TRAVELZOO

Previous wording

The Company generates revenues from advertising, membership fees, and other.

Current wording

The Company generates revenues from advertising, membership fees, and other sources.

Previous wording

We also license Travelzoo products, services and intellectual property to licenses in Australia, Japan, New Zealand, Singapore, and South Korea. In each case, the Company is entitled to a quarterly royalty payment based on a percentage of net revenue. The Company recognized $18,000 and $13,000 in royalties in the three months ended June 30, 2024 and 2023, respectively. The Company recognized $35,000 and $21,000 in royalties in the six months ended June 30, 2024 and 2023, respectively. Under the licensing agreements, Travelzoo's existing member list in the applicable territories continues to be owned by the Company.

Current wording

We also license Travelzoo products, services and intellectual property to licenses in Australia, Japan, New Zealand, Singapore, and South Korea. In each case, the Company is entitled to a quarterly royalty payment based on a percentage of net revenue. The Company recognized $18,000 in royalties in each of the three months ended September 30, 2024 and 2023. The Company recognized $53,000 and $39,000 in royalties in the nine months ended September 30, 2024 and 2023, respectively. Under the licensing agreements, Travelzoo's existing member list in the applicable territories continues to be owned by the Company.

Previous wording

Travelzoo currently has license agreements covering Australia, Japan, New Zealand, Singapore, and South Korea. The license agreement for Australia, New Zealand and Singapore provides the licensee exclusive rights to use Travelzoo products, services and intellectual property in each jurisdiction in exchange for quarterly royalty payments based upon net revenue over a five-year term, with an option to renew. The Company recognized royalties of $11,000 and $9,000 from the licensee for the three months ended June 30, 2024 and 2023, respectively. The Company recognized royalties of $21,000 and $17,000 from the licensee for thesix months ended June 30, 2024 and 2023, respectively.

Current wording

Travelzoo currently has license agreements covering Australia, Japan, New Zealand, Singapore, and South Korea. The license agreement for Australia, New Zealand and Singapore provides the licensee exclusive rights to use Travelzoo products, services and intellectual property in each jurisdiction in exchange for quarterly royalty payments based upon net revenue over a five-year term, with an option to renew. The Company recognized royalties of $11,000 and $9,000 from the licensee for the three months ended September 30, 2024 and 2023, respectively. The Company recognized royalties of $32,000 and $26,000 from the licensee for thenine months ended September 30, 2024 and 2023, respectively.

Previous wording

The license agreement for Japan and South Korea provides the licensee exclusive rights to use Travelzoo products, services, and intellectual property in exchange for quarterly royalty payments based on net revenue over a five-year term, with an option to renew. An interest free loan was provided to the licensee for JPY 46 million (approximately$430,000), of which$133,000 was repaid in 2021 and the remaining amount repaid in 2023. The Company recognized royalties of $7,000 and $4,000 from the licensee for the three months ended June 30, 2024 and 2023, respectively. The Company recognized royalties of $14,000 and $4,000 from the licensee for thesix months ended June 30, 2024 and 2023, respectively.

Current wording

The license agreement for Japan and South Korea provides the licensee exclusive rights to use Travelzoo products, services, and intellectual property in exchange for quarterly royalty payments based on net revenue over a five-year term, with an option to renew. An interest free loan was provided to the licensee for JPY 46 million (approximately$430,000), of which$133,000 was repaid in 2021 and the remaining amount repaid in 2023. The Company recognized royalties of $7,000 and $9,000 from the licensee for the three months ended September 30, 2024 and 2023, respectively. The Company recognized royalties of $21,000 and $13,000 from the licensee for thenine months ended September 30, 2024 and 2023, respectively.

Previous wording

As of June 30, 2024 and December 31, 2023, the Company had approximately $4.2 million and $5.2 million of unredeemed vouchers that had been sold, respectively, representing the Company’s commission. The Company estimates a refund reserve using historical and current refund rates by product and by merchant location to calculate estimated future refunds. The Company estimated and recorded a refund reserve of $177,000 and $268,000 as of June 30, 2024 and December 31, 2023, respectively, for these unredeemed vouchers which is recorded as a reduction of revenues on the consolidated statements of operations, and accrued expense and other on the consolidated balance sheet.

Current wording

As of September 30, 2024 and December 31, 2023, the Company had approximately $4.3 million and $5.2 million of unredeemed vouchers that had been sold, respectively, representing the Company’s commission. The Company estimates a refund reserve using historical and current refund rates by product and by merchant location to calculate estimated future refunds. The Company estimated and recorded a refund reserve of $142,000 and $268,000 as of September 30, 2024 and December 31, 2023, respectively, for these unredeemed vouchers which is recorded as a reduction of revenues on the consolidated statements of operations, and accrued expense and other on the consolidated balance sheet.

Previous wording

Merchant payables of $16.7 million as of June 30, 2024 related to unredeemed vouchers is recorded on the consolidated balance sheet, representing amounts payable to merchants by the Company for vouchers sold but not redeemed. Certain merchant contracts, typically in foreign locations, allow the Company to retain the proceeds from unredeemed vouchers upon expiration. 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.

Current wording

Merchant payables of $17.3 million as of September 30, 2024 related to unredeemed vouchers is recorded on the consolidated balance sheet, representing amounts payable to merchants by the Company for vouchers sold but not redeemed. Certain merchant contracts, typically in foreign locations, allow the Company to retain the proceeds from unredeemed vouchers upon expiration. 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.

Previous wording

Advertising revenue decreased $63,000 for the three months ended June 30, 2024 from the three months ended June 30, 2023. This decrease was primarily due to $664,000 decrease in revenues from Top 20 and Standalone, offset partially by $267,000 increase in revenues from Travelzoo Networkand $243,000 increase in Hotel commission.

Current wording

Advertising revenue decreased $630,000 for the nine months ended September 30, 2024 from the nine months ended September 30, 2023. This decrease was primarily due to $1.9 million decrease in revenues from Top 20 and Standalone, offset partially by $1.1 million increase in Hotel commission.

Previous wording

Revenues from Membership fees increased $66,000 for the three months ended June 30, 2024 from the three months ended June 30, 2023 due to the increase ofsubscription fees paid by Travelzoo and Jack's Flight Club members.

Current wording

Revenues from Membership fees increased $256,000 for the three months ended September 30, 2024 from the three months ended September 30, 2023 due to the increase ofsubscription fees paid by Travelzoo and Jack's Flight Club members.

Previous wording

Revenues from Membership fees increased $222,000 for the six months ended June 30, 2024 from the six months ended June 30, 2023 due to the increase ofsubscription fees paid by Travelzoo and Jack's Flight Club members.

Current wording

Revenues from Membership fees increased $478,000 for the nine months ended September 30, 2024 from the nine months ended September 30, 2023 due to the increase ofsubscription fees paid by Travelzoo and Jack's Flight Club members.

Previous wording

Revenues from Other increased $10,000 for the three months ended June 30, 2024 from the three months ended June 30, 2023 primarily due to $5,000 revenue increase from retail and fashion business and$5,000 increase in licensing revenue.

Current wording

Revenues from Other increased $15,000 for the three months ended September 30, 2024 from the three months ended September 30, 2023 primarily due to the increase from theretail and fashion business.

Previous wording

Revenues from Other increased $33,000 for the six months ended June 30, 2024 from the six months ended June 30, 2023 primarily due to $19,000 revenue increase from retail and fashion business and$14,000 increase in licensing revenue.

Current wording

Revenues from Other increased $48,000 for the nine months ended September 30, 2024 from the nine months ended September 30, 2023 primarily due to the increase in licensing revenue.

Previous wording

Cost of revenues consists primarily of network expenses, including fees we pay for co-location services and depreciation and maintenance of network equipment, payments made to third-party partners of the Travelzoo Network, amortization of capitalized website development costs, software and license expenses, credit card fees, certain estimated refunds to members and customer service costs associated with vouchers we sell and hotel bookings, and salary and related expenses associated with network operations and customer service employees. Cost of revenues was $2.5 million and $2.9 million, respectively, for thethree months ended June 30, 2024 and 2023. Cost of revenues was $5.2 million and $5.6 million, respectively, for thesix months ended June 30, 2024 and 2023.

Current wording

Cost of revenues consists primarily of network expenses, including fees we pay for co-location services and depreciation and maintenance of network equipment, payments made to third-party partners of the Travelzoo Network, amortization of capitalized website development costs, software and license expenses, credit card fees, certain estimated refunds to members and customer service costs associated with vouchers we sell and hotel bookings, and salary and related expenses associated with network operations and customer service employees. Cost of revenues was $2.5 million and $2.7 million, respectively, for thethree months ended September 30, 2024 and 2023. Cost of revenues was $7.7 million and $8.2 million, respectively, for thenine months ended September 30, 2024 and 2023.

Previous wording

Cost of revenues decreased $411,000 for the six months ended June 30, 2024 from the six months ended June 30, 2023 primarily due to the decrease in software and license costs.

Current wording

Cost of revenues decreased $117,000 for the three months ended September 30, 2024 from the three months ended September 30, 2023 primarily due to the decrease in software and license costs.

Previous wording

Cost of revenues decreased $360,000 for the three months ended June 30, 2024 from the three months ended June 30, 2023 primarily due to the$178,000 decrease in software and license costs and $112,000 decrease in estimated refunds to members for customer retention.

Current wording

Cost of revenues decreased $528,000 for the nine months ended September 30, 2024 from the nine months ended September 30, 2023 primarily due to the decrease in software and license costs.

Previous wording

Sales and marketing expenses consist primarily of advertising and promotional expenses, salary and related expenses associated with sales, marketing and production employees, expenses related to our participation in industry conferences, marketing professional service costs, public relations expenses and facilities costs. Sales and marketing expenses were $9.4 million and $10.1 million for the three months ended June 30, 2024 and 2023, respectively. Sales and marketing expenses were $18.0 million and $19.4 million for the six months ended June 30, 2024 and 2023, respectively. Advertising expenses consist primarily of online advertising which we refer to as traffic acquisition cost and member acquisition costs. For the three months ended June 30, 2024 and 2023, advertising expenses accounted for 19% and 28%, respectively, of the total sales and marketing expenses. For the six months ended June 30, 2024 and 2023, advertising expenses accounted for 15% and 27%, respectively, of the total sales and marketing expenses. The goal of our advertising was to acquire new members to our email products, increase the traffic to our websites, increase brand awareness and increase our audience through mobile and social media channels.

Current wording

Sales and marketing expenses consist primarily of advertising and promotional expenses, salary and related expenses associated with sales, marketing and production employees, expenses related to our participation in industry conferences, marketing professional service costs, public relations expenses and facilities costs. Sales and marketing expenses were $8.2 million and $9.8 million for the three months ended September 30, 2024 and 2023, respectively. Sales and marketing expenses were $26.2 million and $29.3 million for the nine months ended September 30, 2024 and 2023, respectively. Advertising expenses consist primarily of online advertising which we refer to as traffic acquisition cost and member acquisition costs. For the three months ended September 30, 2024 and 2023, advertising expenses accounted for 14% and 29%, respectively, of the total sales and marketing expenses. For the nine months ended September 30, 2024 and 2023, advertising expenses accounted for 12% and 28%, respectively, of the total sales and marketing expenses. The goal of our advertising was to acquire new members to our email products, increase the traffic to our websites, increase brand awareness and increase our audience through mobile and social media channels.

Previous wording

Sales and marketing expenses decreased $756,000 for the three months ended June 30, 2024 from the three months ended June 30, 2023. The decrease was primarily due to the decrease in member acquisition costs as a result of management's strategic plan.

Current wording

Sales and marketing expenses decreased $1.6 million for the three months ended September 30, 2024 from the three months ended September 30, 2023. The decrease was primarily due to the decrease in member acquisition costs as a result of management's strategic plan.

Previous wording

Sales and marketing expenses decreased $1.5 million for thesix months ended June 30, 2024 from the six months ended June 30, 2023. The decrease was primarily due to $2.3 million decrease in member acquisition costs as a result of management's strategic plan, offset partially by $461,000 increase in salary and related expenses and $306,000 increase in professional service costs.

Current wording

Sales and marketing expenses decreased $3.0 million for thenine months ended September 30, 2024 from the nine months ended September 30, 2023. The decrease was primarily due to $3.9 million decrease in member acquisition costs as a result of management's strategic plan, offset partially by $919,000 increase in salary and related expenses.

Previous wording

Product development expenses consist primarily of salary and related expenses associated with software development employees, fees for professional services, software maintenance, amortization, and facilities costs. Product development expenses were $603,000 and $518,000 for the three months ended June 30, 2024 and 2023, respectively. Product development expenses were $1.2 million and $1.0 million for the six months ended June 30, 2024 and 2023, respectively.

Current wording

Product development expenses consist primarily of salary and related expenses associated with software development employees, fees for professional services, software maintenance, amortization, and facilities costs. Product development expenses were $594,000 and $525,000 for the three months ended September 30, 2024 and 2023, respectively. Product development expenses were $1.8 million and $1.5 million for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

General and administrative expenses consist primarily of salary and related expenses associated with administrative and executive employees, bad debt expense, professional service expenses, legal expenses, amortization of intangible assets, general office expense and facilities costs. General and administrative expenses were $4.6 million and $4.3 million for the three months ended June 30, 2024 and 2023, respectively. General and administrative expenses were $9.2 million and $8.7 million for the six months ended June 30, 2024 and 2023, respectively.

Current wording

General and administrative expenses consist primarily of salary and related expenses associated with administrative and executive employees, bad debt expense, professional service expenses, legal expenses, amortization of intangible assets, general office expense and facilities costs. General and administrative expenses were $4.7 million and $4.5 million for the three months ended September 30, 2024 and 2023, respectively. General and administrative expenses were $13.9 million and $13.2 million for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Other income, net consisted primarily of foreign exchange transactions gains and losses, sublease income, German federal government funding for COVID-19 pandemic relief, interest income earned on cash, cash equivalents and restricted cash as well as interest expense. Other income, net was $176,000 and $479,000, respectively, for the three months ended June 30, 2024 and 2023. Other income, net was $315,000 and $829,000, respectively, for the six months ended June 30, 2024 and 2023.

Current wording

Other income, net consisted primarily of foreign exchange transactions gains and losses, sublease income, German federal government funding for COVID-19 pandemic relief, interest income earned on cash, cash equivalents and restricted cash as well as interest expense. Other income, net was $359,000 and $314,000, respectively, for the three months ended September 30, 2024 and 2023. Other income, net was $674,000 and $1.1 million, respectively, for the nine months ended September 30, 2024 and 2023.

Previous wording

Other income, net decreased $514,000 for the six months ended June 30, 2024 from the six months ended June 30, 2023 primarily due to $205,000 German federal government funding for COVID-19 pandemic relief the Company received in the six months ended June 30, 2023, $180,000 decrease in sublease income as the result of the sublease term expiration in 2023 and $145,000 decrease in interest income as the result of Azzurro's repayment of $3.0 million principal of its Notes Receivable in 2023.

Current wording

Other income, net decreased $469,000 for the nine months ended September 30, 2024 from the nine months ended September 30, 2023 primarily due to $205,000 German federal government funding for COVID-19 pandemic relief the Company received in the nine months ended September 30, 2023, $270,000 decrease in sublease income as the result of the sublease term expiration in 2023 and $265,000 decrease in interest income as the result of Azzurro's repayment of $3.0 million principal of its Notes Receivable in 2023, offset partially by $267,000 increase in foreign exchange transactions gains and losses for the nine months ended September 30, 2024.

Previous wording

Our income is generally taxed in the U.S., Canada and U.K. Our income tax provision reflects federal, state and country statutory rates applicable to our worldwide income. Income tax expense was $1.3 million and $1.1 million, respectively, for the three months ended June 30, 2024 and 2023. Our effective tax rate from continuing operations was 30% and 29%, respectively, for the three months ended June 30, 2024 and 2023. The Company’s effective tax rate for the three months ended June 30, 2024 changed from the three months ended June 30, 2023 primarily due to an increase in certain non-deductible expenses in the three months ended June 30, 2024. Income tax expense was $2.8 million and $2.5 million, respectively, for the six months ended June 30, 2024 and 2023. Our effective tax rate from continuing operations was 28% for each thesix months ended June 30, 2024 and 2023.

Current wording

Our income is generally taxed in the U.S., Canada and U.K. Our income tax provision reflects federal, state and country statutory rates applicable to our worldwide income. Income tax expense was $1.1 million and $1.0 million, respectively, for the three months ended September 30, 2024 and 2023. Our effective tax rate from continuing operations was 26% and 30%, respectively, for the three months ended September 30, 2024 and 2023. The Company’s effective tax rate for the three months ended September 30, 2024 changed from the three months ended September 30, 2023 primarily due to a decrease of non-deductible expenses in certain jurisdictions in the three months ended September 30, 2024. Income tax expense was $3.9 million and $3.5 million, respectively, for the nine months ended September 30, 2024 and 2023. Our effective tax rate from continuing operations was 27% and 28%for thenine months ended September 30, 2024 and 2023, respectively. The Company’s effective tax rate for the three months ended September 30, 2024 changed from the three months ended September 30, 2023 primarily due to a decrease of non-deductible expenses in certain jurisdictions in thenine months ended September 30, 2024 and 2023. The Company’s effective tax rate for thenine months ended September 30, 2024 changed from thenine months ended September 30, 2023 primarily due to a decrease of non-deductible expenses in certain jurisdictions in thenine months ended September 30, 2024.

Previous wording

North America revenues increased by $1,000 for the three months ended June 30, 2024 from the three months ended June 30, 2023. This increase was primarily due to $267,000 increase in revenues from Travelzoo Network,$243,000 increase in Hotel commission and $233,000 increase in sale of Getaway Vouchers, offset partially by $664,000 decrease in revenues from Top 20 and Standalone. North America expenses increased by $37,000 for the three months ended June 30, 2024 from the three months ended June 30, 2023. The increase was primarily due to$555,000 increase in salary and related expenses, offset partially by$504,000 decrease inmember acquisition costs.

Current wording

North America revenues decreased by $586,000 for the three months ended September 30, 2024 from the three months ended September 30, 2023. This decrease was primarily due to the decrease in revenues from Top 20 and Standalone. North America expenses decreased by $721,000 for the three months ended September 30, 2024 from the three months ended September 30, 2023. The decrease was primarily due to the decrease inmember acquisition costs.

Previous wording

North America revenues decreased by $529,000 for the six months ended June 30, 2024 from the six months ended June 30, 2023. This decrease was primarily due to $1.5 million decrease in revenues from Top 20 and Standalone, offset partially by $989,000 increase in hotel commission. North America expenses decreased by $415,000 for the six months ended June 30, 2024 from the six months ended June 30, 2023. The decrease was primarily due to $1.4 million decrease inmember acquisition costs, offset partially by$967,000 increase in professional service expenses.

Current wording

North America revenues decreased by $1.1 million for the nine months ended September 30, 2024 from the nine months ended September 30, 2023. This decrease was primarily due to $2.4 million decrease in revenues from Top 20 and Standalone, offset partially by $807,000 increase in hotel commission and $599,000 increase in revenues from Travelzoo Network. North America expenses decreased by $1.1 million for the nine months ended September 30, 2024 from the nine months ended September 30, 2023. The decrease was primarily due to $2.3 million decrease inmember acquisition costs, offset partially by$864,000 increase in salary and related expenses and$560,000 increase in professional service expenses.

Previous wording

Europe revenues increased by $64,000 for the three months ended June 30, 2024 from the three months ended June 30, 2023. The increase was primarily due to $24,000 increase in Advertising revenues and $40,000 positive impact from foreign currency movements relative to the U.S. dollar. The increase in Advertising revenue of $24,000 was primarily due to$112,000 increase in Hotel commission and $90,000 increase in sale of Getaway Vouchers, offset partially by $150,000 decrease in revenues from Top 20 and Standalone. Europe expenses decreased by $687,000 for the three months ended June 30, 2024 from the three months ended June 30, 2023 primarily due to $304,000 decrease inmember acquisition costs, $174,000 decrease in trade and brand marketing expenses and $101,000 decrease in salary and related expenses.

Current wording

Europe revenues increased by $35,000 for the three months ended September 30, 2024 from the three months ended September 30, 2023. The increase was primarily due to $100,000 positive impact from foreign currency movements relative to the U.S. dollar, offset partially by $65,000 decrease in revenues. The decrease in revenue of $65,000 was primarily due to the decrease in sale of Getaway Vouchers. Europe expenses decreased by $726,000 for the three months ended September 30, 2024 from the three months ended September 30, 2023 primarily due to the decrease inmember acquisition costs.

Previous wording

Europe revenues increased by $839,000 for the six months ended June 30, 2024 from the six months ended June 30, 2023. The increase was primarily due to $572,000 increase in Advertising revenues and $267,000 positive impact from foreign currency movements relative to the U.S. dollar. The increase in Advertising revenue of $572,000 was primarily due to theincrease in Hotel commission. Europe expenses decreased by $837,000 for the six months ended June 30, 2024 from the six months ended June 30, 2023 primarily due to the decrease inmember acquisition costs.

Current wording

Europe revenues increased by $874,000 for the nine months ended September 30, 2024 from the nine months ended September 30, 2023. The increase was primarily due to $506,000 increase in revenues and $368,000 positive impact from foreign currency movements relative to the U.S. dollar. The increase in revenue of $506,000 was primarily due to theincrease in Hotel commission. Europe expenses decreased by $1.6 million for the nine months ended September 30, 2024 from the nine months ended September 30, 2023 primarily due to the decrease inmember acquisition costs.

Previous wording

Foreign currency movements relative to the U.S. dollar positively impacted our local currency income from our operations in Europe by approximately $5,000 and $53,000 for the three and six months ended June 30, 2024, respectively. Foreign currency movements relative to the U.S. dollar negatively impacted our local currency income from our operations in Europe by approximately $21,000 and $79,000 for the three and six months ended June 30, 2023, respectively.

Current wording

Foreign currency movements relative to the U.S. dollar positively impacted our local currency income from our operations in Europe by approximately $31,000 and $13,000 for thethree months ended September 30, 2024 and 2023 respectively. Foreign currency movements relative to the U.S. dollar positively impacted our local currency income from our operations in Europe by approximately $84,000 for thenine months ended September 30, 2024. Foreign currency movements relative to the U.S. dollar negatively impacted our local currency income from our operations in Europe by approximately $66,000 for the nine months ended September 30, 2023.

Previous wording

Jack’s Flight Club revenues decreased by $62,000 for thethree months ended June 30, 2024 from the three months ended June 30, 2023 due to the decrease of subscription fees paid by the members. Jack’s Flight Club expenses increased by $69,000 for the three months ended June 30, 2024 from the three months ended June 30, 2023 primarily due to the increase insalary and related expenses.

Current wording

Jack’s Flight Club revenues increased by $45,000 for thethree months ended September 30, 2024 from the three months ended September 30, 2023 due to the increase of subscription fees paid by the members. Jack’s Flight Club expenses increased by $162,000 for the three months ended September 30, 2024 from the three months ended September 30, 2023 primarily due to the increase insalary and related expenses.

Previous wording

Jack’s Flight Club revenues increased by $53,000 for thesix months ended June 30, 2024 from the six months ended June 30, 2023 due to the increase of premium members. Jack’s Flight Club expenses increased by $238,000 for the six months ended June 30, 2024 from the six months ended June 30, 2023 primarily due to $146,000 increase insalary and related expenses and$109,000 increase in software expenses.

Current wording

Jack’s Flight Club revenues increased by $98,000 for thenine months ended September 30, 2024 from the nine months ended September 30, 2023 due to the increase of premium members. Jack’s Flight Club expenses increased by $400,000 for the nine months ended September 30, 2024 from the nine months ended September 30, 2023 primarily due to the increase insalary and related expenses.

Previous wording

New Initiatives segment primarily consists of Travelzoo licensing business, Travelzoo META subscription service, Metaverse experience scouting and development business andretail and fashion business acquired with MTE. New Initiatives revenues increased $10,000 for the three months ended June 30, 2024 from the three months ended June 30, 2023 primarily due to $5,000 revenue increase from retail and fashion business and$5,000 increase in licensing revenue. New Initiatives segment expenses decreased by $144,000 for the three months ended June 30, 2024 from the three months ended June 30, 2023 primarily due to decrease in salary and related expenses.

Current wording

New Initiatives segment primarily consists of Travelzoo licensing business, Travelzoo META subscription service, Metaverse experience scouting and development business andretail and fashion business acquired with MTE. New Initiatives revenues increased $5,000 for the three months ended September 30, 2024 from the three months ended September 30, 2023 primarily due to the increase from theretail and fashion business. New Initiatives segment expenses decreased by $152,000 for the three months ended September 30, 2024 from the three months ended September 30, 2023 primarily due to the decrease insalary and related expenses.

Previous wording

New Initiatives revenues increased $34,000 for the six months ended June 30, 2024 from the six months ended June 30, 2023 primarily due to $19,000 revenue increase from retail and fashion business and$14,000 increase in licensing revenue. New Initiatives segment expenses decreased by $207,000 for the three months ended June 30, 2024 from the three months ended June 30, 2023 primarily due to decrease in salary and related expenses.

Current wording

New Initiatives revenues increased $39,000 for the nine months ended September 30, 2024 from the nine months ended September 30, 2023 primarily due to the increase in licensing revenue. New Initiatives segment expenses decreased by $359,000 for the three months ended September 30, 2024 from the three months ended September 30, 2023 primarily due to the decrease insalary and related expenses.

Previous wording

As of June 30, 2024, we had $12.6 million in cash and cash equivalents, of which $8.0 million was held outside the U.S. in our foreign operations. If this cash is distributed to the U.S., we may be subject to additional U.S. taxes in certain circumstances. We also had $675,000 in restricted cash held in the U.S. as of June 30, 2024.

Current wording

As of September 30, 2024, we had $11.4 million in cash and cash equivalents, of which $7.5 million was held outside the U.S. in our foreign operations. If this cash is distributed to the U.S., we may be subject to additional U.S. taxes in certain circumstances. We also had $675,000 in restricted cash held in the U.S. as of September 30, 2024.

Previous wording

Cash, cash equivalents and restricted cash decreased $3.1 million from $16.4 million as of December 31, 2023 to $13.2 million as of June 30, 2024 primarily due to $10.4 million cash used to repurchase common stock, offset partially by $7.7 million cash provided by operating activities.

Current wording

Cash, cash equivalents and restricted cash decreased $4.3 million from $16.4 million as of December 31, 2023 to $12.1 million as of September 30, 2024 primarily due to $16.6 million cash used to repurchase common stock, offset partially by $13.3 million cash provided by operating activities.

Previous wording

As of June 30, 2024, we had merchant payables of $16.7 million related to unredeemed vouchers. In the Company’s financial statements presented in this 10-Q report, following U.S. generally accepted accounting principles (“GAAP”), 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$4.3 million. Payables to merchants are generally due upon redemption of vouchers. The vouchers expire between July 2024 through December 2025; however, these expiration dates may sometimes be extended on a case-by-case basis and final payment upon expiration may not be due for up to a year after expiration. Based on current projections of redemption activity, we expect that cash on hand as of June 30, 2024 will be sufficient to provide for working capital needs for at least the next twelve months.

Current wording

As of September 30, 2024, we had merchant payables of $17.3 million related to unredeemed vouchers. In the Company’s financial statements presented in this 10-Q report, following U.S. generally accepted accounting principles (“GAAP”), 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$7.0 million. Payables to merchants are generally due upon redemption of vouchers. The vouchers expire between October 2024 through December 2025; however, these expiration dates may sometimes be extended on a case-by-case basis and final payment upon expiration may not be due for up to a year after expiration. Based on current projections of redemption activity, we expect that cash on hand as of September 30, 2024 will be sufficient to provide for working capital needs for at least the next twelve months.

Previous wording

Net cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities. Net cash provided by operating activities for the six months ended June 30, 2024 was $7.9 million, which primarily consisted of net income of $7.1 million and $1.3 million increase in non-cash items, offset partially by $514,000 decrease in cash from changes in operating assets and liabilities. Adjustments for non-cash items primarily consisted of $783,000 for stock-based compensation and $558,000 for depreciation and amortization. The decrease in cash from changes in operating assets and liabilities was primarily due to $3.8 million decrease in merchant payables, offset partially by $1.2 million increase in deferred revenue, $1.2 million increase in accounts payable and accrued expenses and other, and $753,00 increase in other non-current liabilities.

Current wording

Net cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities. Net cash provided by operating activities for the nine months ended September 30, 2024 was $13.3 million, which primarily consisted of net income of $10.4 million, $1.9 million increase in non-cash items and $963,000 increase in cash from changes in operating assets and liabilities. Adjustments for non-cash items primarily consisted of $1.2 million for stock-based compensation and $737,000 for depreciation and amortization. The increase in cash from changes in operating assets and liabilities was primarily due to $1.8 million increase in deferred revenue, $1.4 million increase in other non-current liabilities and $802,000 increase in accounts payable and accrued expenses, offset partially by $3.3 million decrease in merchant payables.

Previous wording

Net cash provided by operating activities for the six months ended June 30, 2023 was $5.6 million, which primarily consisted of net income of $6.3 million, $882,000 increase in non-cash items and $1.6 million decrease in cash from changes in operating assets and liabilities. Adjustments for non-cash items primarily consisted of $945,000 for depreciation and amortization and $827,000 for stock-based compensation, offset partially by $829,000 reversal of reserves from accounts receivable and other. The decrease in cash from changes in operating assets and liabilities was primarily due to $8.6 million decrease in merchant payables and $2.4 million decrease in accounts payable, offset partially by $3.9 million increase in accounts receivable and 2.6 million increase in accrued expenses and other.

Current wording

Net cash provided by operating activities for the nine months ended September 30, 2023 was $9.3 million, which primarily consisted of net income of $8.7 million and $1.6 million increase in non-cash items, offset partially by $1.1 million decrease in cash from changes in operating assets and liabilities. Adjustments for non-cash items primarily consisted of $1.4 million for depreciation and amortization and $1.2 million for stock-based compensation, offset partially by $944,000 reversal of reserves from accounts receivable and other. The decrease in cash from changes in operating assets and liabilities was primarily due to $8.8 million decrease in merchant payables and $1.7 million decrease in accounts payable, offset partially by $3.3 million decrease in accounts receivable, $2.3 million decrease in prepaid expenses and other, $1.9 million increase in other liabilities and $1.1 million decrease in prepaid income taxes.

Previous wording

Cash paid for income tax, net of refunds received, during the six months ended June 30, 2024 was $1.2 million. Cash refunds for income tax, net of payment made, during the six months ended June 30, 2023 was $494,000.

Current wording

Cash paid for income tax, net of refunds received, during the nine months ended September 30, 2024 was $1.5 million. Cash refunds for income tax, net of payment made, during the nine months ended September 30, 2023 was $228,000.

Previous wording

Net cash used in investing activities for the six months ended June 30, 2024 and 2023 was $83,000 and $44,000, respectively. The cash used in investing activities for the six months ended June 30, 2024 was consisted of purchases of property and equipment. The cash used in investing activities for the six months ended June 30, 2023 was primarily consisted of the $157,000 purchases of property and equipment, offset partially by $113,000 proceeds from repayment of the Japan loan.

Current wording

Net cash used in investing activities for the nine months ended September 30, 2024 and 2023 was $129,000 and $104,000, respectively. The cash used in investing activities for the nine months ended September 30, 2024 was consisted of purchases of property and equipment. The cash used in investing activities for the nine months ended September 30, 2023 was primarily consisted of the $217,000 purchases of property and equipment, offset partially by $113,000 proceeds from repayment of the Japan loan.

Previous wording

Net cash used for financing activities forthe six months ended June 30, 2024 was $10.7 million which primarily consisted of repurchase of common stock of $10.4 million and taxes paid for net share settlement of $257,000. Net cash used for financing activities forthe six months ended June 30, 2023 was $5.2 million which primarily consisted of repurchase of common stock of $4.9 million and taxes paid for net share settlement of $299,000.

Current wording

Net cash used for financing activities forthe nine months ended September 30, 2024 was $17.2 million which primarily consisted of the repurchase of common stock of $16.6 million and taxes paid for net share settlement of $592,000. Net cash used for financing activities forthe nine months ended September 30, 2023 was $12.1 million which primarily consisted of the repurchase of common stock of $11.8 million and taxes paid for net share settlement of $299,000.

Previous wording

We also have contingencies related to net unrecognized tax benefits, including interest and penalties, of approximately $24.8 million as of June 30, 2024. See “Note 5: Income Taxes” to the accompanying unaudited condensed consolidated financial statements for further information.

Current wording

We also have contingencies related to net unrecognized tax benefits, including interest and penalties, of approximately $24.9 million as of September 30, 2024. See “Note 5: Income Taxes” to the accompanying unaudited condensed consolidated financial statements for further information.