Discontinued Operation

9 Months Ended

Sep. 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 nine months ended September 30, 2020 and 2019 (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Revenues	$	—	$	1,672	$	970	$	4,915
Cost of revenues	—		128		6		294
Gross profit	—		1,544		964		4,621

Operating expenses:
Sales and marketing	—		2,266		1,712		6,591
Product development	—		44		—		124
General and administrative	69		1,412		3,413		3,412
Total operating expenses	69		3,722		5,125		10,127
Loss from operations	(69)		(2,178)		(4,161)		(5,506)
Other income (loss), net	(161)		(170)		217		(428)
Loss before income taxes	(230)		(2,348)		(3,944)		(5,934)
Income tax expense	—		(90)		—		(121)
Net loss	$	(230)	$	(2,258)	$	(3,944)	$	(5,813)

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 $64,000 of cost of revenues were reclassified from the discontinued operations to continued operations for the three and nine months ended September 30, 2020, respectively. $24,000 and $94,000 of cost of revenues were reclassified from the discontinued operations to continued operations for the three and nine months ended September 30, 2019, respectively. In addition, $0 and $7,000 of operating expenses that were reclassified from discontinued operations to continued operations for the three and nine months ended September 30, 2020, respectively. $150,000 and $129,000 of operating expenses that were reclassified from continued operations to discontinued operations for the three and nine months ended September 30, 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 to 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 the Travelzoo Japan btained a license to use the intellectual property of Travelzoo exclusively in Japan in exchange for quarterly royalty payments based on revenue over a 5 year term, with an option to renew. However, Travelzoo Japan is only obligated to pay Travelzoo if Travelzoo Japan has a positive EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted pro forma before royalty expenses, according to Travelzoo Japan’s income statement. The Company will record royalties from Travelzoo Japan on a one-quarter lag basis. However, Travelzoo is not able to estimate whether Travelzoo Japan will generate positive EBITDA based on the current uncertainties, and no amount has been recorded for future royalties under this agreement. An interest free loan was provided to the Japan Buyer for JPY 46.0 million (approximately $430,000) to be repaid over 3 years.

On August 24, 2020, the Company completed a sale of 100% of the outstanding capital stock of Travelzoo Singapore, to an unaffiliated entity, AUS Buyer, which is fully owned by Mr. Julian Rembrandt, the former General Manager of South East Asia and Australia of the Company for consideration of Singapore Dollar1. 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 Company will record royalties from the AUS Buyer on a one-quarter lag basis. However,

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


	September 30, 2020		December 31, 2019
ASSETS
Cash, cash equivalents and restricted cash	$	301	$	832
Accounts receivable, net	115		1,797
Deposits	—		9
Prepaid expenses and other	36		208
Deposits and other	2		248
Operating lease right-of-use assets	—		746
Property and equipment, net	—		121
Total assets from discontinued operations	$	454	$	3,961
LIABILITIES
Accounts payable	$	729	$	1,057
Accrued expenses and other	767		1,188
Deferred revenue	13		118
Operating lease right-of-use liabilities	—		772
Total liabilities from discontinued operations	$	1,509	$	3,135

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


	Nine Months Ended
	September 30,
	2020		2019
Net cash used in operating activities	$	(1,821)	$	(5,324)
Net cash used in investing activities	$	—	$	(60)