Travelzoo 2004 Annual Report Download - page 45

During the year ended December 31, 2004, the Company realized tax beneÑts of $1,931,924 upon the
exercises of stock options by directors. The tax beneÑt reduced the Company's income tax payable and
increased additional paid-in capital by this amount.
Liquidity and Capital Resources
As of December 31, 2004, we had $36.4 million in cash, cash equivalents and short-term investments.
Cash, cash equivalents and short-term investments increased from $3.5 million on December 31, 2003
primarily as a result of cash provided by operating activities and Ñnancing activities explained below. Cash and
cash equivalents increased to $3.5 million on December 31, 2003 from $1.3 million on December 31, 2002
primarily as a result of cash provided by operations explained below. We expect that cash Öows generated from
operations will continue to be suÇcient to provide for working capital needs for at least the next 12 months.
Net cash provided by operating activities in the year ended December 31, 2004 was $4.5 million. Net
cash provided by operating activities in the year ended December 31, 2003 was $2.4 million. Net cash
provided by operating activities in the year ended December 31, 2002 was $769,000. In the year ended
December 31, 2004, net cash provided by operating activities resulted primarily from net income and a net
increase in accrued expenses and tax beneÑt of stock options exercises oÅset by an increase in accounts
receivable and a decrease in income tax payable. The tax beneÑt of stock options resulted from exercises
during 2004 of stock options by directors. The increase in accounts receivable resulted from higher revenues
during 2004 and greater days of sales outstanding relating to a higher mix of variable fee advertising, which has
a longer collection period than Ñxed fee advertising because it is billed in arrears while Ñxed fee advertising is
billed in advance. In the year ended December 31, 2003, net cash provided by operating activities resulted
primarily from net income and a net increase in income tax payable and accrued expenses oÅset by an increase
in accounts receivable. The increase in accounts receivable resulted from higher revenues during 2003. The
increase in taxes payable was the result of higher income tax expense in 2003, and the increase in accrued
liabilities was the result of higher operating expenses in 2003. In the year ended December 31, 2002, net cash
provided by operating activities resulted primarily from net income and an increase in accounts payable and
accrued expenses oÅset by income tax payments and an increase in accounts receivable.
Net cash used in investing activities was $10.1 million, $120,000 and $121,000 during the years ended
December 31, 2004, 2003 and 2002, respectively. In all periods, net cash was used in investing activities for
equipment purchases, except for 2004, which included $10.0 million for purchases of short-term investments.
Net cash provided by Ñnancing activities was $28.5 million in the year ended December 31, 2004. The net
cash provided in the year ended December 31, 2004 was due primarily from the proceeds from issuance of
common stock in a private placement transaction and upon exercises of stock options by directors. There were
no cash Öows related to Ñnancing activities in the years ended December 31, 2003 and 2002.
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 development of our advertising products, cash
payments to former stockholders of Travelzoo.com Corporation, expansion of our operations, and the amount
of our resources we devote to promoting awareness of the Travelzoo brand. Since the inception of the cash
payment program to former stockholders of Travelzoo.com Corporation, we have incurred expenses of
$1.2 million. While future payments for this program are expected to decrease, the total cost of this program is
still undeterminable because it is dependent on our stock price and on the number of claims ultimately
received. Consistent with our growth, we have experienced a substantial increase in our sales and marketing
expenses 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 suÇcient 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.
Although we currently believe that we have suÇcient capital resources to meet our anticipated working
capital and capital expenditure requirements beyond the next 12 months, unanticipated events and opportuni-
ties 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
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