What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-31 compared with 2021-03-31 · 287 added, 278 removed, 900 unchanged (39% of the section changed)

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of RSM US LLP - Independent Registered Public Accounting Firm

Report of RSM US LLP - Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets 50

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Consolidated Statements of Comprehensive Income (Loss) 52

Consolidated Statements of Stockholders’ Equity 54

Consolidated Statements of Stockholders’ Equity (Deficit) 53

Consolidated Statements of Cash Flows 54

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Travelzoo:

Stockholders and the Board of Directors of Travelzoo

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Travelzoo and its subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).

We have audited the accompanying consolidated balance sheets of Travelzoo and its subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity (deficit) and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

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Critical Audit Matters

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

As described in Note 1 of the financial statements, the Company generates its revenues through a significant volume of low-dollar transactions tracked and recorded in a highly automated process within the Company’s internally developed systems.

Due to the uncertainty of the COVID-19 pandemic, since the second quarter of 2020, the Company expanded its voucher refund policy for consumers given the current restrictions on travel to be fully refundable until the voucher expires or is redeemed by the consumer.

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

The expiration dates of vouchers range through January 2023.

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

Due to the prolonged effects of the COVID-19 pandemic through 2021, the Company has continued its voucher refund policy for consumers given the ongoing restrictions on worldwide travel to be fully refundable until the voucher expires or is redeemed by the consumer.

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

Revenues are presented net of the amounts due to the third-party merchants for fulfilling the underlying services and an estimated amount for future refunds.

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Additionally, we also identified the Company’s refund reserve as a critical audit matter because of certain significant assumptions management makes in determining the estimate for future refunds, including expected refunds and redemption activity.

These significant assumptions are forward looking and could be affected by future uncertainty due to the COVID-19 pandemic and other economic and market conditions.

These significant assumptions are forward looking and could be affected by continuing uncertainty in the travel and entertainment industries, and other economic and market conditions.

Our audit procedures related to the Company's revenue included the following, among others:

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We evaluated the reasonableness of management’s estimate for voucher refunds by performing the following:

Testing the Company’s process used to develop the estimate of the future refunds by comparing management’s refund estimate to actual refund rates experienced in 2020 and subsequent to year end;

Developing an independent range for comparison to the Company’s estimate;

Evaluating audit evidence from events or transactions occurring after the measurement date related to the accounting estimate for comparison to the Company’s estimate.

Business Combination

As described in Note 3 of the financial statements, on January 13, 2020, the Company acquired a 60% controlling interest of Jack’s Flight Club for consideration of $12.0 million.

The transaction was accounted for as a business combination.

The consideration was allocated among the acquired assets and liabilities, including several acquired intangible assets.

The Company used the income approach (discounted cash flows) and relief from royalty method to allocate fair value of the acquired intangible assets and resulting goodwill, which includes significant assumptions including forecasts of revenues, operating margins, and discount rates.

In regards to the relief from royalty method, the Company used a royalty rate comparable to market rates.

We identified the valuation of the intangible assets as a critical audit matter due to the high degree of auditor judgement and audit effort in evaluating the reasonableness of the significant assumptions used by management in valuing the identified intangible assets.

Our audit procedures related to the significant estimates and assumptions, including forecasts of future revenues and operating margins, the selection of the royalty rates, discount rates, and long-term growth rates for the acquired intangible assets and the evaluation of the fair value of the noncontrolling interest in the business combination included the following, among others:

With the assistance of our valuation specialists, we evaluated the reasonableness of the Company’s valuation methodology and applicable rates utilized by management by:

Testing the reasonableness of the royalty rates and discount rates by comparing them to comparable companies and market data.

Developing a range of independent estimates for the royalty rates, discount rates, and long-term growth rates and comparing those to the rates selected by management.

Evaluation of reasonableness for discount of lack of control for the non-controlling interest by comparing it to an independent simulation using a valuation model that reflects the use of multiple probabilities (Monte Carlo Simulation).

We evaluated the reasonableness of management’s forecasts of future revenues and operating margins by comparing the projections to historical results and market data.

Goodwill Impairment

As described in Note 3 of the financial statements, goodwill is evaluated for impairment annually, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable.

The Company determined that the COVID-19 pandemic was a triggering event requiring the Company to assess its long-lived assets and goodwill for impairment during the first quarter of 2020 resulting in a $2.1 million impairment of goodwill related to the Jack’s Flight Club reporting unit.

The Company estimated the fair values of the reporting units using a combination of valuation techniques, including an income approach (discounted cash flows) and market approach (guideline company method).

The income approach required management to make significant estimates, assumptions, and forecasts of future performance, including revenues, operating margins and discount rates.

We identified the Company’s goodwill impairment evaluation for the Jack’s Flight Club reporting unit as a critical audit matter because of the significant assumptions management makes in the estimate, including forecasts of future revenues and operating margins and the discount rates, which require an increased level of audit effort.

Our audit procedures related to the goodwill impairment evaluation for the Jack’s Flight Club reporting unit included the following, among others:

Testing the Company’s process used to develop the estimate of the future refunds by performing a comparison of current year results compared to prior year estimates;

Developing an independent range of projected refund activity based on voucher location and time to maturity for comparison to the Company’s estimate;

Evaluating redemption and refund rates occurring subsequent to year end for comparison to the Company’s estimate.

Goodwill and Trade Name Impairment

As described in Note 3 of the consolidated financial statements, goodwill and trade name are evaluated for impairment annually, and whenever events or changes in circumstances indicate the carrying value may not be recoverable.

The Company estimated the fair values of the reporting units for goodwill using a combination of valuation techniques, including an income approach (discounted cash flows method) and market approach (guideline company method).

The Company estimated the fair value of the trade name using a relief from royalty method.

These methods required management to make significant estimates including revenues and operating margins projections, the royalty rate, discount rates and market multiples.

We identified the Company’s goodwill and trade name impairment evaluation for the Jack’s Flight Club reporting unit as a critical audit matter because of the significant assumptions management makes in the estimate, including revenues and operating margins projections, the royalty rate, discount rates, and market multiples which require an increased level of audit effort.

Our audit procedures related to the goodwill and trade name impairment evaluation for the Jack’s Flight Club reporting unit included the following, among others:

With the assistance of our valuation specialists, we evaluated the reasonableness of the Company’s valuation methodology and applicable rates utilized by management by:

Testing the reasonableness of the discount rates by comparing them to comparable companies and market data .

Developing a range of independent estimates for the discount rates and long-term growth rates and comparing those to the rates selected by management.

We tested the reasonableness of management’s revenue and gross margin projections by comparing management’s prior forecasts to historical results and previous forecasts for the reporting unit and comparing future forecasts to historical results and market data.

Testing the reasonableness of the royalty rate and discount rates by comparing them to comparable companies and market data.

Assessing the reasonableness of the royalty rate, discount rates and long-term growth rates selected by management and the Company’s appraiser by comparing those to the rates developed with the use of our internal valuation specialist with corroborative market data.

Testing the reasonableness of the selected market participants and multiples selected by comparing to market data and consistency of selections with historical selections.

We tested the reasonableness of management’s revenue and gross margin projections by comparing management’s prior forecasts to historical results for the reporting unit and comparing future forecasts to historical results and market data.

As described in Note 1 to the consolidated financial statements, the global pandemic has had and is expected to continue to have a significant negative effect on the Company and many of its advertisers.

As of December 31, 2021, the Company had negative working capital of $22.8 million and cash used in operating activities was $8.1 million for the year ended December 31, 2021.

These conditions raise doubt over the Company’s ability to meet all of its obligations over the next twelve months.

Management has evaluated these conditions and concluded that its plans have alleviated the doubt of the Company’s ability to continue as a going concern.

We have identified management’s liquidity assessment and disclosure as a critical audit matter because of certain significant assumptions in management’s plans relating to the timing of redemptions, or refunds, for previous voucher sales and the related settlement of merchant payables, as well as the forecasted sale of vouchers and advertising fees.

Auditing management’s assumptions, and the timing of these assumptions relating to the Company’s voucher and advertising sales, refund rates of vouchers, redemption of merchant payables and cash flow projections involved a high degree of auditor judgment and an increased level of audit effort.

Our audit procedures related to the Company’s liquidity assessment and disclosures included the following, among others:

We tested the reasonableness of management’s forecasted revenues and expenses by comparing:

management’s prior forecasts to historical results,

results subsequent to year end to management’s forecasts, and

future forecasts to historical results and forecasted market data.

We evaluated the reasonableness of management’s forecasted timing of cash flow estimates relating to the forecasted timing of the settlement of the merchant payable, by comparing management’s forecasted redemption and refund estimates to historical redemption and refund rates experienced during the year and subsequent to year end, as well as comparing to trends in the travel industry.

We evaluated management’s projections in the context of other audit evidence obtained during the audit to determine whether it supported or contradicted the conclusion reached by management.

/s/ RSM US LLP

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Prepaid expenses and other 1,891 1,303

Prepaid expenses—Related party 1,150 —

Assets from discontinued operations 71 230

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Restricted cash 1,142 1,178

Investment in WeGo — 2,484

Operating lease right-of-use assets 7,700 8,541

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Goodwill 10,944 10,944

Long-term assets from discontinued operations — 1,185

Total assets $ 99,727 $ 102,400

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current liabilities:

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Other long-term liabilities 2,364 1,085

Long-term liabilities from discontinued operations — 318

Total liabilities 99,359 95,900

Commitments and contingencies

Commitments and contingencies (Note 6)

Non-controlling interest 4,600 4,609

Stockholders’ equity:

Stockholders’ equity (deficit):

Preferred stock, $ 0.01 par value per share ( 5,000 shares authorized;

Common stock, $ 0.01 par value ( 20,000 shares authorized as of December 31, 2021 and 2020, respectively;

11,365 and 11,479 shares issued and outstanding as of December 31, 2020 and 2019, respectively)

12,551 shares issued and 12,056 shares outstanding as of December 31, 2021 and 11,365 shares issued and outstanding as of December 31, 2020)

Treasury stock (at cost) ( 5,488 ) —

Additional paid-in capital 4,415 6,239

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Accumulated other comprehensive loss ( 3,793 ) ( 4,059 )

Total stockholders’ equity 1,891 10,863

Total liabilities and stockholders’ equity $ 102,400 $ 54,538

Total stockholders’ equity (deficit) ( 4,232 ) 1,891

Total liabilities and stockholders’ equity (deficit) $ 99,727 $ 102,400

See accompanying notes to consolidated financial statements.

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Total operating expenses 52,637 57,111

Operating income (loss) ( 14,073 ) 17,041

Other income (loss), net 455 ( 42 )

Operating loss ( 1,313 ) ( 14,073 )

Other income, net 4,006 455

Income (loss) from continuing operations before income taxes 2,693 ( 13,618 )

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See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands)

Common Stock Additional

Common Stock Treasury Stock Additional

Capital Retained

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Stockholders’

Equity (Deficit)

Shares Amount

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Foreign currency translation adjustment — — — — — ( 607 ) ( 607 )

Net income — — — 4,155 — 4,155

Net loss—Travelzoo — — — — ( 13,423 ) — ( 13,423 )

Balances, December 31, 2020 11,365 114 — 6,239 ( 403 ) ( 4,059 ) 1,891

Stock-based compensation expense — — — 3,748 — — 3,748

Repurchase and retirement of common stock ( 169 ) ( 2 ) ( 23 ) ( 1,180 ) — ( 1,205 )

Proceeds from exercise of stock options, net of share settlement 55 1 59 — — 60

Repurchase of common stock — — ( 5,488 ) — — — ( 5,488 )

Exercise of stock options and taxes paid for net share settlement 1,186 12 — ( 5,572 ) — — ( 5,560 )

Foreign currency translation adjustment — — — — — 266 266

Net loss attributable to Travelzoo — — — ( 13,423 ) — ( 13,423 )

Net income—Travelzoo — — — — 911 — 911

Balances, December 31, 2021 12,551 $ 126 $ ( 5,488 ) $ 4,415 $ 508 $ ( 3,793 ) $ ( 4,232 )

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Gain on sale of equity investment in WeGo — ( 468 )

Gain on PPP notes payable forgiveness ( 3,588 ) —

Net foreign currency effect ( 373 ) ( 685 )

Provision of loss on accounts receivable and refund reserve 5,375 325

Provision for loss on accounts receivable and refund reserve 425 5,375

Changes in operating assets and liabilities:

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Other liabilities ( 596 ) 2,564

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

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

Cash flows from investing activities:

Acquisition of business, net of cash acquired — ( 679 )

Other investment ( 430 ) ( 673 )

Increase in note receivable — ( 430 )

Proceeds from repayment of note receivable 133 —

Proceeds from sale of equity investment in WeGo — 2,607

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Proceeds from sale of long-lived assets — 822

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

Net cash provided by investing activities 104 2,067

Cash flows from financing activities:

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

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

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

Cash, cash equivalents and restricted cash at beginning of year 64,385 20,710

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Travelzoo® is a global Internet media company.

We provide our 30 million members insider deals and one-of-a-kind experiences personally reviewed by one of our deal experts around the globe.

We provide our more than 30 million members insider deals and one-of-a-kind experiences personally reviewed by one of our deal experts around the globe.

We have our finger on the pulse of outstanding travel, entertainment, and lifestyle experiences.

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Travelzoo's revenues are generated primarily from advertising fees.

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” or the "Company").

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.

We receive a percentage of the face value of the voucher from the local businesses .

Jack’s Flight Club product include Jack’s Flight Club newsletter.

In March 2020, Travelzoo exited its loss-making Asia Pacific business.

We also license the use of these products and our intellectual property in various countries in Asia Pacific, including but not limited to Australia, New Zealand, Japan, South Korea and Southeast Asia.

We are also the majority shareholder of JFC Travel Group Co.

(“Jack’s Flight Club”), which operates Jack’s Flight Club .

For our voucher products, we receive a percentage of the face value of the voucher from the local businesses.

APAC Exit and Pivot to Licensing Model

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.

On June 16, 2020, in connection with its Asia Pacific exit plan, the Company completed a sale of 100 % of the outstanding capital stock of Travelzoo Japan K.K, a stock company organized under the laws of Japan (“Travelzoo Japan”), to Mr.

Hajime Suzuki, the former General Manager of Travelzoo Japan (the "Japan Buyer") for consideration of 1 Japanese Yen.

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.

The Company recorded approximately $ 128,000 loss upon disposal of Japan in the year ended December 31, 2020.

The parties also entered into a License Agreement, whereby the Travelzoo Japan obtained a license 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.

An interest free loan was provided to the Japan Buyer for JPY 46 million (approximately $ 430,000 ) to be repaid over 3 years which the Company recorded as other assets on the consolidated balance sheet as of December 31, 2020.

Additionally, on August 24, 2020, the Company completed a sale of 100 % of the outstanding capital stock of Travelzoo (Singapore) Pty Ltd, a limited company organized under the laws of Singapore (“Travelzoo Singapore”), to an unaffiliated entity, Finest Hotels Pty Ltd, a limited company organized under the laws of Australia (“AUS Buyer”), which is fully owned by Mr.

Julian Rembrandt, the former General Manager of Travelzoo in South East Asia and Australia for consideration of 1 Singapore Dollar.

The parties also entered into a License Agreement, whereby the AUS Buyer obtained a license to use the intellectual property of Travelzoo exclusively in Australia, New Zealand and Singapore and non-exclusively in China and Hong Kong for quarterly royalty payments based upon net revenue over a 5 year term, with an option to renew.

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 long-term 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.

There was no gain or loss from the sale of Travelzoo Singapore.

The Company records royalties for its licensing arrangements on a one-quarter lag basis.

The Company recognized royalties of $ 9,000 from Travelzoo Japan for the year ended December 31, 2021.

The Company recognized royalties of $ 3,000 for its licensing arrangements from AUS Buyer for the year ended December 31, 2021.

The Company did not record royalties from Travelzoo Japan and Travelzoo AUS Buyer for 2020.

We expect the royalty payments to increase over time as the effects of the pandemic subside.

WeGo Investment

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(“trivago”) on December 23, 2020.

The original investment agreement with WeGo was executed in April 2018 (the “Original Investment Agreement”).

At that time, Travelzoo invested $ 3.0 million in WeGo for a 25.0 % ownership interest.

In April 2019, the Company invested an additional $ 673,000 in WeGo, which increased the Company's ownership interest to 26.6 %.

In February 2020, Travelzoo signed an amended investment agreement (the “Investment Agreement”) with WeGo, whereby the Company received additional shares (resulting in ownership of 33.7 % ) and in exchange, agreed to invest an additional $ 1.7 million if and when WeGo met certain performance targets.

In connection with the Original Investment Agreement, WeGo agreed to spend approximately $ 2.1 million with the Company in marketing pursuant to an Insertion Order (the “Insertion Order”) and in connection with the Investment Agreement, WeGo agreed to spend an additional $ 1.8 million in marketing, once the additional payment was made by the Company (the “Second Insertion Order”).

The original investment agreement with WeGo was executed in April 2018.

Travelzoo invested $ 3.0 million and $ 673,000 in 2018 and 2019, respectively.

In February 2020, Travelzoo signed an amended investment agreement agreed to invest an additional $ 1.7 million if and when WeGo met certain performance targets.

The performance targets were not achieved.

In connection with the original investment agreement, WeGo agreed to spend approximately $ 2.1 million with the

Company in marketing pursuant to an insertion order and in connection with the original investment agreement, WeGo agreed to spend an additional $ 1.8 million in marketing, once the additional payment was made by the Company.

The Company accounted for this private company investment using the equity method of accounting by recording its share of the results of WeGo in “Other income (expense)”, net on a one-quarter lag basis.

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The remaining $ 1.5 million of the purchase price was allocated to goodwill.

For the years ended December 31, 2020 and 2019, the Company recorded $ 384,000 and $ 882,000 for its share of WeGo losses, amortization of basis differences and currency translation adjustment.

This equity method investment is reported as a long-term investment on the Company's consolidated balance sheets.

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

As part of the Share Purchase Agreement, by and among Travelzoo (Europe) Limited, trivago, and the other shareholders of WeGo (the “trivago SPA”), the obligation of any additional payment by the Company was terminated.

Per the trivago SPA, the Company sold all of its shares in WeGo to trivago for a total purchase price of approximately $ 2.9 million, of which $ 213,000 was placed in escrow for one year.

For the year ended December 31, 2020, the Company recorded $ 384,000 and for its share of WeGo losses, amortization of basis differences and currency translation adjustment.

As part of the Share Purchase Agreement, by and among Travelzoo (Europe) Limited, trivago, and the other shareholders of WeGo (the “trivago SPA”), the Company sold all of its shares in WeGo to trivago for a total purchase price of approximately $ 2.9 million, of which $ 213,000 was placed in escrow for one year.

The Company recorded $ 468,000 gain in Other income (loss), net.

for the sale of WeGo shares in 2020.

The Company’s advertising revenues from WeGo for the years ended December 31, 2020 and 2019 were $ 384,000 and $ 1.2 million , respectively.

The Company received the full escrow payment in January 2022.

The Company’s advertising revenues from WeGo for the year ended December 31, 2020 were $ 384,000 .

WeGo agreed to pay in a lump sum the remaining amount outstanding pursuant to the Insertion Order, equal to approximately $ 200,000 .

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The Company recorded $ 822,000 gain in General and administrative for the sale of the domain name and trademark “weekend.com” in 2020.

Global funding for Pandemic

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 of the loan and interest of $ 111,000 .

See Note 4 to the c onsolidated financial statements for further information

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 fundings were recorded against salary and related expenses.

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

Travelzoo funds operations primarily with revenues generated from adverting fees.

The global pandemic has had and is expected to continue to have, a significant negative effect on the Company and many of our advertisers.

As of December 31, 2021, Travelzoo had negative working capital of $ 22.8 million and cash used in operating activities was $ 8.1 million for the year ended December 31, 2021 .

In order to entice customers, Travelzoo adjusted its policy in the second quarter of 2020 expanding its vouchers refund policy to fully refundable until the voucher expires or is redeemed by the customer.

As of December 31, 2021 , the Company has recorded merchant payables of $ 68.7 million related to unredeemed vouchers with the majority of vouchers expiring in 2022 and the remaining primarily expiring in 2023.

These conditions raise doubt over the Company’s ability to meet all of its obligations over the next twelve months.

Management has evaluated these conditions and concluded that management's plan alleviate these concerns.

The Company is expecting revenue and net income to increase in 2022 based on improving conditions for travel in 2022.

The cash and cash equivalents was $ 43.8 million as of December 31, 2021 .

All merchant payables are classified as current, but the expiration dates of these 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 Company will manage its cost and obtain additional financing if required.

Management believes that it could raise funds through the issuance of equity securities or through debt securities.

Management concluded that these actions and plans have alleviated the doubt of our ability to continue as a going concern.

However, the Company cannot predict, with certainty, the outcome of its action to generate liquidity, including the availability of additional financing on reasonable terms and conditions, or whether such actions would generate the expected liquidity as planned.

Jack’s Flight Club

In January 2020, Travelzoo acquired JFC Travel Group Co.

(“Jack’s Flight Club”), which operates Jack’s Flight Club , a subscription service that provides members with information about exceptional airfares.

In January 2020, Travelzoo acquired Jack’s Flight Club, which operates Jack’s Flight Club , a subscription service that provides members with information about exceptional airfares.

As of December 31, 2021, Jack’s Flight Club had 1.8 million subscribers.

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Ralph Bartel, who founded Travelzoo and who is the Chairman of the Board of Directors of the Company, is the sole beneficiary of the Ralph Bartel 2005 Trust, which is the controlling shareholder of Azzurro Capital Inc.

As of December 31, 2020 , Azzurro is the Company's largest shareholder, holding approximately 40 % of the Company's outstanding shares.

As of December 31, 2021 , Ralph Bartel is the Company's largest shareholder, holding approximately 41 % of the Company's outstanding shares.

Financial Statements

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Deferred revenue primarily consists of customer prepayments and undelivered performance obligations related to the Company’s contracts with multiple performance obligations .

At December 31, 2019, $ 786,000 was recorded as deferred revenue for Travelzoo North America and Travelzoo Europe, of which $ 364,000 was recognized as revenue in 2020.

At December 31, 2020, the deferred revenue balance was $ 2.7 million, of which $ 1.3 million was for Travelzoo North America and Travelzoo Europe and $ 1.4 million was for Jack's Flight Club.

At December 31, 2020, $ 1.4 million was recorded as deferred revenue for Jack's Flight Club and was fully recognized as revenue during 2021, $ 1.3 million was recorded as deferred revenue for Travelzoo North America and Travelzoo Euro pe, of which $ 630,000 was recognized as revenue during 2021.

At December 31, 2021, the deferred revenue balance was $ 1.7 million , of which $ 1.3 million was for Jack's Flight Club, and the remaining $ 473,000 was for Travelzoo North America and Travelzoo Europe.

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

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

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 approximately $ 15.2 million of unredeemed vouchers that had been sold during 2020 representing the Company’s commission earned from the sale.

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 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.

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 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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In testing goodwill for impairment, the Company first uses a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount.

If the qualitative assessment indicates that goodwill impairment is more likely than not, the Company performs an impairment test by comparing the book value of net assets to the fair value of the reporting units utilizing a combination of valuation techniques, including an income approach (discounted cash flows) and market approach (guideline company method).

The Company evaluated goodwill for impairment in the first quarter of 2020 due to the COVID-19 pandemic and recorded an impairment expense of $ 2.1 million.

3 unchanged sentences

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.

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.

3 unchanged sentences

Advertising costs for Travelzoo North America and Travelzoo Europe amounte d to $ 3.7 million and $ 2.6 million for years ended December 31, 2021 and 2020, respectively.

Advertising and marketing costs for Jack's Flight Club was $ 314,000 for the year ended December 31, 2020.

Advertising and marketing costs for Jack's Flight Club was $ 221,000 and $ 314,000 for the years ended December 31, 2021 and 2020, respectively.

(f) Operating Leases

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The value of the portion of the award that is expected to vest is recognized as expense over the related employees’ requisite service periods in the Company’s consolidated statements of operations.

See Note 10 to the consolidated financial statements for a further discussion on stock-based compensation.

S ee Note 10 to the cons olidated financial statements for a further discussion on stock-based compensation.

(h) Foreign Currency

6 unchanged sentences

Realized gains and losses from foreign currency transactions are recognized as gain or loss on foreign currency in the consolidated statements of operations.

Total foreign currency transaction net losses of $ 416,000 for 2020, an d total foreign currency transaction net gain of $ 5,000 for 2019, are included in Other income (loss), net in the Company’s consolidated statements of operations.

Total foreign currency transaction net gain of $ 31,000 for 2021, and t otal foreign currency transaction net loss of $ 416,000 for 2020, are included in Other income (loss), net in the Company’s consolidated statements of operations.

(i) Income Taxes

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The Company’s business is subject to risks associated with its ability to attract and retain advertisers and offer products or services on compelling terms to our members.

The global outbreak of COVID-19 is having an unprecedented impact on the global travel and hospitality industries.

The global pandemic is having an unprecedented impact on the global travel and hospitality industries.

Governmental authorities have implemented numerous measures to try to contain the virus, including restrictions on travel, quarantines, shelter-in-place orders, business restrictions and complete shut-downs.

The measures implemented to contain COVID-19 have had, and are expected to continue to have, a significant negative effect on our business, financial condition, results of operations and cash flows.

The Company’s cash, cash equivalents and accounts receivable are potentially subject to concentration of credit risk.

Cash and cash equivalents are placed with financial institutions that management believes are of high credit quality.

The accounts receivable are derived from revenue earned from customers located in the U.S.

The measures implemented to contain the global pandemic have had, and are expected to continue to have, a significant negative effect on our business, financial condition, results of operations and cash flows.

The Company’s cash, cash equivalents and a ccounts receivable are potentially subject to concentration of credit risk.

Cash and cash equivalents are placed with financial institutions that the management believes are of high credit quality.

The accounts receivables are derived from revenue earned from customers located in the U.S.

and internationally.

During the year ended December 31, 2020, the Company experienced the adverse impact of COVID-19.

Many of the Company's advertising partners paused, canceled, and stopped advertising with the Company.

Additionally, there has been a significant level of cancellations for the Company's hotel partners and travel package partners as well as refund requests for our vouchers with the Company’s restaurant and spa partners.

The Company has modified its policies and will continue to adopt new policies as the situation evolves.

However, the uncertainties of the pandemic, such as its duration and severity, will likely negatively impact and continue to negatively impact our partners and customers.

As of December 31, 2020 , the Company had negative working capital of $ 12.8 million primarily due to an increase in accounts payable related to merchants from the sale of vouchers.

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

The vouchers have maturities that begin in January 2021 through January 2023, and we believe that redemption patterns may be delayed for international vouchers under the current environment.

Based on 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 our operating losses, 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.

As of December 31, 2021 and 2020 , the Company did not have any customers that accounted for 10% or more of accounts receivable.

Many of the Company’s advertisers and partners are part of the global travel and hospitality industry.

The measures implemented to contain COVID-19 have had, and are expected to continue to have, a significant negative effect on the Company’s business, financial condition, results of operations, and cash flows.

The measures implemented led to many of the Company’s advertisers pausing, canceling, or stopping advertising with us, as well as a high level of cancellations for our hotel partners and travel package partners, and refund requests for vouchers sold by Travelzoo for restaurant and spa partners.

It is difficult to estimate the impact of the global pandemic on the Company’s future revenues, results of operations, cash flows, liquidity, or financial condition.

As of December 31, 2021 , the Company had merchant payables of $ 68.7 million related to the sale of 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, management 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 the Company’s business is not profitable, or if the Company’s planned targets for cash flows from operations are not met, the Company may need to obtain additional financing to meet its working capital needs in the future.

The Company believes that it could obtain additional financing if needed, but there can be no assurance that financing will be available on terms that are acceptable to the Company, if at all.

(l) Cash, Cash Equivalents and Restricted Cash

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Cash, cash equivalents and restricted cash–discontinued operations 32 146

Total cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows $ 64,385 $ 20,710

Total cash, cash equivalents and restricted cash in the consolidated statements of cash flows $ 44,989 $ 64,385

(m) Property and Equipment

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The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable.

No impairment loss was recognized during years ended December 31, 2020 and 2019.

No impairment loss was recognized during the year ended December 31, 2021.

(o) Recent Accounting Pronouncements Not Yet Adopted

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The Company is currently evaluating the impact on its financial position and results of operations.

(p) Recently Adopted Accounting Pronouncements

In January 2017, the FASB issued ASU No.

2017-04, “Intangibles-Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment.” ASU 2017-04 simplifies the accounting for goodwill impairment by eliminating the Step 2 requirement to calculate the implied fair value of goodwill.

As a result, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.

An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units' fair value;

however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.

The ASU is effective for fiscal years beginning after December 15, 2022 for Smaller Reporting Companies, including interim periods within those fiscal years, with early adoption permitted.

The Company early adopted ASU 2017-04 as of January 1, 2020 and the adoption did not have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU No.

2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract.” The new guidance requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred.

The guidance is effective for calendar-year public business entities in 2020.

Early adoption is permitted.

The adoption did not have a material impact on the Company’s financial position, results of operations and cash flows.

Net Income (Loss) Per Share

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Net income (loss) attributable to Travelzoo—continuing operations $ 924 $ ( 10,033 )

Net income (loss) attributable to Travelzoo—discontinued operations ( 3,390 ) ( 8,132 )

Net loss attributable to Travelzoo—discontinued operations ( 13 ) ( 3,390 )

Weighted average common shares—basic 11,646 11,344

10 unchanged sentences

Net income (loss) per share—diluted $ 0.07 $ ( 1.18 )

For the year ended December 31, 2021, options to purchase 50,000 shares of common stock were not included in the computation of diluted net income per share because the effect would have been anti-dilutive.

For the year ended December 31, 2020, options to purchase 3.3 million shares of common stock were not included in the computation of diluted net income per share because of the net loss .

For the year ended December 31, 2019, options to purchase 200,000 shares of common stock, respectively, were not included in the computation of diluted net income per share because the effect would have been anti-dilutive.

On January 13, 2020, Travelzoo entered into the SPA with the shareholders of Jack’s Flight Club for the purchase of up to 100 % of the outstanding capital stock of Jack’s Flight Club (the “Shares”).

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The Company first impaired indefinite lived intangible assets (“Trade name”) for $ 810,000 before impairing goodwill.

The following table summarizes the goodwill activity for the year ended December 31, 2020 (in thousands):

The following table summarizes the goodwill activity for the three months ended March 31, 2020 (in thousands):

Goodwill—January 1, 2020 $ —

1 unchanged sentence

Impairment—March 31, 2020 ( 2,110 )

Goodwill—December 31, 2020 $ 10,944

Goodwill—March 31, 2020 $ 10,944

There has been no change in goodwill for the year ended December 31, 2021 and no changes since March 31, 2020.

Intangible Assets

14 unchanged sentences

Intangible assets- December 31, 2020 4,534

Amortization of intangible assets with definite lives ( 1,108 )

Intangible assets- December 31, 2021 $ 3,426

Amortization expense for acquired intangibles was $1.1 million for the year ended December 31, 2021.

1 unchanged sentence

Years ending December 31,

Thereafter 10

As previously discussed in “Goodwill”, the Company's impairment test indicated that Jack’s Flight Club’s indefinite lived intangible assets (“Trade name”) was impaired for $ 810,000 for the first quarter of 2020.

The Company performed its annual impairment testing of Trade name during the fourth fiscal quarter and did not identify any additional impairment in 2020.

The Company performed its annual impairment testing of Trade name during the fourth fiscal quarter using a relief from royalty method and did not identify any additional impairment in 2020 or 2021.

Unaudited Pro Forma Information

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Revenues $ 53,722

Net income (loss) $ ( 14,545 ) $ 4,536

Net loss $ ( 14,545 )

Jack's Flight Club Settlement

9 unchanged sentences

The Company estimated the total payment and recorded $ 448,000 expense in “General and administrative expenses” in 2020.

The parties also agreed to a new put/call option exercisable in 2022 by the Sellers or Travelzoo, as applicable, only if the put/call option for 2021 as set forth in the SPA is not exercised, with a EBITDA threshold of $ 4.3 million and a purchase price equal to 40 % of 2021 EBITDA multiplied by 3.5 , and an additional payment equal to 20 % of 2021 net income if the EBITDA threshold is achieved.

The Company re-evaluated the fair value of the put/call option by using the Monte Carlo Simulation approach and determined that the extension of the one year period did not change the fair value of the put/call option materially.

$ 492,000 was paid to the Sellers during the first quarter of 2021 relating to this agreement.

The parties also agreed to a new put/call option exercisable in January 2022 by the Sellers or Travelzoo, as applicable, only if the EBITDA threshold of $ 4.3 million is achieved at a purchase price equal to 40 % of 2021 EBITDA multiplied by 3.5 , and an additional payment equal to 20 % of 2021 net income if the EBITDA threshold is achieved.

The EBITDA threshold was not achieved and thus the put/call options were not exercisable and has expired.

The Company re-evaluated the fair value of the put/call option by using the Monte Carlo Simulation approach in 2020 and determined that the extension of the one year period did not change the fair value of the put/call option materially.

Pursuant to the SPA with Jack’s Flight Club on January 13, 2020, the Company issued a Promissory Note for $ 11.0 million as part of the purchase price with an interest rate of 1.6 % and a due date of January 31, 2020.

7 unchanged sentences

Interest expense of $ 25,000 for the PPP notes payable in 2020 was recorded in Other income (loss), net.

As of December 31, 2020, $ 2.8 million principal balance was due in 2021 and was recorded as notes payable-current portion.

The remaining $ 814,000 principal balance was due in 2022 and was recorded in long-term notes payable.

The Company applied for PPP loan forgiveness for a portion of the PPP notes payable but no forgiveness have been granted as of December 31, 2020.

As of March 30, 2021, the Company has not learned the extent to which the PPP loans will be forgiven.

Any unforgiven portion of the loan is payable over two years at an interest rate of 1%, with a deferral of payments until the date the lender receives the applicable forgiven amount from the SBA.

No assurance is provided that the Company will obtain forgiveness of the loan in whole or in part.

In the second quarter of 2021, the Company settled the $ 535,000 PPP loan, $ 429,000 was forgiven which was recorded as gain in “Other income (loss), net”, the remaining outstanding principal balance of the loan and interest of $ 111,000 was repaid.

On July 1, 2021, the principal and the interest of the $ 3.1 million PPP loan were forgiven and a gain was recorded in “Other income (loss), net”, in the third quarter of 2021.

It is possible that the SBA could subsequently audit the forgiven loans.

The Company believes it was eligible to participate in PPP, calculated the loan amount correctly, spent loan proceeds on allowable uses and is entitled to loan forgiveness.

The Company will hold onto its financial documents relating to the PPP loans for six years as required.

Balance Sheet Components

5 unchanged sentences

Property and equipment consist of the following (in thousands):

Computer hardware and software $ 2,787 $ 2,759

Office equipment and office furniture $ 7,838 $ 8,071

1 unchanged sentence

Leasehold improvements 4,117 4,126

Computer hardware and software 2,142 2,787

18,487 19,374

1 unchanged sentence

Total $ 659 $ 1,347

Depreciation expense was $ 884,000 and $ 1.1 million for the years ended December 31, 2020 and 2019, respectively.

Depreciation expense was $ 710,000 and $ 884,000 for the years ended December 31, 2021 and 2020, respectively.

Amortization of capitalized internal-use software and website development costs w as $ 2,000 and $ 106,000 for the years ended December 31, 2021 and 2020, respectively.

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The Company accrues for legal contingencies if the Company can estimate the potential liability and if the Company believes it is probable that the case will be ruled against it.

Accruals for legal contingencies were not material as of December 31, 2021 or 2020.

If a legal claim for which the Company did not accrue is resolved against it, the Company would record the expense in the period in which the ruling was made.

11 unchanged sentences

Therefore, the Company is continuing its voluntary program under which it makes cash payments to individuals related to the promotional shares for individuals whose residence was unknown by the Company and who establish that they satisfy the original conditions required for them to receive shares of Netsurfers, and who failed to submit requests to convert their shares into shares of Travelzoo within the required time period.

This voluntary program is not available for individuals whose promotional shares have been escheated to a state by the Company, except those individuals for which their residence was unknown to the Company.

The Company did not make any material payments for 2020 and 2019.

The Company did not make any payments for 2021 and 2020.

The total cost of this program cannot be reliably estimated because it is based on the ultimate number of valid requests received and future levels of the Company’s common stock price.

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under operating leases.

Our leases have remaining lease terms ranging from less than one year to up to ten years .

Our leases have remaining lease terms ranging from less than one year to up to nine years .

The Company maintained standby letters of credit (“LOC”) serve as collateral issued to the landlords.

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Se e Note 14 - Leases for more information.

The Company has purchase commitments aggregating approximately $ 46,000 as of December 31, 2020, which represent the minimum obligations the Company has under agreements with certain suppliers.

The Company has purchase commitments aggregating approximately $ 3.2 million as of December 31, 2021, which represent the minimum obligations the Company has under agreements with certain third party service providers.

These minimum obligations are less than the Company's projected use for those periods.

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Foreign equity investment — 12

Non-deductible expenses and other 1,050 415

PPP loan forgiveness ( 768 ) —

Non-deductible stock based compensation expenses and other

Total income tax expense (benefit) $ 1,778 $ ( 2,438 )

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Deferred tax liabilities:

Deferred revenue — ( 72 )

Operating lease right-of-use assets ( 1,600 ) ( 1,908 )

( 1,908 ) ( 2,423 )

Property, equipment and intangible assets ( 465 ) ( 848 )

9 unchanged sentences

for which it is more likely than not that the tax benefit will not be realized.

The amount of the valuation allowance represented a decrease of approximately $ 1.5 million over the amount recorded as of December 31, 2019, and was due to the decrease of deferred tax assets and related release of the valuation allowance for the Travelzoo Japan and Travelzoo Singapore, which were sold during the year ended December 31, 2020.

The amount of the valuation allowance represented a decrease of approximately $ 1.4 million over the amount recorded as of December 31, 2020, and was due to the decrease of deferred tax assets and related release of the valuation allowance for the Travelzoo (Taiwan), Travelzoo (Hong Kong) Limited and Travelzoo Local (Hong Kong), which liquidation were completed during the year ended December 31, 2021.

If not utilized, the foreign NOL of $ 24.1 million may be carried forward indefinitely, and $ 10.7 million will expire at various times between 2022 and 2025.

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subsidiaries, which the Company intends to reinvest the related earnings indefinitely in its operations outside the U.S., is approximately $ 651,000 at December 31, 2021.

The total amount of gross unrecognized tax benefits was $ 774,000 as of December 31, 2020, of which up to $ 748,000 would affect the Company’s effective tax rate if realized.

The total amount of gross unrecognized tax benefits w as $ 1.0 million as of December 31, 2021 , of which up to $ 1.0 million would affect the Company’s effective tax rate if realized.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits in 2020 and 2021 is as follows (in thousands):

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To the extent accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction in the overall income tax provision in the period that such determination is made.

At December 31, 2020, the Company had approximately $ 235,000 in accrued interest.

At December 31, 2021, the Company had approximately $ 424,000 in accrued in terest and penalties.

The Company files income tax returns in the U.S.

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Ending balance $ ( 3,793 ) $ ( 4,059 )

The Company reclassified $ 599,000 from accumulated other comprehensive income (loss) for the year ended December 31, 2020 due to Asia Pacific was considered as discontinued operation in March 2020.

There were no amounts reclassified from accumulated other comprehensive income (loss) for the year ended December 31, 2021.

The Company reclassified $ 599,000 from accumulated other comprehensive income (loss) for the year ended December 31, 2020 due to Asia Pacific being considered as discontinued operation in March 2020.

Accumulated other comprehensive income (loss) consists of foreign currency translation gain or loss.

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The Company also has various defined contribution plans for its international employees.

The Company’s contributions to these benefit plans were approximately $ 986,000 and $ 1.1 million for the years ended December 31, 2020 and 2019, respectively.

Stock-Based Compensation and Stock Options

The Company’s contributions to these benefit plans were approximately $ 766,000 and $ 986,000 for the years ended December 31, 2021 and 2020, respectively.

Stock-Based C ompensation and Stock Options

The Company accounts for its employee stock options under the fair value method, which requires stock-based compensation to be estimated using the fair value on the date of grant using an option-pricing model.

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Therefore, stock-based compensation related to these options was fully expensed in the second quarter of 2020.

As of December 31, 2020, there was approximately $ 1.5 million of unrecognized stock-based compensation expense relating to the 2019 Option Agreement and applicable Option Agreement Amendment.

This amount is expected to be recognized over the next 1 year.

In 2021, 800,000 options granted pursuant to the 2015 Option Agreement, 300,000 options granted pursuant to the 2017 Option Agreement and 260,000 options granted pursuant to the 2019 Option Agreement were exercised by Mr.

Bartel, 681,902 shares of common stock were issued as the result of a cashless exercise or net settlement with respect to the option exercise price or taxes which were approved by Travelzoo's Board of Directors.

As of December 31, 2021, stock-based compensation related to the 2019 Option Agreement and applicable Option Agreement Amendment was fully expensed.

In May 2018, pursuant to executed Option Agreements, the Company granted an employee options to purchase 50,000 shares of common stock with an exercise price of $ 14.70 and annual vesting beginning in May 2019.

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Pursuant to the applicable amendments, the exercise price for the options was repriced to the official NASDAQ closing share price on March 30, 2020 (the date of execution of the amendments to the Option Agreements, which immediately followed the date of approval of the grants from the Board of Directors of the Company), which was $ 3.49 , the option grants were each increased to 100,000 each, resulting in 300,000 additional options in the aggregate.

In 2020, 100,000 unvested options were forfeited upon an employee's departure.

As of December 31, 2020, there was approximately $ 1.3 million of unrecognized stock-based compensation expense relating to these options.

In 2020, 100,000 unvested options were forfeited upon an employee's departure, 75,000 options were exercised and 54,258 shares of common stock were issued as the result of a cashless exercise which were approved by Travelzoo’s Board of Directors.

In 2021, 125,000 unvested options were forfeited upon employees’ departure, 150,000 options were exercised and 88,917 shares of common stock were

issued as the result of the cashless exercises or net settlement with respect to the option exercise price which were approved by Travelzoo’s Board of Directors.

As of December 31, 2021, there was approximately $ 483,000 of unrecognized stock-based compensation expense relating to these options.

This amount is expected to be recognized over the next 1.7 years.

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This grant was approved at the 2020 Annual Meeting of the shareholders.

As of December 31, 2020, there was approximately $ 1.9 million of unrecognized stock-based compensation expense relating to these options.

This amount is expected to be recognized over the next 1.3 years.

On May 29, 2020, pursuant to an executed Option Agreement, the shareholders of the Company approved the grant of stock options to purchase 200,000 shares of common stock to two key employees, with an exercise price of $ 3.49 with annual vesting starting March 30, 2021 and ending on March 31, 2024.

In 2021, 600,000 options were exercised and 390,809 shares of common stock were issued as the result of the cashless exercises which were approved by Travelzoo’s Board of Directors.

As of December 31, 2021, there was approximately $ 385,000 of unrecognized stock-based compensation expense relating to these options.

This amount is expected to be recognized over the first 3 months of 2022.

On May 29, 2020, pu rsuant to an executed Option Agreement, the shareholders of the Company approved the grant of stock options to purchase 200,000 shares of common stock to two key employees, with an exercise price of $ 3.49 with annual vesting starting March 30, 2021 and ending on March 31, 2024.

The options expire in March 2025.

In 2021, 50,000 options were exercised and 24,474 shares of common stock were issued as the result of the cashless exercises which were approved by Travelzoo’s Board of Directors.

As of December 31, 2021, there was approximately $ 442,000 of unrecognized stock-based compensation expense relating to these options.

This amount is expected to be recognized over the next 2.3 years.

The Company recorded $ 6.2 million of stock-based compensation in general and administrative expenses for fiscal year 2020.

The Company recorded $ 993,000 of stock-based compensation for fiscal year 2019, of which $ 89,000 was recorded in sales and marketing expense and the remaining was recorded in general and administrative expenses.

On June 1, 2021, pursuant to an executed Option Agreement, the shareholders of the Company approved the grant of stock options to purchase 50,000 shares of common stock to one employee, with an exercise price of $ 9.44 , with annual vesting starting January 1, 2022 and ending on January 1, 2025.

The options expire in January 2026.

As of December 31, 2021, there was approximately $ 431,000 of unrecognized stock-based compensation expense relating to these options.

This amount is expected to be recognized over the next 3.0 years.

The Company recorded $ 3.7 million and $ 6.2 million of stock-based compensation in general and administrative expenses for fiscal years 2021 and 2020, respectively.

The Company utilized the Black-Scholes option pricing model to value the stock options.

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The historical volatility was calculated based upon implied volatility of the Company's historical stock prices.

The fair value of 2020 stock option and modification and 2019 stock options was estimated using the Black-Scholes option pricing model with the following weighted-average assumptions:

The fair value of 2021 stock options and modification and 2020 stock options was estimated using the Black-Scholes option pricing model with the following weighted-average assumptions:

Weighted-average fair value of options granted per share $ 11.47 $ 3.86

10 unchanged sentences

Outstanding at January 1, 2020 750,000 $ 10.35 6.01 years

Option Granted 100,000 19.28

Options Granted 2,850,000 3.49

Exercised options ( 75,000 ) 3.49

1 unchanged sentence

Outstanding at December 31, 2020 3,325,000 $ 3.49 4.39 years

Option Granted 2,850,000 $ 3.49

Options Granted 50,000 $ 9.44

Exercised options ( 2,160,000 ) $ 3.49

17 unchanged sentences

$ 3.49 1,040,000 2.87 years $ 3.49 640,000 2.77 years

$ 9.44 50,000 4.10 years $ 9.44 — —

Stock Repurchase Program

1 unchanged sentence

Management is allowed discretion in the execution of the repurchase program based upon market conditions and consideration of capital allocation.

In February 2019, the Company entered into a Stock Repurchase Agreement with Azzurro, a significant shareholder of the Company and repurchased 100,000 shares of the Company’s common stock for an aggregate purchase price of $ 1.6 million, which were retired and recorded as a reduction of additional paid-in capital until extinguished with the remaining amount reflected as a reduction of retained earnings.

In May 2019, the Company announced a stock repurchase program authorizing the repurchase of up to 1,000,000 shares of the Company’s outstanding common stock.

During the year ended December 31, 2019, the Company repurchased 436,369 shares of common stock for an aggregate purchase price of $ 7.2 million, which were retired and recorded as a reduction of additional paid-in capital until extinguished with the remaining amount reflected as a reduction of retained earnings.

During the year ended December 31, 2020, the Company repurchased 168,602 shares of common stock for an aggregate purchase price of $ 1.2 million.

There were 395,029 shares remaining to be repurchased under this program as of December 31, 2020.

In November 2019, the Company entered into a SRA with Holger Bartel to repurchase an aggregate of 200,000 shares of the Company’s common stock for an aggregate purchase price of $ 2.0 million, which were retired and recorded as a reduction of additional paid-in capital until extinguished with the remaining amount reflected as a reduction of retained earnings.

The Company repurchased and retired 436,369 shares and 168,602 shares of common stock in 2019 and 2020, respectively.

In 2021, the Company repurchased 395,029 shares of common stock for an aggregate purchase price of $ 3.9 million, which were recorded as part of treasury stock as of December 31, 2021.

This stock repurchase program was completed in 2021.

In March 2021, the Company entered into a Stock Repurchase Agreement with Mr.

Holger Bartel to privately repurchase an aggregate of 100,000 shares of the Company’s common stock for an aggregate purchase price of $ 1.6 million, which were recorded as part of treasury stock as of December 31, 2021.

This transaction was approved by the Compensation Committee of the Board of Directors.

Segment Reporting and Significant Customer Information

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Total assets $ 116,700 $ 28,167 $ 18,436 $ ( 63,647 ) $ 99,656

As of December 31, 2019 Travelzoo North America Travelzoo Europe Elimination Consolidated

As of December 31, 2020 Travelzoo North America Travelzoo Europe Jack's Flight Club Elimination Consolidated

Long-lived assets $ 1,123 $ 224 $ — $ — $ 1,347

24 unchanged sentences

and international geographies are based upon the country in which the asset is located or owned.

The following table sets forth revenue for countries that exceed 10% of total revenue (in thousands):

The following table sets forth revenue for individual countries that were 10% or more of total revenue (in thousands):

11 unchanged sentences

Ralph Bartel, who founded Travelzoo and who is a Director of the Company is the sole beneficiary of the Ralph Bartel 2005 Trust, which is the controlling shareholder of Azzurro Capital Inc.

As of December 31, 2020, Azzurro is the Company's largest stockholder, holding approximately 40 % of the Company's outstanding shares.

As of December 31, 2021, Ralph Bartel is the Company's largest stockholder, holding approximately 41 % of the Company's outstanding shares.

License Agreement with Azzurro Brands Inc.

On March 12, 2021, the Company, with the approval of the Audit Committee of the Board of Directors, entered into a License Agreement (the “License Agreement”) with Azzurro Brands Inc., a New York corporation (“Azzurro Brands”) that is a wholly-owned subsidiary of Azzurro Capital Inc., the Company’s largest shareholder.

Pursuant to the terms of the License Agreement, the Company was granted the exclusive right and license to use a database of 2.2 million non-duplicated subscribers that Azzurro Brands purchased from a competitor of Travelzoo.

The License Agreement requires that the Company pay a license fee of $ 413,000 per quarter with an initial payment of $ 894,000 due upon execution, which covers the period from execution until September 30, 2021.

The License Agreement has a term of one ( 1 ) year with an automatic renewal, terminable by either party with sixty ( 60 ) days’ written notice before the end of the term.

The License Agreement contains customary representations and warranties.

The payment of $ 894,000 was made in the first quarter of 2021 and recorded in sales and marketing expenses in 2021.

The second payment of $ 701,000 was made in the second quarter of 2021 which covers the period from October 2021 through March 2022 and recorded in sales and marketing expenses and prepaid expenses and other.

Travelzoo renewed the License Agreement in January 2022 for a license fee of $ 413,000 per quarter and made the payment of $ 800,000 to cover the period from April 2022 to September 2022 in the fourth quarter of 2021 and was recorded in Prepaid expenses-Related party, which totaled $ 1.15 million as of December 31, 2021.

Stock Repurchase Agreement

Travelzoo, from time to time, engages in share repurchases, and on March 27, 2021, the Company entered into a Stock Repurchase Agreement (the “SRA”) with Holger Bartel, the Company's Global Chief Executive Officer, to repurchase an aggregate of 100,000 shares of the Company’s common stock at a price of $ 15.83 per share.

The SRA provides that the purchase price is based on the 10 -day volume weighted average price calculated using the VWAP function on Bloomberg, from the dates of March 15, 2021 through and including March 26, 2021, less a 5 % discount.

The aggregate purchase price of $ 1.6 million was paid on the first business day following the execution of the SRA and recorded as part of treasury stock as of December 31, 2021 .

Prior to the execution of the SRA and because Mr.

Bartel is an executive officer of the Company, the Company’s Board of Directors and Audit Committee of the Board of Directors delegated to its Compensation Committee, which consists of independent and disinterested directors, the exclusive power and authority to determine whether any potential transaction to acquire shares from Mr.

Bartel was advisable, fair to and in the best interests of the Company and its stockholders, other than Mr.

In connection with its determination, the Compensation Committee engaged independent legal counsel and an independent financial advisor and unanimously approved the SRA.

The SRA contains customary terms for transactions of this type, including, but not limited to, representations and warranties made by the Company and Mr.

In September 2015, the Company granted Holger Bartel, options to purchase 400,000 shares of common stock of the Company, with an exercise price of $ 8.07 and quarterly vesting beginning on March 31, 2016 (the “2015 Option Agreement”).

13 unchanged sentences

WeGo signed a $ 2.1 million insertion order for advertising with the Company in 2018.

The Company’s advertising revenues from WeGo in the years ended December 31, 2020 and 2019 were $ 384,000 and $ 1.2 million , respectively.

WeGo agreed to pay in a lump sum the remaining amount outstanding pursuant to the Insertion Order, equal to approximately $ 200,000 .

The Company’s advertising revenues from WeGo in the year ended December 31, 2020 were $ 384,000 .

WeGo agreed to pay in a lump sum the remaining

amount outstanding pursuant to the Insertion Order, equal to approximately $ 200,000 .

The Second Insertion Order and any obligation for additional payments from WeGo for marketing were terminated.

The lump sum payment was made in th e first quarter of 2021.

On February 13, 2019, the Company entered into a SRA with Azzurro to repurchase an aggregate of 100,000 shares of the Company’s common stock for an aggregate purchase price of $ 1.6 million.

The SRA provides that the purchase price is based on the five (5) day volume weighted average price calculated using the VWAP function on Bloomberg, from the dates of February 6, 2019 through and including February 12, 2019, minus a five percent ( 5 %) discount.

The Company’s board of directors established a special committee (the “Special Committee”), consisting of independent and disinterested directors who engaged independent legal counsel and an independent financial advisor, to authorize the transaction.

On November 9, 2019, the Company entered into a SRA with Holger Bartel to repurchase an aggregate of 200,000 shares of the Company’s common stock for an aggregate purchase price of $ 2.0 million.

The SRA provides that the purchase price is based on the 10-day volume weighted average price calculated using the VWAP function on Bloomberg, from the dates of October 22, 2019 through and including November 4, 2019, less 4.4 %.

On October 22, 2020, Azzurro, a significant shareholder of the Company, purchased 50,000 shares of the Company’s common stock from Mr.

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The Company has operating leases for real estate and certain equipment.

The Company leases office space in Canada, France, Germany, Spain, the U.K., and the U.S.

The Company leases office space in Canada, France, Germany, Spain, the U.K.

under operating leases.

Our leases have remaining lease terms ranging from less than one year to up to ten years .

Our leases have remaining lease terms ranging from less than one year to up to nine years .

Certain leases include one or more options to renew.

44 unchanged sentences

Income tax expense — —

Net loss $ ( 3,390 ) $ ( 8,137 )

Net loss from discontinued operations $ ( 13 ) $ ( 3,390 )

The Company recorded severance and disposal costs of $ 1.6 million during the first quarter of fiscal year 2020 for the shut down and such costs were classified in “general and administrative” in the table above.

Certain reclassifications have been made for current and prior periods between the continued operations and the discontinued operations in accordance with U.S.

Those reclassifications included direct operating expenses and certain allocation of expenses including $ 64,000 and $ 135,000 of cost of revenues that were reclassified from the discontinued operations to continued operations for the years ended December 31, 2020 and 2019 , respectively.

In addition, $ 7,000 and $ 204,000 of operating expenses were reclassified from continued operations to discontinued operations for the years ended December 31, 2020 and 2019 , respectively.

Those reclassifications included direct operating expenses and certain allocation of expenses including $ 64,000 of cost of revenues that were reclassified from the discontinued operations to continued operations for the year ended December 31, 2020 .

In addition, $ 7,000 of operating expenses were reclassified from continued operations to discontinued operations for the year ended December 31, 2020 .

On June 16, 2020, in connection with its Asia Pacific exit plan, the Company completed a sale of 100 % of the outstanding capital stock of Travelzoo Japan to the Japan Buyer for consideration of 1 Japanese Yen.

3 unchanged sentences

Travelzoo was not able to estimate whether Travelzoo Japan will generate positive EBITDA b ased on the uncertainties, and no amount has been recorded for future royalties under this agreement.

The Company did not record royalties from Travelzoo Japan for 2020 and will record royalties from Travelzoo Japan on a one-quarter lag basis for future royalties.

A n interest free loan was provided to the Japan Buyer for JPY 46.0 million (approximately $ 430,000 ) to be repaid over 3 years.

The Japan Buyer repaid $ 133,000 in 2021.

The Company records royalties for its licensing arrangements on a one-quarter lag basis.

The Company recognized royalties of $ 9,000 from Travelzoo Japan for the year ended December 31, 2021.

On August 24, 2020, the Company completed a sale of 100 % of the outstanding capital stock of Travelzoo Singapore, to an unaffiliated entity, AUS Buyer, which is fully owned by Mr.

1 unchanged sentence

The parties also entered into a License Agreement, whereby the AUS Buyer obtained a license to use the intellectual property of Travelzoo exclusively in Australia, New Zealand and Singapore and non-exclusively in China and Hong Kong for quarterly royalty payments based upon revenue over a 5-year term, with an option to renew.

Travelzoo was not able to estimate whether the AUS Buyer will generate revenues based on the

current uncertainties, and no amount has been recorded for future royalties under this agreement.

The Company did not record royalties from Travelzoo Japan for 2020 and will record royalties from Travelzoo Japan on a one-quarter lag basis for future royalties.

Travelzoo was not able to estimate whether the AUS Buyer will generate revenues based on the current uncertainties, and no amount has been recorded for future royalties under this agreement.

The Company records royalties for its licensing arrangements on a one-quarter lag basis.

The Company recognized royalties of $ 3,000 for its licensing arrangements from AUS Buyer for the year ended December 31, 2021.

The following table presents information related to the major classes of assets and liabilities that were classified as assets and liabilities from discontinued operations in the Consolidated Balance Sheets (in thousands):

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The Company’s consolidated financial statements include Jack's Flight Club where the Company has operating control but owns 60 % of the equity interest.

The non-controlling interest for the year ending December 31, 2020 was as follow:

The non-controlling interest for the year ended December 31, 2021 and 2020 was as follow (in thousands):

Non-controlling interest—January 1, 2020 $ —

Acquisition 5,756

Acquisition including put/call option 5,756

Net loss attributable to non-controlling interest ( 1,147 )

Non-controlling interest—December 31, 2020 4,609

Unaudited Quarterly Information

The following represents unaudited quarterly financial data for 2020 and 2019 (in thousands, except per share amounts):

Quarters Ended

31, 2020 Sep.

30, 2020 Jun.

30, 2020 Mar.

Revenues $ 12,483 $ 13,787 $ 7,004 $ 20,327

Cost of revenues 2,795 2,924 2,141 2,703

Gross profit 9,688 10,863 4,863 17,624

Operating expenses:

Sales and marketing 6,305 6,929 4,288 13,094

Product development 495 592 566 1,428

General and administrative 3,785 4,545 6,642 5,522

Impairment of intangible asset and goodwill — — — 2,920

Total operating expenses 10,585 12,066 11,496 22,964

Operating loss ( 897 ) ( 1,203 ) ( 6,633 ) ( 5,340 )

Other income (loss), net 677 ( 37 ) ( 179 ) ( 6 )

Loss from continuing operations before income taxes ( 220 ) ( 1,240 ) ( 6,812 ) ( 5,346 )

Income tax benefit ( 368 ) ( 244 ) ( 1,309 ) ( 517 )

Income (loss) from continuing operations 148 ( 996 ) ( 5,503 ) ( 4,829 )

Income (loss) from discontinued operations, net of tax 554 ( 230 ) ( 795 ) ( 2,919 )

Net income (loss) 702 ( 1,226 ) ( 6,298 ) ( 7,748 )

Net income (loss) attributable to non-controlling interest ( 25 ) 125 ( 108 ) ( 1,139 )

Net income (loss) attributable to Travelzoo $ 727 $ ( 1,351 ) $ ( 6,190 ) $ ( 6,609 )

Net income (loss) attributable to Travelzoo—continuing operations $ 173 $ ( 1,121 ) $ ( 5,395 ) $ ( 3,690 )

Net income (loss) attributable to Travelzoo—discontinued operations $ 554 $ ( 230 ) $ ( 795 ) $ ( 2,919 )

Income (loss) per share—basic

Continuing operations $ 0.02 $ ( 0.10 ) $ ( 0.48 ) $ ( 0.32 )

Discontinued operations $ 0.05 $ ( 0.02 ) $ ( 0.07 ) $ ( 0.26 )

Net income (loss) per share—basic $ 0.06 $ ( 0.12 ) $ ( 0.55 ) $ ( 0.58 )

Income (loss) per share—diluted

Continuing operations $ 0.01 $ ( 0.10 ) $ ( 0.48 ) $ ( 0.32 )

Discontinued operations $ 0.04 $ ( 0.02 ) $ ( 0.07 ) $ ( 0.26 )

Net income (loss) per share —diluted $ 0.06 $ ( 0.12 ) $ ( 0.55 ) $ ( 0.58 )

Quarters Ended

31, 2019 Sep.

30, 2019 Jun.

30, 2019 Mar.

Revenues $ 25,326 $ 23,833 $ 26,606 $ 29,160

Cost of revenues 3,046 2,852 2,672 2,865

Gross profit 22,280 20,981 23,934 26,295

Operating expenses:

Sales and marketing 12,737 11,967 13,104 13,534

Product development 1,853 1,434 1,763 1,659

General and administrative 4,764 4,188 4,914 4,532

Total operating expenses 19,354 17,589 19,781 19,725

Operating income 2,926 3,392 4,153 6,570

Other income (loss), net ( 90 ) 32 ( 29 ) 45

Income from continuing operations before income taxes 2,836 3,424 4,124 6,615

Income tax expense 1,116 860 1,066 1,670

Income from continuing operations 1,720 2,564 3,058 4,945

Loss from discontinued operations, net of tax ( 2,319 ) ( 2,258 ) ( 1,730 ) ( 1,825 )

Net income (loss) $ ( 599 ) $ 306 $ 1,328 $ 3,120

Net income (loss) attributable to Travelzoo—continuing operations $ 1,720 $ 2,564 $ 3,058 $ 4,945

Net income (loss) attributable to Travelzoo—discontinued operations $ ( 2,319 ) $ ( 2,258 ) $ ( 1,730 ) $ ( 1,825 )

Income (loss) per share—basic

Continuing operations $ 0.15 $ 0.22 $ 0.25 $ 0.41

Discontinued operations $ ( 0.20 ) $ ( 0.19 ) $ ( 0.14 ) $ ( 0.15 )

Net income (loss) per share—basic $ ( 0.05 ) $ 0.03 $ 0.11 $ 0.26

Income (loss) per share—diluted

Continuing operations $ 0.15 $ 0.21 $ 0.25 $ 0.41

Discontinued operations $ ( 0.20 ) $ ( 0.19 ) $ ( 0.14 ) $ ( 0.15 )

Net income per share —diluted $ ( 0.05 ) $ 0.03 $ 0.11 $ 0.26

Net loss attributable to non-controlling interest ( 9 )

Non-controlling interest—December 31, 2021 $ 4,600

Subsequent Events

License Agreement with Azzurro Brands Inc.

On March 12, 2021, the Company entered into a License Agreement (the “License Agreement”) with Azzurro Brands Inc., a New York corporation (“Azzurro Brands”) that is a wholly-owned subsidiary of Azzurro Capital Inc., the Company’s largest shareholder.

Pursuant to the terms of the License Agreement, the Company was granted the exclusive right and license to use a database of 2.2 million subscribers that Azzurro Brands purchased from a competitor of Travelzoo.

The License Agreement requires that the Company pay a license fee of $ 413,000 per quarter, with an initial payment of $ 894,000 due upon execution, which would cover the period from execution until Q4 2021.

The License Agreement has a term of one ( 1 ) year with an automatic renewal, terminable by either party with sixty ( 60 ) days’ written notice before the end of the term.

The License Agreement contains customary representations and warranties.

Stock Repurchase Agreement

Travelzoo from time to time, engages in share repurchases and on March 27, 2021, the Company entered into a Stock Repurchase Agreement (the “SRA”) with Holger Bartel to repurchase an aggregate of 100,000 shares of the Company’s common stock at a price of $ 15.83 per share.

The SRA provides that the purchase price is based on the 10-day volume weighted average price calculated using the VWAP function on Bloomberg, from the dates of March 15, 2021 through and including March 26, 2021, less a 5 % discount.

The aggregate purchase price of $ 1.6 million was paid on the first business day following the execution of the SRA.

Prior to the execution of the SRA and because Mr.

Bartel is an executive officer of the Company, the Company’s board of directors delegated to its compensation committee, which consists of independent and disinterested directors, the exclusive power and authority to determine whether any potential transaction to acquire shares from Mr.

Bartel was advisable, fair to and in the best interests of the Company and its stockholders, other than Mr.

In connection with its determination, the compensation committee engaged independent legal counsel and an independent financial advisor and unanimously approved the SRA.

The SRA contains customary terms for transactions of this type, including, but not limited to, representations and warranties made by the Company and Mr.

German Government Fund for Pandemic

In January 2022, the Company’s German branch of Travelzoo (Europe) Limited, a wholly-owned subsidiary of the Company (“Travelzoo Germany”), received the notification and payment for approximately $ 1.2 million from German federal government plan bridging aid III.

This program was for companies that have suffered a Corona-related slump in sales of at least 30 % in one month compared to the reference month in 2019.

Travelzoo Germany applied for the funding in 2021 and was approved by the German government in 2022.

The Company will record $ 1.2 million gain in Other income, net in the first quarter of 2022.

The Company has to submit a final declaration in connection to this grant by December 31, 2022.

We do not expect significant changes to the amount already received from the final submission.

The Company believes it was eligible to participate in plan and is entitled to the payment.

Service Agreement with Metaverse Travel Experiences, Inc.

On March 1, 2022, Travelzoo (Asia) Limited, a Hong Kong limited company and wholly-owned subsidiary of the Company (“Travelzoo Asia”), entered in a four year Service Agreement ( the “Service Agreement”) with a wholly-owned subsidiary of Azzurro Capital Inc., Metaverse Travel Experiences, Inc.

(“MTE”), formerly Azzurro Brands Inc.

Azzurro Capital Inc.

is the Company’s largest shareholder.

The Service Agreement was reviewed and unanimously authorized and approved by the Audit Committee of the Board of Directors, which is comprised solely of independent and disinterested directors.

Pursuant to the Service Agreement, MTE will source curated Metaverse experiences in exchange for $ 25,000 per month, payable in advance each quarter.

MTE is also entitled to receive commission equal to 25 % of any subscription revenue generated by the Company.

The Service Agreement is for a term of four ( 4 ) years but may be terminated for convenience after two ( 2 ) years.

Travelzoo (Europe) Limited, Sucursal en España Acquired Secret Escapes Limited’s Spanish Business Unit

On March 3, 2022, Travelzoo (Europe) Ltd, Sucursal en Espana, the Spanish branch of Travelzoo (Europe) Limited, a wholly-owned subsidiary of the Company (“Travelzoo Spain”), entered into a Business Unit Purchase Agreement (“BUPA”) with Secret Escapes Limited (“Secret Escapes”) for the purchase of its Spanish business unit, which included, among other things, a database of approximately 940,000 members.

The purchase price was Euro 400,000 , with an earn-out opportunity of an additional Euro 100,000 payable by the Company upon the achievement of certain metrics by the business unit in six months .

Travelzoo was granted the right to use the Secret Escapes name exclusively in Spain for a continuity period of six ( 6 ) months.

The BUPA contained typical representations and warranties and indemnification protections, as well as a restrictive covenant, whereby Secret Escapes agreed to leave the Spanish market for at least three ( 3 ) years, subject to a right to purchase a waiver.

Asset Purchase Agreement between Metaverse Travel Experiences, Inc.

f/k/a Azzurro Brands Inc.

and Travelzoo

On March 17, 2022, the Company, as Buyer, entered into an Asset Purchase Agreement (the “APA”) with MTE, a New York corporation (the “Seller”), a wholly-owned subsidiary of Azzurro Capital Inc., the Company’s largest shareholder.

Pursuant to the APA, the Company acquired certain assets, primarily comprised of all U.S.

members of Secret Escapes Limited, which Seller acquired in March of 2021 and licensed exclusively to Travelzoo pursuant to the previously disclosed License Agreement, dated as of March 12, 2021 (the “License Agreement”), in accordance with data privacy and other applicable laws.

The License Agreement allowed the Company to exclusively utilize the assets in exchange for a license fee of $ 412,500 per quarter with a one-year term that automatically renewed.

The License Agreement was reviewed and unanimously approved by the Audit Committee of the Board of Directors, which consists solely of independent directors (the “Committee”).

The purchase price for the transaction was $ 1.75 million, with $ 600,000 payable in cash upon closing and the remaining $ 1.15 million payable in the form of a credit with Seller in exchange for waived prepaid license fees through Q3 2022 under the License Agreement.

The remaining payment obligations of the Company under the License Agreement for the then-current term (equal to $ 825,000 ) were eliminated.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data