Travelzoo 2002 Annual Report Download - page 45

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TRAVELZOO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001, and 2000
(1) Summary of SigniÑcant Accounting Policies
(a) Description of Business and Basis of Presentation
The consolidated Ñnancial statements include the accounts of Travelzoo Inc. and its wholly-owned
subsidiaries (the ""Company'' or ""Travelzoo''). All signiÑcant intercompany accounts and transactions have
been eliminated in consolidation. The Company publishes the Travelzoo website, the Travelzoo Top 20 e-mail
newsletter, and the Weekend.com e-mail newsletter which provide advertising opportunities for the travel
industry.
The Company was formed as a result of a combination and merger of entities founded by the Company's
majority stockholder, Mr. Ralph Bartel. In 1998, Mr. Bartel founded Travelzoo.com Corporation, a Bahamas
corporation, which also issued 5,155,874 shares via the Internet to approximately 700,000 stockholders (""the
Netsurfer stockholders'') for no cash consideration. In 1998, Mr. Bartel also founded Silicon Channels
Corporation, a California corporation, to operate the Travelzoo website. 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 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 Ñnancial statements of Travelzoo Inc. were
restated to include the combined results of operations, Ñnancial position and cash Öows 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 certiÑcate of merger was Ñled in Delaware upon which the merger became eÅective and
Travelzoo.com Corporation was dissolved. 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. Stockholders
have a period of two years to receive shares of Travelzoo Inc. Travelzoo.com Corporation had 11,295,874
shares outstanding. As of December 31, 2002, 6,791,612 shares of Travelzoo.com Corporation had been
exchanged for shares of Travelzoo Inc. The remaining 4,504,262 shares of Travelzoo Inc. that may be
exchanged are included in the issued and outstanding common stock of Travelzoo Inc. and earnings per share
calculations. 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 Travelzoo.com
Corporation and Travelzoo Inc. were carried forward at their historical costs. In addition, all prior period
Ñnancial statements of Travelzoo Inc. were restated to include the combined results of operations, Ñnancial
position and cash Öows of Travelzoo.com Corporation. The restated results of Travelzoo Inc. are identical to
the combined results of Travelzoo.com Corporation and Travelzoo Inc.
(b) Revenue Recognition
Revenue consists of advertising sales and commissions from e-commerce transactions. Advertising
revenues are derived principally from the sale of display advertising, classiÑed advertising, and banner
advertising on the Travelzoo website and in the Travelzoo Top 20 e-mail newsletter. Commissions are
generated from bookings of travel services through customer advertising on the Travelzoo website.
Advertising revenues are recognized in the period in which the advertisement is displayed, provided that
evidence of an arrangement exists, the fees are Ñxed or determinable, no signiÑcant obligations remain at the
end of the period, and collection of the resulting receivable is deemed probable. If Ñxed-fee advertising is
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