Discontinued Operations

12 Months Ended

Dec. 31, 2020

Discontinued Operations and Disposal Groups [Abstract]

On 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 and Singapore units, which were 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 year ended December 31, 2020 and 2019 (in thousands):


	Year Ended December 31,
	2020		2019
Revenues	$	970	$	6,482
Cost of revenues	6		453
Gross profit	964		6,029

Operating expenses:
Sales and marketing	1,712		9,008
Product development	—		175
General and administrative	2,836		4,427
Total operating expenses	4,548		13,610
Loss from operations	(3,584)		(7,581)
Other income (loss), net	194		(474)
Loss before income taxes	(3,390)		(8,055)
Income tax expense	—		82
Net loss	$	(3,390)	$	(8,137)

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 allocation of expenses including $64,000 and $135,000 of cost of revenues that were reclassified from the discontinued operations to continued operations for the years ended December 31, 2020 and 2019, respectively. In addition, $7,000 and $204,000 of operating expenses were reclassified from continued operations to discontinued operations for the years ended December 31, 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 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 obtained a license to use the intellectual property of Travelzoo exclusively in Japan in exchange for quarterly royalty payments based on revenue over a 5-year term, with an option to renew. However, Travelzoo Japan is only obligated to pay Travelzoo if Travelzoo Japan has a positive EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted pro forma before royalty expenses, according to Travelzoo Japan’s income statement. Travelzoo was not able to estimate whether Travelzoo Japan will generate positive EBITDA based on the uncertainties, and no amount has been recorded for future royalties under this agreement. The Company did not record royalties from Travelzoo Japan for 2020 and will record royalties from Travelzoo Japan on a one-quarter lag basis for future royalties. 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. 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 did not record royalties from Travelzoo Japan for 2020 and will record royalties from Travelzoo Japan on a one-quarter lag basis for future royalties.

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


	December 31, 2020		December 31, 2019
ASSETS
Cash, cash equivalents and restricted cash	$	146	$	832
Accounts receivable, net	69		1,797
Deposits	—		9
Prepaid expenses and other	15		208
Deposits and other	—		248
Operating lease right-of-use assets	—		746
Property and equipment, net	—		121
Total assets from discontinued operations	$	230	$	3,961
LIABILITIES
Accounts payable	$	611	$	1,057
Accrued expenses and other	48		1,188
Deferred revenue	12		118
Operating lease right-of-use liabilities	—		772
Total liabilities from discontinued operations	$	671	$	3,135

The net cash used in operating activities and investing activities for the discontinued operations for the for the year ended December 31, 2020 and 2019, were as follows (in thousands):


	Year Ended December 31,
	2020		2019
Net cash used in operating activities	$	(1,974)	$	(7,499)
Net cash used in investing activities	$	—	$	(65)