What changed in this filing

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Item 1. Financial Statements

2022-05-12 compared with 2021-11-08 · 230 added, 331 removed, 563 unchanged (50% of the section changed)

2 unchanged sentences

(In thousands, except par value)

September 30,

2022 December 31,

1 unchanged sentence

Cash and cash equivalents $ 35,617 $ 43,815

Accounts receivable, less allowance for doubtful accounts of $ 2,045 and $ 2,814 as of September 30, 2021 and December 31, 2020, respectively

Accounts receivable, less allowance for doubtful accounts of $ 1,981 and $ 2,094 as of March 31, 2022 and December 31, 2021, respectively

18,163 14,871

Prepaid income taxes 2,547 3,325

Prepaid expenses and other 1,513 1,891

Prepaid expenses—related party — 1,150

Assets from discontinued operations 63 71

8 unchanged sentences

Total assets $ 92,883 $ 99,727

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities:

4 unchanged sentences

Operating lease liabilities 2,813 3,180

PPP notes payable (current portion) — 2,849

Income tax payable 30 185

1 unchanged sentence

Total current liabilities 78,751 87,884

PPP notes payables — 814

Deferred tax liabilities — 357

Long-term operating lease liabilities 8,617 9,111

3 unchanged sentences

Non-controlling interest 4,604 4,600

Stockholders’ equity:

Stockholders’ deficit:

Common stock, $ 0.01 par value ( 20,000 shares authorized;

11,923 shares issued and 11,823 shares outstanding as of September 30, 2021 and 11,365 shares issued and outstanding as of December 31, 2020)

Treasury stock (at cost, 100 shares and 0 shares at September 30, 2021 and December 31, 2020, respectively)

12,551 shares issued and 12,056 shares issued and outstanding as of March 31, 2022 and December 31, 2021)

Treasury stock (at cost, 495 shares at March 31, 2022 and December 31, 2021)

( 5,488 ) ( 5,488 )

Additional paid in capital 4,957 4,415

Retained earnings (accumulated deficit) 3,792 ( 403 )

Retained earnings 2,867 508

Accumulated other comprehensive loss ( 3,931 ) ( 3,793 )

Total stockholders’ equity 1,871 1,891

Total liabilities and stockholders’ equity $ 116,870 $ 102,400

Total stockholders’ deficit ( 1,469 ) ( 4,232 )

Total liabilities and stockholders’ deficit $ 92,883 $ 99,727

See accompanying notes to unaudited condensed consolidated financial statements.

1 unchanged sentence

(In thousands, except per share amounts)

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Three Months Ended

Revenues $ 18,453 $ 14,284

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Income (loss) from continuing operations 2,374 ( 1,675 )

Income (loss) from discontinued operations, net of taxes ( 19 ) ( 230 ) ( 5 ) ( 3,944 )

Loss from discontinued operations, net of taxes ( 11 ) ( 15 )

Net income (loss) 2,363 ( 1,690 )

2 unchanged sentences

Net income (loss) attributable to Travelzoo—continuing operations $ 2,370 $ ( 1,627 )

Net income (loss) attributable to Travelzoo—discontinued operations $ ( 19 ) $ ( 230 ) $ ( 5 ) $ ( 3,944 )

Net loss attributable to Travelzoo—discontinued operations $ ( 11 ) $ ( 15 )

Income (loss) per share—basic

13 unchanged sentences

(In thousands)

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Three Months Ended

Net income (loss) $ 2,363 $ ( 1,690 )

5 unchanged sentences

(In thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities:

Net income (loss) $ 2,363 $ ( 1,690 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization 574 484

1 unchanged sentence

Deferred income tax 97 541

Impairment of intangible assets and goodwill — 2,920

Gain on promissory notes payable settlement — ( 1,500 )

Loss on long-lived assets 38 —

Loss on equity investment in WeGo — 474

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

Gain on equity investment in WeGo ( 196 ) —

Net foreign currency effect ( 13 ) ( 152 )

5 unchanged sentences

Accounts payable 103 1,727

Merchant payable 16,486 20,532

Merchant payables ( 7,961 ) 13,212

Accrued expenses and other 917 ( 641 )

1 unchanged sentence

Other liabilities 176 412

Net cash provided by operating activities 9,283 37,584

Net cash provided by (used in) operating activities ( 6,764 ) 9,064

Cash flows from investing activities:

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

Other investments — ( 430 )

Purchases of intangible assets ( 1,049 ) —

Proceeds from sale of equity investment in WeGo 196 —

Purchases of property and equipment ( 89 ) ( 7 )

2 unchanged sentences

Repurchase of common stock — ( 1,583 )

Payment of notes payables ( 110 ) ( 7,800 )

Proceeds from PPP notes payable — 3,663

Exercise of stock options and taxes paid for net share settlement ( 5,424 ) —

Net cash used in financing activities — ( 1,583 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 524 ) 270

Net increase in cash, cash equivalents and restricted cash 2,016 31,274

Net increase (decrease) in cash, cash equivalents and restricted cash ( 8,230 ) 7,744

Cash, cash equivalents and restricted cash at beginning of period 44,989 64,385

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Cash paid for amounts included in the measurement of lease liabilities $ 938 $ 1,099

Non-cash investing and financing activities:

Issuance of promissory notes to the sellers of Jack's Flight Club $ — $ 11,000

Accrued employee payroll taxes on cashless exercise $ — $ 2,841

Non-cash consideration for purchase of intangible asset $ 1,150 $ —

See accompanying notes to unaudited condensed consolidated financial statements.

3 unchanged sentences

Capital Retained

Earnings (Accumulated Deficit) Accumulated

Earnings Accumulated

Comprehensive

Stockholders’

Equity (Deficit)

Shares Amount

1 unchanged sentence

Stock-based compensation expense — — — 542 — — 542

Treasury stock — ( 1,583 ) — — — ( 1,583 )

Exercise of stock options and taxes paid for net share

settlement of equity awards 205 1 — ( 2,842 ) — ( 2,841 )

Foreign currency translation adjustment — — — — — ( 138 ) ( 138 )

Net loss–Travelzoo — — — — ( 1,642 ) — ( 1,642 )

Balances, March 31, 2021 11,570 115 ( 1,583 ) 4,279 ( 2,045 ) ( 3,649 ) ( 2,883 )

Stock-based compensation expense — — — 935 — — 935

Exercise of stock options and taxes paid for net share

settlement 24 — — ( 226 ) — — ( 226 )

Foreign currency translation adjustment — — — — — 162 162

Net income–Travelzoo — — — — 2,359 — 2,359

Balances, June 30, 2021 11,594 115 ( 1,583 ) 4,988 969 ( 3,487 ) 1,002

Stock-based compensation expense — — — 971 — — 971

Exercise of stock options and taxes paid for net share

settlement 329 3 — ( 2,527 ) — — ( 2,524 )

Foreign currency translation adjustment — — — — — ( 401 ) ( 401 )

Net income—Travelzoo — — — — 2,823 — 2,823

Balances, September 30, 2021 11,923 $ 118 $ ( 1,583 ) $ 3,432 $ 3,792 $ ( 3,888 ) $ 1,871

Common Stock Additional

Capital Retained

Earnings (Accumulated Deficit) Accumulated

Balances, March 31, 2022 12,551 $ 126 $ ( 5,488 ) $ 4,957 $ 2,867 $ ( 3,931 ) $ ( 1,469 )

Common Stock Treasury Stock Additional

Capital Accumulated Deficit Accumulated

Comprehensive

Stockholders’

Equity (Deficit)

Shares Amount

1 unchanged sentence

Stock-based compensation expense — — — 882 — — 882

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

Treasury stock — ( 1,583 ) — — — ( 1,583 )

Exercise of stock options and taxes paid for net share

settlement of equity awards 205 1 — ( 2,842 ) — ( 2,841 )

Foreign currency translation adjustment — — — — — 410 410

1 unchanged sentence

Balances, March 31, 2021 11,570 $ 115 $ ( 1,583 ) $ 4,279 $ ( 2,045 ) $ ( 3,649 ) $ ( 2,883 )

Stock-based compensation expense — — 4,031 — — 4,031

Foreign currency translation adjustment — — — — ( 343 ) ( 343 )

Net loss—Travelzoo — — — ( 6,190 ) — ( 6,190 )

Balances, June 30, 2020 11,310 113 4,031 221 ( 4,666 ) ( 301 )

Stock-based compensation expense — — 1,189 — — 1,189

Foreign currency translation adjustment — — — — 532 532

Net loss—Travelzoo — — — ( 1,351 ) — ( 1,351 )

Balances, September 30, 2020 11,310 $ 113 $ 5,220 $ ( 1,130 ) $ ( 4,134 ) $ 69

See accompanying notes to unaudited condensed consolidated financial statements.

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

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.

As of March 31, 2022, Jack’s Flight Club h ad 1.7 million subscribers.

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

See Note 3 to the unaudited condensed consolidated financial statements for further information.

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.

In March 2020, Travelzoo exited its loss-making Asia Pacific business and pivoted to a licensing model.

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

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

An interest free loan was provided to the licensee for JPY 46 million (approximately $ 430,000 ) to be repaid over 3 years which the Company recorded as other assets on the unaudited condensed consolidated balance sheet as of September 30, 2021.

An interest free loan was provided to the licensee for JPY 46 million (approximately $ 430,000 ) to be repaid over 3 years, of which $ 133,000 was repaid in 2021.

The Company recorded this loan as long-term other assets on the condensed consolidated balance sheet as of March 31, 2022.

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.

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

The Company recognized royalties of $ 0 and $ 9,000 from Travelzoo Japan for the three and nine months ended September 30, 2021.

The Company recognized royalties of $ 2,000 for its licensing arrangements from AUS Buyer for the three and nine months ended September 30, 2021.

The Company recognized royalties of $ 9,000 from Travelzoo Japan for the three months ended March 31, 2021 .

The Company did not recognize any royalty from Travelzoo Japan for the three months ended March 31, 2022 .

The Company recognized royalties of $ 2,000 for its licensing arrangements from AUS Buyer for the three months ended March 31, 2022.

The Company did not recognize any royalty from AUS Buyer for the three months ended March 31, 2021.

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

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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 and recorded the gain in Other income (loss), net for the three months ended March 31, 2022.

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

The payment was made and recorded in the first quarter of 2021.

The payment was made and recorded in the three months ended March 31, 2021.

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

The Company acquired the domain name and trademark “weekend.com” in 2005 which was amortized over five years .

Concurrently with the sale of the shares, the Company also sold the domain name and trademark “weekend.com” to trivago in exchange for a payment of $ 822,000 .

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

Jack’s Flight Club

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 September 30, 2021, Jack’s Flight Club h ad 1.7 million subscribers.

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

See Note 3 to the unaudited condensed consolidated financial statements for further information.

Government funding

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 of approximately $ 1.2 million from the German Federal Government Bridging Aid III plan.

This program was for companies that suffered a Corona-related decrease 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 January 2022.

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

The Company believes it was eligible to participate in plan and is entitled to the payment and does not expect significant changes to the amount already received from the final submission.

The Company recorded $ 1.2 million gain in Other income, net in the three months ended March 31, 2022.

The Company also received other government fundings for the three months ended March 31, 2022 and 2021.

Job retention related funding from Canada was approximately $ 68,000 and $ 168,000 for the three months ended March 31, 2022 and 2021, respectively, and from European locations was approximately $ 20,000 for the three months ended March 31, 2021 .

Those fundings were recorded against salary and related expenses.

Travelzoo funds operations primarily with revenues generated from advertising fees.

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

In the Company’s financial statements presented in this 10-Q 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 $ 20.8 million as of March 31, 2022.

Cash used in operating activities was $ 6.8 million for the three months ended March 31, 2022.

In order to appeal to its members, Travelzoo adjusted its refund policy in the second quarter of 2020 so that vouchers were fully refundable until expiration or redemption by the customer.

As of March 31, 2022 , the Company has recorded merchant payables of $ 60.5 million related to unredeemed vouchers with the majority of vouchers expiring in 2022 and the remaining primarily expiring in 2023.

Management understands that these conditions could raise doubt over the Company’s ability to meet all of its obligations over the next twelve months, however, management has evaluated these conditions and concluded that management's plans alleviate these concerns.

Revenue and net income increased for three months ended March 31, 2022 compared to the same quarter of last year and prior quarter.

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

The cash and cash equivalents were $ 35.6 million as of March 31, 2022 .

Although as mentioned above all merchant payables are classified as current, the expiration dates of these vouchers range between April 2022 through December 2025 with the majority of the vouchers expiring at the end of 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 costs and obtain additional financing if required.

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

Management therefore concluded that these actions and plans have alleviated the doubt of the Company's 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.

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.

(“Azzurro” ).

As of September 30, 2021, Azzurro is the Company's largest shareholder, holding approximately 38.9 % of the Company's outstanding shares.

As of March 31, 2022, Ralph Bartel is the Company's largest shareholder, holding approximately 38.0 % of the Company's outstanding shares.

Financial Statements

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All intercompany accounts and transactions have been eliminated in consolidation.

The financial results of Jack’s Flight Club have been included in our consolidated financial statements from the date of acquisition.

The financial results of Jack’s Flight Club have been included in our condensed consolidated financial statements from the date of acquisition.

Investments in entities where the Company does not have control, but does have significant influence, are accounted for as equity method investments.

2 unchanged sentences

Actual results could differ materially from those estimates.

The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or any other future period, and the Company makes no representations related thereto.

The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or any other future period, and the Company makes no representations related thereto.

(b) Recent Accounting Pronouncements

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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, 2020, $ 1.3 million was recorded as deferred

revenue for Travelzoo North America and Travelzoo Euro pe, of which $ 620,000 was recognized as revenue during the nine months ended September 30, 2021.

At September 30, 2021, the deferred revenue balance was $ 1.8 million, of which $ 429,000 was for Travelzoo North America and Travelzoo Europe, and the remaining $ 1.4 million was for Jack's Flight Club.

As of December 31, 2021, $ 1.3 million was recorded as deferred revenue for Jack's Flight Club, of which $ 575,000 was recognized in the three months ended March 31, 2022, $ 473,000 was recorded as deferred revenue for Travelzoo North America and Travelzoo Europe, of whi ch $ 211,000 was re cognized as revenue in the three months ended March 31, 2022.

As of March 31, 2022, the deferred revenue balance was $ 2.3 million, of which $ 1.7 million was for Jack's Flight Club, and the remaining $ 652,000 was for Travelzoo North America and Travelzoo Europe.

Reserve for Refunds to Members

5 unchanged sentences

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

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

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

The expiration dates of vouchers range between October 2021 through December 2023.

Since the second quarter of 2020, the Company expanded

its voucher refund policy to fully refundable until the voucher expires or is redeemed by the customer.

The expiration dates of vouchers range between April 2022 through December 2025 with the majority of vouchers expiring at the end of 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.

1 unchanged sentence

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 September 30, 2021 the Company had approximately $ 18.3 million of unredeemed vouchers that had been sold through September 30, 2021 representing the Company’s commission earned from the sale.

The Company had estimated a refund liability of $ 3.1 million for these unredeemed vouchers as of September 30, 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.

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 and estimated a refund liability of $ 3.9 million for these unredeemed vouchers as of December 31, 2020 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 Merchant Payables of $ 73.2 million as of September 30, 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.

As of March 31, 2022 the Company had approximately $ 15.1 million of unredeemed vouchers that had been sold through March 31, 2022 representing the Company’s commission earned from the sale.

The Company had estimated a refund liability of $ 3.8 million for these unredeemed vouchers as of March 31, 2022, which is recorded as a reduction of revenues and is reflected as a current liability in Accrued expenses and other on the condensed consolidated balance sheet.

As of December 31, 2021, the Company had approximately $ 17.2 million of unredeemed vouchers that had been sold during 2020 representing the Company’s commission earned from the sale and estimated a refund liability of $ 5.2 million for these unredeemed vouchers as of December 31, 2021, which was recorded as a reduction of revenues and was reflected as a current liability in Accrued expenses and other on the condensed consolidated balance sheet.

The Company has recorded Merchant Payables of $ 60.5 million as of March 31, 2022 related to unredeemed vouchers.

Insertion orders and merchant agreements for Local Deals 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 and may adversely affect future revenue as the liability is recorded against revenue.

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.

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

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

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

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Identifiable intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives.

The carrying values of all intangible assets are reviewed for impairment whenever events or changes in circumstances

indicate that their carrying amounts may not be recoverable.

The Company evaluated intangible assets in the first quarter of 2020 due to the coronavirus (COVID-19) pandemic and recorded an impairment expense of $ 810,000 .

The carrying values of all intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.

The Company performed its annual test as of October 31, 2021 and no impairment charge was identified in connection with the annual impairment tes t.

The Company did not identify any indicators of impairment during the nine months ended September 30, 2021.

The Company did no t identify any indicators of impairment during the three months ended March 31, 2022 and 2021 .

Goodwill represents the excess of the purchase price of an acquired business over the fair value of the underlying net tangible and intangible assets.

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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.

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

The Company performed its annual impairment test as of October 31, 2020 and no impairment charge was identified in connection with the annual impairment test .

The Company did not identify any indicators of impairment during the nine months ended September 30, 2021.

The Company performed its annual impairment test as of October 31, 2021 and no impairment charge was identified in connection with the

annual impairment test .

The Company did no t identify any indicators of impairment during the three months ended March 31, 2022 and 2021.

Operating Leases

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and internationally.

As of September 30, 2021 and December 31, 2020, the Company did not have any customers that accounted for 10% or more of accounts receivable.

As of March 31, 2022 and December 31, 2021, 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.

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

As of September 30, 2021, the Company had merchant payables of $ 73.2 million related to the sale of vouchers.

As of March 31, 2022, the Company had merchant payables of $ 60.5 million related to the sale of vouchers.

In the Company’s financial statements presented in this 10-Q 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 $ 18.0 million.

When all merchant payables are classified as current, there is negative net working capital (which is defined as current assets minus current liabilities) of $ 20.8 million.

Payables to merchants are generally due upon redemption of vouchers.

The vouchers have maturities from October 2021 through December 2023.

The vouchers have maturities from April 2022 through December 2025 with the majority of vouchers expiring at the end of 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 September 30, 2021 will be sufficient to provide for working capital needs for at least the next twelve months.

Based on current projections of redemption activity, management expect that cash on hand as of March 31, 2022 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.

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Restricted cash includes cash and cash equivalents that is restricted through legal contracts, regulations or our intention to use the cash for a specific purpose.

Our restricted cash primarily relates to refundable deposits and funds held in escrow.

Our restricted cash primarily relates to refundable for leases.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited condensed consolidated balance sheets to the total amounts shown in the unaudited condensed consolidated statements of cash flows:

September 30, December 31,

March 31, December 31,

Cash and cash equivalents $ 35,617 $ 43,815

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Total cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows $ 36,759 $ 44,989

The Company’s restricted cash was included in noncurrent assets as of September 30, 2021 and December 31, 2020.

The Company’s restricted cash was included in noncurrent assets as of March 31, 2022 and December 31, 2021.

Net Income (Loss) Per Share

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The following table sets forth the calculation of basic and diluted net income (loss) per share (in thousands, except per share amounts):

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Three Months Ended

Net income (loss) attributable to Travelzoo—continuing operations $ 2,370 $ ( 1,627 )

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Net income (loss) per share—diluted $ 0.19 $ ( 0.14 )

For the three and nine months ended September 30, 2021 and 2020, options to purchase 50,000 s hares and 3.4 million shares of common stock, respectively, were not included in the computation of diluted net income (loss) 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”).

Pursuant to the SPA, on January 13, 2020, the Sellers sold 60 % of the Shares to the Company for an aggregate purchase price of $ 12.0 million, $ 1.0 million of which was paid in cash and $ 11.0 million of which was paid in Promissory Notes.

The Promissory Notes contain an interest rate of 1.6 % per annum and a due date of January 31, 2020, with a one-time right to extend the maturity date up to April 30, 2020 with a principal payment of $ 1.0 million on January 31, 2020, which the Company exercised.

The remaining 40 % of the Shares are subject to a call/put option exercisable by the Company or the Sellers, as applicable, on or around January 1, 2021, subject to the terms and conditions set forth in the SPA.

The results of Jack's Flight Club in 2020 did not meet the thresholds required for the put/call option to be exercisable.

On June 3, 2020, the Company renegotiated the SPA with the Sellers of Jack’s Flight Club and reached a negotiated settlement.

The Company recorded adjustments accordingly, however, these adjustments are not considered measurement period adjustments to the purchase consideration since there is not a clear and direct link to the consideration transferred in the SPA entered into on January 13, 2020.

For the three months ended March 31, 2022 and 2021, options to purchase 50,000 s hares and 2.8 million shares of common stock, respectively, were not included in the computation of diluted net income (loss) per share because the effect would have been anti-dilutive.

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 400,000 Euros, with an earn-out opportunity of an additional 100,000 Euros 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 Metaverse Travel Experiences, Inc.

f/k/a Azzurro Brands Inc., a New York corporation (the “Seller”) and 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 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 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 relating to prepaid license fees, under the License Agreement.

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

The Company recorded the transactions with both Secret Escape Limited and Metaverse Travel Experiences Inc.

as asset acquisitions as the assets acquired and liabilities assumed do not meet the definition of a business in Accounting Standards Codification (“ASC”) 805-10.

Cost accumulation model was used to account for the cost of the acquisition and the 100,000 Euros earn-out was considered as contingent consideration based on ASC 805-50.

Travelzoo acquired database of members and recorded $ 2.0 million intangible assets from both agreements.

Acquisition of Jack's Flight Club

Travelzoo acquired 60 % of the Jack’s Flight Club for an aggregate purchase price of $ 12.0 million in January 2020.

The strategic rationale for the Jack’s Flight Club acquisition was to expand Jack’s Flight Club ’s membership to Travelzoo members worldwide, so the members from Travelzoo could also sign up to receive offers from Jack’s Flight Club.

The acquisition has been accounted for using the acquisition method in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations.

The Company renegotiated with Jack’s Flight Club in June 2020 and reached a negotiated settlement which resulted a gain in “General and administrative expenses” for the partial forgiveness for the promissory note issued for the acquisition.

The acquisition has been accounted for using the acquisition method in accordance with ASC 805, Business Combinations.

Under the acquisition method of accounting, the total purchase consideration of the acquisition is allocated to the tangible assets and identifiable intangible assets and liabilities assumed based on their relative fair values.

The excess of the purchase consideration over the net tangible and identifiable intangible assets is recorded as goodwill.

Accordingly, the Company allocated $ 3.5 million to customer relationships, $ 2.5 million to trade name and $ 660,000 to non-compete agreements and the remaining $ 13.1 million to goodwill.

The acquisition related costs were not significant and were expensed as incurred.

Purchase Price Allocation

The purchase price allocation is based on estimates, assumptions and third-party valuations.

The aggregate purchase price and allocation was as follows (in thousands):

Purchase Price Jack’s Flight Club

Cash paid $ 1,000

Promissory notes issued 10,931

Fair Value of Put/Call Option 183

Goodwill $ 13,054

Intangible assets:

Customer relationships 3,500

Trade name 2,460

Non-compete agreements 660

Current assets acquired, including cash of $ 321

Current liabilities assumed ( 40 )

Deferred revenue ( 881 )

Deferred tax liabilities ( 1,391 )

Non-controlling interest ( 5,572 )

The Company determined the estimated fair value of the put/call option using the Monte Carlo Simulation approach and the identifiable intangible assets acquired primarily using the income approach.

Non-controlling interests represent third-party shareholders and are measured at fair value on the date acquired.

Goodwill represents the excess of the cost of an acquisition over the fair value of the Company’s share of the identifiable net assets of the acquired subsidiary.

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 global pandemic was a triggering event requiring the Company to assess its long-lived assets including goodwill for impairment.

The Company performed an impairment test during the first quarter of 2020 and during the fourth quarter of 2020 by comparing the carrying value of Jack’s Flight Club net assets to the fair value of the Jack’s Flight Club reporting unit based on an updated discounted cash flow analysis.

The fair value of the Jack’s Flight Club reporting unit was determined to be less than the carrying value, and the difference between the estimated fair value of goodwill and the carrying value was recorded as goodwill impairment of $ 2.1 million.

The Company also performed an ASC 360 analysis for long-lived assets noting no impairment of such assets based on the undiscounted cash flows of the Jack’s Flight Club asset group.

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

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

Goodwill—January 1, 2020 $ —

Acquisition 13,054

Impairment—March 31, 2020 ( 2,110 )

Goodwill—March 31, 2020 $ 10,944

There has been no change in goodwill for the nine months ended September 30, 2021 and no changes since March 31, 2020.

Jack’s Flight Club's result have been included in the accompanying financial statements from their the dates of acquisition.

The Company recorded a goodwill impairments of $ 2.1 million and a Trade name impairment of $ 810,000 due to the pandemic in the first quarter of 2020.

The Company performs annual impairment test in October did not identify any further indicators of impairment.

The Company also did not identify any indicators of impairment during the three months ended March 31, 2022.

Intangible Assets

The following table represents the fair value and estimated useful lives of intangible assets (in thousands):

The following table represents the fair value and estimated useful lives of intangible assets from the above acquisitions (in thousands):

Fair Value Estimated Life (Years)

Customer relationships $ 3,500 5

Trade name 2,460 indefinite

Customer relationships (Jack's Flight Club) $ 3,500 5.0

Trade name (Jack's Flight Club) 2,460 indefinite

Non-compete agreements 660 4.0

The fair value of intangible assets of $ 6.6 million has been allocated to the following three asset categories:

1) customer relationships, 2) trade name, and 3) non-compete agreements.

These assets are included within “Intangible assets” on our consolidated balance sheets.

Customer relationships and non-compete agreements are being amortized to operating expenses over their estimated useful lives using the straight-line basis for non-compete agreements or on an accelerated basis for customer relationships.

The following table represents the activities of intangible assets for the nine months ended September 30, 2021 (in thousands):

Intangible assets (Secret Escape Spain member database) 445 3.0

Intangible assets (Metaverse Travel member database) 1,751 2.3

The following table represents the activities of intangible assets for the three months ended March 31, 2022 (in thousands):

Jack's Flight Club Secret Escape Spain Metaverse Travel

Intangible assets- January 1, 2021 $ 4,534

Acquisition 6,620

Impairment of trade name ( 810 )

Amortization of intangible assets with definite lives ( 284 )

Intangible assets- December 31, 2020 4,534

Amortization of intangible assets with definite lives ( 284 )

Intangible assets- March 31, 2021 4,250

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Intangible assets- September 30, 2021 3,700

Amortization expense for acquired intangibles was $ 275,000 and $ 333,000 for the three months ended September 30, 2021 and 2020, respectively.

Amortization expense for acquired intangibles was $ 833,000 and $ 943,000 for the nine months ended September 30, 2021 and 2020, respectively.

Expected future amortization expense of acquired intangible assets as of September 30, 2021 is as follows (in thousands):

Amortization of intangible assets with definite lives ( 274 )

Intangible assets- December 31, 2022 3,426

Acquisitions — 445 1,751

Amortization of intangible assets with definite lives ( 226 ) ( 12 ) ( 195 )

Intangible assets- March 31, 2022 $ 3,200 $ 433 $ 1,556

Amortization expense for acquired intangibles was $ 433,000 and $ 284,000 for the three months ended March 31, 2022 and 2021, respectively.

Expected future amortization expense of acquired intangible assets as of March 31, 2022 is as follows (in thousands):

Years ending December 31,

2022 remainder $ 1,344

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 2 020.

The Company did not identify any indicators of impairment during the nine months ended September 30, 2021.

Unaudited Pro Forma Information

The acquired company was consolidated into our financial statements starting on the acquisition date.

The unaudited financial information in the table below summarizes the combined results of operations of Travelzoo and Jack’s Flight Club, on a pro forma basis, as though the companies had been combined as of the beginning of the fiscal year presented.

The debt was issued to finance the acquisition of Jack’s Flight Club.

The unaudited pro forma information has been calculated after applying the Company’s accounting policies and includes adjustments to reflect the amortization charges from acquired intangible assets, adjustments to deferred revenue, interest expense and related tax effects.

The unaudited pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the fiscal year presented.

The following table summarizes the pro forma financial information (in thousands):

Three Months Ended Nine Months Ended

September 30, 2020 September 30, 2020

Revenues $ 13,787 $ 41,239

Net loss $ ( 1,226 ) $ ( 15,247 )

Jack's Flight Club Settlement

On June 3, 2020, the Company and the Seller renegotiated the SPA.

Pursuant to the original terms of the outstanding Promissory Notes, the Company owed $ 10.0 million plus interest (the “Outstanding Amount”) to the Sellers on April 30, 2020.

On June 3, 2020, the parties reached a negotiated settlement for the Outstanding Amount with the following terms:

(a) $ 1.5 million was forgiven in settlement of certain outstanding indemnification claims disputed by the Sellers;

The Company recorded $ 1.5 million gain in “General and administrative expenses” for the partial forgiveness of the outstanding loan in the second quarter of 2020.

The $ 1.7 million new promissory notes was paid off in October 2020.

Total interest expense for the Promissory Notes of $ 142,000 was recorded in Other income (loss), net in 2020.

Travelzoo also agreed that the additional payment set forth in the SPA (equal to 20 % of 2020 net income) would be payable to the Sellers regardless of whether EBITDA targets are achieved and the put/call is exercised in 2021.

The Company estimated and accrued $ 448,000 in “General and administrative expenses” in 2020.

$ 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 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.

Commitments and Contingencies

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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 March 31, 2022 and December 31, 2021.

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.

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Thereafter, the Company began to offer a voluntary cash program for those who established that they had satisfied certain prerequisite qualifications for Netsurfers promotional shares as further described below.

During 2010 through 2014, the Company became subject to unclaimed property audits of various states in the United States related to the above unexchanged promotional shares and completed settlements with all states.

From 2010 through 2014, the Company became subject to unclaimed property audits of various states in the United States related to the above unexchanged promotional shares and completed settlements with all states.

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

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

The Company did not make any payments for the nine months ended September 30, 2021 and 2020.

The Company did not make any payments for the three months ended March 31, 2022 and 2021.

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 nine years .

Refer to Note 11 for Leases as of September 30, 2021.

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

Refer to Note 11 for Leases as of March 31, 2022.

The Company maintains several standby letters of credit (“LOC”) to serve as collateral issued to certain landlords.

The LOCs are collateralized with cash which is included in the line item “Restricted cash” in the Consolidated Balance Sheets.

The Company has purchase commitments aggregating approximately $ 3.4 million as of September 30, 2021, which represent the minimum obligations the Company has under agreements with certain suppliers.

The LOCs are collateralized with cash which is included in the line item “Restricted cash” in the Condensed Consolidated Balance Sheets.

The Company has purchase commitments aggregating approximately $ 2.3 million as of March 31, 2022, which represent the minimum obligations the Company has under agreements with certain suppliers.

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

Payments may be more than the minimum obligations based on actual use.

Ordinarily, in determining the quarterly provisions for income taxes, the Company uses an estimated annual effective tax rate, which is generally based on our expected annual income and statutory tax rates in the U.S., Canada, and the U.K.

Due to the global pandemic, and difficulty forecasting the calendar year 2021 of income (loss) by jurisdiction, we determined the estimated annual effective rate method would not provide a reliable estimate of the Company’s overall annual effective tax rate.

As such, we have calculated the tax provision using the actual effe ctive rate for the nine months ended September 30, 2021 .

The Company's effective tax rate from continuing operations was 8 % and 20 %, respectively, for the three months ended September 30, 2021 and 2020.

The Company’s effective tax rate for the three months ended September 30, 2021 decreased from the three months ended September 30, 2020 primarily due to PPP loan forgiveness income generated in the three months ended September 30, 2021 that is exempt from tax.

The Company's effective tax rate from continuing operations was 33 % and 15 %, respectively, for the nine months ended September 30, 2021 and 2020.

The Company's effective tax rate increased for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to changes in deferred tax assets from limitations on deductible stock-based compensation , offset by PPP Loan forgiveness income exempt from tax.

As of September 30, 2021, the Company is permanently reinvested in certain of its non-U.S.

In determining the quarterly provisions for income taxes, the Company uses an estimated annual effective tax rate, which is generally based on our expected annual income and statutory tax rates in the U.S., Canada, and the U.K.

The Company's effective tax rate from continuing operations was 29 % and ( 80 )%, respectively, for the three months ended March 31, 2022 and 2021.

The Company’s effective tax rate for the three months ended March 31, 2022, changed from the three months ended March 31, 2021, primarily due to pre-tax book income in the three months ended March 31, 2022, versus a pre-tax book loss in the three months ended March 31, 2021, and a decrease in non-tax deductible stock compensation in the three months ended March 31, 2022.

As of March 31, 2022, the Company is permanently reinvested in certain of its non-U.S.

subsidiaries and does not have a deferred tax liability related to its undistributed foreign earnings.

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The Company maintains liabilities for uncertain tax positions.

At September 30, 2021, the Company had approximately $ 961,000 in total unrecognized tax benefits, which if recognized, would favorably affect the Company’s effective income tax rate.

As of March 31, 2022, the Company had approximately $ 1.0 million in total unrecognized tax benefits, which if recognized, would favorably affect the Company’s effective income tax rate.

The Company’s policy is to include interest and penalties related to unrecognized tax positions in income tax expense.

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 September 30, 2021 and December 31, 2020, the Company had approximately $ 278,000 and $ 235,000 in accrued interest, and $ 89,000 and $ 0 in accrued penalties, respectively.

As of March 31, 2022 and December 31, 2021, the Company had approximately $ 440,000 and $ 424,000 in accrued interests and penalties, respectively.

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

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The Company is subject to U.S.

federal and certain state tax examinations for certain years from 2017 and forward and is subject to California tax examinations for years after 2016.

federal and certain state tax examinations for certain years after 2017 and forward and is subject to California tax examinations for years after 2016.

We do not know what our income taxes will be in future periods.

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The following table summarizes the changes in accumulated other comprehensive loss (in thousands):

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Three Months Ended

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

Other comprehensive income (loss) due to foreign currency translation, net of tax ( 138 ) 410

Reclassification of amounts to income relating to APAC discontinued operations, net of tax — 183 — ( 222 )

Ending balance $ ( 3,931 ) $ ( 3,649 )

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

There were no amounts reclassified from accumulated other comprehensive loss for the three and nine months ended September 30, 2021.

There were no amounts reclassified from accumulated other comprehensive loss for the three months ended March 31, 2022.

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

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The value of the portion of the award that is expected to vest is recognized on a straight-line basis as expense over the related employees’ requisite service periods in the Company’s condensed consolidated stateme nts of operations.

In September 2015, pursuant to an executed Option Agreement, the Company granted its Global Chief Executive Officer, 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”).

In September 2015, pursuant to an executed Nonqualified Stock Option Agreement, the Company granted its Global Chief Executive Officer, 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”).

The 2015 Option Agreement expires in September 2025.

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

During the three months ended September 30, 2021, 500,000 options granted pursuant to the 2015 Option Agreement and 160,000 options granted pursuant to the 2019 Option Agreement were exercised by Mr.

Bartel, 188,737 shares of common stock were issued as the result of a cashless exercise and 112,901 shares of common stock were issued as the result of net settlement with respect to the exercise price were approved by Travelzoo's Board of Directors.

During the nine months ended September 30, 2021, 600,000 options granted pursuant to the 2015 Option Agreement, 300,000 options granted pursuant to the 2017 Option Agreement and 160,000 options granted pursuant to the 2019 Option Agreement were exercised by Mr.

Bartel, 367,086 shares of common stock were issued as the result of a cashless exercise and 112,901 shares of common stock were

issued as the result of net settlement with respect to the exercise price were approved by Travelzoo's Board of Directors.

Bartel did not exercise options in the second quarter of 2021.

Total stock-based compensation of $ 382,000 was recorded in general and administrative expenses for each of the three months ended September 30, 2021 and 2020, respectively.

Total stock-based compensation of $ 1.1 million and $ 3.9 million was recorded in general and administrative expenses for the nine months ended September 30, 2021 and 2020, respectively.

As of September 30, 2021, there was approximately $ 382,000 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 last three months of 2021.

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.

The options expire in May 2028.

Total stock-based compensation of $ 0 and $ 34,000 was recorded in sales and marketing expense for the three and nine months ended September 30, 2020.

Upon the departure of the employee in 2020, 25,000 unvested options were forfeited and 25,000 vested option were canceled.

In June 2018, pursuant to an executed Option Agreement, the Company granted an employee options to purchase 50,000 shares of common stock with an exercise price of $ 16.65 and annual vesting beginning June 2019.

The options expire in June 2023.

During the nine months ended September 30, 2020, 37,500 unvested options were forfeited and the compensation expense of $ 43,000 was reversed from product development expense upo n the employee’s notification of departure.

In May 2019, pursuant to an executed Option Agreement, the Company granted an employee options to purchase 100,000 shares of common stock with an exercise price of $ 19.28 , of which 10,000 options vested and became exercisable in May 2019, 15,000 options vested and became exercisable in September 2019, and the remaining 75,000 will vest in three equal installments beginning in May 2021 and ending in May 2024.

The options expire in May 2024.

Total stock-based compensation of $ 44,000 was recorded in general and administrative expenses for the first quarter of 2020.

Upon the departure of the employee in the second quarter of 2020, 75,000 unvested options were forfeited, 25,000 of vested option were canceled, and the compensation expense of $ 107,000 was reversed fro m general and administrative expenses.

In September 2019, pursuant to executed Option Agreements, the Company granted six employees stock options to purchase 50,000 shares of common stock each ( 300,000 in the aggregate) with an exercise price of $ 10.79 , of which 75,000 options vest and become exercisable annually starting on September 5, 2020 and ending on December 31, 2023.

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.

Bartel did not exercise options during the three months ended March 31, 2022.

In April 2022, 540,000 options granted pursuant to the 2019 Option Agreement were exercised by Mr.

Bartel for aggregate cash proceeds of $ 1.9 million.

In September 2019, pursuant to executed Option Agreements, the Company granted six employees stock options to purchase 50,000 shares of common stock each ( 300,000 in the aggregate) with an exercise price of $ 10.79 , of which 75,000 options vest in total and become exercisable annually starting on September 5, 2020 and ending on December 31, 2023.

The options expire in September 2024.

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In 2020, 100,000 unvested options were forfeited upo n 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 approved by Travelzoo ’ s Board of Directors.

During the nine months ended September 30, 2021, 75,000 unvested options were forfeited upo n an employee’s departure, 100,000 options were exercised and 54,110 shares of common stock were issued as the result of the cashless exercises.

Total stock-based compensation related to these option grants of $ 97,000 and $ 362,000 was recorded in general and administrative expenses for the three months ended September 30, 2021 and 2020.

Total stock-based compensation related to these option grants of $ 248,000 and $ 523,000 was recorded in general and administrative expenses for the nine months ended September 30, 2021 and 2020.

As of September 30, 2021, there was approximately $ 741,000 of unrecognized stock-based compensation expense relating to these options.

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.

Total stock-based compensation related to these option grants of $ 71,000 and $ 55,000 was recorded in general and administrative expenses for the three months ended March 31, 2022 and 2021.

As of March 31, 2022, there was approximately $ 137,000 of unrecognized stock-based compensation expense relating to these options.

This amount is expected to be recognized over the next 1.4 years.

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

Total stock-based compensation related to these option grants of $ 385,000 was recorded in general and administrative expenses for each of the three months ended September 30, 2021 and 2020.

Total stock-based compensation related to these option grants of $ 1.2 million and $ 771,000 was recorded in general and administrative expenses for the nine months ended September 30, 2021 and 2020.

As of September 30, 2021, there was approximately $ 771,000 of unrecognized stock-based compensation expense relating to these options.

This amount is expected to be recognized over the next six months .

Total stock-based compensation related to these option grants of $ 385,000 was recorded in general and administrative expenses for each of the three months ended March 31, 2022 and 2021.

As of March 31, 2022, stock-based compensation related to this grant was fully expensed.

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.

The options expire in March 2025.

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

During the nine months ended September 30, 2021, 50,000 options were exercised and 24,474 shares of common stock were issued as the result of the cashless exercises.

Total stock-based compensation related to these option grants of $ 49,000 and $ 59,000 was recorded in general and administrative expenses for the three months ended September 30, 2021 and 2020.

Total stock-based compensation related to these option grants of $ 157,000 and $ 79,000 was recorded in general and administrative expenses for the nine months ended September 30, 2021 and 2020.

As of September 30, 2021, there was approximately $ 491,000 of unrecognized stock-based compensation expense relating to these options.

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.

Total stock-based compensation related to these option grants of $ 49,000 and $ 59,000 was recorded in general and administrative expenses for the three months ended March 31, 2022 and 2021.

As of March 31, 2022, there was approximately $ 393,000 of unrecognized stock-based compensation expense relating to these options.

This amount is expected to be recognized over the next 2.0 years.

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The options expire in January 2026.

Total stock-based compensation related to these option grants of $ 62,000 and $ 82,000 was recorded in general and administrative expenses for the three and nine months ended September 30, 2021 .

As of September 30, 2021, there was approximately $ 492,000 of unrecognized stock-based compensation expense relating to these options.

Total stock-based compensation related to these option grants of $ 36,000 was recorded in general and administrative expenses for the three months ended March

As of March 31, 2022, there was approximately $ 395,000 of unrecognized stock-based compensation expense relating to these options.

This amount is expected to be recognized over the next 2.8 years.

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

There is currently no outstanding stock repurchase program.

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.

The Company repurchased and retired 436,369 shares of common stock in 2019.

During the first quarter of 2020, the Company repurchased 169,602 shares of common stock for an aggregate purchase price of $ 1.2 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.

There were 395,029 shares remaining to be repurchased under this program as of September 30, 2021 .

The Company repurchased and retired 436,369 shares and 169,602 shares of common stock 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 September 30, 2021.

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

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Historically, the Company managed its business geographically and operated in three reportable segments including Asia Pacific, Europe and North America.

During the nine months ended September 30, 2021, the Company classified the results of its Asia Pacific segment as discontinued operations in its condensed consolidated financial statements for current and prior periods presented.

During the three months ended March 31, 2022, the Company classified the results of its Asia Pacific segment as discontinued operations in its condensed consolidated financial statements for current and prior periods presented.

On January 13, 2020, Travelzoo agreed to the SPA with the Sellers of Jack’s Flight Club to purchase 60 % of the Shares.

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The following is a summary of operating results by business segment (in thousands):

Three Months Ended September 30, 2021 Travelzoo North

America Travelzoo Europe Jack’s Flight Club Elimination Consolidated

Revenues from unaffiliated customers $ 9,527 $ 5,365 $ 796 $ — $ 15,688

Intersegment revenues (expenses) 136 ( 136 ) — — —

Total net revenues 9,663 5,229 796 — 15,688

Operating profit (loss) $ ( 918 ) $ 600 $ 57 $ — $ ( 261 )

Three Months Ended September 30, 2020 Travelzoo North

Three Months Ended March 31, 2022 Travelzoo North

America Travelzoo Europe Jack’s Flight Club Elimination Consolidated

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Operating profit (loss) $ 1,718 $ 178 $ 23 $ — $ 1,919

Nine Months Ended September 30, 2021 Travelzoo North

Three Months Ended March 31, 2021 Travelzoo North

America Travelzoo Europe Jack’s Flight Club Elimination Consolidated

3 unchanged sentences

Operating profit (loss) $ 39 $ ( 696 ) $ ( 110 ) $ — $ ( 767 )

Nine Months Ended September 30, 2020 Travelzoo North

America Travelzoo Europe Jack’s Flight Club Elimination Consolidated

Revenues from unaffiliated customers $ 25,805 $ 12,706 $ 2,615 $ ( 8 ) $ 41,118

Intersegment revenues (expenses) 237 ( 245 ) — 8 —

Total net revenues 26,042 12,461 2,615 — 41,118

Operating loss $ ( 6,374 ) $ ( 3,781 ) $ ( 3,013 ) $ ( 8 ) $ ( 13,176 )

Property and equipment are attributed to the geographic region in which the assets are located.

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The following is a summary of assets by business segment (in thousands):

As of September 30, 2021 Travelzoo North

As of March 31, 2022 Travelzoo North

America Travelzoo Europe Jack’s Flight Club Elimination Consolidated

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

For the nine months ended September 30, 2021 and 2020, the Company did not have any customers that accounted for 10% or more of revenue.

As of September 30, 2021 and December 31, 2020, the Company did not have any customers that accounted for 10% or more of accounts receivable.

For the three months ended March 31, 2022 and 2021, the Company did not have any customers that accounted for 10% or more of revenue.

As of March 31, 2022 and December 31, 2021, the Company did not have any customers that accounted for 10% or more of accounts receivable.

The following table sets forth the breakdown of revenues (in thousands) by category and segment.

1 unchanged sentence

Local revenue includes Local Deals vouchers and entertainment offers (vouchers and direct bookings).

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Three Months Ended

Travelzoo North America

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Jack’s Flight Club

796 987 2,543 2,615

Travelzoo Travel 16,674 12,291

1 unchanged sentence

Jack’s Flight Club

796 987 2,543 2,615

Total revenues $ 18,453 $ 14,284

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

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Three Months Ended

United States $ 10,643 $ 9,221

4 unchanged sentences

The following table sets forth property and equipment by geographic area (in thousands):

September 30, December 31,

March 31, December 31,

United States $ 329 $ 409

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

The following table provides a summary of amounts included in discontinued operations for the three and six months ended September 30, 2021 and 2020 (in thousands):

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

The following table provides a summary of amounts included in discontinued operations for the three and six months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended

Revenues $ — $ —

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Net income (loss) $ ( 11 ) $ ( 15 )

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 inter-company charges that will not continue.

$ 64,000 of cost of revenues were reclassified from the discontinued operations to continued operations and $ 7,000 of cost of revenues were reclassified from the continued operations to discontinued operations for the nine months ended September 30, 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 K.K.

8 unchanged sentences

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

The Company recognized royalties of $ 0 and 9,000 from Travelzoo Japan for the three and nine months ended September 30, 2021.

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 recognized royalties of $ 0 and $ 9,000 from Travelzoo Japan three months ended March 31, 2022 and 2021, respectively.

On August 24, 2020, the Company completed a sale of 100 % of the outstanding capital stock of Travelzoo (Singapore) Pty Ltd (“Travelzoo Singapore”), to an unaffiliated entity, Finest Hotels Pty Ltd d/b/a Travelzoo (“AUS Buyer”), which is fully owned by Mr.

3 unchanged sentences

Licensing revenue is booked with a lag of one quarter.

The Company recognized royalties of $ 2,000 from Travelzoo Singapore for 2020 or for the three and nine months ended September 30, 2021.

The Company also recorded $ 7,000 and $ 0 in licensing revenue from the licensee in Australia, New Zealand, and Singapore for the three months ended March 31, 2022 and 2021, respectively.

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 Condensed Consolidated Balance Sheets (in thousands):

September 30,

2022 December 31,

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Total liabilities from discontinued operations $ 488 $ 485

The net cash used in operating activities for the discontinued operations for the nine months ended September 30, 2021 and 2020, were as follows (in thousands):

Nine Months Ended

September 30,

The net cash used in operating activities for the discontinued operations for the three months ended March 31, 2022 and 2021, were as follows (in thousands):

Three Months Ended

Net cash used in operating activities $ ( 10 ) $ ( 37 )

2 unchanged sentences

under operating leases.

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

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

Certain leases include one or more options to renew.

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All of our leases qualify as operating leases.

The following table summarizes the components of lease expense for the three and nine months ended September 30, 2021 (in thousands):

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

The following table summarizes the components of lease expense for the three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended

Operating lease cost $ 685 $ 882

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Total lease cost $ 820 $ 1,085

For the nine months ended September 30, 2021 and 2020, cash payments against the operating lease liabilities total ed $ 3.3 million and $ 3.1 million, respectively.

ROU assets obtained in exchange for lease obligations was $ 1.8 million and $ 3.2 million for nine months ended September 30, 2021 and 2020, respectively.

For the three months ended March 31, 2022 and 2021, cash payments against the operating lease liabilities total ed $ 938,000 and $ 1.1 million, respectively.

ROU assets obtained in exchange for lease obligations was $ 0 and $ 1.0 million for three months ended March 31, 2022 and 2021, respectively.

The following table summarizes the presentation in our condensed consolidated balance sheets of our operating leases (in thousands):

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Operating lease right-of-use assets $ 6,679 $ 7,700

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Years ending December 31,

2021 (excluding the nine months ended September 30, 2021) $ 1,015

2022 (excluding the three months ended March 31, 2022) $ 2,233

Thereafter 4,275

2 unchanged sentences

Present value of operating lease liabilities $ 11,430

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.

On June 3, 2020, the parties reached a negotiated settlement:

(a) $ 1.5 million was forgiven in settlement of certain outstanding indemnification claims disputed by the Sellers;

(b) $ 6.8 million, plus accrued interest, was paid to the Sellers by Travelzoo, and (c) the remaining $ 1.7 million to be paid by June 2021 pursuant to new promissory notes with each of the Sellers that contain a 12 % interest rate $ 6.8 million and the accrued interest was paid in the second quarter of 2020, the remaining $ 1.7 million promissory note and the accrued interest was paid in the fourth quarter of 2020.

Total interest expense for the Promissory Notes of $ 142,000 was paid and recorded in Other income (loss), net in 2020.

On April 24, 2020 and May 5, 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.

8 unchanged sentences

Related Party Transactions

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 payment of $ 894,000 was made in the first quarter of 2021 and recorded in sales and marketing expenses for the nine months ended September 30, 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 prepaid expenses and other as of 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.

(“Azzurro” ).

As of March 31, 2022, Ralph Bartel is the Company's largest shareholder, holding approximately 38.0 % of the Company's outstanding shares.

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 Metaverse Travel Experiences, Inc.

f/k/a Azzurro Brands Inc., a New York corporation (the “Seller”) and 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.

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

Stock Repurchase Agreement

1 unchanged sentence

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.

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

2 unchanged sentences

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

WeGo Investment

The Company sold all of its shares in WeGo to trivago for a total purchase price of approximately $ 2.9 million, of which $ 195,000 was placed in escrow for one year .

The Company received the full escrow payment in January 2022 and recorded the gain in Other income (loss), net for the three months ended March 31, 2022.

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-Q

Item 1. Financial Statements