as such. Passive
market-making may have the effect of stabilizing or maintaining the market price of our
common stock at a level above that which might otherwise prevail in the open market. The
underwriter is not required to engage in passive market-making and, if commenced, may
discontinue such activities at any time.
The
Company, our directors, officers and certain of our stockholders have agreed that we will
not, directly or indirectly, offer, sell or otherwise dispose of, any of our common stock
(other than common stock included in this offering) or any securities convertible into or
exchangeable for, or any rights to purchase or acquire, common stock of the Company for
180 days after the date of this prospectus without the prior written consent of the
Underwriter.
The
Underwriter has performed and may continue to perform certain financial advisory services
for us and our subsidiaries.
Selling Stockholders
other than Mr. Bartel
The shares being offered by the selling stockholders other than Mr. Bartel are not subject to or covered by the
underwriting arrangements described above. The selling stockholders other than Mr. Bartel may sell the shares in
one or more transactions (which may include “block” transactions) on the OTC Bulletin Board in negotiated
transactions, through the settlement of short sales or in a combination of such methods of sales, at fixed prices
which may be changed, at market prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. The selling stockholders other than Mr. Bartel may effect such
transactions by selling the shares directly to purchasers, or may sell to or through agents or dealers designated
from time to time, and such agents or dealers may receive compensation in the form of discounts, concessions or
commissions from the selling stockholders and/or the purchaser(s) for whom they may act as agent or to whom they
may sell as principals, or both. The selling stockholders other than Mr. Bartel and any agents or dealers that
act in connection with the sale of the shares of our common stock might be deemed to be “underwriters” within the
meaning of Section 2(11) of the Securities Act, and any discount or commission received by them and any profit on
the resale of the shares as principal might be deemed to be underwriting discounts or commissions under the
Securities Act. To the extent that any persons acting in connection with the sale of such shares are deemed to be
underwriters, Travelzoo will not participate in any arrangements which would provide commissions or discounts to
such underwriters exceeding 8% of the sale proceeds.
38
In connection with sales of the remaining shares of common stock or otherwise, the selling stockholders other
than Mr. Bartel may enter into hedging transactions with broker-dealers, which may in turn engage in short sales
of the common stock in the course of hedging in positions they assume. The selling stockholders other than Mr.
Bartel may also sell shares of common stock short and deliver shares of common stock to close out short
positions, or loan or pledge shares of common stock to broker-dealers that in turn may sell such shares. If the
selling stockholders other than Mr. Bartel effect such transactions by selling shares of common stock to or
through underwriters, broker-dealers or agents, such underwriters, brokers-dealers or agents may receive
commissions in the form of discounts, concessions or commissions from the selling stockholders or commissions
from purchasers of the shares of common stock for whom they may act as agent or to whom they may sell as
principal (which discounts, concessions or commissions as to particular underwriters, brokers-dealers or agents
may be in excess of those customary in the types of transactions involved). Any commissions, discounts or other
fees payable to a broker, dealer, underwriter, agent or market maker in connection with the sale of any of the
remaining shares will be borne by the selling stockholders.
At the time a particular offering of the remaining shares of common stock, a prospectus supplement, if required,
will be distributed which will set forth the aggregate amount of shares of common stock being offered and the
terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions
and other terms constituting compensation from the selling stockholder and any discounts, commissions or
concessions allowed or reallowed or paid to broker-dealers.
Under
the securities laws of some states, the shares of common stock may be sold in such states
only through registered or licensed brokers or dealers. In addition, in some states the
shares of common stock may not be sold unless such shares have been registered or
qualified for sale in such state or an exemption from registration or qualification is
available and is complied with.
LEGAL MATTERS
Bryan
Cave LLP, St. Louis, Missouri, as our counsel, has issued an opinion as to the
legality of the common stock. Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California, will pass upon certain legal matters for the
underwriter in connection with this offering.
EXPERTS
The consolidated
balance sheets of Travelzoo Inc. and subsidiaries as of December 31, 2002 and 2001, and
the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in
the three-year period ended December 31, 2002 have been included herein in reliance upon the report of KPMG LLP,
independent certified public accountants, appearing elsewhere herein, and upon the authority of that firm as
experts in accounting and auditing.
39
WHERE YOU CAN FIND MORE
INFORMATION ABOUT US
We
have filed a registration statement, of which this prospectus is a part, with the SEC
under the Securities Act with respect to the common stock offered in this offering. This
prospectus, which constitutes a part of the registration statement, does not contain all
of the information set forth in the registration statement, parts of which are omitted as
permitted by the rules and regulations of the SEC. Statements contained in this
prospectus as to the contents of any contract or other document are not necessarily
complete. For further information pertaining to us and our common stock, we refer you to
our registration statement and the exhibits thereto, copies of which may be inspected
without charge at the SEC’s public reference room at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. Information concerning the operation of the
Commission’s public reference room is available by calling the SEC at
1-800-SEC-0330. Copies of all or any part of the registration statement may be obtained
at prescribed rates from the SEC. The SEC also makes our filings available to the public
on its Internet site (http://www.sec.gov). Quotations relating to our common stock appear
on the OTC Bulletin Board, and such reports, proxy statements and other information
concerning us can also be inspected at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
We
file annual, quarterly and special reports, proxy statements and other information with
the SEC. Such periodic reports, proxy and information statements and other information
are available for inspection and copying at the public reference facilities and Internet
site of the SEC referred to above.
We
have not authorized anyone to give any information or to make any representation
concerning this offering except the information and representations which are contained
in this prospectus. If anyone
gives or makes any other information or representation, you should not rely on it. This
prospectus is not an offer to sell, or a solicitation of an offer to purchase, any
securities other than those to which it relates, nor does it constitute an offer to sell
or a solicitation of an offer to purchase by any person in any circumstances in which an
offer or solicitation is unlawful. You should not interpret the delivery of this
prospectus or any sale made hereunder as an indication that there has been no change in
our affairs since the date of this prospectus. You should also be aware that the
information in this prospectus may change after this date.
40
TRAVELZOO INC.
INDEX TO FINANCIAL
STATEMENTS
|
Page |
| |
|
| Independent Auditors’ Report |
F-2 |
| |
|
| Consolidated Balance Sheets as of December 31, 2002 and 2001 |
F-3 |
| |
|
| Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000 |
F-4 |
| |
|
| Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2002, 2001 and 2000 |
F-5 |
| |
|
| Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 |
F-6 |
| |
|
| Notes to Financial Statements |
F-7 |
| |
|
| Condensed Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002 (unaudited) |
F-18 |
| |
|
| Condensed Consolidated Statements of Operations for the three months and the six months ended June 30, 2003 and 2002 (unaudited) |
F-19 |
| |
|
| Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and 2002 (unaudited) |
F-20 |
| |
|
| Notes to Condensed Consolidated Financial Statements (unaudited) |
F-21 |
| |
|
F-1
INDEPENDENT AUDITORS’ REPORT
The Board of Directors and
Stockholders
Travelzoo Inc.
We
have audited the accompanying consolidated balance sheets of Travelzoo Inc. and
subsidiaries as of December 31, 2002 and 2001, and the related consolidated
statements of operations, stockholders’ equity, and cash flows for each of the years
in the three-year period ended December 31, 2002. These consolidated financial
statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these consolidated financial statements based on our audits.
We
conducted our audits in accordance with auditing standards generally accepted in the
United States of America. 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 includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes 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, the consolidated financial statements referred to above present fairly, in
all material respects, the financial position of Travelzoo Inc. and subsidiaries as of
December 31, 2002 and 2001, and the results of their operations and their cash flows
for each of the years in the three-year period ended December 31, 2002, in
conformity with accounting principles generally accepted in the United States of America.
Mountain View, California
January 13, 2003
F-2
TRAVELZOO INC.
CONSOLIDATED BALANCE SHEETS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
ASSETS |
|
Current assets:
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
1,258,273 |
|
|
$ |
609,919 |
|
| |
Accounts receivable, less allowance for doubtful
accounts of $55,925 and $55,228 as of December 31, 2002 and
December 31, 2001, respectively
|
|
|
1,311,399 |
|
|
|
892,337 |
|
| |
Deposits
|
|
|
22,339 |
|
|
|
32,508 |
|
| |
Prepaid expenses and other current assets
|
|
|
114,909 |
|
|
|
18,179 |
|
| |
Deferred income taxes
|
|
|
81,313 |
|
|
|
65,051 |
|
| |
|
|
|
|
|
|
| |
|
Total current assets
|
|
|
2,788,233 |
|
|
|
1,617,994 |
|
|
Deposits
|
|
|
64,923 |
|
|
|
— |
|
|
Deferred income taxes
|
|
|
32,054 |
|
|
|
15,298 |
|
|
Property and equipment, net
|
|
|
142,091 |
|
|
|
137,200 |
|
|
Intangible assets, net
|
|
|
212,293 |
|
|
|
360,238 |
|
| |
|
|
|
|
|
|
| |
|
Total assets
|
|
$ |
3,239,594 |
|
|
$ |
2,130,730 |
|
| |
|
|
|
|
|
|
| |
|
LIABILITIES AND STOCKHOLDERS’
EQUITY |
|
Current liabilities:
|
|
|
|
|
|
|
|
|
| |
Accounts payable
|
|
$ |
442,349 |
|
|
$ |
175,351 |
|
| |
Accrued expenses
|
|
|
547,680 |
|
|
|
284,318 |
|
| |
Deferred revenue
|
|
|
19,179 |
|
|
|
86,721 |
|
| |
Income tax payable
|
|
|
439,432 |
|
|
|
646,457 |
|
| |
|
|
|
|
|
|
| |
|
Total liabilities
|
|
|
1,448,640 |
|
|
|
1,192,847 |
|
| |
|
|
|
|
|
|
|
Commitments
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
| |
Preferred stock, $0.01 par value; 5,000,000
shares authorized
|
|
|
— |
|
|
|
— |
|
| |
Common stock, $0.01 par value; 40,000,000 shares
authorized, 19,425,147 shares issued and outstanding both years
|
|
|
194,251 |
|
|
|
194,251 |
|
| |
Additional paid-in capital
|
|
|
(116,078 |
) |
|
|
(116,078 |
) |
| |
Retained earnings
|
|
|
1,712,781 |
|
|
|
859,710 |
|
| |
|
|
|
|
|
|
| |
|
Total stockholders’ equity
|
|
|
1,790,954 |
|
|
|
937,883 |
|
| |
|
|
|
|
|
|
| |
|
Total liabilities and stockholders’ equity
|
|
$ |
3,239,594 |
|
|
$ |
2,130,730 |
|
| |
|
|
|
|
|
|
See accompanying notes to consolidated financial
statements
F-3
TRAVELZOO INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Advertising
|
|
$ |
9,847,516 |
|
|
$ |
6,141,456 |
|
|
$ |
3,852,066 |
|
| |
Commissions
|
|
|
304 |
|
|
|
6,482 |
|
|
|
97,451 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total revenues
|
|
|
9,847,820 |
|
|
|
6,147,938 |
|
|
|
3,949,517 |
|
|
Cost of revenues
|
|
|
351,169 |
|
|
|
304,081 |
|
|
|
282,195 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Gross profit
|
|
|
9,496,651 |
|
|
|
5,843,857 |
|
|
|
3,667,322 |
|
| |
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Sales and marketing
|
|
|
5,726,557 |
|
|
|
3,274,747 |
|
|
|
1,484,495 |
|
| |
General and administrative
|
|
|
2,293,846 |
|
|
|
1,354,088 |
|
|
|
1,201,982 |
|
| |
Merger expenses
|
|
|
54,538 |
|
|
|
332,721 |
|
|
|
231,303 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total operating expenses
|
|
|
8,074,941 |
|
|
|
4,961,556 |
|
|
|
2,917,780 |
|
| |
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
1,421,710 |
|
|
|
882,301 |
|
|
|
749,542 |
|
|
Interest income
|
|
|
3,971 |
|
|
|
2,702 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,425,681 |
|
|
|
885,003 |
|
|
|
749,542 |
|
|
Income taxes
|
|
|
572,610 |
|
|
|
521,268 |
|
|
|
387,856 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
853,071 |
|
|
$ |
363,735 |
|
|
$ |
361,686 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic and diluted net income per share
|
|
$ |
0.04 |
|
|
$ |
0.02 |
|
|
$ |
0.02 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Shares used in computing basic net income per
share
|
|
|
19,425,147 |
|
|
|
19,425,147 |
|
|
|
19,372,791 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Shares used in computing diluted net income per
share
|
|
|
19,896,353 |
|
|
|
19,425,147 |
|
|
|
19,466,810 |
|
| |
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial
statements
F-4
TRAVELZOO INC.
CONSOLIDATED STATEMENTS Of STOCKHOLDERS’
EQUITY
Years Ended December 31, 2002, 2001 and
2000
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock | |
|
Additional | |
|
|
|
Total | |
|
|
| |
|
Paid-in | |
|
Retained | |
|
Stockholders’ | |
|
|
Shares | |
|
Amount | |
|
Capital | |
|
Earnings | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
Balances, December 31, 1999
|
|
|
19,285,147 |
|
|
$ |
192,851 |
|
|
$ |
(132,851 |
) |
|
$ |
134,289 |
|
|
$ |
194,289 |
|
|
Issuance of common stock upon exercise of options
|
|
|
70,000 |
|
|
|
700 |
|
|
|
2,800 |
|
|
|
— |
|
|
|
3,500 |
|
|
Stock-based compensation expense
|
|
|
— |
|
|
|
— |
|
|
|
9,221 |
|
|
|
— |
|
|
|
9,221 |
|
|
Issuance of common stock to directors
|
|
|
70,000 |
|
|
|
700 |
|
|
|
4,752 |
|
|
|
— |
|
|
|
5,452 |
|
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
361,686 |
|
|
|
361,686 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2000
|
|
|
19,425,147 |
|
|
|
194,251 |
|
|
|
(116,078 |
) |
|
|
495,975 |
|
|
|
574,148 |
|
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
363,735 |
|
|
|
363,735 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2001
|
|
|
19,425,147 |
|
|
$ |
194,251 |
|
|
$ |
(116,078 |
) |
|
$ |
859,710 |
|
|
$ |
937,883 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
853,071 |
|
|
|
853,071 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2002
|
|
|
19,425,147 |
|
|
$ |
194,251 |
|
|
$ |
(116,078 |
) |
|
$ |
1,712,781 |
|
|
$ |
1,790,954 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial
statements
F-5
TRAVELZOO INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
$ |
853,071 |
|
|
$ |
363,735 |
|
|
$ |
361,686 |
|
| |
Adjustments to reconcile net income to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Depreciation and amortization
|
|
|
194,373 |
|
|
|
138,628 |
|
|
|
54,914 |
|
| |
|
Deferred income taxes
|
|
|
(33,018 |
) |
|
|
28,196 |
|
|
|
(93,381 |
) |
| |
|
Provision for losses on accounts receivable
|
|
|
14,571 |
|
|
|
(88,507 |
) |
|
|
135,144 |
|
| |
|
Loss on disposal of property and equipment
|
|
|
— |
|
|
|
567 |
|
|
|
4,212 |
|
| |
|
Stock-based compensation expense
|
|
|
— |
|
|
|
— |
|
|
|
9,221 |
|
| |
|
Non-cash revenues
|
|
|
(3,410 |
) |
|
|
(16,449 |
) |
|
|
— |
|
| |
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Accounts receivable
|
|
|
(433,633 |
) |
|
|
(19,870 |
) |
|
|
(591,562 |
) |
| |
|
|
Deposits
|
|
|
(54,754 |
) |
|
|
78,244 |
|
|
|
(102,566 |
) |
| |
|
|
Prepaid expenses and other current assets
|
|
|
(96,730 |
) |
|
|
92,819 |
|
|
|
(92,765 |
) |
| |
|
|
Accounts payable
|
|
|
266,998 |
|
|
|
(1,541 |
) |
|
|
113,086 |
|
| |
|
|
Accrued expenses
|
|
|
263,362 |
|
|
|
60,839 |
|
|
|
133,975 |
|
| |
|
|
Deferred revenue
|
|
|
5,295 |
|
|
|
11,384 |
|
|
|
(3,300 |
) |
| |
|
|
Income tax payable
|
|
|
(207,025 |
) |
|
|
122,653 |
|
|
|
479,881 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash provided by operating activities
|
|
|
769,100 |
|
|
|
770,698 |
|
|
|
408,545 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Purchases of property and equipment
|
|
|
(120,746 |
) |
|
|
(31,365 |
) |
|
|
(227,589 |
) |
| |
Purchases of intangible assets
|
|
|
— |
|
|
|
(125,000 |
) |
|
|
(200,000 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash used in investing activities
|
|
|
(120,746 |
) |
|
|
(156,365 |
) |
|
|
(427,589 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Proceeds from issuance of common stock
|
|
|
— |
|
|
|
— |
|
|
|
3,500 |
|
| |
Loans from principal stockholder
|
|
|
— |
|
|
|
— |
|
|
|
50,000 |
|
| |
Repayment of loans from principal stockholder
|
|
|
— |
|
|
|
(50,000 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Cash (used in) provided by financing activities
|
|
|
— |
|
|
|
(50,000 |
) |
|
|
53,500 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
648,354 |
|
|
|
564,333 |
|
|
|
34,456 |
|
|
Cash and cash equivalents at beginning of year
|
|
|
609,919 |
|
|
|
45,586 |
|
|
|
11,130 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
1,258,273 |
|
|
$ |
609,919 |
|
|
$ |
45,586 |
|
| |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash paid for income taxes net refunds received
|
|
$ |
812,653 |
|
|
$ |
385,102 |
|
|
$ |
1,356 |
|
| |
|
|
|
|
|
|
|
|
|
|
Non cash investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Intangible asset acquired for future advertising
Services
|
|
$ |
— |
|
|
$ |
89,286 |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
Reduction in carry amounts of intangible asset
and deferred revenue
|
|
$ |
(69,427 |
) |
|
|
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-6
TRAVELZOO INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 2002, 2001, and
2000
(1) Summary of Significant Accounting
Policies
(a) Description
of Business and Basis of Presentation
The consolidated financial statements include the
accounts of Travelzoo Inc. and its wholly-owned subsidiaries
(the “Company” or “Travelzoo”). All
significant intercompany accounts and transactions have been
eliminated in consolidation. The Company publishes the
Travelzoo website, the Travelzoo Top 20e-mail
newsletter, and the Weekend.com e-mail newsletter which
provide advertising opportunities for the travel industry.
The Company was formed as a result of a
combination and merger of entities founded by the Company’s
majority stockholder, Mr. Ralph Bartel. In 1998,
Mr. Bartel founded Travelzoo.com Corporation, a Bahamas
corporation, which also issued 5,155,874 shares via the Internet
to approximately 700,000 stockholders (“the Netsurfer
stockholders”) for no cash consideration. In 1998,
Mr. Bartel also founded Silicon Channels Corporation, a
California corporation, to operate the Travelzoo website.
During 2001, Travelzoo Inc. was formed as a subsidiary of
Travelzoo.com Corporation, and Mr. Bartel contributed all
of the outstanding shares of Silicon Channels to Travelzoo Inc.
in exchange for 8,129,273 shares of Travelzoo Inc. and options
to acquire an additional 2,158,349 shares at $1.00. The merger
was accounted for as a combination of entities under common
control using “as-if pooling-of-interests” accounting.
Under this method of accounting, the assets and liabilities of
Silicon Channels Corporation and Travelzoo Inc. were carried
forward to the combined company at their historical costs. In
addition, all prior period financial statements of Travelzoo
Inc. were restated to include the combined results of
operations, financial position and cash flows of Silicon
Channels Corporation.
During January 2001, the Board of Directors of
Travelzoo.com Corporation proposed that Travelzoo.com
Corporation be merged with Travelzoo Inc. whereby Travelzoo Inc.
would be the surviving entity. On March 15, 2002, the
stockholders of Travelzoo.com Corporation approved the merger
with Travelzoo Inc. On April 25, 2002, the certificate of
merger was filed in Delaware upon which the merger became
effective and Travelzoo.com Corporation was dissolved. Each
outstanding share of common stock of Travelzoo.com Corporation
was converted into the right to receive one share of common
stock of Travelzoo Inc. Stockholders have a period of two years
to receive shares of Travelzoo Inc. Travelzoo.com Corporation
had 11,295,874 shares outstanding. As of December 31, 2002,
6,791,612 shares of Travelzoo.com Corporation had been exchanged
for shares of Travelzoo Inc. The remaining 4,504,262 shares of
Travelzoo Inc. that may be exchanged are included in the issued
and outstanding common stock of Travelzoo Inc. and earnings per
share calculations. The merger was accounted for as a
combination of entities under common control using “as-if
pooling-of-interests” accounting. Under this method of
accounting, the assets and liabilities of Travelzoo.com
Corporation and Travelzoo Inc. were carried forward at their
historical costs. In addition, all prior period financial
statements of Travelzoo Inc. were restated to include the
combined results of operations, financial position and cash
flows of Travelzoo.com Corporation. The restated results of
Travelzoo Inc. are identical to the combined results of
Travelzoo.com Corporation and Travelzoo Inc.
(b) Revenue
Recognition
Revenue consists of advertising sales and
commissions from e-commerce transactions. Advertising revenues
are derived principally from the sale of display advertising,
classified advertising, and banner advertising on the
Travelzoo website and in the Travelzoo Top 20
e-mail newsletter. Commissions are generated from bookings
of travel services through customer advertising on the
Travelzoo website.
Advertising revenues are recognized in the period
in which the advertisement is displayed, provided that evidence
of an arrangement exists, the fees are fixed or determinable, no
significant obligations remain at the end of the period, and
collection of the resulting receivable is deemed probable. If
fixed-fee advertising is
F-7
TRAVELZOO INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
displayed over a term greater than one month,
revenues are recognized ratably over the period. To the extent
that any minimum guaranteed impressions are not met during the
contract period, the Company defers recognition of the
corresponding revenues until the guaranteed impressions are
achieved. Fees for banner advertising and other variable-fee
advertising arrangements are recognized based on the number of
impressions displayed or clicks delivered during the period.
The Company had outsourced part of its
advertising sales and production activities to DoubleClick, Inc.
(“DoubleClick”). Under the terms of the agreement with
DoubleClick, the Company received a portion of the revenue
received by DoubleClick from customers for the display of
advertising on the Travelzoo website. The Company
recorded these revenues on a net basis. The gross revenue
received by DoubleClick from advertising on the Travelzoo
website was $82,939, $600,454, and $430,130 for the years
ended December 31, 2002, 2001, and 2000 respectively. The
Company’s share of this income, which has been recorded as
revenue, was $38,354, $332,736, and $231,885 for the years ended
December 31, 2002, 2001, and 2000 respectively. The
agreement with DoubleClick was canceled as of August 23,
2002.
Revenues from advertising barter transactions are
recognized in the period during which the advertisements are
displayed on the Travelzoo website. Expenses from barter
transactions are recognized in the period during which the
advertisements are displayed on the barter partner’s
website. Barter transactions are recorded at the fair value of
the advertising provided based on cash received by the Company
for transactions involving similar types of advertising during
the six months preceding the transaction in accordance with
Emerging Issues Task Force (EITF) Issue No. 99-17,
Accounting for Advertising Barter Transactions. The
amounts included in advertising revenues and sales and marketing
expenses for barter transactions were $-0-, $-0-, and $37,000
for the years ended December 31, 2002, 2001, and 2000,
respectively.
Commissions are recorded as the net amount
received by the Company and are recognized in the period in
which the commissions earned are reported to the Company by the
e-commerce partner.
(c) Net
Income Per Share
Net income per share has been calculated in
accordance with SFAS No. 128, Earnings per Share.
Basic net income per share is computed using the
weighted-average number of common shares outstanding for the
period. Diluted net income per share is computed by adjusting
the weighted-average number of common shares for the effect of
potential common shares outstanding during the period. Potential
common shares included in the diluted calculation consist of
incremental shares issuable upon the exercise of outstanding
stock options calculated using the treasury stock method.
F-8
TRAVELZOO INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table sets forth the calculation of
basic and diluted income per share:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
Basic net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
$ |
853,071 |
|
|
$ |
363,735 |
|
|
$ |
361,686 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Weighted average common shares
|
|
|
19,425,147 |
|
|
|
19,425,147 |
|
|
|
19,372,791 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Basic net income per share
|
|
$ |
0.04 |
|
|
$ |
0.02 |
|
|
$ |
0.02 |
|
| |
|
|
|
|
|
|
|
|
|
|
Diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
$ |
853,071 |
|
|
$ |
363,735 |
|
|
$ |
361,686 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Weighted average common shares
|
|
|
19,425,147 |
|
|
|
19,425,147 |
|
|
|
19,372,791 |
|
| |
Effect of dilutive securities-stock options
|
|
|
471,206 |
|
|
|
— |
|
|
|
94,019 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Weighted average common and potential common
shares
|
|
|
19,896,353 |
|
|
|
19,425,147 |
|
|
|
19,466,810 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Diluted net income per share
|
|
$ |
0.04 |
|
|
$ |
0.02 |
|
|
$ |
0.02 |
|
| |
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2001, all
outstanding stock options were excluded from the calculation of
diluted earnings per share because their effect was antidilutive.
(d) Use
of Estimates
Management of the Company have made a number of
estimates and assumptions relating to the reporting of assets,
liabilities, revenues and expenses and the disclosure of
contingent assets and liabilities to prepare these financial
statements in conformity with accounting principles generally
accepted in the United States of America. Actual results could
differ from those estimates.
(e) Property
and Equipment
Property and equipment consisted of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
Computer hardware and software
|
|
$ |
249,801 |
|
|
$ |
182,461 |
|
|
Office equipment
|
|
|
141,266 |
|
|
|
95,063 |
|
| |
|
|
|
|
|
|
| |
|
|
391,067 |
|
|
|
277,524 |
|
|
Less accumulated depreciation
|
|
|
248,976 |
|
|
|
140,324 |
|
| |
|
|
|
|
|
|
|
Total
|
|
$ |
142,091 |
|
|
$ |
137,200 |
|
| |
|
|
|
|
|
|
F-9
TRAVELZOO INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(f) Intangible
Assets
Intangible assets consist of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
Acquired amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
Internet domain names
|
|
$ |
344,857 |
|
|
$ |
414,286 |
|
|
Less accumulated amortization
|
|
|
132,564 |
|
|
|
54,048 |
|
| |
|
|
|
|
|
|
|
Total
|
|
$ |
212,293 |
|
|
$ |
360,238 |
|
| |
|
|
|
|
|
|
Amortization expense was $78,518, $50,714, and
$3,333 for the years ended December 31, 2002, 2001 and
2000, respectively.
In October 2001, the Company completed the
acquisition of the Weekends.com domain name. As
consideration for the purchase, the Company paid the seller
$125,000 and agreed to provide a minimum number of clicks to the
seller’s other websites through advertising placed on the
Travelzoo website. The fair value of the advertising
services of $89,286 was determined based on the cash price of
similar advertising services and recorded as deferred revenue.
The revenue was recognized as the clicks were delivered. During
the years ended December 31, 2002 and 2001, $3,410 and
$16,449 of revenues related to this arrangement were recognized.
The agreement with the seller to provide advertising services
expired on September 30, 2002. As such, $69,427 of
advertising was not delivered and the carrying amounts of the
intangible asset and related deferred revenue were reduced
accordingly.
Estimated future amortization expense related to
intangible assets at December 31, 2002 is as follows:
| |
|
|
|
|
|
2003
|
|
$ |
65,500 |
|
|
2004
|
|
|
65,500 |
|
|
2005
|
|
|
62,167 |
|
|
2006
|
|
|
19,126 |
|
| |
|
|
|
| |
|
$ |
212,293 |
|
| |
|
|
|
(g) Advertising
Costs
Advertising costs (including barter advertising)
amounted to $3,960,464, $2,264,488 and $1,161,800 for the years
ended December 31, 2002, 2001, and 2000, respectively.
During the years ended December 31, 2002, 2001 and 2000,
$546,214, $492,672 and $256,920, respectively, of advertising
services were purchased from the Company’s customers under
non-barter arrangements.
(h) Income
Taxes
Income taxes are accounted for under the asset
and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets are recognized for deductible temporary
differences, along with net operating loss carryforwards and
credit carryforwards, if it is more likely than not that the tax
benefits will be realized. To the extent a deferred tax asset
cannot be recognized under the preceding criteria, allowances
must be established. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled.
F-10
TRAVELZOO INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(i) Impairment
of Long-Lived Assets
The Company accounts for long-lived assets in
accordance with the provisions of Statement of Financial
Accounting Standards (SFAS) No. 144, Impairment of
Long-Lived Assets. SFAS No. 144 requires an impairment
loss to be recognized on assets to be held and used if the
carrying amount of a long-lived asset is not recoverable from
its undiscounted cash flows. The amount of the impairment loss
is measured as the difference between the carrying amount and
the fair value of the asset. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less
costs to sell.
(j) Stock-Based
Compensation
As allowed under SFAS No. 123, Accounting
for Stock-Based Compensation, the Company has elected to
follow Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees,
and related interpretations in accounting for fixed plan stock
awards to employees. Deferred stock-based compensation for
options granted to employees is determined as the excess of the
fair value of the common stock over the exercise price on the
date options were granted. Stock-based compensation is amortized
over the vesting period of the individual award.
Had all stock-based compensation awards granted
to employees and directors been accounted for using the fair
value based method net income and net income share would have
been adjusted to the amounts reported in the following table.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
Net income as reported
|
|
$ |
853,071 |
|
|
$ |
363,735 |
|
|
$ |
361,686 |
|
|
Stock-based compensation included in
determination of net income
|
|
|
— |
|
|
|
— |
|
|
|
9,221 |
|
|
Stock-based compensation determined under the
fair-value based method
|
|
|
(1,908 |
) |
|
|
(56,182 |
) |
|
|
(11,765 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Pro-forma net income as if the fair value based
method had been applied to all awards
|
|
$ |
851,163 |
|
|
$ |
307,553 |
|
|
$ |
359,142 |
|
| |
|
|
|
|
|
|
|
|
|
|
Pro-forma basic and diluted net income per share
as if the fair value based method had been applied to all awards
|
|
$ |
0.04 |
|
|
$ |
0.02 |
|
|
$ |
0.02 |
|
| |
|
|
|
|
|
|
|
|
|
The fair value of options granted was calculated
as of the grant date using the Black-Scholes method with the
following assumptions:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
Numbers of options granted
|
|
|
33,589 |
|
|
|
210,000 |
|
|
|
70,000 |
|
|
Grant date fair value of options
|
|
$ |
0.06 |
|
|
$ |
0.27 |
|
|
$ |
0.17 |
|
|
Grant date fair value of the common stock
|
|
$ |
0.56 |
|
|
$ |
0.39 |
|
|
$ |
0.18 |
|
|
Expected life of the option (in years)
|
|
|
5 |
|
|
|
10 |
|
|
|
10 |
|
|
Annual volatility
|
|
|
51 |
% |
|
|
85 |
% |
|
|
85 |
% |
|
Risk-free interest rates
|
|
|
4.5 |
% |
|
|
4.5 |
% |
|
|
4.5 |
% |
|
Dividend Rate
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
(k) Website
Development Costs
Prior to June 30, 2000, website development
costs were expensed as incurred. The Company adopted EITF Issue
No. 00-02, Accounting for Website Development Costs,
on June 30, 2000. The adoption of EITF
F-11
TRAVELZOO INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Issue No. 00-02 did not have a significant
impact on the combined financial statements. Subsequent to the
adoption of EITF No. 00-02, no internal website development
costs that qualify for capitalization have been incurred.
(l) Recent
Accounting Pronouncements
In July 2001, the Financial Accounting Standards
Board (FASB) issued SFAS No. 141, Business
Combinations and SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 141 provides guidance on
the accounting for a business combination at the date a business
combination is completed. The statement requires the use of the
purchase method of accounting for all business combinations
initiated after June 30, 2001, thereby eliminating use of
the pooling-of-interests method. The Company adopted SFAS
No. 141 on July 1, 2001. The adoption did not have an
effect on the combined financial statements. SFAS No. 142
provides guidance on how to account for goodwill and intangible
assets after an acquisition is completed. The most substantive
change is that goodwill will no longer be amortized but instead
will be tested for impairment periodically. The Company adopted
SFAS No. 142 as of the beginning of 2002 and the effect of
adoption did not have a material impact on the condensed
consolidated financial statements.
In August 2001, the Financial Accounting
Standards Board issued SFAS No. 143, Accounting for
Asset Retirement Obligations. SFAS No. 143 addresses
financial accounting and reporting for obligations associated
with retirement of tangible long-lived assets and the associated
retirement costs. The Company will adopt SFAS No. 143 at
the beginning of 2003, and the adoption is not expected to have
a material impact on the combined financial statements.
In October 2001, the Financial Accounting
Standards Board issued SFAS No. 144, Impairment of
Long-Lived Assets. SFAS No. 144 supersedes SFAS
No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of. SFAS
No. 144 retains the requirements of SFAS No. 121 to
(a) recognize an impairment loss only if the carrying
amount of a long-lived asset is not recoverable from its
undiscounted cash flows and (b) measure an impairment loss
as the difference between the carrying amount and the fair value
of the asset. SFAS No. 144 removes goodwill from its scope.
SFAS No. 144 is applicable to the Company’s financial
statements beginning in 2002. The adoption of this statement did
not have a material impact on the consolidated financial
statements.
In April 2002, the Financial Accounting Standards
Board issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections. SFAS No. 145 rescinds the
requirement that all gains and losses from extinguishment of
debt be classified as an extraordinary item. Additionally, SFAS
No. 145 requires that certain lease modifications that have
economic effects similar to sale-leaseback transactions be
accounted for in the same manner as sale-leaseback transactions.
SFAS No. 145 is effective for the Company beginning in
2003, and the effect of adoption is not expected to have a
material impact on the consolidated financial statements.
In July 2002, the FASB issued Statement
No. 146, Accounting for Costs Associated with Exit or
Disposal Activities. This Statement requires recording costs
associated with exit or disposal activities at their fair values
when a liability has been incurred. Under previous guidance,
certain exit costs were accrued upon management’s
commitment to an exit plan, which is generally before an actual
liability has been incurred. The requirements of this Statement
are effective prospectively for exit or disposal activities
initiated after December 31, 2002; however, early
application of the Statement is encouraged. The Company’s
adoption of Statement 146 will not have a material impact on its
historical financial position or results of operations.
In November 2002, the FASB issued Interpretation
No. 45, Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Guarantees of
Indebtedness of Others (“FIN 45”). FIN 45 requires
the Company to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in the
issuance of the guarantee. The disclosure requirements effective
for the year ending
F-12
TRAVELZOO INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
December 31, 2002, expand the disclosures
required by a guarantor about its obligation under a guarantee.
The adoption of the disclosure requirements of this statement
did not impact the Company’s financial position, results of
operations or cash flows.
In December 2002, the FASB issued Statement
No. 148, Accounting for Stock-Based Compensation.
This statement provides alternative methods of transition for a
voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this
statement amends the disclosure requirements of
Statement 123 to require prominent disclosures in both
annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect
of the method used on reported results. The Company has adopted
the new disclosure requirements of this statement.
In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest Entities
(“FIN 46”). The interpretation provides
guidance for determining when a primary beneficiary should
consolidate a variable interest entity or equivalent structure,
that functions to support the activities of the primary
beneficiary. The interpretation is effective as of the beginning
of Company’s third quarter of 2003 for variable interest
entities created before February 1, 2003. The adoption of
this statement is not expected to impact the Company’s
financial position, results of operations or cash flows.
(2) Commitments
The Company leases office space in Mountain View,
California, and in New York, New York, under operating leases
which expire on December 31, 2003 and June 30, 2004,
respectively. The future minimum rental payments under these
operating leases as of December 31, 2002, total $556,940
and $197,940 for 2003 and 2004, respectively. Rent expense was
$471,766, $302,355 and $154,498 for the years ended
December 31, 2002, 2001, and 2000, respectively.
(3) Allowance for Doubtful
Accounts
The details of changes to the allowance for
doubtful accounts are as follows:
| |
|
|
|
|
|
|
Balance at December 31, 1999
|
|
$ |
10,000 |
|
| |
Additions — charged to costs and
expenses
|
|
|
135,144 |
|
| |
|
|
|
|
Balance at December 31, 2000
|
|
|
145,144 |
|
| |
Deductions — credited to costs and
expenses, net
|
|
|
(88,507 |
) |
| |
Deductions — write-offs
|
|
|
(1,409 |
) |
| |
|
|
|
|
Balance at December 31, 2001
|
|
|
55,228 |
|
| |
Additions — charged to costs and
expenses, net
|
|
|
14,572 |
|
| |
Deductions — write-offs
|
|
|
(13,875 |
) |
| |
|
|
|
|
Balance at December 31, 2002
|
|
$ |
55,925 |
|
| |
|
|
|
F-13
TRAVELZOO INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(4) Income Taxes
Income tax expense (benefit) for the years ended
December 31, 2002, 2001, and 2000 consisted of the
following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current | |
|
Deferred | |
|
Total | |
|
|
| |
|
| |
|
| |
|
2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal
|
|
$ |
453,851 |
|
|
$ |
(26,836 |
) |
|
$ |
427,015 |
|
| |
State
|
|
|
151,777 |
|
|
|
(6,182 |
) |
|
|
145,595 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
605,628 |
|
|
$ |
(33,018 |
) |
|
$ |
572,610 |
|
| |
|
|
|
|
|
|
|
|
|
|
2001:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal
|
|
$ |
384,153 |
|
|
$ |
21,846 |
|
|
$ |
405,999 |
|
| |
State
|
|
|
108,669 |
|
|
|
6,350 |
|
|
|
115,019 |
|
| |
Foreign
|
|
|
250 |
|
|
|
— |
|
|
|
250 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
493,072 |
|
|
$ |
28,196 |
|
|
$ |
521,268 |
|
| |
|
|
|
|
|
|
|
|
|
|
2000:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal
|
|
$ |
380,265 |
|
|
$ |
(79,706 |
) |
|
$ |
300,559 |
|
| |
State
|
|
|
100,722 |
|
|
|
(13,675 |
) |
|
|
87,047 |
|
| |
Foreign
|
|
|
250 |
|
|
|
— |
|
|
|
250 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
481,237 |
|
|
$ |
(93,381 |
) |
|
$ |
387,856 |
|
| |
|
|
|
|
|
|
|
|
|
Income tax expense for the years ended
December 31, 2002, 2001, and 2000, differed from the
amounts computed by applying the U.S. federal statutory tax rate
applicable to the Company’s level of pretax income as a
result of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
Federal tax at statutory rates
|
|
$ |
485,714 |
|
|
$ |
307,423 |
|
|
$ |
254,844 |
|
|
State taxes, net of federal income tax benefit
|
|
|
96,093 |
|
|
|
99,146 |
|
|
|
57,451 |
|
|
Foreign taxes
|
|
|
— |
|
|
|
250 |
|
|
|
250 |
|
|
Non-deductible merger expenses and other
|
|
|
(9,197 |
) |
|
|
114,449 |
|
|
|
75,311 |
|
|
Total income tax expense
|
|
$ |
572,610 |
|
|
$ |
521,268 |
|
|
$ |
387,856 |
|
F-14
TRAVELZOO INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The tax effects of temporary differences that
give rise to significant portions of the Company’s deferred
tax assets and liabilities as of December 31, 2002, and
2001, are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
| |
Accruals and allowances
|
|
$ |
39,204 |
|
|
$ |
28,104 |
|
| |
State income taxes
|
|
|
36,733 |
|
|
|
36,948 |
|
| |
Capitalized start-up costs
|
|
|
760 |
|
|
|
1,531 |
|
| |
Property and equipment
|
|
|
— |
|
|
|
3,968 |
|
| |
Intangible assets
|
|
$ |
39,462 |
|
|
$ |
13,073 |
|
| |
|
|
|
|
|
|
| |
|
Gross deferred tax assets
|
|
|
116,159 |
|
|
|
83,624 |
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
| |
State income taxes
|
|
$ |
— |
|
|
$ |
(3,275 |
) |
| |
Property and equipment
|
|
|
(2,792 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
| |
|
Gross deferred tax liabilities
|
|
|
(2,792 |
) |
|
|
(3,275 |
) |
| |
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$ |
113,367 |
|
|
$ |
80,349 |
|
| |
|
|
|
|
|
|
No valuation allowance has been recorded for the
deferred tax assets because management believes that the Company
is more likely than not to generate sufficient future taxable
income to realize the related tax benefits.
(5) Stockholders’ Equity
As of December 31, 2002 the authorized
capital stock of Travelzoo Inc. comprised 40,000,000 shares of
$.01 par value common stock and 5,000,000 shares of $.01
par value preferred stock. As of December 31, 2002
19,425,147 shares of common stock and no shares of preferred
stock were issued and outstanding. During 2000, the Company
granted to an employee options to purchase 334,676 shares of
common stock with an exercise price of $0.05 and a two-year
vesting period. In September 2000, upon the termination of the
employee, 70,000 options were fully vested under the original
terms of the grant and the remaining unvested options were
forfeited. The Company recorded stock-based compensation in 2000
of $9,221 based on the intrinsic value of the options that
vested. The 70,000 vested options were exercised in September
2000.
As described in note 1(a), as part of the
consideration exchanged for the outstanding shares of Silicon
Channels Corporation, the Company also issued to the majority
stockholder in January 2001 fully vested and exercisable options
to acquire 2,158,349 shares of common stock. The options have an
exercise price of $1.00 and expire in January 2011.
In October 2001, the Company granted to each
director fully vested and exercisable options to purchase 30,000
shares of common stock with an exercise price of $2.00 for their
services as a director in 2000 and 2001. A total of 210,000
options were granted. The options expire in October 2011.
In March 2002, Travelzoo Inc. granted to each
director fully vested and exercisable options to purchase 5,000
shares of common stock with an exercise price of $3.00 for their
services as a director in 2002. A total of 35,000 options were
granted. In October 2002, 1,411 options were forfeited upon the
resignation of a director. All other options are vested as of
December 31, 2002. The options expire in March 2012.
F-15
TRAVELZOO INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(6) Significant Customer Information and
Segment Reporting
SFAS No. 131, Disclosure about Segments
of an Enterprise and Related Information, establishes
standards for the reporting by business enterprises of
information about operating segments, products and services,
geographic areas, and major customers. The method for
determining what information to report is based on the way that
management organizes the operating segments within a company for
making operational decisions and assessing performance. As of
December 31, 2002, the Company has one operating segment:
online advertising.
Significant customer information is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of | |
|
|
Percentage of | |
|
Accounts | |
|
|
Total Revenue | |
|
Receivable | |
|
|
| |
|
| |
|
|
|
|
|
|
|
Year Ended December 31, | |
|
December 31, | |
|
|
| |
|
| |
| Customer |
|
2002 | |
|
2001 | |
|
2000 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
A
|
|
|
* |
|
|
|
* |
|
|
|
* |
|
|
|
12 |
% |
|
|
* |
|
|
B
|
|
|
13 |
% |
|
|
15 |
% |
|
|
22 |
% |
|
|
* |
|
|
|
19 |
% |
|
C
|
|
|
* |
|
|
|
* |
|
|
|
11 |
% |
|
|
— |
|
|
|
— |
|
|
D
|
|
|
* |
|
|
|
13 |
% |
|
|
* |
|
|
|
— |
|
|
|
15 |
% |
|
E
|
|
|
14 |
% |
|
|
* |
|
|
|
— |
|
|
|
21 |
% |
|
|
11 |
% |
|
All of the above customers are located in the
United States of America.
|
F-16
TRAVELZOO INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(7) Unaudited Quarterly
Information
The following represents unaudited quarterly
financial data for 2002 and 2001.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended | |
|
|
| |
|
|
Dec 31, | |
|
Sept 30, | |
|
June 30, | |
|
Mar 31, | |
|
Dec 31, | |
|
Sept 30, | |
|
June 30, | |
|
Mar 31, | |
|
|
2002 | |
|
2002 | |
|
2002 | |
|
2002 | |
|
2001 | |
|
2001 | |
|
2001 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(In thousands) | |
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Advertising
|
|
$ |
3,132 |
|
|
$ |
2,538 |
|
|
$ |
2,211 |
|
|
$ |
1,966 |
|
|
$ |
1,723 |
|
|
$ |
1,574 |
|
|
$ |
1,537 |
|
|
$ |
1,308 |
|
| |
Commissions
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
3 |
|
|
|
3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total revenues
|
|
|
3,132 |
|
|
|
2,538 |
|
|
|
2,211 |
|
|
|
1,966 |
|
|
|
1,723 |
|
|
|
1,575 |
|
|
|
1,540 |
|
|
|
1,311 |
|
|
Cost of revenues
|
|
|
89 |
|
|
|
90 |
|
|
|
86 |
|
|
|
86 |
|
|
|
79 |
|
|
|
74 |
|
|
|
75 |
|
|
|
77 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Gross profit
|
|
|
3,043 |
|
|
|
2,448 |
|
|
|
2,125 |
|
|
|
1,880 |
|
|
|
1,644 |
|
|
|
1,501 |
|
|
|
1,465 |
|
|
|
1,234 |
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Sales and marketing
|
|
|
1,904 |
|
|
|
1,510 |
|
|
|
1,316 |
|
|
|
996 |
|
|
|
1,115 |
|
|
|
920 |
|
|
|
790 |
|
|
|
450 |
|
| |
General and administrative
|
|
|
647 |
|
|
|
522 |
|
|
|
562 |
|
|
|
562 |
|
|
|
418 |
|
|
|
373 |
|
|
|
366 |
|
|
|
197 |
|
| |
Merger expenses
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
55 |
|
|
|
29 |
|
|
|
62 |
|
|
|
113 |
|
|
|
128 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total operating expenses
|
|
|
2,551 |
|
|
|
2,032 |
|
|
|
1,878 |
|
|
|
1,613 |
|
|
|
1,562 |
|
|
|
1,355 |
|
|
|
1,269 |
|
|
|
775 |
|
|
Income from operations
|
|
|
492 |
|
|
|
416 |
|
|
|
247 |
|
|
|
267 |
|
|
|
82 |
|
|
|
146 |
|
|
|
196 |
|
|
|
459 |
|
|
Interest income
|
|
|
2 |
|
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
494 |
|
|
|
417 |
|
|
|
247 |
|
|
|
268 |
|
|
|
83 |
|
|
|
147 |
|
|
|
197 |
|
|
|
459 |
|
|
Income taxes
|
|
|
168 |
|
|
|
171 |
|
|
|
101 |
|
|
|
133 |
|
|
|
68 |
|
|
|
86 |
|
|
|
127 |
|
|
|
241 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
326 |
|
|
$ |
246 |
|
|
$ |
146 |
|
|
$ |
135 |
|
|
$ |
15 |
|
|
$ |
61 |
|
|
$ |
70 |
|
|
$ |
218 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income per share
|
|
$ |
.02 |
|
|
$ |
.01 |
|
|
$ |
.01 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
.01 |
|
|
$ |
.01 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
TRAVELZOO INC.
Condensed Consolidated Balance Sheets
(Unaudited)
| |
June 30,
2003 |
|
December 31,
2002 |
|
|
| |
| |
Assets
Current assets: |
|
|
|
|
|
| Cash and cash equivalents | |
$ 2,343,037 |
|
$ 1,258,273 |
|
| Accounts receivable, less allowance for doubtful | |
| accounts of $96,778 and $55,925 as of June 30, | |
| 2003 and December 31, 2002, respectively | |
1,696,472 |
|
1,311,399 |
|
| Deposits | |
108,188 |
|
22,339 |
|
| Prepaid expenses and other current assets | |
140,383 |
|
114,909 |
|
| Deferred income taxes | |
81,313 |
|
81,313 |
|
|
| |
| |
| Total current assets | |
4,369,393 |
|
2,788,233 |
|
| Deposits | |
— |
|
64,923 |
|
| Deferred income taxes | |
32,054 |
|
32,054 |
|
| Property and equipment, net | |
105,318 |
|
142,091 |
|
| Intangible assets, net | |
179,543 |
|
212,293 |
|
|
| |
| |
| Total assets | |
$ 4,686,308 |
|
$ 3,239,594 |
|
|
| |
| |
| Liabilities and Stockholders' Equity | |
| Current liabilities: | |
| Accounts payable | |
$ 552,548 |
|
$ 442,349 |
|
| Accrued expenses | |
836,262 |
|
547,680 |
|
| Deferred revenue | |
24,865 |
|
19,179 |
|
| Income tax payable | |
500,669 |
|
439,432 |
|
|
| |
| |
| Total liabilities | |
1,914,344 |
|
1,448,640 |
|
|
| |
| |
| Commitments | |
| Stockholders’ equity: | |
| Common stock | |
194,251 |
|
194,251 |
|
| Additional paid-in capital | |
(116,078 |
) |
(116,078 |
) |
| Retained earnings | |
2,693,791 |
|
1,712,781 |
|
|
| |
| |
|
|
|
| Total stockholders’ equity | |
2,771,964 |
|
1,790,954 |
|
|
| |
| |
| Total liabilities and stockholders’ equity | |
$ 4,686,308 |
|
$ 3,239,594 |
|
|
| |
| |
See accompanying notes to unaudited
condensed consolidated financial statements.
F-18
TRAVELZOO INC.
Condensed Consolidated Statements of Operation
(Unaudited)
| | |
Three months ended
June 30, |
|
Six months ended
June 30, |
|
|
|
|
|
| |
|
|
| |
| | |
2003 |
|
2002 |
|
2003 |
|
2002 |
|
|
| |
| |
| |
| |
|
|
|
|
|
| Revenues |
|
4,291,359 |
|
2,211,180 |
|
8,004,936 |
|
4,177,204 |
|
| Cost of revenues | |
81,031 |
|
86,171 |
|
164,169 |
|
172,000 |
|
|
| |
| |
| |
| |
| Gross profit | |
4,210,328 |
|
2,125,009 |
|
7,840,767 |
|
4,005,204 |
|
|
| |
| |
| |
| |
|
|
|
|
|
| Operating expenses: | |
| Sales and marketing | |
2,294,521 |
|
1,316,213 |
|
4,218,442 |
|
2,312,316 |
|
| General and administrative | |
903,119 |
|
562,298 |
|
1,959,803 |
|
1,124,616 |
|
| Merger expenses | |
— |
|
— |
|
— |
|
54,538 |
|
|
| |
| |
| |
| |
| Total operating expenses | |
3,197,640 |
|
1,878,511 |
|
6,178,245 |
|
3,491,470 |
|
|
| |
| |
| |
| |
|
|
|
|
|
| Income from operations | |
1,012,688 |
|
246,498 |
|
1,662,522 |
|
513,734 |
|
| Interest income | |
3,084 |
|
350 |
|
5,137 |
|
1,487 |
|
|
| |
| |
| |
| |
|
|
|
|
|
| Income before income taxes | |
1,015,772 |
|
246,848 |
|
1,667,659 |
|
515,221 |
|
| Income taxes | |
419,375 |
|
100,968 |
|
686,649 |
|
233,601 |
|
|
| |
| |
| |
| |
| Net income | |
$ 596,397 |
|
$ 145,880 |
|
$ 981,010 |
|
$ 281,620 |
|
|
| |
| |
| |
| |
|
|
|
|
|
| Basic net income per share | |
$ 0.03 |
|
$ 0.01 |
|
$ 0.05 |
|
$ 0.01 |
|
| Diluted net income per share | |
$ 0.03 |
|
$ 0.01 |
|
$ 0.05 |
|
$ 0.01 |
|
| Shares used in computing basic | |
| net income per share | |
19,425,147 |
|
19,425,147 |
|
19,425,147 |
|
19,425,147 |
|
| Shares used in computing diluted | |
| net income per share | |
20,498,665 |
|
19,425,147 |
|
20,501,602 |
|
19,425,147 |
|
|
|
|
|
|
See accompanying notes to unaudited
condensed consolidated financial statements.
F-19
TRAVELZOO INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| |
Six months ended
June 30, |
|
| |
| |
| |
2003 |
|
2002 |
|
|
| |
| |
| Cash flows from operating activities: |
|
|
|
|
|
| Net income | |
$ 981,010 |
|
$ 281,620 |
|
| Adjustments to reconcile net income to net cash | |
| (used in) provided by operating activities: | |
| Depreciation and amortization | |
87,940 |
|
88,685 |
|
| Provision for losses on accounts receivable | |
40,853 |
|
36,791 |
|
| Loss on disposal of property and equipment | |
415 |
|
— |
|
| Non-cash revenues | |
— |
|
(3,410 |
) |
| Changes in operating assets and liabilities: | |
| Accounts receivable | |
(425,926 |
) |
(257,485 |
) |
| Deposits | |
(20,926 |
) |
(29,227 |
) |
| Prepaid expenses and other current assets | |
(25,474 |
) |
(39,354 |
) |
| Accounts payable | |
110,199 |
|
(21,358 |
) |
| Accrued expenses | |
288,582 |
|
106,134 |
|
| Deferred revenue | |
5,686 |
|
13,296 |
|
| Income tax payable | |
61,237 |
|
(307,259 |
) |
|
| |
| |
| Net cash provided by (used in) operating | |
| activities | |
1,103,596 |
|
(131,567 |
) |
|
| |
| |
| Cash flows from investing activities: | |
| Purchases of property and equipment | |
(18,832 |
) |
(98,818 |
) |
|
| |
| |
| Net cash used in investing activities | |
(18,832 |
) |
(98,818 |
) |
|
| |
| |
| Net increase (decrease) in cash and cash equivalents | |
1,084,764 |
|
(230,385 |
) |
| Cash and cash equivalents at beginning of period | |
1,258,273 |
|
609,919 |
|
|
| |
| |
| Cash and cash equivalents at end of period | |
$ 2,343,037 |
|
$ 379,534 |
|
|
| |
| |
| Supplemental disclosure of cash flow information: | |
| Cash paid for income taxes | |
$ 625,412 |
|
$ 540,860 |
|
|
|
|
See accompanying notes to unaudited
condensed consolidated financial statements.
F-20
| |
The
accompanying unaudited condensed consolidated financial statements have been prepared by
Travelzoo Inc. (the "Company" or "Travelzoo") in accordance with the rules and
regulations of the Securities and Exchange Commission (SEC). Certain information and
footnote disclosure normally included in consolidated financial statements prepared in
accordance with generally accepted accounting principles in the United States of America
have been condensed or omitted in accordance with such rules and regulations. In the
opinion of management, the accompanying unaudited condensed consolidated financial
statements reflect all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of the Company, and its results of
operations and cash flows. These condensed consolidated financial statements should be
read in conjunction with the Company's audited consolidated financial statements and
related notes as of and for the year ended December 31, 2002, included in the Company's
Form 10-K filed with the SEC on March 28, 2003. |
| |
The
consolidated financial statements include the accounts of Travelzoo and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation. |
| |
The
results of operations for the six months ended June 30, 2003 are not necessarily
indicative of the results that may be expected for the year ending December 31, 2003 or
any other future period, and the Company makes no representations related thereto. |
| |
During
January 2001, the Board of Directors of Travelzoo.com Corporation proposed that
Travelzoo.com Corporation be merged with Travelzoo Inc. whereby Travelzoo Inc. would be
the surviving entity. On March 15, 2002, the stockholders of Travelzoo.com Corporation
approved the merger with Travelzoo Inc. On April 25, 2002, the certificate of merger was
filed in Delaware upon which the merger became effective and Travelzoo.com Corporation
was dissolved. Each outstanding share of common stock of Travelzoo.com Corporation was
converted into the right to receive one share of common stock of Travelzoo Inc. Former
stockholders of Travelzoo.com Corporation have a period of two years to receive shares of
Travelzoo Inc. Travelzoo.com Corporation had 11,295,874 shares outstanding. As of June
30, 2003, 7,148,184 shares of Travelzoo.com Corporation had been exchanged for shares of
Travelzoo Inc. The remaining 4,147,690 shares of Travelzoo Inc. that may be exchanged
are included in the issued and outstanding common stock of Travelzoo Inc. and the
calculations of basic and diluted earnings per share. The merger was accounted for as a
combination of entities under common control using “as-if pooling-of-interests” accounting.
Under this method of accounting, the assets and liabilities of Travelzoo.com Corporation
and Travelzoo Inc. were carried forward to the combined company at their historical
costs. In addition, all prior period financial statements of Travelzoo Inc. were
restated to include the combined results of operations, financial position and cash flows
of Travelzoo.com Corporation. The restated results for Travelzoo Inc. are identical to
the combined results of Travelzoo.com Corporation and Travelzoo Inc. |
| |
Substantially
all revenue consists of advertising sales. Advertising revenues are derived principally
from the sale of advertising on the Travelzoo website and in the Travelzoo Top 20 e-mail
newsletter. |
| |
Advertising
revenues are recognized in the period in which the advertisement is displayed, provided
that evidence of an arrangement exists, the fees are fixed and determinable, no
significant obligations remain at the end of the period, and collection of the resulting
receivable is deemed probable. Where collectibility is not probable, the revenue will be
recognized upon cash collection, provided that the other criteria for revenue recognition
have been met. If fixed-fee advertising is displayed over a term greater than one month,
revenues are recognized ratably over the period. To the extent that any minimum
guaranteed impressions are not met during the contract period, the Company defers
recognition of the corresponding revenues until the guaranteed impressions are achieved.
Fees for banner advertising and other variable-fee advertising arrangements are
recognized based on the number of impressions displayed or clicks delivered during the
period. |
F-21
| |
The
Company had outsourced part of its advertising sales and production activities to
DoubleClick, Inc. (“DoubleClick”). The agreement with DoubleClick was canceled as of
August 23, 2002. Under the terms of the agreement with DoubleClick, the Company received
a portion of the revenue received by DoubleClick from clients for the display of
advertising on the Travelzoo website. The Company records these revenues on a net basis.
The gross revenue received by DoubleClick from advertising on the Travelzoo website was
$-0- and $45,521 for the six months ended June 30, 2003 and 2002, respectively. The
Company’s share of this income, which has been recorded as revenue, was $-0- and
$20,394 for the six months ended June 30, 2003 and 2002, respectively. |
| |
Commissions
are recorded as the net amount received by the Company and are recognized in the period
in which the commissions earned are reported to the Company by the e-commerce partner. |
| |
In
October 2001, the Company completed the acquisition of the Weekends.com domain name. As
consideration for the purchase, the Company paid the seller $125,000 in cash and agreed
to provide a minimum number of clicks to the seller's other websites through advertising
placed on the Travelzoo website. The fair value of the advertising services of $89,286
was determined based on the cash price of similar advertising services and recorded as
deferred revenue. The revenue is being recognized as the clicks are delivered, and
$3,410 of such revenue was recognized for the six months ended June 30, 2002. The
agreement with the seller to provide advertising services expired on September 30, 2002.
As such, $69,427 of advertising was not delivered and the carrying amounts of the
intangible asset and related deferred revenue were reduced accordingly. |
| 3) |
|
Stock-based
Compensation |
| |
The
Company adopted Statement of Financial Accounting Standards No. 148, Accounting for
Stock-Based Compensation – Transition and Disclosure, during the quarter ended March 31,
2003. As required under Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation, and Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation Transition and Disclosure, the pro forma effects
of stock-based compensation on net income and net earnings per common share have been
estimated at the time of grant using the Black-Scholes option-pricing model. |
F-22
| |
For
purposes of pro forma disclosures, the estimated fair value of the options is assumed to
be amortized to expense over the options’ vesting periods. The pro forma effects of
recognizing compensation expense under the fair value method on net income and net
earnings per common share were as follows: |
| | |
Six months ended
June 30, |
|
|
| |
| | |
2003 |
|
2002 |
|
|
| |
| |
| Net income as reported |
|
$981,010 |
|
$ 281,620 |
|
| Stock-based compensation included | |
| in determination of net income | |
— |
|
— |
|
| Stock-based compensation determined | |
| under the fair-value based method | |
— |
|
(954 |
) |
|
| |
| |
| Pro-forma net income as if the fair | |
| value based method had been applied | |
| to all awards | |
$981,010 |
|
$ 280,666 |
|
|
| |
| |
| Pro-forma basic and diluted net income | |
| per share as if the fair value based | |
| method had been applied to all awards | |
$ 0.05 |
|
$ 0.01 |
|
|
| |
| |
| |
The
fair value of options granted was calculated as of the grant date using the
Black-Scholes method with the following assumptions: |
| | |
2003 |
|
2002 |
|
|
| |
| |
| Numbers of options granted |
|
— |
|
33,589 |
|
| Grant date fair value of options | |
— |
|
0.06 |
|
| Grant date fair value of the common stock | |
$ — |
|
$ 0.56 |
|
| Expected life of the option (in years) | |
— |
|
5 |
|
| Annual volatility | |
— |
|
51 |
% |
| Risk-free interest rates | |
— |
|
4.5 |
% |
| Dividend rate | |
— |
|
— |
|
| |
Net
income per share has been calculated under SFAS No. 128, Earnings per Share. Basic net
income per share is computed by dividing the net income by the weighted-average number of
common shares outstanding for the period. Diluted net income per share is computed by
dividing net income by the weighted-average number of common shares and potential common
shares outstanding during the period. Potential common shares included in the diluted
calculation consists of incremental shares issuable upon the exercise of outstanding
stock options calculated using the treasury stock method. |
F-23
| |
The
following table sets forth the calculation of basic and diluted net income per share: |
|
|
|
Three months ended
June 30, | |
Six months ended
June 30, |
|
|
| |
| | |
|
|
|
2003 |
|
2002 |
|
2003 |
|
2002 |
|
|
| |
| |
| |
| |
Basic net income per share:
Net income |
|
|
$ | 596,397 |
|
$ | 145,880 |
|
$ | 981,010 |
|
$ | 281,620 |
|
|
| |
| |
| |
| |
| Weighted average common shares | | |
| 19,425,147 |
|
| 19,425,147 |
|
| 19,425,147 |
|
| 19,425,147 |
|
|
| |
| |
| |
| |
| Basic net income per share | | |
$ | 0.03 |
|
$ | 0.01 |
|
$ | 0.05 |
|
$ | 0.01 |
|
|
| |
| |
| |
| |
| Diluted net income per share: | | |
| Net income | | |
$ | 596,397 |
|
$ | 145,880 |
|
$ | 981,010 |
|
$ | 281,620 |
|
|
| |
| |
| |
| |
| Weighted average common shares | | |
| 19,425,147 |
|
| 19,425,147 |
|
| 19,425,147 |
|
| 19,425,147 |
|
| Effect of dilutive securities stock options | | |
| 1,073,518 |
|
| — |
|
| 1,076,455 |
|
| — |
|
|
| |
| |
| |
| |
| Diluted weighted average common shares | | |
| 20,498,665 |
|
| 19,425,147 |
|
| 20,501,602 |
|
| 19,425,147 |
|
|
| |
| |
| |
| |
| Diluted net income per share | | |
$ | 0.03 |
|
$ | 0.01 |
|
$ | 0.05 |
|
$ | 0.01 |
|
|
| |
| |
| |
| |
| |
For
the three and six months ended June 30, 2002, all outstanding stock options were excluded from the
calculation of diluted earnings per share because their effect was antidilutive. |
| |
The
Company leases office space in Mountain View, California, New York, New York and Miami,
Florida, under operating leases which expire on December 31, 2003, June 30, 2004 and May 31,
2004, respectively. The future minimum rental payments under these operating leases as
of June 30, 2003 and December 31, 2002 total $626,463 and $556,940, respectively. The
future lease payments consist of $359,362 of payments due in 2003 and $267,101 of
payments due in 2004. |
| 6) |
|
Significant
Customer Information and Segment Reporting |
| |
SFAS
No. 131, Disclosure about Segments of an Enterprise and Related Information,
establishes standards for the reporting by business enterprises of information
about operating segments, products and services, geographic areas, and major
customers. The method for determining what information to report is based on the way
that management organizes the operating segments within a company for making
operational decisions and assessing performance. As of June 30, 2003, the Company
has one operating segment. |
| |
Significant
customer information is as follows: |
| | |
Percent of revenues
| |
Percent of accounts receivable
| |
| | |
Six months ended June 30,
| |
June 30,
| |
Customer
| |
2003
| |
2002
| |
2003
| |
2002
| |
| A |
|
13% |
|
17% |
|
21% |
|
22% |
|
| B | |
* | |
— | |
— | |
12% | |
| C | |
10% | |
15% | |
17% | |
17% | |
| |
All of the above customers are located in the United States of America. |
F-24
| 7) |
|
Recent
Accounting Pronouncements |
| |
In
August 2001, the Financial Accounting Standards Board issued SFAS No. 143, Accounting for
Asset Retirement Obligations. SFAS No. 143 addresses financial accounting and reporting
for obligations associated with retirement of tangible long-lived assets and the
associated retirement costs. SFAS No. 143 is effective for the Company beginning in 2003
and the adoption of this statement did not have a material impact on the consolidated
financial statements. |
| |
In
April 2002, the Financial Accounting Standards Board issued SFAS No. 145, Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS No. 145 rescinds the requirement that all gains and losses from
extinguishment of debt be classified as an extraordinary item. Additionally, SFAS No.
145 requires that certain lease modifications that have economic effects similar to
sale-leaseback transactions be accounted for in the same manner as sale-leaseback
transactions. SFAS No. 145 is effective for the Company beginning in 2003, and the
effect of adoption did not have a material impact on the consolidated financial
statements. |
| |
In
January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable
Interest Entities ("FIN 46"). The interpretation provides guidance for determining
when a primary beneficiary should consolidate a variable interest entity or equivalent
structure, that functions to support the activities of the primary beneficiary. The
interpretation is effective as of the beginning of the Company’s third quarter of
2003 for variable interest entities created before February 1, 2003. The Company
holds no interest in any variable interest entities. Accordingly, the adoption of
this statement is currently not expected to have a material impact on the consolidated
financial statements. |
| |
In May 2003, the FASB issued SFAS No. 150,
Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.
The statement improves the accounting for certain financial instruments that, under previous guidance,
issuers could account for as equity. The new statement requires that those instruments be classifed as liabilities
in statements of financial position. This statement is effective for interim periods beginning after
June 15, 2003. The Company does not expect that the adoption of SFAS No. 150 will have a material effect
on its consolidated financial statements. |
F-25
|
|
|
|
|
|
|
No dealer, salesperson or any other person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection with the offer contained herein, and,
if given or made, such information or representations must not be relied upon as having been authorized by the
Company or the Underwriter. This Prospectus does not constitute an offer of any securities other than those to
which it relates or any offer to sell, or a solicitation of an offer to buy, those to which it relates in any
state to any person to whom it is not lawful to make such offer in such state. The delivery of this Prospectus
at any time does not imply that the information herein is correct as of any time subsequent to its date.
|
|
354,400 Shares
Common Stock |
__________________
TABLE OF CONTENTS
|
| Summary |
1 | |
| Risk Factors |
5 | __________________ |
Cautionary Statement Regarding Forward-Looking
Information |
12 |
PROSPECTUS |
| Use of Proceeds |
12 |
__________________ |
| Capitalization |
13 | |
| Selected Financial Data |
14 | |
Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
15 | |
| Business |
22 | |
| Management |
29 | |
| Certain Transactions Between Travelzoo and Its Affiliates |
32 | |
| Principal and Selling Stockholders |
33 | |
Price Range of Common Stock and Dividend
Information |
36 | |
| Plan of Distribution |
37 | |
| Legal Matters |
39 | |
| Experts |
39 | |
| Where You Can Find More Information About Us |
40 | |
| Index to Financial Statements |
F-1 |
 |
Until _______, 2003, all dealers that effect transactions in the Common Stock, whether or not participating in
this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions. |
|
|
PART II
INFORMATION NOT
REQUIRED IN PROSPECTUS
Item 13. Other Expenses
of Issuance and Distribution
The
following table sets forth the expenses (other than underwriting discounts and
commissions), which other than the SEC registration fee are estimates, payable by the
Registrant in connection with the sale and distribution of the shares registered hereby**:
| SEC Registration Fee |
$203.72 |
|
| Accounting Fees and Expenses |
$60,000.00 |
* |
| Legal Fees and Expenses |
$160,000.00 |
* |
| Miscellaneous Expenses |
$1,796.28 |
* |
| |
|
|
| Total |
$222,000.00 |
* |
_________________
| ** |
|
The
selling stockholders will pay any sales commissions or underwriting discount and fees
incurred in connection with the sale of shares registered hereunder. |
Item 14. Indemnification
of Directors and Officers
The
Delaware General Corporation Law permits the indemnification by a Delaware corporation of
its directors, officers, employees and other agents against expenses (including attorneys’ fees),
judgments, fines and amounts paid in settlement in connection with specified actions,
suits or proceedings, whether civil, criminal, administrative or investigative (other
than derivative actions which are by or in the right of the corporation) if they acted in
good faith and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe their conduct was unlawful. A similar standard of care is
applicable in the case of derivative actions, except that indemnification only extends to
expenses (including attorneys’ fees) incurred in connection with defense or
settlement of such an action and requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable to the
corporation.
As
permitted by Delaware law, the Registrant’s certificate of incorporation provides
that no director of the Registrant will be personally liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director, except for
liability (a) for any breach of duty of loyalty to the Registrant or to its stockholders,
(b) for acts or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the Delaware General Corporation Law,
or (d) for any transaction from which the director derived an improper personal benefit.
The
Registrant’s certificate of incorporation further provides that the Registrant must
indemnify its directors and executive officers and may indemnify its other officers and
employees and agents to the fullest extent permitted by Delaware law. The Registrant
believes that indemnification under its certificate of incorporation covers negligence
and gross negligence on the part of indemnified parties.
The
Registrant has entered into indemnification agreements with each of its directors and
officers. These agreements, among other things, require the Registrant to indemnify such
directors and officers for certain expenses (including attorneys’ fees), judgments,
fines and settlement amounts incurred by any such person in any action or proceeding,
including any action by or in the right of the Registrant, arising out of such person’s
services as a director or officer of the Registrant, any subsidiary of the Registrant or
any other company or enterprise to which the person provides services at the request of
the Registrant.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers or persons controlling the Registrant pursuant to such
provisions, the Registrant has been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed in such
Act and is therefore unenforceable.
II-1
Item 15. Recent Sales of Unregistered Securities
The following is a summary of our sales of securities during the past three years that were not registered
under the Securities Act of 1933, as amended:
Issuances of Capital Stock
On January 22, 2001, we issued 8,129,273 share of common stock and an option to acquire 2,158,349 shares of
our common stock to our Chief Executive Officer in exchange for all of the outstanding shares of Silicon Channels
Corporation.
Stock Options Grants
On October 30, 2001, we granted to our employees, directors and consultants options to purchase 210,000
shares of our common stock at an exercise price of $2.00 per share.
On March 25, 2001, we granted to our employees, directors and consultants options to purchase 33,589 shares
of our common stock at an exercise price of $3.00 per share.
Stock Options Exercises
All of the above-described issuances were exempt from registration (i) pursuant to Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, as transactions not involving a public offering or (ii)
Rule 701 promulgated under the Securities Act or (iii) as transactions not involving a sale of securities. With
respect to each transaction listed above, no general solicitation was made by either us or any person acting on
our behalf; the securities sold are subject to transfer restrictions; and the certificates for the shares
contained an appropriate legend stating such securities have not been registered under the Securities Act and may
not be offered or sold absent registration or pursuant to an exemption therefrom. No underwriters were involved
in connection with the sales of securities referred to in this Item 15.
Item
16. Exhibits
Exhibit
Number | |
Description | |
| 1.1 |
|
Form of Underwriting Agreement** |
|
| 5.1 |
|
Opinion of Bryan Cave LLP regarding the validity of the Common Stock** | |
| 10.1 |
|
Form of Warrant** | |
| 10.2 |
|
Form of Registration Rights Agreement | |
| 23.1 |
|
Consent of KPMG LLP | |
| 23.2 |
|
Consent of Bryan Cave LLP (included in Exhibit 5.1)** | |
| 24.1 |
|
Power of Attorney (included on signature page)** | |
Item 17.
Undertakings
(a) The
undersigned registrant hereby undertakes:
| |
(1)
To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
|
| |
(i)
To include any prospectus required by Section 10(a)(3) of the Securities Act of
1933;
|
II-2
| |
(ii)
To reflect in the prospectus any facts or events arising after the effective
date of this registration statement (or the most recent post-effective amendment
hereof) which, individually or in the aggregate, represent a fundamental change in
the information set forth in this registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was registered) and
any deviation from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent no more than 20
percent change in the maximum aggregate offering price set forth in the
“Calculation of Registration Fee” table in the effective registration statement; and
|
| |
(iii)
To include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to such
information in the registration statement.
|
| |
(2)
That, for the purpose of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering thereof.
|
| |
(3)
To remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the offering.
|
(b)
Insofar as indemnification for liabilities arising under the Securities Act of 1933
may be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c)
For purposes of determining any liability under the Securities Act of 1933, the information omitted from
the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was declared effective.
(d)
For the purpose of determining any liability under the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-3
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant
has duly caused this pre-effective no. 2 to registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York, State
of New York, on August 26, 2003.
|
TRAVELZOO INC.
|
|
By: |
/s/ RALPH BARTEL
|
|
|
Ralph Bartel, Chairman of the Board,
Chief Executive Officer
and
Chief Financial Officer |
Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
Ralph Bartel*
|
|
Chairman of the Board of Directors,
Chief Executive Officer and President
(Principal Executive Officer and
Principal Financial Officer) |
|
August 26, 2003 |
|
(Ralph Bartel)
|
|
|
|
|
Lisa Su*
|
|
Controller (Principal
Accounting Officer)
|
|
August 26, 2003 |
|
(Lisa Su)
|
|
|
|
|
David J. Ehrlich*
|
|
Director |
|
August 26, 2003 |
|
(David J. Ehrlich)
|
|
|
|
|
|
Suzanna Mak*
|
|
Director |
|
August 26, 2003 |
|
(Suzanna Mak)
|
|
|
|
|
|
Donovan Neale-May*
|
|
Director |
|
August 26, 2003 |
|
(Donovan Neale-May)
|
|
|
|
|
|
Kelly M. Urso*
|
|
Director |
|
August 26, 2003 |
|
(Kelly M. Urso)
|
|
|
|
|
|
|
* By: |
/s/ RALPH BARTEL
|
|
|
Ralph Bartel, Attorney in fact |
II-4
EXHIBIT INDEX
Exhibit
Number | |
Description | |
| 1.1 |
|
Form of Underwriting Agreement** |
|
| 5.1 |
|
Opinion of Bryan Cave LLP regarding the validity of the Common Stock** | |
| 10.1 |
|
Form of Warrant** | |
| 10.2 |
|
Form of Registration Rights Agreement | |
| 23.1 |
|
Consent of KPMG LLP | |
| 23.2 |
|
Consent of Bryan Cave LLP (included in Exhibit 5.1)** | |
| 24.1 |
|
Power of Attorney (included on signature page)** | |
II-5
