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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, 2022
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: 1 (786668-5839

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueTZOOThe NASDAQ Stock Market
_________________________________________________________________________________ 
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 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 filerSmaller 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 9, 2022 was 12,492,361 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,
2022
December 31,
2021
ASSETS
Current assets:
Cash and cash equivalents$25,608 $43,815 
Accounts receivable, less allowance for doubtful accounts of $1,943 and $2,094 as of June 30, 2022 and December 31, 2021, respectively
14,809 14,871 
Prepaid income taxes2,569 3,325 
Prepaid expenses and other 1,603 1,891 
Prepaid expenses—related party 1,150 
Assets from discontinued operations34 71 
Total current assets44,623 65,123 
Deposits and other6,815 6,784 
Deferred tax assets3,551 3,949 
Restricted cash1,061 1,142 
Operating lease right-of-use assets6,192 7,700 
Property and equipment, net550 659 
Intangible assets, net4,744 3,426 
Goodwill10,944 10,944 
Total assets$78,480 $99,727 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable$1,231 $3,411 
Merchant payables47,899 68,678 
Accrued expenses and other 7,566 10,212 
Deferred revenue2,106 1,733 
Operating lease liabilities2,589 3,180 
Income tax payable 185 
Liabilities from discontinued operations448 485 
Total current liabilities61,839 87,884 
Long-term operating lease liabilities8,125 9,111 
Other long-term liabilities2,451 2,364 
Total liabilities72,415 99,359 
Commitments and contingencies  
Non-controlling interest4,634 4,600 
Stockholders’ deficit:
Common stock, $0.01 par value (20,000 shares authorized; 13,091 shares issued and 12,551 shares issued as of June 30, 2022 and December 31, 2021)
131 126 
Treasury stock (at cost, 495 shares at June 30, 2022 and December 31, 2021)
(5,488)(5,488)
Additional paid in capital7,426 4,415 
Retained earnings 3,895 508 
Accumulated other comprehensive loss(4,533)(3,793)
Total stockholders’ equity (deficit)1,431 (4,232)
Total liabilities and stockholders’ equity (deficit)$78,480 $99,727 

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,
 2022202120222021
Revenues$17,689 $19,079 $36,142 $33,363 
Cost of revenues2,163 2,522 4,995 5,540 
Gross profit15,526 16,557 31,147 27,823 
Operating expenses:
Sales and marketing8,480 7,340 17,061 14,130 
Product development 454 685 907 1,368 
General and administrative4,811 5,056 9,479 9,616 
Total operating expenses13,745 13,081 27,447 25,114 
Operating income1,781 3,476 3,700 2,709 
Other income, net195 684 1,618 518 
Income from continuing operations before income taxes1,976 4,160 5,318 3,227 
Income tax expense928 1,136 1,896 1,878 
Income from continuing operations1,048 3,024 3,422 1,349 
Income (loss) from discontinued operations, net of taxes10 29 (1)14 
Net income 1,058 3,053 3,421 1,363 
Net income (loss) attributable to non-controlling interest30 39 34 (9)
Net income attributable to Travelzoo$1,028 $3,014 $3,387 $1,372 
Net income attributable to Travelzoo—continuing operations$1,018 $2,985 $3,388 $1,358 
Net income (loss) attributable to Travelzoo—discontinued operations$10 $29 $(1)$14 
Income per share—basic
Continuing operations$0.08 $0.26 $0.28 $0.12 
Discontinued operations$ $ $ $ 
Net income per share —basic$0.08 $0.26 $0.28 $0.12 
Income per share—diluted
Continuing operations$0.08 $0.22 $0.27 $0.10 
Discontinued operations$ $ $ $ 
Income per share—diluted$0.08 $0.22 $0.27 $0.10 
Shares used in per share calculation from continuing operations—basic12,513 11,488 12,285 11,440 
Shares used in per share calculation from discontinued operations—basic12,513 11,488 12,285 11,440 
Shares used in per share calculation from continuing operations—diluted12,637 13,408 12,591 13,248 
Shares used in per share calculation from discontinued operations—diluted12,637 13,408 12,591 13,248 

See accompanying notes to unaudited condensed consolidated financial statements.
5


TRAVELZOO
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
 
 Three Months EndedSix Months Ended
June 30,June 30,
 2022202120222021
Net income$1,058 $3,053 $3,421 $1,363 
Other comprehensive income (loss):
Foreign currency translation adjustment(602)162 (740)572 
Total comprehensive income $456 $3,215 $2,681 $1,935 

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,
 20222021
Cash flows from operating activities:
Net income $3,421 $1,363 
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization1,118 960 
Stock-based compensation1,131 1,817 
Deferred income tax550 1,140 
Loss on long-lived assets38  
Gain on PPP notes payable forgiveness (429)
Gain on equity investment in WeGo(196) 
Net foreign currency effect214 (255)
Reversal of loss on accounts receivable, refund reserve and other(2,246)(871)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable(131)(4,781)
Prepaid income taxes670 (713)
Prepaid expenses and other (138)(2,775)
Accounts payable (2,056)1,415 
Merchant payables(19,784)25,185 
Accrued expenses and other172 (320)
Income tax payable(186)(228)
Other liabilities433 442 
Net cash provided by (used in) operating activities(16,990)21,950 
Cash flows from investing activities:
Purchases of intangible assets(1,049) 
Proceeds from sale of equity investment in WeGo196  
Purchases of property and equipment(175)(84)
Net cash used in investing activities(1,028)(84)
Cash flows from financing activities:
Repurchase of common stock (1,583)
Payment of notes payables (110)
Exercise of stock options, net of taxes paid for net share settlement1,885 (3,067)
Net cash used in financing activities1,885 (4,760)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(2,176)697 
Net increase (decrease) in cash, cash equivalents and restricted cash(18,309)17,803 
Cash, cash equivalents and restricted cash at beginning of period44,989 64,385 
Cash, cash equivalents and restricted cash at end of period$26,680 $82,188 
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net$771 $1,443 
Right-of-use assets obtained in exchange for lease obligations—operating leases$ $1,777 
Cash paid for amounts included in the measurement of lease liabilities$1,715 $2,281 
Non-cash consideration for purchase of intangible asset$1,150 $ 
See accompanying notes to unaudited condensed consolidated financial statements.
7


TRAVELZOO
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
 (In thousands)
 Common StockTreasury StockAdditional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Stockholders’
Deficit
 SharesAmount
Balances, March 31, 202212,551 $126 $(5,488)$4,957 $2,867 $(3,931)$(1,469)
Stock-based compensation expense— — 589 — — 589 
Exercise of stock options and taxes paid for net share
settlement of equity awards
540 5 — 1,880 — 1,885 
Foreign currency translation adjustment— — — — (602)(602)
Net income–Travelzoo— — — 1,028 — 1,028 
Balances, June 30, 202213,091 $131 $(5,488)$7,426 $3,895 $(4,533)$1,431 
 Common StockTreasury StockAdditional
Paid-In
Capital
Accumulated DeficitAccumulated
Other
Comprehensive
Loss
Total
Stockholders’
Equity (Deficit)
 SharesAmount
Balances, March 31, 202111,570 $115 $(1,583)$4,279 $(2,045)$(3,649)$(2,883)
Stock-based compensation expense— — 935 — — 935 
Exercise of stock options and taxes paid for net share
settlement of equity awards
24 (226)(226)
Foreign currency translation adjustment— — — — 162 162 
Net income–Travelzoo— — — 3,014 — 3,014 
Balances, June 30, 202111,594 $115 $(1,583)$4,988 $969 $(3,487)$1,002 


8



 Common StockTreasury StockAdditional
Paid-In
Capital
Accumulated DeficitAccumulated
Other
Comprehensive
Loss
Total
Stockholders’
Equity (Deficit)
 SharesAmount
Balances, January 1, 202212,551 $126 $(5,488)$4,415 $508 $(3,793)$(4,232)
Stock-based compensation expense— — — 1,131 — — 1,131 
Exercise of stock options and taxes paid for net share
settlement of equity awards
540 5 — 1,880 — — 1,885 
Foreign currency translation adjustment— — — — — (740)(740)
Net income–Travelzoo— — — — 3,387 — 3,387 
Balances, June 30, 202213,091 $131 $(5,488)$7,426 $3,895 $(4,533)$1,431 

 Common StockTreasury StockAdditional
Paid-In
Capital
Accumulated DeficitAccumulated
Other
Comprehensive
Loss
Total
Stockholders’
Equity (Deficit)
 SharesAmount
Balances, January 1, 202111,365 $114 $ $6,239 $(403)$(4,059)$1,891 
Stock-based compensation expense— — — 1,817 — — 1,817 
Treasury stock— — (1,583)— — — (1,583)
Exercise of stock options and taxes paid for net share
settlement of equity awards
229 1 — (3,068)— — (3,067)
Foreign currency translation adjustment— — — — — 572 572 
Net income–Travelzoo— — — — 1,372 — 1,372 
Balances, June 30, 202111,594 $115 $(1,583)$4,988 $969 $(3,487)$1,002 

See accompanying notes to unaudited condensed consolidated financial statements.
9


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 more than 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.
Travelzoo (the “Company” or "we") attracts a high-quality audience of travel enthusiasts across multiple digital platforms, including email, web, social media and mobile applications. Our insider deals and email newsletters are published by Travelzoo and its licensees worldwide. Our publications and products include the Travelzoo website (travelzoo.com), the Travelzoo iPhone and Android apps, the Travelzoo Top 20® email newsletter, the Newsflash email alert service, and the Travelzoo Network. 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 also license the use of these products and our intellectual property in various countries in Asia Pacific, including but not limited to Australia, New Zealand, Japan, South Korea and Southeast Asia. We are also the majority shareholder of JFC Travel Group Co. (“Jack’s Flight Club”), which operates Jack’s Flight Club.
For our voucher products, we receive a percentage of the face value of the voucher from the local businesses.
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, 2022, Jack’s Flight Club had 1.8 million subscribers. Jack’s Flight Club’s revenues are generated by subscription fees paid by members. See Note 3 to the unaudited condensed consolidated financial statements for further information.
APAC Exit and Pivot to Licensing Model
In March 2020, Travelzoo exited its loss-making Asia Pacific business and pivoted to a licensing model. 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.
Travelzoo currently has license agreements in Japan and South Korea, as well as Australia, New Zealand and Singapore. The license agreement for Japan provides a license to the licensee to use the intellectual property of Travelzoo exclusively in Japan in exchange for quarterly royalty payments based on net revenue over a 5 year term, with an option to renew. The territory subject to the license was amended to also include South Korea. An interest free loan was provided to the licensee for JPY 46 million (approximately $430,000) to be repaid over 3 years, of which $133,000 was repaid in 2021. The Company recorded this loan as long-term other assets on the condensed consolidated balance sheet as of June 30, 2022.
The license agreement for Australia, New Zealand and Singapore provides a license to the licensee to use the intellectual property of Travelzoo exclusively in Australia, New Zealand and Singapore for quarterly royalty payments based upon net revenue over a 5 year term, with an option to renew. The Company records royalties for its licensing arrangements on a one-quarter lag basis. The Company did not recognize any royalty from Travelzoo Japan for the six months ended June 30, 2022. The Company recognized royalties of $9,000 from Travelzoo Japan for the six months ended June 30, 2021. The Company recognized royalties of $5,000 and $12,000 for its licensing arrangements from AUS Buyer for the three and six months ended June 30, 2022, respectively. The Company did not recognize any royalty from AUS Buyer for the six months ended June 30, 2021. We expect the royalty payments to increase over time as the effects of the pandemic subside.
WeGo Investment
The Company previously held a minority share equal to 33.7% in weekengo GmbH ("WeGo"), which the Company sold to trivago N.V. (“trivago”) on December 23, 2020.
Per the Share Purchase Agreement, by and among Travelzoo (Europe) Limited, trivago, and the other shareholders of WeGo (the “trivago SPA”), the Company sold all of its shares in WeGo to trivago for a total purchase price of approximately $2.9 million, of which $196,000 was placed in escrow for one year. The Company recorded $468,000 gain in Other income
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(loss), net for the sale of WeGo shares in 2020. The Company received the full escrow payment in January 2022 and recorded the gain in Other income (loss), net for the six months ended June 30, 2022.
WeGo agreed to pay in a lump sum the remaining amount outstanding pursuant to the Insertion Order equal to approximately $200,000. The payment was made and recorded in the first quarter of 2021. The Second Insertion Order and any obligation for additional payments from WeGo for marketing were terminated.
Government funding
In January 2022, the Company’s German branch of Travelzoo (Europe) Limited, a wholly-owned subsidiary of the Company (“Travelzoo Germany”), received the notification and payment of approximately $1.2 million from the German Federal Government Bridging Aid III plan. This program was for companies that suffered a Corona-related decrease in sales of at least 30% in one month compared to the reference month in 2019. Travelzoo Germany applied for the funding in 2021 and was approved by the German government in January 2022. The Company has to submit a final declaration in connection to this grant by December 31, 2022. The Company believes it was eligible to participate in the plan and is entitled to the payment and does not expect significant changes to the amount already received from the final submission. The Company recorded $1.2 million gain in Other income, net in the first quarter of 2022.
The Company also received other government fundings for the three and six months ended June 30, 2022 and 2021. Job retention related funding from Canada was approximately $85,000 and $149,000 for the three months ended June 30, 2022 and 2021, respectively, and was approximately $153,000 and $317,000 for the six months ended June 30, 2022 and 2021, respectively. Job retention related funding from European locations was $10,000 and $31,000 for the three and six months ended June 30, 2021. These fundings were recorded against salary and related expenses. The Company did not receive any job retention related funds from European locations for the six months ended June 30, 2022.
Liquidity
Travelzoo funds its operations primarily with revenues generated from advertising fees. The global pandemic has had and is expected to continue to have, a significant adverse effect on the Company and many of our advertisers. In the Company’s financial statements presented in this 10-Q report, following GAAP accounting principles, we classified all merchant payables as current. When all merchant payables are classified as current, there is negative net working capital (which is defined as current assets minus current liabilities) of $17.2 million as of June 30, 2022. Cash used in operating activities was $17.0 million for the six months ended June 30, 2022. In order to appeal to its members, Travelzoo adjusted its refund policy in the second quarter of 2020 so that vouchers were fully refundable until expiration or redemption by the customer. This refund policy has mostly been adjusted as of April 1, 2022, back to fully refundable within seven days of purchase unless a surcharge is paid at the time of the voucher purchase for the right to be fully refundable. As of June 30, 2022, the Company has recorded merchant payables of $47.9 million related to unredeemed vouchers with the majority of vouchers expiring at the end of 2022 and the remaining primarily expiring in 2023. Management understands that these conditions could raise doubt over the Company’s ability to meet all of its obligations over the next twelve months, however, management has evaluated these conditions and concluded that management's plans alleviate these concerns. Management’s plans include, among others, a focus on managing operating expenses while increasing revenues, as well as obtaining additional financing if required.
Revenue and net income increased for six months ended June 30, 2022 compared to the same period of last year. The Company is expecting revenue and net income to increase for the remaining of 2022 based on improving conditions for travel in 2022. The cash and cash equivalents were $25.6 million as of June 30, 2022. Although as mentioned above all merchant payables are classified as current, the expiration dates of these vouchers range between July 2022 through December 2025 with the majority of the vouchers expiring at the end of 2022 and the remaining primarily expiring in 2023; provided, that these expiration dates may sometimes be extended on a case-by-case basis. The Company will manage its costs and obtain additional financing if required. Management therefore believes that it could raise funds through the issuance of equity securities or through debt securities if necessary. Management therefore concluded that these actions and plans have alleviated the doubt of the Company's ability to continue as a going concern. However, the Company cannot predict, with certainty, the outcome of its action to generate liquidity, including the availability of additional financing on reasonable terms and conditions, or whether such actions would generate the expected liquidity as planned.
Ownership
Ralph Bartel, who founded Travelzoo and who is the Chairman of the Board of Directors 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, 2022, Ralph Bartel is the Company's largest shareholder, holding approximately 35.7% of the Company's outstanding shares. Holger Bartel, the Company's Global Chief Executive Officer, is Ralph Bartel's brother and holds approximately 3.9% of the Company's outstanding shares.
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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, 2021, included in the Company’s Form 10-K filed with the SEC on March 30, 2022.
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 condensed 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.
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with accounting principles generally accepted in the U.S. Significant estimates included in the consolidated financial statements and related notes include revenue recognition, refund liability, income taxes, stock-based compensation, loss contingencies, useful lives of property and equipment, purchase price allocation for the business combination and related impairment assessment, relating to the projections and assumptions used. Actual results could differ materially from those estimates. The results of operations for the six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 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.
(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, 2021.
Revenue Recognition
The Company follows Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers" (Topic 606).
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 and subscription revenues from Jack's Flight Club. 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.
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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. Since the second quarter of 2020, the Company expanded its vouchers refund policy in order to entice customers given the current economic climate to fully refundable until the voucher expires or is redeemed by the customer. 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 as revenues in the same period
Jack’s Flight Club revenue is generated from paid subscriptions by members. Subscription options are quarterly, semi-annually, and annually. We recognize the revenue on a pro-rated basis based upon the subscription option.
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. As of December 31, 2021, $1.3 million was recorded as deferred revenue for Jack's Flight Club, of which $329,000 and $904,000 was recognized in the three and six months ended June 30, 2022, respectively, $473,000 was recorded as deferred revenue for Travelzoo North America and Travelzoo Europe, of which $5,000 and $216,000 was recognized as revenue in the three and six months ended June 30, 2022, respectively. As of June 30, 2022, the deferred revenue balance was $2.1 million, of which $1.4 million was for Jack's Flight Club and the remaining $736,000 was for Travelzoo North America and Travelzoo Europe.
Reserve for Refunds to Members
The Company records an estimated reserve for refunds to members based on our historical experience at the time revenue is recorded for Local Deals and Getaways voucher sales. We consider many key factors such as the historical refunds based upon the time lag since the sale, historical reasons for refunds, time period that remains until the deal expiration date, any changes in refund procedures and estimates of redemptions and breakage.
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For publishing revenue, we recognize revenue upon delivery of the emails and delivery of the clicks, over the period of the placement of the advertising. Insertion orders for publishing revenue are typically for periods between one month and twelve months and are not automatically renewed. For Getaways vouchers, we recognize a percentage of the face value of the vouchers upon the sale of the vouchers. Merchant agreements for Getaways advertisers are typically for periods between twelve months and twenty-four months and are not automatically renewed. Since the second quarter of 2020, the Company expanded its voucher refund policy to fully refundable until the voucher expires or is redeemed by the customer. The expiration dates of vouchers range between July 2022 through December 2025 with the majority of vouchers expiring at the end of 2022 and the remaining primarily expiring in 2023; provided, that these expiration dates may sometimes be extended on a case-by-case basis. The revenues generated from Local Deals vouchers and entertainment offers are based upon a percentage of the face value of the vouchers, commission on actual sales or a listing fee based on audience reach. For Local Deals vouchers, we recognize a percentage of the face value of vouchers upon the sale of the vouchers. The Company estimated the refund reserve by using historical and current refund rates by product and by merchant location to calculate the estimated future refunds. As of June 30, 2022, the Company had approximately $12.0 million of unredeemed vouchers that had been sold through June 30, 2022, representing the Company’s commission earned from the sale. The Company had estimated a refund liability of $2.9 million for these unredeemed vouchers as of June 30, 2022, which is recorded as a reduction of revenues and is reflected as a current liability in Accrued expenses and other on the condensed consolidated balance sheet. As of December 31, 2021, the Company had approximately $17.2 million of unredeemed vouchers that had been sold through 2021 representing the Company’s commission earned from the sale and estimated a refund liability of $5.2 million for these unredeemed vouchers as of December 31, 2021, which was recorded as a reduction of revenues and was reflected as a current liability in Accrued expenses and other on the condensed consolidated balance sheet. The Company has recorded Merchant Payables of $47.9 million as of June 30, 2022 related to unredeemed vouchers. Insertion orders and merchant agreements for Local Deals are typically for periods between one month and twelve months and are not automatically renewed except for merchant contracts in foreign locations. Should any of these factors change, the estimates made by management will also change, which could impact the level of our future reserve for refunds to member. Specifically, if the financial condition of our advertisers, the business that is providing the vouchered service, were to deteriorate, affecting their ability to provide the services to our members, additional reserves for refunds to members may be required and may adversely affect future revenue as the liability is recorded against revenue.
We record a liability associated with estimated future refunds in accrued expenses on the condensed consolidated balance sheets. Estimated member refunds that are determined to be recoverable from the merchant are recorded in the condensed consolidated statements of operations as a reduction to revenue. Estimated member refunds that are determined not to be recoverable from the merchant are presented as a cost of revenue. If our judgments regarding estimated member refunds are inaccurate, reported results of operations could differ from the amount we previously accrued.
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 performed its annual test as of October 31, 2021 and no impairment charge was identified in connection with the annual impairment test. The Company did not identify any indicators of impairment during the six months ended June 30, 2022 and 2021.
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
14


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 performed its annual impairment test as of October 31, 2021 and no impairment charge was identified in connection with the annual impairment test. The Company did not identify any indicators of impairment during the six months ended June 30, 2022 and 2021.
Operating 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.
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 (loss), 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 pandemic 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 the global pandemic 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. As of June 30, 2022 and December 31, 2021, the Company did not have any customers that accounted for 10% or more of accounts receivable.
Many of the Company’s advertisers and partners are part of the global travel and hospitality industry. The measures implemented to contain COVID have had, and are expected to continue to have, a significant negative effect on the Company’s business, financial condition, results of operations, and cash flows. The measures implemented led to many of the Company’s advertisers pausing, canceling, or stopping advertising with us, as well as a high level of cancellations for our hotel partners and travel package partners, and refund requests for vouchers sold by Travelzoo for restaurant and spa partners. It is difficult to estimate the impact of the COVID pandemic on the Company’s future revenues, results of operations, cash flows, liquidity, or financial condition.
As of June 30, 2022, the Company had merchant payables of $47.9 million related to the sale of vouchers. In the Company’s financial statements presented in this 10-Q report, following GAAP accounting principles, we classified all merchant payables as current. When all merchant payables are classified as current, there is negative net working capital (which is defined as current assets minus current liabilities) of $17.2 million. Payables to merchants are generally due upon redemption of vouchers. The vouchers have maturities from July 2022 through December 2025 with the majority of vouchers expiring at the end of 2022 and the remaining primarily expiring in 2023; provided, that these expiration dates may sometimes be extended on a case-by-case basis. Management believes that redemptions may be delayed for international vouchers in the current environment. Based on current projections of redemption activity, management expect that cash on hand as of June 30, 2022 will be sufficient to provide for working capital needs for at least the next twelve months. However, if redemption activity is more accelerated, if the Company’s business is not profitable, or if the Company’s planned targets for cash flows from operations are not met, the Company may need to obtain additional financing to meet its working capital needs in the future. The Company believes that it could obtain additional financing if needed, but there can be no assurance that financing will be available on terms that are acceptable to the Company, if at all.

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Cash, Cash Equivalents and Restricted Cash
Cash equivalents consist of highly liquid investments with maturities of three months or less on the date of purchase. 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 refundable for 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,
20222021
Cash and cash equivalents$25,608 $43,815 
Restricted cash 1,061 1,142 
Cash, cash equivalents and restricted cash–discontinued operations11 32 
Total cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows$26,680 $44,989 
The Company’s restricted cash was included in noncurrent assets as of June 30, 2022 and December 31, 2021.
Note 2: Net Income Per Share
Basic net income 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.
The following table sets forth the calculation of basic and diluted net income (loss) per share (in thousands, except per share amounts):
Three Months EndedSix Months Ended
 June 30,June 30,
 2022202120222021
Numerator:
Net income attributable to Travelzoo—continuing operations$1,018 $2,985 $3,388 $1,358 
Net loss attributable to Travelzoo—discontinued operations$10 $29 $(1)$14 
Denominator:
Weighted average common shares—basic12,513 11,488 12,285 11,440 
Effect of dilutive securities: stock options124 1,920 306 1,808 
Weighted average common shares—diluted12,637 13,408 12,591 13,248 
Income per share—basic
Continuing operations$0.08 $0.26 $0.28 $0.12 
Discontinued operations    
Net income per share —basic$0.08 $0.26 $0.28 $0.12 
Income per share—diluted
Continuing operations$0.08 $0.22 $0.27 $0.10 
Discontinued operations    
Net income per share—diluted$0.08 $0.22 $0.27 $0.10 
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For the three and six months ended June 30, 2022 and 2021, options to purchase 750,000 shares and 50,000 shares of common stock, respectively, were not included in the computation of diluted net income per share because the effect would have been anti-dilutive. 
Note 3: Acquisitions

Travelzoo (Europe) Limited, Sucursal en España Acquired Secret Escapes Limited’s Spanish Business Unit
On March 3, 2022, Travelzoo (Europe) Ltd, Sucursal en Espana, the Spanish branch of Travelzoo (Europe) Limited, a wholly-owned subsidiary of the Company (“Travelzoo Spain”), entered into a Business Unit Purchase Agreement (“BUPA”) with Secret Escapes Limited (“Secret Escapes”) for the purchase of its Spanish business unit, which included, among other things, a database of approximately 940,000 members. The purchase price was 400,000 Euros, with an earn-out opportunity of an additional 100,000 Euros payable by the Company upon the achievement of certain metrics by the business unit in six months (September 2022). Travelzoo was granted the right to use the Secret Escapes name exclusively in Spain for a continuity period of six (6) months. The BUPA contained typical representations and warranties and indemnification protections, as well as a restrictive covenant, whereby Secret Escapes agreed to leave the Spanish market for at least three (3) years, subject to a right to purchase a waiver.
Asset Purchase Agreement between Metaverse Travel Experiences, Inc. f/k/a Azzurro Brands Inc. and Travelzoo
On March 17, 2022, the Company, as Buyer, entered into an Asset Purchase Agreement (the “APA”) with Metaverse Travel Experiences, Inc. f/k/a Azzurro Brands Inc., a New York corporation (the “Seller”) and a wholly-owned subsidiary of Azzurro Capital Inc., the Company’s largest shareholder. Pursuant to the APA, the Company acquired certain assets, primarily comprised of all U.S. members of Secret Escapes Limited, which Seller acquired in March 2021 and licensed exclusively to Travelzoo pursuant to the previously disclosed License Agreement, dated as of March 12, 2021 (the “License Agreement”), in accordance with data privacy and other applicable laws. The License Agreement allowed the Company to exclusively utilize the assets in exchange for a license fee of $412,500 per quarter with a one-year term that automatically renewed. The License Agreement was reviewed and unanimously approved by the Audit Committee of the Board of Directors, which consists solely of independent directors. The purchase price for the transaction was $1.75 million, with $600,000 paid in cash upon closing in March 2022 and the remaining $1.15 million payable in the form of a credit with Seller relating to prepaid license fees, under the License Agreement. The remaining commitment of the Company under the License Agreement for the then-current remaining term (equal to $825,000) were eliminated.
The Company recorded the transactions with both Secret Escape Limited and Metaverse Travel Experiences Inc. as asset acquisitions as the assets acquired and liabilities assumed do not meet the definition of a business in Accounting Standards Codification (“ASC”) 805-10. Cost accumulation model was used to account for the cost of the acquisition and the 100,000 Euros earn-out was considered as contingent consideration based on ASC 805-50. Travelzoo acquired the database of members and recorded $2.2 million intangible assets from both agreements.
Acquisition of Jack's Flight Club
Travelzoo acquired 60% of the Jack’s Flight Club for an aggregate purchase price of $12.0 million in January 2020. The strategic rationale for the Jack’s Flight Club acquisition was to expand Jack’s Flight Club’s membership to Travelzoo members worldwide, so the members from Travelzoo could also sign up to receive offers from Jack’s Flight Club. The Company renegotiated with Jack’s Flight Club in June 2020 and reached a negotiated settlement which resulted a gain in “General and administrative expenses” for the partial forgiveness for the promissory note issued for the acquisition.
The acquisition has been accounted for using the acquisition method in accordance with ASC 805, Business Combinations. Under the acquisition method of accounting, the total purchase consideration of the acquisition is allocated to the tangible assets and identifiable intangible assets and liabilities assumed based on their relative fair values. The excess of the purchase consideration over the net tangible and identifiable intangible assets is recorded as goodwill. Accordingly, the Company allocated $3.5 million to customer relationships, $2.5 million to trade name and $660,000 to non-compete agreements and the remaining $13.1 million to goodwill. The acquisition related costs were not significant and were expensed as incurred. Jack’s Flight Club's result have been included in the accompanying financial statements from their the dates of acquisition. The Company recorded a goodwill impairments of $2.1 million and a Trade name impairment of $810,000 due to the pandemic in the first quarter of 2020. The Company performed an annual impairment test in October did not identify any further indicators of impairment as of December 31, 2021. The Company also did not identify any indicators of impairment during the six months ended June 30, 2022.

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Intangible Assets
The following table represents the fair value and estimated useful lives of intangible assets from the above acquisitions (in thousands):
Fair ValueEstimated Life (Years)
Customer relationships (Jack's Flight Club)$3,500 5.0
Trade name (Jack's Flight Club)2,460 indefinite
Non-compete agreements660 4.0
Intangible assets (Secret Escape Spain member database)445 3.0
Intangible assets (Metaverse Travel member database)1,751 2.3

The following table represents the activities of intangible assets for the three and six months ended June 30, 2022 (in thousands):
Jack's Flight ClubSecret Escape SpainMetaverse Travel
Intangible assets—January 1, 2021$4,534 
Amortization of intangible assets with definite lives(284)
Intangible assets—March 31, 20214,250 
Amortization of intangible assets with definite lives(275)
Intangible assets—June 30, 20213,975 
Amortization of intangible assets with definite lives(275)
Intangible assets—September 30, 20213,700 
Amortization of intangible assets with definite lives(274)
Intangible assets—December 31, 20213,426 
Acquisitions—March 2022— 445 1,751 
Amortization of intangible assets with definite lives(226)(12)(195)
Intangible assets—March 31, 20223,200 433 1,556 
Amortization of intangible assets with definite lives(217)(34)(194)
Intangible assets—June 30, 2022$2,983 $399 $1,362 

Amortization expense for acquired intangibles was $445,000 and $275,000 for the three months ended June 30, 2022 and 2021, respectively, and was $878,000 and $559,000 for the six months ended June 30, 2022 and 2021, respectively. Expected future amortization expense of acquired intangible assets, excluding the $1.65 million for the indefinite-lived trade name asset,
as of June 30, 2022 is as follows (in thousands):
Years ending December 31,
2022 remainder$896 
20231,568 
2024593 
202537 
$3,094 
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Note 4: Commitments and Contingencies
From time to time, the Company is subject to various claims and legal proceedings, either asserted or unasserted, that arise in the ordinary course of business. The Company accrues for legal contingencies if the Company can estimate the potential liability and if the Company believes it is probable that the case will be ruled against it. Accruals for legal contingencies were not material as of June 30, 2022 and December 31, 2021. If a legal claim for which the Company did not accrue is resolved against it, the Company would record the expense in the period in which the ruling was made. The Company believes that the likelihood of an ultimate amount of liability, if any, for any pending claims of any type (alone or combined) that will materially affect the Company’s financial position, results of operations or cash flows is remote. The ultimate outcome of any litigation is uncertain, however, and unfavorable outcomes could have a material negative impact on the Company’s financial condition and operating results. Regardless of outcome, litigation can have an adverse impact on the Company because of defense costs, negative publicity, diversion of management resources and other factors.
The Company was formed as a result of a combination and merger of entities founded by the Company’s principal shareholder, Ralph Bartel. In 2002, Travelzoo.com Corporation (“Netsurfers”) was merged into the Company. Under and subject to the terms of the merger agreement, holders of promotional shares of Netsurfers who established that they had satisfied certain prerequisite qualifications were allowed a period of 2 years following the effective date of the merger to receive one share of the Company in exchange for each share of common stock of Netsurfers. In 2004, two years following the effective date of the merger, certain promotional shares remained unexchanged. As the right to exchange these promotional shares expired, no additional shares were reserved for issuance. Thereafter, the Company began to offer a voluntary cash program for those who established that they had satisfied certain prerequisite qualifications for Netsurfers promotional shares as further described below.
From 2010 through 2014, the Company became subject to unclaimed property audits of various states in the United States related to the above unexchanged promotional shares and completed settlements with all states. Although the Company has settled the unclaimed property claims with all states, the Company may still receive inquiries from certain potential Netsurfers promotional shareholders that had not provided their state of residence to the Company by April 25, 2004. Therefore, the Company is continuing its voluntary program under which it makes cash payments to individuals related to the promotional shares for individuals whose residence was unknown by the Company and who establish that they satisfy the original conditions required for them to receive shares of Netsurfers, and who failed to submit requests to convert their shares into shares of Travelzoo within the required time period. This voluntary program is not available for individuals whose promotional shares have been escheated to a state by the Company, except those individuals for which their residence was unknown to the Company. The Company did not make any payments for the three and six months ended June 30, 2022 and 2021.
The total cost of this program cannot be reliably estimated because it is based on the ultimate number of valid requests received and future levels of the Company’s common stock price. The Company’s common stock price affects the liability because the amount of cash payments under the program is based in part on the recent level of the stock price at the date valid requests are received. The Company does not know how many of the requests for shares originally received by Netsurfers in 1998 were valid, but the Company believes that only a portion of such requests were valid. In order to receive payment under this voluntary program, a person is required to establish that such person validly held shares in Netsurfers.
The Company leases office space in Canada, France, Germany, Spain, the U.K., and the U.S. under operating leases. Our leases have remaining lease terms ranging from less than one year to up to eight years. Refer to Note 11 for Leases as of June 30, 2022. The Company maintains several standby letters of credit (“LOC”) to serve as collateral issued to certain landlords. The LOCs are collateralized with cash which is included in the line item “Restricted cash” in the Condensed Consolidated Balance Sheets.
The Company has purchase commitments aggregating approximately $3.0 million as of June 30, 2022, which represent the minimum obligations the Company has under agreements with certain suppliers. These minimum obligations are less than the Company's projected use for those periods. Payments may be more than the minimum obligations based on actual use.
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Note 5: Income Taxes
In determining the quarterly provisions for income taxes, the Company uses an estimated annual effective tax rate, which is generally based on our expected annual income and statutory tax rates in the U.S., Canada, and the U.K. The Company's effective tax rate from continuing operations was 47% and 27%, respectively, for the three months ended June 30, 2022 and 2021. The Company’s effective tax rate for the three months ended June 30, 2022, changed from the three months ended June 30, 2021, primarily due to other income recorded for PPP Loan forgiveness in the three months ended June 30, 2021 that is exempt from tax and changes in deferred tax assets from limitations on deductible stock-based compensation. The Company's effective tax rate from continuing operations was 36% and 58%, respectively, for the six months ended June 30, 2022 and 2021. The Company’s effective tax rate for the six months ended June 30, 2022 changed from the six months ended June 30, 2021 primarily due to a decrease in non-tax deductible stock compensation in the six months ended June 30, 2022.
As of June 30, 2022, the Company is permanently reinvested in certain of its non-U.S. subsidiaries and does not have a deferred tax liability related to its undistributed foreign earnings. The estimated amount of the unrecognized deferred tax liability attributed to future withholding taxes on dividend distributions of undistributed earnings for certain non-U.S. subsidiaries, which the Company intends to reinvest the related earnings indefinitely in its operations outside the U.S., is approximately $666,000.
The Company maintains liabilities for uncertain tax positions. As of June 30, 2022, the Company had approximately $1.0 million in total unrecognized tax benefits, which if recognized, would favorably affect the Company’s effective income tax rate.
The Company’s policy is to include interest and penalties related to unrecognized tax positions in income tax expense. To the extent accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction in the overall income tax provision in the period that such determination is made. As of June 30, 2022 and December 31, 2021, the Company had approximately $500,000 and $424,000 in accrued interest and penalties, respectively.
The Company files income tax returns in the U.S. federal jurisdiction, various U.S. states and foreign jurisdictions. The Company is subject to U.S. federal and certain state tax examinations for certain years after 2017 and forward and is subject to California tax examinations for years after 2016.
We do not know what our income taxes will be in future periods. There may be fluctuations that have a material impact on our results of operations. Our income taxes are dependent on numerous factors such as the geographic mix of our taxable income, federal and state and foreign country tax law and regulations and changes thereto, the determination of whether valuation allowances for certain tax assets are required or not, audits of prior years' tax returns resulting in adjustments, resolution of uncertain tax positions and different treatment for certain items for tax versus books. We expect fluctuations in our income taxes from year to year and from quarter to quarter. Some of the fluctuations may be significant and have a material impact on our results of operations.
On March 27, 2020, President Trump signed into law the CARES Act, which, along with earlier issued IRS guidance, provides for deferral of certain taxes. The CARES Act, among other things, also contains numerous other provisions which may benefit the Company. We continue to assess the effect of the CARES Act and ongoing government guidance related to the global pandemic that may be issued.
Note 6: Accumulated Other Comprehensive Loss
The following table summarizes the changes in accumulated other comprehensive loss (in thousands):
Three Months EndedSix Months Ended
June 30,June 30,
 2022202120222021
Beginning balance$(3,931)$(3,649)$(3,793)$(4,059)
Other comprehensive income (loss) due to foreign currency translation, net of tax(602)162 (740)572 
Ending balance$(4,533)$(3,487)$(4,533)$(3,487)
There were no amounts reclassified from accumulated other comprehensive loss for the three and six months ended June 30, 2022 and 2021. Accumulated other comprehensive income (loss) consists of foreign currency translation gain or loss.

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Note 7: Stock-Based Compensation and Stock Options
The Company accounts for its employee stock options under the fair value method, which requires stock-based compensation to be estimated using the fair value on the date of grant using an option-pricing model. The value of the portion of the award that is expected to vest is recognized on a straight-line basis as expense over the related employees’ requisite service periods in the Company’s condensed consolidated statements of operations.
In September 2015, pursuant to an executed Nonqualified Stock Option Agreement, the Company granted its Global Chief Executive Officer, Holger Bartel, options to purchase 400,000 shares of common stock of the Company, with an exercise price of $8.07 and quarterly vesting beginning on March 31, 2016 (the “2015 Option Agreement”). The 2015 Option Agreement expires in September 2025. The options are now fully vested and the stock-based compensation related to these options was fully expensed. In October 2017, pursuant to an executed Option Agreement, the Company granted Mr. Bartel options to purchase 400,000 shares of common stock, with an exercise price of $6.95 and quarterly vesting beginning on March 31, 2018 (the “2017 Option Agreement”). The 2017 Option Agreement expires in 2027. During 2019, 250,000 options granted pursuant to the 2017 Option Agreement were exercised by Mr. Bartel. The remaining 150,000 options are fully vested and the stock-based compensation related to these options was fully expensed. In September 2019, the Company granted Mr. Bartel options to purchase 400,000 shares of common stock subject to shareholder approval, with an exercise price of $10.79 and quarterly vesting beginning on March 31, 2020 and ending on December 31, 2021 (the “2019 Option Agreement” and together with the 2015 Option Agreement and the 2017 Option Agreements, the “Bartel Option Agreements”). The 2019 Option Agreement expires in 2024.
On May 29, 2020, the shareholders of the Company approved certain amendments to the Bartel Option Agreements, which increased and repriced all outstanding, unexercised options granted to Mr. Bartel (the “Option Agreement Amendments”). Pursuant to the Option Agreement Amendments and subject to shareholder approval, the exercise price for the options was repriced to the official NASDAQ closing share price on March 30, 2020 (the date of execution of the Option Agreement Amendments, which immediately followed the date of approval of the grants from the Board of Directors of the Company), which was $3.49. Additionally, the Option Agreement Amendments made the following increases: (a) 400,000 additional options to purchase the Company’s common stock pursuant to the 2015 Option Agreement, (b) 150,000 additional options to purchase the Company’s common stock pursuant to the 2017 Option Agreement, and (c)