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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________________________
Form 10-Q
______________________________________________________________________________ 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
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
_______________________________________________________________________________ 
Travelzoo
(Exact name of registrant as specified in its charter)
 ________________________________________________________________________________
Delaware36-4415727
(State or other jurisdiction of
incorporation or organization)
(I.R.S. employer
identification no.)
590 Madison Avenue, 35th Floor
New York, New York
10022
(Address of principal executive offices)(Zip code)
Registrant’s telephone number, including area code: (212484-4900
_________________________________________________________________________________ 
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 registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer¨Accelerated filer
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 August 7, 2020 was 11,310,431 shares.
1


TRAVELZOO
Table of Contents
 
PART I—FINANCIAL INFORMATIONPage
PART II—OTHER INFORMATION
 
2



PART I—FINANCIAL INFORMATION

Item 1.  Financial Statements

3


TRAVELZOO
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except par value) 
June 30,
2020
December 31,
2019
ASSETS
Current assets:
Cash and cash equivalents$25,563  $18,743  
Accounts receivable, less allowance for doubtful accounts of $2,813 and $1,106 as of June 30, 2020 and December 31, 2019, respectively
4,031  11,209  
Prepaid income taxes  989  
Deposits112  105  
Prepaid expenses and other 1,173  2,288  
Assets from discontinued operations590  3,961  
Total current assets31,469  37,295  
Deposits and other829  572  
Deferred tax assets4,341  2,051  
Restricted cash1,138  1,135  
Investment in WeGo 2,152  2,484  
Operating lease right-of-use assets9,929  8,140  
Property and equipment, net1,689  2,861  
Intangible assets, net5,200    
Goodwill10,944    
Total assets$67,691  $54,538  
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable$29,674  $19,349  
Accrued expenses and other 5,436  6,281  
Deferred revenue2,779  786  
Operating lease liabilities4,440  4,847  
Promissory notes payable1,700    
Income tax payable773  914  
Liabilities from discontinued operations1,456  3,135  
Total current liabilities46,258  35,312  
PPP notes payable3,663    
Deferred tax liabilities1,044    
Long-term operating lease liabilities12,062  7,920  
Other long-term liabilities457  443  
Total liabilities63,484  43,675  
Commitments and contingencies
Non-controlling interest4,508    
Stockholders’ equity (deficit):
Common stock, $0.01 par value (20,000 shares authorized; 11,310 and 11,479 shares issued and outstanding as of June 30, 2020 and December 31, 2019)
113  115  
Additional paid in capital4,031    
Retained earnings221  14,200  
Accumulated other comprehensive loss(4,666) (3,452) 
Total stockholders’ equity (deficit)(301) 10,863  
Total liabilities and stockholders’ equity (deficit)$67,691  $54,538  
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,
 2020201920202019
Revenues$7,004  $26,606  $27,331  $55,766  
Cost of revenues2,141  2,672  4,844  5,537  
Gross profit4,863  23,934  22,487  50,229  
Operating expenses:
Sales and marketing4,288  13,104  17,382  26,638  
Product development 566  1,763  1,994  3,422  
General and administrative6,642  4,914  12,164  9,446  
Impairment of intangible assets and goodwill    2,920    
Total operating expenses11,496  19,781  34,460  39,506  
Operating income (loss)(6,633) 4,153  (11,973) 10,723  
Other income (loss), net(179) (29) (185) 16  
Income (loss) from continuing operations before income taxes(6,812) 4,124  (12,158) 10,739  
Income tax expense (benefit)(1,309) 1,066  (1,826) 2,736  
Income (loss) from continuing operations(5,503) 3,058  (10,332) 8,003  
Income (loss) from discontinued operations, net of taxes(795) (1,730) (3,714) (3,555) 
Net income (loss)(6,298) 1,328  (14,046) 4,448  
Net income (loss) attributable to non-controlling interest(108)   (1,247)   
Net income (loss) attributable to Travelzoo$(6,190) $1,328  $(12,799) $4,448  
Net income (loss) attributable to Travelzoo—continuing operations$(5,395) $3,058  $(9,085) $8,003  
Net income (loss) attributable to Travelzoo—discontinued operations$(795) $(1,730) $(3,714) $(3,555) 
Income (loss) per share—basic
Continuing operations$(0.48) $0.25  $(0.80) $0.67  
Discontinued operations$(0.07) $(0.14) $(0.33) $(0.30) 
Net income (loss) per share —basic$(0.55) $0.11  $(1.13) $0.37  
Income (loss) per share—diluted
Continuing operations$(0.48) $0.25  $(0.80) $0.66  
Discontinued operations$(0.07) $(0.14) $(0.33) $(0.30) 
Net income (loss) per share—diluted$(0.55) $0.11  $(1.13) $0.36  
Shares used in per share calculation from continuing operations—basic11,310  12,003  11,375  11,959  
Shares used in per share calculation from discontinued operations—basic11,310  12,003  11,375  11,959  
Shares used in per share calculation from continuing operations—diluted11,310  12,278  11,375  12,251  
Shares used in per share calculation from discontinued operations—diluted11,310  12,003  11,375  11,959  
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,
 2020201920202019
Net income (loss)$(6,298) $1,328  $(14,046) $4,448  
Other comprehensive income (loss):
Foreign currency translation adjustment(343) 74  (1,214) (15) 
Total comprehensive income (loss)$(6,641) $1,402  $(15,260) $4,433  

See accompanying notes to unaudited condensed consolidated financial statements.

6


TRAVELZOO
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 Six Months Ended
June 30,
 20202019
Cash flows from operating activities:
Net income (loss)$(14,046) $4,448  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization1,218  663  
Stock-based compensation4,054  482  
Deferred income tax(1,761) 345  
Impairment of intangible assets and goodwill 2,920    
Loss on long-lived assets437    
Loss on equity investment in WeGo336  397  
Gain on promissory notes payable settlement(1,500)   
Net foreign currency effect(456) (26) 
Provision for loss on accounts receivable and other2,427  26  
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable6,183  (2,779) 
Prepaid income taxes989  (428) 
Prepaid expenses and other 1,420  239  
Accounts payable10,309  (2,788) 
Accrued expenses and other(1,380) 1,291  
Deferred revenue1,249    
Income tax payable(67) (96) 
Other liabilities1,091  (174) 
Net cash provided by operating activities13,423  1,600  
Cash flows from investing activities:
Acquisition of business, net of cash acquired(679)   
Other investments(430) (673) 
Purchases of property and equipment(203) (201) 
Net cash used in investing activities(1,312) (874) 
Cash flows from financing activities:
Repurchase of common stock(1,205) (6,460) 
Payment of promissory notes payable(7,800)   
Proceeds from PPP notes payable3,663    
Proceeds from exercise of stock options, net of taxes paid for net share settlement   1,712  
Net cash used in financing activities(5,342) (4,748) 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(511) 5  
Net increase (decrease) in cash, cash equivalents and restricted cash6,258  (4,017) 
Cash, cash equivalents and restricted cash at beginning of period20,710  19,461  
Cash, cash equivalents and restricted cash at end of period$26,968  $15,444  
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net$482  $2,859  
Right-of-use assets obtained in exchange for lease obligations—operating leases$3,207  $2,802  
Cash paid for amounts included in the measurement of lease liabilities$1,622  $2,557  
Non-cash investing and financing activities:
Issuance of promissory notes to the sellers of Jack's Flight Club$11,000  $  
See accompanying notes to unaudited condensed consolidated financial statements.
7


TRAVELZOO
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
 (In thousands)
 Common StockAdditional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Stockholders’
Equity (Deficit)
 SharesAmount
Balances, January 1, 202011,479  $115  $  $14,200  $(3,452) $10,863  
Stock-based compensation expense—  —  23  —  —  23  
Repurchase and retirement of common stock(169) (2) (23) (1,180) —  (1,205) 
Foreign currency translation adjustment—  —  —  —  (871) (871) 
Net loss–Travelzoo—  —  —  (6,609) —  (6,609) 
Balances, March 31, 202011,310  113    6,411  (4,323) 2,201  
Stock-based compensation expense—  —  4,031  —  —  4,031  
Foreign currency translation adjustment—  —  —  —  (343) (343) 
Net loss—Travelzoo—  —  —  (6,190) —  (6,190) 
Balances, June 30, 202011,310  $113  $4,031  $221  $(4,666) $(301) 

 Common StockAdditional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Stockholders’
Equity
 SharesAmount
Balances, January 1, 201911,962  $120  $  $18,153  $(4,214) $14,059  
Stock-based compensation expense—  —  163  —  —  163  
Repurchase and retirement of common stock(100) (1) (137) (1,452) —  (1,590) 
Taxes paid for net share settlement of equity awards3  —  (26) —  —  (26) 
Foreign currency translation adjustment—  —  —  —  (89) (89) 
Net income—  —  —  3,120  —  3,120  
Balances, March 31, 201911,865  119    19,821  (4,303) 15,637  
Stock-based compensation expense—  —  319  —  —  319  
Repurchase and retirement of common stock(250) (2) (2,055) (2,812) —  (4,869) 
Exercise of stock options and taxes paid for net share settlement of equity awards250  2  1,736  —  —  1,738  
Foreign currency translation adjustment—  —  —  —  74  74  
Net income—  —  —  1,328  —  1,328  
Balances, June 30, 201911,865  $119  $  $18,337  $(4,229) $14,227  


See accompanying notes to unaudited condensed consolidated financial statements.

8


TRAVELZOO
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1: Summary of Significant Accounting Policies
(a) The Company and Basis of Presentation
Travelzoo® is a global Internet media company. We provide our 30 million members insider deals and one-of-a-kind experiences personally reviewed by one of our deal experts around the globe. We have our finger on the pulse of outstanding travel, entertainment, and lifestyle experiences. For over 20 years we have worked in partnership with more than 5,000 top travel suppliers—our long-standing relationships give Travelzoo members access to irresistible deals. Travelzoo's revenues are generated primarily from advertising fees.
Our publications and products include the Travelzoo website, the Travelzoo iPhone and Android apps, the Travelzoo Top 20® email newsletter, the Newsflash email alert service, and the Travelzoo Network, a network of third-party websites that list travel deals published by Travelzoo (“Travelzoo” or the "Company"). Our Travelzoo website includes Local Deals and Getaways 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.
APAC Exit
In March 2020, Travelzoo exited its loss-making Asia Pacific business. The Company’s Asia Pacific business was classified as discontinued operations at March 31, 2020. Prior periods have been reclassified to conform with the current presentation. 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 Mr. Hajime Suzuki, the General Manager of Japan (the "Buyer") for consideration of JPY 1. The Company recorded approximately $128,000 loss upon disposal of Japan in the Condensed Consolidated Financial Statements during the three and six months ended June 30, 2020. 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. An interest free loan was provided to the Buyer for JPY 46.0 million (approximately $430,000) to be repaid over 3 years which the Company recorded as other assets on the unaudited condensed consolidated balance sheet as of June 30, 2020.
WeGo Investment
The Company has a minority investment in weekengo GmbH ("WeGo"). WeGo is a technology company which provides an app and a search engine for spontaneous travelers looking for short getaways. The Company accounts for this private company investment using the equity method of accounting by recording its share of the results of WeGo in “Other income (expense)”, net on a one-quarter lag basis. In accounting for the initial investment, the Company allocated $1.0 million of its purchase price to tangible assets and allocated approximately $485,000 of the purchase price to technology-related intangible assets to be amortized over a three-year life. The remaining $1.5 million of the purchase price was allocated to goodwill.
In February 2020, Travelzoo signed an amended investment agreement (the “Investment Agreement”) with WeGo and agreed to invest an additional $1.7 million when WeGo meets certain performance targets. The original Investment Agreement with WeGo was executed in April 2018. At that time, Travelzoo invested $3.0 million in WeGo for a 25% ownership interest. In April 2019, the Company invested an additional $673,000 in WeGo and increased the Company's ownership interest to 26.6%.
As of June 30, 2020, WeGo has not met these performance targets and no additional investment has been made by the Company. In connection with the Investment Agreement, WeGo signed an insertion order for $2.1 million in advertising services with Travelzoo in April 2018. The Company's advertising services provided to WeGo in the three months ended June 30, 2020 and 2019 were $3,000 and $239,000, respectively. The Company's advertising services provided to WeGo in the six months ended June 30, 2020 and 2019 were $360,000 and $794,000, respectively.
During the three and six months ended June 30, 2020, the Company recorded $106,000 and $333,000 for its share of WeGo losses, amortization of basis differences and currency translation adjustment. During the three and six months ended June 30, 2019, the Company recorded $198,000 and $409,000 for its share of WeGo losses, amortization of basis differences and currency translation adjustment. This equity method investment is reported as a long-term investment on the Company's condensed consolidated balance sheets.

9


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, 2020, Jack’s Flight Club had 1.7 million subscribers. Jack’s Flight Club’s revenues are generated by subscription fees paid by members. In June 2020, the Company renegotiated certain aspects of that certain Stock Purchase Agreement, dated as of January 13, 2020 (the “SPA”), by and among Travelzoo, Jack’s Flight Club and the sellers party thereto (the “Sellers”) with the Sellers and reached a settlement for the outstanding Promissory Notes, dated as of January 13, 2020, by and between Travelzoo and each Seller (the “Promissory Notes”). See Note 3 to the unaudited condensed consolidated financial statements for further information.
PPP Loans
On April 24, 2020 and May 5, 2020, the Company received $3.1 million and $535,000, respectively, pursuant to loans under the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the Small Business Association. The loans have a maturity of two (2) years from the disbursement of the funds and an interest rate of 1%. The PPP loan was recorded as long-term PPP notes payable on the unaudited condensed consolidated balance sheet as of June 30, 2020. Interest expense for the PPP notes payable was $7,000 for the six months ended June 30, 2020. The Company intends to use the funds from these loan only for the purposes included in the PPP, including payroll, employee benefits, and rent, and to apply for forgiveness of a portion of the loans in compliance with the CARES Act.
Ownership
Ralph Bartel, who founded the Company 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 June 30, 2020, Azzurro is the Company's largest shareholder, holding approximately 39.5% of the Company's outstanding shares. Azzurro currently holds a proxy given to it by Holger Bartel that provides it with a total of 39.9% of the voting power.
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, 2019, included in the Company’s Form 10-K filed with the SEC on March 20, 2020.
The condensed consolidated financial statements include the accounts of the Company and its wholly 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 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.
The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020 or any other future period, and the Company makes no representations related thereto.
(b) Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 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 will be 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 apply this update on a modified retrospective basis with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the impact on its financial position and results of operations.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment.” ASU 2017-04 simplifies the accounting for goodwill impairment by eliminating the Step 2 requirement to calculate the implied fair value of goodwill. As a result, an entity should perform its annual, or interim, goodwill
10


impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units' fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The ASU is effective for fiscal years beginning after December 15, 2022 for Smaller Reporting Companies, including interim periods within those fiscal years, with early adoption permitted. The Company early adopted ASU 2017-04 as of January 1, 2020 and the adoption did not have a material impact on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract.” The new guidance requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. The guidance is effective for calendar-year public business entities in 2020. Early adoption is permitted. The adoption did not have a material impact on the Company’s financial position, results of operations and cash flows.
(c) Significant Accounting Policies
Below are a summary of 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, 2019.
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. The Company evaluated intangible assets in the first quarter of 2020 due to the coronavirus (COVID-19) pandemic and recorded an impairment expense of $810,000. The Company did not identify any indicators of impairment during the three months ended June 30, 2020.
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 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 carrying 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 net assets to the fair value of the reporting units. The Company evaluated goodwill in the first quarter of 2020 due to the COVID-19 pandemic and recorded an impairment expense of $2.1 million. The Company did not identify any indicators of impairment during the three months ended June 30, 2020.
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 leases with an initial term of 12 months or less on its unaudited condensed consolidated balance sheets.
11


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 (expense), net”, on a straight-line basis over the lease term in its condensed consolidated statements of income.
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 global outbreak of COVID-19 is having an unprecedented impact on the global travel and hospitality industries. Governmental authorities have implemented numerous measures to try to contain the virus, including restrictions on travel, quarantines, shelter-in-place orders, business restrictions and complete shut-downs. The measures implemented to contain COVID-19 have had, and are expected to continue to have, a significant negative effect on our business, financial condition, results of operations and cash flows.

The Company’s cash, cash equivalents and accounts receivable are potentially subject to concentration of credit risk. Cash and cash equivalents are placed with financial institutions that the management believes are of high credit quality. The accounts receivables are derived from revenue earned from customers located in the U.S. and internationally. During the six months ended June 30, 2020, the Company experienced the adverse impact of COVID-19. Many of the Company's advertising partners paused, canceled, and stopped advertising with the Company. Additionally, there has been a significant level of cancellations for the Company's hotel partners and travel package partners as well as refund requests for our vouchers with the Company’s restaurant and spa partners. The Company has modified its policies and will continue to adopt new policies as the situation evolves. However, the uncertainties of the pandemic, such as its duration and severity, will likely negatively impact and continue to negatively impact our partners and customers. As of June 30, 2020 and December 31, 2019, the Company did not have any customers that accounted for 10% or more of accounts receivable.
Cash, Cash Equivalents and Restricted Cash
Restricted cash includes cash and cash equivalents that is restricted through legal contracts, regulations or our intention to use the cash for a specific purpose. Our restricted cash primarily relates to cash held for letters of credit for real estate leases.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited condensed consolidated balance sheets to the total amounts shown in the unaudited condensed consolidated statements of cash flows:
 June 30,December 31,
20202019
Cash and cash equivalents$25,563  $18,743  
Restricted cash 1,138  1,135  
Cash, cash equivalents and restricted cash–discontinued operations267  832  
Total cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows$26,968  $20,710  
The Company’s restricted cash was included in noncurrent assets as of June 30, 2020 and December 31, 2019.
Revenue Recognition
On January 1, 2018, the Company adopted Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers" (Topic 606), using the modified retrospective transition method applied to those contracts which were not completed as of January 1, 2018.
Under Topic 606, revenue is recognized when control of the promised goods or services is transferred to our 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 Newsflash 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. 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.
12


For the Top 20 email newsletter 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.
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 amounts due to the third-party merchants for fulfilling the underlying services and an estimated amount for future refunds. 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 in the same period as the voucher sale.
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 for booking 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. At December 31, 2019, $786,000 was recorded as deferred revenue, of which $31,000 and $327,000 was recognized as revenue during the three and six months ended June 30, 2020, respectively.
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 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.
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The following table sets forth the calculation of basic and diluted net income per share (in thousands, except per share amounts):
 
Three Months EndedSix Months Ended
 June 30,June 30,
 2020201920202019
Numerator:
Net income (loss) attributable to Travelzoo—continuing operations$(5,395) $3,058  $(9,085) $8,003  
Net income (loss) attributable to Travelzoo—discontinued operations$(795) $(1,730) $(3,714) $(3,555) 
Denominator:
Weighted average common shares—basic11,310  12,003  11,375  11,959  
Effect of dilutive securities: stock options  275    292  
Weighted average common shares—diluted11,310  12,278  11,375  12,251  
Income (loss) per share—basic
Continuing operations$(0.48) $0.25  $(0.80) $0.67  
Discontinued operations(0.07) (0.14) (0.33) (0.30) 
Net income (loss) per share —basic$(0.55) $0.11  $(1.13) $0.37  
Income (loss) per share—diluted
Continuing operations$(0.48) $0.25  $(0.80) $0.66  
Discontinued operations(0.07) (0.14) (