Travelzoo 2005 Annual Report Download - page 64

TRAVELZOO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(o) Recent Accounting Pronouncements
In May 2005, the Financial Accounting Standards Board (""FASB'') issued Statement of Financial
Accounting Standards No. 154 (""SFAS 154''), Accounting Changes and Error Corrections, which replaces
Accounting Principles Board No. 20 (""APB 20''), Accounting Changes, and Statement of Financial
Accounting Standards No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS 154
applies to all voluntary changes in accounting principle, and changes the requirements for accounting for and
reporting of a change in accounting principle. SFAS 154 requires retrospective application to prior periods'
Ñnancial statements of a voluntary change in accounting principle unless it is impracticable. APB 20
previously required that most voluntary changes in accounting principle be recognized with a cumulative eÅect
adjustment in net income of the period of the change. SFAS 154 is eÅective for accounting changes made in
annual periods beginning after December 15, 2005.
In December 2004, FASB issued SFAS 123R, Share-Based Payments, which requires the measurement
of all share-based payments to employees, including grants of employee stock options, using a fair-value-based
method and the recording of such expense in the statement of operations. The accounting provisions of
SFAS 123R are eÅective for annual reporting periods beginning after June 15, 2005. The pro forma
disclosures previously permitted under SFAS 123 will no longer be an alternative to Ñnancial statement
recognition. Although there are currently no unvested stock-based compensation awards outstanding as of
December 31, 2005, the Company may grant such instruments in the future. As a result, the adoption of
SFAS No. 123R could have a signiÑcant impact on the Company's consolidated statement of operations and
net income per share if stock based awards are made in future periods. The Company will adopt SFAS 123R
on January 1, 2006 using the modiÑed prospective method.
(2) Commitments and Contingencies
The Company leases oÇce space in the U.S., in the U.K. and in Germany under operating leases which
expire between December 31, 2006 and December 31, 2007. The future minimum rental payments under
these operating leases as of December 31, 2005, total $1,753,468 and $1,447,706 for 2006 and 2007,
respectively. Rent expense was $1,570,434, $1,132,516, and $885,816 for the years ended December 31, 2005,
2004, and 2003, 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
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