Discontinued Operation

3 Months Ended

Mar. 31, 2021

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 three months ended March 31, 2021 and 2020 (in thousands):


	Three Months Ended
	March 31,
	2021		2020
Revenues	$	—	$	904
Cost of revenues	—		6
Gross profit	—		898

Operating expenses:
Sales and marketing	—		1,712
Product development	—		—
General and administrative	12		2,639
Total operating expenses	12		4,351
Loss from operations	(12)		(3,453)
Other income (loss), net	(3)		534
Loss before income taxes	(15)		(2,919)
Income tax expense	—		—
Net loss	$	(15)	$	(2,919)

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. $64,000 of cost of revenues were reclassified from the discontinued operations to continued operations and $7,000 of cost of revenues were reclassified from the continued operations to discontinued operations for the three months ended March 31, 2020.

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. Licensing revenue is booked with a lag of one quarter. The Company did not record royalties from Travelzoo Japan for 2020 and recorded $9,000 of royalties during the three months ended March 31, 2021 for royalties earned for the period for the three months ended December 31, 2020. 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 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. Travelzoo was not able to estimate whether the AUS Buyer will generate revenues based on the current uncertainties, and no amount has been recorded for future royalties under this agreement. Licensing revenue is booked with a lag of one quarter. The Company did not record royalties from Travelzoo Singapore for 2020 or for the three months ended March 31, 2021.

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):


	March 31, 2021		December 31, 2020
ASSETS
Cash, cash equivalents and restricted cash	$	110	$	146
Accounts receivable, net	—		69
Prepaid expenses and other	13		15
Total assets from discontinued operations	$	123	$	230
LIABILITIES
Accounts payable	$	511	$	611
Accrued expenses and other	57		48
Deferred revenue	12		12
Total liabilities from discontinued operations	$	580	$	671

The net cash used in operating activities and investing activities for the discontinued operations for the three months ended March 31, 2021 and 2020, were as follows (in thousands):


	Three Months Ended
	March 31,
	2021		2020
Net cash used in operating activities	$	(37)	$	(1,026)
Net cash used in investing activities	$	—	$	—