UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

______________________________________________________________________________
(Mark One)
x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20172023
or
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             .
Commission File No.: 000-50171

_______________________________________________________________________________
tzoologorgbforweba01.jpgTravelzoo
(Exact name of registrant as specified in its charter)

________________________________________________________________________________
DELAWAREDelaware36-4415727
(State or other jurisdiction of

incorporation or organization)
(I.R.S. employer

identification no.)
590 Madison Avenue, 37th35th Floor
New York, New York
10022
(Address of principal executive offices)(Zip code)
Registrant’s telephone number, including area code: +1 (212) 484-4900516-1300

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueTZOOThe NASDAQ Stock Market
_________________________________________________________________________________ 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the Registrantregistrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitionsdefinition of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer¨Accelerated filerx¨
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
☒		Smaller reporting company
¨
☒
Emerging growth company¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revisited financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨☐    No  x
The number of shares of Travelzoo common stock outstanding as of October 26, 2017of August 10, 2023 was 12,461,55314,910,098 shares.


1

TRAVELZOO
Table of Contents
 

PART I—FINANCIAL INFORMATIONPage
PART I—FINANCIAL INFORMATIONPage
3
Condensed Consolidated Balance Sheets as of September 30, 2017June 30, 2023 and December 31, 20162022
34
Condensed Consolidated Statements of Operations for the Three and Nine Six Months Ended September 30, 2017June 30, 2023 and 20162022
45
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Six Months Ended September 30, 2017June 30, 2023 and 20162022
56
Condensed Consolidated Statements of Cash Flows for the Nine Six Months Ended September 30, 2017June 30, 2023 and 20162022
67
Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended June 30, 2023 and 2022
8
Notes to Condensed Consolidated Financial Statements
710
1633
4947
5047
PART II—OTHER INFORMATION
5148
5148
48
48
48
48
5349
5450
 

2




PART I—FINANCIAL INFORMATION


Item 1.        Financial Statements


3

TRAVELZOO
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except par value)

June 30,
2023		December 31,
2022
ASSETS
Current assets:
Cash and cash equivalents$19,513 $18,693 
Accounts receivable, less allowance for doubtful accounts of $1,345 and $1,468 as of June 30, 2023 and December 31, 2022, respectively
10,287 13,820 
Prepaid income taxes801 1,778 
Prepaid expenses and other1,368 1,289 
Assets from discontinued operations10 11 
Total current assets31,979 35,591 
Deposits and other2,492 5,094 
Deferred tax assets3,222 3,222 
Restricted cash675 675 
Operating lease right-of-use assets6,292 7,440 
Property and equipment, net652 657 
Intangible assets, net2,860 3,651 
Goodwill10,944 10,944 
Total assets$59,116 $67,274 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$2,254 $4,271 
Merchant payables23,885 32,574 
Accrued expenses and other4,316 5,049 
Deferred revenue2,697 2,216 
Income tax payable234 — 
Operating lease liabilities2,395 2,972 
Liabilities from discontinued operations451 452 
Total current liabilities36,232 47,534 
Long-term operating lease liabilities7,493 8,326 
Other long-term liabilities4,322 2,563 
Total liabilities48,047 58,423 
Commitments and contingencies— — 
Stockholders’ equity:
Common stock, $0.01 par value (20,000 shares authorized; 15,170 shares issued and outstanding as of June 30, 2023, 16,505 shares issued and 15,704 outstanding as of December 31, 2022)
152 165 
Treasury stock (at cost, 801 shares at December 31, 2022)— (7,130)
Additional paid in capital11,816 23,274 
Tax indemnification(9,537)(9,537)
Note receivable from shareholder(4,753)(4,753)
Retained earnings13,441 7,142 
Accumulated other comprehensive loss(4,690)(4,905)
Total Travelzoo stockholders’ equity6,429 4,256 
Non-controlling interest4,640 4,595 
Total stockholders’ equity11,069 8,851 
Total liabilities and stockholders’ equity$59,116 $67,274 
 September 30,
2017		 December 31,
2016
ASSETS   
Current assets:   
Cash and cash equivalents$18,822
 $26,838
Accounts receivable, less allowance for doubtful accounts of $295 as of September 30, 2017 and December 31, 2016, respectively11,434
 14,415
Income tax receivable1,540
 542
Deferred tax assets—
 793
Deposits396
 105
Prepaid expenses and other1,961
 1,773
Total current assets34,153
 44,466
Deposits and other508
 702
Deferred tax assets1,800
 1,052
Restricted cash1,438
 1,152
Property and equipment, net5,265
 6,158
Total assets$43,164
 $53,530
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities:   
Accounts payable$15,966
 $19,714
Accrued expenses and other7,932
 8,699
Deferred revenue897
 719
Income tax payable936
 691
Total current liabilities25,731
 29,823
Long-term tax liabilities2,563
 2,879
Long-term deferred rent and other2,721
 2,764
Commitments and contingencies
 
Stockholders’ equity:   
Common stock, $0.01 par value (40,000 shares authorized; 12,465 shares and 13,462 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively)125
 135
Additional paid in capital—
 —
Retained earnings15,580
 21,716
Accumulated other comprehensive loss(3,556) (3,787)
Total stockholders’ equity12,149
 18,064
Total liabilities and stockholders’ equity$43,164
 $53,530

See accompanying notes to unaudited condensed consolidated financial statements.

4


TRAVELZOO
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
 Three Months EndedSix Months Ended
June 30,June 30,
 2023202220232022
Revenues$21,128 $17,689 $42,729 $36,142 
Cost of revenues2,880 2,163 5,571 4,995 
Gross profit18,248 15,526 37,158 31,147 
Operating expenses:
Sales and marketing10,142 8,480 19,438 17,061 
Product development518 454 1,008 907 
General and administrative4,315 4,811 8,728 9,479 
Total operating expenses14,975 13,745 29,174 27,447 
Operating income3,273 1,781 7,984 3,700 
Other income, net479 195 829 1,618 
Income from continuing operations before income taxes3,752 1,976 8,813 5,318 
Income tax expense1,091 928 2,469 1,896 
Income from continuing operations2,661 1,048 6,344 3,422 
Income (loss) from discontinued operations, net of taxes2 10 — (1)
Net income2,663 1,058 6,344 3,421 
Net income attributable to non-controlling interest37 30 45 34 
Net income attributable to Travelzoo$2,626 $1,028 $6,299 $3,387 
Net income attributable to Travelzoo—continuing operations$2,624 $1,018 $6,299 $3,388 
Net income (loss) attributable to Travelzoo—discontinued operations$2 $10 $— $(1)
Income per share—basic
Continuing operations$0.17 $0.08 $0.41 $0.28 
Discontinued operations$— $— $— $— 
Net income per share —basic$0.17 $0.08 $0.41 $0.28 
Income per share—diluted
Continuing operations$0.17 $0.08 $0.40 $0.27 
Discontinued operations$— $— $— $— 
Income per share—diluted$0.17 $0.08 $0.40 $0.27 
Shares used in per share calculation from continuing operations—basic15,275 12,513 15,485 12,285 
Shares used in per share calculation from discontinued operations—basic15,275 12,513 15,485 12,285 
Shares used in per share calculation from continuing operations—diluted15,337 12,637 15,557 12,591 
Shares used in per share calculation from discontinued operations—diluted15,337 12,637 15,557 12,591 
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2017 2016 2017 2016
Revenues$24,687
 $26,823
 $79,527
 $87,450
Cost of revenues3,018
 3,270
 9,447
 10,593
Gross profit21,669
 23,553
 70,080
 76,857
        
Operating expenses:       
Sales and marketing13,973
 14,075
 43,542
 45,060
Product development2,315
 2,230
 7,016
 7,019
General and administrative5,363
 5,373
 16,056
 16,620
Total operating expenses21,651
 21,678
 66,614
 68,699
Income from continuing operations18
 1,875
 3,466
 8,158
Other income (loss), net86
 251
 111
 293
Income from continuing operations before income taxes104
 2,126
 3,577
 8,451
Income tax expense680
 748
 2,660
 3,450
Income (loss) from continuing operations$(576) $1,378
 $917
 $5,001
Income from discontinued operations, net of income taxes—
 241
 1,938
 687
Net income (loss)$(576) $1,619
 $2,855
 $5,688
        
Income (loss) per share—basic:       
Continuing operations$(0.05) $0.10
 $0.07
 $0.35
Discontinued operations—
 0.02
 0.15
 0.05
Net income (loss) per share—basic$(0.05) $0.12
 $0.22
 $0.40
        
Income (loss) per share—diluted:

 

 

 

Continuing operations$(0.05) $0.10
 $0.07
 $0.35
Discontinued operations—
 0.02
 0.15
 0.05
Net income (loss) per share—diluted$(0.05) $0.12
 $0.22
 $0.40
        
Shares used in computing basic net income (loss) per share12,628
 13,839
 13,023
 14,109
Shares used in computing diluted net income (loss) per share12,628
 13,867
 13,040
 14,119


See accompanying notes to unaudited condensed consolidated financial statements.

5



TRAVELZOO
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands)
 
 Three Months EndedSix Months Ended
June 30,June 30,
 2023202220232022
Net income$2,663 $1,058 $6,344 $3,421 
Other comprehensive income:
Foreign currency translation adjustment135 (602)215 (740)
Total comprehensive income$2,798 $456 $6,559 $2,681 
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2017 2016 2017 2016
Net income (loss)$(576) $1,619
 $2,855
 $5,688
Other comprehensive income (loss):       
Foreign currency translation adjustment131
 (184) 231
 99
Total comprehensive income (loss)$(445) $1,435
 $3,086
 $5,787


See accompanying notes to unaudited condensed consolidated financial statements.




6

TRAVELZOO
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended Six Months Ended
September 30,June 30,
2017 2016 20232022
Cash flows from operating activities:   Cash flows from operating activities:
Net income$2,855
 $5,688
Net income$6,344 $3,421 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:   Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization1,605
 1,856
Depreciation and amortization945 1,118 
Discontinued operations: gain on sale of Fly.com domain name
(2,890) —
Provision for losses (gains) on accounts receivable(34) 17
Stock-based compensation686
 692
Stock-based compensation828 1,131 
Deferred income tax28
 (224)Deferred income tax(38)550 
Loss on long-lived assetsLoss on long-lived assets10 38 
Gain on equity investment in WeGoGain on equity investment in WeGo— (196)
Net foreign currency effect(293) (308)Net foreign currency effect(33)214 
Changes in operating assets and liabilities:   
Reversal of loss on accounts receivable, refund reserve and otherReversal of loss on accounts receivable, refund reserve and other(829)(2,246)
Changes in operating assets and liabilities, net of acquisitions:Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable3,388
 (547)Accounts receivable3,888 (131)
Income tax receivable(868) (299)
Prepaid income taxesPrepaid income taxes1,017 670 
Prepaid expenses and other(417) (387)Prepaid expenses and other2,485 (138)
Accounts payable(4,695) (4,391)Accounts payable(2,393)(2,056)
Accrued expenses(1,009) (2,074)
Merchant payablesMerchant payables(8,604)(19,784)
Accrued expenses and otherAccrued expenses and other377 172 
Income tax payable109
 1,772
Income tax payable234 (186)
Other non-current liabilities(349) 121
Other liabilities, netOther liabilities, net1,419 433 
Net cash provided by (used in) operating activities(1,884) 1,916
Net cash provided by (used in) operating activities5,650 (16,990)
Cash flows from investing activities:   Cash flows from investing activities:
Proceeds from sale of Fly.com domain name
2,890
 —
Proceeds from repayment of note receivableProceeds from repayment of note receivable113 — 
Purchases of intangible assetsPurchases of intangible assets— (1,049)
Proceeds from sale of equity investment in WeGoProceeds from sale of equity investment in WeGo— 196 
Purchases of property and equipment(486) (802)Purchases of property and equipment(157)(175)
Net cash provided by (used in) investing activities2,404
 (802)
Net cash used in investing activitiesNet cash used in investing activities(44)(1,028)
Cash flows from financing activities:   Cash flows from financing activities:
Acquisition of the Asia Pacific business—
 58
Payment of loan to related party—
 (5,658)
Repurchase of common stock(9,556) (5,727)Repurchase of common stock(4,870)— 
Net cash used in financing activities(9,556) (11,327)
Effect of exchange rate changes on cash and cash equivalents1,020
 (76)
Net decrease in cash and cash equivalents(8,016) (10,289)
Cash and cash equivalents at beginning of period26,838
 35,128
Cash and cash equivalents at end of period$18,822
 $24,839
Exercise of stock options, net of taxes paid for net share settlementExercise of stock options, net of taxes paid for net share settlement(299)1,885 
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities(5,169)1,885 
Effect of exchange rate changes on cash, cash equivalents and restricted cashEffect of exchange rate changes on cash, cash equivalents and restricted cash382 (2,176)
Net increase (decrease) in cash, cash equivalents and restricted cashNet increase (decrease) in cash, cash equivalents and restricted cash819 (18,309)
Cash, cash equivalents and restricted cash at beginning of periodCash, cash equivalents and restricted cash at beginning of period19,378 44,989 
Cash, cash equivalents and restricted cash at end of periodCash, cash equivalents and restricted cash at end of period$20,197 $26,680 
Supplemental disclosure of cash flow information:   Supplemental disclosure of cash flow information:
Cash paid for income taxes, net$4,858
 $2,198
Cash paid for interest on related party loan$—
 $110
Cash paid (refund) for income taxes, netCash paid (refund) for income taxes, net$(494)$771 
Cash paid for amounts included in the measurement of lease liabilitiesCash paid for amounts included in the measurement of lease liabilities$1,725 $1,715 
Non-cash consideration for purchase of intangible assetNon-cash consideration for purchase of intangible asset$— $1,150 
See accompanying notes to unaudited condensed consolidated financial statements.

7


TRAVELZOO
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
(In thousands)
 Common StockTreasury StockAdditional
Paid-In
Capital		Tax IndemnificationNote Receivable from ShareholderRetained
Earnings		Accumulated
Other
Comprehensive
Loss		Total
Travelzoo Stockholders’
Equity		Non-controlling interestTotal
Stockholders’
Equity
 SharesAmount
Balances, March 31, 202316,505 $165 $(7,316)$23,670 $(9,537)$(4,753)$10,815 $(4,825)$8,219 $4,603 $12,822 
Stock-based compensation expense— — — 432 — — — — 432 — 432 
Repurchase of common stock— — (4,683)— — — — (4,683)— (4,683)
Retirement of treasury stock(1,495)(14)11,999 (11,985)— — — — — — — 
Exercise of stock options and taxes paid for net share160 1 — (301)— — — — (300)— (300)
Foreign currency translation adjustment— — — — — — — 135 135 — 135 
Net income— — — — — — 2,626 — 2,626 37 2,663 
Balances, June 30, 202315,170 $152 $— $11,816 $(9,537)$(4,753)$13,441 $(4,690)$6,429 $4,640 $11,069 


 Common StockTreasury StockAdditional
Paid-In
Capital		Tax IndemnificationNote Receivable from ShareholderRetained
Earnings		Accumulated
Other
Comprehensive
Loss		Total
Travelzoo Stockholders’
Equity		Non-controlling interestTotal
Stockholders’
Equity
 SharesAmount
As RestatedAs Restated
Balances, March 31, 202212,551 $126 $(5,488)$4,957 $— $— $2,867 $(3,931)$(1,469)$4,604 $3,135 
Stock-based compensation expense— — — 589 — — — — 589 — 589 
Proceeds from exercise of stock options, net of share settlement540 5 — 1,880 — — — — 1,885 — 1,885 
Foreign currency translation adjustment— — — — — — — (602)(602)— (602)
Net income— — — — — — 1,028 — 1,028 30 1,058 
Balances, June 30, 202213,091 $131 $(5,488)$7,426 $— $— $3,895 $(4,533)$1,431 $4,634 $6,065 




8

TRAVELZOO
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
(In thousands)

 Common StockTreasury StockAdditional
Paid-In
Capital		Tax IndemnificationNote Receivable from ShareholderRetained
Earnings		Accumulated
Other
Comprehensive
Loss		Total
Travelzoo Stockholders’
Equity		Non-controlling interestTotal
Stockholders’
Equity
 SharesAmount
Balances, January 1, 202316,505 $165 $(7,130)$23,274 $(9,537)$(4,753)$7,142 $(4,905)$4,256 $4,595 $8,851 
Stock-based compensation expense— — — 828 — — — — 828 — 828 
Repurchase of common stock— — (4,869)— — — — (4,869)— (4,869)
Retirement of treasury stock(1,495)(14)11,999 (11,985)— — — — — — — 
Exercise of stock options and taxes paid for net share160 1 — (301)— — — — (300)— (300)
Foreign currency translation adjustment— — — — — — — 215 215 — 215 
Net income— — — — — — 6,299 — 6,299 45 6,344 
Balances, June 30, 202315,170 $152 $— $11,816 $(9,537)$(4,753)$13,441 $(4,690)$6,429 $4,640 $11,069 


Common StockTreasury StockAdditional
Paid-In
Capital		Tax IndemnificationNote Receivable from ShareholderRetained
Earnings		Accumulated
Other
Comprehensive
Loss		Total
Travelzoo Stockholders’
Equity		Non-controlling interestTotal
Stockholders’
Equity
SharesAmount
As RestatedAs Restated
Balances, January 1, 202212,551 $126 $(5,488)$4,415 — — $508 $(3,793)$(4,232)$4,600 $368 
Stock-based compensation expense— — — 1,131 — — — — 1,131 — 1,131 
Proceeds from exercise of stock options, net of share settlement540 5 — 1,880 — — — — 1,885 — 1,885 
Foreign currency translation adjustment— — — — — — — (740)(740)— (740)
Net income— — — — — — 3,387 — 3,387 34 3,421 
Balances, June 30, 202213,091 $131 $(5,488)$7,426 $— $— $3,895 $(4,533)$1,431 $4,634 $6,065 


9

TRAVELZOO
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1: Summary of Significant Accounting Policies
(a) The Company and Basis of Presentation
Travelzoo (theTravelzoo® (including its subsidiaries and affiliates, the “Company” or “we”) is a global publisherInternet 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 travel and entertainment offers. The Company informs its members in Asia Pacific, Europe and North America, as well as website users, about the bestoutstanding travel, entertainment, and local deals available from thousands of companies. The Company's deal experts source, negotiate, researchlifestyle experiences. 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 test-book offers, recommending only those that meet Travelzoo’s rigorous quality standards. The Company provides travel, entertainment, and local businesses with a fast, flexible, and cost effective way to reach consumers. The Company's revenuesservices are generated primarily from advertising fees.
Our publications and products include the Travelzoo website (travelzoo.com), the Travelzoo iPhone and Android apps, the Travelzoo Top 20 e-mail® email newsletter, Standalone email newsletters,the Newsflash e-mail alert service, and the Travelzoo Network, a network of third-party websites that list travel deals published by Travelzoo.and Jack’s Flight Club®. Our Travelzoowebsite includes  and newsletters include Local Dealsand GetawayGetaways listings that allow our members to purchase vouchers for dealsoffers 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 receivealso 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 percentagesubscription 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 and development 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. 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 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 (c) the transfer to the Company of all outstanding capital stock of MTE. 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. As of June 30, 2023, Azzurro paid the interest of $285,000, but has not yet paid the principal amount of the face valuenote. The Company submitted a letter to Azzurro seeking payment and the parties are in the process of negotiating a payment plan. Should satisfactory terms not be agreed for a payment plan, the Company shall have the right to pursue the shares serving as collateral under the promissory note. See Note 3: Acquisitions in the unaudited condensed consolidated financial statements for further information.
Jack’s Flight Club
In January 2020, Travelzoo acquired JFC Travel Group Co. (“Jack’s Flight Club”), which operates Jack’s Flight Club, a subscription service that provides members with information about exceptional airfares. As of June 30, 2023, Jack’s Flight Club had over 2 million subscribers. Jack’s Flight Club’s revenues are generated by subscription fees paid by members. See Note 3 to the unaudited condensed consolidated financial statements for further information.
APAC Exit and Pivot to Licensing Model
In March 2020, Travelzoo exited its loss-making Asia Pacific business and pivoted to a licensing model. The Company’s Asia Pacific business was classified as discontinued operations at March 31, 2020.
Travelzoo currently has license agreements in Japan and South Korea, as well as Australia, New Zealand and Singapore. The license agreement for Japan provides a license to the licensee to use the intellectual property of Travelzoo exclusively in Japan in exchange for quarterly royalty payments based on net revenue over a 5 year term, with an option to renew. The territory subject to the license was amended to also include South Korea. An interest free loan was provided to the licensee for JPY 46 million (approximately $430,000), of which $133,000 was repaid in 2021, $113,000 was repaid during the six months ended June 30, 2023, and the remaining is 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 June 30, 2023. The Company recognized royalties of
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$4,000 for its licensing arrangements from the licensee in Japan for the three and six months ended June 30, 2023. The Company did not recognize any royalty from Travelzoo Japan in 2022.
The license agreement for Australia, New Zealand and Singapore provides a license to the licensee to use the intellectual property of Travelzoo exclusively in Australia, New Zealand and Singapore for quarterly royalty payments based upon net revenue over a 5 year term, with an option to renew. The Company records royalties for its licensing arrangements on a one-quarter lag basis. The Company recognized royalties of $9,000 and $7,000 for its licensing arrangements from the licensee in Australia for the three months ended June 30, 2023 and 2022, respectively. The Company recognized royalties of $17,000 and $12,000 for its licensing arrangements from the licensee in Australia for the six months ended June 30, 2023 and 2022, respectively. We expect the royalty payments to increase over time as the effects of the voucherpandemic subside.
Government funding
In January 2022, July 2022 and May 2023, 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, $494,000 and $205,000 from the local businesses.German Federal Government Bridging Aid III plan, Bridging Aid III+ and Bridging Aid IV, 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. Travelzoo Germany applied for the funding in 2021 and 2022, respectively, and was approved by the German government in January 2022 and July of 2022 and May 2023. The Company has to submit a final declaration in connection with the grant and the declaration date has been extended from June 30, 2023 to December 31, 2023. The Company believes it was eligible to participate in the plan and is entitled to the payment and does not expect significant changes to the amount already received from the final submission. The Company recorded $1.2 million, $494,000 and $205,000 gains in Other income, net in the first and third quarters of 2022 and second quarter of 2023, respectively.
The Company also received $85,000 and $153,000 job retention related funding from Canada in the three and six months ended June 30, 2022. Such funding was recorded against salary and related expenses. The Company did not receive job retention related funding in 2023.
Going Concern
In accordance with the requirements of Accounting Standards Update (“ASU”) 2014-15, “Presentation of Financial Statements Going Concern (ASU 2014-15)”, and ASC 205, “Presentation of Financial Statements”, we have the responsibility to evaluate at each reporting period, including interim periods, whether conditions and/or events raise substantial doubt about our ability to meet our future financial obligations. In its evaluation for this report, management considered our current financial condition and liquidity sources, including current funds available, forecasted future cash flows and our conditional and unconditional obligations due within one year following the date of issuance of this Quarterly Report on Form 10-Q.
We believe we have the ability to meet our obligations for at least one year from the date of issuance of this Form 10-Q. Accordingly, the accompanying condensed consolidated financial statements have been prepared assuming that we will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course business.
Ownership
Ralph Bartel, who founded Travelzoo, and who is a Director of the Company, is the sole beneficiary of the Ralph Bartel 2005 Trust, which is the controlling shareholder of Azzurro Capital Inc. ("Azzurro"). As of September 30, 2017,Azzurro. Azzurro is the Company'sCompany’s largest stockholder, holdingshareholder, and as of June 30, 2023 holds approximately 57.8%48.9% of the Company's outstanding shares. Holger Bartel, the Company's Global CEO, is Ralph Bartel's brother and separately holds 3.4% of the Company's outstanding shares as of June 30, 2023.
During the first quarter of 2017, the Company discontinued operations of its SuperSearch and Fly.com products to focus on its global Travelzoo® brand and reflected the revenues and expenses for these products as discontinued operations, net of taxes, for the current and prior periods presented. See "Note 9: Discontinued Operations" for further information.
Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to state fairly the financial position of the Company and its results of operations and cash flows. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes as of and for the year ended December 31, 2016,2022, included in the Company’s Form 10-K10-K/A filed with the SEC on March 15, 2017.August 14, 2023.
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The condensed consolidated financial statements include the accounts of the Company and its wholly-ownedwholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The financial results of Jack’s Flight Club have been included in our condensed consolidated financial statements from the date of acquisition. Investments in entities where the Company does not have control, but does have significant influence, are accounted for as equity method investments. 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. Significant estimates included in the consolidated financial statements and related notes include revenue recognition, refund liability, income taxes, stock-based compensation, loss contingencies, useful lives of property and equipment, purchase price allocation for the business combination and related impairment assessment, relating to the projections and assumptions used. Actual results could differ materially from those estimates. The results of operations for the three and ninesix months ended SeptemberJune 30, 20172023 are not necessarily indicative of the results that may be expected for the year ending December 31, 20172023 or any other future period, and the Company makes no representations related thereto.
Recently Adopted(b) Recent Accounting Pronouncements
In November 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Updates ("ASU") 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes," which simplifies the presentation of deferred income taxes by requiring deferred tax assets and liabilities be classified as noncurrent on the balance sheet. The Company adopted ASU 2015-17 in the first quarter of 2017 on a prospective basis. Accordingly, the Company reclassified current deferred taxes of $793,000 to noncurrent on its March 31, 2017 consolidated balance sheet. No prior periods were retrospectively adjusted.



In March,June 2016, the FASB issued ASU 2016-09, "Compensation-Stock Compensation: ImprovementsNo. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which provides new guidance on the measurement of credit losses for financial assets measured at amortized cost, which includes accounts receivable. The new guidance replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. This update is effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For Smaller Reporting Companies (as such term is defined by the SEC), such as Travelzoo, the standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Entities are required to Employee Share-Based Payment Accounting," which is intendedapply this update on a modified retrospective basis with a cumulative-effect adjustment to simplify several aspectsretained earnings as of the accounting for employee share-based payment transactions, includingbeginning of the income tax consequences, classificationperiod of awards as either equity or liabilities, and classification on the statement of cash flows.adoption. The Company adopted the ASU 2016-09 in the first quarter of 2017. The Company electedprospectively on January 1, 2023. This ASU has not and is currently not expected to account for forfeitures as they occur and did not have unrecognized tax benefits of stock-based compensation; therefore, the adoption of this guidance did not have a material impact on our consolidated financial position or resultsstatements.
(c) Significant Accounting Policies
Below are a summary of operations.the Company's significant accounting policies. For a comprehensive description of our accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, 2022.
RecentRevenue Recognition
The Company follows Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued ASUStandards Update No. 2014-09, "Revenue from Contracts with Customers," which requires an entity to recognizeCustomers" (Topic 606).
Under Topic 606, revenue is recognized when control of the amount of revenue to which it expects to be entitled for the transfer of promised goods or services is transferred to customers. ASU 2014-09 will replace mostour 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 standalone Travelzoo emails 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. The Company's disaggregated revenues are included in “Note 9: Segment Reporting and Significant Customer Information”.
For fixed-fee website advertising, the Company recognizes revenues ratably over the contracted placement period.
For the Top 20 email newsletter, Standalone email newsletters and other email products, the Company recognizes revenues when the emails are delivered to its members.
The Company offers advertising on a cost-per-click basis, which means that an advertiser pays the Company only when a user clicks on an advertisement on Travelzoo properties or Travelzoo Network members’ properties. For these customers, the Company recognizes revenues each time a user clicks on the ad.
The Company also offers advertising on other bases, such as cost-per-impression, which means that an advertiser pays the Company based on the number of times their advertisement is displayed on Travelzoo properties, email advertisements, Travelzoo Network properties, or social media properties. For these customers, the Company recognizes revenues each time an advertisement is shown or email delivered.
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For transaction-based revenues, including products such as Local Deals, Getaways, hotel platform and vacation packages, the Company evaluates whether it is the principal (i.e., report revenue on a gross basis) versus an agent (i.e., report revenue on a net basis). The Company reports transaction revenue on a net basis because the supplier is primarily responsible for providing the underlying service, and we do not control the service provided by the supplier prior to its transfer to the customer.
For Local Deals and Getaways products, the Company earns a fee for acting as an agent for the sale of vouchers that can be redeemed for services with third-party merchants. Revenues are presented net of the existing revenue recognition guidance in U.S. GAAP when it becomes effective. This new accounting standard is effectiveamounts due to the third-party merchants for fulfilling the underlying services and an estimated amount for future refunds. In the second quarter of 2020, the Company for annual periodsexpanded its vouchers refund policy in fiscal years beginning after December 15, 2017 (as amended in August 2015response to pandemic travel restrictions to fully refundable until the voucher expires or is redeemed by ASU 2015-14, "Deferralthe customer. This refund policy has mostly been adjusted as of the Effective Date"). In December 27, 2016, FASB issued ASU 2016-20, "Technical Corrections and ImprovementsApril 1, 2022, back to Topic 606, Revenue from Contracts with Customers," which addresses loan guarantee fees, impairment testingfully refundable within fourteen days of contract costs, provisions for losses on construction-type and production-type contracts, and various disclosures. ASU 2016-20 will go into effect once ASU 2014-09 takes effect. The Companypurchase unless a surcharge is currently assessing the timing of revenue for its various advertising products including Top 20, Newsflash, Local Deals and Getaway vouchers and Hotel Platform commissions. Under this new guidance, the Company expects it will be required to recognize Local Deals and Getaway revenue on selected deals that is related to unredeemed vouchers based upon estimatespaid at the time of the voucher purchase for the right to be fully refundable. Certain merchant contracts allow the Company to retain the proceeds from unredeemed vouchers. With these contracts, the Company estimates the value of vouchers that will ultimately not be redeemed and records the estimate as revenues in the same period.
Jack’s Flight Club revenue is generated from paid subscriptions by members. Subscription options are quarterly, semi-annually, and annually. We recognize the revenue on a pro-rated basis based upon the subscription option.
Commission revenue related to hotel platform is recognized ratably over the period of guest stay, net of an allowance for cancellations based upon historical patterns. For arrangements that are for the booking of non-cancelable reservations where the Company’s performance obligation is deemed to be the successful booking of a hotel reservation, we record revenue for the commissions upon completion of the hotel booking.
The Company’s contracts with customers may include multiple performance obligations in which the Company allocates revenues to each performance obligation based upon its standalone selling price. The Company determines standalone selling price based on its overall pricing objectives, taking into consideration the type of services, geographical region of the customers, normal rate card pricing and customary discounts. Standalone selling price is generally determined based on the prices charged to customers when the product is sold separately.
The Company relies upon the following practical expedients and exemptions allowed for in the ASC 606. The Company expenses sales commissions when incurred because the amortization period would be one year or less. These costs are recorded in sales and marketing expenses. In addition, the Company does not disclose the value of unsatisfied performance obligations for (a) contracts with an original expected length of one year or less and (b) contracts for which it recognizes revenues at the amount to which it has the right to invoice for services performed.
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, 2022, $1.2 million was recorded as deferred revenue for Jack's Flight Club, of which $985,000 was recognized in the six months ended June 30, 2023, $981,000 was recorded as deferred revenue for Travelzoo North America and Travelzoo Europe, of which $797,000 was recognized as revenue in the six months ended June 30, 2023. As of June 30, 2023, the deferred revenue balance was $2.7 million, of which $1.8 million was for Jack's Flight Club and the remaining $861,000 was for Travelzoo North America and Travelzoo Europe.
Reserve for Refunds to Members
The Company records an estimated reserve for refunds to members based on our historical experience at the time revenue is recorded for Local Deals and Getaways voucher sales. We consider many key factors such as the historical refunds based upon the time lag since the sale, historical reasons for refunds, time period that remains until the deal expiration date, any changes in refund procedures and estimates of redemptions and breakage.
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For publishing revenue, we recognize revenue upon delivery of the emails and delivery of the clicks, over the period of the placement of the advertising. Insertion orders for publishing revenue are typically for periods between one month and twelve months and are not automatically renewed. For Getaways vouchers, we recognize a percentage of the face value of the vouchers upon the sale of the vouchers. Merchant agreements for Getaways advertisers are typically for periods between twelve months and twenty-four months and are not automatically renewed. Since the second quarter of 2020, the Company expanded its voucher refund policy to fully refundable until the voucher expires or is redeemed by the customer. This refund policy has been adjusted starting April 1, 2022, back to fully refundable within fourteen days of purchase unless a surcharge is paid at the time of the voucher purchase for the right to be fully refundable. The expiration dates of vouchers ratherrange between July 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 and final payment upon expiration may not be due for up to a year after expiration. The revenues generated from Local Deals vouchers and entertainment offers are based upon a percentage of the face value of the vouchers, commission on actual sales or a listing fee based on audience reach. For Local Deals vouchers, we recognize a percentage of the face value of vouchers upon the sale of the vouchers. The Company estimated the refund reserve by using historical and current refund rates by product and by merchant location to calculate the estimated future refunds. As of June 30, 2023, the Company had approximately $6.0 million of unredeemed vouchers that had been sold through June 30, 2023, representing the Company’s commission earned from the sale. The Company had estimated a refund liability of $572,000 for these unredeemed vouchers as of June 30, 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 $23.9 million as of June 30, 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. Should any of these factors change, the estimates made by management will also change, which could impact the level of our future reserve for refunds to member. Specifically, if the financial condition of our advertisers, the business that is providing the vouchered service, were to deteriorate, affecting their ability to provide the services to our members, additional reserves for refunds to members may be required and may adversely affect future revenue as the liability is recorded against revenue.
We record a liability associated with estimated future refunds in accrued expenses on the condensed consolidated balance sheets. Estimated member refunds that are determined to be recoverable from the merchant are recorded in the condensed consolidated statements of operations as a reduction to revenue. Estimated member refunds that are determined not to be recoverable from the merchant are presented as a cost of revenue. If our judgments regarding estimated member refunds are inaccurate, reported results of operations could differ from the amount we previously accrued.
Business Combinations
The purchase price of an acquisition is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. To the extent the purchase price exceeds the fair value of the net identifiable tangible and intangible assets acquired and liabilities assumed, such excess is allocated to goodwill. The Company determines the estimated fair values after review and consideration of relevant information, including discounted cash flows, quoted market prices and estimates made by management. The Company records the net assets and results of operations of an acquired entity from the acquisition date and adjusts the preliminary purchase price allocation, as necessary, during the measurement period of up to one year after the acquisition closing date as it obtains more information as to facts and circumstances existing at the acquisition date impacting asset valuations and liabilities assumed. Acquisition-related costs are recognized separately from the acquisition and are expensed as incurred.
Identifiable intangible assets
Upon acquisition, identifiable intangible assets are recorded at fair value and are carried at cost less accumulated amortization. Identifiable intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives. The carrying values of all intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.
Goodwill
Goodwill represents the excess of the purchase price of an acquired business over the fair value of the underlying net tangible and intangible assets. Goodwill is evaluated for impairment annually, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. In testing goodwill for impairment, the Company
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first uses a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than the current practicecarrying amount. If the qualitative assessment indicates that goodwill impairment is more likely than not, the Company performs an impairment test by comparing the book value of waitingnet assets to the fair value of the reporting units. 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 not identify any indicators of impairment during the six months ended June 30, 2023.
Operating Leases
The Company determines if an arrangement contains a lease at inception. Operating lease right-of-use (“ROU”) assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The lease payments used to determine the operating lease assets may include lease incentives and stated rent increases. The Company does not include options to extend or terminate until it is reasonably certain that the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the lease liabilities as the Company’s leases generally do not provide an implicit rate. The Company elected not to recognize this revenue upon expirationleases with an initial term of 12 months or less on its unaudited condensed consolidated balance sheets.
The Company’s leases are reflected in operating lease ROU assets, operating lease liabilities and long-term operating lease liabilities in our unaudited condensed consolidated balance sheets. The lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company also has a real estate lease agreement which is subleased to a third party. 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 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 legal obligation. Althoughglobal travel and hospitality industries, the Company is still currently evaluating the impact of the adoptionmeasures implemented to contain COVID-19 had a significant negative effect on itsour business, financial position,condition, results of operations and cash flowsflows. 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 has not yet determined whethertravel 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 effect willchanging environment (including reverting to a 14-day return window for vouchers and implementing a surcharge for vouchers to be material,fully refundable), although with the adoption is expected toemergence of new variants, this trend could stop or even reverse which could result in additional required disclosures relateda material adverse impact on our business and financial performance. It is difficult to its revenue arrangements. The Company expects to adopt this standard effective January 1, 2018 with a cumulative adjustment to retained earnings using the modified retrospective method.
In February 2016, the FASB issued an accounting standard update ASU 2016-02, "Leases," which requires that lease arrangements longer than 12 months result in an entity recognizing an asset and liability on its balance sheet. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. This accounting standard update will be effective for the Company on January 1, 2019. For operating leases with terms longer than 12 months, the Company will recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. The Company is currently in the process of evaluatingestimate the impact of the adoptionglobal pandemic on its financial position,the Company’s future revenues, results of operations, cash flows, liquidity, or financial condition.
The Company’s cash, cash equivalents and accounts receivable are potentially subject to concentration of credit risk. Cash and cash flows.equivalents are placed with financial institutions that management believes are of high credit quality. The accounts receivables are derived from revenue earned from customers located in the U.S. and internationally. As of June 30, 2023 and December 31, 2022, the Company did not have any customers that accounted for 10% or more of accounts receivables.
In August 2016,As of June 30, 2023, the FASB issued ASU No. 2016-15, "ClassificationCompany had merchant payables of Certain Cash Receipts and Cash Payments," which addresses eight classification issues$23.9 million related to the statementsale of cash flows.vouchers. In November 2016, the FASB issued ASU 2016-18, "StatementCompany’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 Cash Flows: Restricted Cash," which addresses classification$4.3 million. Payables to merchants are generally due upon redemption of vouchers. The vouchers expire between July 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 and presentationfinal payment upon expiration may not be due for up to a year after expiration. Management believes that redemptions may be delayed for international vouchers in the current environment. Based on current projections of changes in restrictedredemption activity, management expect that cash on hand as of June 30, 2023 will be sufficient to provide for working capital needs for at least the statementnext twelve months. However, if redemption activity is more accelerated, if the Company’s business is not profitable, or if the Company’s planned targets for cash flows from operations are not met, the Company may need to obtain additional financing to meet its working capital needs in the future. The Company believes that it could obtain additional financing if needed, but there can be no assurance that financing will be available on terms that are acceptable to the Company, if at all.

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Cash, Cash Equivalents and Restricted Cash
Cash equivalents consist of highly liquid investments with maturities of three months or less on the date of purchase. Restricted cash flows. The standard requires that restricted cash and restricted cash equivalents be included as components of totalincludes cash and cash equivalents as presented onthat is restricted through legal contracts, regulations or our intention to use the statementcash for a specific purpose. Our restricted cash primarily relates to refundable for leases.
The following table provides a reconciliation of cash, flows. Both ASU 2016-15cash equivalents and ASU 2016-18 are effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017 and should apply using a retrospective transition methodrestricted cash reported within the unaudited condensed consolidated balance sheets to each period presented. These accounting standard updates will be effective for the Company on January 1, 2018. The Company is currentlytotal amounts shown in the processunaudited condensed consolidated statements of evaluating the impactcash flows:
 June 30,December 31,
20232022
Cash and cash equivalents$19,513 $18,693 
Restricted cash675 675 
Cash, cash equivalents and restricted cash–discontinued operations9 10 
Total cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows$20,197 $19,378 
The Company’s restricted cash was included in noncurrent assets as of the adoption on its financial position, results of operationsJune 30, 2023 and cash flows.December 31, 2022.
In October 2016, the FASB issued ASU 2016-16, "Intra-Entity Transfers of Assets Other Than Inventory," which requires immediate recognition of the income tax consequences of intercompany asset transfers other than inventory. This update is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods. This accounting standard update will be effective for the Company on January 1, 2018 with early adoption permitted. The Company is currently in the process of evaluating the impact of the adoption on its financial position, results of operations and cash flows.
In May 2017, the FASB issued ASU 2017-09, "Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting," which gives direction on which changes to the terms or conditions of these awards require an entity to apply modification accounting in ASC Topic 718, "Compensation-Stock Compensation." The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 for all entities with early adoption permitted. The Company is currently in the process of evaluating the impact of the adoption on its financial position, results of operations and cash flows.


Note 2: Net Income (Loss) Per Share
Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding for the period. Diluted net income (loss) per share is computed by adjusting the weighted-average number of common shares outstanding for the effect of dilutive potential common shares outstanding during the period. Potential common shares included in the diluted calculation consist of incremental shares issuable upon the exercise of outstanding stock options calculated using the treasury stock method.
The following table sets forth the calculation of basic and diluted net income (loss) per share (in thousands, except per share amounts):
Three Months EndedSix Months Ended
 June 30,June 30,
 2023202220232022
Numerator:
Net income attributable to Travelzoo—continuing operations$2,624 $1,018 $6,299 $3,388 
Net loss attributable to Travelzoo—discontinued operations$2 $10 $— $(1)
Denominator:
Weighted average common shares—basic15,275 12,513 15,485 12,285 
Effect of dilutive securities: stock options62 124 72 306 
Weighted average common shares—diluted15,337 12,637 15,557 12,591 
Income per share—basic
Continuing operations$0.17 $0.08 $0.41 $0.28 
Discontinued operations— — — — 
Net income per share —basic$0.17 $0.08 $0.41 $0.28 
Income per share—diluted
Continuing operations$0.17 $0.08 $0.40 $0.27 
Discontinued operations— — — — 
Net income per share—diluted$0.17 $0.08 $0.40 $0.27 
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2017 2016 2017 2016
Numerator:       
Income (loss) from continuing operations

$(576) $1,378
 $917
 $5,001
Income from discontinued operations, net of income taxes—
 241
 1,938
 687
Net income (loss)$(576) $1,619
 $2,855
 $5,688
Denominator:

       
Weighted average common shares—basic12,628
 13,839
 13,023
 14,109
Effect of dilutive securities: stock options—
 28
 17
 10
Weighted average common shares—diluted12,628
 13,867
 13,040
 14,119
Income (loss) per share—basic:       
Continuing operations$(0.05) $0.10
 $0.07
 $0.35
Discontinued operations—
 0.02
 0.15
 0.05
Net income (loss) per share—basic$(0.05) $0.12
 $0.22
 $0.40
Income (loss) per share—diluted:       
Continuing operations$(0.05) $0.10
 $0.07
 $0.35
Discontinued operations—
 0.02
 0.15
 0.05
Net income (loss) per share—diluted$(0.05) $0.12
 $0.22
 $0.40
For each of the three and ninesix months ended SeptemberJune 30, 2017,2023 and 2022, options to purchase 562,500 and 162,500purchase 750,000 shares of common stock were not included in the computation of diluted net income per share because the effect would have been anti-dilutive. For
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Note 3: Acquisitions

Stock Purchase Agreement (“SPA”) between Travelzoo and Azzurro Capital Inc., a Related-Party
In connection with the threedevelopment of Travelzoo META, the Company acquired MTE, a wholly owned subsidiary of Azzurro, and nine months ended Septemberalso 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, 2016, options2022 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 June 30, 2023 and December 31, 2022. As of June 30, 2023, Azzurro paid the interest of $285,000, but has not yet paid the principal amount of the note. The Company submitted a letter to Azzurro seeking payment and the parties are in the process of negotiating a payment plan. Should satisfactory terms not be agreed for a payment plan, the Company shall have the right to pursue the shares serving as collateral under the promissory note.
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 200,000price.
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.

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The following table represents the allocation of the total cost of the MTE acquisition to the assets acquired (in thousands):
Fair Value
Consideration for MTE assets
Fair value of Travelzoo common stock issued$15,175 
Direct transaction costs184 
Less:
Cash received from Azzurro Capital Inc.(1,000)
Notes receivable from Azzurro Capital Inc.(4,753)
Total consideration for MTE assets$9,606 
Relative fair value of the assets acquired
Cash and cash equivalents$6 
Prepaid expenses and other45 
Property and equipment18 
Tax indemnification asset9,537 
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. The purchase price was 400,000 Euros, with an earn-out opportunity of an additional 100,000 Euros payable by the Company upon the achievement of certain metrics by the business unit in six months (September 2022). The metrics were not achieved and thus no payments were made on the earn-out. Travelzoo was granted the right to use the Secret Escapes name exclusively in Spain for a continuity period of six (6) months. The BUPA contained typical representations and warranties and indemnification protections, as well as a restrictive covenant, whereby Secret Escapes agreed to leave the Spanish market for at least three (3) years, subject to a right to purchase a waiver.
Asset Purchase Agreement between Metaverse Travel Experiences, Inc. f/k/a Azzurro Brands Inc. and Travelzoo
On March 17, 2022, the Company, as Buyer, entered into an Asset Purchase Agreement (the “APA”) with Metaverse Travel Experiences, Inc. f/k/a Azzurro Brands Inc., a New York corporation (the “Seller”) and a wholly-owned subsidiary of Azzurro, the Company’s largest shareholder. Pursuant to the APA, the Company acquired certain assets, primarily comprised of all U.S. members of Secret Escapes Limited, which Seller acquired in March 2021 and licensed exclusively to Travelzoo pursuant to the previously disclosed License Agreement, dated as of March 12, 2021 (the “License Agreement”), in accordance with data privacy and other applicable laws. The License Agreement allowed the Company to exclusively utilize the assets in exchange for a license fee of $412,500 per quarter with a one-year term that automatically renewed. The License Agreement was reviewed and unanimously approved by the Audit Committee of the Board of Directors, which consists solely of independent directors. The purchase price for the transaction was $1.75 million, with $600,000 paid in cash upon closing in March 2022 and the remaining $1.15 million payable in the form of a credit with Seller relating to prepaid license fees, under the License Agreement. The remaining commitment of the Company under the License Agreement for the then-current remaining term (equal to $825,000) was eliminated.
The Company recorded the transactions with both Secret Escape Limited and Metaverse Travel Experiences, Inc. as asset acquisitions as the assets acquired and liabilities assumed do not meet the definition of a business in Accounting Standards Codification (“ASC”) 805-10. Cost accumulation model was used to account for the cost of the acquisition and the 100,000 Euros earn-out was considered as contingent consideration based on ASC 805-50. Travelzoo acquired the database of members and recorded $2.2 million intangible assets from both agreements.
Acquisition of Jack’s Flight Club
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. The Company
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renegotiated with Jack’s Flight Club in June 2020 and reached a negotiated settlement which resulted a gain in “General and administrative expenses” for the partial forgiveness for the promissory note issued for the acquisition.
The acquisition has been accounted for using the acquisition method in accordance with ASC 805, Business Combinations. Under the acquisition method of accounting, the total purchase consideration of the acquisition is allocated to the tangible assets and identifiable intangible assets and liabilities assumed based on their relative fair values. The excess of the purchase consideration over the net tangible and identifiable intangible assets is recorded as goodwill. Accordingly, the Company allocated $3.5 million to customer relationships, $2.5 million to trade name and $660,000 to non-compete agreements and the remaining $13.1 million to goodwill. The acquisition related costs were not significant and were expensed as incurred. Jack’s Flight Club’s result have been included in the computationaccompanying financial statements from their the dates of diluted net income per share becauseacquisition. 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 effect would have been anti-dilutive.six months ended June 30, 2023.
Intangible Assets
The following table represents the fair value and estimated useful lives of intangible assets from the above acquisitions (in thousands):
Fair ValueEstimated Life (Years)
Customer relationships (Jack’s Flight Club)$3,500 5.0
Trade name (Jack’s Flight Club)2,460 indefinite
Non-compete agreements (Jack’s Flight Club)660 4.0
Intangible assets (Secret Escape Spain member database)445 3.0
Intangible assets (Secret Escape U.S. member database)1,751 2.3

Assets Measured at Fair Value on a Non-recurring Basis
The Company’s non-financial assets, such as goodwill, intangible assets and property and equipment, are adjusted to fair value if an impairment is recognized during the period. The fair value measurements are based on Level 3 inputs. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets at fair value.
The goodwill assessment was performed by comparing the fair value of the reporting units to its carrying value. The fair value estimates for the reporting units, were based on a blended analysis of the present value of future discounted cash flows and market value approach, using Level 3 inputs. The indefinite-lived intangible assets assessment was valued using the relief-from-royalty method, which includes unobservable inputs, classified as Level 3, including projected revenues and approximately 5% royalty rate.
The Company recorded a goodwill impairment of $2.1 million and a Trade name impairment of $810,000 for Jack’s Flight Club due to the pandemic in the first quarter of 2020. No impairment charge was identified and recorded for 2021. The Company performed its annual test as of October 31, 2022 and a Trade name impairment charge of $200,000 was recorded as “General and administrative expenses” for Jack’s flight club 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.
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The following table represents the activities of intangible assets for the three and six months ended June 30, 2023 and 2022 (in thousands):
Jack’s Flight ClubSecret Escape SpainSecret Escape U.S.
Intangible assets—January 1, 20223,426 
Acquisitions—March 2022— 445 1,751 
Amortization of intangible assets with definite lives(226)(12)(195)
Intangible assets—March 31, 20223,200 433 1,556 
Amortization of intangible assets with definite lives(217)(34)(194)
Intangible assets—June 30, 20222,983 399 1,362 
Amortization of intangible assets with definite lives(216)(30)(194)
Intangible assets—September 30, 20222,767 369 1,168 
Amortization of intangible assets with definite lives(216)(42)(195)
Impairment of trade name—December 31, 2022(200)— — 
Intangible assets—December 31, 20222,351 327 973 
Amortization of intangible assets with definite lives(168)(39)(195)
Intangible assets—March 31, 20232,183 288 778 
Amortization of intangible assets with definite lives(158)(36)(194)
Intangible assets—June 30, 2023$2,025 $252 $584 

Amortization expense for acquired intangibles was $388,000 and $445,000 for the three months ended June 30, 2023 and 2022, respectively. Amortization expense for acquired intangibles was $790,000 and $878,000 for the six months ended June 30, 2023 and 2022, respectively.

Expected future amortization expense of acquired intangible assets as of June 30, 2023 is as follows (in thousands):
Years ending December 31,
2023 (excluding the six months ended June 30, 2023)777 
2024588 
202546 
$1,411 
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 six months ended June 30, 2023. As of June 30, 2023, the carrying value of the Trade name was $1.5 million.
Note 3:4: Commitments and Contingencies
From time to time, the Company is subject to various claims and legal proceedings, either asserted or unasserted, that arise in the ordinary course of business. 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 June 30, 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. The Company believes that the likelihood of an ultimate amount of liability, if any, for any pending claims of any type (alone or combined) that will materially affect the Company’s financial position, results of operations or cash flows is remote. The ultimate outcome of any litigation is uncertain, however, and unfavorable outcomes could have a material negative impact on the Company’s financial condition and operating results. Regardless of outcome, litigation can have an adverse impact on the Company because of defense costs, negative publicity, diversion of management resources and other factors.
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The Company was formed as a result of a combination and merger of entities founded by the Company’s principal stockholder,shareholder, Ralph Bartel. In 2002, Travelzoo.com Corporation (“Netsurfers”) was merged into Travelzoo.the Company. Under and subject to the terms of the merger agreement, holders of promotional shares of Travelzoo.com Corporation (“Netsurfers”)Netsurfers who established that they had satisfied certain prerequisite qualifications were allowed a period of 2 years following the effective date of the merger to receive one share of Travelzoothe Company in exchange for each share of common stock of Travelzoo.com Corporation.Netsurfers. In 2004, two years following the effective date of the merger, certain promotional shares remained unexchanged. As the right to exchange these promotional shares expired, no additional shares were reserved for issuance. Thereafter, the Company began to offer a voluntary cash program for those who established that they had satisfied certain prerequisite qualifications for NetsurferNetsurfers promotional shares as further described below.
DuringFrom 2010 through 2014, the Company became subject to unclaimed property audits of various states in the United States related to the above unexchanged promotional shares and completed settlements with all states. Although the Company has settled the unclaimed property claims with all states, the Company may still receive inquiries from certain potential NetsurferNetsurfers promotional stockholdersshareholders that had not provided their state of residence to the Company by April 25, 2004. Therefore, the Company is continuing its voluntary program under which it makes cash payments to individuals related to the promotional shares for individuals whose residence was unknown by the Company and who establish that they satisfy the original


conditions required for them to receive shares of Travelzoo.com Corporation,Netsurfers, and who failed to submit requests to convert their shares into shares of Travelzoo within the required time period. This voluntary program is not available for individuals whose promotional shares have been escheated to a state by the Company, except those individuals for which their residence was unknown to the Company. The accompanying condensed consolidated financial statements include charges in general and administrative expenses of zero and $1,000 for the three and nine months ended September 30, 2016, respectively. The Company did not make any paymentmaterial payments for the three and ninesix months ended SeptemberJune 30, 2017.2023 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. The Company’s common stock price affects the liability because the amount of cash payments under the program is based in part on the recent level of the stock price at the date valid requests are received. The Company does not know how many of the requests for shares originally received by Travelzoo.com CorporationNetsurfers in 1998 were valid, but the Company believes that only a portion of such requests were valid. In order to receive payment under this voluntary program, a person is required to establish that such person validly held shares in Travelzoo.com Corporation.Netsurfers.
The Company leases office space in Australia, Canada, China, France, Germany, Hong Kong, Japan, Singapore, Spain, Taiwan, the U.K., and the U.S. under operating leases. 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 June 30, 2023. The Company maintained standby letters of credit (“LOC”) serve as collateral issued to the landlords. The LOCs are collateralized with cash which expire between March 2017 and November 2024. is included in the line item “Restricted cash” in the Consolidated Balance Sheets.
The Company has purchase commitments aggregating approximately $617,000 as of June 30, 2023, which represent the minimum obligations the Company has under agreements with certain suppliers. These minimum obligations are less than ourthe Company’s projected use for those periods. Payments may be more than the minimum obligations based on actual use.
The following table summarizes principal contractual commitments as of September 30, 2017 (in thousands):
 2017 Remaining 2018 2019 2020 2021 Thereafter Total
Operating leases$1,542
 $5,240
 $4,494
 $3,825
 $3,198
 $5,626
 $23,925
Purchase obligations408
 579
 260
 11
 —
 —
 1,258
Total commitments$1,950
 $5,819
 $4,754
 $3,836
 $3,198
 $5,626
 $25,183
Local Deals and Getaway merchant payables included in accounts payable were $11.0 million and $14.8 million, as of September 30, 2017 and December 31, 2016, respectively.
Note 4:5: Income Taxes
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, Japan, Hong Kong, and the U.K. ForThe Company’s effective tax rate from continuing operations was 29% and 47%, respectively, for the three months ended SeptemberJune 30, 20172023 and 2016,2022. The Company’s effective tax rate for the Company'sthree months ended June 30, 2023 changed from the three months ended June 30, 2022 primarily due to a decrease in non-deductible stock compensation in the three months ended June 30, 2023. The Company’s effective tax rate was 654%28% and 34%36%, respectively. Forrespectively, for the ninesix months ended SeptemberJune 30, 20172023 and 2016, the Company's2022. Our effective tax rate was 74% and 40%, respectively. The Company's effective tax rate increasedchanged for the three and ninesix months ended SeptemberJune 30, 2017 2023 from the corresponding three and ninesix months ended SeptemberJune 30, 2016,2022 primarily due primarily to a decrease in non-deductible stock compensation in the change of geographic mix of income (loss) from continuing operations, including a relative increase in foreign losses not benefited, for the three and ninesix months ended SeptemberJune 30, 2017.2023.
U.S. income and foreign withholding taxes have not been provided on undistributed earnings forAs of June 30, 2023, the Company is permanently reinvested in certain non-U.S. subsidiaries. The undistributed earnings on a book basis for theof its non-U.S. subsidiaries as of September 30, 2017 are approximately $13.9 million. The Company intendsand does not have a deferred tax liability related to reinvest these earnings indefinitely in its operations outside the U.S. If the undistributed earnings are remitted to the U.S., these amounts would be taxable in the U.S. at the current federal and state tax rates net of foreign tax credits. Also, depending on the jurisdiction any distribution may be subject to withholding taxes at rates applicable for that jurisdiction.earnings. The estimated amount of the unrecognized deferred tax liability attributed to future withholding taxes on dividend distributions of undistributed earnings for certain non-U.S. subsidiaries, which the Company intends to reinvest the related earnings indefinitely in its operations outside the U.S., is approximately $1.2 million at September 30, 2017.$724,000.
The Company maintains liabilities for uncertain tax positions. At SeptemberAs of June 30, 2017,2023, the Company had approximately $1.6$16.9 million in total unrecognized tax benefits, of which if recognized,up to $16.4 million would favorably affect the Company’s effective income tax rate.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 SeptemberJune 30, 20172023 and December 31, 2016,2022, the Company had approximately $985,000$602,000 and $951,000, respectively,$704,000 in accrued interest and penalties, related to uncertain tax positions. The Company is in various stages of multiple year examinations by federal taxing authorities. Although the timing of initiation, resolution and/or closure of audits is highly uncertain, it is reasonably possible that the balance of the gross unrecognized tax benefits related to the method of computing income taxes in certain jurisdictions and losses reported on certain income tax returns could significantly change in the next 12 months. These changes may occur through settlement with the taxing authorities or the expiration of the statute of limitations on the returns filed. The Company is unable to estimate the range of possible adjustments to the balance of the gross unrecognized tax benefits.respectively.
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The Company files income tax returns in the U.S. federal jurisdiction, and various U.S. states and foreign jurisdictions. The Company is subject to U.S. federal and certain state tax examinations for certain years after 20082018 and forward and is subject to California tax examinations for years after 2005. The material foreign jurisdictions where the Company is subject to potential examinations by tax authorities are the France, Germany, Spain and United Kingdom for tax years after 2009. The Company's 2009 federal income tax return is currently under examination, including a review of the impact of the sale of Asia Pacific business segment in 2009. These examinations may lead to ordinary course adjustments or proposed adjustments to the Company's taxes or its net operating income. The Company has received a Revenue Agent’s Report (RAR) generally issued at the conclusion of an IRS examination, which was consistent with the Notice of Proposed Adjustment the Company received earlier from the IRS for the 2009 calendar year related to the sale of our Asia Pacific business segment with additional penalties. The RAR proposes an increase to the Company's U.S. taxable income which would result in additional federal tax, federal penalty and state tax expense totaling approximately $31.0 million, excluding interest and state penalties, if any. The proposed adjustment is primarily driven by the IRS’s view that the Asia Pacific business segment assets sold by the Company had a significantly higher valuation than the sales proceeds the Company received upon the sale. The Company disagrees with the proposed adjustments and intends to vigorously contest them. The Company did not make any adjustments to its liabilities for uncertain tax positions related to the RAR during the three and nine months ended September 30, 2017 because the Company does not believe the IRS’s valuation of the Asia Pacific business segment assets is appropriate. If the Company is not able to resolve these proposed adjustments at the IRS examination level, it plans to pursue all available administrative and, if necessary, judicial remedies.2017.
Note 5:6: Accumulated Other Comprehensive Loss
The following table summarizes the changes in accumulated balances of other comprehensive loss (in thousands):
Three Months EndedSix Months Ended
June 30,June 30,
 2023202220232022
Beginning balance$(4,825)$(3,931)$(4,905)$(3,793)
Other comprehensive income (loss) due to foreign currency translation, net of tax135 (602)215 (740)
Ending balance$(4,690)$(4,533)$(4,690)$(4,533)
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2017 2016
2017 2016
Beginning balance$(3,687) $(3,625) $(3,787) $(3,908)
Other comprehensive income (loss) due to foreign currency translation, net of tax131
 (184) 231
 99
Ending balance$(3,556) $(3,809)
$(3,556) $(3,809)
        
There were no amounts reclassified from accumulated other comprehensive loss for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016.2022. Accumulated other comprehensive income (loss) consists of foreign currency translation gain or loss.
Note 6:7: Stock-Based Compensation and Stock Options
The Company accounts for its employee stock options under the fair value method, which requires stock-based compensation to be estimated using the fair value on the date of grant using an option-pricing model. The value of the portion of the award that is expected to vest is recognized on a straight-line basis as expense over the related employees’ requisite service periods in the Company’s condensed consolidated statementsstatements of operations.
In January 2012,September 2015, pursuant to an executed Nonqualified Stock Option Agreement, the Company granted certain executives stockits Global Chief Executive Officer, Holger Bartel, options to purchase 100,000400,000 shares of common stock of the Company, with an exercise price of $28.98, of which 25,000 options became exercisable annually starting January 23, 2013.$8.07 and quarterly vesting beginning on March 31, 2016 (the “2015 Option Agreement”). The 2015 Option Agreement expires in September 2025. The options expire in January 2022. During 2015, 25,000 options were canceledare now fully vested and 25,000 options were forfeited upon the departure of an executive. As of September 30, 2017, 50,000 options were outstanding and vested. As of September 30, 2017, there was no unrecognized stock-based compensation expense relatingrelated to these options.


options was fully expensed. In September 2015,October 2017, pursuant to an executed Option Agreement, the Company granted an executive stockMr. Bartel options to purchase 400,000 shares of common stock, with an exercise price of $8.07,$6.95 and quarterly vesting beginning on March 31, 2018 (the “2017 Option Agreement”). The 2017 Option Agreement expires in 2027. During 2019, 250,000 options granted pursuant to the 2017 Option Agreement were exercised by Mr. Bartel. The remaining 150,000 options are fully vested and the stock-based compensation related to these options was fully expensed. In September 2019, the Company granted Mr. Bartel options to purchase 400,000 shares of common stock subject to shareholder approval, with an exercise price of $10.79 and quarterly vesting beginning on March 31, 2020 and ending on December 31, 2021 (the “2019 Option Agreement” and together with the 2015 Option Agreement and the 2017 Option Agreements, the “Bartel Option Agreements”). 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. Additionally, the Option Agreement Amendments made the following increases: (a) 400,000 additional options to purchase the Company’s common stock pursuant to the 2015 Option Agreement, (b) 150,000 additional options to purchase the Company’s common stock pursuant to the 2017 Option Agreement, and (c) 400,000 additional options to purchase the Company’s common stock pursuant to the 2019 Option Agreement, which resulted in a total of 1,900,000 options granted to Mr. Bartel pursuant to the Option Agreement Amendments. Mr. Bartel’s amended options pursuant to the 2015 Option Agreement and the 2017 Option Agreement were fully vested upon the execution of the applicable Option Agreement Amendment. Therefore, stock-based compensation related to these options was fully expensed in second quarter of 2020. In 2021, 800,000 options granted pursuant to the 2015 Option Agreement, 300,000 options granted pursuant to the 2017 Option Agreement and 260,000 options granted pursuant to the 2019 Option Agreement were exercised by Mr. Bartel, 681,902 shares of common stock were issued as the result of a cashless exercise or net settlement with respect to the option exercise price or taxes which were approved by Travelzoo’s Board of Directors. As of December 31, 2021, stock-based compensation related to the 2019 Option Agreement and applicable Option Agreement Amendment was fully expensed. Mr. Bartel exercised
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the remaining 540,000 options granted pursuant to the 2019 Option Agreement during the three months ended June 30, 2022. 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 50,00075,000 options becamevest in total and become exercisable quarterlyannually starting Marchon September 5, 2020 and ending on December 31, 2016.2023. The options expire in September 2025. 2024. On May 29, 2020, the shareholders of the Company approved the grants, as well as certain amendments to the Option Agreements, which increased and repriced all outstanding, unexercised options granted to such employees. Pursuant to the applicable amendments, the exercise price for the options was repriced to the official NASDAQ closing share price on March 30, 2020 (the date of execution of the amendments to the Option Agreements, which immediately followed the date of approval of the grants from the Board of Directors of the Company), which was $3.49, the option grants were each increased to 100,000 each, resulting in 300,000 additional options in the aggregate. In 2020, 100,000 unvested options were forfeited upon an employee’s departure, 75,000 options were exercised and 54,258 shares of common stock were issued as the result of a cashless exercise approved by Travelzoo’s Board of Directors. 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. During the three months ended June 30, 2023, 50,000 options were exercised and 18,098 shares of common stock were issued as the result of the cashless exercises which were approved by Travelzoo’s Board of Directors. As of SeptemberJune 30, 2017, 400,0002023, 100,000 options were outstanding and 350,00025,000 of these options were vested. Total stock-based compensation related to these option grants of $72,000 was recorded in general and administrative expenses for each of the three and nine months ended SeptemberJune 30, 2017,2023 and 2022. Total stock-based compensation related to thisthese option grant were $196,000grants of $145,000 was recorded in general and $587,000, respectively.administrative expenses for each of the six months ended June 30, 2023 and 2022. As of SeptemberJune 30, 2017,2023, there was approximately $196,000$48,000 of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over 0.3the next 0.2 years.
In March 2016,On May 29, 2020, pursuant to an executed Option Agreement, the shareholders of the Company granted certain executivesapproved the grant of stock options to purchase 150,000800,000 shares of common stock to Mr. Ralph Bartel, Chairman of the Board of Directors of the Company, with an exercise price of $8.55, of which 37,500 options vest $3.49 and become exercisable annually startingquarterly vesting beginning June 30, 2020 and ending on March 7, 2017.31, 2022. The options expire in March 2026.2025. This grant was approved at the 2020 Annual Meeting of the shareholders. 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. Stock-based compensation related to this grant was fully expensed by the end of the first quarter of 2022. During the three months ended SeptemberJune 30, 2017, 37,5002023, the remaining 200,000 options were exercised and 121,307 shares of common stock were issued as the result of the cashless exercises which were approved by Travelzoo’s Board of Directors.
On May 29, 2020, pursuant to an executed Option Agreement, the shareholders of the Company approved the grant of stock options to purchase 200,000 shares of common stock to two key employees, with an exercise price of $3.49 with annual vesting starting March 30, 2021 and ending on March 31, 2024. The options expire in March 2025. In 2021, 50,000 options were exercised, and 24,474 shares of common stock were issued as the result of the cashless exercises which were approved by Travelzoo’s Board of Directors. In 2022, 50,000 unvested options were forfeited upon one employee’s departure, 25,000 options were exercised and 4,676 shares of common stock were issued as the departureresult of an executivethe cashless exercises or net settlement with respect to the option exercise price which were approved by Travelzoo’s Board of Directors. During the three months ended June 30, 2023, 50,000 options were exercised and 20,075 shares of common stock were issued as the compensation expenseresult of $19,000 was reversed. the cashless exercises which were approved by Travelzoo’s Board of Directors. As of SeptemberJune 30, 2017, 112,5002023, 25,000 options were outstanding and 37,500none of these options were vested. Total stock-based compensation for the three and nine months ended September 30, 2017, related to these option grants were $11,000of $24,000 and $100,000,$49,000 was recorded in general and administrative expenses for the three months ended June 30, 2023 and 2022, respectively. Total stock-based compensation related to these option grants of $49,000 and $98,000 was recorded in general and administrative expenses for the six months ended June 30, 2023 and 2022, respectively. As of SeptemberJune 30, 2017,2023, there was approximately $288,000$74,000 of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over 2.4the next 0.8 years.

23

SubsequentOn June 1, 2021, pursuant to an executed Option Agreement, the quartershareholders 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 June 30, 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 SeptemberJune 30, 2017,2023 and 2022, respectively. Total stock-based compensation related to this option grant of $72,000 was recorded in general and administrative expenses for each of the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023, there was approximately $215,000 of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over the next 1.5 years.
In March 2022, pursuant to an executed Option Agreement, the Company granted its Global Chief Executive Officer, Holger Bartel, options to purchase 600,000 shares of common stock of the Company, with an exercise price of $8.14 and vesting 25% every six months over two years beginning on OctoberJune 30, 2022 and ending on December 31, 2023. The options expire in March 2027. This grant was approved at the 2022 Annual Meeting of the shareholders. As of June 30, 2023, 600,000 options were outstanding and 450,000 of these options were vested. Total stock-based compensation related to this option grant of $216,000 and $433,000 was recorded in general and administrative expenses for the three months ended June 30, 2023 and 2022, respectively. Total stock-based compensation related to this option grant of $433,000 was recorded in general and administrative expenses for each of the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023, there was approximately $433,000 of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over 0.5 years.
In June 2022, the Company granted an executive stockemployee options to purchase 400,000100,000 shares of common stock with an exercise price of $6.95,$6.78 and quarterly vesting beginning on September 30, 2022 and ending on June 30, 2025 with vesting based on both time-based service condition and also performance conditions. However, if the performance targets are not met as of the first date on which 50,000the time condition is met, the time condition may be extended by one quarter up to three times. The options expire in June 2027. The Company did not recognize stock-based compensation expense for this grant as the performance targets were not achieved and thus no shares are exercisable quarterly startingwere vested in 2022. As of June 30, 2023, 100,000 options were outstanding. Total stock-based compensation related to this option grant of $30,000 and $60,000 was recorded in sales and marketing expenses for the three and six months ended June 30, 2023 and thus 16,666 shares were vested. As of June 30, 2023, there was approximately $308,000 of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over 2 years.
In March 31, 20182023, the Company granted its General Counsel and Head of Global Functions, Christina Sindoni Ciocca, 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, 2019. 2026. This grant was approved at the Annual Meeting of Stockholders held in June 2023.The options expire in 2027.March 2025. As of June 30, 2023, 200,000 options were outstanding and 25,000 of these options were vested. Total stock-based compensation related to this option grant of $52,000 and $70,000 was recorded in general and administrative expenses for the three and six months ended June 30, 2023. As of June 30, 2023, there was approximately $487,000 of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over 3.5 years.
Note 7:8: Stock Repurchase Program
The Company'sCompany’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 January 2014,June 2022, the Company announced a stock repurchase program authorizing the repurchasethat its Board of up to 500,000 shares of the Company’s outstanding common stock. During the year ended December 31, 2014, the Company repurchased 261,000 shares of common stock for an aggregate purchase price of $5.9 million, which were recorded as part of treasury stock as of December 31, 2014. During the year ended December 31, 2015, the Company repurchased 212,000 shares of common stock for an aggregate purchase price of $1.7 million. The shares repurchased under this program were retired as of December 31, 2015. There were 56,000 shares remaining to be repurchased under this program as of December 31, 2015.
In February 2016, the Company announcedDirectors approved a stock repurchase program authorizing the repurchase of up to 1,000,000 shares of the Company’s outstanding common stock. During the year ended December 31, 2016,In 2022, the Company repurchased 1,056,000306,375 shares of common stock including the 56,000 shares from the previous stock repurchase program, for an aggregate purchase price of $9.5$1.6 million, and therefore therewhich were no shares remaining to be repurchased under the repurchase programs authorized in January 2014 and January 2016recorded as part of treasury stock as of December 31, 2016. The shares repurchased were retired and recorded as a reduction of additional paid-in capital until extinguished with the remaining amount reflected as a reduction of retained earnings.2022.
In February 2017, the Company announced a stock repurchase program authorizing the repurchase of up to 1,000,000 shares of the Company’s outstanding common stock. During the three and ninesix months ended SeptemberJune 30, 2017,2023, the Company repurchased 287,713658,938 shares and 996,705693,625 shares of common stock, respectively, for an aggregate purchase price of $2.6$4.7 million and $9.7$4.9 million, respectively. The shares repurchasedrespectively, which were retired and recorded as a reduction of additional paid-in capital until extinguished withcapital. This stock repurchase program was completed in the remaining amount reflected as a reductionsecond quarter of retained earnings. There were 3,295 shares remaining to be repurchased under this program as of September 30, 2017.

2023.

24

Note 8:9: Segment Reporting and Significant Customer Information
The Company managesdetermines its reportable segments based upon the Company’s chief operating decision maker managing the performance of the business. Historically, the Company managed its business geographically and has operated in three reportable operating segments:segments including Asia Pacific, Europe and North America. 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. 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 and development 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'sCompany’s operations in Australia, China, Hong Kong, Japan, Taiwan,Canada and Southeast Asia.the U.S. Travelzoo Europe consists of the Company’s operations in France, Germany, Spain, and the U.K. North AmericaJack’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 and development business. Prior periods have been reclassified to conform with the Company’s operations in Canada and the U.S.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. Management believes that segment revenues and operating profit (loss) are appropriate measures of evaluating the operational performance of the Company’s segments. These segment disclosures have been adjusted to remove the revenue and operating profit (loss) related to discontinued operations in the current and prior periods. See "Note 9: Discontinued Operations" for further information.
The following is a summary of operating results and assetsby business segment (in thousands) by business segment::
Three Months Ended June 30, 2023Travelzoo North
America		Travelzoo EuropeJack’s Flight ClubNew InitiativesConsolidated
Revenues from unaffiliated customers$13,642 $6,462 $1,011 $13 $21,128 
Intersegment revenues (expenses)491 (575)84 — — 
Total net revenues14,133 5,887 1,095 13 21,128 
Operating profit (loss)$3,753 $(239)$97 $(338)$3,273 
Three Months Ended June 30, 2022Travelzoo North
America		Travelzoo EuropeJack’s Flight ClubNew InitiativesConsolidated
Revenues from unaffiliated customers$12,337 $4,395 $952 $5 $17,689 
Intersegment revenues (expenses)41 (41)— — — 
Total net revenues12,378 4,354 952 5 17,689 
Operating profit (loss)$3,272 $(1,472)$161 $(180)$1,781 

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Three Months Ended September 30, 2017Asia Pacific Europe 
North
America
 Consolidated
Revenues from unaffiliated customers$1,767
 $8,008
 $14,912
 $24,687
Intersegment revenues6
 (62) 56
 —
Total net revenues1,773
 7,946
 14,968
 24,687
Operating profit (loss)$(1,679) $309
 $1,388
 $18

Six Months Ended June 30, 2023Travelzoo North
America		Travelzoo EuropeJack’s Flight ClubNew InitiativesConsolidated
Revenues from unaffiliated customers$28,209 $12,540 $1,959 $21 $42,729 
Intersegment revenues (expenses)682 (766)84 — — 
Total net revenues28,891 11,774 2,043 21 42,729 
Operating profit (loss)$8,269 $218 $52 $(555)$7,984 
Three Months Ended September 30, 2016Asia Pacific Europe 
North
America
 Consolidated
Revenues from unaffiliated customers$2,521
 $8,614
 $15,688
 $26,823
Intersegment revenues36
 (140) 104
 —
Total net revenues2,557
 8,474
 15,792
 26,823
Operating profit (loss)$(798) $1,412
 $1,261
 $1,875
       
Nine Months Ended September 30, 2017Asia Pacific Europe 
North
America
 Consolidated
Six Months Ended June 30, 2022Six Months Ended June 30, 2022Travelzoo North
America		Travelzoo EuropeJack’s Flight ClubNew InitiativesConsolidated
Revenues from unaffiliated customers$5,574
 $25,231
 $48,722
 $79,527
Revenues from unaffiliated customers$23,835 $10,522 $1,775 $10 $36,142 
Intersegment revenues(38) (317) 355
 —
Intersegment revenues (expenses)Intersegment revenues (expenses)234 (234)— — — 
Total net revenues5,536
 24,914
 49,077
 79,527
Total net revenues24,069 10,288 1,775 10 36,142 
Operating profit (loss)$(4,385) $1,526
 $6,325
 $3,466
Operating profit (loss)$5,092 $(1,294)$184 $(282)$3,700 
 
Nine Months Ended September 30, 2016Asia Pacific Europe 
North
America
 Consolidated
Revenues from unaffiliated customers$7,173
 $28,893
 $51,384
 $87,450
Intersegment revenues78
 (403) 325
 —
Total net revenues7,251
 28,490
 51,709
 87,450
Operating profit (loss)$(3,080) $5,022
 $6,216
 $8,158

As of September 30, 2017Asia Pacific Europe 
North
America
 Elimination Consolidated
Long-lived assets$151
 $577
 $4,537
 $—
 $5,265
Total assets$3,490
 $49,721
 $60,473
 $(70,520) $43,164
As of December 31, 2016Asia Pacific Europe 
North
America
 Elimination Consolidated
Long-lived assets$209
 $763
 $5,186
 $—
 $6,158
Total assets$5,295
 $49,125
 $65,961
 $(66,851) $53,530


Revenue for each segment is recognized based on the customer location within a designated geographic region. Property and equipment are attributed to the geographic region in which the assets are located. Revenues from unaffiliated customers excludes intersegment revenues and represents revenue with parties unaffiliated with Travelzoothe Company and its wholly owned subsidiaries.
The following is a summary of assets by business segment (in thousands):
As of June 30, 2023Travelzoo North
America		Travelzoo EuropeJack’s Flight ClubNew InitiativesEliminationConsolidated
Long-lived assets$244 $90 $— $318 $— $652 
Total assets excluding discontinued operations$96,108 $17,958 $19,601 $439 $(75,000)$59,106 
As of December 31, 2022Travelzoo North
America		Travelzoo EuropeJack’s Flight ClubNew InitiativesEliminationConsolidated
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 three and ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, the Company did not have any customers that accounted for 10% or more of revenue. As of SeptemberJune 30, 2017,2023 and December 31, 2022, the Company did not have any customers that accounted for 10% or more of accounts receivable. As of December 31, 2016, the Company had one customer that accounted for 16% of accounts receivable.

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The following table sets forth the breakdown of revenues (in thousands) by category and segment. Travel revenue includes travel publications (Top 20, WebsiteTravelzoo website, standalone Travelzoo emails, Newsflash, Travelzoo Network), GetawayGetaways vouchers, hotel platform and hotel platform.vacation packages. Local revenue includes Local Deals vouchers and entertainment offers (vouchers and direct bookings). 
Three Months EndedSix Months Ended
Three Months Ended Nine Months Ended June 30,June 30,
September 30, September 30, 2023202220232022
2017 2016 2017 2016
Asia Pacific       
Travelzoo North AmericaTravelzoo North America
Travel$1,644
 $2,334
 $5,170
 $6,582
Travel$13,458 $11,444 $27,598 $22,489 
Local129
 223
 366
 669
Local675 934 1,293 1,580 
Total Asia Pacific revenues$1,773
 $2,557
 $5,536
 $7,251
Europe       
Total Travelzoo North America revenuesTotal Travelzoo North America revenues14,133 12,378 28,891 24,069 
Travelzoo EuropeTravelzoo Europe
Travel$7,052
 $7,357
 $21,852
 $24,440
Travel5,546 4,072 11,096 9,696 
Local894
 1,117
 3,062
 4,050
Local341 282 678 592 
Total Europe revenues$7,946
 $8,474
 $24,914
 $28,490
North America       
Travel$12,146
 $12,494
 $40,916
 $41,490
Local2,822
 3,298
 8,161
 10,219
Total North America revenues$14,968
 $15,792
 $49,077
 $51,709
Total Travelzoo Europe revenuesTotal Travelzoo Europe revenues5,887 4,354 11,774 10,288 
Jack’s Flight Club
Jack’s Flight Club
1,095 952 2,043 1,775 
New InitiativesNew Initiatives13 5 21 10 
Consolidated       Consolidated
Travel$20,842
 $22,185
 $67,938
 $72,512
Local3,845
 4,638
 11,589
 14,938
Travelzoo TravelTravelzoo Travel19,004 15,516 38,694 32,185 
Travelzoo LocalTravelzoo Local1,016 1,216 1,971 2,172 
Jack’s Flight Club
Jack’s Flight Club
1,095 952 2,043 1,775 
New InitiativesNew Initiatives13 5 21 10 
Total revenues$24,687
 $26,823
 $79,527
 $87,450
Total revenues$21,128 $17,689 $42,729 $36,142 

Revenue by geography is based on the billing address of the advertiser. Long-lived assets attributed to the U.S. and international geographies are based upon the country in which the asset is located or owned. The following table sets forth revenue for countries that exceed 10% of total revenue (in thousands):
Three Months Ended Nine Months EndedThree Months EndedSix Months Ended
September 30, September 30,June 30,June 30,
2017 2016 2017 2016 2023202220232022
Revenue       Revenue
United States$13,658
 $14,467
 $45,127
 $47,845
United States$12,749 $11,222 $26,222 $21,865 
United Kingdom4,483
 4,994
 14,136
 17,518
United Kingdom4,858 4,037 9,820 8,036 
Germany2,881
 3,042
 9,047
 9,436
Germany1,738 957 3,233 3,209 
Rest of the world3,665
 4,320
 11,217
 12,651
Rest of the world1,783 1,473 3,454 3,032 
Total revenues$24,687
 $26,823
 $79,527
 $87,450
Total revenues$21,128 $17,689 $42,729 $36,142 



The following table sets forth long lived assetproperty and equipment by geographic area (in thousands):  
 June 30,December 31,
 20232022
United States$150 $274 
China (Hong Kong)318 196 
Rest of the world184 187 
Total long-lived assets$652 $657 

27
 September 30, December 31,
 2017 2016
United States$4,124
 $4,755
Rest of the world1,141
 1,403
Total long lived assets$5,265
 $6,158

Note 9:10: Discontinued Operations

On March 30, 2017, the Company decided to discontinue10, 2020, Travelzoo issued a press release announcing that it was exiting its Search products, consisting of Fly.com and SuperSearch products. Thisloss-making business in Asia Pacific. The decision supports the Company’sCompany’s strategy to focus on value creation for shareholders by focusing on growing the businesses in North America and Europe.

The Asia Pacific business ceased operations as of March 31, 2020, except for the Company’s Japan and Singapore units, which were held for sale. The Company has classified Asia Pacific as discontinued operations at March 31, 2020. 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 months ended June 30, 2023 and 2022 (in thousands):

 Three Months EndedSix Months Ended
June 30,June 30,
 2023202220232022
Revenues$— $— $— $— 
Cost of revenues— — — — 
Gross profit— — — — 
Operating expenses:
Sales and marketing— — — — 
Product development— — — — 
General and administrative1 — 1 8 
Total operating expenses1 — 1 8 
Loss from operations(1)— (1)(8)
Other income (loss), net(1)10 1 7 
Income (loss) before income taxes(2)10 — (1)
Income tax expense— — — — 
Net income (loss)$(2)$10 $— $(1)
On June 16, 2020, in connection with its global Travelzoo® brand. On March 30, 2017,Asia Pacific exit plan, the Company ceased operationscompleted a sale of SuperSearch100% 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. 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 licensee for JPY 46 million (approximately $430,000), of which $133,000 was repaid in 2021, $113,000 was repaid during six months ended June 30, 2023, and the remaining is expected to be paid off in 2023. The Company recorded this loan as current prepaid expense and other on March 31, 2017,the condensed consolidated balance sheet as of June 30, 2023. The Company records royalties for its licensing arrangements on a one-quarter lag basis. The Company recognize royalties $4,000 for the three and six months ended June 30, 2023. The Company did not recognize royalties for the three and six months ended June 30, 2022.

On August 24, 2020, the Company soldcompleted a sale of 100% of the Fly.com domain name,outstanding capital stock of Travelzoo Singapore, to an unaffiliated entity, Finest Hotels Pty Ltd d/b/a Travelzoo (“AUS Buyer”), which hadis 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. 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. The Company records royalties for its licensing arrangements on a one-quarter lag basis. The Company recognized royalties of $9,000 and $7,000 for its licensing arrangements from the licensee in Australia for the three months ended June 30, 2023 and 2022, respectively. The Company recognized royalties of $17,000 and $12,000 for its licensing arrangements from the licensee in Australia for the six months ended June 30, 2023 and 2022, respectively.


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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):
June 30,
2023		December 31,
2022
ASSETS
Cash, cash equivalents and restricted cash$9 $10 
Accounts receivable, net— — 
Prepaid expenses and other1 1 
Total assets from discontinued operations$10 $11 
LIABILITIES
Accounts payable$402 $403 
Accrued expenses and other15 13 
Income tax payable24 24 
Deferred revenue10 12 
Total liabilities from discontinued operations$451 $452 

The net book value,cash used in operating activities for the discontinued operations for the six months ended June 30, 2023 and 2022, were as follows (in thousands):
 Six Months Ended
June 30,
 20232022
Net cash used in operating activities$(1)$(21)

Note 11: Leases
The Company has operating leases for real estate and certain equipment. The Company leases office space in Canada, Germany, Spain, the U.K., and the U.S. under operating leases. 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. In addition, we sublease real estate to a third party. There were no other assets orAll of our leases qualify as operating leases.
The following table summarizes the components of lease expense for the three months ended June 30, 2023 and 2022 (in thousands):
Three Months EndedSix Months Ended
June 30,June 30,
2023202220232022
Operating lease cost$646 $558 $1,320 $1,243 
Short-term lease cost20 — 40 — 
Variable lease cost166 170 316 391 
Sublease income(90)(88)(180)(174)
    Total lease cost$742 $640 $1,496 $1,460 
Cash payments against the operating lease liabilities transferred as part this transaction.
A reconciliationtotaled $1.7 million for each of the line items comprisingsix months ended June 30, 2023 and 2022. There was no ROU assets obtained in exchange for lease obligations for six months ended June 30, 2023 and 2022.

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The following table summarizes the resultspresentation in our condensed consolidated balance sheets of operationsour operating leases (in thousands):
June 30, 2023December 31, 2022
Assets:
Operating lease right-of-use assets$6,292 $7,440 
Liabilities:
Operating lease liabilities$2,395 $2,972 
Long-term operating lease liabilities7,493 8,326 
Total operating lease liabilities$9,888 $11,298 
Weighted average remaining lease term (years)5.745.87
Weighted average discount rate4.2 %4.3 %
Maturities of lease liabilities were as follows (in thousands):
Years ending December 31,
2023 (excluding the three months ended June 30, 2023)$1,432 
20242,152 
20251,792 
20261,387 
20271,350 
Thereafter2,925 
    Total lease payments11,038 
Less interest(1,150)
    Present value of operating lease liabilities$9,888 
Note 12: 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 Search products to the income (loss) from discontinued operations through the date of disposal presented in the condensed consolidated statements of operationsequity interest.
The non-controlling interest for the three and ninesix months ended June 30, 2023 and 2022 was as follow (in thousands):
Non-controlling interest—January 1, 2022$4,600 
Net income attributable to non-controlling interest4 
Non-controlling interest—March 31, 20224,604 
Net income attributable to non-controlling interest30 
Non-controlling interest—June 30, 20224,634 
Net income attributable to non-controlling interest2 
Non-controlling interest—September 30, 20224,636 
Net loss attributable to non-controlling interest(41)
Non-controlling interest—December 31, 20224,595 
Net income attributable to non-controlling interest8 
Non-controlling interest—March 31, 20234,603 
Net income attributable to non-controlling interest37 
Non-controlling interest—June 30, 2023$4,640 
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Note 13: Related Party Transactions
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 June 30, 2023, Azzurro is the Company’s largest stockholder, and together with Ralph Bartel, in his individual capacity, hold approximately 48.9% of the Company’s outstanding shares. Holger Bartel, the Company’s Global Chief Executive Officer, is Ralph Bartel’s brother and holds approximately 3.4% 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 June 30, 2023 and December 31, 2022. As of June 30, 2023, Azzurro paid the interest of $285,000, but has not yet paid the principal amount of the note. The Company submitted a letter to Azzurro seeking payment and the parties are in the process of negotiating a payment plan. Should satisfactory terms not be agreed for a payment plan, the Company shall have the right to pursue the shares serving as collateral under the promissory note.
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 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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Stock Option Agreement
In March 2022, the Compensation Committee of the Board of Directors granted Holger Bartel 600,000 stock options that vest through December 31, 2023. This grant was approved by the shareholders of the Company at the 2022 annual meeting of shareholders. Holger Bartel is the brother of Ralph Bartel and is our Global Chief Executive Officer. See Note 3 to the unaudited condensed consolidated financial statements for further information.
Profits from Sale and Purchase of Travelzoo Common Stock within Six Month Period
On May 23, 2023, Travelzoo was named as a nominal defendant in a complaint for recovery of short swing profits filed in the Southern District of New York under Section 16(b) of the Securities Exchange Act, by Dennis J. Donoghue and Mark Rubenstein, against Ralph Bartel, the Ralph Bartel 2005 Trust and Azzurro Capital Inc.
Holger Bartel completed sales and purchases of 25,000 shares of Travelzoo common stock within a six month period ended July 29, 2022. Per Section 16(b) of Securities and Exchange Act, he agreed to immediately remit to the Company $46,000 in profits gained from these transactions during the three months ended September 30, 2017 and 2016, in thousands, is included2022.
Note 14: Subsequent Event
On July 26, 2023, Travelzoo announced that its board of directors has authorized the repurchase of up to 1,000,000 shares of the Company’s outstanding common stock. Purchases may be made, from time to time, in the following table:open market and will be funded from available cash. The number of shares to be purchased and the timing of purchases will be based on the level of Travelzoo’s cash balances, general business and market conditions, and other factors, including alternative investment opportunities.

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 Three Months Ended Nine Months Ended
 September 30, September 30,
 2017 2016 2017 2016
Revenues from Search$—
 $3,617
 $2,088
 $11,839
Cost of revenues—
 (91) (101) (389)
Gross profit—
 3,526
 1,987
 11,450
Total operating expenses—
 (3,196) (1,817) (10,479)
Gain on sale of Fly.com domain name
—
 —
 2,890
 —
Income from discontinued operations before income taxes—
 330
 3,060
 971
Income tax expense—
 89
 1,122
 284
Income from discontinued operations, net of income taxes$—
 $241
 $1,938
 $687





Item 2.        Management’s Discussion and Analysis of Financial Condition and Results of Operations
The information in this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based upon current expectations, assumptions, estimates and projections about Travelzoo and our industry. These forward-looking statements are subject to the many risks and uncertainties that exist in our operations and business environment that may cause actual results, performance or achievements of Travelzoo to be different from those expected or anticipated in the forward-looking statements. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, words such as “may”, “will”, “should”, “estimates”, “predicts”, “potential”, “continue”, “strategy”, “believes”, “anticipates”, “plans”, “expects”, “intends”, and similar expressions are intended to identify forward-looking statements. Travelzoo’s actual results and the timing of certain events could differ significantly from those anticipated in such forward-looking statements. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those discussed elsewhere in this report in the section entitled “Risk Factors” and the risks discussed in our other SEC filings. The forward-looking statements included in this report reflect the beliefs of our management on the date of this report. Travelzoo undertakes no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other circumstances occur in the future.
Overview
Travelzoo (the “Company”) isWe are a global publisherInternet 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. We work in partnership with more than 5,000 top travel suppliers—our long-standing relationships give Travelzoo members access to irresistible offers.
Travelzoo attracts a high-quality audience of travel enthusiasts across multiple digital platforms, including email, websites, social media and entertainment offers.mobile applications. The Travelzoo website is visited by 5.4 million to 6.6 million unique visitors each month. We informhave over 284.5 million membersfollowers on Facebook, Instagram, and Twitter, Our Apple and Android mobile applications have been downloaded 7.4 million times.
We also license Travelzoo products and our intellectual property to licensees in various countries in Asia Pacific, Europeincluding but not limited to Australia, Japan and North America,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 MTE, a Metaverse experience scouting and development 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, and also completed a private placement of newly issued 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 wellfollows: (a) $1.0 million in cash paid on the Closing Date; (b) $4.8 million paid in the form of a promissory note; and (c) the transfer to the Company of all outstanding capital stock of MTE. The Company recorded the $4.8 million promissory note as millionsNote receivable from shareholder in the stockholder’' equity section on the condensed consolidated balance sheets as of website users,June 30, 2023 and December 31, 2022.As of June 30, 2023, Azzurro paid the interest of $285,000, but has not yet paid the principal amount of the note. The Company submitted a letter to Azzurro seeking payment and the parties are in the process of negotiating a payment plan. Should satisfactory terms not be agreed for a payment plan, the Company shall have the right to pursue the shares serving as collateral under the promissory note.
Jack’s Flight Club
In January 2020, Travelzoo acquired JFC Travel Group Co. (“Jack’s Flight Club”), which operates Jack’s Flight Club, a subscription service that provides members with information about the best travel, entertainment and local deals available from thousandsexceptional airfares. As of companies. Our deal experts source, negotiate, research and test-book offers, recommending only those that meet Travelzoo's rigorous quality standards. We provide travel, entertainment, and local businesses with a fast, flexible, and cost effective way to reach millions of consumers. OurJune 30, 2023, Jack’s Flight Club had over 2 million subscribers. Jack’s Flight Club’s revenues are generated primarily from advertising fees.
Our publications and products include the Travelzoo website (travelzoo.com), the Travelzoo iPhone and Android apps, the TravelzooTop 20 e-mail newsletter, and the Newsflash e-mail alert service. We operate the Travelzoo Network, a network of third-party websites that list deals published by Travelzoo. Our Travelzoo website includes Local Deals and Getaway listings that allow our members to purchase vouchers for deals from local businesses such as spas, hotels and restaurants. We receive a percentage of the face value of the voucher from the local businesses.
More than 2,000 companies use our services, including Air France, Air New Zealand, British Airways, Cathay Pacific Airways, Ctrip, Emirates, Etihad, Expedia, Fairmont Hotels and Resorts, Hawaiian Airlines, Hilton Hotels & Resorts, InterContinental Hotels Group, JPB Corporation, Lufthansa, Key Tours International, Princess Cruises, Royal Caribbean, Singapore Airlines, Starwood Hotels & Resorts Worldwide, Travelocity, United Airlines and Virgin America.
During the first quarter of 2017, the Company discontinued the operations of its SuperSearch and Fly.com products to focus on its global Travelzoo® brand and reflected the revenues and expenses for these products as discontinued operations, net of taxes, for the current and prior periods presented.subscription fees paid by members. See "Note 9: Discontinued Operations"Note 3 to the accompanying unaudited condensed consolidated financial statementstatements for further information.
We have three operating segments

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APAC Exit and Pivot to Licensing Model
In March 2020, Travelzoo exited its loss-making Asia Pacific business and pivoted to a licensing model. The Company’s Asia Pacific business was classified as discontinued operations at March 31, 2020.
Travelzoo currently has license agreements in Japan and South Korea, as well as Australia, New Zealand and Singapore. The license agreement for Japan provides a license to the licensee to use the intellectual property of Travelzoo exclusively in Japan in exchange for quarterly royalty payments based on geographic regions:net revenue over a 5 year term, with an option to renew. The territory subject to the license was amended to also include South Korea. An interest free loan was provided to the licensee for JPY 46 million (approximately $430,000), of which $133,000 was repaid in 2021, $113,000 was repaid during six months ended June 30, 2023, and the remaining is 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 June 30, 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 recognized royalties of $9,000 and $7,000 for its licensing arrangements from the licensee in Australia for the three months ended June 30, 2023 and 2022, respectively. The Company recognized royalties of $17,000 and $12,000 for its licensing arrangements from the licensee in Australia for the six months ended June 30, 2023 and 2022, respectively. The Company recognized royalties of $4,000 for its licensing arrangements from the licensee in Japan for the three and six months ended June 30, 2023. The Company did not recognize any royalty from Travelzoo Japan in 2022. We expect the royalty payments to increase over time as the effects of the pandemic subside.
Government funding
In January 2022, July 2022 and May 2023, 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, $494,000 and $205,000 from the German Federal Government Bridging Aid III plan, Bridging Aid III+ and Bridging Aid IV, 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. Travelzoo Germany applied for the funding in 2021 and 2022, respectively, and was approved by the German government in January 2022 and July of 2022 and May 2023. The Company has to submit a final declaration in connection with the grant and the declaration date has been extended from June 30, 2023 to December 31, 2023. The Company believes it was eligible to participate in the plan and is entitled to the payment and does not expect significant changes to the amount already received from the final submission. The Company recorded $1.2 million, $494,000 and $205,000 gains in Other income, net in the first and third quarters of 2022 and second quarter of 2023, respectively.
The Company also received $85,000 and $153,000 job retention related funding from Canada in the three and six months ended June 30, 2022. Such funding was recorded against salary and related expenses. The Company did not receive job retention related funding in 2023.
Historically, the Company managed its business geographically and operated in three reportable segments including Asia Pacific, Europe and North America. 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. 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 MTE, a Metaverse experience scouting and development business to support Travelzoo META. The Company’s chief operating decision maker viewed licensing and Travelzoo META 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 ourthe Company’s operations in Australia, China, Hong Kong, Japan, Taiwan,Canada and Southeast Asia.the U.S. Travelzoo Europe consists of ourthe Company’s operations in France, Germany, Spain, and the U.K. North AmericaJack’s Flight Club consists of our operations in Canadasubscription revenue from premium members to access and the U.S.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 Metaverse experience scouting and development business.
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When evaluating the financial condition and operating performance of the Company, management focuses on financial and non-financial indicators such as growth in the number of members to the Company’s newsletters, operating margin, growth in revenues in the absolute and relative to the growth in reach of the Company’s publications measured as revenue per member and revenue per employee as a measure of productivity.
How We Generate Revenues
OurTravelzoo
Revenues from the Travelzoo brand and business are generated primarily from advertising fees from two categories of revenue: Travel and Local.
The “Travel” category consists of advertising or publishing revenues, are advertising revenues, consisting primarily of(a) listing fees paid by travel entertainment and local businesses to advertisecompanies for the publishing of their offers on Travelzoo’s media properties.properties and (b) commission from the sale of Getaways vouchers. Listing fees are based on audience reach, placement, number of listings, number of impressions, number of clicks, number of referrals, or percentageand actual sales. For publishing revenue, we recognize revenue upon delivery of the face valueemails and delivery of vouchers sold.the clicks, over the period of the placement of the advertising. Insertion orders for publishing revenue are typically for periods between one month and twelve months and are not automatically renewed. For Getaways vouchers, we recognize a percentage of the face value of the vouchers upon the sale of the vouchers. Merchant agreements for Local Deals and GetawayGetaways advertisers are typically for periods between twelve months and twenty-four months and are not automatically renewed. WeSince the second quarter of 2020, the Company expanded its vouchers refund policy in order to entice customers given the current economic climate to fully refundable until the voucher expires or is redeemed by the customer. The Company now offers full refunds for vouchers that have two separate groupsnot been redeemed or expired. The expiration dates of our advertising products: Travelvouchers range between July 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 and Local.


Our Travel category of revenue includes the publishing revenuefinal payment upon expiration may not be due for negotiated high-quality deals from travel companies, such as hotels, airlines, cruises or car rentals and includes products such as Top 20, Travelzoo website, Newsflash, Travelzoo Network as well as Getaway vouchers.up to a year after expiration. The revenues generated from these productsLocal Deals vouchers and entertainment offers are based upon a fee for number of e-mails delivered to our audience, a fee for clicks delivered to the advertisers, a fee for placementpercentage of the advertisingface value of the vouchers, commission on our websiteactual sales or a listing fee based on audience reach. For Local Deals vouchers, we recognize a percentage of the face value of vouchers sold, hotel booking stays or other items sold. We recognize revenue upon delivery of the e-mails, delivery of the clicks, over the period of placement of the advertising, upon hotel booking stays and upon the sale of the vouchers. The Company estimated the refund reserve by using historical and current refund rates by product and by merchant location to calculate the estimated future refunds. As of June 30, 2023, the Company had approximately $6.0 million of unredeemed vouchers orthat had been sold through June 30, 2023 representing the Company’s commission earned from the sale. The Company had estimated a refund liability of $572,000 for these unredeemed vouchers as of June 30, 2023 which is recorded as a reduction of revenues and is reflected as a current liability in Accrued expenses and other items sold.on the consolidated balance sheet. The Company has recorded Merchant Payables of $23.9 million as of June 30, 2023 related to unredeemed vouchers. Certain merchant contracts allow the Company to retain the proceeds from unredeemed vouchers. With these contracts, the Company estimates the value of vouchers that will ultimately not be redeemed and records the estimate as revenues in the same period.
Our LocalThe "Local" category consists of revenue includes the publishing revenue for negotiated high-quality deals from local businesses, such as restaurants, spas, shows, and other activities and includes Local Deals vouchers and entertainment offers (vouchers and direct bookings). The revenues generated from these products are based upon a percentage of the face value of the vouchers, or items soldcommission on actual sales or a listing fee for clicks delivered to the advertisers.based on audience reach. We recognize revenue upon the sale of the vouchers, when we receiveupon notification of the amount of direct bookings or upon delivery of the clicks. The Company earnsemails. For Local Deals vouchers, we recognize a fee for acting as an agent in these transactions, which is recorded on a net basis and is included in revenue upon completionpercentage of the voucher sale.face value of vouchers upon the sale of the vouchers. Insertion orders and merchant agreements for Local are typically for periods between one month and twelve months and are not automatically renewed. Certain merchant contracts in foreign locations allow us to retain fees related to vouchers sold that are not redeemed by purchasers upon expiration, which we recognize as revenue afterbased upon estimates at the expirationtime of sale.
Jack’s Flight Club
Jack’s Flight Club revenue is generated from paid subscriptions by members. Subscription options are quarterly, semi-annually, and annually. We recognize the redemption period and after there are no further obligations to provide funds to merchants, members or others.revenue monthly pro rata over the subscription period.
Trends in Our Business
Our ability to generate revenues in the future depends on numerous factors such as our ability to sell more advertising to existing and new advertisers, our ability to increase our audience reach and advertising rates, our ability to have sufficient supply of hotels offered at competitive rates, and our ability to develop and launch new products.products and our ability to continue to service our members without interruption. Our ability to generate revenues is also dependent on trends impacting the travel industry and online advertising businesses more broadly.
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Our current revenue model primarily depends on advertising fees paid primarily by travel, entertainment and local businesses. A number of factors can influence whether current and new advertisers decide to advertise their offers with us. We have been impacted and expect to continue to be impacted by external factors such as the shift from offline to online advertising, the relative condition of the economy, competition and the introduction of new methods of advertising, and the decline in consumer demand for vouchers.vouchers and travel more generally. A number of factors will have impact on our revenue, such as the reduction in spending by travel intermediaries due to their focus on improving profitability, the trend towards mobile usage by consumers, the willingness of consumers to purchase the deals we advertise, and the willingness of certain competitors to grow their business unprofitably. In addition, we have been impacted and expect to continue to be impacted by internal factors such as introduction of new technologies and advertising products, hiring and relying on key employees for the continued maintenance and growth of our business and ensuring our advertising products continue to attract the audience that advertisers desire. We also have been impacted and expect to continue to be impacted by external factors, such as the global pandemic, which decrease the demand for travel and entertainment and increasing cybersecurity risks due to increased dependence on digital technologies. We also could be indirectly impacted by climate change and related legislation to the extent such legislation impacts the businesses of our advertisers such as airlines and cruise ship operators, which have come under increasing scrutiny for their carbon footprints.

ExistingAdditionally, existing advertisers may shift from one advertising service (e.g. Top 20) to another (e.g. Local Deals and GetawayGetaways). These shifts between advertising services by advertisers could result in no incremental revenue or less revenue than in previous periods depending on the amount purchased by the advertisers, and in particular with Local Deals and GetawayGetaways, depending on how many vouchers are purchased by members. In addition, we are anticipating a shift from our existing hotel revenue to commission-based hotel revenue as we expand the use of our hotel platform, which may result in lower revenue depending on volume of hotel bookings.

Local revenues have been and may continue to decline over time due to market conditions driven by competition and declines in consumer demand. In the last several years, we have seen a decline in the number of vouchers sold and a decrease in the average take rate earned by us from the merchants for voucher sold.

However, due to the global pandemic and the increase in demand by consumers for fully refundable travel options, we have now begun to see a slight reversal of this trend and an increase in the sale of Getaways hotel vouchers. Demand for restaurants and spas continues to be low due to the global pandemic.
Our ability to continue to generate advertising revenue and generate subscription revenue through Jack’s Flight Club depends heavily upon our ability to maintain and grow an attractive audience for our publications. We monitor our members to assess our efforts to maintain and grow our audience reach. We obtain additional members and activity on our websites by acquiring traffic from Internet search companies. The costs to grow our audience have had, and we expect will to continue to have, a significant impact on our financial results and can vary from period to period. We may have to increase our expenditures on acquiring traffic to continue to grow or maintain our reach of our publications due to competition. We continue to see a shift in the audience to accessing our services through mobile devices and social media. WeWhen funds are available for marketing spend, we are addressing this growing channel of our audience through development of our mobile applications and throughincreased marketing on social media channels. However, we will need to keep pace with technological change and this trend to further address this shift in the audience behavior in order to offset any related declines in revenue.



We believe that we can increase our advertising rates only if the reach of our publications increases. We do not know if we will be able to increase the reach of our publications. If we are able to increase the reach of our publications, we still may not be able to or want to increase rates given market conditions such as intense competition in our industry. We have not had any significant rate increase in recent years due to intense competition in our industry. Even if we increase our rates, the increased price may reduce the amountnumber of advertisers willing to advertise with us and, therefore, decrease our revenue. We may need to decrease our rates based on competitive market conditions and the performance of our audience in order to maintain or grow our revenue.
We do not know what our cost of revenues as a percentage of revenues will be in future periods. Our cost of revenues may increase if the face value of vouchers that we sell for Local Deals and GetawayGetaways increases or the total number of vouchers sold increases because we have credit card fees based upon face value of vouchers sold, due to customer service costs related to vouchers sold and due to refunds to members on vouchers sold. Our cost of revenues are expected to increase due to our effort to develop our hotel booking platform as well. We expect fluctuations in cost of revenues as a percentage of revenues from quarter to quarter. Some of the fluctuations may be significant and may have a material impact on our results of operations.
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We do not know what our sales and marketing expenses as a percentage of revenue will be in future periods. Increased competition in our industry may require us to increase advertising for our brand and for our products. In order to increase the reach of our publications, we have to acquire a significant number of new members in every quarter and continue to promote our brand. One significant factor that impacts our advertising expenses is the average cost per acquisition of a new member. Increases in the average cost of acquiring new members may result in an increase of sales and marketing expenses as a percentage of revenue. We believe that the average cost per acquisition depends mainly on the advertising rates which we pay for media buys, our ability to manage our member acquisition efforts successfully, the regions we choose to acquire new members and the relative costs for that region, and the degree of competition in our industry. We may decide to accelerate our member acquisition, including through merger and acquisition activity, for various strategic and tactical reasons and, as a result, increase our marketing and other expenses. We expect the average cost per acquisition to increase with our increased expectations for the quality of the members we acquire. We may see an unique opportunity for a brand marketing campaign that will result in an increase of marketing expenses. In addition, there may be a significant number of members that cancel or we may cancel their subscription for various reasons, which may drive us to spend more on member acquisition in order to replace the lost members. Further, we expect to continue our strategy over time to replicate our business model in selected foreign markets to result in a significant increase in our sales and marketing expenses and have a material adverse impact on our results of operations. For example, in August of 2015 we acquired our Asia Pacific business, which we intend on increasing our investment in audience in this region. Due to the continued desire to grow our business in Asia Pacific, Europe and North America, we expect relatively high level of sales and marketing expenses in the foreseeable future. We expect fluctuations in sales and marketing expenses as a percentage of revenue from year to year and from quarter to quarter. Some of the fluctuations may be significant and have a material impact on our results of operations. We expect increased marketing expense to spur continued growth in members and revenue in future periods; however, we cannot be assured of this due to the many factors that impact our growth in members and revenue. We expect to adjust the level of such incremental spending during any given quarter based upon market conditions, as well as our performance in each quarter. We have increased and may continue to increase our spending on sales and marketing to increase the number of our members and address the growing audience from mobile and social media channels, as well as to increase our analytic capabilities to continuously improve the presentation of our offerings to our audience.
We do not know what our product development expenses as a percentage of revenue will be in future periods. There may be fluctuations that have a material impact on our results of operations. Product development changes may lead to reductions of revenue based on changes in presentation of our offerings to our audience. We expect our efforts on developing our product and services will continue to be a focus in the future, which may lead to increased product development expenses. This increase in expense may be the result of an increase in costs related to third party technology service providers and software licenses, headcount, the compensation related to existing headcount and the increased use of professional services. We expect our continued expansion into foreign markets and development of new advertising formats to result in a significant additional increase in our product development expenses. We expect to incur additional costs related to the development of our hotel platform capabilities, which we are developing, in part, to address the shift to mobile devices. We also may increase our investment in product development to ensure our products are suited for different regions such as Asia Pacific. In addition, we expect to incur additional costs related to the development of our search capabilities of our website and mobile applications.


We do not know what our general and administrative expenses as a percentage of revenue will be in future periods. There may be fluctuations that have a material impact on our results of operations. We expect our headcount to continue to increase in the future. The Company’s headcount is one of the main drivers of general and administrative expenses. Therefore, we expect our absolute general and administrative expenses to continue to increase. We expect our continued expansion into foreign markets to result in an increase in our general and administrative expenses. Our general and administrative expenses as a percentage of revenue may also fluctuate depending on the number of requests received related to a program under which the Company intends to make cash payments to people who establish that they were former stockholders of Travelzoo.com Corporation, whose claims were not escheated to states and who failed to submit requests to convert shares into Travelzoo within the required time period. We expect an increase in professional fees for various initiatives.
We do not know what our income taxes will be in future periods. There may be fluctuations that have a material impact on our results of operations. Our income taxes are dependent on numerous factors such as the geographic mix of our taxable income, foreign, federal, and state and foreign countrylocal tax law and regulations and changes thereto,thereto. Our income taxes are also dependent on the determination of whether valuation allowances for certain tax assets are required or not, audits of prior years' tax returns resultingthat result in adjustments, resolution of uncertain tax positions and different treatmenttreatments for certain items for tax versus books, such as the disposition of our Asia Pacific business in 2009 and the acquisition of our Asia Pacific business in 2015.books. We expect fluctuations in our income taxes from year to year and from quarter to quarter. Some of the fluctuations may be significant and have a material impact on our results of operations.
With the impact to revenues caused by the global pandemic, spending by the Company in many areas within the business was slowed or stopped, including but not limited to, marketing, technology and human resources. For example, in 2020, the Company ceased operations in Asia Pacific, conducted employee furloughs and restructured its employees significantly. The Company also renegotiated many of its outstanding contractual obligations with vendors and closed some ancillary office locations in order to reduce capital expenditures. We do not anticipate that any additional cost-cutting measures will be necessary at this time. Instead, the Company is beginning to invest again in marketing, technology and human resources in line with the recovery of its revenue from the effects of the pandemic.
The key elements of our growth strategy include building a travel and lifestyle brand with a large, high-quality user base and offering our users products that keep pace with consumer preference and technology, such as the trend toward mobile usage by consumers.consumers and toward fully refundable travel deals given the uncertainty of the global pandemic. We expect to continue our efforts to grow; however, we may not grow or we may experience slower growth. Some examples of our efforts to expand our business internationally since our inception in the U.S. have been expansion to the U.K. in 2005, Canada in 2006, Germany in 2006, France in 2007, and Spain in 2008. In addition, from 2007 through 2009 we began operations in Asia Pacific, including in Australia, China, Hong Kong, Japan, Taiwan, and Southeast Asia. We also have launched new products to grow our revenue, such as Local Deals in 2010, Getaway in 2011, as well as our mobile application launches in 2011 and 2012. In late 2012, we bought an online hotel platform to assist in our development of a product to better serve hotels and to facilitate the development of our hotel platform. We have also increased our spending on addressing the shift of our audience to mobile devices and social media.
We believe that we can sell more advertising if the market for online advertising continues to grow and if we can maintain or increase our market share. We believe that the market for advertising continues to shift from offline to online. We do not know if we will be able to maintain or increase our market share. We do not know if we will be able to increase the number of our advertisers in the future. We do not know if we will have market acceptance of our new products or whether the market will continue to accept our existing products.



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Results of Operations
The following table sets forth, as a percentage of total revenues, the results from our operations for the periods indicated.
 
Three Months EndedSix Months Ended
 June 30,June 30,
 2023202220232022
Revenues100.0 %100.0 %100.0 %100.0 %
Cost of revenues13.6 12.2 13.0 13.8 
Gross profit86.4 87.8 87.0 86.2 
Operating expenses:
Sales and marketing48.0 47.9 45.5 47.2 
Product development2.5 2.6 2.4 2.5 
General and administrative20.4 27.2 20.4 26.3 
Total operating expenses70.9 77.7 68.3 76.0 
Operating income15.5 10.1 18.7 10.2 
Other income, net2.3 1.1 1.9 4.5 
Income from continuing operations before income taxes17.8 11.2 20.6 14.7 
Income tax expense5.2 5.2 5.8 5.2 
Income from continuing operations12.6 6.0 14.8 9.5 
Income (loss) from discontinued operations, net of taxes— — — — 
Net income12.6 6.0 14.8 9.5 
Net income attributable to non-controlling interest0.2 0.2 0.1 0.1 
Net income attributable to Travelzoo12.4 %5.8 %14.7 %9.4 %
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 Three Months Ended Nine Months Ended
 September 30, September 30,
 2017 2016 2017 2016
Revenues100.0 % 100.0% 100.0% 100.0%
Cost of revenues12.2
 12.2
 11.9
 12.1
Gross profit87.8
 87.8
 88.1
 87.9
Operating expenses:       
Sales and marketing56.6
 52.5
 54.7
 51.5
Product development9.4
 8.3
 8.8
 8.0
General and administrative21.7
 20.0
 20.2
 19.0
Total operating expenses87.7
 80.8
 83.7
 78.5
Income from continuing operations0.1
 7.0
 4.4
 9.4
Other income (loss), net0.3
 0.9
 0.1
 0.2
Income from continuing operations before income taxes0.4
 7.9
 4.5
 9.6
Income tax expense2.7
 2.8
 3.3
 3.9
Income (loss) from continuing operations(2.3) 5.1
 1.2
 5.7
Income from discontinued operations, net of income taxes—
 0.9
 2.4
 0.8
Net income (loss)(2.3)% 6.0% 3.6% 6.5%



Operating Metrics
The following table sets forth, selected operating metricsas a percentage of total revenues, the results from our operations for Asia Pacific, Europethe periods indicated.
Three Months Ended
 June 30,
 20232022
North America
Total members (1)16,225,000 16,541,000 
Average cost per acquisition of a new member$4.68 $2.82 
Revenue per member (2)$3.56 $2.85 
Revenue per employee (3)$448,000 $408,000 
Mobile application downloads4,158,000 4,014,000 
Social media followers3,260,000 3,225,000 
Europe
Total members (1)9,197,000 9,083,000 
Average cost per acquisition of a new member$4.59 $4.20 
Revenue per member (2)$2.61 $2.45 
Revenue per employee (3)$238,000 $213,000 
Mobile application downloads2,356,000 2,261,000 
Social media followers898,000 898,000 
Jack's Flight Club
Total members2,187,000 1,798,000 
Consolidated
Total members (1)27,609,000 27,422,000 
Average cost per acquisition of a new member$4.64 $3.52 
Revenue per member (2)$2.77 $2.41 
Revenue per employee (3)$356,000 $320,000 
Mobile application downloads7,524,000 7,181,000 
Social media followers4,158,000 4,153,000 

(1)Members represent individuals who are signed up to receive one or more of our free email publications that present our travel, entertainment and North America:local deals.
(2)Annualized revenue divided by number of members at the beginning of the year.
(3)Annualized revenue divided by number of employees at the end of the quarter.

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 Three Months Ended
 September 30,
 2017 2016
Asia Pacific   
Total members (1)3,622,000
 3,603,000
Average cost per acquisition of a new member$2.71
 $2.98
Revenue per member (2)$2.05
 $2.77
Revenue per employee (3)$80,600
 $116,000
Mobile application downloads682,000
 635,000
Social media followers538,000
 483,000
Europe   
Total members (1)8,528,000
 8,203,000
Average cost per acquisition of a new member$2.28
 $2.31
Revenue per member (2)$4.07
 $4.83
Revenue per employee (3)$212,000
 $227,000
Mobile application downloads1,630,000
 1,567,000
Social media followers675,000
 637,000
North America   
Total members (1)17,436,000
 17,391,000
Average cost per acquisition of a new member$1.85
 $2.10
Revenue per member (2)$3.80
 $4.01
Revenue per employee (3)$302,000
 $310,000
Mobile application downloads3,105,000
 2,986,000
Social media followers2,507,000
 2,507,000
Consolidated   
Total members (1)29,452,000
 29,059,000
Average cost per acquisition of a new member$2.08
 $2.25
Revenue per member (2)$3.68
 $4.11
Revenue per employee (3)$226,000
 $243,000
Mobile application downloads5,417,000
 5,188,000
Social media followers3,720,000
 3,627,000


(1)Members represent individuals who are signed up to receive one or more of our free email publications that present our travel, entertainment and local deals.
(2)Annualized revenue divided by number of members at the beginning of the year.
(3)Annualized revenue divided by number of employees at the end of the quarter.



Revenues
The following table sets forth the breakdown of revenues (in thousands) by category and segment. Travel revenue includes travel publications (Top 20, Website, Newsflash, Travelzoo website, Standalone email newsletters, Travelzoo Network), GetawayGetaways vouchers, and hotel platform.platform and vacation packages. Local revenue includes Local Deals vouchers and entertainment offers (vouchers and direct bookings).
Three Months EndedSix Months Ended
 June 30,June 30,
 2023202220232022
Travelzoo North America
Travel$13,458 $11,444 $27,598 $22,489 
Local675 934 1,293 1,580 
Total Travelzoo North America revenues14,133 12,378 28,891 24,069 
Travelzoo Europe
Travel5,546 4,072 11,096 9,696 
Local341 282 678 592 
Total Travelzoo Europe revenues5,887 4,354 11,774 10,288 
Jack’s Flight Club1,095 952 2,043 1,775 
New Initiatives13 5 2110
Consolidated
Travelzoo Travel19,004 15,516 38,694 32,185 
Travelzoo Local1,016 1,216 1,971 2,172 
Jack’s Flight Club1,095 952 2,043 1,775 
New Initiatives13 5 21 10 
Total revenues$21,128 $17,689 $42,729 $36,142 
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2017 2016 2017 2016
Asia Pacific       
Travel$1,644
 $2,334
 $5,170
 $6,582
Local129
 223
 366
 669
Total Asia Pacific revenues$1,773
 $2,557
 $5,536
 $7,251
Europe       
Travel$7,052
 $7,357
 $21,852
 $24,440
Local894
 1,117
 3,062
 4,050
Total Europe revenues$7,946
 $8,474
 $24,914
 $28,490
North America       
Travel$12,146
 $12,494
 $40,916
 $41,490
Local2,822
 3,298
 8,161
 10,219
Total North America revenues$14,968
 $15,792
 $49,077
 $51,709
Consolidated       
Travel$20,842
 $22,185
 $67,938
 $72,512
Local3,845
 4,638
 11,589
 14,938
Total revenues$24,687
 $26,823
 $79,527
 $87,450
Travelzoo North America
Asia Pacific
Asia PacificNorth America revenues decreased $784,000increased $1.8 million for the three months ended SeptemberJune 30, 20172023 from the three months ended SeptemberJune 30, 2016. The decrease2022. This increase was primarily due to a $673,000 decrease$2.0 million increase in Travel revenues, a $83,000offset partially by $259,000 decrease in Local revenues. The increase in Travel revenue of $2.0 million was primarily due to the increase of revenues from Top 20 and Standalone. The decrease in Local revenues of $259,000 was primarily due to the decrease in number of Local Deals vouchers sold.
North America revenues increased $4.8 million for the six months ended June 30, 2023 from the six months ended June 30, 2022. This increase was primarily due to $5.1 million increase in Travel revenues, offset partially by $287,000 decrease in Local revenues. The increase in Travel revenue of $5.1 million was primarily due to $4.4 million increase as a result of higher revenues from Top 20and a $28,000Standalone and $794,000 increase in hotel commission. The decrease in Local revenues of $287,000 was primarily due to the decrease in number of Local Deals vouchers sold.
Travelzoo Europe
Europe revenues increased $1.5 million for the three months ended June 30, 2023 from the three months ended June 30, 2022. The increase was primarily due to $1.5 million increase in Travel revenues and $61,000 increase in Local revenue, offset partially by $73,000 negative impact from foreign currency movements relative to the U.S. dollar. The decreaseincrease in Travel revenue of $673,000$1.5 million was primarily due to the decreased numberincrease of emails sentrevenues from Top 20 and paid clicks.Standalone. The decreaseincrease in Local revenues of $83,000$61,000 was primarily due to the decreasedincrease in number of Local Dealsvouchers sold.
Asia PacificEurope revenues decreased $1.7increased $1.5 million for the ninesix months ended SeptemberJune 30, 20172023 from the ninesix months ended SeptemberJune 30, 2016.2022. The decreaseincrease was primarily due to a $1.3$1.8 million decreaseincrease in Travel revenues a $273,000 decreaseand $113,000 increase in Local revenues, and a $135,000revenue, offset partially by $447,000 negative impact from foreign currency movements relative to the U.S. dollar. The decreaseincrease in Travel revenue of $1.3$1.8 million was primarily due to the decreased$2.5 million increase as a result of higher revenues from Top 20 andStandalone, offset partially by $626,000 decrease in Getaways revenue due to a decrease in number of emails sent and paid clicks.vouchers sold. The decreaseincrease in Local revenues of $273,000$113,000 was primarily due to the decreasedincrease in number of Local Dealsvouchers sold.
Europe
Europe revenues decreased $528,000
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Jack’s Flight Club
Travelzoo acquired 60% of the Shares of Jack’s Flight Club on January 13, 2020. Jack’s Flight Club's premium members pay subscription fees quarterly, semi-annually or annually to receive emails or app notifications of flight deals. Jack’s Flight Club’s revenue increased by $143,000 and $268,000, respectively, for three and six months ended June 30, 2023 as compared to the three and six months ended June 30, 2022 due to the increase of premium members.
New Initiatives
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 MTE, a Metaverse experience scouting and development business to support Travelzoo META. Revenue from New Initiatives business segment was $13,000 and $5,000 for the three months ended SeptemberJune 30, 20172023 and 2022, respectively. Revenue from New Initiatives business segment was $21,000 and $10,000 for the threesix months ended SeptemberJune 30, 2016. This decrease was primarily due to a $479,000 decrease in Travel revenues, a $232,000 decrease in Local revenues2023 and a $183,000 positive impact from foreign currency movements relative to the U.S. dollar. The decrease in Travel revenue of $479,000 was primarily due to an decreased number of emails sent. The decrease in Local revenues of $232,000 was primarily due to the decreased number of Local Deals vouchers sold.2022, respectively.
Europe revenues decreased $3.6 million for the nine months ended September 30, 2017 from the nine months ended September 30, 2016. This decrease was primarily due to a $1.4 million decrease in Travel revenues and a $752,000 decrease in Local revenues and a $1.4 million negative impact from foreign currency movements relative to the U.S. dollar. The decrease in Travel revenue of $1.4 million was primarily due to the decreased number of emails sent and the decreased number of Getaway vouchers sold. The decrease in Local revenues of $752,000 was primarily due to the decreased number of Local Deals vouchers sold.


North America
North America revenues decreased $824,000 for the three months ended September 30, 2017 from the three months ended September 30, 2016. This decrease was primarily due to a $348.000 decrease in Travel revenues and a $476,000 decrease in Local revenues. The decrease in Travel revenue of $348,000 was primarily due to the decreased number of emails sent and the decreased number of Getaway vouchers sold. The decrease in Local revenues of $476,000 was primarily due to the decreased number of Local Deals vouchers sold.
North America revenues decreased $2.6 million for the nine months ended September 30, 2017 from the nine months ended September 30, 2016. This decrease was primarily due to the decrease in Travel and Local revenues. The decrease in Travel revenue of $575,000 was primarily due to the decreased number of Getaway vouchers sold and paid clicks, offset partially by the increased number of emails sent. The decrease in Local revenues of $2.1 million was primarily due to the decreased number of Local Deals vouchers sold.
For the three and nine months ended September 30, 2017 and 2016, none of our customers accounted for 10% or more of our revenue.
Cost of Revenues
Cost of revenues consists primarily of network expenses, including fees we pay for co-location services and depreciation and maintenance of network equipment, payments made to third-party partners of the Travelzoo Network, amortization of capitalized website development costs, credit card fees, certain estimated refunds to members and customer service costs associated with vouchers we sell and hotel bookings, and salary and related expenses associated with network operations and customer service staff.employees. Cost of revenues was $3.0$2.9 million and $3.3$2.2 million, respectively, for the three months ended SeptemberJune 30, 20172023 and September 30, 2016, respectively.2022. Cost of revenues was $9.4$5.6 million and $10.6$5.0 million, respectively, for the ninesix months ended SeptemberJune 30, 20172023 and September 30, 2016, 2022, respectively.
Cost of revenue decreased $252,000revenues increased $717,000 for the three months ended SeptemberJune 30, 20172023 from the three months ended SeptemberJune 30, 2016. This decrease was2022 primarily due to a $108,000 decrease$322,000 increase in credit card fees paid related to vouchers and a $68,000 decrease in network expense.
Cost of revenue decreased $1.1 million for the nine months ended September 30, 2017expenses from the nine months ended September 30, 2016. This decrease was primarily due to a $563,000 decrease in payments made to third-party partners of the Travelzoo Network, and a $340,000 decrease$131,000 increase in credit card fees paid relatedand $121,000 increase in software license expenses
Cost of revenues increased $576,000 for the six months ended June 30, 2023 from the six months ended June 30, 2022 primarily due to vouchers.$309,000 increase in expenses from third-party partners of the Travelzoo Network, $142,000 increase in credit card fees and $131,000 increase in professional services expenses.
Operating Expenses
Sales and Marketing
Sales and marketing expenses consist primarily of advertising and promotional expenses, salary and related expenses associated with sales, marketing and production staff,employees, expenses related to our participation in industry conferences, public relations expenses and facilities costs. Sales and marketing expenses were $14.0$10.1 million and $14.1$8.5 million for the three months ended SeptemberJune 30, 20172023 and 2016,2022, respectively. Sales and marketing expenses were $43.5$19.4 million and $45.1$17.1 million for the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, respectively. Advertising expenses consistconsist primarily of online advertising referredwhich we refer to as traffic acquisition cost and member acquisition costs. For the three months ended SeptemberJune 30, 20172023 and 2016,2022, advertising expenses accounted for 17%for 28% and 16%25%, respectively, of the total sales and marketing expenses, respectively.expenses. For the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, advertising expenses accounted for 14%27% and 19%21%, respectively, of the total sales and marketing expenses, respectively.expenses. The goal of our advertising was to acquire new members to our e-mailemail products, increase the traffic to our websites, increase brand awareness and increase our audience through mobile and social media channels.
Sales and marketing expenses decreased $102,000increased $1.7 million for the three months ended SeptemberJune 30, 20172023 from the three months ended SeptemberJune 30, 2016 primarily due to the decrease in member acquisition costs.
Sales and marketing expenses decreased $1.5 million for the nine months ended September 30, 2017 from the nine months ended September 30, 2016.2022. The decreaseincrease was primarily due to a $1.3 million decrease$619,000 increase in salary and headcount related expenses, $498,000 increase in member acquisition costs and a $299,000 decrease$248,000 increase in brand marketing costs.expenses.

Sales and marketing expenses increased $2.4 million for the six months ended June 30, 2023 from the six months ended June 30, 2022. The increase was primarily due to $1.2 million increase in member acquisition costs, $939,000 increase in salary and headcount related expenses and $151,000 increase in marketing expenses.

.
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Product Development
Product development expenses consist primarily of compensation forsalary and related expenses associated with software development staff,employees, fees for professional services, software maintenance, and amortization, and facilities costs. Product development expenses were $2.3 million$518,000 and $2.2 million$454,000 for the three months ended SeptemberJune 30, 20172023 and 2016,2022, respectively. Product development expenses were $7.0$1.0 million and $907,000 for each of the ninesix months ended SeptemberJune 30, 20172023 and 2016.2022, respectively.
Product development expenses increased $85,000$64,000 for the three months ended SeptemberJune 30, 20172023 from the three months ended SeptemberJune 30, 20162022 primarily due to additional professional service expenses.the expenses of the New Initiative segment for developing Travelzoo META and scouting, compiling and developing Metaverse travel experiences.
Product development expenses were consistentincreased 101,000 for ninethe six months ended SeptemberJune 30, 2017 and2023 from the ninesix months ended SeptemberJune 30, 2016.2022 primarily due to the expenses of the New Initiative segment for developing Travelzoo META and scouting, compiling and developing Metaverse travel experiences.
General and Administrative
General and administrative expenses consist primarily of compensation for salary and related expenses associated with administrative and executive employees, bad debt expense, professional service expenses, legal expenses, amortization of intangible assets, general office expense and facilities costs. General and administrative expenses were $5.4$4.3 million and $4.8 million for each of the three months ended SeptemberJune 30, 20172023 and 2016.2022, respectively. General and administrative expenses were $16.1$8.7 million and $16.6$9.5 million for the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, respectively.
General and administrative expenses were consistentdecreased $496,000 for the three months ended SeptemberJune 30, 2017 and2023 from the three months ended SeptemberJune 30, 2016. The2022 primarily due to the decrease of $282,000 in professional service expenses was offset by the increase of $268,00 in salary and employeeheadcount related expenses.expenses which included the decrease of stock-based compensation expense.
General and administrative expenses decreased $564,000$751,000 for the ninesix months ended SeptemberJune 30, 20172023 from the ninesix months ended SeptemberJune 30, 2016. The decrease was 2022 primarily due to $559,000the decrease in professional service expenses.salary and headcount related expenses which included the decrease of stock-based compensation expense.
Other Income, net
Other income, net consisted primarily of foreign exchange transactions gains and losses, sublease income, German federal government funding for Corona-related pandemic relief, interest income earned on cash, cash equivalents and restricted cash as well as interest expense. Other income, net was $479,000 and $195,00, respectively, for the three months ended June 30, 2023 and 2022. Other income, net was $829,000 and $1.6 million, respectively, for the six months ended June 30, 2023 and 2022.
The increase of $284,000 for the three months ended June 30, 2023 from the three months ended June 30, 2022 was due primarily to the $205,000 German federal government funding for COVID pandemic relief the Company received in the three months ended June 30, 2023.
The decrease of $789,000 for the six months ended June 30, 2023 from the six months ended June 30, 2022 was due primarily to the $1.2 million German federal government funding for COVID pandemic relief the Company received in the six months ended June 30, 2022, offset partially by the $205,000 German federal government funding for COVID pandemic relief the Company received in the six months ended June 30, 2023.
Income Taxes
Our income is generallygenerally taxed in the U.S., Canada and U.K. Our income tax provisions reflectprovision reflects federal, state and country statutory rates applicable to our levels of worldwide income, adjusted to take into account expenses that are treated as having no recognizable tax benefit.income. Income tax expense was $680,000$1.1 million and $748,000$928,000, respectively, for the three months ended SeptemberJune 30, 20172023 and 2016, respectively.2022. Our effective tax rate was 654%29% and 34%47%, respectively, for the three months ended SeptemberJune 30, 20172023 and 2016,2022, respectively.Our effective tax rate changed for the three months ended June 30, 2023 from three months ended June 30, 2022 primarily due to a decrease in non-deductible stock compensation in the three months ended June 30, 2023. Income tax expense was $2.7$2.5 million and $3.45$1.9 million, respectively, for the ninesix months ended SeptemberJune 30, 20172023 and 2016, respectively.2022. Our effective tax rate was 74.0%28% and 40.0%36%, respectively, for the ninesix months ended SeptemberJune 30, 20172023 and 2016, respectively.
2022. Our effective tax rate increasedchanged for the three and ninesix months ended SeptemberJune 30, 2017 2023 from the three and ninesix months ended SeptemberJune 30, 2016,2022 primarily due primarily to a decrease in non-deductible stock compensation in the change of geographic mix of income (loss) from continuing operations, including a relative increase in foreign losses not benefited, for the three and ninesix months ended SeptemberJune 30, 2017. 2023.
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We expect our effective tax rate to fluctuate in future periods depending on the geographicgeographic mix of our worldwide income or losses mainly incurred by our operations, in Asia Pacific, Canada and Europe, statutory tax rate changes that may occur, existing or new uncertain tax matters that may arise and require changes in tax reserves, the use of accumulated losses to offset current taxable income in Asia Pacific and the need for valuation allowances on certain tax assets, if any.
U.S. income and foreign withholding taxes have not been provided on undistributed earnings for certain non-U.S. subsidiaries. The undistributed earnings on a book basis for those non-U.S. subsidiaries are approximately $13.9 million. The Company intends to reinvest these earnings indefinitely in its operations outside the U.S. If the undistributed earnings are remitted to the U.S., these amounts would be taxable in the U.S. at the current federal and state tax rates net of foreign tax credits. Also, depending on the jurisdiction any distribution may be subject to withholding taxes at rates applicable for that jurisdiction.
We file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. We are subject to U.S. federal and certain state tax examinations for years after 2008 and are subject to California tax examinations for years after 2005. These examinations may lead to ordinary course adjustments or proposed adjustments to our taxes or our net operating income. Our 2009 federal income tax returns are currently under examination, including a review of the impact of the sale of Asia Pacific business segment in 2009. In connection with this examination, the Company received a Revenue Agent's Report (RAR) from the IRS, generally issued at the conclusion of an IRS examination. The RAR proposes an increase to our U.S. taxable income, which would result in additional federal tax, federal penalty and state tax expense totaling approximately $31.0 million, excluding interest and state penalties, if any. See Note 4“Note 5: Income Taxes” to the accompanying unaudited condensed consolidated financial statements for further information.

We do not know what our income taxes will be in future periods. There may be fluctuations that have a material impact on our results of operations. Our income taxes are dependent on numerous factors such as the geographic mix of our taxable income, federal and state and foreign country tax law and regulations and changes thereto, the determination of whether valuation allowances for certain tax assets are required or not, audits of prior years’ tax returns resulting in adjustments, resolution of uncertain tax positions and different treatment for certain items for tax versus books. We expect fluctuations in our income taxes from year to year and from quarter to quarter. Some of the fluctuations may be significant and have a material impact on our results of operations.

Travelzoo North America

 Three Months Ended June 30,Six Months Ended June 30,
 2023202220232022
 (In thousands)(In thousands)
Revenues$14,133 $12,378 $28,891 $24,069 
Operating profit$3,753 $3,272 $8,269 $5,092 
Operating profit as a % of revenue26.6 %26.4 %28.6 %21.2 %
Segment Information
Asia Pacific
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
 (In thousands) (In thousands)
Revenue$1,773
 $2,557
 $5,536
 $7,251
Operating loss$(1,679) $(798) $(4,385) $(3,080)
Operating loss as a % of revenue(94.7)% (31.2)% (79.2)% (42.5)%
Asia PacificNorth America revenues decreased $784,000increased by $1.8 million for the three months ended SeptemberJune 30, 20172023 from the three months ended SeptemberJune 30, 20162022 (see “Revenues” above). Asia PacificNorth America expenses increased $97,000increase by $1.3 million for the three months ended SeptemberJune 30, 20172023 from the three months ended SeptemberJune 30, 2016. This2022. The increase was primarily due to a $220,000 product development expenses offset partially by a $145,000 decrease$581,000 increase in member acquisition costs, $197,000 increase in expenses from third-party partners of the Travelzoo Network, $161,000 increase in salary and brand marketing costs.headcount related expenses, $151,000 increase in professional service expenses and $100,000 increase in software license expenses.
Asia PacificNorth America revenues decreased $1.7increased by $4.8 million for the ninesix months ended SeptemberJune 30, 20172023 from the ninesix months ended SeptemberJune 30, 20162022 (see “Revenues” above). Asia PacificNorth America expenses decreased $410,000increase by $1.6 million for the ninesix months ended SeptemberJune 30, 20172023 from the ninesix months ended SeptemberJune 30, 2016. This decrease was2022 primarily due to a $360,000 decreasethe increase in member acquisition costs.
Foreign currency movements relative to the U.S. dollar positively impacted our local currency loss from our operations in Asia PacificTravelzoo Europe
 Three Months Ended June 30,Six Months Ended June 30,
 2023202220232022
 (In thousands)(In thousands)
Revenues$5,887 $4,354 $11,774 $10,288 
Operating profit$(239)$(1,472)$218 $(1,294)
Operating profit as a % of revenue(4.1)%(33.8)%1.9 %(12.6)%
Europe revenues increased by approximately $20,000$1.5 million for the three months ended SeptemberJune 30, 2017. Foreign currency movements relative to2023 from the U.S. dollar positively impacted our loss from our operations in Asia Pacific by approximately $60,000 for the three months ended SeptemberJune 30, 2016.
Foreign currency movements relative to the U.S. dollar positively impacted our local currency loss from our operations in Asia Pacific by approximately $55,000 for the nine months ended September 30, 2017. Foreign currency movements relative to the U.S. dollar positively impacted our loss from our operations in Asia Pacific by approximately $157,000 for the nine months ended September 30, 2016.
Europe
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
 (In thousands) (In thousands)
Revenue$7,946
 $8,474
 $24,914
 $28,490
Operating profit$309
 $1,412
 $1,526
 $5,022
Operating profit as a % of revenue3.9% 16.7% 6.1% 17.6%
Europe revenues decreased $528,000 for the three months ended September 30, 2017 from the three months ended September 30, 20162022 (see “Revenues” above). Europe expenses increased $575,000by $300,000 for the three months ended SeptemberJune 30, 20172023 from the three months ended SeptemberJune 30, 2016. This increase was2022 primarily due to a $278,000$197,000 increase in product developmentmarketing expenses and a $218,000$111,000 increase in salary and employee related expense.professional service expenses
Europe revenues decreased $3.6increased by $1.5 million for the ninesix months ended SeptemberJune 30, 20172023 from the ninesix months ended SeptemberJune 30, 20162022 (see “Revenues” above). Europe expenses decreased $80,000by $26,000 for the ninesix months ended SeptemberJune 30, 20172023 from the ninesix months ended SeptemberJune 30, 20162022 primarily due to$347,000 decrease in salary and employeeheadcount related expense.
Foreign currency movements relative to the U.S. dollar negatively impacted our local currency income from our operationsexpenses, offset partially by $283,000 increase in Europe by approximately $4,000 for the three months ended September 30, 2017. Foreign currency movements relative to the U.S. dollar negatively impacted our income from our operations in Europe by approximately $122,000 for the three months ended September 30, 2016.marketing expenses
Foreign currency movements relative to the U.S. dollar negatively impacted our local currency income from our operations in Europe by approximately $148,000$21,000 and $79,000 for the ninethree and six months ended SeptemberJune 30, 2017.2023, respectively. Foreign currency movements


relative to the U.S. dollar negativelypositively impacted our local currency income from our operations in Europe by approximately $379,000$200,000 and $165,000 for the ninethree and six months ended SeptemberJune 30, 2016.
North America
2022, respectively.
43

 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
 (In thousands) (In thousands)
Revenue$14,968
 $15,792
 $49,077
 $51,709
Operating profit$1,388
 $1,261
 $6,325
 $6,216
Operating profit as a % of revenue9.3% 8.0% 12.9% 12.0%
Jack’s Flight Club
North America
 Three Months Ended June 30,Six Months Ended June 30,
 2023202220232022
 (In thousands)(In thousands)
Revenues$1,095 $952 $2,043 $1,775 
Operating profit (loss)$97 $161 $52 $184 
Operating profit (loss) as a % of revenue8.9 %16.9 %2.5 %10.4 %
Jack’s Flight Clubrevenues decreased $824,000increased by $143,000 for the three months ended SeptemberJune 30, 20172023 from the three months ended SeptemberJune 30, 20162022 (see “Revenues” above). North AmericaJack’s Flight Club expenses decreased $951,000increased by $207,000 for the three months ended SeptemberJune 30, 20172023 from the three months ended SeptemberJune 30, 2016. This decrease was2022 primarily due to a $448,000 decreasean increase in product development expensesadvertising and a $423,000 decrease in professional servicemarketing expenses.
North America Jack’s Flight Clubrevenues decreased $2.6 millionincreased by $268,000 for the ninesix months ended SeptemberJune 30, 20172023 from the ninesix months ended SeptemberJune 30, 20162022 (see “Revenues” above). North AmericaJack’s Flight Club expenses decreased $2.7 millionincreased by $400,000 for the ninethree months ended SeptemberJune 30, 20172023 from the ninethree months ended SeptemberJune 30, 2016. This decrease was2022 primarily due to a $987,000 decreasean increase in professionaladvertising and marketing expenses.
New Initiatives
 Three Months Ended June 30,Six Months Ended June 30,
 2023202220232022
 (In thousands)(In thousands)
Revenues$13 $5 $21 $10 
Operating profit (loss)$(338)$(180)$(555)$(282)
New Initiatives segment consists of Travelzoo licensing business and Travelzoo META subscription service and Metaverse experience scouting and development business.
Licensing revenue was $13,000 and $5,000 for the three months ended June 30, 2023 and 2022, respectively. New Initiatives segment expenses $683,000 decrease increased by $166,000 for the three months ended June 30, 2023 from the three months ended June 30, 2022 primarily due to $124,000 increase in product development and product marketing expenses and $42,000 increase in in salary and employee related expenseexpenses.
Licensing revenue was $21,000 and a $961,000 decrease$10,000 for the six months ended June 30, 2023 and 2022, respectively. New Initiatives segment expenses increased by $284,000 for the six months ended June 30, 2023 from the six months ended June 30, 2022 primarily due to $184,000 increase in member acquisition costs.product development and product marketing expenses and $100,000 increase in in salary and related expenses.
Liquidity and Capital Resources
As of SeptemberJune 30, 2017,2023, we had $18.8$19.5 million in cash and cash equivalents, of which $11.4$13.3 million was held outside the U.S. in certain of our foreign operations. If these assets arethis cash is distributed to the U.S., we may be subject to additional U.S. taxes in certain circumstances. We also had $675,000 in restricted cash held in the U.S. as of June 30, 2023.
Cash, and cash equivalents decreasedand restricted cash increased $819,000 from $26.8$19.4 million as of December 31, 20162022 to $20.2 million as of June 30, 2023 primarily as a result ofdue to $5.6 million cash used in financing activities andprovided by operating activities, offset partially by the $5.2 million cash used by financing activities.
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As of June 30, 2023, the Company had merchant payables of $23.9 million related to unredeemed vouchers. In the Company’s financial statements presented in this 10-Q report, following GAAP accounting principles, we classified all merchant payables as current. When all merchant payables are classified as current, there is negative net working capital (which is defined as current assets minus current liabilities) of $4.3 million. Payables to merchants are generally due upon redemption of vouchers. The vouchers expire between July 2023 through December 2025 with the majority of vouchers expiring during 2023; provided, by investing activities as explained below. Wethat these expiration dates may sometimes be extended on a case-by-case basis and final payment upon expiration may not be due for up to a year after expiration. Management believes that redemptions may be delayed for international vouchers in the current environment. Based on current projections of redemption activity, we expect that cash on hand as of June 30, 2023 will be sufficient to provide for working capital needs for at least the next twelve months. However, if redemption activity is more accelerated, if our business is not profitable, or if our planned targets for cash flows from operations are not met, we may need to obtain additional financing to meet our working capital needs in the future. We believe that we could obtain additional financing if needed, but there can be no assurance that financing will be available on terms that are acceptable to us, if at all.
The following table provides a summary of our cash flows from operating, investing and financing activities:
 Nine Months Ended September 30,
 2017 2016
 (In thousands)
Net cash provided by (used in) operating activities$(1,884) $1,916
Net cash provided by (used in) investing activities2,404
 (802)
Net cash used in financing activities(9,556) (11,327)
Effect of exchange rate changes on cash and cash equivalents1,020
 (76)
Net decrease in cash and cash equivalents$(8,016) $(10,289)
 Six Months Ended June 30,
 20232022
 (In thousands)
Net cash provided by (used in) operating activities$5,650 $(16,990)
Net cash used in investing activities(44)(1,028)
Net cash provided by (used in) financing activities(5,169)1,885 
Effect of exchange rate changes on cash, cash equivalents and restricted cash382 (2,176)
Net increase (decrease) in cash, cash equivalents and restricted cash$819 $(18,309)
Net cash used in provided by (used in) operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities. Net cash used inprovided by operating activities for the ninesix months ended SeptemberJune 30, 20172023 was $1.9$5.6 million, which primarily consisted of net income of $2.9$6.3 million, adjustments for$882,000 increase in non-cash items of $898,000 and a $3.8$1.6 million decrease in cash from changes in operating assets and liabilities. Adjustments for non-cash items primarily consisted of the $2.9 million discontinued operations gain on the sale of the Fly.com domain name, offset by $1.6 million of$945,000 for depreciation and amortization expense on property and equipment. In addition, the$827,000 for stock-based compensation, offset partially by $829,000 reversal of reserves from accounts receivable and other. The decrease in cash from changes in operating assets and liabilities was primarily consisted of $4.7due to $8.6 million decrease in merchant payables and $2.4 million decrease in accounts payable, offset partially by $3.4$3.9 million decreaseincrease in accounts receivable.receivable and 2.6 million increase in accrued expenses and other.
Net cash provided byused in operating activities for the ninesix months ended SeptemberJune 30, 20162022 was $1.9$17.0 million, which primarily consisted of a net income of $5.7 million, adjustments for non-cash items of $2.0 million and a $5.8$21.0 million decrease in cash from changes in operating assets and liabilities. Adjustments forliabilities, offset partially by net income of $3.4 million and $609,000 increase in non-cash items primarily consisted of $1.9 million of depreciation and amortization expense on property and equipment, $224,000 of deferred taxes and $692,000 of stock-based compensation expense. In addition, theitems. The decrease in cash from changes in operating assets and liabilities was primarily due to $19.8 million decrease in merchant payables and $2.1 million decrease in accounts payables. Adjustments for non-cash items primarily consisted of $4.4$1.1 million infor depreciation and amortization, $1.1 million for stock-based compensation and $550,000 for deferred income tax, offset partially by $2.2 million reversal of reserves from accounts payable, $2.1 million in accrued expensesreceivable and other offset by $1.5 million inreserves.
Cash refunds for income tax, receivable and payable.


net of payment made, during the six months ended June 30, 2023 was $494,000. Cash paid for income tax, net of refunds received, during the ninesix months ended SeptemberJune 30, 2017 and 20162022 was $4.9 million and $2.2 million, respectively.$771,000 .
Net cash provided byused in investing activities for the ninesix months ended SeptemberJune 30, 2017 and 20162023 was $2.4 million and $802,000, respectively. The cash provided by investing activities for the nine months ended September 30, 2017 was primarily due to $2.9 million proceeds from sale the Fly.com domain name, offset partially by $486,000 in purchases of property and equipment.$44,000. The cash used in investing activities for the ninesix months ended SeptemberJune 30, 20162023 was primarily due to $802,000 inconsisted of the $157,000 purchases of property and equipment. equipment, offset partially by $113,000 proceeds from repayment of the Japan loan. Net cash used in investing activities for the six months ended June 30, 2022 was $1.0 million. The cash used in investing activities for the six months ended June 30, 2022 was primarily consisted of the $1.0 million for purchases of intangible assets.
Net cash used infor financing activities for the ninesix months ended SeptemberJune 30, 2017 and September 30, 20162023 was $9.6$5.2 million and $11.3 million, respectively.which primarily consisted of the repurchase of common stocks. Net cash used inprovided by financing activities for the ninesix months ended SeptemberJune 30, 20172022 was $1.9 million which primarily due to $9.6 million cash used in repurchasesconsisted of our common stock. Net cash used in financing activities for the nine months ended September 30, 2016 was primarily due to $5.7 million paymentproceeds from exercise of related party loan and $5.7 million cash used in repurchases of our common stock.stock options.
Although we have settled the states unclaimed property claims with all states, we may still receive inquiries from certain potential NetsurferNetsurfers promotional stockholdersshareholders that had not provided their state of residence to us by April 25, 2004. Therefore, we are continuing our voluntary program under which it makeswe make cash payments to individuals related to the promotional shares for individuals whose residence was unknown by us and who establish that they satisfied the conditions to receive shares of Travelzoo.com Corporation,
45

Netsurfers, and who failed to submit requests to convert their shares into shares of Travelzoo within the required time period. This voluntary program is not available for individuals whose promotional shares have been escheated to a state by us.
Our capital requirements depend on a number of factors, including market acceptance of our products and services, the amount of our resources we devote to the development of new products, cash payments related to former stockholdersshareholders of Travelzoo.com Corporation,Netsurfers, expansion of our operations, and the amount of resources we devote to promoting awareness of the Travelzoo brand. Since the inception of the voluntary program under which we make cash payments to people who establish that they were former stockholdersshareholders of Travelzoo.com Corporation,Netsurfers, and who failed to submit requests to convert their shares into shares of Travelzoo within the required time period, we have incurred expenses of $2.9 million. While future payments for this program are expected to decrease, the total cost of this voluntary program is still undeterminable because it is dependent on our stock price and on the number of valid requests ultimately received.
Consistent with our growth, we have experienced fluctuations in our cost of revenues, sales and marketing expenses and our general and administrative expenses, including increases in product development costs, and we anticipate that these increases will continue for the foreseeable future. We believe cash on hand will be sufficient to pay such costs for at least the next twelve months. In addition, we will continue to evaluate possible investments in businesses, products and technologies, the consummation of any of which would increase our capital requirements.
Although we currently believe that we have sufficient capital resources to meet our anticipated working capital and capital expenditure requirements for at least the next twelve months, unanticipated events and opportunities or a less favorable than expected development of our business with one or more of our advertising formats may require us to sell additional equity or debt securities or establish new credit facilities to raise capital in order to meet our capital requirements.
If we sell additional equity or convertible debt securities, the sale could dilute the ownership of our existing stockholders.shareholders. If we issue debt securities or establish a new credit facility, our fixed obligations could increase, and we may be required to agree to operating covenants that would restrict our operations. We cannot be sure that any such financing will be available in amounts or on terms acceptable to us.
If the development of our business is less favorable than expected, we may decide to significantly reduce the size of our operations and marketing expenses in certain markets with the objective of reducing cash outflow.
The information set forth under “Note 3:4: Commitments and Contingencies” and “Note 11: Leases” to the accompanying unaudited condensed consolidated financial statements included in Part I, Item 1 of this report is incorporated herein by reference. Litigation and claims against the Company may result in legal defense costs, settlements or judgments that could have a material impact on our financial condition.


The following summarizes our principal contractual commitments as of September 30, 2017 (in thousands):
 2017 Remaining 2018 2019 2020 2021 Thereafter Total
Operating leases$1,542
 $5,240
 $4,494
 $3,825
 $3,198
 $5,626
 $23,925
Purchase obligations408
 579
 260
 11
 —
 —
 1,258
Total commitments$1,950
 $5,819
 $4,754
 $3,836
 $3,198
 $5,626
 $25,183

We also have contingencies related to net unrecognized tax benefits, including interest and penalties, of approximately $2.6$17.5 million as of SeptemberJune 30, 2017. In addition, the Company received a Revenue Agents' Report from the IRS for the 2009 calendar year related to the sale of our Asia Pacific business segment, which would result in additional federal and state tax expense totaling approximately $31.0 million, excluding interest and penalties, if any. We are unable to make reasonably reliable estimates on the timing of the cash settlements with the respective taxing authorities, if any.2023. See Note 4 to the accompanying unaudited condensed consolidated financial statements for further information.
Critical Accounting Policies and Estimates
We believe that there are a number of accounting policies that are critical to understanding our historical and future performance, as these policies affect the reported amounts of revenue and the more significant areas involving management’s judgments and estimates. These significant accounting policies relate to revenue recognition, reserve for refunds to members, allowance for doubtful accounts, income taxes and loss contingencies. These policies, and our procedures related to these policies, are described in detail below.
Revenue Recognition
We recognize advertising revenues in the period in which the advertisement is displayed or the voucher sale has been completed, provided that evidence of an arrangement exists, the fees are fixed or determinable and collection of the resulting receivable is reasonably assured. If fixed-fee advertising is displayed over a term greater than one month, revenues are recognized ratably over the period as described below. The majority of insertion orders have terms that begin and end in a quarterly reporting period. In the cases where at the end of a quarterly reporting period the term of an insertion order is not complete, the Company allocates the total arrangement fee to each element based on the relative estimated selling price of each element. The Company uses prices stated on its internal rate card, which represents stand-alone sales prices, to establish estimated selling prices. The stand-alone price is the price that would be charged if the advertiser purchased only the individual insertion. Fees for variable-fee advertising arrangements are recognized based on the number of impressions displayed, number of clicks delivered, or number of referrals generated during the period.
Under these policies, the Company evaluates each of these criteria as follows:
Evidence of an arrangement. We consider an insertion order signed by the advertiser or its agency to be evidence of an arrangement.
Delivery. Delivery is considered to occur when the advertising has been displayed, the click-throughs have been delivered, the voucher sale has been completed, cancelable hotel booking reservation stays have occurred or non-cancelable hotel booking reservations have been booked, as applicable.
Fixed or determinable fee. Our arrangements with our customers specifies the price paid for advertising services.
Collection is deemed reasonably assured. We conduct a credit review for all advertising transactions at the time of the arrangement to determine the creditworthiness of the advertiser. Collection is deemed reasonably assured if we expect that the advertiser will be able to pay amounts under the arrangement as payments become due. Collection is deemed not reasonably assured when an advertiser is perceived to be in financial distress, which may be evidenced by weak industry conditions, a bankruptcy filing, or previously billed amounts that are past due. If we determine that collection is not reasonably assured, then we defer the revenue and recognize the revenue upon cash collection. Collection is deemed reasonably assured for our voucher sales to consumers as these transactions require the use of credit cards subject to authorization.
Revenues from advertising sold to advertisers through agencies are reported at the amount billed to the agency.


For Local Deals and Getaway products, the Company earns a fee for acting as an agent in these transactions which is recorded on a net basis and is included in revenue upon completion of the voucher sale. Certain merchant contracts in foreign locations allow us to retain fees related to vouchers sold that are not redeemed by purchasers upon expiration, which we recognize as revenue after the expiration of the redemption period and after there are no further obligations to provide funds to merchants, members or others.
Commission revenues generated through provision of hotel booking reservations to hotels are recognized upon the estimated date the stay occurs at the hotel, which includes estimates of cancellations of the hotel bookings based upon historical patterns. If the hotel booking cannot be canceled or the hotel advertiser has agreed to pay for booking regardless of potential future cancellations then revenue is recognized upon booking.
Reserve for Refunds to Members
We record an estimated reserve for refunds to members based on our historical experience at the time revenue is recorded for Local Deals and Getaway voucher sales. We accrue costs associated with refunds in accrued expenses on the consolidated balance sheets. We consider many key factors such as the historical refunds based upon the time lag since the sale, historical reasons for refunds, time period that remains until the deal expiration date, any changes in refund procedures and estimates of redemptions and breakage. Should any of these factors change, the estimates made by management will also change, which could impact the level of our future reserves for refunds to members. Specifically, if the financial condition of our advertisers, the businesses that are providing the vouchered services, were to deteriorate, affecting their ability to provide the services to our members, additional reserves for refunds to members may be required.
Estimated refunds to members that are determined to be recoverable from the merchant and the portion of which represents our fee from the merchant are recorded in the consolidated statements of operations as a reduction to revenue. Estimated refunds to member that are determined not to be recoverable from the merchant are presented as a cost of revenue. If our judgments regarding estimated refunds to members are inaccurate, reported results of operations could differ from the amount we previously accrued.
Allowance for Doubtful Accounts
We record a provision for doubtful accounts based on our historical experience of write-offs and a detailed assessment of our accounts receivable and allowance for doubtful accounts. In estimating the provision for doubtful accounts, management considers the age of the accounts receivable, our historical write-offs, the creditworthiness of the advertiser, the economic conditions of the advertiser’s industry, and general economic conditions, among other factors. Should any of these factors change, the estimates made by management will also change, which could impact the level of our future provision for doubtful accounts. Specifically, if the financial condition of our advertisers were to deteriorate, affecting their ability to make payments, additional provision for doubtful accounts may be required.
“Note 5: Income Taxes
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different. We adjust these reserves in light of changing facts and circumstances, such as the progress or closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest.


Our effective tax rates have differed from the statutory rate primarily due to the tax impact of foreign operations, state taxes, certain benefits realized related to stock option activities, credits, and the extent that our earnings are indefinitely reinvested outside the U.S. and tax asset valuation allowance determinations including on certain loss carryforwards. For the nine months ended September 30, 2017 and 2016, our effective tax rates were 74% and 40%, respectively. Our future effective tax rates could be materially impacted by earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates, changes in the deferred tax assets or liabilities, existing or new uncertain tax matters that may arise and require changes in tax reserves, changes in tax asset valuation allowance determinations, changes in our judgment about whether certain foreign earnings are indefinitely reinvested outside the U.S., or changes in tax laws, regulations, and accounting principles. In addition, we are subject to the continuous examination of our income tax returns by the IRS and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. See Note 4Taxes” to the accompanying unaudited condensed consolidated financial statements for further information.
Loss Contingencies
We
Critical Accounting Policies and Estimates
Critical accounting policies and estimates are involvedthose that we believe are important in claims, suits, and proceedings arising from the ordinary coursepreparation of our business. We record a provision for a liability whenconsolidated financial statements because they require that we believeuse judgment and estimates in applying those policies. Preparation of the consolidated financial statements and accompanying notes requires that it is both probable that a liability has been incurred, and the amount can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. Such claim proceedings are inherently unpredictable and subject to significant uncertainties, some of which are beyond our control. Should any of thesewe make estimates and assumptions changethat affect the reported amounts and classifications of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements as well as revenue and expenses during the periods reported. We base our estimates on historical experience, where applicable, and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or proveconditions. Our critical accounting policies include revenue recognition, reserve for member refunds, allowance for doubtful accounts, income taxes and loss contingencies. For additional information about our critical accounting policies and estimates, see the disclosure included in our Annual Report on Form 10-K for the year ended December 31, 2022 as well as updates in the current fiscal year provided in “Note 1 Summary of Significant Accounting Policies” in the notes to have been incorrect, it could have a material impact on our results of operations, financial position and cash flows. See "Note 3: Commitments and Contingencies" to the accompanying unaudited condensed consolidated financial statements for further information regarding our loss contingencies.statements.
Recent Accounting Pronouncements
See "Note“Note 1—The Company and Basis of Presentation"Presentation” to the accompanying unaudited condensed consolidated financial statements included in this report, regarding the impact of certain recent accounting pronouncements on our consolidated financial statements.



RISK FACTORS
Investing in our common stock involves a high degree of risk. Any or all of the risks listed below as well as other variables affecting our operating results could have a material adverse effect on our business, our quarterly and annual operating results or financial condition, which could cause the market price of our stock to decline or cause substantial volatility in our stock price, in which event the value of your common stock could decline. You should also keep these risk factors in mind when you read forward-looking statements.

Risks Related to Our Financial Condition and Business Model
We cannot assure you that we will be profitable.
During the nine months ended September 30, 2017 and September 30, 2016, we generated a net income of $2.9 million and $5.7 million, respectively. During the year ended December 31, 2016, we generated net income of $6.6 million. Although we were profitable in 2016 and the nine months ended September 30, 2017, there is no assurance that we will be profitable in the future. We forecast our future expense levels based on our operating plans and our estimates of future revenues. We may find it necessary to significantly accelerate expenditures relating to our sales and marketing efforts or otherwise increase our financial commitment to creating and maintaining brand awareness among Internet users and advertisers. We may also expand and upgrade our technology and make investments in our products as well as develop new products that may impact our profitability. If our revenues grow at a slower rate than we anticipate or decline, or if our spending levels exceed our expectations or cannot be adjusted to reflect slower revenue growth, we may not generate sufficient revenues to be profitable. Any of these developments could result in a significant decrease in the trading price of our common stock.
Fluctuations in our operating results may negatively impact our stock price.
Our quarterly and annual operating results may fluctuate significantly in the future due to a variety of factors that could affect our revenues or our expenses in any particular period. You should not rely on quarter-to-quarter comparisons of our results of operations as an indication of future performance. Factors that may affect our quarterly results include:
mismatches between resource allocation and client demand due to difficulties in predicting client demand in a new market;
changes in general economic conditions that could affect marketing efforts generally and online marketing efforts in particular;
the magnitude and timing of marketing initiatives, including our acquisition of new members and our expansion efforts in other regions;
the introduction, development, timing, competitive pricing and market acceptance of our products and services and those of our competitors;
our ability to attract and retain key personnel;
our ability to manage our planned growth;
our ability to attract users to our websites, which may be adversely affected by the audience shift to mobile devices;
technical difficulties or system downtime affecting the Internet generally or the operation of our products and services specifically; and
volatility of our operating results in new markets.
We may significantly increase our operating expenses related to advertising campaigns for the Travelzoo brand, as well as our hotel booking platform, for a certain period if we see a unique opportunity for a brand marketing campaign, if we find it necessary to respond to increased brand marketing by a competitor, or if we decide to accelerate our acquisition of new members.
If revenues fall below our expectations in any quarter and we are unable to quickly reduce our operating expenses in response, our operating results would be lower than expected and our stock price may fall.



Our expansion of our product offering to include the addition of a hotel booking platform may result in additional costs that exceed revenue and may trigger additional stock volatility.
We have been in the process of expanding our hotel booking platform which may result in an increase in costs to further develop the platform in the near-term and an increase in cost structure in the long-term, which may be in excess of incremental revenue. If our hotel booking platform is not embraced by our users or our advertising partners, our business and financial results could be adversely affected. To the extent that our room rates on our hotel booking platform are not competitive (i.e., versus the websites of other online travel companies or hotel company websites), we may not be able to attract members. If we cannot attract members to the hotel booking platform to make bookings, our financial results could be adversely affected. In addition, the hotel booking platform will be sensitive to fluctuations in hotel supply, occupancy and average daily rates and a fluctuation in any of these factors could negatively impact our hotel booking revenue. Furthermore, hotels may offer products and services on more favorable terms to consumers who transact directly with them. In the past year, certain hotel chains have launched advertising campaigns expressly designed to drive consumer traffic directly to their websites. We can give no assurances that the hotel booking platform will yield the benefits we expect and will not result in additional costs or have adverse impacts on our business.
Our Local Deals business may be adversely impacted by competition and decreased consumer demand for vouchers.
Our Local Deals and Getaway formats of advertising include the sale of vouchers directly to consumers to advertise promotional deals provided by merchants.
For example, a consumer could buy a voucher for $99 for a dinner for two at a merchant’s restaurant that would normally be valued at $199, representing a promotional value of $100 to the consumer. This format may require investments to maintain and grow the business including additional sales force hiring and additional spend on customer service, marketing, technology tracking systems and payment processing. The rate at which our existing customers purchase vouchers has declined, and may continue to decline, given, among other things, increased competition in the marketplace and the decrease in demand of consumers for voucher deals. Historically, our customers often purchased a voucher when they received our emails, even though they may not have intended to use the voucher in the near term. The growth in recent periods of competition and the marketplaces of deals has enabled customers to wait until they are ready to use the related vouchers before making purchases. This shift in purchasing behavior may adversely impact revenues. While we are continuing to evolve our strategy to address the changing market dynamics, we may not always be successful in doing so.

Our business could be negatively affected by changes in search engine algorithms and dynamics or other traffic-generating arrangements.
We utilize Internet search engines such as Google, principally through the purchase of travel-related keywords, to generate additional traffic to our websites. Search engines, including Google, frequently update and change the logic that determines the placement and display of results of a user’s search, such that the purchased or algorithmic placement of links to our websites can be negatively affected. In addition, a significant amount of traffic is directed to our websites through our participation in pay-per-click and display advertising campaigns on search engines, including Google, travel metasearch engines, including Kayak, and Internet media properties, including TripAdvisor. Pricing and operating dynamics for these traffic sources can experience rapid change, both technically and competitively. Moreover, a search or metasearch engine could, for competitive or other purposes, alter its search algorithms or results causing a website to place lower in search query results. If a major search engine changes its algorithms or results in a manner that negatively affects the search engine ranking, paid or unpaid, of our websites or that of our third-party distribution partners, or if competitive dynamics impact the costs or effectiveness of search engine optimization, search engine marketing or other traffic-generating arrangements in a negative manner, our business and financial performance would be adversely affected, potentially to a material extent.



Trends in consumer adoption and use of mobile devices create new challenges.
Widespread adoption of mobile devices, such as the iPhone, Android-enabled smart phones, and tablets such as the iPad, coupled with the improved web browsing functionality and development of thousands of useful “apps” available on these devices, is driving substantial traffic and commerce activity to mobile platforms. We have experienced a significant shift of business to mobile platforms and our advertising partners are also seeing a rapid shift of traffic to mobile platforms. Our major competitors and certain new market entrants are offering mobile applications for travel products and other functionality, including proprietary last-minute discounts for hotel bookings. Advertising and distribution opportunities may be more limited on mobile devices given their smaller screen sizes. The gross profit earned on a mobile transaction may be less than that earned from a typical desktop transaction due to different consumer purchasing patterns. For example, hotel reservations made on a mobile device typically are for shorter lengths of stay and are not made as far in advance as hotel reservations made on a desktop. Further, given the device sizes and technical limitations of tablets and smartphones, mobile consumers may not be willing to download multiple applications from multiple travel service providers and instead prefer to use one or a limited number of applications for their mobile travel activity. As a result, the consumer experience with mobile applications, as well as brand recognition and loyalty, are likely to become increasingly important. We have made progress creating mobile offerings which have received strong reviews and have shown solid download trends. We believe that mobile bookings present an opportunity for growth. Further development of our mobile offerings is necessary to maintain and grow our business as consumers increasingly turn to mobile devices instead of a personal computer and to mobile applications instead of a web browser. Further, many consumers use a mobile device based web browser instead of an application. As a result, it is increasingly important for us to develop and maintain effective mobile websites optimized for mobile devices to provide customers with appealing easy-to-use mobile website functionality. If we are unable to continue to rapidly innovate and create new, user-friendly and differentiated mobile offerings and efficiently and effectively advertise and distribute on these platforms, or if our mobile applications are not downloaded and used by travel consumers, we could lose market share to existing competitors or new entrants and our future growth and results of operations could be adversely affected.

We may have exposure to additional tax liabilities.    
As a global company, we are subject to income taxes as well as non-income based tax, in both the U.S. and various foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes and other tax liabilities. Although we believe that our tax estimates are reasonable, there is no assurance that the final determination of tax audits or tax disputes will not be different from what is reflected in our historical income tax provisions and accruals. Changes in tax laws or tax rulings may have a significantly adverse impact on our effective tax rate. We are also subject to non-income based taxes, such as value-added, payroll, sales, use, net worth, property and goods and services taxes, in both the U.S. and various foreign jurisdictions.
From time to time, the Company is under audit by tax authorities with respect to these non-income based taxes and may have exposure to additional non-income based tax liabilities. These examinations may lead to ordinary course adjustments or proposed adjustments to its taxes or its net operating income. The Company's 2009 federal income tax returns are currently under examination, including a review of the impact of the sale of Asia Pacific business segment in 2009. In connection with this examination, the Company has received a Revenue Agent’s Report (RAR) generally issued at the conclusion of an IRS examination, which was consistent with the Notice of Proposed Adjustment the Company received earlier from the IRS for the 2009 calendar year related to the sale of our Asia Pacific business segment with the addition of penalties. The RAR proposes an increase to our U.S. taxable income which would result in additional federal tax expense, federal penalty and state tax expense totaling approximately $31 million, excluding interest and state penalties, if any. The proposed adjustment is primarily driven by IRS’s view that the Asia Pacific business segment assets sold by the Company had a significantly higher valuation than the sales proceeds the Company received upon the sale. The Company disagrees with the proposed adjustments and intends to vigorously contest them. The Company did not make any adjustments to its liabilities for uncertain tax positions related to the RAR as of September 30, 2017 because the Company does not believe the IRS’s valuation of Asia Pacific business segment assets is appropriate. If the Company is not able to resolve these proposed adjustments at the IRS examination level, the Company plans to pursue all available administrative and, if necessary, judicial remedies. The Company is not able to predict the ultimate amount or outcome of this tax audit and we may incur additional costs in defending any claims that may arise, even if we ultimately are not liable for any additional taxes.




Adverse application of state and local tax laws could have an adverse effect on our business and results of operation.
Our expansion of our product offering to include a hotel booking platform may subject us to state and local tax laws and result in additional tax liabilities. A number of jurisdictions in the U.S. have initiated lawsuits against other online travel companies, related to, among other things, the payment of hotel occupancy and other taxes (i.e., state and local sales tax). In addition, a number of municipalities have initiated audit proceedings, issued proposed tax assessments or started inquiries relating to the payment of hotel occupancy and other taxes.
Given our hotel booking platform consists of an agency model whereby we will facilitate reservations on behalf of a hotel, the payment of hotel occupancy taxes and other taxes should be the responsibility of the merchant. The intended business practice for our hotel booking platform will primarily be for the merchant or hotel to be responsible for remitting applicable taxes to the various tax authorities. Nevertheless, to the extent that any tax authority succeeds in asserting that we have a tax collection responsibility, or we determine that we have one, with respect to future transactions, we may collect any such additional tax obligation from our customers, which would have the effect of increasing the cost of hotel room reservations to our customers and, consequently, could make our hotel service less competitive (i.e., versus the websites of other online travel companies or hotel company websites) and reduce hotel reservation transactions. Either step could have a material adverse effect on our business and results of operations. We will continue to assess the risks of the potential financial impact of additional tax exposure.

Our business model may not be adaptable to a changing market.
Our current revenue model depends primarily on advertising fees paid by travel and entertainment companies and still relies significantly on e-mail communications with our members. If current clients decide not to continue advertising their offers with us and we are unable to replace them with new clients, our business may be adversely affected. To be successful, we must provide online marketing solutions that achieve broad market acceptance by travel and entertainment companies. In addition, we must attract sufficient Internet users with attractive demographic characteristics to our products. It is possible that we will be required to further adapt our business model and products in response to changes in the online advertising market or if our current business model is not successful. For example, the trend toward mobile online traffic will require us to adapt our product offering to facilitate consumers' use of our products. If we do not adapt to this trend fully or quickly enough, we may lose advertising revenue as consumer usage may decline from our non-mobile traffic. If we are not able to anticipate changes in the online advertising market or if our business model is not successful, our business could be materially adversely affected.

If we fail to retain existing advertisers or add new advertisers, our revenue and business will be harmed.
We depend on our ability to attract and retain advertisers (hotels, spas, restaurants, vacation packagers, airlines, etc.) that are prepared to offer products or services on compelling terms to our members. We do not have long-term arrangements to guarantee the availability of deals that offer attractive quality, value and variety to consumers or favorable payment terms to us. We must continue to attract and retain advertisers in order to increase revenue and maintain profitability. If new advertisers do not find our marketing and promotional services effective, or if existing advertisers do not believe that utilizing our products provides them with a long-term increase in customers, revenue or profit, they may stop making offers through our marketplace. In addition, we may experience attrition in our advertisers in the ordinary course of business resulting from several factors, including losses to competitors and advertiser closures or bankruptcies. We can also experience a decline in advertisers making offers in certain destinations due to natural disasters, such as hurricanes, fires and floods. If we are unable to attract new advertisers in numbers sufficient to grow our business, or if too many advertisers are unwilling to offer products or services with compelling terms to our members or offer favorable payment terms to us, we may sell less advertising, and our operating results will be adversely affected. For example, we may lose advertisers due to market conditions or performance, such as our recent loss of revenue from certain online booking engines, airlines and vacation packagers. We may not add enough additional revenue, such as hotel revenue from Getaway or the hotel booking platform, in order to replace the lost revenue. Furthermore, the new revenue may cost more to generate compared to the costs that the lost revenue required to generate, thereby adversely impacting our operating results.
Our existing advertisers may shift from one advertising service to another, which may adversely affect our revenue.
Existing advertisers may shift from one advertising service (e.g. Top 20) to another (e.g. Local Deals, Getaway or thehotel booking platform). These shifts between advertising services by advertisers could result in no incremental revenue or less revenue than in previous periods depending on the amount purchased by the advertisers, and in particular with Local Deals, Getaway, and hotel booking platform, depending on how many vouchers are purchased by members and how many hotel bookings are made. In addition, we are anticipating a shift from our existing hotel revenue to commission-based revenue in connection with the continued expansion of our hotel booking platform, which may result in lower revenue depending on volume of hotel bookings.


An increase in our refund rates related to our Local Deals and Getaway could reduce our liquidity and profitability.
We provide refunds related to our Local Deals and Getaway voucher sales. As we increase our revenue, our refund rates may exceed our historical levels. A downturn in general economic conditions may also increase our refund rates. An increase in our refund rates could significantly reduce our liquidity and profitability.
As we do not have control over our merchants and the quality of products or services they deliver, we rely on a combination of our historical experience with our merchants over time and the type of refunds provided for development of our estimate for refund claims. Our actual level of refund claims could prove to be greater than the level of refund claims we estimate. If our refund reserves are not adequate to cover future refund claims, this inadequacy could have a material adverse effect on our liquidity and profitability.
Our standard agreements with our merchants generally limit the time period during which we may seek reimbursement for refunds to members or claims. Our members may make claims for refunds with respect to which we are unable to seek reimbursement from our merchants. Our members could also make false or fraudulent refund claims. Our inability to seek reimbursement from our merchants for refund claims could have an adverse effect on our liquidity and profitability.
If our advertisers do not meet the needs and expectations of our members, our business could suffer.
Our business depends on our reputation for providing high-quality deals, and our brand and reputation may be harmed by actions taken by advertisers or merchants that are outside our control. For our Local Deals and Getaway merchants, since we are selling vouchers on behalf of the merchants directly to our members, we face exposures should merchants not fully honor the deals. As for our travel business, we are only collecting an advertising fee from the advertiser and the members are booking the deal directly with the advertiser. Although the advertiser is responsible to the consumer to provide the consumer the deal it advertised, our business can be adversely affected should an advertiser fail to comply with the terms of the advertised deal. Any shortcomings of one or more of our merchants, particularly with respect to an issue affecting the quality of the deal offered or the products or services sold, may be attributed by our members to us, thus damaging our reputation and brand value and potentially affecting our results of operations. In addition, negative publicity and member sentiment generated as a result of fraudulent or deceptive conduct by our merchants could damage our reputation, reduce our ability to attract new members or retain our current members, and diminish the value of our brand.
Our business relies heavily on e-mail and other messaging services, and any restrictions on the sending of e-mails or messages or a decrease in member willingness to receive messages could adversely affect our revenue and business.
Our business is highly dependent upon e-mail and other messaging services. Deals offered through e-mails and other messages sent by us, or on our behalf by our affiliates, generate a substantial portion of our revenue. Because of the importance of e-mail and other messaging services to our businesses, if we are unable to successfully deliver e-mails or messages to our members or potential members, or if members decline to open our e-mails or messages, our revenue and profitability would be adversely affected. New laws and regulations regulating the sending of commercial e-mails, including those enacted in foreign jurisdictions (such as Canada), may affect our ability to deliver e-mails or messages to our members or potential members and may also result in increased compliance costs. Further, actions by third parties to block, impose restrictions on, or charge for the delivery of e-mails or other messages could also materially and adversely impact our business. From time to time, Internet service providers block bulk e-mail transmissions or otherwise experience technical difficulties that result in our inability to successfully deliver e-mails or other messages to third parties. In addition, our use of e-mail and other messaging services to send communications about our website or other matters may result in legal claims against us, which if successful might limit or prohibit our ability to send e-mails or other messages. Any disruption or restriction on the distribution of e-mails or other messages or any increase in the associated costs would materially and adversely affect our revenue and profitability. In addition, the shift in our website traffic originating from mobile devices accessing our services may decrease our members' willingness to use our services if they are not satisfied with our mobile user experience and could decrease their willingness to be an e-mail member, which could adversely affect our revenue and profitability.



Changes to our technology and user interface for our website and mobile applications used to present our deals could adversely affect our revenue and business.
Our business depends on website and mobile technology interface in order to present deals to our members and generate revenue from our advertisers. Changes to our website and mobile technology and user interface intended to enhance the user experience may have an adverse impact on our member activity and may reduce revenue from advertisers. In October 2016, we recently launched our fully responsive website that adjusts to different screen sizes and allows our members to more readily search our deals, which we believe will improve the user experience on our site; however, this may lead to unforeseen issues that could adversely affect our revenue and business. In addition, as the Company previously disclosed, the Company discontinued its SuperSearch product in order to simplify the overall search experience, and this could result in further loss of revenues. The discontinuance of SuperSearch supports the Company's strategy to focus on its global Travelzoo brand.
Our reported total number of members may be higher than the number of our actual individual members and may not be representative of the number of persons who are active potential customers.
The total number of members we report may be higher than the number of our actual individual members because some members have multiple registrations, other members have died or become incapacitated and others may have registered under fictitious names. Given the challenges inherent in identifying these members, we do not have a reliable system to accurately identify the number of actual individual members, and thus we rely on the number of total members shown on our records as our measure of the size of our member base. In addition, the number of members we report includes the total number of individuals that have completed registration through a specific date, less individuals who have unsubscribed. Those numbers of members may include individuals who do not receive our e-mails because our e-mails have been blocked or are otherwise undeliverable. As a result, the reported number of members should not be considered as representative of the number of persons who continue to actively consider our deals by reviewing our e-mail offers.
We may not be able to obtain sufficient funds to grow our business and any additional financing may be on terms adverse to your interests.
For the nine months ended September 30, 2017, our cash and cash equivalents decreased by $8.0 million to $18.8 million, of which $11.4 million was held outside the U.S. in certain of our foreign operations. We intend to continue to grow our business and fund our current operations using cash on hand. However, this may not be sufficient to meet our needs, including the payments required to settle various commitments and contingencies, as described under Notes 3 and 4 to the accompanying unaudited condensed consolidated financial statements. We may not be able to obtain financing on commercially reasonable terms, or at all.
If additional financing is not available when required or is not available on acceptable terms, we may be unable to fund our expansion, successfully promote our brand name, develop or enhance our products and services, take advantage of business opportunities, or respond to competitive pressures, any of which could have a material adverse effect on our business.
If we choose to raise additional funds through the issuance of equity securities, existing stockholders may experience significant dilution of their ownership interest and holders of the additional equity securities may have rights senior to existing stockholders of our common stock. If we obtain additional financing by issuing debt securities or bank borrowings, the terms of these arrangements could restrict or prevent us from paying dividends and could limit our flexibility in making business decisions.



Our business may be sensitive to recessions.
The demand for online advertising may be linked to the level of economic activity and employment in the U.S. and abroad. Specifically, our business is primarily dependent on the demand for online advertising from travel and entertainment companies. The most recent recession decreased consumer travel and caused travel and entertainment companies to reduce or postpone their marketing spending generally, and their online marketing spending in particular. Continued or future recessions could have a material adverse effect on our business and financial condition. Moreover, declines or disruptions in the travel industry could adversely affect the hotel booking platform and financial performance.
Our operations could be significantly hindered by the occurrence of a natural disaster or other catastrophic event.
Our operations are susceptible to outages due to fire, floods, power loss, telecommunications failures, unexpected technical problems in the systems that power our websites and distribute our e-mail newsletters, break-ins and similar events. In addition, a significant portion of our network infrastructure is located in Northern California, an area susceptible to earthquakes. We do not have multiple site capacity to protect us against any such occurrence. Outages could cause significant interruptions of our service. In addition, despite our implementation of network security measures, our servers are vulnerable to computer viruses, physical and electronic break-ins, and similar disruptions from unauthorized tampering with our computer systems. We do not carry business interruption insurance to compensate us for losses that may occur as a result of any of these events.
Technological or other assaults on our service could harm our business.
We are vulnerable to coordinated attempts to overload our systems with data, which could result in denial or reduction of service to some or all of our users for a period of time. We have experienced denial of service attacks in the past, and may experience such attempts in the future. Any such event could reduce our revenue and harm our operating results and financial condition. We do not carry business interruption insurance to compensate us for losses that may occur as a result of any of these events.
We are subject to payments-related risks.
We accept payments for the sale of vouchers using a variety of methods, including credit cards and debit cards. We pay interchange and other fees, which may increase over time and raise our operating expenses and lower profitability. We rely on third parties to provide payment processing services, including the processing of credit cards and debit cards, and it could disrupt our business if these companies become unwilling or unable to provide these services to us. We are also subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. In addition, our results can be negatively impacted by purchases made using fraudulent credit cards. Because we act as the merchant of record for certain hotel booking and voucher transactions, we may be held liable for accepting fraudulent credit cards on our websites as well as other payment disputes with our customers. If we have an increase of charge-backs due to the use of fraudulent credit cards on our websites, our business, results of operations and financial condition could be adversely affected. Moreover, under payment card rules and our contracts with our card processors, if there is a security breach of payment card information that we store, we could be liable to the payment card issuing banks for their cost of issuing new cards and related expenses. If we fail to comply with these rules or requirements, we may be subject to fines and higher transaction fees and lose our ability to accept credit and debit card payments, process electronic funds transfers, or facilitate other types of online payments, and our business and results of operations could be adversely affected. If one or more of these contracts are terminated and we are unable to replace them on similar terms, or at all, it could adversely affect our results of operations.
Our reported financial results may be adversely affected by changes in United States generally accepted accounting principles, and we may incur significant costs to adjust our accounting systems and processes to comply with significant changes.
United States generally accepted accounting principles are subject to interpretation by the FASB, the American Institute of Certified Public Accountants, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. In 2014, the FASB issued a new accounting standard related to revenue recognition which could change the way we account for certain of our sales transactions. The adoption of this standard and changes in other principles or interpretations could have a significant effect on our reported financial results and could affect the reporting of transactions completed before the effective dates of the standard. Such change could have a significant effect on our reported financial results. In addition, we may need to significantly change our accounting systems and processes if we are required to adopt future or proposed changes in accounting principles noted above. The cost of these changes may negatively impact our results of operations during the periods of transition.


Risks Related to Our Markets and Strategy
Our international expansion may result in operating losses, and is subject to other material risks.
In May 2005, we began operations in the U.K. In 2006, we began operations in Canada, Germany, and Spain. In 2007, we began operations in France. In addition, from 2007 through 2009, we began operations in Asia Pacific, including in Australia, China, Hong Kong, Japan, Taiwan, and Southeast Asia.
Our revenues in Asia decreased 24% in the nine months ended September 30, 2017 from the same period last year. Our operations in Asia generated an operating loss of $4.4 million and $3.1 million for the nine months ended September 30, 2017 and 2016, respectively. Our revenues in Europe decreased 13% in the nine months ended September 30, 2017 from the same period last year. Our operations in Europe generated an operating income of $1.5 million and $5.0 million for the nine months ended September 30, 2017 and 2016, respectively.
In our effort to expand our business internationally we may continue to invest in marketing as well as additional employees to support the business expansion, which may generate operating losses. Furthermore, operating losses in certain jurisdictions may not have any recognizable tax benefit, which is the case for the Asia Pacific business. These factors could have a material negative impact on our consolidated net income and cash flows, which could result in a significant decrease in the trading price of our common stock. In addition to uncertainty about our ability to generate net income from our foreign operations and expand our international market position, there are certain risks inherent in doing business internationally, including:
uncertainties and instability in economic and market conditions caused by the United Kingdom's vote to exit the European Union;
uncertainty regarding how the United Kingdom's access to the European Union Single Market and the wider trading, legal, regulatory and labor environments, especially in the United Kingdom and European Union, will be impacted by the United Kingdom's vote to exit the European Union, including the resulting impact on our business and that of our clients;
trade barriers and changes in trade regulations;
difficulties in developing, staffing and simultaneously managing foreign operations as a result of distance, language and cultural differences;
stringent local labor laws and regulations;
risks related to government regulation; and
potentially adverse tax consequences.
Moreover, fluctuations in currency exchange rates can impact our revenues. Foreign currency movements relative to the U.S. dollar have negatively impacted our revenues from our operations in Europe. For example, since the United Kingdom's Brexit vote, global markets and foreign exchange rates have experienced increased volatility, including a decline in the value of the British Pound Sterling as compared to the U.S. Dollar. The United Kingdom's decision to leave the European Union could result in other member countries also determining to leave, which could lead to added economic and political uncertainty and further devaluation or eventual abandonment of the Euro common currency, any of which could have a negative impact on travel and therefore our business and results of operations. The uncertainty and volatility in foreign exchange rates, which may differ across regions, makes it more difficult to forecast industry and consumer trends and the timing and degree of their impact on our markets and business, which in turn could adversely affect our ability to effectively manage our business and adversely affect our results of operations.
In addition, we face risks related to the growth rate and expansion of our international business, including our recent expansion in Asia Pacific. A decline in the growth rates of our international businesses could have a negative impact on our gross profit and earnings per share growth rates and, as a consequence, our stock price. Many of these regions have different customs, currencies, levels of consumer acceptance and use of the Internet for commerce, legislation, regulatory environments, tax laws and levels of political stability. International markets may have strong local competitors with an established brand that may make expansion in that market difficult and costly and take more time than anticipated. In addition, compliance with legal, regulatory or tax requirements in multiple jurisdictions places demands on our time and resources, and we may nonetheless experience unforeseen and potentially adverse legal, regulatory or tax consequences.


Investment in new business strategies and acquisitions could disrupt our ongoing business and present risks not originally contemplated.
We have invested, and in the future may invest, in new business strategies and acquisitions. For example, we recently acquired businesses in Asia Pacific, including Australia, China, Hong Kong, Japan, Taiwan, and Southeast Asia. If the businesses we have acquired do not perform as expected or we are unable to effectively integrate acquired businesses, our operating results and prospects could be harmed. Expansions into foreign markets involve risks and uncertainties, including, among other things, potential distraction of management from operations in North America and Europe, greater than expected liabilities and expenses, inadequate return on capital, and unidentified issues not discovered in our investigations and evaluations of those strategies and acquisitions. It may take us longer than expected to fully realize the anticipated benefits of the Asia Pacific transaction, and those benefits may ultimately be smaller than anticipated, which could adversely affect our business. If we are unsuccessful in expanding in new and existing international markets and effectively managing the increased costs of the expansion, our business, results of operations and financial condition will be adversely affected. We are also subject to risks typical of international businesses, including differing economic conditions, differing customs, languages and consumer expectations, changes in political climate, differing tax structures and other regulations and restrictions, including labor laws, and foreign exchange rate volatility.
We may not be able to continue developing awareness of our brand names.
We believe that continuing to build awareness of the Travelzoo brand name is critical to achieving widespread acceptance of our business. Brand recognition is a key differentiating factor among providers of online advertising opportunities, and we believe it could become more important as competition in our industry increases. In order to maintain and build brand awareness, we must succeed in our marketing efforts. If we fail to successfully promote and maintain our brands, incur significant expenses in promoting our brands and fail to generate a corresponding increase in revenue as a result of our branding efforts, or encounter legal obstacles which prevent our continued use of our brand names, our business could be materially adversely affected.
If we fail to retain our existing members or acquire new members, our revenue and business will be harmed.
We spent $5.8 million and $7.9 million on marketing initiatives relating to member acquisition and marketing for the nine months ended September 30, 2017 and 2016, respectively, and expect to continue to spend significant amounts to acquire new members. We must continue to retain and acquire members in order to maintain or increase revenue. We cannot assure you that the revenue from members we acquire will ultimately exceed the cost of acquiring new members. If members do not perceive our offers to be of high value and quality or if we fail to introduce new and more relevant deals, we may not be able to acquire or retain members. If we reduce our member acquisition costs, we cannot assure you that this will not adversely impact our ability to acquire new members. If we are unable to acquire new members who purchase our deals directly or indirectly in numbers sufficient to grow our business, or if members cease to purchase our deals directly or indirectly through our advertisers, the revenue we generate may decrease and our operating results will be adversely affected. If the level of usage by our member base declines or does not grow as expected, we may suffer a decline in member growth or revenue. A significant decrease in the level of usage or member growth would have an adverse effect on our business, financial condition and results of operations. In addition, a shift of our audience to mobile devices and social media channels without corresponding updates of our offerings or marketing activities to address this audience could result in lower revenues.
Our business may be sensitive to events affecting the travel industry in general.
Events like the Middle East conflicts, the global financial crisis of 2008, the terrorist attacks in France, Turkey, Belgium and Germany, mass shooting incidents such as in Las Vegas and the recent natural disasters, such as hurricanes, fires and floods in the United States and the Caribbean, have a negative impact on the travel industry and affect travelers' behavior. In addition, advertisers may choose to limit advertising spend on certain destinations given the recent terror attacks and natural disasters, which can adversely impact our business. We are not in a position to evaluate the net effect of these circumstances on our business; however, we believe there has been negative impact to our business by such events. Furthermore, in the longer term, our business might be negatively affected by financial pressures on the travel industry. If such events result in a long-term negative impact on the travel industry, such impact could have a material adverse effect on our business.
In addition, the United Kingdom’s vote to exit from the European Union could lead to economic uncertainty and have a negative impact on the travel industry and our European business. The United Kingdom could lose access to the single European Union market, travel between the United Kingdom and European Union countries could be restricted, and we could face new regulatory costs and challenges, the scope of which are presently unknown.


We may not be able to attract travel and entertainment companies or Internet users if we do not continually enhance and develop the content and features of our products and services.
To remain competitive, we must continually improve the responsiveness, functionality, and features of our products and services. We may not succeed in developing features, functions, products, or services that travel and entertainment companies and Internet users find attractive. This could reduce the number of travel and entertainment companies and Internet users using our products and materially adversely affect our business. We also recently launched a new and simpler design for our website. We cannot guarantee that our recently launched products will be embraced by our members. While we are striving to improve functionality, usability and design in our products, the recent enhancements on web and mobile may not achieve the desired results we anticipate, and if unsuccessful, could result in a decline in revenues and a negative impact on our business.
We may lose business if we fail to keep pace with rapidly changing technologies and client needs.
Our success is dependent on our ability to develop new and enhanced software, services, and related products to meet rapidly evolving technological requirements for online advertising. Our current technology may not meet the future technical requirements of travel and entertainment companies. Trends that could have a critical impact on our success include:
rapidly changing technology in online advertising, including a significant shift of business to mobile platforms;
evolving industry standards, including both formal and de facto standards relating to online advertising;
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developments and changes relating to the Internet;
competing products and services that offer increased functionality; and

changes in travel company, entertainment company, and Internet user requirements.
If we are unable to timely and successfully develop and introduce new products and enhancements to existing products in response to our industry’s changing technological requirements, our business could be materially adversely affected.
Our business and growth will suffer if we are unable to hire and retain highly skilled personnel.
Our future success depends on our ability to attract, train, motivate, and retain highly skilled employees. We may be unable to retain our skilled employees, or attract, assimilate, and retain other highly skilled employees in the future. We have from time to time in the past experienced, and we expect to continue to experience in the future, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. If we are unable to hire and retain skilled personnel, our growth may be restricted, which could adversely affect our future success.
We may not be able to effectively manage our expanding operations.
Since the commencement of our operations, we have experienced periods of rapid growth. In order to execute our business plan, we must continue to grow significantly. This growth has placed, and our anticipated future growth will continue to place, a significant strain on our management, systems, and resources. We expect that we will need to continue to improve our financial and managerial controls and reporting systems and procedures. We will also need to continue to expand and maintain close coordination among our sales, production, marketing, IT, and finance departments. We may not succeed in these efforts. Our inability to expand our operations in an efficient manner could cause our expenses to grow disproportionately to revenues, our revenues to decline or grow more slowly than expected and could otherwise have a material adverse effect on our business.



Intense competition may adversely affect our ability to achieve or maintain market share and operate profitably.
We compete for advertising dollars with large Internet portal sites, such as MSN and Yahoo!, that offer listings or other advertising opportunities to travel, entertainment and local businesses. These companies have significantly greater financial, technical, marketing and other resources and larger advertiser bases. We compete with search engines like Google and Bing that offer pay-per-click listings. We compete with travel metasearch engines like Kayak Software Corp. and online travel and entertainment deal publishers. We compete with large online travel agencies like Expedia, TripAdvisor, and Priceline that also offer advertising placements and hotel booking platforms and capture consumer interest. As a result of our acquisition of Travelzoo Asia Pacific, we now compete or may compete in the future with large online travel service providers, like Ctrip and eLong. There has been substantial consolidation of the global travel industry and we believe this trend will continue. Some of our competitors are large companies that have significant resources and substantial international operations. These large companies have recently announced acquisitions to further consolidate the online travel industry. For example, Ctrip announced that it was acquiring Skyscanner and Priceline announced it was acquiring Momondo. Expedia owns Travelocity, Orbitz, Hotels.com, Hotwire, Trivago, and HomeAway, among others. The continued consolidation of the global travel market may impact our ability to compete in certain areas.
We also compete with companies like Groupon that sell vouchers for deals from local businesses such as spas, hotels and restaurants. It is difficult to predict at this time what affect the business combination will have on the Local Deals and Getaway market. We expect to face increased competition from other Internet and technology-based businesses such as Google and Microsoft, each of which has launched initiatives which are directly competitive to our Local Deals and Getaway products. To the extent that Google, or other leading search or metasearch engines that have a significant presence in our key markets, offer comprehensive travel planning or shopping capabilities, or refer those leads to suppliers directly, or to other favored partners, there could be an adverse impact on our business and financial performance. We also have seen that some competitors will accept lower margins, or negative margins, to attract attention and acquire new members. If competitors engage in group buying initiatives in which merchants receive a higher percentage of the face value than we currently offer, we may be forced to pay a higher percentage of the face value than we currently offer, which may reduce our revenue. In addition, we compete with newspapers, magazines and other traditional media companies that operate websites which provide online advertising opportunities. We expect to face additional competition as other established and emerging companies, including print media companies, enter the online advertising market. Competition could result in reduced margins on our services, loss of market share or less use of Travelzoo by advertisers and consumers. If we are not able to compete effectively with current or future competitors as a result of these and other factors, our business could be materially adversely affected.
Loss of any of our key management personnel could negatively impact our business.
Our future success depends to a significant extent on the continued service and coordination of our management team. The loss or departure of any of our officers or key employees could materially adversely affect our ability to implement our business plan. We do not maintain key person life insurance for any member of our management team. In addition, we expect new members to join our management team in the future. These individuals will not previously have worked together and will be required to become integrated into our management team. If our key management personnel are not able to work together effectively or successfully, our business could be materially adversely affected.
We may not be able to access third party technology upon which we depend.
We use data technology and software products from third parties, and technology from our vendors may not continue to be available to us on commercially reasonable terms, or at all. Our business will suffer if we are unable to access technology, to gain access to additional products or to integrate new technology with our existing systems. This could cause delays in our development and introduction of new services and related products or enhancements of existing products until equivalent or replacement technology can be accessed, if available, or developed internally, if feasible. If we experience these delays, our business could be materially adversely affected. We also rely on certain third party computer systems and third party service providers, including GDSs and computerized central reservation systems, in connection with providing certain of our hotel booking services. Any interruption in these third party services and systems or deterioration in their performance could prevent us from utilizing certain booking services and have an adverse effect on our business, brands and results of operations. Our agreements with some third party service providers are terminable upon short notice and often do not provide recourse for service interruptions.



Acquisitions, investments and joint ventures could result in operating difficulties, dilution, and other harmful consequences that may adversely impact our business and results of operations.
We may evaluate and consider a wide array of potential strategic transactions as part of our overall business strategy, including business combinations, acquisitions and dispositions of businesses, technologies, services, and other assets, as well as strategic investments and joint ventures. At any given time we may be engaged in discussions or negotiations with respect to one or more of these types of transactions. Any of these transactions could be material to our financial condition and results of operations.
These transactions involve significant challenges and risks. Some of the areas where we may face risks or difficulties include:
Diversion of management time and focus from operating our business to acquisition integration challenges.

Implementation or remediation of controls, procedures, and policies at the acquired company.

Integration of the acquired company's accounting, human resource, and other administrative systems, and coordination of product, engineering, and sales and marketing functions.

Transition of operations, users, and customers onto our existing platforms.

Failure to obtain required approvals on a timely basis, if at all, from governmental authorities, or conditions placed upon approval, under competition and antitrust laws which could, among other things, delay or prevent us from completing a transaction, or otherwise restrict our ability to realize the expected financial or strategic goals of an acquisition.

In the case of foreign acquisitions, the need to integrate operations across different cultures and languages and to address the particular economic, currency, political, and regulatory risks associated with specific countries.

Failure to successfully further develop the acquired business or technology.

Cultural challenges associated with integrating employees from the acquired company into our organization, and retention of employees from the businesses we acquire.

Liability for activities of the acquired company before the acquisition, including patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities, and other known and unknown liabilities.

Litigation or other claims in connection with the acquired company, including claims from terminated employees, customers, former stockholders, or other third parties.

Challenges relating to the structure of an investment, such as governance, accountability and decision-making conflicts that may arise in the context of a joint venture.

Expected and unexpected costs incurred in pursuing acquisitions, including identifying and performing due diligence on potential acquisition targets that may or may not be successful.

Entrance into markets in which we have no direct prior experience and increased complexity in our business.

Inability to sell disposed assets.



Impairment of goodwill and other assets acquired or divested.

Our failure to address these risks or other problems encountered in connection with our past or future acquisitions and investments could cause us to fail to realize the anticipated benefits of such acquisitions or investments, incur unanticipated liabilities, and harm our business generally.

Future acquisitions may also require us to issue additional equity securities, spend our cash, or incur debt (and increased interest expense), liabilities and amortization expenses related to intangible assets or write-offs of goodwill, which could adversely affect our results of operations and dilute the economic and voting rights of our stockholders. Also, the anticipated benefit of many of our acquisitions may not materialize.
Risks Related to the Market for our Shares
Our stock price has been volatile historically and may continue to be volatile.
The trading price of our common stock has been and may continue to be subject to wide fluctuations. During the twelve months ended September 30, 2017, the closing price of our common stock on the NASDAQ Global Select Market ranged from $7.75 to $12.77. Our stock price may fluctuate in response to a number of events and factors, such as quarterly variations in operating results; announcements of technological innovations or new products by us or our competitors; changes in financial estimates and recommendations by securities analysts; the operating and stock price performance of other companies that investors may deem comparable to us; and news reports relating to trends in our markets or general economic conditions. Our stock price may be volatile given that operating results may vary from the expectations of securities analysts and investors, which are beyond our control. In the event that our operating results fall below the expectations of securities analysts or investors, the trading price of our common shares may decline significantly. Moreover, fluctuations in our stock price and our price-to-earnings multiple may have made our stock attractive to hedge or day-trading investors who often shift funds into and out of stocks rapidly, exacerbating price fluctuations in either direction, particularly when viewed on a quarterly basis.
In addition, the stock market in general, and the market prices for Internet-related companies in particular, have experienced volatility that often has been unrelated to the operating performance of such companies. These broad market and industry fluctuations may adversely affect the price of our stock, regardless of our operating performance.
We have a principal stockholder.
Ralph Bartel, who founded Travelzoo and who is a Director of the Company is the sole beneficiary of the Ralph Bartel 2005 Trust, which is the controlling shareholder of Azzurro. As of September 30, 2017, Azzurro is the Company's largest stockholder, holding approximately 57.8% of the Company's outstanding shares.


Risks Related to Legal Uncertainty
We may become subject to shareholder lawsuits over securities violations due to volatile stock price and this can be burdensome to management and costly to defend.
Shareholder lawsuits for securities violations are often launched against companies whose stock price is volatile. Such lawsuits involving the Company would require management’s attention to defend, which may distract attention from operating the Company. In addition, even if the lawsuit is meritless, the Company may incur substantial costs to defend itself and/or settle such claims, to minimize the distraction and costs of defense. Such lawsuits could result in judgments against the Company requiring substantial payments to claimants. Such costs may materially impact our results of operations and financial condition.
We may become subject to burdensome government regulations and legal uncertainties affecting the Internet which could adversely affect our business.
To date, governmental regulations have not materially restricted use of the Internet in our markets. However, the legal and regulatory environment that pertains to the Internet is uncertain and may change. Uncertainty and new regulations, including those enacted in foreign jurisdictions, could increase our costs of doing business, prevent us from delivering our products and services over the Internet, or slow the growth of the Internet. For example, new laws and regulations regulating online advertisements, including those enacted in foreign jurisdictions, may affect our advertising revenue and may also result in decreased traffic to our websites. In addition to new laws and regulations being adopted, existing laws may be applied to the Internet. New and existing laws may cover issues which include:
user privacy;
anti-spam legislation;
consumer protection;
copyright, trademark and patent infringement;
pricing controls;
characteristics and quality of products and services;
sales and other taxes; and
other claims based on the nature and content of Internet materials.
We are subject to laws and regulations worldwide, changes to which could increase the Company’s costs and individually or in the aggregate adversely affect the Company’s business.
The Company is subject to laws and regulations affecting its domestic and international operations in a number of areas. These U.S. and foreign laws and regulations affect the Company’s activities including, but not limited to, in areas of employment related laws and regulations, advertising, digital content, consumer protection, real estate, billing, e-commerce, promotions, intellectual property ownership and infringement, tax, anti-corruption, foreign exchange controls and cash repatriation restrictions, data privacy requirements, anti-competition, health, and safety.
Compliance with these laws, regulations and similar requirements may be onerous and expensive, and they may be inconsistent from jurisdiction to jurisdiction, further increasing the cost of compliance and doing business. Any such costs, which may rise in the future as a result of changes in these laws and regulations or in their interpretation, could individually or in the aggregate make the Company’s services less attractive to the Company’s customers, delay the introduction of new products in one or more regions, or cause the Company to change or limit its business practices or incur more costs to comply or defend itself. The Company has implemented policies and procedures designed to ensure compliance with applicable laws and regulations, but there can be no assurance that the Company’s employees, contractors, or agents will not violate such laws and regulations or the Company’s policies and procedures.



The implementation of the CARD Act and similar state and foreign laws may harm our Local Deals business.
Vouchers which are issued under our Local Deals and Getaway may be considered gift cards, gift certificates, stored value cards or prepaid cards and therefore governed by, among other laws, the Credit CARD Act of 2009 (the "CARD Act"), and state laws governing gift cards, stored value cards and coupons. Other foreign jurisdictions have similar laws in place, in particular European jurisdictions where the European E-Money Directive regulates the business of electronic money institutions. Many of these laws contain provisions governing the use of gift cards, gift certificates, stored value cards or prepaid cards, including specific disclosure requirements and prohibitions or limitations on the use of expiration dates and the imposition of certain fees. For example, if the vouchers are subject to the CARD Act and are not included in the exemption for promotional programs, it is possible that the purchase value, which is the amount equal to the price paid for the voucher, or the promotional value, which is the add-on value of the voucher in excess of the price paid, or both, may not expire before the later of (i) five years after the date on which the voucher was issued; (ii) the voucher’s stated expiration date (if any); or (iii) a later date provided by applicable state law. Purported class actions against other companies have been filed in federal and state court claiming that coupons similar to the vouchers are subject to the CARD Act and various state laws governing gift cards and that the defendants have violated these laws by issuing the coupons with expiration dates and other restrictions. In addition, investigations by certain state attorney general offices have been launched against other companies with regards to similar issues. If similar claims are asserted against the Company in respect of the Local Deals and Getaway vouchers and are successful, we may become subject to fines and penalties and incur additional costs. In addition, if federal or state laws require that the face value of our vouchers have a minimum expiration period beyond the period desired by a merchant for its promotional program, or no expiration period, this may affect the willingness of merchants to issue vouchers in jurisdictions where these laws apply. For unredeemed vouchers, similar laws in other jurisdictions require us or merchants to honor the face value of vouchers sold, after the redemption period. For example, in Germany, certain consumer protection laws require us to refund consumers for approximately four years after the purchase date for the amount of the face value of purchased vouchers which remains unredeemed at the end of the redemption period. Therefore, we do not recognize the unredeemed amounts as revenue until after we are not subject to these laws. There may be similar laws in other countries or provinces that require similar practices. Such developments may materially and adversely affect the profitability or viability of our Local Deals and Getaway.
If we are required to materially increase the estimated liability recorded in our financial statements with respect to unredeemed Local Deals and Getaway vouchers due to application of certain gift card laws, our net income could be materially and adversely affected.
In certain states and foreign jurisdictions, our Local Deals and Getaway vouchers may be considered a gift card. Some of these states and foreign jurisdictions include gift cards under their unclaimed and abandoned property laws which require companies to remit to the government the value of the unredeemed balance on the gift cards after a specified period of time (generally between one and five years) and impose certain reporting and recordkeeping obligations. The analysis of the potential application of the unclaimed and abandoned property laws to our vouchers is complex, involving an analysis of constitutional and statutory provisions and factual issues, including our relationship with members and merchants and our role as it relates to the issuance and delivery of a voucher. In the event that one or more states or foreign jurisdictions successfully challenges our position on the application of its unclaimed and abandoned property laws to vouchers, or if the estimates that we use in projecting the likelihood of vouchers being redeemed prove to be inaccurate, our liabilities with respect to unredeemed vouchers may be materially higher than the amounts shown in our financial statements. If we are required to materially increase the estimated liability recorded in our financial statements with respect to unredeemed gift cards, our net income could be materially and adversely affected. Moreover, a successful challenge to our position could subject us to penalties or interest on unreported and unremitted sums, and any such penalties or interest would have a further material adverse impact on our net income.
New tax treatment of companies engaged in Internet commerce may adversely affect the commercial use of our services and our financial results.
Due to the global nature of the Internet, it is possible that various states or foreign countries might attempt to regulate our transmissions or levy sales, income or other taxes relating to our activities. Tax authorities at the international, federal, state and local levels are currently reviewing the appropriate treatment of companies engaged in Internet commerce. New or revised international, federal, state or local tax regulations may subject us or our members to additional sales, income and other taxes. We cannot predict the effect of current attempts to impose sales, income or other taxes on commerce over the Internet. New or revised taxes and, in particular, sales taxes, VAT and similar taxes would likely increase the cost of doing business online and decrease the attractiveness of advertising and selling goods and services over the Internet. New taxes could also create significant increases in internal costs necessary to capture data, and collect and remit taxes. Any of these events could have an adverse effect on our business and results of operations.


We may suffer liability as a result of information retrieved from or transmitted over the Internet and claims related to our service offerings.

We may be sued for defamation, civil rights infringement, negligence, patent, copyright or trademark infringement, invasion of privacy, personal injury, product liability, breach of contract, unfair competition, discrimination, antitrust or other legal claims relating to information that is published or made available on our websites or service offerings we make available (including provision of an application programming interface platform for third parties to access our website, mobile device services and geolocation applications). These types of claims have been brought, sometimes successfully, against online services in the past. The fact that we distribute information via e-mail or text message may subject us to potential risks, such as liabilities or claims resulting from unsolicited e-mail or spamming, lost or misdirected messages, security breaches, illegal or fraudulent use of e-mail or interruptions or delays in e-mail or mobile service. These risks are enhanced in certain jurisdictions outside the U.S., where our liability for such third-party actions may be less clear and we may be less protected. In addition, we could incur significant costs in investigating and defending such claims, even if we ultimately are not found liable. If any of these events occurs, our business could be materially and adversely affected.
We are subject to risks associated with information disseminated through our websites and applications, including consumer data, content that is produced by our editorial staff and errors or omissions related to our product offerings. Such information, whether accurate or inaccurate, may result in our being sued by our advertisers, merchants, members or third parties and as a result our revenue and reputation could be materially and adversely affected.

In addition, we may acquire personal or confidential information, including credit card information, from users of our websites and mobile applications, related to our Local Deals and hotel booking platform. Our existing security measures may not be successful in preventing security breaches. For example, outside parties may attempt to fraudulently induce employees, merchants or customers to disclose sensitive information in order to gain access to our secure systems and networks. A party (whether internal, external, an affiliate or unrelated third party) that is able to circumvent our security systems could steal consumer information or transaction data or other proprietary information. In the last few years, several major companies, such as Target, Home Depot, Zappos, LinkedIn and Sony, have experienced high-profile security breaches that exposed their customers' personal information. While we strive to use commercially acceptable means to protect customer personal information, no method of transmission over the Internet, or method of electronic storage, is 100% secure. Further, because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. These issues are likely to become more difficult to manage as we expand the number of places where we operate and as the tools and techniques used in such attacks become more advanced. Security breaches or the unauthorized disclosure of customer personal information could result in negative publicity, damage our reputation, expose us to risk of loss or litigation and possible liability and subject us to regulatory penalties and sanctions. Any failure or perceived failure by us, or our service providers, to comply with the privacy policies, privacy-related obligations to users or other third parties, or privacy related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other user data, may result in governmental enforcement actions, litigation or public statements against the company by consumer advocacy groups or others and could cause our customers and members to lose trust in the company, which could have an adverse effect on our business. If our security measures are breached, or if our services are subject to attacks that degrade or deny the ability of users to access our products and services, our products and services may be perceived as not being secure, users and customers may curtail or stop using our products and services, and we may incur significant legal and financial exposure.

We could also be adversely affected if legislation or regulations are expanded to require changes in our business practices or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively affect our business, results of operations or financial condition. For example, we, like many online companies, have been utilizing the U.S.- E.U. Safe Harbor framework and relying on this method to ensure the appropriate transfer of data between the U.S. and Europe. However, on October 6, 2015, the European Court of Justice ruled that this 15-year old Safe Harbor pact is no longer valid. While we are evaluating and implementing alternatives, it is difficult at this point to know whether this ruling will have an impact on our business. In addition, the European Union has adopted a new data protection legal framework, effective in May 2018, which may result in a greater compliance burden for companies, including us, with users in Europe and increased costs of compliance. To the extent that European regulatory authorities impose fines on the Company or require changes to the Company's business practices, the Company's business and results of operations could be materially and adversely affected. We also could be adversely affected if legislation or regulations are expanded to require changes in our business practices or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively affect our business, results of operations or financial condition.


Claims have been asserted against us relating to shares not issued in our 2002 merger.
The Company was formed as a result of a combination and merger of entities founded by the Company’s principal stockholder, Ralph Bartel. In 2002, Travelzoo.com Corporation was merged into Travelzoo Under and subject to the terms of the merger agreement, holders of promotional shares of Travelzoo.com Corporation (“Netsurfers”) who established that they had satisfied certain prerequisite qualifications were allowed a period of 2 years following the effective date of the merger to receive one share of Travelzoo in exchange for each share of common stock of Travelzoo.com Corporation. In 2004, two years following the effective date of the merger, certain promotional shares remained unexchanged. As the right to exchange these promotional shares expired, no additional shares were reserved for issuance. Thereafter, the Company began to offer a voluntary cash program for those who established that they had satisfied certain prerequisite qualifications for Netsurfer promotional shares as further described below.
Beginning in 2010, the Company became subject to unclaimed property audits of various states in the United States related to the above unexchanged promotional shares. The Company recorded charges for the estimated settlements with these states of $20.0 million, $3.0 million and $22.0 million in 2011, 2012 and 2013, respectively. In 2014, the Company released $7.6 million of the reserve related to the completion of settlements with the states.
Although the Company has settled the states' unclaimed property claims with all states, the Company may still receive inquiries from certain potential Netsurfer promotional stockholders that had not provided their state of residence to the Company by April 25, 2004. Therefore, the Company is continuing its voluntary program under which it makes cash payments to individuals related to the promotional shares for individuals whose residence was unknown by the Company and who establish that they satisfy the original conditions required for them to receive shares of Travelzoo.com Corporation, and who failed to submit requests to convert their shares into shares of Travelzoo within the required time period. This voluntary program is not available for individuals whose promotional shares have been escheated to a state by the Company, except those individuals for which their residence was unknown to the Company. The Company did not make any payment under this voluntary program for the nine months ended September 30, 2017.
The total cost of this voluntary program is not reliably estimable because it is based on the ultimate number of valid requests received and future levels of the Company’s common stock price. The Company’s common stock price affects the potential liability because the amount of cash payments under the program is based in part on the recent level of the stock price at the date valid requests are received. The Company does not know how many of the requests for shares originally received by Travelzoo.com Corporation in 1998 were valid, but the Company believes that only a portion of such requests were valid. In order to receive payment under this voluntary program, a person is required to establish that such person validly held shares in Travelzoo.com Corporation.



Federal laws and regulations, such as the Bank Secrecy Act and the USA PATRIOT Act and similar foreign laws, could be expanded to include Local Deals and Getaway vouchers.
Various federal laws, such as the Bank Secrecy Act and the USA PATRIOT Act and foreign laws and regulations, such as the European Directive on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing, impose certain anti-money laundering requirements on companies that are financial institutions or that provide financial products and services. For these purposes, financial institutions are broadly defined to include money services businesses such as money transmitters, check cashers and providers of prepaid access cards. Examples of anti-money laundering requirements imposed on financial institutions include customer identification and verification programs, suspicious activity monitoring and reporting, record retention policies and procedures and transaction reporting. We do not believe that we are a financial institution subject to these laws and regulations based, in part, upon the closed loop nature and other characteristics of vouchers and our role with respect to the distribution of vouchers to members. However, the Financial Crimes Enforcement Network, a division of the U.S. Department of the Treasury tasked with implementing the requirements of the Bank Secrecy Act, recently issued final rules regarding the scope and requirements for non-bank parties involved in stored value or prepaid access cards, including obligations on sellers or providers of “prepaid access”. Under the final rule, providers or sellers of closed loop vouchers, such as those offered through the Local Deals and Getaway programs, would only be subject to registration if the voucher exceed $2,000 in total value or if they are sold in aggregate amounts exceeding $10,000 to any single person in one day. Should the $2,000 limit be exceeded or should more than $10,000 in aggregate vouchers be sold to any individual person (sales to businesses for resale or distribution are excluded) then we may be deemed either a seller or provider of prepaid access subject to regulation. In the event that we become subject to the requirements of the Bank Secrecy Act or any other anti-money laundering law or regulation imposing obligations on us as a money services business, our regulatory compliance costs to meet these obligations would likely increase which could reduce our net income. In addition, the costs for third parties to sell vouchers would increase, which may restrict our ability to enlist third parties to issue vouchers.
Our internal control over financial reporting may not be effective, and our independent registered public accounting firm may not be able to attest as to the effectiveness of such internal controls, which could have a significant and adverse effect on our business.
We are obligated to evaluate our internal control over financial reporting in order to allow management to report on, and our independent registered public accounting firm to opine on, our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002 and the rules and regulations of the SEC, which we collectively refer to as Section 404. In our Section 404 evaluation, we may identify areas of internal control that may need improvement and may require remediation efforts where necessary. Currently, none of our identified areas that need improvement has been categorized as material weaknesses. We may identify conditions that may result in significant deficiencies or material weaknesses in the future.
We may be unable to protect our registered trademark or other proprietary intellectual property rights.
Our success depends to a significant degree upon the protection of the Travelzoo brand name. We rely upon a combination of copyright, trade secret and trademark laws, as well as non-disclosure and other contractual arrangements to protect our intellectual property rights. The steps we have taken to protect our proprietary rights, however, may not always succeed in deterring misappropriation of proprietary information.
We have registered the Travelzoo trademark in the U.S., Australia, Canada, China, Hong Kong, Japan, South Korea, Taiwan, the European Union and the U.K. If we are unable to protect our rights in the mark in North America, Europe, and Asia Pacific, where we have licensed the trademark as described above under “overview”, a key element of our strategy of promoting Travelzoo as a brand could be disrupted and our business could be adversely affected. We may not always be able to detect unauthorized use of our proprietary information or take appropriate steps to enforce our intellectual property rights. In addition, the validity, enforceability, and scope of protection of intellectual property in Internet-related industries are uncertain and still evolving. The laws of countries in which we may market our services in the future are uncertain and may afford little or no effective protection of our intellectual property. The unauthorized reproduction or other misappropriation of our proprietary technology could enable third parties to benefit from our technology and brand name without paying us for them. If this were to occur, our business could be materially adversely affected.


We may face liability from intellectual property litigation that could be costly to prosecute or defend and distract management’s attention with no assurance of success.
We cannot be certain that our products, content and brand names do not or will not infringe valid patents, copyrights or other intellectual property rights held by third parties. We expect that infringement claims in our markets will increase in number as more participants enter the markets. We may be subject to legal proceedings and claims from time to time relating to the intellectual property of others in the ordinary course of our business. We may incur substantial expenses in defending against these third party infringement claims, regardless of their merit, and such claims could result in a significant diversion of the efforts of our management personnel. Successful infringement claims against us may result in monetary liability or a material disruption in the conduct of our business. We endeavor to defend our intellectual property rights diligently, but intellectual property litigation is extremely expensive and time consuming, and has and is likely to continue to divert managerial attention and resources from our business objectives. Successful infringement claims against us could result in monetary liability and resolution of claims may require us to obtain licenses to use intellectual property rights belonging to third parties, which may be expensive to procure.
Item 3.        Quantitative and Qualitative Disclosures About Market Risk
We believe that our potential exposure to changes in market interest rates is not material. The Company is not a party to any derivative transactions. We invest in highly liquid investments with short maturities. Accordingly, we do not expect any material loss from these investments.Not required for smaller reporting companies.
Our operations in Canada expose us to foreign currency risk associated with agreements being denominated in Canadian dollars. Our operations in Europe expose us to foreign currency risk associated with agreements being denominated in British Pound Sterling and Euros. Our operations in Asia Pacific expose us to foreign currency risk associated with agreements being denominated in Australian dollars, Chinese Yuan, Hong Kong dollar, Japanese Yen and Taiwanese Yuan. We are exposed to foreign currency risk associated with fluctuations of these currencies as the financial position and operating results of our operations in Asia Pacific, Canada and Europe are translated into U.S. dollars for consolidation purposes. We do not use derivative instruments to hedge these exposures. We are a net receiver of U.S. dollars from our foreign subsidiaries and therefore benefit from a weaker U.S. dollar and are adversely affected by a stronger U.S. dollar relative to the foreign currency used by the foreign subsidiary as its functional currency. We have performed a sensitivity analysis as of September 30, 2017, using a modeling technique that measures the change in the fair values arising from a hypothetical 10% adverse movement in the levels of foreign currency exchange rates relative to the U.S. dollar with all other variables held constant. The foreign currency exchange rates we used were based on market rates in effect at September 30, 2017. The sensitivity analysis indicated that a hypothetical 10% adverse movement in foreign currency exchange rates would result in an incremental $141,000 foreign exchange loss for the nine month ended September 30, 2017.


Item 4.        Controls and Procedures
Based on management’s evaluation (with the participation of the Company’s Global Chief Executive Officer (CEO) and Chief FinancialPrinciple Accounting Officer (CFO))(PAO), as of SeptemberJune 30, 2017,2023, our CEO and CFOPAO have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), are not effective due to the material weakness in internal control over financial reporting noted below to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in U.S. Securities and Exchange Commission (SEC)SEC rules and forms, and that such information is accumulated and communicated to management, including our CEO and CFO,PAO, as appropriate, to allow timely decisions regarding required disclosure.

However, after giving full consideration to the material weakness, management, including our CEO and PAO, that our condensed consolidated financial statements present fairly, in all material respects, our financial position, results of our operations and our cash flows for the periods presented in this Quarterly Report, in conformity with U.S. generally accepted accounting principles.

Material Weakness

As we reported in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2022 and Quarterly Report on Form 10-Q/A for the fiscal quarter ended March 31, 2023, we have identified a material weakness in our internal control over financial reporting related to having sufficient resources for the accounting for certain non-routine, non-recurring, unusual or complex transactions within our financial statement closing and reporting process. Specifically, the Company did not have internal financial staff with sufficient specific expertise to ensure complete and timely financial reporting and disclosures related to technical and complex accounting transactions.

Remediation Plan

We have made progress towards remediation and continue to implement our remediation plan for the material weakness in internal control over financial reporting described above. Specifically, we realigned certain of our personnel (including recruiting for additional headcount in Finance), improved reporting processes, and designed and implemented new controls in preparation for the next non-routine, non-recurring, unusual or complex transaction. We are committed to maintaining a strong internal control environment and implementing measures designed to help ensure that control deficiencies contributing to the material weakness are remediated as soon as possible. We will consider the material weakness remediated after the applicable controls operate for a sufficient period of time.

Changes in Internal Control over Financial Reporting

As outlined above, we are in the process of taking steps to remediate the material weakness previously reported related to non-routine, non-recurring, unusual or complex transactions. During the quarter ended SeptemberJune 30, 2017, there were2023, we made no other changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that materially affected, or are reasonably likely to materially affect, the Company’sour internal controlscontrol over financial reporting.









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PART II—OTHER INFORMATION
Item 1.        Legal Proceedings
The information set forth under “Note 3—4—Commitments and Contingencies” to the accompanying unaudited condensed consolidated financial statements included in Part I, Item 1 of this report is incorporated herein by reference.
Item 1A.    Risk Factors
An updated description ofIn addition to the other information set forth in this report, you should carefully consider the risk factors associated with our business is included under “Riskdiscussed in Part I, “Item 1A Risk Factors” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contained in Item 2 of Part I of this report. This description includes any material changes to and supersedes the description of the risk factors associated with our business previously disclosed in Item 1A of our 2016 Annual Report on Form 10-K and isfor the fiscal year ended December 31, 2022, which are incorporated herein by reference. These risk factors could materially affect our business, financial position, or results of operations. These are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial position, or results of operations.



Item  2:Unregistered Sales of Equity Securities and Use of Proceeds
Item  2:Unregistered Sales of Equity Securities and Use of Proceeds
Repurchases of Equity Securities
We repurchased 288,000658,938 shares of our equity securitiescommon stock during the three months ended SeptemberJune 30, 2017. 2023.
PeriodTotal Number of Shares PurchasedAverage Price paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced ProgramMaximum Shares the May Yet be Purchased Under the Program
April 1, 2023–April 30, 2023362,854 $6.26 2,273,111 296,084 
May 1, 2023–May 31, 2023296,084 $8.14 2,410,481 — 
658,938 4,683,592 
PeriodTotal Number of
Shares
Purchased		 Average Price
Paid
per Share		 Total Number of
Shares
Purchased
as Part of
Publicly
Announced
Programs		 Maximum Shares
that May Yet
be Purchased Under
the Programs (1)
July 1, 2017–July 30, 2017
57,000
 $11.01
 628,000
 234,000
August 1, 2017–August 31, 2017
128,000
 $9.00
 1,149,000
 106,000
September 1, 2017–September 30, 2017
103,000
 $8.32
 857,000
 3,000
 288,000
      
(1) In February 2017,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. During the three months ended September 30, 2017,In 2022, the Company repurchased 288,000306,375 shares of common stock.

stock for an aggregate purchase price of $1.6 million. As of December 31, 2022, there were 693,625 shares remaining to be repurchased under this program. The Company repurchased 34,687 shares of common stock in the first quarter of 2023 for $186,000. The Company repurchased 658,938 shares of common stock in the second quarter of 2023 for $4.7 million. As of June 30, 2023, the Company finished this stock repurchase program.

On July 26, 2023, Travelzoo announced that its board of directors has authorized the repurchase of up to 1,000,000 shares of the Company's outstanding common stock. Purchases may be made, from time to time, in the open market and will be funded from available cash. The number of shares to be purchased and the timing of purchases will be based on the level of Travelzoo’s cash balances, general business and market conditions, and other factors, including alternative investment opportunities.
Item  3:Defaults Upon Senior Securities
None.
Item  4:Mine Safety Disclosures
None.
Item  5:Other Information
None.
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Item 6.        Exhibits
The following table sets forth a list of exhibits:
 
Exhibit
Number
Description
—  Certificate of Incorporation of Travelzoo (Incorporated by reference to our Pre-Effective Amendment No. 6 to our Registration Statement on Form S-4 (File No. 333-55026), filed February 14, 2002)
—  Certificate of Amendment of Certificate Incorporation of Travelzoo and Certificates(File No. 000-50171), filed May 10, 2017)
—  Certificate of Amendment To theof Certificate of Incorporation to EffectAuthorize a ReverseReduction of the Authorized Number of Shares of Our Common Stock Split Followed by a Forward Stock Split Of Travelzoo’s Common Stock.
from 40,000,000 to 20,000,000 Shares
—  Amended and Restated By-laws of Travelzoo (Incorporated by reference to our Pre-Effective Amendment No. 6 to our Registration StatementExhibit 3.5 on Form S-48-K (File No. 333-55026)000-50171), filed February 14, 2002)April 5, 2022).
—  Form of Director and Officer Indemnification Agreement (Incorporated by reference to Exhibit 10.1 on Form 10-Q (File No. 000-50171), filed November 9, 2007)
—  
Mutual Separation Agreement, date November 1, 2017, between Vivian Hong and Travelzoo

31.1‡
—  Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
—  Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
—  Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
—  Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS†XBRL Instance Document
101.SCH†XBRL Taxonomy Extension Schema Document
101.CAL†XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF†XBRL Taxonomy Extension Definition Linkbase Document
101.LAB†XBRL Taxonomy Extension Label Linkbase Document
101.PRE†XBRL Taxonomy Extension Presentation Linkbase Document

*    This exhibit is a management contract or a compensatory plan or arrangement.
‡    Filed herewith
†    Furnished herewith




49

SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
TRAVELZOO
(Registrant)
TRAVELZOOBy:/s/    LIJUN QI
(Registrant)Lijun Qi
By:
/s/    GLEN CEREMONY        
Glen Ceremony
On behalf of the Registrant and as Chief Financial Officer
and Principal Accounting Officer


Date: November 2, 2017August 14, 2023



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