##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
 Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal
    year ended December 31, 2010oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission File No.:
    000-50171
 TRAVELZOO INC.
 (Exact Name of Registrant as
    Specified in its Charter)
  DELAWARE

36-4415727(State or Other Jurisdiction
    of
    Incorporation or Organization)

(I.R.S. Employer
    Identification No.)590 Madison Avenue, 37th Floor,
    New York, New York(Address of Principal
    Executive Offices)

10022(Zip Code)   Registrants telephone number, including area code:
  (212) 484-4900
  SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE
    ACT:
 NONE
  SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE
    ACT:
 Common Stock, $0.01 Par Value
 (Title of Class)
  o þ
  o þ
  þ o
  Regulation S-T o o
  Regulation S-K Form 10-K Form 10-K. þ
  12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer þ
    Non-accelerated
    filer o
    Smaller
    reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K




---



##### 





TRAVELZOO
    INC.
  Table of
    Contents
   
  PagePART IItem 1.

Business


3Item 1A.

Risk Factors


11Item 1B.

Unresolved Staff Comments


19Item 2.

Properties


19Item 3.

Legal Proceedings


19Item 4.

(Removed and Reserved)


19PART IIItem 5.

Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


19Item 6.

Selected Consolidated Financial Data


21Item 7.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations


21Item 7A.

Quantitative and Qualitative Disclosures About
    Market Risk


35Item 8.

Financial Statements and Supplementary Data


36Item 9.

Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosures


63Item 9A.

Controls and Procedures


63Item 9B.

Other Information


64PART IIIItem 10.

Directors, Executive Officers and Corporate
    Governance of the Registrant


64Item 11.

Executive Compensation


64Item 12.

Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


65Item 13.

Certain Relationships and Related Transactions,
    and Director Independence


65Item 14.

Principal Accountant Fees and Services


65PART IVItem 15.

Exhibits and Financial Statement Schedules


65EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2   2




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##### Table of Contents



Forward-Looking
    Statements
   PART I  Item 1.
    Business  Overview
    Travelzoo Travelzoo Top 20 e-mail Newsflash e-mail SuperSearch pay-per-click Travelzoo Network Fly.com Local Deals Travelzoo
  Travelzoo Travelzoo Top 20 e-mail Newsflash e-mail
   3




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##### Table of Contents



Local Deals
        Travelzoo
        Our
    Industry
   4




---



##### Table of Contents



(2008-2013),
    
    The Internet Is Consumers Preferred Information
    Source.  Market research shows that the Internet
    has become consumers preferred information source for
    travel (source: Forresters North American Technographics
    Travel Online Survey, Q1 2008).
    Benefits of Internet Advertising vs. Print, TV and Radio
    Advertising.  Internet advertising provides
    advertisers advantages compared to traditional advertising.
    These advantages include real-time listings, real-time updates,
    and performance tracking. See  Benefits to
    Travel, Entertainment and Local Companies below.
    New Advertising Opportunities.  The Internet
    allows advertisers to advertise their sales and specials in a
    fast, flexible, and cost-effective manner that has not been
    possible before.
    Suppliers Selling Directly.  We believe that
    many travel suppliers prefer to sell directly to consumers
    through suppliers websites versus selling through travel
    agents. Internet advertising attracts consumers to
    suppliers websites.  Problems
    Travel, Entertainment and Local Companies Face and Limitations
    of Newspaper, TV and Radio Advertising
        
    typically, ads must be submitted 2 to 5 days prior to the
    publication or airing date, which makes it difficult to
    advertise last-minute inventory;
    once an ad is published, it cannot be updated or deleted when an
    offer is sold out;
    once an ad is published, the company cannot change a price or
    offer;
    in many markets, the small number of newspapers, television
    companies, radio stations and other print media reduces
    competition, resulting in high rates for traditional
    advertising; and
    offline advertising does not allow for detailed performance
    tracking.
    creative can be very expensive to develop. 5




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##### Table of Contents



Our
    Products and Services
  Travelzoo Travelzoo Top 20 e-mail Newsflash e-mail Local Deals e-mail SuperSearch, pay-per-click Travelzoo Network Fly.com
      PublicationProduct

Content

Schedule

Reach/Usage*

Advertiser Benefits

Consumer BenefitsTravelzoo websites

Websites in the U.S., Canada, France, Germany, Spain, and the
    U.K. listing thousands of outstanding sales and specials from
    more than 2,000 travel, entertainment and local companies

24/7

10.4 million unique visitors
    per month

Broad reach, sustained exposure, targeted placements by
    destination and travel segment

24/7 access to deals, ability to search and
    browse by destination or keywordTravelzoo Top 20

Popular e-mail newsletter listing 20 of the weeks most
    outstanding deals

Weekly

18.1 million
    subscribers

Mass push advertising vehicle to quickly stimulate
    incremental travel and entertainment purchases

Weekly access to 20 outstanding, handpicked deals chosen from
    among thousandsNewsflash

Regionally-targeted e-mail alert service with a single
    time-sensitive and newsworthy travel and entertainment offer

Within two hours of an
    offer being identified

16.5 million
    subscribers

Regional targeting, 100% share of voice for advertiser, flexible
    publication schedule

Breaking news offers delivered just-in-timeLocal Deals

Locally-targeted e-mail alert service with a single
    time-sensitive and newsworthy offer from local merchants such as
    spas and restaurants

Twice per week in
    active markets

Over
    35 markets

Local targeting by zip code, 100% share of voice for the local
    business, flexible publication schedule

Breaking news offers delivered just-in-timeTravelzoo Network

A network of third-party websites that list outstanding deals
    published by Travelzoo

24/7

Over 325
    third-party
    websites

Drives qualified users with substantial distribution beyond the
    Travelzoo audience

Contextually relevant travel deals that have been handpicked and
    professionally reviewedSuperSearch

Travel search tool using a proprietary algorithm to recommend
    sites and enable one-click searching

On-demand

5.4 million monthly
    searches

Drives qualified traffic directly to advertiser site on a
    pay-per-click basis

Saves time and money by recommending the sites most likely to
    have great rates for a specific itineraryFly.com

Travel search engine that enables users to find and compare the
    best flight options from multiple sources

On-demand

2.8 million monthly
    searches

Provides advertisers a low cost distribution channel and
    retention of the user engagement on the advertisers website

Free access to real-time price comparisons from airlines and
    online travel agencies    *
    
    For Travelzoowebsites, reach information is based on
    data from Google Analytics. For Top 20, Newsflash,
    Local Deals, Travelzoo Network, SuperSearch,and
    Fly.com, reach/usage information is based on internal
    Travelzoo statistics as of December 31, 2010. 6




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##### Table of Contents



Benefits
    to Travel, Entertainment and Local Companies
    
    Real-Time Listings of Special Offers.  Our
    technology allows travel and entertainment companies to
    advertise special offers on a real-time basis.
    Real-Time Updates.  Our technology allows
    travel and entertainment companies to update their listings on a
    real-time basis.
    Real-Time Performance Reports.  We provide
    travel and entertainment companies with real-time tracking of
    the performance of their advertising campaigns. Our solution
    enables travel and entertainment companies to optimize their
    campaigns by removing or updating unsuccessful listings and
    further promote successful listings.
    Access to Millions of Consumers.  We provide
    travel and entertainment companies fast access to over
    18 million travel shoppers.
    Global Reach.  We offer access to Internet
    users across the U.S., Canada, France, Germany, Spain, and the
    U.K.    
    Real-Time Listings of Special Offers.  Our
    technology allows local businesses to advertise special offers
    on a real-time basis.
    Real-Time Performance Reports.  We provide
    local businesses with real-time tracking of the performance of
    their advertising campaigns. Our solution enables local
    businesses to optimize their campaigns by removing or updating
    unsuccessful listings and further promote successful listings.
    Access to Local Consumers.  Travelzoo
    subscribers submit their zip code to Travelzoo when they join
    Travelzoo. As a result, we are able to send Local Deals
    to subscribers who live or work near the local business.  Benefits
    to Consumers
  Travelzoo Travelzoo
    Top 20 e-mail Newsflash, Local Deals, Travelzoo
    Network, SuperSearch Fly.com
  
    Aggregation of Offers From Many Companies.  Our
    Travelzoowebsites and our Travelzoo Top 20e-mail
    newsletter aggregate information on current offers from more
    than 2,000 travel, entertainment and local companies. This saves
    the consumer time when searching for travel, entertainment and
    local deals, sales and specials.
    Current Information.  Compared to newspaper, TV
    or radio advertisements, we provide consumers more current
    information, since our technology enables travel, entertainment
    and local companies to update their listings on a real-time
    basis.
    Reliable Information.  We operate a Test
    Booking
    Center®

    to check the availability of travel, entertainment and local
    deals included in the Travelzoo Top 20before publishing.
    Search Tools.  We provide consumers with the
    ability to search for specific offers. 7




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##### Table of Contents



Growth
    Strategy
    
    Build Strong Brand Awareness.  We believe that
    it is essential to establish a strong brand with Internet users
    and within the travel industry, entertainment industry and with
    local businesses. We currently utilize online marketing and
    direct marketing to promote our brand to consumers. In addition,
    we believe that we build brand awareness through product
    excellence which leads to
    word-of-mouth
    referrals. We utilize sponsorships at industry conferences and
    public relations to promote our brand.
    Increase Reach:  In order to attract more users
    to our products, we intend to expand our advertising campaigns
    as our business grows. We believe that we also can attract more
    users through product excellence that is promoted by
    word-of-mouth.
    Quality User Base:  We believe that, in
    addition to increasing our reach, we need to maintain the
    quality of our user base. We believe that high quality content
    attracts a quality user base.
    Increase Number of Advertisers:  We intend to
    continue to grow our advertiser base by expanding the size of
    our sales force and by entering into new content categories such
    as restaurants and spas. See  Sales and
    Marketing below.
    Excellent Service:  We believe that it is
    important to provide our advertisers and users with excellent
    service.
    Replicate Business Model in Foreign
    Markets.  We have successfully replicated our
    business model in foreign markets including Canada and the U.K.
    We believe that there is an opportunity to replicate our
    business model in additional foreign markets. In addition, we
    believe that we can strengthen our strategic position if we
    offer global advertising solutions to existing and new
    advertisers.  Advertisers
    American Airlines

Interstate Hotels & ResortApple Vacations

JetBlue AirwaysAvis Rent A Car

Kimpton HotelsBritish Airways

Liberty TravelCheapTickets

LufthansaCirque du Soleil

Marriott HotelsDelta Air Lines

Orbitz WorldwideExpedia

Royal CaribbeanFairmont Hotels and Resorts

Spirit AirlinesFunjet Vacations

Starwood Hotels & Resorts WorldwideHarrahs Entertainment

TravelocityHawaiian Airlines

United AirlinesHertz International

Virgin AmericaHilton Hotels

Virgin AtlanticInterContinental Hotels Group

Walt Disney Parks & Resorts    8




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##### Table of Contents



Sales and
    Marketing
    e-mail word-of-mouth.
  Technology
  e-mails
      Competition
  pay-per-click
     9




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Government
    Regulation and Legal Uncertainties
    Privacy Concerns. e-mail
  Anti-Spam Legislation. e-mail
  Domain Names.
  Jurisdictions.
  Intellectual
    Property
  Travelzoo Top 20. Travelzoo Top
    20 Travelzoo Top 20 Travelzoo Travelzoo Top 20 Travelzoo
   10




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##### Table of Contents



Employees
    Internet
    Access to Other Information
  Form 10-K, Form 10-Q Form 8-K
  Item 1A.
    Risk
    Factors  Investing in our common stock involves a high degree of risk.
    Any or all of the risks listed below as well as other variables
    affecting our operating results could have a material adverse
    effect on our business, our quarterly and annual operating
    results or financial condition, which could cause the market
    price of our stock to decline or cause substantial volatility in
    our stock price, in which event the value of your common stock
    could decline. You should also keep these risk factors in mind
    when you read forward-looking statements.
  Risks
    Related to Our Financial Condition and Business Model
  We
    cannot assure you that we will be profitable.
    Fluctuations
    in our operating results may negatively impact our stock
    price.
  quarter-to-quarter
  
    mismatches between resource allocation and advertiser demand due
    to difficulties in predicting advertiser demand in a new market;
    changes in general economic conditions that could affect
    marketing efforts in general and online marketing efforts in
    particular;
    the magnitude and timing of marketing initiatives, including our
    acquisition of new subscribers and our expansion efforts in
    other regions;
    the introduction, development, timing, competitive pricing and
    market acceptance of our products and services and those of our
    competitors; 11




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##### Table of Contents




    our ability to attract and retain key personnel;
    our ability to manage our anticipated growth and expansion;
    our ability to attract traffic to our websites;
    technical difficulties or system downtime affecting the Internet
    generally or the operation of our products and services
    specifically;
    payments which we may make to previous stockholders of
    Travelzoo.com Corporation who failed to submit requests for
    shares in Travelzoo Inc. within the required time period, or
    escheat claims related to shares not issued in the
    Companys merger with Travelzoo.com Corporation; and
    volatility of our operating results in new markets.  Travelzoo
    Our
    business model may not be adaptable to a changing
    market.
    We may
    not be able to obtain sufficient funds to grow our business and
    any additional financing may be on terms adverse to your
    interests.
        Our
    business may be sensitive to recessions.
   12




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Our
    operations could be significantly hindered by the occurrence of
    a natural disaster or other catastrophic event.
  e-mail
  Technological
    or other assaults on our service could harm our
    business.
    We are
    subject to payments-related risks
    Risks
    Related to Our Markets and Strategy
  Our
    international expansion has resulted in substantial operating
    losses, and is subject to other material risks.
    Fly.com
    
    trade barriers and changes in trade regulations; 13




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##### Table of Contents




    difficulties in developing, staffing and simultaneously managing
    foreign operations as a result of distance, language and
    cultural differences;
    stringent local labor laws and regulations;
    currency exchange rate fluctuations;
    risks related to government regulation; and
    potentially adverse tax consequences.  We may
    not be able to continue developing awareness of our brand
    names.
  Travelzoo Fly.com
  Our
    business may be sensitive to events affecting our advertisers in
    general.
    We
    will not be able to attract advertisers or Internet users if we
    do not continually enhance and develop the content and features
    of our products and services.
    We may
    lose business if we fail to keep pace with rapidly changing
    technologies and advertiser needs.
    
    rapidly changing technology in online advertising;
    evolving industry standards, including both formal and de
    factostandards relating to online advertising;
    developments and changes relating to the Internet;
    competing products and services that offer increased
    functionality; and
    changes in advertiser and Internet user requirements.   14




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##### Table of Contents



Our
    business and growth will suffer if we are unable to hire and
    retain highly skilled personnel.
    We may
    not be able to effectively manage our expanding
    operations.
    Our
    operations may be adversely affected by changes in our senior
    management.
    Intense
    competition may adversely affect our ability to achieve or
    maintain market share and operate profitably.
  pay-per-click Travelzoo
  Loss
    of any of our key management personnel could negatively impact
    our business.
   15




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##### Table of Contents



We may
    not be able to access third party technology upon which we
    depend.
    Risks
    Related to the Market for our Shares
  Our
    stock price has been volatile historically and may continue to
    be volatile.
      We are
    controlled by a principal stockholder.
    Risks
    Related to Legal Uncertainty
  We may
    become subject to burdensome government regulations and legal
    uncertainties affecting the Internet which could adversely
    affect our business.
    
    user privacy;
    anti-spam legislation;
    consumer protection;
    copyright, trademark and patent infringement;
    pricing controls;
    characteristics and quality of products and services;
    sales and other taxes; and
    other claims based on the nature and content of Internet
    materials.  We may
    be liable as a result of information retrieved from or
    transmitted over the Internet.
   16




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##### Table of Contents



e-mail e-mail e-mail e-mail
  Claims
    may be asserted against us relating to shares not issued in our
    2002 merger, including claims which may arise under the current
    Delaware unclaimed property review.
       17




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Our
    internal control over financial reporting may not be effective,
    and our independent auditors may not be able to certify as to
    the effectiveness of such internal controls, which could have a
    significant and adverse effect on our business.
    We may
    be unable to protect our registered trademark or other
    proprietary intellectual property rights.
  Travelzoo
  Travelzoo Travelzoo
  We may
    face liability from intellectual property litigation that could
    be costly to prosecute or defend and distract managements
    attention with no assurance of success.
   18




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##### Table of Contents



Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties        Item 3.
    Legal
    Proceedings    Item 4.
    (Removed
    and Reserved) PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  Market
    Information
    High

Low2010:Fourth Quarter

$
45.16


$
25.29Third Quarter

$
26.66


$
11.68Second Quarter

$
20.18


$
11.83First Quarter

$
15.03


$
10.432009:Fourth Quarter

$
15.38


$
12.00Third Quarter

$
14.94


$
10.51Second Quarter

$
12.35


$
5.93First Quarter

$
6.84


$
3.72      19




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##### Table of Contents



Dividend
    Policy
    Sales of
    Unregistered Securities
    Repurchases
    of Equity Securities
    Performance
    Graph
    
  Measurement Point


12/31/2005


12/31/2006


12/31/2007


12/31/2008


12/31/2009


12/31/2010Travelzoo Inc.


$
100.00



$
136.14



$
62.18



$
25.27



$
55.86



$
188.09NASDAQ Market Index


$
100.00



$
109.52



$
120.27



$
71.51



$
102.89



$
120.29S&P 500 Publishing


$
100.00



$
115.31



$
86.59



$
37.18



$
56.61



$
60.46  20




---



##### Table of Contents



Item 6.
    Selected
    Consolidated Financial Data    Consolidated
    Statement of Operations Data:
  Year Ended December 31,2010

2009

2008

2007

2006(In thousands, except per share data)Revenues

$
112,784


$
93,973


$
80,817


$
78,904


$
69,525Income from continuing operations


23,512



13,708



13,312



23,679



29,753Income from continuing operations, net of taxes


13,157



6,418



5,913



12,108



16,803Loss from discontinued operations, net of taxes






(1,233
)


(10,029
)


(2,999
)


Net income (loss)


13,157



5,185



(4,116
)


9,109



16,803Basic net income (loss) per share from:Continuing operations

$
0.80


$
0.39


$
0.41


$
0.82


$
1.08Discontinued operations

$



$
(0.08
)

$
(0.70
)

$
(0.20
)

$
Net income (loss) per share

$
0.80


$
0.32


$
(0.29
)

$
0.61


$
1.08Diluted net income (loss) per share from:Continuing operations

$
0.80


$
0.39


$
0.37


$
0.75


$
1.01Discontinued operations

$



$
(0.08
)

$
(0.62
)

$
(0.19
)

$
Net income (loss) per share

$
0.80


$
0.32


$
(0.25
)

$
0.57


$
1.01Shares used in per share calculation  basic


16,444



16,408



14,273



14,847



15,503Shares used in per share calculation  diluted


16,453



16,416



16,190



16,074



16,712   Consolidated
    Balance Sheet Data:
  December 31,2010

2009

2008

2007

2006(In thousands)Cash and cash equivalents

$
41,184


$
19,776


$
14,179


$
22,641


$
33,415Working capital


39,563



27,250



17,642



26,202



36,472Total assets


66,002



46,132



35,322



37,286



43,700Stockholders equity


45,889



30,771



20,763



25,902



36,817   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations    Overview
   21




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##### Table of Contents



Travelzoo Travelzoo Top 20 e-mail Newsflash e-mail SuperSearch, pay-per-click Travelzoo Network Fly.com Local Deals Travelzoo
  Travelzoo Travelzoo Top 20 e-mail Newsflash e-mail
  Local Deals
      
    Growth of number of subscribers of the Companys
    newsletters and page views of the homepages of the Travelzoowebsites;
    Operating margin;
    Growth in revenues in the absolute and relative to the growth in
    reach of the Companys publications; and
    Revenue per employee as a measure of productivity.  Critical
    Accounting Policies
   22




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##### Table of Contents



Revenue
    Recognition
      
    Evidence of an arrangement.  We consider an
    insertion order signed by the advertiser or its agency to be
    evidence of an arrangement.
    Delivery.  Delivery is considered to occur when
    the advertising has been displayed and, if applicable, the
    click-throughs have been delivered.
    Fixed or determinable fee.  We consider the fee
    to be fixed or determinable if the fee is not subject to refund
    or adjustment and payment terms are standard.
    Collection is deemed reasonably assured.  We
    conduct a credit review for all transactions at the time of the
    arrangement to determine the creditworthiness of the advertiser.
    Collection is deemed reasonably assured if we expect that the
    advertiser will be able to pay amounts under the arrangement as
    payments become due. If we determine that collection is not
    reasonably assured, then we defer the revenue and recognize the
    revenue upon cash collection. Collection is deemed not
    reasonably assured when a advertiser is perceived to be in
    financial distress, which may be evidenced by weak industry
    conditions, a bankruptcy filing, or previously billed amounts
    that are past due.      Allowance
    for Doubtful Accounts
   23




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##### Table of Contents



Liability
    to Former Stockholders
      Results
    of Operations
    Year Ended December 31,2010


2009


2008Revenues


100.0
%


100.0
%


100.0
%Cost of revenues


6.4



6.0



3.5Gross profit


93.6



94.0



96.5Operating expenses:Sales and marketing


48.3



52.9



53.6General and administrative


24.4



26.5



26.4Total operating expenses


72.7



79.4



80.0Income from operations


20.9



14.6



16.5Other income and expenses, net


(0.1
)


(0.1
)


1.0Income from continuing operations before income taxes


20.8



14.5



17.5Income taxes


9.2



7.7



10.1Income from continuing operations


11.6



6.8



7.4Loss from discontinued operations, net of taxes






(1.3
)


(12.4
)Net income (loss)


11.6
%


5.5
%


(5.0
)%    24




---



##### Table of Contents



Fly.com Fly.com Local Deals
      Reach
  e-mail Travelzoo Travelzoo
  Year Ended December 31,


Year-Over-Year2010


2009


Growth(1)Subscribers:North AmericaTravelzoo Top 20


13,594,000



12,680,000



7
%Newsflash


12,052,000



10,905,000



11
%EuropeTravelzoo Top 20


4,472,000



3,520,000



27
%Newsflash


4,424,000



3,435,000



29
%Page views of homepages of Travelzoowebsites:North America


37,772,000



36,455,000



4
%Europe


17,859,000



16,491,000



8
%     (1)
    
    The comparability of
    year-over-year
    changes of page views of the homepages of Travelzoo
    websites may be limited due to the design and navigation of the
    websites. 25




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##### Table of Contents



Travelzoo Top 20 e-mail Travelzoo Travelzoo Top
    20 e-mail
  Travelzoo Top 20 e-mail Travelzoo Travelzoo Top
    20 e-mail
  Revenues
  Travelzoo Travelzoo Top 20 e-mail Newsflash e-mail Local Deals e-mail SuperSearch Fly.com Fly.com Local Deals e-mail year-over-year Travelzoo Travelzoo Top 20 e-mail Newsflash e-mail SuperSearch Fly.com Fly.com year-over-year.
  year-over-year Travelzoo
    Top 20 e-mail Travelzoo Travelzoo Top 20 e-mail Travelzoo Newsflash e-mail year-over-year. Travelzoo Travelzoo Top 20 e-mail Newsflash e-mail SuperSearch Fly.com Fly.com
   26




---



##### Table of Contents




    Our ability to increase our advertising rates;
    Our ability to sell more advertising to existing advertisers;
    Our ability to increase the number of advertisers;
    Our ability to develop new revenue streams; and
    Our ability to launch new products.        Cost
    of Revenues
  Travelzoo Network Fly.com Travelzoo
    Network, Fly.com Fly.com
 27




---



##### Table of Contents



Travelzoo Network.
  Operating
    Expenses
  Sales and
    Marketing
  Fly.com e-mail
  e-mail Fly.com
  e-mail Travelzoo Fly.com.
    build-up
  General
    and Administrative
     28




---



##### Table of Contents



Subscriber
    Acquisition
  Travelzoo Top 20 Newsflash e-mail
    
    Average Cost per Acquisition of a New
    Subscriber:  This is the quarterly costs of
    consumer marketing programs whose purpose was primarily to
    acquire new subscribers, divided by total new subscribers added
    during the quarter.
    New Subscribers:  Total new subscribers who
    signed up for at least one of our
    e-mail
    publications throughout the quarter. This is an unduplicated
    subscriber number, meaning a subscriber who signed up for two or
    more of our publications is only counted once.
    Subscribers Removed From List:  Subscribers who
    were removed from our lists throughout the quarter either as a
    result of their requesting removal, or based on periodic list
    maintenance after we determined that the
    e-mail
    address was likely no longer valid.
    Balance:  This is the number of subscribers at
    the end of the quarter, computed by taking the previous
    quarters subscriber balance, adding new subscribers during
    the current quarter, and subtracting subscribers removed from
    list during the current quarter.  North
    America:
  Average Cost per



SubscribersAcquisition of a New



Removed fromPeriod

Subscriber

New Subscribers

List

BalanceQ1 2008

$
4.97



296,565



(270,427
)


11,022,372Q2 2008

$
3.39



348,506



(303,623
)


11,067,255Q3 2008

$
3.73



360,916



(292,052
)


11,136,119Q4 2008

$
2.75



487,681



(341,057
)


11,282,743Q1 2009

$
2.29



720,320



(259,537
)


11,743,526Q2 2009

$
2.15



885,031



(277,439
)


12,351,118Q3 2009

$
1.80



1,076,367



(418,417
)


13,009,068Q4 2009

$
1.61



619,831



(380,626
)


13,248,273Q1 2010

$
1.89



1,009,235



(434,754
)


13,822,754Q2 2010

$
1.62



719,777



(492,527
)


14,050,004Q3 2010

$
1.60



804,892



(689,727
)


14,165,169Q4 2010

$
1.14



540,703



(432,071
)


14,273,801  29




---



##### Table of Contents



Europe:
  Average Cost per



SubscribersAcquisition of a New



Removed fromPeriod

Subscriber

New Subscribers

List

BalanceQ1 2008

$
3.90



362,417



(45,152
)


1,698,595Q2 2008

$
4.89



226,156



(31,055
)


1,893,696Q3 2008

$
4.52



253,961



(38,418
)


2,109,239Q4 2008

$
3.32



160,172



(46,736
)


2,222,675Q1 2009

$
3.09



295,450



(40,542
)


2,477,583Q2 2009

$
2.74



408,026



(52,491
)


2,833,118Q3 2009

$
3.53



541,509



(99,396
)


3,275,231Q4 2009

$
3.97



443,280



(117,519
)


3,600,992Q1 2010

$
3.65



478,518



(117,617
)


3,961,893Q2 2010

$
4.31



400,549



(116,273
)


4,246,169Q3 2010

$
2.90



423,310



(144,895
)


4,524,584Q4 2010

$
3.30



310,378



(220,941
)


4,614,021         Segment
    Information
    North
    America
  Year Ended December 31,2010

2009

2008(In thousands)Net revenues

$
87,858


$
77,967


$
71,339Income from operations


24,998



19,227



21,118Income from operations as % of revenues


28
%


25
%


30
%  30




---



##### Table of Contents



Fly.com Fly.com e-mail.
  Fly.com Travelzoo Network Fly.com e-mail
  Europe
  Year Ended December 31,2010

2009

2008(In thousands)Net revenues

$
25,230


$
16,339


$
9,623Loss from operations


(1,489
)


(5,463
)


(7,809
)Loss from operations as % of revenues


6
%


33
%


81
%   Fly.com
 31




---



##### Table of Contents



Fly.com
  e-mail
  Interest
    Income
    Income
    Taxes
         32




---



##### Table of Contents



Discontinued
    Operations
    Liquidity
    and Capital Resources
    Year Ended December 31,2010


2009


2008(In thousands)Net cash provided by (used in) operating activities

$
23,925


$
5,125


$
(3,325
)Net cash used in investing activities


(3,527
)


(3,752
)


(4,742
)Net cash provided by financing activities


1,076



4,219



185Effect of exchange rate changes on cash and cash equivalents


(66
)


5



(580
)Net increase (decrease) in cash and cash equivalents

$
21,408


$
5,597


$
(8,462
)     Fly.com
   33




---



##### Table of Contents



Travelzoo
        Form 8-K
    2011


2012


2013


2014


2015


2016


TotalOperating lease obligations

$
3,602


$
2,793


$
2,350


$
588


$
427


$
142


$
9,902Purchase obligations


2,016



176



















2,192Total commitments

$
5,618


$
2,969


$
2,350


$
588


$
427


$
142


$
12,094    34




---



##### Table of Contents



Growth
    Strategy
    
    International expansion:  We want to grow our
    revenue and operating profit through replicating the
    Travelzoobusiness in attractive international markets in
    Europe and in North America. We want to develop a strong
    competitive position through building a strong global brand and
    unique global content.
    Expand scope of Travelzoo business:  We want to
    grow our revenue and operating profit through expanding the
    Travelzooproduct offerings and content into
    entertainment (e.g., Broadway shows, sporting events), through
    our Local Dealse-mail
    alert service and through Fly.com.  Travelzoo Fly.com Local Deals
  Recent
    Accounting Pronouncements
    2009-13,
  Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk     35




---



##### 



Item 8.
    Financial
    Statements and Supplementary Data  TRAVELZOO
    INC.
  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
   
 PageReport of Independent Registered Public
    Accounting Firm


37Consolidated Balance Sheets


38Consolidated Statements of Operations


39Consolidated Statements of Stockholders
    Equity and Comprehensive Income (Loss)


40Consolidated Statements of Cash Flows


41Notes to Consolidated Financial Statements


42   36




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors and Stockholders

Travelzoo Inc.:



We have audited the accompanying consolidated balance sheets of
    Travelzoo Inc. and subsidiaries (Travelzoo) as of
    December 31, 2010 and 2009, and the related consolidated
    statements of operations, stockholders equity and
    comprehensive income (loss), and cash flows for each of the
    years in the three-year period ended December 31, 2010. We
    also have audited Travelzoos internal control over
    financial reporting as of December 31, 2010, based on
    criteria established in Internal Control 
    Integrated Frameworkissued by the Committee of Sponsoring
    Organizations of the Treadway Commission (COSO).
    Travelzoos management is responsible for these
    consolidated financial statements, for maintaining effective
    internal control over financial reporting, and for its
    assessment of the effectiveness of internal control over
    financial reporting, included in the accompanying
    managements report. Our responsibility is to express an
    opinion on these consolidated financial statements and an
    opinion on Travelzoos internal control over financial
    reporting based on our audits.



We conducted our audits in accordance with the standards of the
    Public Company Accounting Oversight Board (United States). Those
    standards require that we plan and perform the audits to obtain
    reasonable assurance about whether the consolidated financial
    statements are free of material misstatement and whether
    effective internal control over financial reporting was
    maintained in all material respects. Our audits of the
    consolidated financial statements included examining, on a test
    basis, evidence supporting the amounts and disclosures in the
    consolidated financial statements, assessing the accounting
    principles used and significant estimates made by management,
    and evaluating the overall financial statement presentation. Our
    audit of internal control over financial reporting included
    obtaining an understanding of internal control over financial
    reporting, assessing the risk that a material weakness exists,
    and testing and evaluating the design and operating
    effectiveness of internal control based on the assessed risk.
    Our audits also included performing such other procedures as we
    considered necessary in the circumstances. We believe that our
    audits provide a reasonable basis for our opinions.



A companys internal control over financial reporting is a
    process designed to provide reasonable assurance regarding the
    reliability of financial reporting and the preparation of
    financial statements for external purposes in accordance with
    generally accepted accounting principles. A companys
    internal control over financial reporting includes those
    policies and procedures that (1) pertain to the maintenance
    of records that, in reasonable detail, accurately and fairly
    reflect the transactions and dispositions of the assets of the
    company; (2) provide reasonable assurance that transactions
    are recorded as necessary to permit preparation of financial
    statements in accordance with generally accepted accounting
    principles, and that receipts and expenditures of the company
    are being made only in accordance with authorizations of
    management and directors of the company; and (3) provide
    reasonable assurance regarding prevention or timely detection of
    unauthorized acquisition, use, or disposition of the
    companys assets that could have a material effect on the
    financial statements.



Because of its inherent limitations, internal control over
    financial reporting may not prevent or detect misstatements.
    Also, projections of any evaluation of effectiveness to future
    periods are subject to the risk that controls may become
    inadequate because of changes in conditions, or that the degree
    of compliance with the policies or procedures may deteriorate.



In our opinion, the consolidated financial statements referred
    to above present fairly, in all material respects, the financial
    position of Travelzoo Inc. and subsidiaries as of
    December 31, 2010 and 2009, and the results of their
    operations and their cash flows for each of the years in the
    three-year period ended December 31, 2010, in conformity
    with U.S. generally accepted accounting principles. Also in
    our opinion, Travelzoo maintained, in all material respects,
    effective internal control over financial reporting as of
    December 31, 2010, based on criteria established in
    Internal Control  Integrated Frameworkissued
    by COSO.



/s/  KPMG
    LLP



Mountain View, California

March 16, 2011


37




---



##### Table of Contents



TRAVELZOO
    INC.
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2010


2009(In thousands, except per share amounts)ASSETSCurrent assets:Cash and cash equivalents

$
41,184


$
19,776Accounts receivable, less allowance for doubtful accounts of
    $386 and $501 at 2010 and 2009, respectively


13,290



11,279Income tax receivable


264



6,061Deposits


129



139Prepaid expenses and other current assets


1,489



1,103Deferred tax assets


1,411



966Total current assets


57,767



39,324Deposits, less current portion


279



381Deferred tax assets, less current portion


349



52Restricted cash


3,124



875Property and equipment, net


3,425



4,089Intangible assets, net


1,058



1,411Total assets

$
66,002


$
46,132LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
9,931


$
6,834Accrued expenses


6,080



4,278Deferred revenue


1,325



828Deferred rent


218



134Income tax payable


650



Total current liabilities


18,204



12,074Deferred tax liabilities






533Long-term tax liabilities


1,449



2,139Deferred rent, less current portion


460



615Commitments and contingenciesStockholders equity:Preferred stock, $0.01 par value per share
    (5,000 shares authorized; none issued)






Common stock, $0.01 par value per share (40,000 shares
    authorized; 16,444 shares issued and outstanding at 2010
    and 2009)


164



164Additional paid-in capital


6,598



4,772Retained earnings


40,165



27,008Accumulated other comprehensive loss


(1,038
)


(1,173
)Total stockholders equity


45,889



30,771Total liabilities and stockholders equity

$
66,002


$
46,132    38




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##### Table of Contents



TRAVELZOO
    INC.
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Year Ended December 31,2010


2009


2008(In thousands, except per share amounts)Revenues

$
112,784


$
93,973


$
80,817Cost of revenues


7,253



5,628



2,842Gross profit


105,531



88,345



77,975Operating expenses:Sales and marketing


54,454



49,707



43,297General and administrative


27,565



24,930



21,366Total operating expenses


82,019



74,637



64,663Income from continuing operations


23,512



13,708



13,312Interest income and other income


166



61



284Gain (loss) on foreign currency


(197
)


(78
)


494Income from continuing operations before income tax expense


23,481



13,691



14,090Income tax expense


10,324



7,273



8,177Income from continuing operations


13,157



6,418



5,913Loss from discontinued operations, net of tax






(5,642
)


(10,029
)Income tax benefit related to dissolution of Asia Pacific
    business segment






4,409



Loss from discontinued operations






(1,233
)


(10,029
)Net Income (loss)

$
13,157


$
5,185


$
(4,116
)Basic net income (loss) per share from:Continuing operations

$
0.80


$
0.39


$
0.41Discontinued operations

$



$
(0.08
)

$
(0.70
)Net income (loss)

$
0.80


$
0.32


$
(0.29
)Diluted net income (loss) per share from:Continuing operations

$
0.80


$
0.39


$
0.37Discontinued operations

$



$
(0.08
)

$
(0.62
)Net income (loss)

$
0.80


$
0.32


$
(0.25
)Shares used in computing basic net income (loss) per share


16,444



16,408



14,273Shares used in computing diluted net income (loss) per share


16,453



16,416



16,190    39




---



##### Table of Contents



TRAVELZOO
    INC.
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE
 INCOME
    (LOSS)
  AccumulatedAdditional





Other


TotalCommon Stock


Paid-In


Retained


Comprehensive


StockholdersShares


Amount


Capital


Earnings


Income (Loss)


EquityBalances, December 31, 2007


14,250



143







25,939



(180
)


25,902Proceeds from exercise of stock options


35







75











75Tax benefit of non-qualified stock option exercise










110











110Comprehensive loss:Foreign currency translation adjustment


















(1,208
)


(1,208
)Net loss














(4,116
)






(4,116
)Total comprehensive loss






















(5,324
)Balances, December 31, 2008


14,285



143



185



21,823



(1,388
)


20,763Proceeds from exercises of stock options


2,158



21



2,137











2,158Stock-based compensation expense










94











94Capital contribution from majority shareholder, net of
    receivable of $1.1 million










2,356











2,356Comprehensive income:Foreign currency translation adjustment


















215



215Net income














5,185







5,185Total comprehensive income






















5,400Balances, December 31, 2009


16,444



164



4,772



27,008



(1,173
)


30,771Stock-based compensation expense










750











750Capital contribution from majority shareholder










1,076











1,076Comprehensive income:Foreign currency translation adjustment


















135



135Net income














13,157







13,157Total comprehensive income






















13,292Balances, December 31, 2010


16,444


$
164


$
6,598


$
40,165


$
(1,038
)

$
45,889    40




---



##### Table of Contents



TRAVELZOO
    INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Year Ended December 31,2010


2009


2008(In thousands)Cash flows from operating activities:Net income (loss)

$
13,157


$
5,185


$
(4,116
)Adjustments to reconcile net income (loss) to net cash provided
    by (used in) operating activities:Depreciation and amortization


2,389



1,992



667Deferred income taxes


(1,276
)


139



769Stock-based compensation


750



94



Provision for losses on accounts receivable


199



258



316Tax benefit of stock option exercises










(110
)Foreign currency translation loss related to dissolution of Asia
    Pacific business segment






110



Net foreign currency effects


197



78



(500
)Changes in operating assets and liabilities:Accounts receivable


(2,323
)


(197
)


(2,443
)Deposits


20



(15
)


25Income tax receivable


5,797



(4,352
)


(1,709
)Prepaid expenses and other current assets


(413
)


(357
)


1,059Accounts payable


3,232



877



1,054Accrued expenses


1,830



77



877Deferred revenue


498



160



314Deferred rent


(72
)


(163
)


828Income tax payable


630







Other non-current liabilities


(690
)


1,239



(356
)Net cash provided by (used in) operating activities


23,925



5,125



(3,325
)Cash flows from investing activities:Purchases of property and equipment


(1,279
)


(1,992
)


(3,867
)Purchases of restricted cash


(2,248
)






(875
)Purchases of intangible assets






(1,760
)


Net cash used in investing activities


(3,527
)


(3,752
)


(4,742
)Cash flows from financing activities:Proceeds from stock option exercises






2,158



75Tax benefit from exercise of stock options










110Repurchase of common stock










Proceeds from sale of Asia Pacific business segment, net of cash
    provided


1,076



2,061



Net cash provided by financing activities


1,076



4,219



185Effect of exchange rate changes on cash and cash equivalents


(66
)


5



(580
)Net increase (decrease) in cash and cash equivalents


21,408



5,597



(8,462
)Cash and cash equivalents at beginning of year


19,776



14,179



22,641Cash and cash equivalents at end of year

$
41,184


$
19,776


$
14,179Supplemental disclosure of cash flow information:Cash paid for income taxes, net of refunds received

$
5,857


$
5,760


$
8,193    41




---



##### Table of Contents



TRAVELZOO
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2010, 2009, and 2008
  (1)
    Summary
    of Significant Accounting Policies  (a)
    The
    Company and Basis of Presentation  Travelzoo Travelzoo Top 20 e-mail Newsflash e-mail SuperSearch pay-per-click Travelzoo Network Fly.com, Local Deals Travelzoo
  Travelzoo Travelzoo Top 20 e-mail Newsflash e-mail
        Travelzoo
 42




---



##### Table of Contents



TRAVELZOO
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       43




---



##### Table of Contents



TRAVELZOO
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      (b)
    Revenue
    Recognition  Travelzoo Travelzoo Top 20 e-mail Newsflash SuperSearch Travelzoo Network Fly.com Local Deals e-mail
    Travelzoo Top 20 Newsflash
    
    Evidence of an arrangement.  The Company
    considers an insertion order signed by the advertiser or its
    agency to be evidence of an arrangement.
    Delivery.  Delivery is considered to occur when
    the advertising has been displayed and, if applicable, the
    click-throughs have been delivered. 44




---



##### Table of Contents



TRAVELZOO
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   
    Fixed or determinable fee.  The Company
    considers the fee to be fixed or determinable if the fee is not
    subject to refund or adjustment and payment terms are standard.
    Collection is deemed reasonably assured. The Company
    conducts a credit review for all transactions at the time of the
    arrangement to determine the creditworthiness of the advertiser.
    Collection is deemed reasonably assured if it is expected that
    the advertiser will be able to pay amounts under the arrangement
    as payments become due. If it is determined that collection is
    not reasonably assured, then revenue is deferred and recognized
    upon cash collection. Collection is deemed not reasonably
    assured when a advertiser is perceived to be in financial
    distress, which may be evidenced by weak industry condition,
    bankruptcy filing, or previously billed amounts that are past
    due.  Travelzoo Top 20 Newsflash
      (c)
    Net
    Income (Loss) Per Share   45




---



##### Table of Contents



TRAVELZOO
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2010


2009


2008Net income (loss):Net income from continuing operations, net of tax

$
13,157


$
6,418


$
5,913Loss from discontinued operations, net of tax






(1,233
)


(10,029
)Net income (loss)

$
13,157


$
5,185


$
(4,116
)Weighted average common shares


16,444



16,408



14,273Effect of dilutive securities  stock options


9



8



1,917Diluted weighted average common shares


16,453



16,416



16,190Basic net income (loss) per share from:Continuing operations

$
0.80


$
0.39


$
0.41Discontinued operations

$



$
(0.08
)

$
(0.70
)Net income (loss)

$
0.80


$
0.32


$
(0.29
)Diluted net income (loss) per share from:Continuing operations

$
0.80


$
0.39


$
0.37Discontinued operations

$



$
(0.08
)

$
(0.62
)Net income (loss)

$
0.80


$
0.32


$
(0.25
)     (d)
    Use of
    Estimates    (e)
    Property
    and Equipment   46




---



##### Table of Contents



TRAVELZOO
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2010


2009Computer hardware and software

$
2,687


$
2,374Office equipment and office furniture


2,834



2,229Capitalized internal-use software and website development


1,319



1,319Leasehold improvements


1,182



7818,022



6,703Less accumulated depreciation and amortization


(4,597
)


(2,614
)Total

$
3,425


$
4,089         (f)
    Intangible
    Assets    December 31,2010


2009Acquired amortized intangible assets:Internet domain names

$
2,117


$
2,117Less accumulated amortization


1,059



706Total

$
1,058


$
1,411         Year ended December 31,2011

$
3542012


3522013


352$
1,058  47




---



##### Table of Contents



TRAVELZOO
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (g)
    Cash
    and Cash Equivalents    (h)
    Advertising
    Costs    (i)
    Income
    Taxes    (j)
    Comprehensive
    Income (Loss)      Year Ended December 31,2010


2009


2008Net income (loss)

$
13,157


$
5,185


$
(4,116
)Other comprehensive income (loss):Foreign currency translation adjustments


135



215



(1,208
)Total comprehensive income (loss)

$
13,292


$
5,400


$
(5,324
)     (k)
    Impairment
    of Long-Lived Assets   48




---



##### Table of Contents



TRAVELZOO
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (l)
    Stock-Based
    Compensation      (m)
    Foreign
    Currency      (n)
    Certain
    Risks and Uncertainties      (o)
    Recent
    Accounting Pronouncements   49




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##### Table of Contents



TRAVELZOO
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2009-13,
  (2)
    Financial
    Instruments    Fair Value Measurements at Reporting Date UsingSignificantQuoted Prices in


Other


SignificantActive Markets for


Observable


UnobservableIdentical Assets


Inputs


InputsTotal


(Level 1)


(Level 2)


(Level 3)Assets:Money market funds

$
29,315


$
29,315


$



$
Total

$
29,315


$
29,315


$



$
   (3)  Commitments
    and Contingencies
    2011

2012

2013

2014

2015

2016

TotalMinimum rental payments

$
3,602


$
2,793


$
2,350


$
588


$
427


$
142


$
9,902    50




---



##### Table of Contents



TRAVELZOO
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       51




---



##### Table of Contents



TRAVELZOO
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (4)
    Other
    Balance Sheet Items    Balance at December 31, 2007

$
290Additions  charged to costs and expenses, net


250Additions  recoveries of amounts previously
    charged-off


71Deductions  write-offs


(254
)Balance at December 31, 2008


357Additions  charged to costs and expenses, net


159Additions  recoveries of amounts previously
    charged-off


99Deductions  write-offs


(114
)Balance at December 31, 2009


501Additions  charged to costs and expenses, net


139Additions  recoveries of amounts previously
    charged-off


60Deductions  write-offs


(314
)Balance at December 31, 2010

$
386     December 31,2010


2009Prepaid expenses

$
1,384


$
1,009Other current assets


105



94Total prepaid expenses and other current assets

$
1,489


$
1,103     December 31,2010


2009Accrued advertising expense

$
2,077



1,207Accrued compensation expense


1,899



2,627Accrued payments to merchants


1,353



Accrued payments to third-party partners of the Travelzoo
    Network


233



122Other accrued expenses


215



78Accrued employee expense


168



104Accrued professional services expense


135



140Total accrued expenses

$
6,080


$
4,278  52




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##### Table of Contents



TRAVELZOO
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (5)
    Income
    Taxes    2010


2009


2008U.S.

$
23,108


$
17,879


$
21,762Foreign


373



(4,188
)


(7,672
)$
23,481


$
13,691


$
14,090     Current


Deferred


Total(In thousands)2010:Federal

$
8,512


$
(1,102
)

$
7,410State


2,458



(174
)


2,284Foreign


630







630$
11,600


$
(1,276
)

$
10,3242009:Federal

$
5,872


$
(144
)

$
5,728State


1,638



(93
)


1,545$
7,510


$
(237
)

$
7,2732008:Federal

$
6,020


$
796


$
6,816State


1,388



(27
)


1,361$
7,408


$
769


$
8,177       2010


2009


2008Federal tax at statutory rates

$
8,218


$
4,792


$
1,368State taxes, net of federal income tax benefit


1,488



1,004



885Foreign losses not benefited


500



1,434



6,166Non-deductible expenses and other


118



43



(242
)Total income tax expense

$
10,324


$
7,273


$
8,177  53




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##### Table of Contents



TRAVELZOO
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      2010


2009Deferred tax assets:Foreign net operating loss carryforwards

$
6,246


$
5,799State income taxes


858



102Accruals and allowances


622



352Capital loss


587



1,820Deferred revenue


342



245Deferred rent


279



320Total deferred tax assets


8,934



8,638Valuation allowance


(6,833
)


(7,620
)Total deferred tax assets net of valuation allowance


2,101



1,018Deferred tax liabilities:US tax on undistributed earnings


(77
)


Property, equipment and intangible assets


(263
)


(533
)Total deferred tax liabilities


(340
)


(533
)Net deferred tax assets

$
1,761


$
485      54




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##### Table of Contents



TRAVELZOO
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Unrecognized tax benefits balance at January 1, 2008

$
1,145Increase related to prior year tax positions


6Decrease related to prior year tax positions


Increase related to current year tax positions


Settlements


Lapse of statute of limitations


(363
)Unrecognized tax benefits balance at December 31, 2008


788Increase related to prior year tax positions


44Decrease related to prior year tax positions


Increase related to current year tax positions


1,210Settlements


Lapse of statute of limitations


(39
)Unrecognized tax benefits balance at December 31, 2009


2,003Increase related to prior year tax positions


Decrease related to prior year tax positions


(224
)Increase related to current year tax positions


Settlements


(413
)Lapse of statute of limitations


Unrecognized tax benefits balance at December 31, 2010

$
1,366       (6)
    Stockholders
    Equity   55




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##### Table of Contents



TRAVELZOO
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (7)
    Stock-based
    Compensation and Stock Options             56




---



##### Table of Contents



TRAVELZOO
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2009Weighted-average fair value of options granted per share

$
11.56Historical volatility


93
%Risk-free interest rate


2.56
%Dividend yield


Expected life in years


6.25       Weighted-Average


AggregateWeighted-Average


Remaining


IntrinsicShares


Exercise Price


Contractual Life


Value(In thousands)Outstanding at January 1, 2008


2,211,074


$
1.03



3.11 years


$
27,974Exercised


(35,000
)

$
2.14Outstanding at December 31, 2008


2,176,074


$
1.01



2.09 years


$
9,900Options granted


300,000


$
14.97Exercised


(2,158,349
)

$
1.00Outstanding at December 31, 2009


317,725


$
14.26



9.44 years


$
177Exercisable and fully vested at December 31, 2009


17,725


$
2.28



1.95 years


$
177Outstanding at January 1, 2010


317,725


$
14.26Outstanding at December 31, 2010


317,725


$
14.26



8.44 years


$
8,616Exercisable and fully vested at December 31, 2010


17,725


$
2.28



0.95 years


$
693   in-the-money
   57




---



##### Table of Contents



TRAVELZOO
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Options Outstanding








Options ExercisableWeighted-








Weighted-Shares


Average


Weighted-


Shares


Average


Weighted-Outstanding


Remaining


Average


Outstanding


Remaining


Averageand


Contractual


Exercise


and


Contractual


ExerciseExercise Price

Exercisable


Life


Price


Exercisable


Life


Price$2.00


12,725



0.83 years


$
2.00



12,725



0.83 years


$
2.00$3.00


5,000



1.25 years


$
3.00



5,000



1.25 years


$
3.00$14.97


300,000



8.89 years


$
14.97



317,725



8.44 years


$
14.26



17,725



0.95 years


$
2.28   (8)
    Segment
    Reporting and Significant Customer Information        Year Ended December 31, 2010:

North America


Europe


Elimination


ConsolidatedRevenues from unaffiliated customers

$
87,661


$
25,123


$



$
112,784Intersegment revenues


197



107



(304
)


Total net revenues


87,858



25,230



(304
)


112,784Operating income (loss)


24,998



(1,489
)


3



23,512   Year Ended December 31, 2009:

North America


Europe


Elimination


ConsolidatedRevenues from unaffiliated customers

$
77,707


$
16,266


$



$
93,973Intersegment revenues


260



73



(333
)


Total net revenues


77,967



16,339



(333
)


93,973Operating income (loss)


19,227



(5,463
)


(56
)


13,708   Year Ended December 31, 2008:

North America


Europe


Elimination


ConsolidatedRevenues from unaffiliated customers

$
71,245


$
9,572


$



$
80,817Intersegment revenues


94



51



(145
)


Total net revenues


71,339



9,623



(145
)


80,817Operating income (loss)


21,118



(7,809
)


3



13,312   DiscontinuedAs of December 31, 2010:

North America

Europe

Operations

Elimination

ConsolidatedLong-lived assets:

$
4,329


$
154


$



$



$
4,483Total assets


85,658



10,490







(30,146
)


66,002  58




---



##### Table of Contents



TRAVELZOO
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  DiscontinuedAs of December 31, 2009:

North America

Europe

Operations

Elimination

ConsolidatedLong-lived assets:

$
5,319


$
183


$



$
(2
)

$
5,500Total assets


64,095



4,960







(22,923
)


46,132       Percent of

Percent ofRevenues

Accounts ReceivableYear Ended December 31,

December 31,

December 31,Customer

2010

2009

2008

2010

2009Orbitz Worldwide

*

*

13%

*

*     *
    
    Less than 10%    (9)
    Employee
    Benefit Plan    (10)
    Related
    Party Transaction     59




---



##### Table of Contents



TRAVELZOO
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (11)
    Discontinued
    Operations      
    A License Agreement providing for a limited, nontransferable
    (except as provided therein), perpetual, exclusive (except as
    provided therein) fully
    paid-up
    license to perform the Licensed Services and Licensed Business
    Processes (as defined in the License Agreement), and to use the
    Licensed Marks, the Licensed Software, the Licensed Trade
    Secrets, and the Licensed Works (as defined in the License
    Agreements) in connection with the Licensed Services and
    Licensed Business Processes within the Territory, which is
    defined as all countries located in those time zones that are
    more than five hours ahead of Greenwich Mean Time, based on
    Standard time, including India and Pakistan, but excluding
    Russia.
    A Hosting Agreement under which Travelzoo agrees to host,
    transact, process, store, implement, operate, manage, maintain
    and provide access to licensed software and to data files and
    content provided by Travelzoo (Asia) Limited and Travelzoo Japan
    K.K. for use in connection with the Licensed Services and the
    Licensed Business Processes referred to in the Hosting Agreement.
    A Referral Agreement pursuant to which each party will, on a
    non-exclusive basis, make customer referrals to each other, in
    consideration for receiving a specified percentage of the
    revenues derived from such referrals.
    A Transition Services Agreement under which Travelzoo agrees to
    provide, at the option of the Travelzoo (Asia) Limited and
    Travelzoo Japan K.K., certain services on a temporary basis, at
    the prices and on other terms to be determined as provided in
    the Transition Services Agreement.     60




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##### Table of Contents



TRAVELZOO
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Twelve Months Ended December 312010


2009


2008Revenues

$



$
2,134


$
586Cost of revenues






173



153Gross profit






1,961



433Operating expenses:Sales and marketing






3,821



5,837General and administrative






3,828



4,797Total operating expenses






7,649



10,634Operating loss from discontinued operations






(5,688
)


(10,201
)Other income and (expense)






(33
)


20Income tax benefit






79



152Loss from discontinued operations






(5,642
)


(10,029
)Income tax benefit related to dissolution of Asia Pacific
    business segment






4,409



Loss from discontinued operations, net of tax

$



$
(1,233
)

$
(10,029
)  61




---



##### Table of Contents



TRAVELZOO
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (12)
    Unaudited
    Quarterly Information    Quarters EndedDec 31,


Sept 30,


Jun 30,


Mar 31,


Dec 31,


Sep 30,


June 30,


Mar 31,2010


2010


2010


2010


2009


2009


2009


2009(In thousands, except per share amounts)Revenues

$
28,468


$
27,693


$
28,106


$
28,518


$
23,779


$
23,576


$
23,638


$
22,980Cost of revenues


2,241



1,742



1,616



1,653



1,488



1,464



1,458



1,218Gross profit


26,227



25,951



26,490



26,865



22,291



22,112



22,180



21,762Operating expenses:Sales and marketing


11,783



13,630



14,049



14,993



12,258



13,437



12,599



11,414General and administrative


7,732



6,616



6,505



6,712



6,509



6,395



6,211



5,814Total operating expenses


19,515



20,246



20,554



21,705



18,767



19,832



18,810



17,228Operating income from continuing operations


6,712



5,705



5,936



5,160



3,524



2,280



3,370



4,534Interest income and other income


34



45



45



42



21



8



13



19Gain (loss) on foreign currency


(8
)


20







(209
)


(94
)


320



(116
)


(187
)Income from continuing operations before income tax expense


6,738



5,770



5,981



4,993



3,451



2,608



3,267



4,366Income tax expense


2,951



2,120



2,734



2,519



1,981



1,308



1,659



2,325Income from continuing operations, net of tax


3,787



3,650



3,247



2,474



1,470



1,300



1,608



2,041Income (loss) from discontinued operations, net of tax


















3,863



(1,595
)


(1,799
)


(1,703
)Net income (loss)

$
3,787


$
3,650


$
3,247


$
2,474


$
5,333


$
(295
)

$
(191
)

$
338Basic net income (loss) per share fromContinuing operations

$
.23


$
.22


$
.20


$
.15


$
.09


$
.08


$
.10


$
.13Discontinued operations

$



$



$



$



$
.23


$
(.10
)

$
(.11
)

$
(.10
)Net income (loss) per share

$
.23


$
.22


$
.20


$
.15


$
.32


$
(.02
)

$
(.01
)

$
.02Diluted net income (loss) per share from:Continuing operations

$
.23


$
.22


$
.20


$
.15


$
.09


$
.08


$
.10


$
.13Discontinued operations

$



$



$



$



$
.23


$
(.10
)

$
(.11
)

$
(.10
)Net income (loss) per share

$
.23


$
.22


$
.20


$
.15


$
.32


$
(.02
)

$
(.01
)

$
.02  62




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##### Table of Contents



Item 9.
    Changes
    in and Disagreements With Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Rule 13a-15(e).
  Rule 13a-15(f))
  Managements
    Report on Internal Control Over Financial Reporting
      Internal Control  Integrated Framework.
 63




---



##### Table of Contents



Form 10-K.
  CHRISTOPHER
    LOUGHLIN
   Chief Executive Officer
  WAYNE
    LEE
   Chief Financial Officer
    Item 9B.
    Other
    Information   PART III Item 10.
    Directors,
    Executive Officers and Corporate Governance of the
    Registrant      Name

Age

PositionChristopher Loughlin


37


Chief Executive OfficerWayne Lee


39


Chief Financial OfficerShirley Tafoya


47


President, North America   Christopher Loughlin,
  Wayne Lee, CPA
  Shirley Tafoya
  Item 11.
    Executive
    Compensation   64




---



##### Table of Contents



Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence    Item 14.
    Principal
    Accountant Fees and Services   PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules    Our Consolidated Financial Statements are included
    in Part II, Item 8:
  Report of Independent Registered Public
    Accounting Firm


37Consolidated Balance Sheets


38Consolidated Statements of Operations


39Consolidated Statements of Stockholders
    Equity and Comprehensive Income (Loss)


40Consolidated Statements of Cash Flows


41Notes to Consolidated Financial Statements


42   (2)
    Supplementary
    Consolidated Financial Statement Schedules:    (3)
    Exhibits:   65




---



##### Table of Contents



SIGNATURES
      By:
    /s/  WAYNE
    LEE  Chief Financial Officer
    Form 10-K,
    Signature

Title(s)

Date/s/  HOLGER
    BARTELHolger
    Bartel

Chairman of the Board

March 16, 2011/s/  CHRISTOPHER
    LOUGHLINChristopher
    Loughlin

Chief Executive Officer

March 16, 2011/s/  WAYNE
    LEEWayne
    Lee

Chief Financial Officer and Principal Accounting Officer

March 16, 2011/s/  RALPH
    BARTELRalph
    Bartel

Director

March 16, 2011/s/  DAVID
    J. EHRLICHDavid
    J. Ehrlich

Director

March 16, 2011/s/  DONOVAN
    NEALE-MAYDonovan
    Neale-May

Director

March 16, 2011/s/  KELLY
    M. URSOKelly
    M. Urso

Director

March 16, 2011  66




---



##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber



Description3
.1



Certificate of Incorporation of Travelzoo Inc. (Incorporated by
    reference to our Pre-Effective Amendment No. 6 to our
    Registration Statement on Form S-4 (File No. 333-55026), filed
    February 14, 2002)3
.2



By-laws of Travelzoo Inc. (Incorporated by reference to our
    Pre-Effective Amendment No. 6 to our Registration Statement on
    Form S-4 (File No. 333-55026), filed February 14, 2002)10
.1



Form of Director and Officer Indemnification Agreement
    (Incorporated by reference to Exhibit 10.1 on Form 10-Q (File
    No. 000-50171), filed November 9, 2007)10
.2*



Travelzoo Inc. North America Executive Bonus Plan as Amended and
    Restated Effective January 1, 2007. (Incorporated by reference
    to Exhibit 10.1 on Form 8-K (File No. 000-50171), filed April
    11, 2007)10
.3*



Employment Agreement, dated as of December 9, 2005, between
    Wayne Lee and Travelzoo Inc. (Incorporated by reference to
    Exhibit 10.3 on Form 10-Q (File No. 000-50171), filed May 10,
    2007)10
.4



Agreement of Lease, effective as of February 1, 2008, between
    Travelzoo Inc. and 590 Madison Avenue, LLC (Incorporated by
    reference to Exhibit 10.1 on Form 8-K (File No. 000-50171),
    filed February 7, 2008)10
.5*



Amendment No. 1 to Employment Agreement, effective as September
    23, 2008, by and between Travelzoo Inc. and Wayne Lee
    (Incorporated by reference to Exhibit 99.2 on Form 8-K (File No.
    000-50171), filed September 29, 2008)10
.6



Asset Purchase Agreement, dated September 30, 2009, by and among
    Travelzoo Inc., Travelzoo K.K., Azzurro Capital Inc. and a buyer
    entity to be designated by Azzurro Capital Inc., with Exhibits
    (Incorporated by reference to Exhibit 10.1 on Form 8-K (File No.
    000-50171), filed October 5, 2009)10
.7



Asset Purchase Agreement, dated September 30, 2009, by and among
    Travelzoo Inc., Travelzoo (Asia Pacific) Limited, Azzurro
    Capital Inc. and a buyer entity to be designated by Azzurro
    Capital Inc., with Exhibits (Incorporated by reference to
    Exhibit 10.2 on Form 8-K (File No. 000-50171), filed
    October 5, 2009)10
.8



Option Agreement, dated September 30, 2009, between Travelzoo
    Inc. and Azzurro Capital Inc. (Incorporated by reference to
    Exhibit 10.3 on Form 8-K (File No. 000-50171), filed October 5,
    2009)10
.9*



Employment Agreement between Travelzoo Inc. and Christopher
    Loughlin dated November 18, 2009 (Incorporated by reference to
    Exhibit 10.1 on Form 8-K (File No. 000-50171), filed November
    23, 2009)10
.10*



Nonqualified Stock Option Agreement between Travelzoo Inc. and
    Christopher Loughlin dated November 18, 2009 (Incorporated
    by reference to Exhibit 10.2 on Form 8-K (File No. 000-50171),
    filed November 23, 2009)10
.11*



Employment Agreement, dated August 4, 2010 between Shirley
    Tafoya and Travelzoo Inc. (Incorporated by reference to Exhibit
    10.1 on Form 10-Q (File No. 000-50171), filed November 9, 2010)21
.1



Subsidiaries of Travelzoo Inc.23
.1



Consent of Independent Registered Public Accounting Firm24
.1



Power of Attorney (included on signature page)31
.1



Certification of Chief Executive Officer Pursuant to Section 302
    of the Sarbanes-Oxley Act of 200231
.2



Certification of Chief Financial Officer Pursuant to Section 302
    of the Sarbanes-Oxley Act of 200232
.1



Certification of Chief Executive Officer Pursuant to Section 906
    of the Sarbanes-Oxley Act of 200232
.2



Certification of Chief Financial Officer Pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002     *
    
    This exhibit is a management contract or a compensatory plan or
    arrangement.
    
    Filed herewith.
    
    Furnished herewith. 67