Travelzoo 2007 Annual Report Download - page 71

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TRAVELZOO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006, and 2005
(1) Summary of Significant Accounting Policies
(a) The Company and Basis of Presentation
Travelzoo Inc. (the “Company” or “Travelzoo”) is a global Internet media company. Travelzoo’s publications
and products include the Travelzoo Web sites (www.travelzoo.com, cn.travelzoo.com, www.travelzoo.ca,
www.travelzoo.co.jp, www.travelzoo.com.hk, www.travelzoo.com.tw, www.travelzoo.co.uk, www.travelzoo.de,
www.travelzoo.fr, among others), the Travelzoo Top 20 e-mail newsletter, the Newsflash e-mail alert service, the
SuperSearch pay-per-click travel search engine, and the Travelzoo Network, a network of third-party Web sites that
list deals published by Travelzoo.
Travelzoo is controlled by Ralph Bartel, who held beneficially approximately 53.7% of the outstanding shares
as of December 31, 2007.
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.
All significant intercompany accounts and transactions have been eliminated in consolidation. All foreign
subsidiaries use the local currency of their respective countries as their functional currency. Assets and liabilities
are translated at exchange rates prevailing at the balance sheet dates. Revenues, costs and expenses are translated
into U.S. dollars at average exchange rates for the period.
The Company was formed as a result of a combination and merger of entities founded by the Company’s majority
stockholder, Ralph Bartel. In 1998, Mr. Bartel founded Travelzoo.com Corporation, a Bahamas corporation, which
issued 5,155,874 shares via the Internet to approximately 700,000 “Netsurfer stockholders” for no cash consideration.
In 1998, Mr. Bartel also founded Silicon Channels Corporation, a California corporation, to operate the Travelzoo Web
site. 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 Corporation 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 ceased to exist. 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. Under and subject to the terms of the merger
agreement, stockholders were allowed a period of two years following the effective date of the merger to receive
shares of Travelzoo Inc. The records of Travelzoo.com Corporation showed that, assuming all of the shares applied
for by the Netsurfer stockholders were validly issued, there were 11,295,874 shares of Travelzoo.com Corporation
outstanding. As of April 25, 2004, two years following the effective date of the merger, 7,180,342 shares of
Travelzoo.com Corporation had been exchanged for shares of Travelzoo Inc. Prior to that date, the remaining shares
which were available for issuance pursuant to the merger agreement were included in the issued and outstanding
common stock of Travelzoo Inc. and included in the calculation of basic and diluted earnings per share. After
April 25, 2004, the Company ceased issuing shares to the former stockholders of Travelzoo.com Corporation, and
no additional shares are reserved for issuance to any former stockholders, because their right to receive shares has
now expired. On April 25, 2004, the number of shares reported as outstanding was reduced from 19,425,147 to
15,309,615 to reflect actual shares issued as of the expiration date. Earnings per share calculations reflect this
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