What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-03-31 compared with 2021-03-31 · 159 added, 120 removed, 345 unchanged (45% of the section changed)

13 unchanged sentences

For over 20 years we have worked in partnership with more than 5,000 top travel suppliers—our long-standing relationships give Travelzoo members access to irresistible deals.

Our publications and products include the Travelzoo website, the Travelzoo iPhone and Android apps, the Travelzoo Top 20 ® email newsletter, the Newsflash email alert service, and the Travelzoo Network , a network of third-party websites that list travel deals published by Travelzoo.

Travelzoo (the “Company” or "we") attracts a high-quality audience of travel enthusiasts across multiple digital platforms, including email, web, social media and mobile applications.

Our insider deals and email newsletters are published by Travelzoo and its licensees worldwide.

Our publications and products include the Travelzoo website (travelzoo.com), the Travelzoo iPhone and Android apps, the Travelzoo Top 20 ® email newsletter, the Newsflash email alert service, and the Travelzoo Network .

Our Travelzoo website includes Local Deals and Getaways listings that allow our members to purchase vouchers for deals from local businesses such as spas, hotels and restaurants.

More than 5,000 companies use our services, including Air France, Air New Zealand, Alaska Airlines, British Airways, Cathay Pacific Airways, Emirates, Etihad, Fairmont Hotels and Resorts, Gate 1 Travel, Hawaiian Airlines, Hilton Hotels & Resorts, Hyatt Corporation, InterContinental Hotels Group, Lion World Travel, Lufthansa, Nexus Holidays, Princess Cruises, Royal Caribbean, Singapore Airlines, Starwood Hotels & Resorts, Tourism Australia, Tourism Ireland, and United Airlines.

More than 5,000 companies use our services, including Alaska Airlines, DH Travel Services, Entertainment Benefits Group, Exoticca, Fairmont Mayakoba, Gate 1 Travel, Globus Family of Brands, Hawaiian Airlines, Icelandair (US), Imagine Cruising, Indus Travels Inc., Jetline Travel, KLM Royal Dutch Airlines, Shutterfly, Silversea Cruises, Stunning Tours, Superchina Holidays, Tourism Ireland, Travel Discounters, Vacation Express USA Corp, Wingbuddy.com

In 2020, the Company received $3.1 million and $535,000, respectively, pursuant to loans under the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the Small Business Association in U.S.

In 2021, the principal and the interest of the $3.1 million PPP loan and $429,000 of the $535,000 PPP loan were forgiven and a gain was recorded in “Other income (loss), net”.

The Company paid off the remaining outstanding principal balance and interest of $111,000 for the $535,000 PPP loan .

The Company also received various government funding from its European and Canadian locations in 2021 and 2020.

Job retention related funding from Canada was approximately $400,000 and $280,000 for 2021 and 2020, respectively, and from European locations was approximately $31,000 and $1.1 million for 2021 and 2020, respectively.

Those funding was recorded against salary and related expenses.

In addition, $178,000 Germany funding for the fixed cost incurred was received and recorded in “Other income (loss), net” for 2020.

In March 2020, Travelzoo exited its loss-making Asia Pacific business and pivoted to a licensing model, whereby Travelzoo’s business practices and intellectual property are utilized by local licensees to continue to provide high quality insider deals and content to Travelzoo members throughout Asia Pacific.

Such existing members in Asia Pacific will continue to be owned by Travelzoo as the licensor.

The Company’s Asia Pacific business was classified as discontinued operations at March 31, 2020.

Prior periods have been reclassified to conform with the current presentation.

Travelzoo currently has license agreements in Japan and South Korea, as well as Australia, New Zealand and Singapore.

The license agreement for Japan provides a license to the licensee to use the intellectual property of Travelzoo exclusively in Japan in exchange for quarterly royalty payments based on net revenue over a 5 year term, with an option to renew.

The territory subject to the license was amended to also include South Korea.

An interest free loan was provided to the licensee to be repaid over 3 years for JPY 46

million (approximately $430,000), of which $133,000 was repaid in 2021.

The Company recorded this loan as other assets on the consolidated balance sheet as of December 31, 2021.

The license agreement for Australia, New Zealand and Singapore provides a license to the licensee to use the intellectual property of Travelzoo exclusively in Australia, New Zealand and Singapore for quarterly royalty payments based upon net revenue over a 5 year term, with an option to renew.

In April 2018, we entered into an agreement with WeekenGO (“WeGo”), a start-up company in Germany.

5 unchanged sentences

In December 2020, the Company sold all of its shares in WeGo to trivago for a total purchase price of approximatel y $2.9 million, of which $213,000 was placed in escrow for one year.

The Company received the full escrow payment in January 2022.

As o f the date of the transaction with trivago, WeGo had not achieved the necessary performance targets.

7 unchanged sentences

J ack’s Flight Club’s revenues are generated by subscription fees paid by members.

In June 2020, the Company renegotiated certain aspects of that certain Stock Purchase Agreement, dated as of January 13, 2020 (the “SPA”), by and among Travelzoo, Jack’s Flight Club and the sellers party thereto (the “Sellers”) with the Sellers and reached a settlement for the outstanding Promissory Notes, dated as of January 13, 2020, by and between Travelzoo and each

Seller (the “Promissory Notes”).

Acquisition" to the accompanying consolidated financial statements for further information.

16 unchanged sentences

For publishing revenue, we recognize revenue upon delivery of the emails and delivery of the clicks, over the period of the placement of the advertising.

Insertion orders for publishing revenue are typically for periods between one month and twelve months and are not automatically renewed.

Insertion orders for publishing revenue are typically for periods between one month and

twelve months and are not automatically renewed.

For Getaways vouchers, we recognize a percentage of the face value of the vouchers upon the sale of the vouchers.

1 unchanged sentence

Since the second quarter of 2020, the Company expanded its vouchers refund policy in order to entice customers given the current economic climate to fully refundable until the voucher expires or is redeemed by the customer.

The Company now offers fully refundable refunds for vouchers that have not been redeemed or expired.

The expiration dates of vouchers range between Januar y 2021 through January 2023.

The Company now offers full refunds for vouchers that have not been redeemed or expired .

The expiration dates of vouchers range between January 2022 through December 2025 with the majority of vouchers expiring in 2022 and the remaining primarily expiring in 2023;

provided, that these expiration dates may sometimes be extended on a case-by-case basis.

The revenues generated from Local Deals vouchers and entertainment offers are based upon a percentage of the face value of the vouchers, commission on actual sales or a listing fee based on audience reach.

For Local Deals vouchers, we recognize a percentage of the face value of vouchers upon the sale of the vouchers.

The Company estimated the refund reserve by using historical and current refund rates by product and by merchant location to calculate the estimated future refunds.

As of December 31, 2020, the Company had approxim ately $15.2 million of unredeemed vouchers that had been sold during 2020 representing the Company’s commission earned from the sale.

As of December 31, 2021, the Company had approximately $17.2 million of unredeemed vouchers that had been sold through December 31, 2021 representing the Company’s commission earned from the sale.

The Company had estimated a refund liability of $5.2 million for these unredeemed vouchers as of December 31, 2021 which is recorded as a reduction of revenues and is reflected as a current liability in Accrued expenses and other on the consolidated balance sheet.

The Company has recorded a Merchant Payables of $57.1 million as of December 31, 2020 related to unredeemed vouchers.

Certain merchant contracts allow the Company to retain the proceeds from unredeemed vouchers.

The Company has recorded merchant payables of $68.7 million as of December 31, 2021 related to unredeemed vouchers.

With these contracts, the Company estimates the value of vouchers that will ultimately not be redeemed and records the estimate as revenues in the same period.

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Trends in Our Business

Our ability to generate revenues in the future depends on numerous factors such as our ability to sell more advertising to existing and new advertisers, our ability to increase our audience reach and advertising rates, our ability to have sufficient supply of hotels offered at competitive rates and our ability to develop and launch new products.

Our ability to generate revenues is also dependent on trends impacting the travel industry more broadly.

Our ability to generate revenues in the future depends on numerous factors such as our ability to sell more advertising to existing and new advertisers, our ability to increase our audience reach and advertising rates, our ability to have sufficient supply of hotels offered at competitive rates, our ability to develop and launch new products and our ability to continue to service our members without interruption.

Our ability to generate revenues is also dependent on trends impacting the travel industry and online advertising businesses more broadly.

Our current revenue model primarily depends on advertising fees paid primarily by travel, entertainment and local businesses.

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In addition, we have been impacted and expect to continue to be impacted by internal factors such as introduction of new technologies and advertising products, hiring and relying on key employees for the continued maintenance and growth of our business and ensuring our advertising products continue to attract the audience that advertisers desire.

We also have been impacted and expect to continue to be impacted by external factors, such as the COVID-19 pandemic, which decrease consumer’s discretionary income and decrease the demand for travel and entertainment and increasing cybersecurity attacks due to increased dependence on digital technologies.

We also could be indirectly impacted by climate change and related legislation to the extent such legislation impacts the businesses of our advertisers such as airlines, which have come under increasing scrutiny for their carbon footprints.

We also have been impacted and expect to continue to be impacted by external factors, such as the global pandemic, which decrease the demand for travel and entertainment and increasing cybersecurity risks due to increased dependence on digital technologies.

We also could be indirectly impacted by climate change and related legislation to the extent such legislation impacts the businesses of our advertisers such as airlines and cruise ship operators, which have come under increasing scrutiny for their carbon footprints.

Additionally, existing advertisers may shift from one advertising service (e.g.

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In the last several years, we have seen a decline in the number of vouchers sold and a decrease in the average take rate earned by us from the merchants for voucher sold.

However, due to the COVID pandemic and the increase in demand by consumers for fully refundable travel options, we have now begun to see a slight reversal of this trend and an increase in the sale of Getaways hotel vouchers.

Demand for restaurants and spas continues to be low due to the COVID pandemic.

Our ability to continue to generate advertising revenue depends heavily upon our ability to maintain and grow an attractive audience for our publications.

However, due to the global pandemic and the increase in demand by consumers for fully refundable travel options, we have now begun to see a slight reversal of this trend and an increase in the sale of Getaways hotel vouchers.

Demand for restaurants and spas was low due to the global pandemic but in recent quarters has started to increase as restrictions have been lifted.

Our ability to continue to generate advertising revenue and generate subscription revenue through Jack’s Flight Club depends heavily upon our ability to maintain and grow an attractive audience for our publications.

We monitor our members to assess our efforts to maintain and grow our audience reach.

12 unchanged sentences

We do not know what our cost of revenues as a percentage of revenues will be in future periods.

Our cost of revenues may increase if the face value of vouchers that we sell for Local Deals and Getaways increases or the total number of vouchers

sold increases because we have credit card fees based upon face value of vouchers sold, due to customer service costs related to vouchers sold and due to refunds to members on vouchers sold.

Our cost of revenues may increase if the face value of vouchers that we sell for Local Deals and Getaways increases or the total number of vouchers sold increases because we have credit card fees based upon face value of vouchers sold, due to customer service costs related to vouchers sold and due to refunds to members on vouchers sold.

We expect fluctuations in cost of revenues as a percentage of revenues from quarter to quarter.

8 unchanged sentences

We expect the average cost per acquisition to increase with our increased expectations for the quality of the members we acquire.

We may see an unique opportunity for a brand marketing campaign that will result in an increase of marketing expenses.

We may see a unique opportunity for a brand marketing campaign that will result in an increase of marketing expenses.

In addition, there may be a significant number of members that cancel or we may cancel their subscription for various reasons, which may drive us to spend more on member acquisition in order to replace the lost members.

17 unchanged sentences

Some of the fluctuations may be significant and have a material impact on our results of operations.

With respect to the COVID outbreak specifically, we currently expect that our 2021 financial results will be negatively impacted compared to historical results.

Additionally, we expect the COVID outbreak will continue to negatively impact our business beyond 2021, but the extent and duration of such impact in the long term is largely uncertain as it is dependent on future developments that cannot be accurately predicted at this time, including but not limited to the severity and transmission rate of the virus (or new variants to the virus), the extent and effectiveness of containment actions taken, including travel restrictions and business closures/capacity limitations, and the impact of these and other factors on travel behavior, specifically international travel.

Although advertising revenues significantly decreased in 2020 and we expect this trend to continue in 2021, as travel restrictions decrease, the Company expects that there will be a pent-up demand among consumers for travel and clients and suppliers will advertise again, thereby increasing the Company’s advertising revenues.

With the impact to revenues caused by COVID, spending by the Company in many areas within the business has been slowed or stopped, including but not limited to, marketing, technology and human resources.

With the impact to revenues caused by the global pandemic, spending by the Company in many areas within the business has been slowed or stopped, including but not limited to, marketing, technology and human resources.

For example, in 2020, the Company ceased operations in Asia Pacific, conducted employee furloughs and restructured its employees significantly.

1 unchanged sentence

We do not anticipate that any additional cost-cutting measures will be necessary at this time, but the Board and management of the Company are continually evaluating.

While the Company has already implemented a COVID policy governing employees’ returning to the office voluntarily (in jurisdictions where they are permitted to do so), which includes health, safety and cleaning protocols, the Board and management are continually evaluating the best timeframe for employees’ official return to the offices, including implementing a phased return and ongoing remote working arrangements, and will determine when an official return will be safe for employees based on government regulations and guidance in the applicable jurisdictions.

Other than the PPP Loan, which the Company expects will be mostly forgiven, the Company does not have any outstanding debt and does not anticipate needing to enter into any debt arrangements or raise any capital, publicly or privately, to support its operations and liquidity in the ordinary course of business.

The key elements of our growth strategy include building a travel and lifestyle brand with a large, high-quality user base and offering our users products that keep pace with consumer preference and technology, such as the trend toward mobile usage by consumers and toward fully refundable travel deals given the uncertainty of the COVID pandemic.

While the Company has already implemented a policy governing employees’ returning to the office voluntarily (in jurisdictions where they are permitted to do so), which includes health, safety and cleaning protocols, the Board and management are continually evaluating the best timeframe for employees’ official return to the offices, including implementing a phased return and ongoing remote working arrangements, and will determine when an official return will be safe for employees based on government regulations and guidance in the applicable jurisdictions.

The Company's PPP loans were forgiven in 2021.

The Company does not have any outstanding debt and does not anticipate needing to enter into any debt arrangements or raise any capital, publicly or privately, to support its operations and liquidity in the ordinary course of business.

We expect to continue our efforts to grow;

16 unchanged sentences

Total operating expenses 83.9 106.5

Operating income (loss) (26.2) 16.3

Operating loss (2.1) (26.2)

Other income (loss), net 6.4 0.8

2 unchanged sentences

Income (loss) from continuing operations 1.5 (20.8)

Income (loss) from discontinued operations, net of tax (6.3) (7.8)

Loss from discontinued operations, net of tax — (6.3)

Net income (loss) 1.5 (27.1)

Net income (loss) attributable to non-controlling interest (2.1) —

Net loss attributable to non-controlling interest — (2.1)

Net income (loss) attributable to Travelzoo 1.5 % (25.0) %

Net income (loss) attributable to Travelzoo—continuing operations 1.5 % (18.7) %

Net income (loss) attributable to Travelzoo—discontinued operations (6.3) % (7.8) %

Net loss attributable to Travelzoo—discontinued operations — (6.3) %

Operating Metrics

33 unchanged sentences

Local 3,212 2,870

Total North America revenues 34,912 68,027

Total Travelzoo North America revenues 42,046 34,912

Travelzoo Europe

1 unchanged sentence

Local 2,142 1,326

Total Europe revenues 15,152 36,898

Total Travelzoo Europe revenues 17,320 15,152

Jack's flight club 3,346 3,537

4 unchanged sentences

Travelzoo North America

North America revenues decreased $33.1 million or 49% in 2020 compared to 2019.

Both Travel revenues and Local revenue have dropped significantly due to the global outbreak of COVID in 2020.

This decrease was primarily due to $25.8 million decrease in Travel revenues and $7.3 million decrease in Local revenues.

The decrease in Travel revenue of $25.8 million was primarily due to $19.7 million decrease as a result of lower revenues from Top 20 and Newsflash, $9.8 million decrease in our website advertisements and $6.5 million decrease in hotel and entertainment commission, offset partially by $12.1 million increase due to increase in number of Getaways vouchers sold.

The decrease in Local revenues of $7.3 million was primarily due to the decrease in number of Local Deals vouchers sold.

North America revenues increa sed $7.1 million or 20% in 2021 compared to 2020.

This increase was primarily due to $6.8 million increase in Travel revenues and $342,000 increase in Local revenues.

We have seen improvement in our business and a trend of revenue recovery compared to the global pandemic time in 2020.

The increase in Travel revenue was primarily due to increase as a result of higher revenues from Top 20 and Newsflash .

The increase in Local revenues of $342,000 was primarily due to the increase in number of Local Deals vouchers sold.

Travelzoo Europe

Europe revenues decreased $21.7 million or 59% in 2020 compared to 2019.

The decrease was primarily due to $18.4 million decrease in Travel revenues and $3.5 million decrease in Local revenues offset by$112,000 positive impact from foreign currency movements relative to the U.S.

The decrease in Travel revenue of $18.4 million was primarily due to $12.3 million decrease in revenue from Top 20 and Newsflash and $5.2 million decrease in our website advertisements, offset partially by $2.1 million increase in Getaways due to increase in vouchers sold.

The decrease in Local revenues of $3.5 million was primarily due to the decrease in number of Local Deals vouchers sold.

Europe revenues increased $2.2 million or 14% in 2021 compared to 2020.

The increase was primarily due to $491,000 increase in Travel revenues, $700,000 increase in Local revenues and $984,000 positive impact from foreign currency movements relative to the U.S.

The increase in Travel revenue was primarily due to increase in Getaways vouchers sold .

The increase in Local revenues was primarily due to the increase in number of Local Deals vouchers sold.

Jack’s Flight Club

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Jack’s Flight Club's premium members pay subscription fees quarterly, semi-annually or annually to receive emails or app notifications of flight deals.

Jack’s Flight Club's revenue was $3.5 million from January 13, 2020 through December 31, 2020.

Jack’s Flight Club’s revenue was $3.3 million for the year ended December 31, 2021 and was $3.5 million for the period between January 13, 2020 through December 31, 2020.

The revenue for 2020 was negatively impacted by approximately $1.0 million from January 13, 2020 through December 31, 2020 due to the acquisition revenue adjustment related to the deferred revenue sold prior to acquisition.

For 2021 and 2020, none of our customers accounted for 10% or more of our revenue.

Cost of Revenues

Cost of revenues consists primarily of network expenses, including fees we pay for co-location services and depreciation and maintenance of network equipment, payments made to third-party partners of the Travelzoo Network , amortization of capitalized website development costs, credit card fees, certain estimated refunds to members and customer service costs associated with vouchers we sell and hotel bookings, and salary expenses associated with network operations and customer

service staff.

Cost of revenues for was $10.6 million and $11.4 million for the years ended December 31, 2020 and 2019, respectively.

Cost of revenue for the year ended December 31, 2020 included $344,000 from Jack’s Flight Club.

Without Jack’s Flight Club, cost of revenue decreased by $1.2 million in 2020 compared to 2019 primarily due to decrease in expenses from third-party partners of the Travelzoo Network .

Cost of revenues consists primarily of network expenses, including fees we pay for co-location services and depreciation and maintenance of network equipment, payments made to third-party partners of the Travelzoo Network , amortization of capitalized website development costs, software license expenses, credit card fees, certain estimated refunds to members and customer service costs associated with vouchers we sell and hotel bookings, and salary expenses associated with network

operations and customer service staff.

Cost of revenues was $11.4 million and $10.6 million for the years ended December 31, 2021 and 2020, respectively.

Cost of revenues for Travelzoo North America and Travelzoo Europe was $11.1 million and $10.2 million, respectively, for the years ended December 31, 2021 and 2020.

The increase of $856,000 was primarily due to $1.5 million increase in software license expenses and $281,000 increase in customer service costs, offset partially by $910,000 decrease in credit card fees.

Cost of revenue for Jack’s Flight Club decreased to $313,000 for the year ended December 31, 2021 from $344,000 for the period between January 13, 2020 through December 31, 2020.

The decrease of $31,000 was primarily due the decrease in payment processing fees.

Operating Expenses

Sales and Marketing

Sales and marketing expenses consist primarily of advertising and promotional expenses, salary expenses associated with sales, marketing and production employees, expenses related to our participation in industry conferences, public relations expenses and facilities costs.

Sales and marketing expenses consist primarily of advertising and promotional expenses, salary and headcount related expenses associated with sales, marketing and production employees, expenses related to our participation in industry conferences, public relations expenses and facilities costs.

Sales and marketing expenses were $30.3 million and $30.6 million for the years ended December 31, 2021 and 2020, respectively.

For the years ended December 31, 2020 and 2019, advertising expenses accounted for 9% and 17%, respectively, of total sales and marketing expenses and consisted primarily of online advertising, which we refer to as traffic acquisition cost and member acquisition costs.

The goal of our advertising was to acquire new members for our e-mail products, increase the traffic to our websites and increase brand awareness.

Sales and marketing expenses for the year ended December 31, 2020 included $658,000 from Jack’s Flight Club.

Without Jack’s Flight Club, sales and marketing expenses decreased $21.4 million in 2020 compared to 2019.

The decrease was primarily due to $9.1 million decrease for headcount related expenses, $6.0 million decrease in member acquisition costs, $1.4 million decrease in travel expenses and $1.3 million decrease in marketing expenses.

Advertising expenses consist primarily of online advertising which we refer to as traffic acquisition cost and member acquisition costs.

For the years ended December 31, 2021 and 2020, advertising expenses accounted for 12% and 9%, respectively, of total sales and marketing expenses.

The goal of our advertising was to acquire new members to our email products, increase the traffic to our websites, increase brand awareness and increase our audience through mobile and social media channels.

Sales and marketing expenses for Travelzoo North America and Travelzoo Europe was $29.7 million and $30.0 million, respectively, for the years ended December 31, 2021 and 2020 .

The decrease of $238,000 was primarily due to $1.2 million decrease in facilities costs and $340,000 decrease in software license expenses, offset partially by $1.2 million increase in member acquisition costs.

Sales and marketing expenses for Jack's Flight Club decreased to $549,000 for the year ended December 31, 2021 from $633,000 for the period between January 13, 2 020 through December 31, 2020 primarily due to decrease in advertising and marketing expenses.

Product Development

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Product development expenses were $2.6 million and $3.1 million for the years ended December 31, 2021 and 2020, respectively.

Product development expenses decreased $3.6 million in 2020 compared to 2019 primarily due to $1.7 million decrease in professional service fees and $1.3 million decrease in salary and headcount related expenses.

Jack's Flight Club did not incur product development expenses for the years ended December 31, 2021 and 2020

Product development expenses decreased $491,000 in 2021 compared to 2020 primarily due to the decrease in salary and headcount related expenses.

General and Administrative

1 unchanged sentence

General and administrative expenses were $19.8 million and $20.5 million for the years ended 2021 and 2020, respectively.

General and administrative expenses for the year ended December 31, 2020 included $2.4 million from Jack’s Flight Club.

Without Jack’s Flight Club, general and administrative expenses decreased $332,000 in 2020 compared to 2019.

The decrease was primarily due to $2.5 million decrease in headcount related expenses, $1.5 million gain relating to Jack Flight Club's promissory note forgiveness, $822,000 gain from the sale the domain name and trademark “weekend.com” and $809,000 decrease in travel expenses, offset partially by $5.2 million increase in stock-based compensation expense as the result of newly granted options and increases and repricing of certain previously granted options.

General and administrative expenses for Travelzoo North America and Travelzoo Europe was $17.4 million and $18.1 million, respectively, for the years ended December 31, 2021 and 2020, respectively.

The decrease of $662,000 was primarily due to $2.0 million decrease in bad debt expense and $1.4 million decrease in salary and headcount related expenses which mainly related to the decrease of stock-based compensation expense as the result of the shareholder's approval in May 2020 of newly granted options and repricing of certain previously granted options, offset partially by $1.5 million gain relating to Jack’s Flight Club's promissory note forgiveness and $822,000 gain from the sale the domain name and trademark “weekend.com.

General and administrative expenses for Jack’s Flight Club was $2.4 million for the year ended December 31, 2021, consistent with the $2.4 million for the period between January 13, 2020 through December 31, 2020.

Impairment of intangible assets and goodwill

We determined that the COVID pandemic that was declared in March 2020 was a triggering event requiring us to assess our long-lived assets including goodwill for impairment in the first quarter ended March 31, 2020.

The Company's impairment test indicated that Jack’s Flight Club’s indefinite lived intangible assets (“Trade name”) was impaired for $810,000 and goodwill was impaired for $2.1 million and the Company recorded these impairments in the first quarter ended March 31, 2020.

Other Income (Loss)

Other income (loss) consisted primarily of foreign exchange transactions gains and losses, our share of investment gains and losses and amortization of basis differences, interest income earned on cash, cash equivalents and restricted cash as well as interest expense.

Other income (loss) was $455,000 and ($42,000) for the years ended December 31, 2020 and 2019, respectively.

Other income increased $497,000 from 2019 to 2020 primarily due to the gain of $468,000 recognized on the sale of our equity investment in WeGo to trivago in December 2020.

We determined that the global pandemic that was declared in March 2020 was a triggering event requiring us to assess our long-lived assets including goodwill for impairment in the first quarter ended March 31, 2020.

The Company also did an annual assessment of our long-lived assets in the fourth quarter of 2021 and 2020 but determined that no impairment was required at that time.

Other Income (Loss), net

Other income (loss), net consisted primarily of foreign exchange transactions gains and losses, our share of investment gains and losses and amortization of basis differences, sublease income, gains on extinguishment of PPP loans, interest income earned on cash, cash equivalents and restricted cash as well as interest expense.

Other income (loss) was $4.0 million and $455,000 for the years ended December 31, 2021 and 2020, respectively.

Other income (loss) for Travelzoo North America and Travelzoo Europe was $4.0 million and $450,000 for the years ended December 31, 2021 and 2020, respectively.

The increase for the year ended December 31, 2021 from the year ended December 31, 2020 was due to $3.6 million gain recorded as the result of PPP loan forgiveness in the year ended December 31, 2021.

Our income is generally taxed in the U.S., Canada and U.K.

Our income tax provision reflects federal, state and country statutory rates applicable to our worldwide income, adjusted to take into account expenses that are treated as having no recognizable tax benefit.

Income tax benefit was $2.4 million for 2020 and income tax expense was $4.7 million for 2019.

Income tax expense (benefit) was $1.8 million and ($2.4) million, respectively, for the years ended December 31, 2021 and 2020.

Our effective tax rate was 66% and 18% for 2021 and 2020, respectively.

Our effective tax rate decreased for the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily due to operating losses in 2020 as a result of the COVID pandemic.

We expect our effective tax rate to fluctuate in future periods depending on the geographic mix of our worldwide income or losses mainly incurred by our operations, statutory tax rate changes that may occur, existing or new uncertain tax matters that may arise and require changes in tax reserves, the use of accumulated losses to offset current taxable income and the need for valuation allowances on certain tax assets, if any.

Our effective tax rate increased for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily due to operating income in 2021 and disallowed excess compensation of officers in 2021.

We expect our effective tax rate to fluctuate in future periods depending on the geographic mix of our worldwide income or losses mainl y incurred by our operations, statutory tax rate changes that may occur, existing or new uncertain tax matters that may arise and require changes in tax reserves, the use of accumulated losses to offset current taxable income and the need for valuation allowances on certain tax assets, if any.

Inc ome Taxes” to the accompanying consolidated financial statements for further information.

4 unchanged sentences

Revenues $ 42,046 $ 34,912

Income from operations $ (5,056) $ 12,666

Income from operations as a % of revenues (14) % 19 %

North America net revenues decreased $33.1 million in 2020 compared to 2019 (see “Revenues” above).

North America expenses decreased $15.4 million from 2019 to 2020 primarily due to $8.2 million decrease in salary and headcount related expenses, $3.2 million decrease in member acquisition costs, $1.8 million decrease in travel expenses, $1.6 million decrease in payments made to the third-party partners of the Travelzoo Network , $1.5 million decrease in professional services fees, $1.5 million gain related to Jack Flight Club's promissory note forgiveness and $1.1 million decrease in marketing expenses, offset partially by $4.9 million increase in stock-based compensation expense of newly granted options and increases and repricing of certain previously granted options.

Income (loss) from operations $ 550 $ (5,056)

Income (loss) from operations as a % of revenues 1 % (14) %

North America revenues increased by $7.1 million in 2021 compared to 2020 (see “Revenues” above).

North America expenses increased by $1.5 million from 2020 to 2021 primarily due to $1.5 million increase in member acquisition costs, $1.5 million gain related to Jack Flight Club's promissory note forgiveness in 2020 and $897,000 increase in software license expenses, offset partially by $2.5 million decrease in stock-based compensation expense as the result of the shareholders’ approval in May 2020 of newly granted options and repricing of certain previously granted options.

Travelzoo Europe

2 unchanged sentences

Revenues $ 17,320 $ 15,152

Income from operations $ (6,195) $ 4,461

Income from operations as a % of revenues (41) % 12 %

Europe net revenues decreased $21.7 million in 2020 compared to 2019 (see “Revenues” above).

Europe expenses decreased $11.1 million from 2019 to 2020 primarily due to $4.7 million decrease in salary and headcount related expenses and $2.8 million decrease in member acquisition costs.

Loss from operations $ (1,997) $ (6,195)

Loss from operations as a % of revenues (12) % (41) %

Europe net revenues increased $2.2 million in 2021 compared to 2020 (see “Revenues” above).

Europe expenses decreased $2.0 million from 2020 to 2021 primarily due to $1.6 million decrease in bad debt expenses and $323,000 decrease in marketing expenses.

Foreign currency movement s relative to the U.S.

dollar negatively impacted our local currency income from our operations in Europe by approximately $23,000 and $93,000 for 2021 and 2020, respectively.

Jack's Flight Club

Year Ended December 31,

(In thousands)

Revenues $ 3,346 $ 3,537

Income (loss) from operations $ 134 $ (2,814)

Income (loss) from operations as a % of revenues 4 % (80) %

Jack’s Flight Club revenues de creased by $191,000 for the year ended December 31, 2021 compared to the revenues from January 13, 2020 through December 31, 2020 (see “Revenues” above).

Jack’s Flight Club expenses decreased by $3.1 million for the year ended December 31, 2021 compared to the period between January 13, 2020 through December 31, 2020 primarily due to the $2.9 million of impairment of intangible assets and goodwill charges the Company recorded in the first quarter of 2020.

Liquidity and Capital Resources

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in our foreign operations.

If these assets are distributed to the U.S., we may be subject to additional U.S.

We also had $1.1 million in restricted cash, of which $428,000 was held outside the U.S.

in our foreign operations as of December 31, 2021.

If the assets held outside the U.S.

are distributed to the U.S., we may be subject to additional U.S.

taxes in certain circumstances.

Cash and cash equivalents increased $44.3 million from $18.7 million as of December 31, 2019 primarily by cash provided by operating activities, offset by cash used to purchase Jack’s Flight Club.

As of December 31, 2020, we had PPP loans aggregating $3.7 million due in April 2022.

As of December 31, 2020, we had negative working capital of $12.8 million primarily due to an increase in merchant payables related to the sale of vouchers.

The Company has recorded a Merchant Payables of $57.1 million as of December 31, 2020 related to unredeemed vouchers.

The payable to merchants is generally due upon redemption of the voucher.

The vouchers have maturities that extend from January 2021 through January 2023, and we believe that redemption patterns may be delayed under the current environment.

Based on the current projections of redemption activity, we expect that cash on hand as of December 31, 2020 will be sufficient to provide for working capital needs for at least the next twelve months.

However, if redemption activity is more accelerated, or if we are not able to reduce operating losses to align with any further reduction in revenues, we may need to obtain additional financing to meet our working capital needs in the future.

Cash, cash equivalents and restricted cash decreased $19.4 million from $64.4 million as of December 31, 2020 primarily due to $8.1 million cash used in operating activities and $11.2 million cash used in financing activities primarily for common stock repurchases and taxes paid for net share settlement.

As of December 31, 2021 , we had m erchant payables of $68.7 million related to unredeemed vouchers.

In the Company’s financial statements presented in this 10-K report, following GAAP accounting principles, we classified all merchant payables as current.

When all merchant payables are classified as current, there is negative net working capital (which is defined as current assets minus current liabilities) of $22.8 million.

Payables to merchants are generally due upon redemption of vouchers.

The vouchers have maturities from January 2022 through December 2025 with the majority of vouchers expiring in 2022 and the remaining primarily expiring in 2023;

provided, that these expiration dates may sometimes be extended on a case-by-case basis.

Management believes that redemptions may be delayed for international vouchers in the current environment.

Based on current projections of redemption activity, we expect that cash on hand as of December 31, 2021 will be sufficient to provide for working capital needs for at least the next twelve months.

However, if redemption activity is more accelerated, if our business is not profitable, or if our planned targets for cash flows from operations are not met, we may need to obtain additional financing to meet our working capital needs in the future.

We believe that we could obtain additional financing if needed, but there can be no assurance that financing will be available on terms that are acceptable to us, if at all.

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(In thousands)

Net cash provided by operating activities $ 47,019 $ 11,236

Net cash provided by (used in) investing activities 2,067 (1,147)

Net cash provided by (used in) operating activities $ (8,083) $ 47,019

Net cash provided by investing activities 104 2,067

Net cash used in financing activities (11,158) (6,982)

Effect of exchange rate changes on cash, cash equivalents and restricted cash (259) 1,571

Net increase in cash, cash equivalents and restricted cash $ 43,675 $ 1,249

Net cash provided by operating activities is net income (loss) adjusted for certain non-cash items and changes in assets and liabilities.

Net increase (decrease) in cash, cash equivalents and restricted cash $ (19,396) $ 43,675

Net cash provided by (used) in operating activities is net income (loss) adjusted for certain non-cash items and changes in assets and liabilities.

Net cash used in operating activities was $8.1 million for 2021, which consisted of $11.8 million decrease in cash from changes in operating assets and liabilities, offset partially by $2.8 million non-cash items and net income of $902,000.

The decrease in cash from changes in operating assets and liabilities primarily consisted of $9.7 million increase in accounts receivable, $8.1 million increase in prepaid expenses and other, $3.3 million decrease in accounts payable and $2.5 million increase in prepaid income taxes, offset partially by $12.2 million increase in merchant payables.

Adjustments for non-cash items primarily consisted of $3.7 million of stock-based compensation and $1.8 million depreciation and amortization, offset partially by $3.6 million gain on PPP notes payable forgiveness.

Net cash provided by operating activities was $47.0 million for 2020, which consisted of $50.8 million increase in cash from changes in operating assets and liabilities and $10.8 million non-cash items, offset partially by net loss of $14.6 million.

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Adjustments for non-cash items primarily consisted of $6.2 million of stock-based compensation, $5.4 million from provision of loss on accounts receivable and refund reserve, $2.9 million impairment of goodwill and intangible assets and $2.3 million depreciation and amortization, offset partially by $3.4 million deferred income tax and $1.5 million gain relating to Jack Flight Club's Promissory notes forgiveness.

Net cash provided by operating activities was $11.2 million for 2019, which consisted of net income of $4.2 million, adjustments for non-cash items of $3.8 million and a $3.2 million increase in cash from changes in operating assets and liabilities.

A dj ustments for non-cash items primarily consisted of $1.3 million of depreciation and amortization expense on property and equipment, $993,000 of stock-based compensation expense and $821,000 for our share of WeGo losses, amortization of basis differences and currency translation adjustment.

The increase in cash from changes in operating assets and liabilities primarily consisted of a $2.0 million increase in merchant payables.

Cash paid for income taxes, net of refunds received in 2021 and 2020, was $3.1 million and $2.0 million, respectively.

Net cash used in investing activities for 2021 was $104,000 which consisted of $133,000 proceeds from repayment of investment Japan loan, offset by $29,000 in purchases of property and equipment.

Net cash provided by investing activities for 2020 was $2.1 million which consisted of $2.6 million proceeds from sale of our equity investment in WeGo and $822,000 proceeds for the sale the domain name and trademark “weekend.com”, offset partially by $1.0 million investment in Jack’s Flight Club acquisition less acquired cash of $321,000, $430,000 other investments and $253,000 in purchases of property and equipment.

Net cash used in 2019 was $1.1 million which consisted of $673,000 investment in WeGo and $474,000 in purchases of property and equipment.

Net cash used in financing activities for 2021 and 2020 was $11.2 million and $7.0 million, respectively.

Net cash used in financing activities for the year ended December 31, 2020 consisted of $9.5 million promissory note payment for Jack’s Flight Club stock purchase and $1.2 million for the repurchase of common stock, offset partially by $3.7 million proceeds from PPP loans.

Net cash used in financing activities for 2019 consisted of $10.8 million for the repurchase of common stock, offset partially by proceeds from the issuance of common stock, net of tax paid for the net share settlement, of $1.7 million.

Net cash used in financing activities for the year ended December 31, 2021 primarily consisted of taxes paid for net share settlement of $5.6 million and stock repurchases of $5.5 million.

Net cash used in financing activities for the year ended December 31, 2020 primarily consisted of payment of $9.5 million promissory note for Jack’s Flight Club stock purchase and $1.2 million for the repurchase of common stock, offset partially by $3.7 million proceeds from PPP loans.

Although we have settled the states unclaimed property claims with all states, we may still receive inquiries from certain potential Netsurfers promotional stockholders that had not provided their state of residence to us by April 25, 2004.

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This voluntary program is not available for individuals whose promotional shares have been escheated to a state by us.

Our capital requirements depend on a number of factors, including market acceptance of our products and services, the amount of our resources we devote to the development of new products, cash payments related to former stockholders of Netsurfers, expansion of our operations, and the amount of resources we devote to promoting awareness of the Travelzoo band.

Since the inception of the voluntary program under which we make cash payments to people who establish that they were former stockholders of Netsurfers, and who failed to submit requests to convert their shares into shares of Travelzoo within the required time period, we have incurred expenses of $2.9 million.

Our capital requirements depend on a number of factors, including market acceptance of our products and services, the amount of our resources we devote to the development of new products, cash payments related to former shareholders of Netsurfers, expansion of our operations, and the amount of resources we devote to promoting awareness of the Travelzoo brand.

Since the inception of the voluntary program under which we make cash payments to people who establish that they were former shareholders of Netsurfers, and who failed to submit requests to convert their shares into shares of Travelzoo within the required time period, we have incurred expenses of $2.9 million.

While future payments for this program are expected to decrease, the total cost of this voluntary program is still undeterminable because it is dependent on our stock price and on the number of valid requests ultimately received.

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In addition, we will continue to evaluate possible investments in businesses, products and technologies, the consummation of any of which would increase our capital requirements.

We are subject to risks and uncertainties as a result of the COVID pandemic.

Since COVID has spread globally, many of our advertisers have paused, canceled, and stopped advertising with us.

We are subject to risks and uncertainties as a result of the global pandemic.

Because of the global pandemic, many of our advertisers have paused, canceled, and stopped advertising with us.

Additionally, there have been a large amount of cancellations for our hotel and travel package partners as well as refund requests for our vouchers with the Company’s restaurant and spa partners.

We are taking steps to adopt new policies and reduce expenses in an effort to maintain our cash position, while we evaluate potential business options and strategic alternatives that may be available.

We have taken steps to adopt new policies and reduce expenses in an effort to maintain our cash position, while we evaluate potential business options and strategic alternatives that may be available.

Although we currently believe that we have sufficient capital resources to meet our anticipated working capital and capital expenditure requirements for at least the next twelve months, unanticipated events and opportunities or a less favorable than expected development of our business with one or more of advertising formats may require us to sell additional equity or debt securities or establish new credit facilities to raise capital in order to meet our capital requirements.

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Total $ 13,722 $ (628) $ 13,094 $ 3,222 $ 16,316

We also have contingencies related to net unrecognized tax benefits, including interest, of approximately $388,000 as of December 31, 2020.

We also have contingencies related to net unrecognized tax benefits, including interest, of approximately $1.5 million as of December 31, 2021.

See Note 7 to the accompanying consolidated financial statements for further information.

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We believe that there are a number of accounting policies that are critical to understanding our historical and future performance, as these policies affect the reported amounts of revenue and the more significant areas involving management’s judgments and estimates.

These significant accounting policies relate to revenue recognition, reserve for member refunds,

allowance for doubtful accounts, income taxes and loss contingencies.

These significant accounting policies relate to revenue recognition, reserve for member refunds, allowance for doubtful accounts, income taxes and loss contingencies.

These policies, and our procedures related to these policies, are described in detail below.

Revenue Recognition

On January 1, 2018, the Company adopted Accounting Standards Update No.

2014-09, "Revenue from Contracts with Customers" (Topic 606), using the modified retrospective transition method applied to those contracts which were not completed as of January 1, 2018.

The Company follows Accounting Standards Update No.

2014-09, "Revenue from Contracts with Customers" (Topic 606).

Under Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

The Company's revenues are primarily advertising fees generated from the publishing of travel and entertainment deals on the Travelzoo website, in the Top 20 email newsletter, in Newsflash and through the Travelzoo Network .

The Company also generates transaction-based revenues from the sale of vouchers through our Local Deals and Getaways products and operation of a hotel booking platform and limited offerings of vacation packages.

The Company also generates transaction-based revenues from the sale of vouchers through our Local Deals and Getaways products and operation of a hotel booking platform, limited offerings of vacation packages and subscription revenues from Jack's Flight Club.

The Company's disaggregated revenues are included in “Note 12:

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The Company expenses sales commissions when incurred because the amortization period would be one year or less.

These costs are recorded

in sales and marketing expenses.

These costs are recorded in sales and marketing expenses.

In addition, the Company does not disclose the value of unsatisfied performance obligations for (a) contracts with an original expected length of one year or less and (b) contracts for which it recognizes revenues at the amount to which it has the right to invoice for services performed.

Reserve for Member Refunds

The Company records an estimated reserve for refunds to members based on our historical experience at the time revenue is recorded for Local Deals and Getaway voucher sales.

The Company records an estimated reserve for refunds to members based on our historical experience at the time revenue is recorded for Local Deals and Getaways voucher sales.

We consider many key factors such as the historical refunds based upon the time lag since the sale, historical reasons for refunds, time period that remains until the deal expiration date, any changes in refund procedures and estimates of redemptions and breakage.

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Merchant agreements for Getaways advertisers are typically for periods between twelve months and twenty-four months and are not automatically renewed.

Since the second quarter of 2020, the Company expanded its vouchers refund policy as incentive for customers given the current economic climate to be fully refundable until the voucher expires or is redeemed by the customer.

The Company now offers fully refundable vouchers that have not been redeemed or expired .

The expiration dates of vouchers range between January 2021 through January 2023.

The Company constrains the variable consideration to an amount that it believes is probable that a significant reversal in the revenue will not occur in the future when the uncertainty is resolved by estimating the refund reserve by using historical and current refund rates by product and by merchant locati on to calculate the estimated future refunds.

As of December 31, 2020, the Company had sold $15.2 million of fully refundable vouchers that remained unredeemed which represents the Company’s commission, and the Company recorded a refund liability of $3.9 million for these vouchers which is recorded as a reduction of revenues and is reflected as a current liability in accrued expenses and other on the consolidated balance sheet.

Certain merchant contracts allow the Company to retain the proceeds from unredeemed vouchers.

With these contracts, the Company estimates the value of vouchers that will ultimately not be redeemed or refunded and records the estimate as revenues in the same period.

The Company now offers fully refundable refunds for vouchers that have not been redeemed or expired.

The expiration dates of vouchers range between January 2022 through December 2025 with the majority of vouchers expiring in 2022 and the remaining primarily expiring in 2023;

provided, that these expiration dates may sometimes be extended on a case-by-case basis.

For Local Deals vouchers, we recognize a percentage of the face value of vouchers upon the sale of the vouchers.

Insertion orders and merchant agreements for Local are typically for periods between one month and twelve months and are not automatically renewed except for merchant contracts in foreign locations.

The Company estimated the refund reserve by using historical and current refund rates by product and by merchant location to calculate the estimated future refunds.

As of December 31, 2021, the Company had approximately $17.2 million of unredeemed vouchers that had been sold through December 31, 2021 representing the Company’s commission earned from the sale.

The Company has recorded merchant payables of $68.7 million as of December 31, 2021 related to unredeemed vouchers.

Insertion orders and merchant agreements for Travelzoo Local are typically for periods between one month and twelve months and are not automatically renewed except for merchant contracts in foreign locations.

Should any of these factors change, the estimates made by management will also change, which could impact the level of our future reserve for refunds to member.

Specifically, if the financial condition of our advertisers, the business that is providing the vouchered service, were to deteriorate, affecting their ability to provide the services to our members, additional reserves for refunds to members may be required.

We record a liability associated with estimated future refunds in accrued expenses on the consolidated balance sheets.

Estimated member refunds that are determined to be recoverable from the merchant are recorded in the consolidated statements of operations as a reduction to revenue.

We accrue costs associated with refunds in accrued expenses on the consolidated balance sheets.

Estimated member refunds that are determined not to be recoverable from the merchant are presented as a cost of revenue.

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We record a provision for doubtful accounts based on our historical experience of write-offs and a detailed assessment of our accounts receivable and allowance for doubtful accounts.

In estimating the provision for doubtful accounts, management considers the age of the accounts receivable, our historical write-offs, the creditworthiness of the advertiser, the economic conditions of the advertiser’s industry, and general economic conditions, among other factors.

Should any of these factors change, the estimates made by management will also change, which could impact the level of our future provision for doubtful accounts.

In estimating the provision for doubtful accounts, management considers the age of the accounts receivable, historical write-offs, the creditworthiness of the advertiser, the economic conditions of the advertiser’s industry, and general economic conditions, among other factors.

Should any of these factors change, the estimates made by management will also change, which could impact the level of the future provision for doubtful accounts.

Specifically, if the financial condition of our advertisers were to deteriorate, affecting their ability to make payments, additional provision for doubtful accounts may be required.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis