Travelzoo 2004 Annual Report Download - page 59

TRAVELZOO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
recognition. Note 1(k) to the Company's consolidated Ñnancial statements reports the pro forma net income
and net income per share amounts, for 2002 through 2004, as if the Company had used a fair-value-based
method similar to the methods required under SFAS 123R to measure compensation expense for employee
stock based compensation. Although there are no unvested stock-based compensation awards as of Decem-
ber 31, 2004, the Company may grant such instruments in the future. As a result, the adoption of
SFAS No. 123R could have a signiÑcant adverse impact on the Company's consolidated statement of
operations and net income per share.
In December 2003, the SEC issued StaÅ Accounting Bulletin No. 104 (SAB 104), Revenue Recognition,
which superseded StaÅ Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements. The primary purpose of SAB 104 was to rescind accounting guidance contained in SAB 101
related to multiple element revenue arrangements, which was superseded as a result of the issuance of
Emerging Issues Task Force Issue No. 00-21 (EITF 00-21), Accounting for Revenue Arrangements with
Multiple Deliverables. SAB 104 also incorporated certain sections of the SEC's Revenue Recognition in
Financial Statements Ì Frequently Asked Questions and Answers document. The adoption of SAB 104 did
not have a material impact on Company's consolidated Ñnancial position, results of operations, or cash Öows.
(2) Commitments and Contingencies
The Company leases oÇce space in Chicago, Miami, Mountain View (California), and New York, under
operating leases which expire on July 31, 2005, December 31, 2005, December 31, 2005 and December 31,
2005 respectively. The future minimum rental payments under these operating leases as of December 31,
2004, total $1,082,054 for 2005. Rent expense was $1,132,516, $885,816 and $471,766 for the years ended
December 31, 2004, 2003, and 2002, respectively.
It is possible that claims may be asserted against the Company in the future by former stockholders of
Travelzoo.com Corporation seeking to receive shares in the Company, whether based on a claim that the two-
year deadline for exchanging their shares was unenforceable or otherwise. In addition, one or more
jurisdictions, including the Bahamas or the State of Delaware, may assert rights to unclaimed shares of the
Company under escheat statutes. If such escheat claims are asserted, the Company intends to challenge the
applicability of escheat rights, in that, among other reasons, the identity, residency and eligibility of the
holders in question cannot be determined. There were certain conditions applicable to the issuance of shares to
the Netsurfer stockholders, including requirements that (i) they be at least 18 years of age, (ii) they be
residents of the U.S. or Canada and (iii) they not apply for shares more than once. The Netsurfer
stockholders were required to conÑrm their compliance with these conditions, and were advised that failure to
comply could result in cancellation of their shares in Travelzoo.com Corporation. Travelzoo.com Corporation
was not able to verify that the applicants met the requirements referred to above at the time of their
applications for issuance of shares. If claims are asserted by persons claiming to be former stockholders of
Travelzoo.com Corporation, the Company intends to assert that their rights to receive their shares expired two
years following the eÅective date of the merger, as provided in the merger agreement. The Company also
expects to take the position, if escheat or similar claims are asserted in respect of the unissued shares in the
future, that it is not required to issue such shares. Further, even if it were established that unissued shares were
subject to escheat claims, the Company would assert that the claimant must establish that the original
Netsurfer stockholders complied with the conditions to issuance of their shares. The Company is not able to
predict the outcome of any future claims which might be asserted relating to the unissued shares. If such
claims were asserted, and were fully successful, that could result in the Company's being required to issue up
to an additional 4,115,532 shares of common stock for no additional payment.
On October 15, 2004, the Company announced a program under which it will make cash payments to
persons who establish that they were former stockholders of Travelzoo.com Corporation, and who failed to
submit requests for shares in Travelzoo Inc. within the required time period. The accompanying consolidated
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