Travelzoo 2003 Annual Report Download

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L
TRA
VEZOO
TRA
VEL
ZOO
NASDAQ: TZOO
2003 Annual Report
2004 Proxy Statement

Table of contents

  • Page 1
    TRAVELZ OO NASDAQ: TZOO 2003 Annual Report 2004 Proxy Statement

  • Page 2

  • Page 3
    ... make available an alphabetical list of stockholders entitled to vote at the meeting for examination by any stockholder during ordinary business hours at Travelzoo's principal executive oÇces, located at 590 Madison Avenue, 21st Floor, New York, New York 10022, from May 10, 2003 until the meeting...

  • Page 4
    ... Meeting of Stockholders of Travelzoo Inc., a Delaware corporation, will be held on Wednesday, June 2, 2004, at 2:00 p.m. Eastern Standard Time at The Warwick Hotel, Oxford Room, 65 West 54th Street, New York, New York 10019, for the following purposes: 1. To elect Ã've directors for terms expiring...

  • Page 5
    ...of record at the close of business on April 30, 2004. On the record date, there were 15,309,483 shares of our common stock outstanding. Where and when is the Annual Meeting? The Annual Meeting of Stockholders will take place on June 2, 2004 at The Warwick Hotel, Oxford Room, 65 West 54th Street, New...

  • Page 6
    ... a copy of the Form 10-Q by logging on to Travelzoo's investor relations website at www.corporate.travelzoo.com/ir, by calling the Securities and Exchange Commission at (800) SEC-0330 for the location of the nearest public reference room, or through the EDGAR system at www.sec.gov. Information on...

  • Page 7
    ... marketing and public relations Ã'rm with 80 full-time communications professionals headquartered in Palo Alto, California. Kelly M. Urso, 37, 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...

  • Page 8
    ... Mr. Bartel Mr. Ehrlich Ms. Mak Mr. Neale-May Ms. Urso Number of 2003 Meetings Chair Member Member Member Member 4 Chair Chair Chair Member Member 4 Member 1 Member 4 The Company does not require that directors attend the Annual Meeting. Ralph Bartel, our Chairman of the Board of...

  • Page 9
    ... which the envelope is addressed. Audit Committee Report The Audit Committee oversees Travelzoo's Ã'nancial reporting process on behalf of your Board of Directors. Management is primarily responsible for the Ã'nancial statements and reporting process including the systems of internal controls, while...

  • Page 10
    ... of Common Stock BeneÃ'cially Owned Number of Exercisable % of Shares Shares(1) Options(2) Total Outstanding Holger Bartel Ralph Bartel David J. Ehrlich Kelly N. Ford Steven M. Ledwith Suzanna Mak Donovan Neale-May Lisa Su Shirley Tafoya Kelly M. Urso Directors and executive oÇcers as...

  • Page 11
    ...Accounting OÇcer) Senior Vice President of Sales Ralph Bartel founded Travelzoo in May 1998 and has served as our President, Chief Executive OÇcer 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...

  • Page 12
    ... 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. Executive...

  • Page 13
    ... diÃ...erence between (1) the average of the high and low trading prices per share of Travelzoo's common stock on December 31, 2003 and (2) the exercise price of the option and (B) multiplying such diÃ...erence by the total number of shares under option, net of the aggregate value of all option exercise...

  • Page 14
    ... for an annual salary of $200,000. Mr. Bartel's annual salary was increased to $200,000 from $192,000 as of July 1, 2003. Compensation Committee Ralph Bartel (Chairman) Kelly M. Urso Compensation Committee Interlocks and Insider Participation During 2003, Ralph Bartel, the Chief Executive OÇcer of...

  • Page 15
    ... period ending December 31, 2003, the cumulative total stockholder return for Travelzoo, the NASDAQ Stock Market (U.S. companies) Index (the ""NASDAQ Market Index''), and the Standard & Poor's 500 Publishing Index (the ""S&P 500 Publishing''). Measurement points are the last trading day of each of...

  • Page 16
    During Ã'scal year 2003, KPMG charged fees for services rendered to Travelzoo as follows: Service 2002 Fees 2003 Fees Audit Audit-related Tax All other fees Total $170,985 ÃŒ ÃŒ ÃŒ $170,985 $181,950 $ 89,900 ÃŒ ÃŒ $271,850 YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE ""FOR'' THE RATIFICATION ...

  • Page 17
    ... be directed to Investor Relations, Travelzoo Inc., 590 Madison Avenue, 21st Floor, New York, New York, 10022 or by telephone at (212) 521-4200. Other We will bear the cost of solicitation of proxies. Proxies will be solicited by mail and also may be solicited by our executive oÇcers and other...

  • Page 18

  • Page 19
    ...of June 30, 2003, the aggregate market value of voting and non-voting common stock held by nonaÇliates of the Registrant, based upon the average of the bid and ask prices of such stock on the OTC Bulletin Board, was $5,503,880. The number of shares outstanding of the Registrant's Common Stock as of...

  • Page 20

  • Page 21
    ... and Procedures PART III Directors and Executive OÇcers of the Registrant Executive Compensation Security Ownership of Certain BeneÃ'cial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions Principal Accounting Fees and Services 2 15 15 16 16...

  • Page 22
    ...products include the Travelzoo website, the Travelzoo Top 20 newsletter, NewsÃ-ash, and the Weekend.com newsletter. More than 300 companies purchase our advertising services, including American Airlines, American Express, Alamo Rent-A-Car, ATA, Avis Rent-A-Car, British Airways, Carnival Cruise Lines...

  • Page 23
    ...-time listings, real-time updates, and performance tracking. See ""ÃŒ BeneÃ'ts to Travel Companies.'' New Advertising Opportunities. The Internet allows travel companies to advertise their sales and specials in a fast, Ã-exible, and cost-eÃ...ective manner that has not been possible before. Suppliers...

  • Page 24
    ... to advertise their sales and specials to millions of users. Our products include the Travelzoo website, the Travelzoo Top 20 newsletter, NewsÃ-ash, and the Weekend.com newsletter. While our products provide advertising opportunities for travel companies, they also provide Internet users with a free...

  • Page 25
    ...NewsÃ-ash, and our Weekend.com newsletter provide consumers information on current special oÃ...ers at no cost to the consumer. Key features of our products include: ‚ Aggregation of OÃ...ers From Many Companies. Our Travelzoo website and our Travelzoo Top 20 e-mail newsletter aggregate information on...

  • Page 26
    ... 2003, our client base included approximately 300 travel companies, including airlines, hotels, cruise lines, vacations packagers, tour operators, car rental companies, and travel agents. Some of our clients are: American Airlines Apple Vacations ATA Avis Rent A Car British Airways Budget Rent A Car...

  • Page 27
    ... 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...

  • Page 28
    ... in sales, business development, and marketing, 17 in production, 3 in network operations and 8 were involved in Ã'nance, administration, and corporate operations. None of our employees is represented under collective bargaining agreements. We consider our relations with our employees to be good...

  • Page 29
    ... and retain additional travel companies to list their special oÃ...ers with us; ‚ attract additional Internet users to the Travelzoo website; ‚ increase the functionality of our products and services; ‚ maintain our current, and develop new, business relationships; ‚ respond eÃ...ectively to...

  • Page 30
    ... a material adverse eÃ...ect 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 paid by travel companies. If current clients decide not to continue advertising their sales and specials with us and we are...

  • Page 31
    ...signiÃ'cant costs related to the printing and mailing of such reports. Risks Related to Our Markets and Strategy The Internet is not a proven marketing medium. The future of our business is dependent on the continuing acceptance by travel companies of the Internet as an eÃ...ective marketing tool, and...

  • Page 32
    .... We may not succeed in developing features, functions, products or services that travel companies and Internet users Ã'nd attractive. This could reduce the number of travel companies and Internet users using our products and materially adversely aÃ...ect our business. We may lose business if we fail...

  • Page 33
    ...a position to control Travelzoo and to elect our entire board of directors. Investors may face signiÃ'cant restrictions on the resale of our stock due to federal penny stock regulations. If our shares trade at less than Ã've dollars per share, since the shares are not listed on a recognized national...

  • Page 34
    ...the operating and stock price performance of other companies that investors may deem comparable to us; and news reports relating to trends in our markets or general economic conditions. In addition, the stock market in general, and the market prices for Internet-related companies in particular, have...

  • Page 35
    ... 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...

  • Page 36
    ... on the NASDAQ SmallCap Market under the symbol ""TZOO.'' From August 28, 2002 to December 29, 2003, our common stock was quoted on the OTC Bulletin Board. The following table sets forth, for the periods indicated, the high and low sales prices per share of our common stock as reported by the OTC...

  • Page 37
    ...services. Our revenues are advertising revenues, consisting of listing fees paid by travel companies to advertise their special oÃ...ers on the Travelzoo website and in the Travelzoo Top 20 e-mail newsletter, the NewsÃ-ash e-mail product, the Weekend.com e-mail newsletter, and banner advertising sales...

  • Page 38
    ... and operating performance of the Company, management focuses on the following Ã'nancial and non-Ã'nancial indicators: ‚ Growth of number of subscribers of the Company's newsletters and page views of selected sections of the Travelzoo website; ‚ Growth in revenues in the absolute and relative...

  • Page 39
    ... table sets forth the number of subscribers of each of our e-mail publications as of December 31, 2003 and 2002 and the total number of page views for selected sections of the Travelzoo website for the years ended December 31, 2003 and 2002. Management considers the Travelzoo homepage and the front...

  • Page 40
    ... 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 staÃ.... Sales and marketing expenses...

  • Page 41
    ... to an increase of our sales force and our decision to hire more experienced sales personnel. General and Administrative General and administrative expenses consist primarily of compensation for administrative and executive staÃ..., fees for professional services, rent, bad debt expense, amortization...

  • Page 42
    ... stockholder. Our capital requirements 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, NewsÃ-ash, the Weekend.com newsletter and expansion of our operations and...

  • Page 43
    ... apply to those entities. There is no grandfathering of existing entities. Public companies must apply either FIN 46 or FIN 46R immediately to entities created after December 15, 2003 and no later than the end of the Ã'rst reporting period that ends after March 15, 2004 for all other entities. The...

  • Page 44
    Item 8. Consolidated Financial Statements TRAVELZOO INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Independent Auditors' Report Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Stockholders' Equity Consolidated Statements of Cash Flows Notes to...

  • Page 45
    ... the related consolidated statements of operations, stockholders' equity, and cash Ã-ows for each of the years in the three-year period ended December 31, 2003. These consolidated Ã'nancial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on...

  • Page 46
    ...: Accounts payable Accrued expenses Deferred revenue Income tax payable Total liabilities 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 reported as outstanding both...

  • Page 47
    TRAVELZOO INC. CONSOLIDATED STATEMENTS OF OPERATIONS 2003 Years Ended December 31, 2002 2001 Revenues Cost of revenues Gross proÃ't Operating expenses: Sales and marketing General and administrative Merger expenses Total operating expenses Income from operations Interest income Income ...

  • Page 48
    TRAVELZOO INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended December 31, 2003, 2002 and 2001 Common Stock Shares Amount Additional Paid-in Capital Retained Earnings Total Stockholders' Equity Balances, December 31, 2000 Net income Balances, December 31, 2001 Net income Balances, ...

  • Page 49
    ... Cash paid for income taxes net of refunds received Non cash investing activities: Intangible asset acquired for future advertising Services Reduction in carry amounts of intangible asset and deferred revenue $ 2,050,126 $ 853,071 $ 363,735 163,284 (139,455) 15,534 415 Ì (1,074,050) (52,349...

  • Page 50
    ... Inc. is an Internet media company that publishes sales and specials for hundreds of travel companies. The Company's products include the Travelzoo website, the Travelzoo Top 20 e-mail newsletter, the NewsÃ-ash e-mail product, and the Weekend.com e-mail newsletter. The consolidated Ã'nancial...

  • Page 51
    ... 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 $-0-, $82,939 and $600,454 for the years ended December 31, 2003, 2002, and 2001 respectively. The Company's share of...

  • Page 52
    ... 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...

  • Page 53
    ... value less costs to sell. (l) 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...

  • Page 54
    ...with the following assumptions: 2003 2002 2001 Numbers of options granted Grant date fair value of options Grant date fair value of the common stock Expected life of the option (in years Annual volatility Risk-free interest rates Dividend Rate m) Website Development Costs 33,589 210,000...

  • Page 55
    ... apply to those entities. There is no grandfathering of existing entities. Public companies must apply either FIN 46 or FIN 46R immediately to entities created after December 15, 2003 and no later than the end of the Ã'rst reporting period that ends after March 15, 2004 for all other entities. The...

  • Page 56
    TRAVELZOO INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued) The Company adopted the new disclosure requirements of Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation Ì Transition and Disclosure, during the quarter ended March 31, 2003. The ...

  • Page 57
    TRAVELZOO INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ÃŒ (Continued) (4) Income Taxes Income tax expense (beneÃ't) for the years ended December 31, 2003, 2002, and 2001 consisted of the following: Current Deferred Total 2003... Company's level of pretax income as a result of the following: 2003 ...

  • Page 58
    ... par value preferred stock. As of December 31, 2003 15,294,033 shares of common stock and no shares of preferred stock were issued and 19,425,147 shares of common stock were reported as outstanding. If all former stockholders of Travelzoo Bahamas accept their shares in Travelzoo Inc., an additional...

  • Page 59
    ... 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...

  • Page 60
    ... (Chief Accounting OÇcer) Ralph Bartel founded Travelzoo in May 1998 and has served as President, Chief Executive OÇcer, Chief Financial OÇcer 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...

  • Page 61
    ... Ã'scal year ended December 31, 2003. Item 14. Principal Accounting Fees and Services Information regarding principal auditor fees and services is set forth under ""Principal Accounting Fees and Services'' in the Proxy Statement relating to our 2004 Annual Meeting of Stockholders and is incorporated...

  • Page 62
    ...Executive OÇcer, and Chief Financial OÇcer Controller (Chief Accounting OÇcer) March 29, 2004 March 29, 2004 /s/ DAVID J. EHRLICH David J. Ehrlich SUZANNA MAK Suzanna Mak Director March 29, 2004 /s/ Director March 29, 2004 /s/ DONOVAN NEALE-MAY Donovan Neale-May /s/ KELLY M. URSO Kelly...

  • Page 63
    ... of Director and OÇcer IndemniÃ'cation Agreement (Incorporated by reference to our Pre-EÃ...ective Amendment No. 6 to our Registration Statement on Form S-4 (File No. 333-55026), Ã'led February 14, 2002) 21.1* ÃŒ List of Subsidiaries of Travelzoo Inc. 24.1 ÃŒ Power of Attorney (included on signature...

  • Page 64
    EXHIBIT 21.1 Subsidiaries of the Registrant Travelzoo USA, Inc., a California corporation* Travelzoo.com Canada, Inc., a corporation formed under the Business Corporations Act of Canada * Formerly Silicon Channels Corporation

  • Page 65
    ... information; and b. any fraud, whether or not material, that involves management or other employees who have a signiÃ'cant role in the registrant's internal control over Ã'nancial reporting. TRAVELZOO INC. By: RALPH BARTEL Ralph Bartel Chairman of the Board, Chief Executive OÇcer, and Chief...

  • Page 66
    ...Act of 1934 and (2) the information contained in this report fairly presents, in all material respects, the Ã'nancial condition and results of operations of the registrant. A signed original of this written statement required by Section 9-6 has been provided to Travelzoo Inc. and will be retained by...

  • Page 67

  • Page 68
    Investor Relations: Travelzoo Inc. ATTN: Investor Relations 590 Madison Avenue 21st Floor New York, NY 10022 Website: www.travelzoo.com/ir