What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-31 compared with 2022-03-31 · 374 added, 351 removed, 836 unchanged (46% of the section changed)

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Consolidated Statements of Operations 51

Consolidated Statements of Comprehensive Income (Loss) 52

Consolidated Statements of Comprehensive Income 52

Consolidated Statements of Stockholders’ Equity (Deficit) 53

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Opinion on the Financial Statements

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

We have audited the accompanying consolidated balance sheets of Travelzoo and its subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income, stockholders’ equity (deficit) and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

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Accordingly, we express no such opinion.

Out audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

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

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

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

During 2022, the Company continued to offer voucher refund policy to its consumers given the ongoing restrictions on worldwide travel with certain vouchers remaining fully refundable until the voucher expires or is redeemed by the consumer.

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

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

We identified the Company’s revenue as a critical audit matter as the processes to track and record revenues are highly automated and differ between listings and rely on internally developed systems.

We identified the Company’s revenue as a critical audit matter as the processes to track and record revenues are highly automated, differ between listings and rely on internally developed systems.

These processes and internally developed systems are complex and require an increased audit effort around assessing the reliability of data and the information technology environment, including the use of our internal information technology specialists.

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

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

Additionally, we also identified the Company’s refund reserve as a critical audit matter because of certain significant assumptions management makes in

determining the estimate for future refunds, including expected refunds and redemption activity.

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

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

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• We utilized our internal information technology specialists to assist in testing the operating effectiveness of the Company’s information technology general and application controls.

We selected a sample of revenue transactions to test agreement between contractual information and reports detailing performance of the obligation.

• We selected a sample of revenue transactions to test agreement between amounts recognized to contractual agreements and other supporting information of completion of the performance obligations.

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

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

◦ Testing the Company’s process used to develop the estimate of the future refunds by comparing current year results to prior year estimates;

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

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Goodwill and Trade Name Impairment

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

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

As described in Notes 1 and 3 of the consolidated financial statements, goodwill and trade name are evaluated for impairment annually.

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

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

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

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

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

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

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

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

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

◦ Testing the reasonableness of the royalty rate by comparing them to comparable companies.

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

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

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

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

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

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

As of December 31, 2022, the Company had negative working capital of $11.9 million and cash used in operating activities was $23.1 million for the year ended December 31, 2022.

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

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

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

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

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

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

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

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

◦ management’s prior forecasts to historical results,

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◦ future forecasts to historical results and forecasted market data.

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

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

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

Stock Purchase Agreement between Travelzoo and Azzurro Capital Inc., a Related-Party

As described in Note 3 of the consolidated financial statements, the Company consummated the Stock Purchase Agreement with Azzurro Capital Inc.

(“Azzurro”) for the acquisition of Metaverse Travel Experiences, Inc.

(“MTE”), a wholly owned subsidiary of Azzurro.

Azzurro is a related party by virtue of their significant ownership of Travelzoo common stock prior to the transaction.

The Stock Purchase Agreement involved the issuance of 3,410,000 shares of Travelzoo common stock in exchange for $1.0 million of cash, a $4.8 million promissory note receivable and the transfer to the Company of all outstanding capital stock of Metaverse Travel Experiences, Inc.

We have identified the Stock Purchase Agreement between Travelzoo and Azzurro as a critical audit matter as a result of the related party relationship and the significant judgement used by the Company to determine the accounting and reporting implications of this transaction, including the accounting for the assumed net operating losses (NOL’s) acquired from MTE and the recognition of a tax indemnification asset for any losses related to the inability to utilize the NOL’s after the closing by Travelzoo.

Auditing management’s accounting for, and disclosure of, this transaction and the related uncertain tax positions involved a high degree of auditor judgment and an increased level of audit effort and was especially challenging due to the significant judgment required to assess management's evaluation of technical merits under the tax laws.

Our audit procedures related to the Company’s accounting for the MTE transaction and disclosures included the following, among others:

• We reviewed the executed agreements, including the tax indemnification provisions included in the agreement, for their accounting implications and obtained and reviewed the Company’s legal analysis of the tax indemnification provisions performed by the Company’s and external legal counsel.

• We obtained support for authorization and approval of the related party transaction through review of shareholder approval in the proxy and the minutes of the special committee of the board of directors.

• With the assistance of our tax specialist, we evaluated the reasonableness of the technical merits of the tax position related to the acquired NOL’s from MTE and the related uncertain tax positions.

• We tested the schedule of NOL’s acquired from MTE by selecting a sample of years to trace annual losses to historical tax returns filed by MTE.

• We evaluated the reasonableness of management’s assessment of this transaction as an asset acquisition and management’s allocation of the purchase price of the identified assets acquired.

• We evaluated the reasonableness of the allocation of value to the tax indemnification by comparing to contractual agreements and the legal positions provided by the Company and external legal counsel.

• We assessed the adequacy of the Company’s disclosures for this transaction in the notes to the consolidated financial statements, including the classification of the tax indemnification asset.

/s/ RSM US LLP

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Accounts receivable, less allowance for doubtful accounts of $ 1,468 and $ 2,094 as of December 31, 2022 and 2021, respectively

13,820 14,871

Prepaid income taxes 1,778 3,325

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Operating lease liabilities 2,972 3,180

PPP notes payable—current portion — 2,849

Income tax payable — 185

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Total current liabilities 47,534 87,884

PPP notes payable — 814

Deferred tax liabilities — 357

Long-term operating lease liabilities 8,326 9,111

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Common stock, $ 0.01 par value ( 20,000 shares authorized as of December 31, 2022 and 2021, respectively;

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

Treasury stock (at cost) ( 5,488 ) —

16,505 shares issued and 15,704 shares outstanding as of December 31, 2022 and 12,551 shares issued and 12,056 shares outstanding as of December 31, 2021)

Treasury stock, at cost ( 801 shares and 495 shares as of December 31, 2022 and 2021)

( 7,130 ) ( 5,488 )

Additional paid-in capital 23,274 4,415

Retained earnings (accumulated deficit) 508 ( 403 )

Tax indemnification ( 9,537 ) —

Note receivable from shareholder ( 4,753 ) —

Retained earnings 7,142 508

Accumulated other comprehensive loss ( 4,905 ) ( 3,793 )

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General and administrative 17,903 19,753

Impairment of intangible asset and goodwill — 2,920

Total operating expenses 53,039 52,637

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

Operating income (loss) 7,557 ( 1,313 )

Other income, net 2,401 4,006

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

Income tax expense (benefit) 1,778 ( 2,438 )

Income (loss) from continuing operations 915 ( 11,180 )

Income from continuing operations before income taxes 9,958 2,693

Income tax expense 3,270 1,778

Income from continuing operations 6,688 915

Loss from discontinued operations, net of tax ( 59 ) ( 13 )

Net income (loss) 902 ( 14,570 )

Net income 6,629 902

Net loss attributable to non-controlling interest ( 5 ) ( 9 )

Net income (loss) attributable to Travelzoo $ 911 $ ( 13,423 )

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

Net income attributable to Travelzoo $ 6,634 $ 911

Net income attributable to Travelzoo—continuing operations $ 6,693 $ 924

Net loss attributable to Travelzoo—discontinued operations $ ( 59 ) $ ( 13 )

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Discontinued operations $ — $ —

Net income (loss) per share—basic $ 0.08 $ ( 1.18 )

Net income per share—basic $ 0.54 $ 0.08

Income (loss) per share—diluted

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Discontinued operations $ — $ —

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

Net income per share —diluted $ 0.53 $ 0.07

Shares used in per share calculation from continuing operations—basic 12,372 11,646

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See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

Year Ended December 31,

Net income (loss) $ 902 $ ( 14,570 )

Net income $ 6,629 $ 902

Other comprehensive income (loss):

Foreign currency translation adjustment ( 1,112 ) 266

Total comprehensive income (loss) $ 1,168 $ ( 15,177 )

Total comprehensive income $ 5,517 $ 1,168

See accompanying notes to consolidated financial statements.

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Common Stock Treasury Stock Additional

Capital Retained

Capital Tax Indemnification Note Receivable from Shareholder Retained

Earnings (Accumulated Deficit) Accumulated

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Exercise of stock options and taxes paid for net share settlement 544 5 — 1,867 — — — — 1,872

Proceeds from short swing settlement — — — 46 — — — — 46

Issuance of common stock for cash, notes and other consideration, net 3,410 34 — 15,141 ( 9,537 ) ( 4,753 ) — — 885

Foreign currency translation adjustment — — — — — — — ( 1,112 ) ( 1,112 )

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Cash flows from operating activities:

Net income (loss) $ 902 $ ( 14,570 )

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

Net income $ 6,629 $ 902

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 2,189 1,820

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Impairment of intangible assets and goodwill 200 —

Gain on notes payable settlement — ( 1,500 )

Gain on sale of long-lived assets — ( 385 )

Loss on equity investment in WeGo — 474

Loss on sale of long-lived assets 47 —

Gain on sale of equity investment in WeGo ( 196 ) —

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Net foreign currency effect 232 ( 373 )

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

Provision for (reversal of) loss on accounts receivable and refund reserve ( 4,367 ) 425

Changes in operating assets and liabilities:

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Other liabilities 154 ( 596 )

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

Net cash used in operating activities ( 23,121 ) ( 8,083 )

Cash flows from investing activities:

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

Increase in note receivable — ( 430 )

Purchases of intangible assets ( 1,049 ) —

Proceeds from repayment of note receivable — 133

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Purchases of property and equipment ( 462 ) ( 29 )

Proceeds from sale of long-lived assets — 822

Net cash provided by investing activities 104 2,067

Net cash provided by (used in) investing activities ( 1,315 ) 104

Cash flows from financing activities:

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Payment of promissory notes — ( 110 )

Proceeds from PPP notes payable — 3,663

Proceeds from short swing settlement 46 —

Proceeds from issuance of common stock 1,006 —

Proceeds from exercise of stock options, net of taxes paid for net share settlement of equity awards 1,872 ( 5,560 )

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

Net cash provided by (used in) financing activities 1,282 ( 11,158 )

Effect of exchange rate changes on cash and cash equivalents ( 2,457 ) ( 259 )

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

Net decrease in cash, cash equivalents and restricted cash ( 25,611 ) ( 19,396 )

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

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Non-cash investing and financing activities:

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

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

Common stock issued for Metaverse Travel Experience, Inc.

assets $ 63 $ —

Common stock issued for note receivable from shareholder $ 4,753 $ —

Common stock issued for tax indemnification $ 9,537 $ —

See accompanying notes to consolidated financial statements.

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(a) The Company and Basis of Presentation

Travelzoo® is a global Internet media company.

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

Travelzoo (including its subsidiaries and affiliates, the “Company” or "we") is a global Internet media company.

Travelzoo® provides its 30 million members with exclusive offers and one-of-a-kind experiences personally reviewed by our deal experts around the globe.

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

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

Travelzoo's revenues are generated primarily from advertising fees.

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

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

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

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

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

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

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

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

We work in partnership with more tha n 5,000 top travel suppliers—our long-standing relationships give Travelzoo members access to irresistible offers.

Travelzoo attracts a high-quality audience of travel enthusiasts across multiple digital platforms, including email, websites, social media and mobile applications.

The Travelzoo website is visited by 5.4 million to 6.6 million unique visitors each month.

We have over 4.5 million followers on Facebook, Instagram, and Twitter.

Our Apple and Android mobile applications have been downloaded 7.4 million times.

Our most important products and services are the Travelzoo website (travelzoo.com), the Travelzoo iPhone and Android apps, the Top 20® email newsletter, the Travelzoo Network , and Jack’s Flight Club®.

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

Jack’s Flight Club is a subscription service that provides members with information about exceptional airfares.

Stock Purchase Agreement between Travelzoo and Azzurro Capital Inc.

In connection with the development of Travelzoo META, the Company acquired MTE, a wholly owned subsidiary of Azzurro Capital Inc.

("Azzurro"), and also completed a private placement of newly issued shares.

Ralph Bartel, who founded the Company, is the sole beneficiary of the Ralph Bartel 2005 Trust, which is the controlling shareholder of Azzurro.

Azzurro is the Company’s largest shareholder as of the time of this transaction and as of December 31, 2022, Azzurro and Ralph Bartel owned approximately 50.3 % the Company's outstanding shares.

On December 28, 2022, the stockholders of Travelzoo approved the issuance and sale of 3.4 million shares of common stock (the “Shares”) of Travelzoo to Azzurro, in exchange for certain consideration, and on December 30, 2022 (the “Closing Date”), the transaction was consummated.

The closing price of Travelzoo’s common stock on December 30, 2022 was $ 4.45 per share, resulting in an aggregate fair value $ 15.2 million.

The Purchase Price was paid as follows:

(a) $ 1.0 million in cash paid on the Closing Date;

(b) $ 4.8 million paid in the form of a promissory note issued on the Closing Date and payable by June 30, 2023 with accrued interest of 12 %;

and (c) the transfer to the Company of all outstanding capital stock of Metaverse Travel Experiences, Inc.

(“MTE”), which transfer was effected pursuant to a merger of MTE with a wholly-owned subsidiary of the Company on the Closing Date.

The Company recorded the $ 4.8 million promissory note as Note receivable from shareholder in the stockholders' equity section on the consolidated balance sheet as of December 31, 2022.

Accqusitions and Note 13:

Related Party Transactions in the accompanying consolidated financial statements for further information.

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 December 31, 2022, Jack’s Flight Club had 1.9 million subscribers.

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

See Note 3 to th e 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.

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

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

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

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

to be paid off in 2023.

The Company recorded this loan as short-term prepaid expense and other on the consolidated balance sheet as of December 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.

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

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

The Company recognized royalties of $ 25,000 and $ 3,000 for its licensing arrangements from AUS Buyer for the years ended December 31, 2022 and 2021, respectively.

The Company did not record royalties from Travelzoo Japan for the year ended December 31, 2022.

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

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

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

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

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(“trivago”) on December 23, 2020.

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

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

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

The performance targets were not achieved.

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

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

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

In accounting for the initial investment, the Company allocated $ 1.0 million of its purchase price to tangible assets and allocated approximately $ 485,000 of the purchase price to technology-related intangible assets to be amortized over a 3-year life.

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

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

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

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

for the sale of WeGo shares in 2020.

The Company received the full escrow payment in January 2022.

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

Per the Share Purchase Agreement, by and among Travelzoo (Europe) Limited, trivago, and the other shareholders of WeGo (the “trivago SPA”), the Company sold all of its shares in WeGo to trivago for a total purchase price of approximately $ 2.9 million , of which $ 196,000 was placed in escrow for one year.

The Company recorded $ 468,000 gain in Other income (loss), net for the sale of WeGo shares in 2020.

The Company received the full escrow payment of $ 196,000 in January 2022 and recorded the gain in Other income (loss), net for the year ended December 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 in the first quarter of 2021.

The payment was made and recorded in the first quarter of 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 for the sale of the domain name and trademark “weekend.com” in 2020.

Global funding for Pandemic

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

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

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

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

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

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

Those fundings were recorded against salary and related expenses.

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

Travelzoo funds operations primarily with revenues generated from adverting fees.

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

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

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

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

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

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

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

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

All merchant payables are classified as current, but the expiration dates of these vouchers range between January 2022 through December 2025 with the majority of vouchers expiring in 2022 and the remaining primarily expiring in 2023;

In January 2022 and July 2022, the Com pany’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 and $ 494,000 from the German Federal Government Bridging Aid III plan and Bridging Aid III+, respectively.

This program was for companies that suffered a pandemic-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 2022, respectively, and was approved by the German government in January 2022 and July of 2022.

The Company has to submit a final declaration in connection with this grant by June 30, 2023.

The Company believes it was eligible to participate in the 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 and $ 494,000 gains in Other income, net in the first and third quarters of 2022.

The Company also received job retention related government funding in 2022 and 2021.

Job retention related funding from Canada was approximately $ 164,000 and $ 400,000 for 2022 and 2021, respectively.

The Company did not receive retention related funding from European locations in 2022.

Job retention related funding from European locations was approximately $ 31,000 for 2021.

Such funding was recorded against salary and related expenses.

Travelzoo funds operations primarily with revenues generated from adverting fees and the sale of vouchers.

The global pandemic has had a significant negative effect on the Company and many of our advertisers.

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

When all merchant payables are classified as current, there is negative net working capital (which is defined as current assets minus current liabilities) of $ 11.9 million as of December 31, 2022.

C ash used in operating activities was $ 23.1 million for the year ended December 31, 2022 .

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

This refund policy has been adjusted starting April 1, 2022, back to fully refundable within fourteen days of purchase unless a surcharge is paid at the time of the voucher purchase for the right to be fully refundable.

As of December 31, 2022 , the Company has recorded merchant payables of $ 32.6 million related to unredeemed vouchers with the majority of vouchers 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.

Management’s plans include, among others, a focus on managing operating expenses while increasing revenues, as well as obtaining additional financing if required.

Revenue and net income increased for the year ended December 31, 2022 compared to the same period of last year.

The Company is expecting revenue and net income to increase for 2023 based on improving conditions for travel.

Cash and cash

equivalents were $ 18.7 million as of December 31, 2022.

Although as mentioned above, all merchant payables are classified as current, the expiration dates of these vouchers range between January 2023 through December 2025 with the majority of the vouchers expiring during 2023;

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

The Company will manage its cost and obtain additional financing if required.

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

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

However, if redemption and refund activities are more accelerated, or if we are not able to increase operating income, we may need to obtain additional financing to meet our working capital needs in the future.

Management 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.

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

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

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

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

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

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

Ralph Bartel, who founded Travelzoo, is the sole beneficiary of the Ralph Bartel 2005 Trust, which is the controlling shareholder of Azzurro.

Azzurro is the Company’s largest shareholder, and as of December 30, 2022 together with Ralph Bartel, in his individual capacity (together, the “Azzurro Parties"), holds approximately 50.3 % of the Company's outstanding shares.

Financial Statements

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All intercompany accounts and transactions have been eliminated in consolidation.

Management of the Company has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with accounting principles generally accepted in the U.S.

Significant estimates included in the consolidated financial statements and related notes include revenue recognition, refund liability, income taxes, stock-based compensation, loss contingencies, useful lives of property and equipment, purchase price allocation for the business combination and related impairment assessment, relating to the projections and assumptions used.

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

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

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

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For these customers, the Company recognizes revenues each time a user clicks on the ad.

The Company also offers advertising on other bases, such as cost-per-impression, which means that an advertiser pays the Company based on the number of times their advertisement is displayed on Travelzoo properties, email advertisement, Travelzoo Network properties, or social media properties.

The Company also offers advertising on other basis, such as cost-per-impression, which means that an advertiser pays the Company based on the number of times their advertisement is displayed on Travelzoo properties, email advertisement, Travelzoo Network properties, or social media properties.

For these customers, the Company recognizes revenues each time an ad is displayed or email delivered.

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

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.

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

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

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

At December 31, 2021, $ 1.3 million was recorded as deferred revenue for Jack's Flight Club and was fully recognized as revenue during 2022, $ 473,000 was recorded as deferred revenue for Travelzoo North America and Travelzoo Euro pe, of which $ 463,000 was recognized as revenue during 2022.

At December 31, 2022, the deferred revenue balance was $ 2.2 million, of which $ 1.2 million was for Jack's Flight Club, and the remaining $ 981,000 was for Travelzoo North America and Travelzoo Europe.

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

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

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

In the second quarter of 2020, the Company expanded its vouchers refund policy to fully refundable until the voucher expires or is redeemed by the customer.

The expiration dates of vouchers range between January 2023 through December 2025 with the majority of vouchers expiring during 2023;

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

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

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

calculate the estimated future refunds.

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

As of December 31, 2022, the Company had approximately $ 8.1 million of unredeemed vouchers that had been sold through December 31, 2022 representing the Company’s commission earned from the sale.

The Company had estimated a refund liability of $ 1.3 million for these unredeemed vouchers as of December 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.

As of December 31, 2021, the Company had approximately $ 17.2 million of unredeemed vouchers that had been sold through 2021 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 consolidated balance sheet.

The Company has recorded merchant payables of $ 32.6 million as of December 31, 2022 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.

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.

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

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

Goodwill is evaluated for impairment annually, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable.

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

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

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

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 performs an impairment test by comparing the book value of the reporting unit to the fair value of the reporting units utilizing a combination of valuation techniques, including an income approach (discounted cash flows) and market approach (guideline company method).

The Company performed its annual impairment test as of October 31, 2022 and 2021 and no impairment charge was identified in connection with the annual impairment tests.

(d) Allowance for Doubtful Accounts

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

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

doubtful accounts.

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

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

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

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

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

(h) Foreign Currency

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

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

Total foreign currency transaction net gain of $ 72,000 and $ 31,000 for 2022 and 2021, respectively, are included in Other income (loss), net in the Company’s consolidated statements of operations.

(i) Income Taxes

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For the Company, other comprehensive income (loss) includes foreign currency translation adjustments.

Total comprehensive income (loss) for all periods presented has been disclosed in the consolidated statements of comprehensive loss.

Total comprehensive income (loss) for all periods presented has been disclosed in the consolidated statements of comprehensive income.

(k) Certain Risks and Uncertainties

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

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

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

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

The outbreak of coronavirus (COVID-19) in 2020 had an unprecedented impact on the global travel and hospitality industries.

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

As the Company and many of our advertisers are part of the global travel and hospitality industries, the measures implemented to contain COVID-19 had a significant negative effect on our business, financial condition, results of operations and cash flows.

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

Additionally, there were significant levels of cancellations for the Company's hotel partners and travel package partners and refund requests for our vouchers.

Now that COVID-19 and its lingering effects have mostly subsided, we are seeing many of our advertisers and partners return to advertising with us and have altered our policies again to align with the changing environment (including reverting to a 14-day return window for vouchers and implementing a surcharge for vouchers to be fully refundable), although with the emergence of new variants, this trend could stop or even reverse which could result in a material adverse impact on our business and financial performance.

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

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

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As of December 31, 2022 and 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.

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

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

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

As of December 31, 2022 , the Company had merchant payables of $ 32.6 million related to the sale of vouchers.

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Payables to merchants are generally due upon redemption of vouchers.

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

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

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

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The Company depreciates leasehold improvements over the term of the lease or the estimated useful life of the asset, whichever is shorter.

(n) Impairment of Long-Lived Assets

(n) Impairment of Property and Equipment

The Company accounts for long-lived assets in accordance with the accounting standard relating to impairment of long-lived assets, which requires an impairment loss to be recognized on assets to be held and used if the carrying amount of a long-lived asset group is not recoverable from its undiscounted cash flows.

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

In June 2022, the FASB issued an Accounting Standard Update to clarify the fair value measurement of an equity security that is subject to a contractual sale restriction and requires specific disclosures related to such an equity security.

The new guidance is effective for fiscal years beginning after December 15, 2023, with early adoption permitted.

The Company does not expect it will have a material impact, if any, on our consolidated financial statements.

In October 2021, the FASB issued new guidance requires contract assets and contract liabilities (i.e., deferred revenue) acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers .

The new guidance is effective on a prospective basis for fiscal years beginning after December 15, 2022, with early adoption permitted.

The Company does not expect it will have a material impact, if any, on our consolidated financial statements.

Net Income (Loss) Per Share

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Year Ended December 31,

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

Net income attributable to Travelzoo—continuing operations $ 6,693 $ 924

Net loss attributable to Travelzoo—discontinued operations ( 59 ) ( 13 )

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For the year ended December 31, 2022, options to purchase 750,000 shares of common stock were not included in the computation of diluted net income per share because the effect would have been anti-dilutive.

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

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 year ended December 31, 2021, options to purchase 50,000 shares of common stock were not included in the computation of diluted net income per share because of the net loss .

Stock Purchase Agreement between Travelzoo and Azzurro Capital Inc., a Related-Party

In connection with the development of Travelzoo META, the Company acquired MTE, a wholly owned subsidiary of Azzurro Capital Inc.

("Azzurro"), and also completed a private placement of newly issued shares.

Ralph Bartel, who founded the Company, is the sole beneficiary of the Ralph Bartel 2005 Trust, which is the controlling shareholder of Azzurro.

Azzurro was the Company’s largest shareholder as of the time of this transaction, and Azzurro and Ralph Bartel owned as of December 31, 2022 approximately 50.3 % the Company's outstanding shares.

The closing price of Travelzoo’s common stock on December 30, 2022 was $ 4.45 per share, resulting in an aggregate fair value $ 15.2 million.

The Purchase Price was paid as follows:

(a) $ 1.0 million in cash paid on the Closing Date;

(b) $ 4.8 million paid in the form of a promissory note issued on the Closing Date and payable by June 30, 2023 with accrued interest of 12 %;

and (c) the transfer to the Company of all outstanding capital stock of Metaverse Travel Experiences, Inc.

(“MTE”), which transfer was effected pursuant to a merger of MTE with a wholly-owned subsidiary of the Company on the Closing Date.

The Company recorded the $ 4.8 million promissory note as Note receivable from shareholder in the stockholders' equity section on the consolidated balance sheet as of December 31, 2022.

Travelzoo acquired the entire business of MTE.

The acquisition was accounted for as an asset acquisition in accordance with ASC Topic 805 – Business Combinations.

The fair value of the consideration paid by Travelzoo and allocation of that amount to the underlying assets, on a relative fair value basis, was recorded by the Company as of the Closing Date.

Additionally, costs directly related to the MTE acquisition of $ 184,000 were capitalized as a component of the Purchase Price.

As a result of the MTE acquisition, the Company also assumed MTE’s historical net operating loss carryforwards of approximately $ 64.7 million.

While these net operating losses (NOLs) may be used to offset future taxable income, the Company determined it is appropriate to record an uncertain tax benefit liability in accordance with ASC Topic 740— Income Taxes .

Subject to the provisions of the SPA, Azzurro agreed to indemnify Travelzoo for tax related liabilities in the event of the

inability of the Company to utilize any NOLs of MTE as a result of any breach of or inaccuracy in any representation or warranty made by Azzurro, which included the representation that NOLs will be available for use by the Company after the closing for federal and analogous state income tax purposes, including pursuant to section 381(a) of the U.S.

tax code, and that, as of the date of the SPA, no NOLs of MTE are subject to any limitation, restriction or impairment on its use.

Based on the terms of the agreement, the Company believes that with the uncertain tax position recognized related to the acquired NOLs, that the Company has the right to claim losses against Azzurro if NOLs are not able to be utilized.

Therefore, the Company recorded an indemnification asset of $ 9.5 million for the relative fair value of this indemnification.

Any losses indemnified by Azzurro related to the inability to utilize MTE’s net operating loss carry forwards shall be satisfied by Azzurro returning to the Company the number of shares of common stock of Travelzoo corresponding to the value of the loss.

Accordingly, the Company has classified this tax indemnification asset as contra-equity in the accompanying consolidated financial statements.

The following table represents the allocation of the total cost of the MTE acquisition to the assets acquired (in thousands):

Consideration for MTE assets

Fair value of Travelzoo common stock issued $ 15,175

Direct transaction costs 184

Cash received from Azzurro Capital Inc.

Notes receivable from Azzurro Capital Inc.

Total consideration for MTE assets $ 9,606

Relative fair value of the assets acquired

Cash and cash equivalents $ 6

Prepaid expenses and other 45

Property and equipment 18

Tax indemnification asset 9,537

Total assets acquired $ 9,606

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

On March 3, 2022, Travelzoo (Europe) Ltd, Sucursal en España, 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 (September 2022).

The metrics were not achieved and thus no payments were made on the earn-out.

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 stockholder.

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 paid in cash upon closing in March 2022 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 ) was eliminated.

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

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

C ost 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 the database of members and recorded $ 2.2 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 in the partial forgiveness of t he 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 COVID-19 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 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 record ed 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 summarizes 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 year ended December 31, 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.

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

Non-compete agreements 660 4

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 year ended December 31, 2021 (in thousands):

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

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

Non-compete agreement (Jack's Flight Club) 660 4.0

Intangible assets (Secret Escape Spain member database) 445 3.0

Intangible assets (Secret Escape U.S.

member database) 1,751 2.3

Assets Measured at Fair Value on a Non-recurring Basis

The Company’s non-financial assets, such as goodwill, intangible assets and property and equipment, are adjusted to fair value if an impairment is recognized during the period.

The fair value measurements are based on Level 3 inputs.

Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets at fair value.

The goodwill assessment was performed by comparing the fair value of the reporting units to its carrying value.

The fair value estimates for the reporting units, were based on a blended analysis of the present value of future discounted cash flows and market value approach, using Level 3 inputs.

The indefinite-lived intangible assets assessment was valued using the relief-from-royalty method, which includes unobservable inputs, classified as Level 3, including projected revenues and approximately 5 % royalty rate.

The Company recorded a goodwill impairment of $ 2.1 million and a Trade name impairment of $ 810,000 for Jack's Flight Club due to the pandemic in the first quarter of 2020 .

No impairment charge was identified and recorded for 2021.

The Company performed its annual test as of October 31, 2022 and a Trade name impairment charge of $ 200,000 was recorded as “ General and administrative expenses ” for Jack's flight club.

The revenue for Jack's Flight Club was negatively impacted by the pandemic and did not meet the forecasted growth expectation.

No impairment charge was identified and recorded for goodwill in 2022.

Amortization of Acquired Intangible Assets

The following table represents the activities of intangible assets for the years ended December 31, 2022 and 2021 (in thousands):

Jack's Flight Club Secret Escape Spain member database Secret Escape U.S.

member database

Intangible assets—January 1, 2021 $ 4,534

Acquisition 6,620

Impairment of trade name—March 31, 2020 ( 810 )

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

Intangible assets—December 31, 2021 3,426

Acquisitions—March 2022 — $ 445 $ 1,751

Amortization of intangible assets with definite lives ( 875 ) ( 118 ) ( 778 )

Impairment of trade name—December 31, 2022 ( 200 ) — —

Intangible assets—December 31, 2022 $ 2,351 $ 327 $ 973

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

Amortization expense for acquired intangibles was $ 1.8 million and $ 1.1 million for the years ended December 31, 2022 and 2021, respectively.

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

Years ending December 31,

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 using a relief from royalty method and did not identify any additional impairment in 2020 or 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):

Year Ended December 31,

Revenues $ 53,722

Net loss $ ( 14,545 )

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;

T he 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 P romissory 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 the total payment and recorded $ 448,000 expense 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 January 2022 by the Sellers or Travelzoo, as applicable, only if the EBITDA threshold of $ 4.3 million is achieved at a purchase price equal to 40 % of 2021 EBITDA multiplied by 3.5 , and an additional payment equal to 20 % of 2021 net income if the EBITDA threshold is achieved.

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

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

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

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 i nterest expense for the P romissory Notes of $ 142,000 was paid and recorded in Other income (loss), net in 2020.

The Company performed its annual impairment testing of Trade name as of October 31, 2022 using a relief from royalty method.

As previously discussed, the Company's impairment test indicated that Jack’s Flight Club’s indefinite lived intangible assets (“Trade name”) was impaired for $ 200,000 in 2022.

No impairment was identified in 2021.

As of December 31, 2022, the carrying value of the Trade name was $ 1.5 million.

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.

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The Company used the funds from these loans only for the purposes included in the PPP, including payroll, employee benefits, and rent, and also intends to apply for forgiveness of a portion of the loans in compliance with the CARES Act.

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

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

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Balance Sheet Components

Prepaid expenses and other consist of the following (in thousands):

Prepaid expenses an d other consist of the following (in thousands):

Prepaid expenses $ 764 $ 1,620

Notes receivable — current 232 —

Deposits 153 190

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Total prepaid expenses and other $ 1,289 $ 1,891

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

Property and equipment co nsist of the following (in thousands):

Office equipment and office furniture $ 5,005 $ 7,838

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under operating leases.

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

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

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

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

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

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

The components of income (loss) before income tax expense (benefit) are as follows (in thousands):

The components of income (loss) before income tax expense are as follows (in thousands):

Year Ended December 31,

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$ 9,958 $ 2,693

Income tax expense (benefit) consists of current and deferred components categorized by federal, state and foreign jurisdictions, as shown below.

Income tax expense consists of current and deferred components categorized by federal, state and foreign jurisdictions, as shown below.

The current provision is generally that portion of income tax expense that is currently payable to the taxing authorities.

The Company makes estimated payments of these amounts during the year.

The deferred tax provision (benefit) results from changes in the Company’s deferred tax assets (future deductible amounts) and tax liabilities (future taxable amounts), which are presented in the table below:

The deferred tax provision results from changes in the Company’s deferred tax assets (future deductible amounts) and tax liabilities (future taxable amounts), which are presented in the table below:

Current Deferred Total

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Foreign tax credit — ( 270 )

Foreign equity investment — 12

PPP loan forgiveness — ( 768 )

Non-deductible stock based compensation expenses and other

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

Stock-based compensation expenses

Total income tax expense $ 3,270 $ 1,778

The tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets and liabilities are as follows (in thousands):

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(*) Amounts not charged (credited) to expenses are charged (credited) to stockholder's equity or deferred tax assets (liabilities).

As of December 31, 2021, the Company has a valuation allowance of approximately $ 8.7 million related to foreign net operating loss (“NOL”) carryforwards of approximately $ 34.8 million primarily related to the Company's Asia Pacific entities

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

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

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

As of December 31, 2022, the Company has a valuation allowance of approximately $ 4.5 million related to foreign net operating loss (“NOL”) carryforwards of approximately $ 21.3 million primarily related to the Company's Asia Pacific entities for which it is more likely than not that the tax benefit will not be realized.

The amount of the valuation allowance represented a decrease of approximately $ 4.3 million over the amount recorded as of December 31, 2021, and was due to the decrease of deferred tax assets and related release of the valuation allowance for the Travelzoo Australia, Travelzoo (Hong Kong) Limited and Travelzoo Local (Hong Kong), which liquidation were completed during the year ended December 31, 2022.

If not utilized, $ 10.9 million of the remaining foreign NOL may be carried forward indefinitely, and $ 10.4 million will exp ire at various times between 2023 and 2027.

As of December 31, 2022, the Company has US federal NOL carryforwards of $ 64.7 million as a result of the transaction with MTE, See Note 3 to the accompanying consolidated financial statements for further information.

If not utilized, $ 7.4 million may be carried forward indefinitely, and $ 57.3 million will expire at various times between 2028 and 2037.

As of December 31, 2022, the Company has state and local NOL carryforwards of $ 34.5 million, which will expire at various times between 2035 and 2042.

The Company has not recorded these net operating losses because an uncertain tax position has been recorded relating to them.

As of December 31, 2022, the Company is permanently reinvested in certain Non-U.S.

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Other comprehensive income (loss) due to foreign currency translation, net of tax ( 1,112 ) 266

Amounts reclassified from other comprehensive income (loss), net of tax — ( 599 )

Ending balance $ ( 4,905 ) $ ( 3,793 )

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

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

There were no amounts reclassified from accumulated other comprehensive income (loss) for the years ended December 31, 2022 and 2021.

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

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As of December 31, 2022, stock-based compensation related to the 2019 Option Agreement and applicable Option Agreement Amendment was fully expensed.

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

The options expire in May 2028.

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

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.

In 2020, 37,500 unvested options were forfeited and 12,500 vested option were canceled upon the departure of the employee.

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.

In 2020, 75,000 unvested options were forfeited and 25,000 of vested option were canceled upon the departure of the employee.

Bartel exercised the remaining 540,000 options granted pursuant to the 2019 Option Agreement in 2022.

The Company received 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 and become exercisable annually starting on September 5, 2020 and ending on December 31, 2023.

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

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

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

In 2021, 125,000 unvested options were forfeited upon employees’ departure, 150,000 options were exercised and 88,917 shares of common stock were issued as the result of the cashless exercises or net settlement with respect to the option exercise price which were approved by Travelzoo’s Board of Directors .

As of December 31, 2022, there was approximately $ 193,000 of unrecognized stock-based compensation expense relating to these options.

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On May 29, 2020, pursuant to an executed Option Agreement, the shareholders of the Company approved the grant of stock options to purchase 800,000 shares of common stock to Mr.

Ralph Bartel, Chairman of the Board of Directors of the Company, with an exercise price of $ 3.49 and quarterly vesting beginning June 30, 2020 and ending on March 31, 2022.

Ralph Bartel, Chairman of the Board of Directors of the Company at the time, with an exercise price of $ 3.49 and quarterly vesting beginning June 30, 2020 and ending on March 31,

The options expire in March 2025.

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

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

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

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

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

The options expire in March 2025.

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

In 2022, 50,000 unvested options were forfeited upon one employee's departure, 25,000 options were exercised and 4,676 shares of common stock were issued as the result of the cashless exercises or net settlement with respect to the option exercise price which were approved by Travelzoo’s Board of Directors.

As of December 31, 2022, there was approximately $ 123,000 of unrecognized stock-based compensation expense relating to these options.

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

In March 2022, pursuant to an executed Option Agreement, the Company granted its Global Chief Executive Officer, Holger Bartel, options to purchase 600,000 shares of common stock of the Company, with an exercise price of $ 8.14 and vesting 25 % every six months over two years beginning on June 30, 2022 and ending on December 31, 2023.

The options expire in March 2027.

This grant was approved at the 2022 Annual Meeting of the shareholders.

As of December 31, 2022, there was approximately $ 865,000 of unrecognized stock-based compensation expense relating to these options.

This amount is expected to be recognized over the next 1.0 year.

In June 2022, the Company granted an employee options to purchase 100,000 shares of common stock with an exercise price of $ 6.78 and quarterly vesting beginning on September 30, 2022 and ending on June 30, 2025 with vesting based on both time-based service condition and also performance conditions.

However, if the performance targets are not met as of the first date on which the time condition is met, the time condition may be extended by one quarter up to three times.

The options expire in June 2027.

The Company did not recognize stock-based compensation expense for this grant as the performance targets were not achieved and thus no shares were vested in 2022.

As of December 31, 2022, there was approximately $ 368,000 of unrecognized stock-based compensation expense relating to these options.

This amount is expected to be recognized over 2.5 years.

The Company recorded $ 1.8 million and $ 3.7 million of stock-based compensation in general and administrative expenses for fiscal years 2022 and 2021, respectively.

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$ 6.78 100,000 4.42 years $ 6.78 — —

$ 8.14 600,000 4.17 years $ 8.14 300,000 4.17 years

$ 9.44 50,000 3.01 years $ 9.44 12,500 3.01 years

Stock Repurchase Program

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This stock repurchase program was completed in 2021.

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

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

In June 2022, the Company announced that its Board of Directors approved a stock repurchase program authorizing the repurchase of up to 1,000,000 shares of the Company’s outstanding common stock.

In 2022, the Company repurchased 306,375 shares of common stock for an aggregate purchase price of $ 1.6 million, which were recorded as part of treasury stock as of December 31, 2022.

As of December 31, 2022, there were 693,625 shares remaining to be repurchased under this program .

Segment Reporting and Significant Customer Information

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Travelzoo Europe consists of the Company’s operations in France, Germany, Spain, and the U.K.

Jack’s Flight Club consists of subscription revenue from premium members to access and receive flight deals from Jack’s Flight Club via email or via Android or Apple mobile applications.

Jack’s Flight Club consists of subscription revenue from premium members to access and receive newsletter with flight deals from Jack’s Flight Club via email or via Android or Apple mobile applications.

Management relies on an internal management reporting process that provides revenue and segment operating profit (loss) for making financial decisions and allocating resources.

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

Travel revenue includes travel publications ( Top 20, Travelzoo website , Newsflash, Travelzoo Network ), Getaways vouchers, hotel platform and vacation packages.

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

Travel revenue includes travel publications (such as Top 20, Travelzoo website , Travelzoo Network ), Getaways vouchers, hotel platform and vacation packages.

Local revenue includes Local Deals vouchers and entertainment offers.

Year Ended December 31,

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United Kingdom 15,795 13,473

Germany 5,148 4,853

Rest of the world 11,653 10,750

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Related Party Transactions

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

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

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

As of December 31, 2022, Azzurro is the Company's largest stockholder, and together with Ralph Bartel, in his individual capacity (together, the "Azzurro Parties"), hold approximately 50.3 % of the Company's outstanding shares.

Holger Bartel, the Company's Global Chief Executive Officer, is Ralph Bartel's brother and holds approximately 3.3 % of the Company's outstanding shares.

Stock Purchase Agreement between Travelzoo and Azzurro Capital Inc.

In connection with the development of Travelzoo META, the Company acquired MTE, a wholly owned subsidiary of Azzurro, and also completed a private placement of newly issued shares.

Ralph Bartel, who founded the Company, is the sole beneficiary of the Ralph Bartel 2005 Trust, which is the controlling shareholder of Azzurro.

Azzurro was the Company’s largest shareholder as of the time of this transaction and as of December 31, 2022 owned approximately 50.3 % the Company's outstanding shares.

The closing price of Travelzoo’s common stock on December 30, 2022 was $ 4.45 per share, resulting in an aggregate fair value $ 15.2 million.

The Purchase Price was paid as follows:

(a) $ 1.0 million in cash paid on the Closing Date;

(b) $ 4.8 million paid in the form of a promissory note issued on the Closing Date and payable by June 30, 2023 with accrued interest of 12%;

and (c) the transfer to the Company of all outstanding capital stock of Metaverse Travel Experiences, Inc.

(“MTE”), which transfer was effected pursuant to a merger of MTE with a wholly-owned subsidiary of the Company on the Closing Date.

The Company recorded the $ 4.8 million promissory note as Note receivable from shareholder in the stockholders' equity section on the consolidated balance sheet as of December 31, 2022.

Service Agreement with Metaverse Travel Experiences, Inc.

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

(“MTE”), formerly Azzurro Brands Inc.

Azzurro Capital Inc.

is the Company’s largest shareholder.

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

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

$ 250,000 was paid to MTE from Travelzoo (Asia) Limited in 2022 for Metaverse experiences which was expensed as Sales and marketing expenses in 2022 .

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

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

No commission was paid to MTE in 2022.

Upon consummation of the Stock Purchase Agreement between the Company and Azzurro Capital Inc.

as described above, the Service Agreement was terminated.

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.

and subsequent Asset Purchase Agreement

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

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.

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

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.

to purchase the database previously utilized by Travelzoo in accordance with the License Agreement.

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

Stock Option Agreement

In March 2022, the Compensation Committee of the Board of Directors granted Holger Bartel 600,000 stock options that vest through December 31, 2023.

This grant was approved by the stockholders of the Company at the 2022 Annual Meeting of Stockholders.

Holger Bartel is the brother of Ralph Bartel and is our Global Chief Executive Officer.

See Note 10 above for further information.

Profits from Sale and Purchase of Travelzoo Common Stock within Six Month Period

Holger Bartel completed sales and purchases of 25,000 shares of Travelzoo common stock within a six month period ended July 29, 2022.

Per Section 16(b) of Securities and Exchange Act, he agreed to immediately remit to the Company $ 46,000 in profits gained from these transactions in 2022.

Stock Repurchase Agreement

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

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

In October 2017, the Company granted Mr.

Bartel options to purchase 400,000 shares of common stock, with an exercise price of $ 6.95 and quarterly vesting beginning on March 31, 2018 (the “2017 Option Agreement”).

During 2019, 250,000 options granted pursuant to the 2017 Option Agreement were exercised by Mr.

The remaining 150,000 options are fully vested.

In September 2019, the Company granted Mr.

Bartel options to purchase 400,000 shares of common stock subject to shareholder approval, with an exercise price of $ 10.79 and quarterly vesting beginning on March 31, 2020 and ending on December 31, 2021 (the “2019 Option Agreement” and together with the 2015 Option Agreement and the 2017 Option Agreements, the “Bartel Option Agreements”).

On May 29, 2020, the shareholders of the Company approved certain amendments to the Bartel Option Agreements, which increased and repriced all outstanding, unexercised options granted to Mr.

Bartel (the “Option Agreement Amendments”).

The exercise price for the options was repriced to the official NASDAQ closing share price on March 30, 2020 (the date of execution of the Option Agreement Amendments), which was $ 3.49 .

Additionally, the Option Agreement Amendments made the following increases:

(a) 400,000 additional options to purchase the Company’s common stock pursuant to the 2015 Option Agreement, (b) 150,000 additional options to purchase the Company’s common stock pursuant to the 2017 Option Agreement, and (c) 400,000 additional options to purchase the Company’s common stock pursuant to the 2019 Option Agreement, which resulted in a total of 1,900,000 options granted to Mr.

Bartel pursuant to the Option Agreement Amendments.

Bartel’s amended options pursuant to the 2015 Option Agreement and the 2017 Option Agreement were fully vested upon the execution of the applicable Option Agreement Amendment.

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

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

WeGo agreed to pay in a lump sum the remaining

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

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

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

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

Holger Bartel at a price of $ 7.80 based on the closing price of October 21, 2020.

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

Holger Bartel had previously granted a proxy to Azzurro with power to vote these shares.

Azzurro had reported those shares as beneficially owned by it because of the voting power, although it disclaimed beneficial ownership and had no pecuniary interest in the shares.

This related party transaction was reviewed and approved in advance by the Audit Committee of the Board of Directors of the Company.

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

1 unchanged sentence

under operating leases.

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

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

Certain leases include one or more options to renew.

45 unchanged sentences

Net loss from discontinued operations $ ( 59 ) $ ( 13 )

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

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

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

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

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

1 unchanged sentence

T he parties also entered into a License Agreement, whereby the Travelzoo Japan obtained a license to use the intellectual property of Travelzoo exclusively in Japan in exchange for quarterly royalty payments based on revenue over a 5-year term, with an option to renew.

However, Travelzoo Japan is only obligated to pay Travelzoo if Travelzoo Japan has a positive EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted pro forma before royalty expenses, according to Travelzoo Japan’s income statement.

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

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 Japan Buyer repaid $ 133,000 in 2021 and the remaining will be paid off in 2023.

The Company did not receive any royalties from Travelzoo Japan for the year ended December 31, 2022.

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

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

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

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

The Company recognized royalties of $ 25,000 and $ 3,000 for its licensing arrangements from AUS Buyer for the years ended December 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 Consolidated Balance Sheets (in thousands):

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Cash, cash equivalents and restricted cash $ 10 $ 32

Accounts receivable, net — 69

Prepaid expenses and other 1 39

Deposits and other — —

Operating lease right-of-use assets — —

Property and equipment, net — —

Total assets from discontinued operations $ 11 $ 71

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Accrued expenses and other 13 —

Income tax payable 24 —

Deferred revenue 12 12

Operating lease right-of-use liabilities — —

Total liabilities from discontinued operations $ 452 $ 485

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Net cash used in operating activities $ ( 21 ) $ ( 114 )

Net cash used in investing activities $ — $ —

Non-Controlling Interest

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Non-controlling interest—January 1, 2021 $ 4,609

Acquisition including put/call option 5,756

Net loss attributable to non-controlling interest ( 9 )

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Non-controlling interest—December 31, 2022 $ 4,595

Subsequent Events

German Government Fund for Pandemic

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

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

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

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

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

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

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

Service Agreement with Metaverse Travel Experiences, Inc.

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

(“MTE”), formerly Azzurro Brands Inc.

Azzurro Capital Inc.

is the Company’s largest shareholder.

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

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

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

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

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

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

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

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

Asset Purchase Agreement between Metaverse Travel Experiences, Inc.

f/k/a Azzurro Brands Inc.

and Travelzoo

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

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

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

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

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

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

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

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data