Travelzoo 2004 Annual Report Download - page 53

TRAVELZOO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003, and 2002
(1) Summary of SigniÑcant Accounting Policies
(a) The Company and Basis of Presentation
Travelzoo Inc. is an Internet media company that publishes sales and specials for hundreds of travel
companies. The Company's products include the Travelzoo Web Site, the Travelzoo Top 20 e-mail
newsletter, the NewsÖash e-mail product, and the SuperSearch pay-per-click travel search engine.
The consolidated Ñnancial statements include the accounts of the Company and its wholly-owned
subsidiaries. All signiÑcant intercompany accounts and transactions have been eliminated in consolidation.
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 issued 5,155,874 shares via the Internet to approximately 700,000 stockholders for no cash
consideration (""Netsurfer shares''). 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 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 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
eÅective 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 eÅective 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 reÖect
actual shares issued as of the expiration date. As of December 31, 2004, there were 16,233,204 shares of
common stock outstanding, and earnings per share calculations reÖect the reduction of the number of shares
reported as outstanding during the period.
The merger of Travelzoo.com Corporation into Travelzoo Inc. 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
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