What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-10 compared with 2022-05-12 · 125 added, 84 removed, 269 unchanged (44% of the section changed)

18 unchanged sentences

In January 2022, the Company’s German branch of Travelzoo (Europe) Limited received the payment for approximately $1.2 million from German federal government for companies suffered Corona-related slump.

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

The Company also received j ob retention related funding from Canada was approximately $68,000 and $168,000 for three months ended March 31, 2022 and 2021, respectively, and from European locations was approximately $0 and $20,000 for three months ended March 31, 2022 and 2021, respectively.

Those fundings were recorded against salary and related expenses.

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

The Company also received other government fundings for the three months ended June 30, 2022 and 2021.

Job retention related funding from Canada was approximately $85,000 and $149,000 for the three months ended June 30, 2022 and 2021, respectively, and was approximately $153,000 and $317,000 for the six months ended June 30, 2022 and 2021, respectively.

Job retention related funding from European locations was $10,000 and $31,000 for the three and six months ended June 30, 2021, respectively.

These fundings were recorded against salary and related expenses.

The Company did not receive any job retention related funding from European locations for the three and six months ended June 30, 2022.

The Company sold all of its shares in WeGo to trivago for a total purchase price of approximately $2.9 million, of which $196,000 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.

The Company received the full escrow payment in January 2022 and recorded the gain in Other income (loss), net for the first quarter of 2022.

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

18 unchanged sentences

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

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

The expiration dates of vouchers range between July 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.

2 unchanged sentences

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 March 31, 2022, the Company had approximately $15.1 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 $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 consolidated balance sheet.

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

As of June 30, 2022, the Company had approximately $12.0 million of unredeemed vouchers that had been sold through June 30, 2022 representing the Company’s commission earned from the sale.

The Company had estimated a refund liability of $2.9 million for these unredeemed vouchers as of June 30, 2022 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 $47.9 million as of June 30, 2022 related to unredeemed vouchers.

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

89 unchanged sentences

The following table sets forth, as a percentage of total revenues, the results from our operations for the periods indicated.

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2022 2021 2022 2021

Revenues 100.0 % 100.0 % 100.0 % 100.0 %

5 unchanged sentences

General and administrative 27.2 26.5 26.3 28.8

Impairment of intangible assets and goodwill — —

Total operating expenses 77.7 68.6 76.0 75.3

Operating income (loss) 10.4 (5.3)

Other income (loss), net 7.7 (1.2)

Income (loss) from continuing operations before income taxes 18.1 (6.5)

Income tax expense (benefit) 5.2 5.2

Income (loss) from continuing operations 12.9 (11.7)

Income (loss) from discontinued operations, net of taxes (0.1) (0.1)

Net income (loss) 12.8 (11.8)

Net income (loss) attributable to non-controlling interest — (0.3)

Net income (loss) attributable to Travelzoo 12.8 % (11.5) %

Operating income 10.1 18.2 10.2 8.1

Other income, net 1.1 3.6 4.5 1.5

Income from continuing operations before income taxes 11.2 21.8 14.7 9.6

Income tax expense 5.2 6.0 5.2 5.6

Income from continuing operations 6.0 15.8 9.5 4.0

Income from discontinued operations, net of taxes — 0.2 — —

Net income 6.0 16.0 9.5 4.0

Net income attributable to non-controlling interest 0.2 0.2 0.1 —

Net income attributable to Travelzoo 5.8 % 15.8 % 9.4 % 4.0 %

Operating Metrics

28 unchanged sentences

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

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2022 2021 2022 2021

Travelzoo North America

12 unchanged sentences

Travelzoo North America

North America revenues increased $1.9 million for the three months ended March 31, 2022 from the three months ended March 31, 2021.

This increase was primarily due to $2.1 million increase in Travel revenues offset by $183,000 decrease in Local revenues.

We have seen improvement in our business and a trend of revenue recovery compared to the global pandemic time in 2022.

The increase in Travel revenue of $2.1 million was primarily due to $4.7 million increase as a result of higher revenues from Top 20 and Newsflash and $295,000 increase in hotel commission, offset partially by $3.1 million decrease in Getaways vouchers due to decrease in number of vouchers sold.

North America revenues decreased $1.6 million for the three months ended June 30, 2022 from the three months ended June 30, 2021.

This decrease was primarily due to $1.6 million decrease in Travel revenues offset partially by $22,000 increase in Local revenues.

The decrease in Travel revenue of $1.6 million was primarily due to $3.5 million decrease in Getaways revenue due to decrease in number of vouchers sold, offset partially by $2.1 million increase as a result of higher revenues from Top 20 and Newsflash.

The increase in Local revenues of $22,000 was primarily due to the increase in number of Local Deals vouchers sold.

North America revenues increased $275,000 for the six months ended June 30, 2022 from the six months ended June 30, 2021.

This increase was primarily due to $436,000 increase in Travel revenues offset by $161,000 decrease in Local revenues.

The increase in Travel revenue of $436,000 was primarily due to $6.8 million increase as a result of higher revenues from Top 20 and Newsflash , offset partially by $6.6 million decrease in Getaways revenue due to decrease in number of vouchers sold.

The decrease in Local revenues of $161,000 was primarily due to the decrease in number of Local Deals vouchers sold.

Travelzoo Europe

Europe revenues increased $2.4 million for the three months ended March 31, 2022 from the three months ended March 31, 2021.

The increase was primarily due to $2.6 million increase in Travel revenues, $43,000 increase in Local revenues, offset partially by $313,000 negative impact from foreign currency movements relative to the U.S.

The increase in Travel revenue of $2.6 million was primarily due to $1.4 million increase as a result of higher revenues from Top 20 and Newsflash, $627,000 increase in Getaways vouchers due to increase in number of vouchers sold and $267,000 increase in hotel commission.

The increase in Local revenues of $43,000 was primarily due to the increase in number of Local Deals vouchers sold.

Europe revenues increased $120,000 for the three months ended June 30, 2022 from the three months ended June 30, 2021.

The increase was primarily due to $842,000 increase in Travel revenues, offset partially by $199,000 decrease in Local revenue and $523,000 negative impact from foreign currency movements relative to the U.S.

The increase in Travel revenue of $842,000 was primarily due to $1.4 million increase as a result of higher revenues from Top 20 and Newsflash and $234,000 increase in hotel commission, offset partially by $1.2 million decrease in Getaways revenue due to decrease in number of vouchers sold.

The decrease in Local revenues of $199,000 was primarily due to the decrease in number of Local Deals vouchers sold.

Europe revenues increased $2.5 million for the six months ended June 30, 2022 from the six months ended June 30, 2021.

The increase was primarily due to $3.5 million increase in Travel revenues, offset partially by $156,000 decrease in Local revenues and $836,000 negative impact from foreign currency movements relative to the U.S.

The increase in Travel revenue of $3.5 million was primarily due to $2.8 million increase as a result of higher revenues from Top 20 and Newsflash and $501,000 increase in hotel commission, offset partially by $1.3 million decrease in Getaways revenue due to decrease in number of vouchers sold.

The decrease in Local revenues of $196,000 was primarily due to the decrease in number of Local Deals vouchers sold.

Jack’s Flight Club

1 unchanged sentence

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

Jack’s Flight Club’s revenue decreased by $64,000 for three months ended March 31, 2022 from the three months ended March 31, 2021 due to the decrease of premium members.

Jack’s Flight Club’s revenue increased by $92,000 and $28,000, respectively, for three and six months ended June 30, 2022 from the three and six months ended June 30, 2021 due to the increase of premium members.

Cost of Revenues

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

Cost of revenues was $2.8 million and $3.0 million, respectively for the three months ended March 31, 2022 and 2021.

Cost of revenues decreased $186,000 for the three months ended March 31, 2022 from the three months ended March 31, 2021 was primarily due to $447,000 decrease in credit card fees and $243,000 decrease in professional service costs, offset partially by $485,000 increase in software license costs.

Cost of revenues was $2.2 million and $2.5 million, respectively for the three months ended June 30, 2022 and 2021.

Cost of revenues was $5.0 million and $5.5 million, respectively, for the six months ended June 30, 2022 and 2021.

Cost of revenues decreased $359,000 for the three months ended June 30, 2022 from the three months ended June 30, 2021 was primarily due to $227,000 decrease in credit card fees as a result of decreased voucher sales and $133,000 decrease in network expense.

Cost of revenues decreased $545,000 for the six months ended June 30, 2022 from the six months ended June 30, 2021 was primarily due to the decrease in credit card fees as a result of decreased voucher sales.

Operating Expenses

1 unchanged sentence

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

Sales and marketing expenses were $8.6 million and $6.8 million for the three months ended March 31, 2022 and 2021, respectively.

Sales and marketing expenses were $8.5 million and $7.3 million for the three months ended June 30, 2022 and 2021, respectively.

Sales and marketing expenses were $17.1 million and $14.1 million for the six months ended June 30, 2022 and 2021, respectively.

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

For the three months ended March 31, 2022 and 2021, advertising expenses accounted for 18% and 6%, respectively, of the total sales and marketing expenses.

For the three months ended June 30, 2022 and 2021, advertising expenses accounted for 25% and 12%, respectively, of the total sales and marketing expenses.

For the six months ended June 30, 2022 and 2021, advertising expenses accounted for 21% and 8%, respectively, of the total sales and marketing expenses.

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

Sales and marketing expenses increased $1.8 million for the three months ended March 31, 2022 from the three months ended March 31, 2021 The increase was primarily due to $1.1 million increase in member acquisition costs, $390,000 increase in other marketing expenses and $195,000 increase in depreciation and amortization expenses.

Sales and marketing expenses increased $1.1 million for the three months ended June 30, 2022 from the three months ended June 30, 2021 The increase was primarily due to $910,000 increase in member acquisition costs and $159,000 increase in travel expenses.

Sales and marketing expenses increased $2.9 million for the six months ended June 30, 2022 from the six months ended June 30, 2021.

The increase was primarily due to $2.0 million increase in member acquisition costs, $506,000 increase in other marketing expenses and $389,000 increase in depreciation and amortization expenses.

Product Development

Product development expenses consist primarily of compensation for software development staff, fees for professional services, software maintenance, amortization, and facilities costs.

Product development expenses were $453,000 and $683,000 for the three months ended March 31, 2022 and 2021, respectively.

Product development expenses decreased $230,000 for the three months ended March 31, 2022 from the three months ended March 31, 2021 primarily due to decrease in facilities costs.

Product development expenses were $454,000 and $685,000 for the three months ended June 30, 2022 and 2021, respectively.

Product development expenses were $907,000 and $1.4 million for the six months ended June 30, 2022 and 2021, respectively.

Product development expenses decreased $231,000 for the three months ended June 30, 2022 from the three months ended June 30, 2021 primarily due to $109,000 decrease in payroll and payroll related expenses and $71,000 decrease in facilities costs.

Product development expenses decreased $461,000 for the six months ended June 30, 2022 from the six months ended June 30, 2021 primarily due to $167,000 decrease in salary and related expenses and $161,000 decrease in facilities costs.

General and Administrative

General and administrative expenses consist primarily of compensation for administrative and executive staff, bad debt expense, professional service expenses for audit and tax preparation, legal expenses, amortization of intangible assets, general office expense and facilities costs.

General and administrative expenses were $4.7 million and $4.6 million for the three months ended March 31, 2022 and 2021, respectively.

General and administrative expenses increased $108,000 for the three months ended March 31, 2022 from the three months ended March 31, 2021.

The increase was primarily due to $503,000 increase in payroll expenses and payroll related expenses, offset partially by the decrease of $340,000 decrease in stock-based compensation.

Other Income (Loss)

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

Other income (loss) was $1.4 million and ($166,000), respectively, for the three months ended March 31, 2022 and 2021.

The increase for the three months ended March 31, 2022 from three months ended March 31, 2021 was due primarily to the $1.2 million German federal government funding for COVID pandemic relief and $195,000 escrow payment for WeGo sale the Company received in the three months ended March 31, 2022.

General and administrative expenses were $4.8 million and $5.1 million for the three months ended June 30, 2022 and 2021, respectively.

General and administrative expenses were $9.5 million and $9.6 million for the six months ended June 30, 2022 and 2021, respectively.

General and administrative expenses decreased $245,000 for the three months ended June 30, 2022 from the three months ended June 30, 2021 primarily due to decrease in payroll and payroll related expenses.

General and administrative expenses decreased $137,000 for the six months ended June 30, 2022 from the six months ended June 30, 2021 primarily due to decrease in depreciation and amortization expenses.

Other Income, net

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

Other income, net was $195,000 and $648,000, respectively, for the three months ended June 30, 2022 and 2021.

The decrease of $489,000 for the three months ended June 30, 2022 from three months ended June 30, 2021 was due primarily to the $429,000 gain recorded in the second quarter of 2021 as the result of partial PPP loan forgiveness.

Other income, net was $1.6 million and $518,000, respectively, for the six months ended June 30, 2022 and 2021, respectively.

The increase of $1.1 million for the six months ended June 30, 2022 from the six months ended June 30, 2021 was due primarily to the $1.2 million German federal government funding for COVID pandemic relief and the $196,000 escrow payment for WeGo sale the Company received in the six months ended June 30, 2022, offset partially by the $429,000 gain recorded in the second quarter of 2021 as the result of partial PPP loan forgiveness.

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

Our income tax provision reflects federal, state and country statutory rates applicable to our worldwide income.

Income tax expense was $968,000 and $742,000, respectively, for the three months ended March 31, 2022 and 2021.

Our effective tax rate was 29% and (80)%, respectively, for the three months ended March 31, 2022 and 2021.

Our effective tax rate changed for the three months ended March 31, 2022 from 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-deductible stock compensation in the three months ended March 31, 2022.

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

Income tax expense was $928,000 and $1.1 million, respectively, for the three months ended June 30, 2022 and 2021.

Our effective tax rate was 47% and 27%, respectively, for the three months ended June 30, 2022 and 2021.

Our effective tax rate changed for the three months ended June 30, 2022 from three months ended June 30, 2021 prim arily due to other income recorded for PPP Loan forgiveness in the three months ended June 30, 2021 that is exempt from tax and changes in deferred tax assets from limitations on deductible stock-based compensation.

Income tax expense was $1.9 million for each of the six months ended June 30, 2022 and 2021.

Our effective tax rate was 36% and 58%, respectively, for the six months ended June 30, 2022 and 2021.

Our effective tax rate changed for the six months ended June 30, 2022 from the six months ended June 30, 2021 primarily due to a decrease in non-tax deductible stock compensation in the six months ended June 30, 2022.

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

Income Taxes” to the accompanying unaudited condensed consolidated financial statements for further information.

Travelzoo North America

Three Months Ended March 31,

(In thousands)

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

(In thousands) (In thousands)

Revenue $ 12,383 $ 13,985 $ 24,079 $ 23,804

1 unchanged sentence

Operating profit as a % of revenue 25.0 % 25.3 % 20.0 % 15.0 %

North America revenues increased by $1.9 million for the three months ended March 31, 2022 from the three months ended March 31, 2021 (see “Revenues” above).

North America expenses increased by $198,000 for the three months ended March 31, 2022 from the three months ended March 31, 2021.

The increase was primarily due to $561,000 increase in software license costs and $249,000 increase in marketing expenses, offset partially by $477,000 decrease in credit card fees.

Three Months Ended March 31,

(In thousands)

North America revenues decreased by $1.6 million for the three months ended June 30, 2022 from the three months ended June 30, 2021 (see “Revenues” above).

North America expenses decrease by $1.2 million for the three months ended

June 30, 2022 from the three months ended June 30, 2021.

The decrease was primarily due to $458,000 decrease in facilities costs, $313,000 decrease in payroll and payroll related expenses, $153,000 decrease in expenses from third-party partners of the Travelzoo Network, $152,000 decrease in credit card fee as a result of decreased voucher sales and $136,000 decrease in network expenses .

North America revenues i ncreased by $275,000 for the six months ended June 30, 2022 from the six months ended June 30, 2021 (see “Revenues” above).

North America expenses decreased by $963,000 for the six months ended June 30, 2022 from the six months ended June 30, 2021.

The decrease was primarily due to $629,000 decrease in credit card fee as a result of decreased voucher sales, $567,000 decrease in facilities costs and $482,000 decrease in payroll and payroll related expenses, offset partially by $555,000 increase in depreciation and amortization expenses.

Travelzoo Europe

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

(In thousands) (In thousands)

Revenue $ 4,354 $ 4,234 $ 10,288 $ 7,812

1 unchanged sentence

Operating profit (loss) as a % of revenue (33.8) % (5.4) % (12.6) % (11.8) %

Europe revenues increased by $2.4 million for the three months ended March 31, 2022 from the three months ended March 31, 2021 (see “Revenues” above).

Europe expenses increased by $1.5 million for the three months ended March 31, 2022 from the three months ended March 31, 2021.

The increase was primarily due to $899,000 increase in member acquisition costs, $171,000 increase in customer retention costs, $169,000 increase in bad debt expenses and $141,000 increase in marketing expenses.

Europe revenues increased by $120,000 for the three months ended June 30, 2022 from the three months ended June 30, 2021 (see “Revenues” above).

Europe expenses increased by $1.4 million for the three months ended June 30, 2022 from the three months ended June 30, 2021 primarily due to increase in member acquisition costs.

Europe revenues increased by $2.5 million for the six months ended June 30, 2022 from the six months ended June 30, 2021 (see “Revenues” above).

Europe expenses increased by $2.8 million for the six months ended June 30, 2022 from the six months ended June 30, 2021 primarily due to increase in member acquisition costs.

Foreign currency movements relative to the U.S.

dollar positively impacted our local currency income from our operations in Europe by approximately $9,000 for the three months ended March 31, 2022.

dollar positively impacted our local currency income from our operations in Europe by approximately $200,000 and $165,000 for the three and six months ended June 30, 2022, respectively.

Foreign currency movements relative to the U.S.

dollar negatively impacted our local currency income from our operations in Europe by approximately $61,000 for the three months ended March 31, 2021.

dollar negatively impacted our local currency income from our operations in Europe by approximately $20,000 and $79,000 for the three months ended June 30, 2021, respectively.

Jack ’ s Flight Club

Three Months Ended March 31,

(In thousands)

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

(In thousands) (In thousands)

Revenue $ 952 $ 860 $ 1,775 $ 1,747

Operating profit (loss) $ 23 $ (110)

Operating profit (loss) as a % of revenue 2.8 % (12.4) %

Jack ’ s Flight Club revenues decreased by $64,000 for the three months ended March 31, 2022 from the three months ended March 31, 2021.

Jack ’ s Flight Club expenses de creased by $197,000 for the three months ended March 31, 2022 from the three months ended March 31, 2021 primarily due to an estimate for indirect tax expenses the Company recorded during the three months ended March 31, 2021.

Operating profit $ 161 $ 170 $ 184 $ 60

Operating profit as a % of revenue 16.9 % 19.8 % 10.4 % 3.4 %

Jack ’ s Flight Club revenues increased by $92,000 for the three months ended June 30, 2022 from the three months ended June 30, 2021 (see “Revenues” above).

Jack ’ s Flight Club expenses in creased by $101,000 for the three months ended June 30, 2022 from the three months ended June 30, 2021 primarily due to an increase in marketing expenses.

Jack ’ s Flight Club revenues increased by $28,000 for the six months ended June 30, 2022 from the six months ended June 30, 2021 (see “Revenues” above).

Jack ’ s Flight Club expenses de creased by $96,000 for the six months ended June 30, 2022 from the six months ended June 30, 2021 primarily due to an estimate for indirect tax expenses the Company recorded during the six months ended June 30, 2021.

Liquidity and Capital Resources

As of March 31, 2022, we had $35.6 million in cash and cash equivalents, of which $20.1 million was held outside the U.S.

As of June 30, 2022, we had $25.6 million in cash and cash equivalents, of which $16.7 million was held outside the U.S.

in our foreign operations.

We also had $1.1 million in restricted cash, of which $360,000 was held outside the U.S.

in our foreign operations as of March 31, 2022.

in our foreign operations as of June 30, 2022.

If this cash is distributed to the U.S., we may be subject to additional U.S.

taxes in certain circumstances.

Cash and cash equivalents decreased $8.2 million from $45.0 million as of December 31, 2021 primarily due to $6.8 million cash used in operating activities and $942,000 cash used in investing activities primarily as the result of intangible assets purchases.

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

Cash, cash equivalents and restricted cash decreased $18.3 million from $45.0 million as of December 31, 2021 primarily due to $17.0 million cash used in operating activities.

As of June 30, 2022 , the Company had merchant payables of $47.9 million related to unredeemed vouchers.

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

1 unchanged sentence

Payables to merchants are generally due upon redemption of vouchers.

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

The vouchers have maturities from July 2022 through December 2025 with the majority of vouchers expiring by 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, we 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.

Based on current projections of redemption activity, we expect that cash on hand as of June 30, 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 our business is not profitable, or if our planned targets for cash flows from operations are not met, we may need to obtain additional financing to meet our working capital needs in the future.

1 unchanged sentence

The following table provides a summary of our cash flows from operating, investing and financing activities:

Three Months Ended March 31,

Six Months Ended June 30,

(In thousands)

1 unchanged sentence

Net cash used in investing activities (1,028) (84)

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

Net cash provided by (used in) financing activities 1,885 (4,760)

Effect of exchange rate changes on cash, cash equivalents and restricted cash (2,176) 697

Net increase (decrease) in cash, cash equivalents and restricted cash $ (18,309) $ 17,803

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

Net cash used in operating activities for the three months ended March 31, 2022 was $6.8 million, which primarily consisted of $8.8 million decrease in cash from changes in operating assets and liabilities and $366,000 decrease in non-cash items, offset partially by net income of $2.4 million.

The decrease in cash from changes in operating assets and liabilities was primarily due to $8.0 million decrease in merchant payables.

Adjustments for non-cash items primarily consisted of $1.4 million reversal of reserves from accounts receivable and other reserves, offset partially by $574,000 for depreciation and amortization and $542,000 for stock-based compensation.

Cash paid for income tax, net of refunds received, during the three months ended March 31, 2022 and 2021 was $259,000 and $592,000, respectively.

Net cash used in investing activities for the three months ended March 31, 2022 and 2021 was $942,000 and $7,000, respectively.

The cash used in investing activities for the three months ended March 31, 2022 was primarily consisted of the $1.0 million for purchases of intangible assets.

The cash used in investing activities for the three months ended March 31, 2021 was due to the $7,000 for purchases of property and equipment.

Net cash used in financing activities for the three months ended March 31, 2022 and 2021 was $0 and $1.6 million, respectively.

The cash used in financing activities for the three months ended March 31, 2021 was primarily due to $1.6 million paid for common stock repurchase.

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

Net cash used in operating activities for the six months ended June 30, 2022 was $17.0 million, which primarily consisted of $21.0 million decrease in cash from changes in operating assets and liabilities, offset partially by net income of $3.4 million and $609,000 increase in non-cash items.

The decrease in cash from changes in operating assets and liabilities was primarily due to $19.8 million decrease in merchant payables and $2.1 million decrease in accounts payables.

Adjustments for non-cash items primarily consisted of $1.1 million for depreciation and amortization, $1.1 million for stock-based compensation and $550,000 for deferred income tax, offset partially by $2.2 million reversal of reserves from accounts receivable and other reserves.

Net cash provided by operating activities for the six months ended June 30, 2021 was $22.0 million, which consisted of $18.2 million increase in cash from changes in operating assets and liabilities, $2.4 million in non-cash items and net income of $1.4 million.

The increase in cash from changes in operating assets and liabilities primarily consisted of $25.2 million increase in merchant payables, offset partially by $4.8 million increase in accounts receivable and $2.8 million increase in prepaid expenses and other.

Adjustments for non-cash items primarily consisted of $1.8 million of stock-based compensation.

Cash paid for income tax, net of refunds received, during the six months ended June 30, 2022 and 2021 was $771,000 and $1.4 million, respectively.

Net cash used in investing activities for the six months ended June 30, 2022 and 2021 was $1.0 million and $84,000, respectively.

The cash used in investing activities for the six months ended June 30, 2022 was primarily consisted of the $1.0 million for purchases of intangible assets.

The cash used in investing activities for the six months ended June 30, 2021 was due to the $84,000 for purchases of property and equipment.

Net cash provided by financing activities for the six months ended June 30, 2022 was $1.9 million due to proceeds from exercise of stock options.

Net cash used in financing activities for the six months ended June 30, 2021 was $4.8 million which primarily consisted of $3.1 million in taxes paid for net settlement of stock options exercise and $1.6 million paid for common stock repurchase.

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

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Litigation and claims against the Company may result in legal defense costs, settlements or judgments that could have a material impact on our financial condition.

We also have contingencies related to net unrecognized tax benefits, including interest, of approximately $1.3 million as of March 31, 2022.

We also have contingencies related to net unrecognized tax benefits, including interest, of approximately $1.5 million as of June 30, 2022.

Income Taxes” to the accompanying unaudited condensed consolidated financial statements for further information.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis