Discontinued Operation

6 Months Ended

Jun. 30, 2020

Discontinued Operations and Disposal Groups [Abstract]

Discontinued OperationOn March 10, 2020, Travelzoo issued a press release announcing that it will exit its business in Asia Pacific. The decision supports the Company's strategy to focus on value creation for shareholders by focusing on growing the businesses in North America and Europe, where the Company continues to see strong interest from our members in travel deals.

The Asia Pacific business shut down and ceased operations as of March 31, 2020, except for the Company's Japan unit, which was held for sale. The Company considers this decision to be a strategic shift in its strategy which will have a major effect on its operations. 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 and six months ended June 30, 2020 and 2019 (in thousands):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020		2019		2020		2019
Revenues	$	66	$	1,578	$	970	$	3,243
Cost of revenues	—		85		6		166
Gross profit	66		1,493		964		3,077

Operating expenses:
Sales and marketing	—		2,253		1,712		4,325
Product development	—		36		—		80
General and administrative	705		933		3,344		2,000
Total operating expenses	705		3,222		5,056		6,405
Loss from operations	(639)		(1,729)		(4,092)		(3,328)
Other income (expense), net	(156)		(114)		378		(258)
Loss before income taxes	(795)		(1,843)		(3,714)		(3,586)
Income tax expense	—		(113)		—		(31)
Net loss	$	(795)	$	(1,730)	$	(3,714)	$	(3,555)

The Company recorded severance and disposal costs of $1.6 million during the first quarter of fiscal year 2020 for the shut down and such costs were classified in “general and administrative” in the table above. Certain reclassifications have been made for current and prior periods between the continued operations and the discontinued operations in accordance with U.S. GAAP. Those reclassifications included direct operating expenses and certain inter-company charges that will not continue. $0 and $36,000 of cost of revenues were reclassified from the discontinued operations to continued operations for the three months ended June 30, 2020 and 2019, respectively. $64,000 and $70,000 of cost of revenues were reclassified from the discontinued operations to continued operations for the six months ended June 30, 2020 and 2019, respectively. In addition, $0 and $18,000 of operating expenses that were reclassified from discontinued operations to continued operations for the three months ended June 30, 2020 and 2019, respectively. $7,000 and $21,000 of operating expenses that were reclassified from discontinued operations to continued operations for the six months ended June 30, 2020 and 2019, respectively.

On June 16, 2020, in connection with its Asia Pacific exit plan, the Company completed a sale of 100% of the outstanding capital stock of Travelzoo Japan K.K to the Buyer for consideration of JPY1. The Company recognized a pre-tax loss of $128,000. The parties also entered into a License Agreement, whereby the Buyer obtained a license to use intellectual property from Travelzoo exclusively in Japan in exchange for quarterly royalty payments based on revenue over a 5 year term, with an option to renew. However, the Buyer is only obligated to pay Travelzoo if the Buyer has a positive EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted pro forma before royalty expenses, according to the Buyer’s income statement. Based on the current uncertainties, Travelzoo is not able to estimate whether the Buyer will generate positive EBITDA and no amount has been recorded for future royalties under this agreement. An interest free loan was provided to the Buyer for JPY 46.0 million (approximately $430,000) to be repaid over 3 years.

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, 2020		December 31, 2019
ASSETS
Cash, cash equivalents and restricted cash	$	267	$	832
Accounts receivable, net	288		1,797
Deposits	—		9
Prepaid expenses and other	16		208
Deposits and other	19		248
Operating lease right-of-use assets	—		746
Property and equipment, net	—		121
Total assets from discontinued operations	$	590	$	3,961
LIABILITIES
Accounts payable	$	661	$	1,057
Accrued expenses and other	782		1,188
Deferred revenue	13		118
Operating lease right-of-use liabilities	—		772
Total liabilities from discontinued operations	$	1,456	$	3,135

The net cash used in operating activities and investing activities for the discontinued operations for the six months ended June 30, 2020 and 2019, were as follows (in thousands):


	Six Months Ended
	June 30,
	2020		2019
Net cash used in operating activities	$	(1,806)	$	(3,201)
Net cash used in investing activities	$	—	$	(42)