What changed in this filing

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Item 1. Financial Statements

2023-05-12 compared with 2022-11-14 · 315 added, 325 removed, 578 unchanged (53% of the section changed)

2 unchanged sentences

(In thousands, except par value)

September 30,

2023 December 31,

1 unchanged sentence

Cash and cash equivalents $ 19,138 $ 18,693

Accounts receivable, less allowance for doubtful accounts of $ 1,755 and $ 2,094 as of September 30, 2022 and December 31, 2021, respectively

Accounts receivable, less allowance for doubtful accounts of $ 1,386 and $ 1,468 as of March 31, 2023 and December 31, 2022, respectively

13,672 13,820

1 unchanged sentence

Prepaid expenses and other 1,764 1,289

Prepaid expenses—related party — 1,150

Assets from discontinued operations 10 11

8 unchanged sentences

Total assets $ 66,267 $ 67,274

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

4 unchanged sentences

Operating lease liabilities 2,682 2,972

Income tax payable — 185

Liabilities from discontinued operations 453 452

7 unchanged sentences

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

13,091 shares issued and 12,551 shares issued as of September 30, 2022 and December 31, 2021)

Treasury stock (at cost, 695 shares at September 30, 2022 and 495 shares at December 31, 2021)

16,505 shares issued and 15,669 shares outstanding and 16,505 shares issued and 15,704 outstanding as of March 31, 2023 and December 31, 2022, respectively)

Treasury stock (at cost, 836 shares at March 31, 2023 and 801 shares at December 31, 2022)

( 7,316 ) ( 7,130 )

Additional paid in capital 23,670 23,274

Tax indemnification ( 9,537 ) ( 9,537 )

Note receivable from shareholder ( 4,753 ) ( 4,753 )

Retained earnings 10,815 7,142

Accumulated other comprehensive loss ( 4,825 ) ( 4,905 )

Total stockholders’ equity (deficit) 616 ( 4,232 )

Total liabilities and stockholders’ equity (deficit) $ 68,320 $ 99,727

Total stockholders’ equity 8,219 4,256

Total liabilities and stockholders’ equity $ 66,267 $ 67,274

See accompanying notes to unaudited condensed consolidated financial statements.

1 unchanged sentence

(In thousands, except per share amounts)

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

Revenues $ 21,601 $ 18,453

6 unchanged sentences

Total operating expenses 14,199 13,702

Operating income (loss) 273 ( 261 ) 3,973 2,448

Operating income 4,711 1,919

Other income, net 350 1,423

2 unchanged sentences

Income from continuing operations 3,683 2,374

Income (loss) from discontinued operations, net of taxes 5 ( 19 ) 4 ( 5 )

Loss from discontinued operations, net of taxes ( 2 ) ( 11 )

Net income 3,681 2,363

Net income (loss) attributable to non-controlling interest 2 8 36 ( 1 )

Net income attributable to non-controlling interest 8 4

Net income attributable to Travelzoo $ 3,673 $ 2,359

Net income attributable to Travelzoo—continuing operations $ 3,675 $ 2,370

Net income (loss) attributable to Travelzoo—discontinued operations $ 5 $ ( 19 ) $ 4 $ ( 5 )

Net loss attributable to Travelzoo—discontinued operations $ ( 2 ) $ ( 11 )

Income (loss) per share—basic

11 unchanged sentences

See accompanying notes to unaudited condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

Net income $ 3,681 $ 2,363

Other comprehensive income (loss):

Other comprehensive income:

Foreign currency translation adjustment 80 ( 138 )

Total comprehensive income (loss) $ ( 14 ) $ 2,430 $ 2,667 $ 4,365

Total comprehensive income $ 3,761 $ 2,225

See accompanying notes to unaudited condensed consolidated financial statements.

1 unchanged sentence

(In thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities:

5 unchanged sentences

Loss on long-lived assets — 38

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

Gain on equity investment in WeGo — ( 196 )

12 unchanged sentences

Cash flows from investing activities:

Proceeds from repayment of note receivable 39 —

Purchases of intangible assets — ( 1,049 )

4 unchanged sentences

Repurchase of common stock ( 186 ) —

Payment of notes payables — ( 110 )

Proceeds from short swing settlement 46 —

Exercise of stock options, net of taxes paid for net share settlement 1,885 ( 5,424 )

Net cash provided by (used in) financing activities 761 ( 7,117 )

Net cash used in financing activities ( 186 ) —

Effect of exchange rate changes on cash, cash equivalents and restricted cash 171 ( 524 )

4 unchanged sentences

Cash paid for income taxes, net $ 74 $ 259

Right-of-use assets obtained in exchange for lease obligations—operating leases $ — $ 1,777

Cash paid for amounts included in the measurement of lease liabilities $ 860 $ 938

4 unchanged sentences

Common Stock Treasury Stock Additional

Capital Retained

Capital Tax Indemnification Note Receivable from Shareholder Retained

Earnings Accumulated

2 unchanged sentences

Shares Amount

Balances, June 30, 2022 13,091 $ 131 $ ( 5,488 ) $ 7,426 $ 3,895 $ ( 4,533 ) $ 1,431

Stock-based compensation expense — — 325 — — 325

Repurchase of common stock — — ( 1,170 ) — — ( 1,170 )

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

Foreign currency translation adjustment — — — — ( 811 ) ( 811 )

Net income–Travelzoo — — — 795 — 795

Balances, September 30, 2022 13,091 $ 131 $ ( 6,658 ) $ 7,797 $ 4,690 $ ( 5,344 ) $ 616

Common Stock Treasury Stock Additional

Capital Accumulated Deficit Accumulated

Comprehensive

Stockholders’

Equity (Deficit)

Shares Amount

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

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

Exercise of stock options and taxes paid for net share

settlement of equity awards 329 3 — ( 2,527 ) — — ( 2,524 )

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

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

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

Common Stock Treasury Stock Additional

Capital Accumulated Deficit Accumulated

Comprehensive

Stockholders’

Equity (Deficit)

Shares Amount

Balances, January 1, 2023 16,505 $ 165 $ ( 7,130 ) $ 23,274 $ ( 9,537 ) $ ( 4,753 ) $ 7,142 $ ( 4,905 ) $ 4,256

Stock-based compensation expense — — 396 — — — — 396

Exercise of stock options and taxes paid for net share

settlement of equity awards 540 5 — 1,880 — — 1,885

Repurchase of common stock — — ( 186 ) — — — — ( 186 )

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

Foreign currency translation adjustment — — — — — — 80 80

Net income–Travelzoo — — — — — 3,673 — 3,673

Balances, September 30, 2022 13,091 $ 131 $ ( 6,658 ) $ 7,797 $ 4,690 $ ( 5,344 ) $ 616

Balances, March 31, 2023 16,505 $ 165 $ ( 7,316 ) $ 23,670 $ ( 9,537 ) $ ( 4,753 ) $ 10,815 $ ( 4,825 ) $ 8,219

Common Stock Treasury Stock Additional

Capital Accumulated Deficit Accumulated

Capital Tax Indemnification Note Receivable from Shareholder Retained

Earnings Accumulated

Comprehensive

Stockholders’

Equity (Deficit)

Shares Amount

1 unchanged sentence

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

Repurchase of common stock — — ( 1,583 ) — — — ( 1,583 )

Exercise of stock options and taxes paid for net share

settlement of equity awards 558 4 — ( 5,595 ) — — ( 5,591 )

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

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

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

See accompanying notes to unaudited condensed consolidated financial statements.

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

NOTES TO CONDENSED 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 Top 20® and Newsflash email alert service include 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 .

On March 14, 2022, we announced the creation of our new Metaverse division and the plan to begin the launch of our Travelzoo META subscription-based service that will provide members with exclusive access to the latest and best Metaverse travel experiences.

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 than 5,000 top travel suppliers—our long-standing relationships give Travelzoo members access to irresistible offers.

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.

We also license Travelzoo products and our intellectual property to licensees in various countries in Asia Pacific, including but not limited to Australia, Japan and Southeast Asia.

In March 2022, we announced the development of Travelzoo META, a subscription service that intends to provide members with exclusive access to innovative, high quality Metaverse travel experiences.

On December 30, 2022, we acquired Metaverse Travel Experiences, Inc., now Metaverse Travel Experiences, LLC (“MTE”), a Metaverse experience scouting business to support Travelzoo META.

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 of $ 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 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.

Acquisitions in the unaudit ed condensed consolidated financial statements for further information.

Jack’s Flight Club

1 unchanged sentence

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

As of September 30, 2022, Jack’s Flight Club h ad 1.8 million subscribers.

As of March 31, 2023, Jack’s Flight Club h ad 2.0 million subscribers.

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

3 unchanged sentences

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

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

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

1 unchanged sentence

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

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

The Company recorded this loan as long-term other assets on the condensed consolidated balance sheet as of September 30, 2022.

An interest free loan was provided to the licensee for JPY 46 million (approximately $ 430,000 ), of which $ 133,000 was repaid in 2021, $ 39,000 was repaid during the three months

ended March 31, 2023, and the remaining expected to be paid off in 2023.

The Company recorded this loan as current prepaid expense and other on the condensed consolidated balance sheet as of March 31, 2023.

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

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

The Company did not recognize any royalty from Travelzoo Japan for the nine months ended September 30, 2022.

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

The Company recognized royalties of $ 8,000 and $ 2,000 for its licensing arrangements from the licensee in Australia for the three months ended September 30, 2022 and 2021, respectively.

The Company recognized royalties of $ 18,000 and $ 2,000 for its licensing arrangements from the licensee in Australia for the nine months ended September 30, 2022 and 2021, respectively.

The Company recognized royalties of $ 8,000 and $ 5,000 for its licensing arrangements from the licensee in Australia for the three months ended March 31, 2023 and 2022, respectively.

The Company did not recognize any royalty from Travelzoo Japan for the three months ended March 31, 2023 and 2022.

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

WeGo Investment

The Company previously held a minority share equal to 33.7 % in weekengo GmbH ("WeGo"), which the Company sold to trivago N.V.

(“trivago”) on December 23, 2020.

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 in January 2022 and recorded the gain in Other income (loss), net for the nine months ended September 30, 2022.

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

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

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

Government funding

In January 2022 and July 2022, the Company’s German branch of Travelzoo (Europe) Limited, a wholly-owned subsidiary of the Company (“Travelzoo Germany”), received the notification and payment of approximately $ 1.2 million and $ 494,000 , respectively, from the German Federal Government Bridging Aid III plan.

In January 2022 and July 2022, the Company’s German branch of Travelzoo (Europe) Limited, a wholly-owned subsidiary of the Company (“Travelzoo Germany”), received the notification and payment of approximately $ 1.2 million 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 Corona-related decrease in sales of at least 30% in one month compared to the reference month in 2019.

2 unchanged sentences

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 other government fundings for the three and nine months ended September 30, 2022 and 2021.

Job retention related funding from Canada was approximately $ 10,000 and $ 64,000 for the three months ended September 30, 2022 and 2021, respectively, and was approximately $ 164,000 and $ 381,000 for the nine months ended September 30, 2022 and 2021, respectively.

Job retention related funding from European locations was $ 0 and $ 31,000 for the three and nine months ended September 30, 2021.

These fundings were recorded against salary and related expenses.

The Company did not receive any job retention related funds from European locations for the nine months ended September 30, 2022.

Travelzoo funds its operations primarily with revenues generated from advertising fees.

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

The Company recorded $ 1.2 million and $ 494,000 gains in Other income, net in the first and third quarters of 2022, respectively.

The Company also received $ 68,000 job retention related funding from Canada in the three months ended March 31, 2022.

Such funding was recorded against salary and related expenses.

The Company did not receive job retention related funding in the three months ended March 31, 2023.

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

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

When all merchant payables are classified as current, there is negative net working capital (which is defined as current assets minus current liabilities) of $ 17.4 million as of September 30, 2022.

Cash used in operating activities was $ 20.8 million for the nine months ended September 30, 2022.

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

When all merchant payables are classified as current, there is negative net working capital (which is defined as current assets minus current liabilities) of $ 6.0 million as of March 31, 2023.

Cash provided by operating activities was $ 535,000 for the three months ended March 31, 2023.

In response to the global pandemic which severely limited travel , Travelzoo adjusted its refund policy in the second quarter of 2020 so that vouche rs were fully refundable until expiration or redemption by the customer.

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

As of September 30, 2022, the Company has recorded merchant payables of $ 38.2 million related to unredeemed vouchers with the majority of vouchers expiring during 2023.

As of March 31, 2023, the Company has recorded merchant payables of $ 28.0 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 nine months ended September 30, 2022 compared to the same period of last year.

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

Cash and cash equivalents were $ 19.5 million as of September 30, 2022.

Although as mentioned above, all merchant payables are classified as current, the expiration dates of these vouchers range between October 2022 through December 2025 with the majority of the vouchers expiring during 2023;

Revenue and net income increased for the three months ended March 31, 2023 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 $ 19.1 million as of March 31, 2023.

Although as mentioned above, all merchant payables are classified as current, the expiration dates of these vouchers range between April 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 costs and obtain additional financing if required.

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.

1 unchanged sentence

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

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

As of September 30, 2022 , Ralph Bartel is the Company's largest shareholder, holding approximately 36.3 % of the Company's outstanding shares.

Holger Bartel, the Company's Global Chief Executive Officer, is Ralph Bartel's brother and holds approximately 4.2 % 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 March 31, 2023 together with Ralph Bartel, in his individual capacity (together, the “Azzurro Parties"), holds approximately 50.5 % of the Company's outstanding shares.

Financial Statements

8 unchanged sentences

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

We have reclassified prior period financial statements to conform to the current period presentation.

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.

1 unchanged sentence

Actual results could differ materially from those estimates.

The results of operations for the nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or any other future period, and the Company makes no representations related thereto.

The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 or any other future period, and the Company makes no representations related thereto.

(b) Recent Accounting Pronouncements

7 unchanged sentences

Entities are required to apply this update on a modified retrospective basis with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption.

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

The Company adopted the ASU prospectively on January 1, 2023.

This ASU has not and is currently not expected to have a material impact on our consolidated financial statements.

5 unchanged sentences

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

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

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

11 unchanged sentences

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.

In the second quarter of 2020, the Company expanded its vouchers refund policy in response to pandemic travel restrictions 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.

As of December 31, 2021, $ 1.3 million was recorded as deferred revenue for Jack's Flight Club, of which $ 193,000 and $ 1.1 million was recognized in the three and nine months ended September 30, 2022, respectively, $ 473,000 was recorded as deferred revenue for Travelzoo North America and Travelzoo Europe, of which $ 249,000 and $ 465,000 was recognized as revenue in the three and nine months ended September 30, 2022, respectively.

As of September 30, 2022, the deferred revenue balance was $ 2.5 million, of which $ 1.3 million was for Jack's Flight Club and the remaining $ 1.2 million was for Travelzoo North America and Travelzoo Europe.

As of December 31, 2022, $ 1.2 million was recorded as deferred revenue for Jack's Flight Club, of which $ 630,000 was recognized in the three months ended March 31, 2023, $ 981,000 was recorded as deferred revenue for Travelzoo North America and Travelzoo Europe, of which $ 250,000 was recognized as revenue in the three months ended March 31, 2023 .

As of March 31, 2023, the deferred revenue balance was $ 3.1 million, of which $ 1.9 million was for Jack's Flight Club and the remaining $ 1.2 million was for Travelzoo North America and Travelzoo Europe.

Reserve for Refunds to Members

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

The expiration dates of vouchers range between October 2022 through December 2025 with the majority of vouchers expiring during 2023;

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.

The expiration dates of vouchers range between April 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.

2 unchanged sentences

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

As of September 30, 2022, the Company had approximately $ 9.6 million of unredeemed vouchers that had been sold through September 30, 2022, representing the Company’s commission earned from the sale.

The Company had estimated a refund liability of $ 1.9 million for these unredeemed vouchers as of September 30, 2022, which is recorded as a reduction of revenues and is reflected as a current liability in accrued expenses and other on the condensed consolidated balance sheet.

As of March 31, 2023, the Company had approximately $ 7.0 million of unredeemed vouchers that had been sold through March 31, 2023, representing the Company’s commission earned from the sale.

The Company had estimated a refund liability of $ 785,000 for these unredeemed vouchers as of March 31, 2023, which is recorded as a reduction of revenues and is reflected as a current liability in accrued expenses and other on the condensed consolidated balance sheet.

As of December 31, 2022, the Company had approximately $ 8.1 million of unredeemed vouchers that had been sold through 2022 representing the Company’s commission earned from the sale and estimated a refund liability of $ 1.3 million for these unredeemed vouchers as of December 31, 2022, which was recorded as a reduction of revenues and was reflected as a current liability in accrued expenses and other on the condensed consolidated balance sheet.

The Company has recorded Merchant Payables of $ 38.2 million as of September 30, 2022 related to unredeemed vouchers.

The Company has recorded Merchant Payables of $ 28.0 million as of March 31, 2023 related to unredeemed vouchers.

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

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

The Company did no t identify any indicators of impairment during the nine months ended September 30, 2022 and 2021.

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

3 unchanged sentences

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

The Company did no t identify any indicators of impairment during the nine months ended September 30, 2022 and 2021 .

The Company did no t identify any indicators of impairment during the three months ended March 31, 2023 .

Operating Leases

9 unchanged sentences

The Company also has a real estate lease agreement which is subleased to a third party.

The Company recognizes sublease income in “Other income (loss), net”, on a straight-line basis over the lease term in its condensed consolidated statements of income.

The Company recognizes sublease income in “Other income, net”, on a straight-line basis over the lease term in its condensed consolidated statements of operations.

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 had and is continuing to have an unprecedented impact on the global travel and hospitality industries, with certain side effects such as inflation, travel supply and demand disparities and political unrest still lingering.

While many countries have lifted travel bans, mandatory quarantine requirements and other COVID-related restrictions which impeded travel, the situation is constantly changing and there continues to be a risk that countries will again impose COVID-related restrictions if cases begin to increase again.

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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and internationally.

As of September 30, 2022 and December 31, 2021, the Company did not have any customers that accounted for 10% or more of accounts receivables.

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

The measures implemented related to COVID 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.

While these effects are beginning to subside, we cannot predict with certainty how various countries and governments will react if cases increase again.

We also cannot predict how the economic side effects of the pandemic, including but not limited to inflation, increased oil prices, increased demand with decreased supply for travel and volatile currency fluctuations, in each case, across various countries, which impact travel and consumer behavior, will resolve.

It is therefore 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 September 30, 2022, the Company had merchant payables of $ 38.2 million related to the sale of vouchers.

As of March 31, 2023 and December 31, 2022, the Company did not have any customers that accounted for 10% or more of accounts receivables.

As of March 31, 2023, the Company had merchant payables of $ 28.0 million related to the sale of vouchers.

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

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Payables to merchants are generally due upon redemption of vouchers.

The vouchers expire between October 2022 through December 2025 with the majority of vouchers expiring during 2023;

The vouchers expire between April 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.

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

Based on current projections of redemption activity, management expect that cash on hand as of September 30, 2022 will be sufficient to provide for working capital needs for at least the next twelve months.

Based on current projections of redemption activity, management expect that cash on hand as of March 31, 2023 will be sufficient to provide for working capital needs for at least the next twelve months.

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

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

September 30, December 31,

March 31, December 31,

Cash and cash equivalents $ 19,138 $ 18,693

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Total cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows $ 19,826 $ 19,378

The Company’s restricted cash was included in noncurrent assets as of September 30, 2022 and December 31, 2021.

The Company’s restricted cash was included in noncurrent assets as of March 31, 2023 and December 31, 2022.

Net Income Per Share

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

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

Net income attributable to Travelzoo—continuing operations $ 3,675 $ 2,370

Net income (loss) attributable to Travelzoo—discontinued operations $ 5 $ ( 19 ) $ 4 $ ( 5 )

Net loss attributable to Travelzoo—discontinued operations $ ( 2 ) $ ( 11 )

Weighted average common shares—basic 15,697 12,056

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Net income (loss) per share—diluted $ 0.23 $ 0.19

For the three and nine months ended September 30, 2022, options to purchas e 850,000 shares and 750,000 shares of common stock, respectively, were not included in the computation of diluted net income per share because the effect would have been anti-dilutive.

For the three and nine months ended September 30, 2021, options to purchase 50,000 shares of common stock were not included in the computation of diluted net income per share because the effect would have been anti-dilutive.

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

For the three months ended March 31, 2023 and 2022, options to purchas e 950,000 shares and 50,000 shares of common stock, respectively, were not included in the computation of diluted net income per share because the effect would have been anti-dilutive.

Stock Purchase Agreement (“SPA”) 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, 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.

On December 28, 2022, the stockholders of Travelzoo approved the issuance and sale of 3.4 million Shares of Travelzoo to Azzurro, in exchange for certain consideration, and on 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 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 records the $ 4.8 million promissory note as Note receivable from shareholder in the stockholders' equity section on the condensed consolidated balance sheets as of March 31, 2023 and 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 condensed 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) Ltd, 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.

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On March 17, 2022, the Company, as Buyer, entered into an Asset Purchase Agreement (the “APA”) with Metaverse Travel Experiences, Inc.

f/k/a Azzurro Brands Inc., a New York corporation (the “Seller”) and a wholly-owned subsidiary of Azzurro Capital Inc., the Company’s largest shareholder.

f/k/a Azzurro Brands Inc., a New York corporation (the “Seller”) and a wholly-owned subsidiary of Azzurro, the Company’s largest shareholder.

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

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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 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.

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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.

Travelzoo acquired 60 % of 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.

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

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

The Company performed an annual impairment test in October did not identify any further indicators of impairment as of December 31, 2022.

The Company also did not identify any indicators of impairment during the nine months ended September 30, 2022 .

The Company also did not identify any indicators of impairment during the three months ended March 31, 2023 .

Intangible Assets

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

Non-compete agreements 660 4.0

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

Intangible assets (Secret Escape Spain member database) 445 3.0

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

The following table represents the activities of intangible assets for the three and nine months ended September 30, 2022 (in thousands):

Jack's Flight Club Secret Escape Spain Metaverse Travel

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 in the fourth quarter of 2022.

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.

The following table represents the activities of intangible assets for the three months ended March 31, 2023 and 2022 (in thousands):

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

Intangible assets—January 1, 2022 3,426

Acquisitions—March 2022 — 445 1,751

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

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Amortization of intangible assets with definite lives ( 216 ) ( 42 ) ( 195 )

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

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

Acquisitions—March 2022 — 445 1,751

Amortization of intangible assets with definite lives ( 168 ) ( 39 ) ( 195 )

Intangible assets—March 31, 2023 $ 2,183 $ 288 $ 778

Amortization of intangible assets with definite lives ( 217 ) ( 34 ) ( 194 )

Intangible assets—June 30, 2022 2,983 399 1,362

Amortization of intangible assets with definite lives ( 216 ) ( 30 ) ( 194 )

Intangible assets—September 30, 2022 $ 2,767 $ 369 $ 1,168

Amortization expense for acquired intangibles was $ 440,000 and $ 275,000 for the three months ended September 30, 2022 and 2021, respectively, and was $ 1.3 million and $ 833,000 for the nine months ended September 30, 2022 and 2021, respectively.

Expected future amortization expense of acquired intangible assets, excluding the $ 1.65 million for the indefinite-lived trade name asset, as of September 30, 2022 is as follows (in thousands):

Amortization expense for acquired intangibles was $ 402,000 and $ 433,000 for the three months ended March 31, 2023 and 2022, respectively.

Expected future amortization expense of acquired intangible assets as of March 31, 2023 is as follows (in thousands):

Years ending December 31,

2022 remainder $ 449

2023 (excluding the three months ended March 31, 2023) 1,159

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 the three months ended March 31, 2023.

As of March 31, 2023, the carrying value of the Trade name was $ 1.5 million.

Commitments and Contingencies

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

Accruals for legal contingencies were not material as of September 30, 2022 and December 31, 2021.

Accruals for legal contingencies were not material as of March 31, 2023 and December 31, 2022.

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

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

The Company did not make material payments for the three and nine months ended September 30, 2022 and 2021.

The Company did not make material payments for the three months ended March 31, 2023 and 2022.

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

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

Refer to Note 11 for leases as of September 30, 2022.

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

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

The Company has purchase commitments aggregating approximately $ 2.8 million as of September 30, 2022, which represent the minimum obligations the Company has under agreements with certain suppliers.

Refer to Note 11 for leases as of March 31, 2023.

The Company 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.

The Company has purchase commitments aggregating approximately $ 1.0 million as of March 31, 2023, which represent the minimum obligations the Company has under agreements with certain suppliers.

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

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

The Company's effective tax rate from continuing operations was 29 % and 8 %, respectively, for the three months ended September 30, 2022 and 2021.

The Company’s effective tax rate for the three months ended September 30, 2022 changed from the three months ended September 30, 2021 primarily due to other income recorded for PPP Loan forgiveness in the three months ended September 30, 2021 that was exempt from tax.

The Company's effective tax rate from continuing operations was 34 % and 33 %, respectively, for the nine months ended September 30, 2022 and 2021.

The Company’s effective tax rate for the nine months ended September 30, 2022 changed from the nine months ended September 30, 2021 primarily due to changes in deferred tax assets from limitations on deductible stock-based compensation, offset by PPP Loan forgiveness income exempt from tax during the nine months ended September 30, 2021.

As of September 30, 2022, the Company is permanently reinvested in certain of its non-U.S.

The Company's effective tax rate from continuing operations was 27 % and 29 %, respectively, for the three months ended March 31, 2023 and 2022.

The Company’s effective tax rate for the three months ended March 31, 2023 changed from the three months ended March 31, 2022 primarily due to a decrease in non-deductible stock compensation in the three months ended March 31, 2023.

As of March 31, 2023, the Company is permanently reinvested in certain of its non-U.S.

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

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The Company maintains liabilities for uncertain tax positions.

As of September 30, 2022, the Company had approximately $ 1.0 million in total unrecognized tax benefits, which if recognized, would favorably affect the Company’s effective income tax rate.

As of March 31, 2023, the Company had approximately $ 16.9 million in total unrecognized tax benefits, of which up to $ 16.4 million would favorably affect the Company’s effective income tax rate if realized.

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

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

As of September 30, 2022 and December 31, 2021, the Company had approximately $ 523,000 and $ 424,000 in accrued interest and penalties, respectively.

As of March 31, 2023 and December 31, 2022, the Company had approximately $ 746,000 and $ 704,000 in accrued interest and penalties, respectively.

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

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

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

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

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Ending balance $ ( 4,825 ) $ ( 3,931 )

There were no amounts reclassified from accumulated other comprehensive loss for the three and nine months ended September 30, 2022 and 2021.

There were no amounts reclassified from accumulated other comprehensive loss for the three months ended March 31, 2023 and 2022.

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

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The 2019 Option Agreement expires in 2024.

All options granted pursuant to the 2015 Option Agreement and 2017 Option Agreement have been exercised.

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”).

Pursuant to the Option Agreement Amendments and subject to shareholder approval, 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 immediately followed the date of approval of the grants from the Board of Directors of the Company), which was $ 3.49 .

Company), which was $ 3.49 .

Additionally, the Option Agreement Amendments made the following increases:

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The Company received aggregate cash proceeds of $ 1.9 million.

All options granted pursuant to the 2019 Option Agreement have been exercised.

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

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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 September 30, 2022, 150,000 options were outstanding and 75,000 of these options were vested.

Total stock-based compensation related to these option grants of $ 72,000 and $ 97,000 was recorded in general and administrative expenses for the three months ended September 30, 2022 and 2021.

Total stock-based compensation related to these option grants of $ 217,000 and $ 248,000 was recorded in general and administrative expenses for the nine months ended September 30, 2022 and 2021 .

As of September 30, 2022, there was approximately $ 266,000 of unrecognized stock-based compensation expense relating to these options.

As of March 31, 2023, 150,000 options were outstanding and 75,000 of these options were vested.

Total stock-based compensation related to these option grants of $ 72,000 and $ 71,000 was recorded in general and administrative expenses for the three months ended March 31, 2023 and 2022.

As of March 31, 2023, there was approximately $ 121,000 of unrecognized stock-based compensation expense relating to these options.

This amount is expected to be recognized over the next 0.4 years.

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

As of September 30, 2022, 200,000 options were outstanding and all of these options were vested.

Total stock-based compensation related to this option grant of $ 385,000 and $ 1.2 million was recorded in general and administrative expenses for the nine months ended September 30, 2022 and 2021.

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.

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

S tock-based compensation related to this grant was fully expensed by the end of the first quarter of 2022.

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

As of March 31, 2023, 200,000 options were outstanding and all of these options were vested.

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

The options expire in March 2025.

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

Upon the departure of the one employee in the three months ended September 30, 2022 , 50,000 unvested options were forfeited and the compensation expense of $ 25,000 was reversed from general and administrative expenses.

As of September 30, 2022, 100,000 options were outstanding and 50,000 of these options were vested.

Total stock-based compensation related to these option grants of $ 0 and $ 49,000 was recorded in general and administrative expenses for each of the three months ended September 30, 2022 and 2021.

Total stock-based compensation related to these option grants of $ 98,000 and $ 157,000 was recorded in general and administrative expenses for the nine months ended September 30, 2022 and 2021.

As of September 30, 2022, there was approximately $ 147,000 of unrecognized stock-based compensation expense relating to these options.

This amount is expected to be recognized over the next 1.5 years.

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 March 31, 2023, 75,000 options were outstanding and 50,000 of these options were vested.

Total stock-based compensation related to these option grants of $ 25,000 and $ 49,000 was recorded in general and administrative expenses for the three months ended March 31, 2023 and 2022.

As of March 31, 2023, there was approximately $ 98,000 of unrecognized stock-based compensation expense relating to these options.

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

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

The options expire in January 2026.

As of September 30, 2022, 50,000 options were outstanding and 12,500 of these options were vested.

Total stock-based compensation related to this option grant of $ 36,000 and $ 62,000 was recorded in general and administrative expenses for the three months ended September 30, 2022 and 2021 .

Total stock-based compensation related to this option grant of $ 108,000 and $ 82,000 was recorded in general and administrative expenses for the nine months ended September 30, 2022 and 2021.

As of September 30, 2022, there was approximately $ 323,000 of unrecognized stock-based compensation expense relating to these options.

As of March 31, 2023, 50,000 options were outstanding and 25,000 of these options were vested.

Total stock-based compensation related to this option grant of $ 36,000 was recorded in general and administrative expenses for each of the three months ended March 31, 2023 and 2022 .

As of March 31, 2023, there was approximately $ 251,000 of unrecognized stock-based compensation expense relating to these options.

This amount is expected to be recognized over the next 1.8 years.

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

As of September 30, 2022, 600,000 options were outstanding and 150,000 of these options were vested.

Total stock-based compensation related to this option grant of $ 216,000 and $ 649,000 was recorded in general and administrative expenses for the three and nine months ended September 30, 2022.

As of September 30, 2022, there was approximately $ 1.1 million of unrecognized stock-based compensation expense relating to these options.

As of March 31, 2023, 600,000 options were outstanding and 300,000 of these options were vested.

Total stock-based compensation related to this option grant of $ 216,000 was recorded in general and administrative expenses for the three months ended March 31, 2023 .

The Company did not recognize stock-based compensation expense related to this option grant for the three months ended March 31, 2022.

As of March 31, 2023, there was approximately $ 648,000 of unrecognized stock-based compensation expense relating to these options.

This amount is expected to be recognized over 0.8 years.

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The options expire in June 2027.

As of September 30, 2022, 100,000 options were outstanding and none were vested.

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 the three and nine months ended September 30, 2022.

As of September 30, 2022, there was approximately $ 368,000 of unrecognized stock-based compensation expense relating to these options.

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.

Total stock-based compensation related to this option grant of $ 30,000 was recorded in sales and marketing expenses and thus 8,333 shares were vested for the three months ended March 31, 2023.

As of March 31, 2023, 100,000 options were outstanding.

As of March 31, 2023, there was approximately $ 338,000 of unrecognized stock-based compensation expense relating to these options.

This amount is expected to be recognized over 2.25 years.

Stock Repur chase Program

In March 2023, the Company granted an employee options to purchase 200,000 shares of common stock of the Company, with an exercise price of $ 4.96 and vesting 12.5 % every six months over four years beginning on June 30, 2023 and ending on December 31, 2026.

This grant is subject to final approval at the Annual Meeting of Stockholders to be held in June 2023.

The options expire in March 2025.

As of March 31, 2023, 200,000 options were outstanding and 25,000 of these options were vested.

Total stock-based compensation related to this option grant of $ 17,000 was recorded in general and administrative expenses for the three months ended March 31, 2023.

As of March 31, 2023, there was approximately $ 539,000 of unrecognized stock-based compensation expense relating to these options.

This amount is expected to be recognized over 3.8 years.

Stock Repurchase Program

The Company ’ s stock repurchase programs assist in offsetting the impact of dilution from employee equity compensation and assist with capital allocation.

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

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

The Company repurchased and retired 436,369 shares and 169,602 shares of common stock in 2019 and 2020, respectively.

In 2021, the Company repurchased 395,029 shares of common stock for an

aggregate purchase price of $ 3.9 million, which were recorded as part of treasury stock as of December 31, 2021.

This stock repurchase program was completed in 2021.

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

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

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

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 the three months ended September 30, 2022, the Company repurchased 200,000 shares of common stock for an aggregate purchase price of $ 1.2 million, which were recorded as part of treasury stock as of September 30, 2022.

As of September 30, 2022, there were 800,000 shares remaining to be repurchased under this program .

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.

In the three months ended March 31, 2023, the Company repurchased 34,687 shares of common stock for an aggregate purchase price of $ 186,000 , which were recorded as part of treasury stock as of March 31, 2023.

As of March 31, 2023, there were 658,938 shares remaining to be repurchased under this program .

Segment Reporting and Significant Customer Information

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

During the nine months ended September 30, 2022, the Company classified the results of its Asia Pacific segment as discontinued operations in its condensed consolidated financial statements for current and prior periods presented.

During the three months ended March 31, 2020, the Company classified the results of its Asia Pacific segment as discontinued operations in its condensed consolidated financial statements for current and prior periods presented.

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

Upon acquisition, the Company ’ s chief operating decision maker reviewed and evaluated Jack ’ s Flight Club as a separate segment.

The Company currently has three reportable operating segments:

Travelzoo North America, Travelzoo Europe and Jack’s Flight Club.

In 2020, Travelzoo entered into royalty-bearing licensing agreements with local licensees for Australia, Japan, New Zealand, and Singapore.

Travelzoo granted licensees the exclusive use of Travelzoo’s brand, but continuously own the existing members as the licensor.

In March 2022, the Company announced the development of Travelzoo META, a subscription service that intends to provide members with exclusive access to innovative, high quality Metaverse travel experiences.

On December 30, 2022, the Company acquired Metaverse Travel Experiences, Inc., now Metaverse Travel Experiences, LLC (“MTE”), a Metaverse experience scouting business to support Travelzoo META.

The Company ’ s chief operating decision maker viewed licensing and Travelzoo META business as New Initiatives and reviewed and evaluated New Initiatives as a separate segment.

The Company currently has four reportable operating segments:

Travelzoo North America, Travelzoo Europe, Jack’s Flight Club and New Initiatives.

Travelzoo North America consists of the Company’s operations in Canada and the U.S.

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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.

New Initiatives consists of Travelzoo licensing business and Travelzoo META subscription service and scouting business.

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

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

Three Months Ended September 30, 2022 Travelzoo North

America Travelzoo Europe Jack’s Flight Club Elimination Consolidated

Revenues from unaffiliated customers $ 10,281 $ 4,721 $ 847 $ — $ 15,849

Intersegment revenues (expenses) 217 ( 217 ) — — —

Total net revenues 10,498 4,504 847 — 15,849

Operating profit (loss) $ 812 $ ( 551 ) $ 12 $ — $ 273

Three Months Ended September 30, 2021 Travelzoo North

America Travelzoo Europe Jack’s Flight Club Elimination Consolidated

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

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

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

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

Nine Months Ended September 30, 2022 Travelzoo North

America Travelzoo Europe Jack’s Flight Club Elimination Consolidated

Three Months Ended March 31, 2023 Travelzoo North

America Travelzoo Europe Jack’s Flight Club New Initiatives Elimination Consolidated

Revenues from unaffiliated customers $ 14,567 $ 6,078 $ 948 $ 8 $ — $ 21,601

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Operating profit (loss) $ 4,516 $ 457 $ ( 45 ) $ ( 217 ) $ — $ 4,711

Nine Months Ended September 30, 2021 Travelzoo North

America Travelzoo Europe Jack’s Flight Club Elimination Consolidated

Three Months Ended March 31, 2022 Travelzoo North

America Travelzoo Europe Jack’s Flight Club New Initiatives Elimination Consolidated

Revenues from unaffiliated customers $ 11,498 $ 6,127 $ 823 $ 5 $ — $ 18,453

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

As of September 30, 2022 Travelzoo North

America Travelzoo Europe Jack’s Flight Club Elimination Consolidated

As of March 31, 2023 Travelzoo North

America Travelzoo Europe Jack’s Flight Club New Initiatives Elimination Consolidated

Long-lived assets $ 308 $ 86 $ — $ 298 $ — $ 692

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As of December 31, 2022 Travelzoo North

America Travelzoo Europe Jack’s Flight Club Elimination Consolidated

America Travelzoo Europe Jack’s Flight Club New Initiatives Elimination Consolidated

Long-lived assets $ 375 $ 86 $ — $ 196 $ — $ 657

Total assets excluding discontinued operations $ 97,693 $ 19,253 $ 18,737 $ 267 $ ( 68,687 ) $ 67,263

For the nine months ended September 30, 2022 and 2021, the Company did not have any customers that accounted for 10% or more of revenue.

As of September 30, 2022 and December 31, 2021, the Company did not have any customers that accounted for 10% or more of accounts receivable.

For the three months ended March 31, 2023 and 2022, the Company did not have any customers that accounted for 10% or more of revenue.

As of March 31, 2023 and December 31, 2022, the Company did not have any customers that accounted for 10% or more of accounts receivable.

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

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

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

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

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

Travelzoo North America

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Jack’s Flight Club

847 796 2,622 2,543

New Initiatives 8 5

Travelzoo Travel 19,690 16,669

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Jack’s Flight Club

847 796 2,622 2,543

New Initiatives 8 5

Total revenues $ 21,601 $ 18,453

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

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

United States $ 13,473 $ 10,638

United Kingdom 4,962 3,999

Germany 1,495 2,252

Rest of the world 1,671 1,564

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

September 30, December 31,

March 31, December 31,

United States $ 201 $ 274

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

The following table provides a summary of amounts included in discontinued operations for the three and nine months ended September 30, 2022 and 2021 (in thousands):

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

The following table provides a summary of amounts included in discontinued operations for the three months ended March 31, 2023 and 2022 (in thousands):

Three Months Ended

Revenues $ — $ —

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Net income (loss) $ ( 2 ) $ ( 11 )

On June 16, 2020, in connection with its Asia Pacific exit plan, the Company completed a sale of 100 % of the outstanding capital stock of Travelzoo Japan K.K.

(“Travelzoo Japan”) to Mr.

Hajime Suzuki, the former General Manager of Japan of the Company (the “Japan Buyer”) for consideration of 1 Japanese Yen.

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 Mr.

Hajime Suzuki (the “Japan Buyer”) for consideration of 1 Japanese Yen.

The Company recognized a pre-tax loss of $ 128,000 .

T he parties also entered into a License Agreement, whereby Travelzoo Japan obtained a license to use the intellectual property of Travelzoo exclusively in Japan and South Korea 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 based on the uncertainties, and no amount has been recorded for future royalties under this agreement.

Licensing revenue is booked with a lag of one quarter.

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

The parties also entered into a License Agreement, whereby 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.

An interest free loan was provided to the Japan Buyer for JPY 46.0 million (approximately 46.0 million) to be repaid over 3 years.

The Japan Buyer repaid $ 133,000 , $ 39,000 was repaid during the three months ended March 31, 2023, and the remaining expected 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 March 31, 2023.

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

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

The Japan Buyer repaid $ 133,000 in 2021.

The Company did no t recognize royalties from Travelzoo Japan for t he three months ended September 30, 2022 and 2021, respectively.

The Company recognized royalties of $ 0 and $ 9,000 from Travelzoo Japan for the nine months ended September 30, 2022 and 2021, respectively.

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

The Company did not recognize royalties for the three months ended March 31, 2023 and 2022.

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

Julian Rembrandt, the former General Manager of Southeast Asia and Australia of the Company for consideration of 1 Singapore Dollar.

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

royalty payments based upon revenue over a 5 year term, with an option to renew.

The non-exclusive license in China and Hong Kong was terminated by Travelzoo.

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

Licensing revenue is booked with a lag of one quart er.

The Company recorded $ 8,000 and $ 2,000 in licensing revenue from the licensee in Australia, New Zealand, and Singapore for the three months ended September 30, 2022 and 2021, respectively.

The Company recorded $ 18,000 and $ 2,000 in licensing revenue from the licensee in Australia, New Zealand, and Singapore for the nine months ended September 30, 2022 and 2021, respectively.

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

The Company recorded $ 8,000 and $ 5,000 in licensing revenue from the licensee in Australia, New Zealand, and Singapore for the three months ended March 31, 2023 and 2022, respectively.

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

September 30,

2023 December 31,

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Accrued expenses and other 14 13

Income tax payable 24 24

Deferred revenue 11 12

Total liabilities from discontinued operations $ 453 $ 452

The net cash used in operating activities for the discontinued operations for the nine months ended September 30, 2022 and 2021, were as follows (in thousands):

Nine Months Ended

September 30,

Net cash provided by (used in) operating activities $ ( 18 ) $ 10

The net cash used in operating activities for the discontinued operations for the three months ended March 31, 2023 and 2022, were as follows (in thousands):

Three Months Ended

Net cash used in operating activities $ ( 1 ) $ ( 10 )

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

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under operating leases.

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

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

Certain leases include one or more options to renew.

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All of our leases qualify as operating leases.

The following table summarizes the components of lease expense for the three and nine months ended September 30, 2022 and 2021 (in thousands):

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

The following table summarizes the components of lease expense for the three months ended March 31, 2023 and 2022 (in thousands):

Three Months Ended

Operating lease cost $ 674 $ 685

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Total lease cost $ 754 $ 820

For the nine months ended September 30, 2022 and 2021, cash payments against the operating lease liabilities total ed $ 2.4 million and $ 3.3 million, respectively.

ROU assets obtained in exchange for lease obligations was $ 0 and $ 1.8 million for nine months ended September 30, 2022 and 2021, respectively.

For the three months ended March 31, 2023 and 2022, cash payments against the operating lease liabilities total ed $ 860,000 and $ 938,000 , respectively.

There was no ROU assets obtained in exchange for lease obligations for three months ended March 31, 2023 and 2022.

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Operating lease right-of-use assets $ 6,852 $ 7,440

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Years ending December 31,

2022 (excluding the nine months ended September 30, 2022) $ 687

2023 (excluding the three months ended March 31, 2023) $ 2,237

Thereafter 2,925

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Present value of operating lease liabilities $ 10,608

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.

The loans have a maturity of two ( 2 ) years from the disbursement of the funds and an annual interest rate of 1 %.

The Company used the funds from these loans only for the purposes included in the PPP, including payroll, employee benefits, and rent, and also applied 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 balance of the loan and interest of $ 111,000 was paid off.

On July 1, 2021, the principal and the interest of the $ 3.1 million PPP loan were forgiven and a gain was recorded in “Other income (loss), net”, in the three months ended September 30, 2021.

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

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

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

Non-Controlling Interest

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

The non-controlling interest for the three months ended March 31, 2023 and 2022 was as follow (in thousands):

Non-controlling interest—January 1, 2022 $ 4,600

Net loss attributable to non-controlling interest 4

Non-controlling interest—March 31, 2022 4,604

Net loss attributable to non-controlling interest 30

Non-controlling interest—June 30, 2022 4,634

Net loss attributable to non-controlling interest 2

Non-controlling interest—September 30, 2022 4,636

Net loss attributable to non-controlling interest ( 41 )

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

Net loss attributable to non-controlling interest 8

Non-controlling interest—March 31, 2023 $ 4,603

Related Party Transactions

As of September 30, 2022 , Ralph Bartel is the Company's largest shareholder, holding approximately 36.3 % of the Company's outstanding shares.

Holger Bartel, the Company's Global Chief Executive Officer, is Ralph Bartel's brother and holds approximately 4.2 % of the Company's outstanding shares.

Asset Purchase Agreement between Metaverse Travel Experiences, Inc.

f/k/a Azzurro Brands Inc.

and Travelzoo

On March 17, 2022, the Company, as Buyer, entered into an Asset Purchase Agreement (the “APA”) with Metaverse Travel Experiences, Inc.

f/k/a Azzurro Brands Inc., a New York corporation (the “Seller”) and a wholly-owned subsidiary of Azzurro Capital Inc., the Company’s largest shareholder.

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

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.

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

As of March 31, 2023 , Azzurro is the Company's largest stockholder, and together with Ralph Bartel, in his individual capacity, hold approximately 50.5 % of the Company's outstanding shares.

Holger Bartel, the

Company's Global Chief Executive Officer, is Ralph Bartel's brother and holds approximately 4.2 % 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 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 to Azzurro, in exchange for certain consideration, and on 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 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 condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022.

The related interest of $ 143,000 was recorded in Prepaid expenses and other on the condensed consolidated balance sheet as of March 31, 2023 .

License Agreement with Azzurro Brands Inc.

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, the Company’s largest shareholder.

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

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

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

The License Agreement contained customary representations and warranties.

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

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

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

On March 17, 2022, the Company, as Buyer, entered into an Asset Purchase Agreement (the “APA”) with Azzurro Brands 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 ) were eliminated.

Stock Repurchase Agreement

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

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

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

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

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

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

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

WeGo Investment

In December 2020, the Company sold all of its shares in WeGo to trivago for a total purchase price of approximately $ 2.9 million, of which $ 196,000 was placed in escrow for one year .

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

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

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

What changed 10-Q

Item 1. Financial Statements