##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549Form 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, 2009oro

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(State or Other Jurisdiction
    of
    Incorporation or Organization)

36-4415727(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. o
  Rule 12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer þ
    Non-accelerated filer 
    o
    Smaller
    reporting
    company o (Do not check if a smaller
    reporting company)
  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


10Item 1B.


Unresolved Staff Comments


18Item 2.


Properties


18Item 3.


Legal Proceedings


18Item 4.


(Removed and Reserved)


18PART 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


36Item 8.


Financial Statements and Supplementary Data


37Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosures


62Item 9A.


Controls and Procedures


62Item 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
  Travelzoo Travelzoo Top 20 e-mail Newsflash e-mail
       3




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##### Table of Contents



Travelzoo
        Our
    Industry
   4




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##### Table of Contents




    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
    Advertising.  Internet advertising provides travel
    companies advantages compared to print advertising. These
    advantages include real-time listings, real-time updates, and
    performance tracking. See  Benefits to Travel
    and Entertainment Companies below.
    New Advertising Opportunities.  The Internet
    allows travel companies 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 Web sites versus selling through travel
    agents. Internet advertising attracts consumers to
    suppliers Web sites.  Problems
    Travel Companies Face and Limitations of Newspaper
    Advertising
        
    typically, ads must be submitted 2 to 5 days prior to the
    publication 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 travel company cannot change a
    price;
    in many markets, the small number of newspapers and other print
    media reduces competition, resulting in high rates for newspaper
    advertising; and
    newspaper advertising does not allow for detailed performance
    tracking.  Our
    Products and Services
  Travelzoo Travelzoo Top 20 e-mail Newsflash e-mail SuperSearch, pay-per-click Travelzoo Network Fly.com
 5




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##### Table of Contents



PublicationProduct

Content

Schedule

Reach/Usage*

Advertiser Benefits

Consumer BenefitsTravelzooWeb sites

Web sites 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 and entertainment companies

24/7

10.6 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

15.9 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

14.0 million subscribers

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

Breaking news offers delivered just-in-timeSuperSearch

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

On-demand

6.0 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 itineraryTravelzoo Network

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

24/7

Over 160 third-party Web sites

Drives qualified users with substantial distribution beyond the
    Travelzoo audience

Contextually relevant travel deals that have been handpicked and
    professionally reviewedFly.com

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

On-demand

1.5 million monthly searches since launch in February 2009

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

Free access to real-time price comparisons from airlines and
    online travel agencies   *
    
    For TravelzooWeb sites, reach information is based on
    data from Google Analytics. For Top 20, Newsflash,
    SuperSearch, Travelzoo Network, and Fly.com,
    reach/usage information is based on internal Travelzoo
    statistics as of December 31, 2009.    Benefits
    to Travel and Entertainment 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. 6




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##### Table of Contents




    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
    15 million travel shoppers.
    Global Reach.  We offer access to Internet
    users across the U.S., Canada, France, Germany, Spain, and the
    U.K.  Benefits
    to Consumers
  Travelzoo Travelzoo Top 20 Newsflash, SuperSearch Travelzoo Network Fly.com
  
    Aggregation of Offers From Many Companies.  Our
    TravelzooWeb sites and our Travelzoo Top 20e-mail
    newsletter aggregate information on current offers from more
    than 2,000 travel and entertainment companies. This saves the
    consumer time when searching for travel and entertainment sales
    and specials.
    Current Information.  Compared to newspaper
    ads, we provide consumers more current information, since our
    technology enables travel and entertainment companies to update
    their listings on a real-time basis.
    Reliable Information.  We operate a Test
    Booking Center to check the availability of travel and
    entertainment deals included in the Travelzoo Top 20before publishing.
    Search Tools.  We provide consumers with the
    ability to search for specific offers.  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. We currently utilize online
    marketing and direct marketing to promote our brand to
    consumers. In addition, we believe that we build brand awareness
    by product excellence that is promoted by
    word-of-mouth.
    We utilize sponsorships at industry conferences and public
    relations to promote our brand within the travel industry.
    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 by 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 Advertising Clients:  We
    intend to continue to grow our advertising client base by
    expanding the size of our sales force. See
     Sales and Marketing below.
    Excellent Service:  We believe that it is
    important to provide our advertising clients with excellent
    service.
    Replicate Business Model in Foreign
    Markets.  We believe that there is an opportunity
    to replicate our business model in selected foreign markets. We
    believe that there will be an additional market opportunity for
    us. In addition, we believe that we would strengthen our
    strategic position if we offered global advertising solutions to
    existing and new clients. 7




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##### Table of Contents



Clients
    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     Sales and
    Marketing
    e-mail word-of-mouth.
  Technology
  e-mails
   8




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##### Table of Contents



Competition
  pay-per-click
      Government
    Regulation and Legal Uncertainties
    Privacy Concerns. e-mail
  Anti-Spam Legislation. e-mail
  Domain Names.
 9




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##### Table of Contents



Jurisdictions.
  Intellectual
    Property
  Travelzoo Top 20. Travelzoo Top
    20 Travelzoo Top 20 Travelzoo Travelzoo Top 20 Travelzoo
    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.
 10




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##### Table of Contents



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 client demand due to
    difficulties in predicting client demand in a new market;
    changes in general economic conditions that could affect
    marketing efforts generally 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;
    our ability to attract and retain key personnel;
    our ability to manage our anticipated growth and expansion;
    our ability to attract traffic to our Web sites;
    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; and
    volatility of our operating results in new markets.  Travelzoo
    Our
    business model may not be adaptable to a changing
    market.
   11




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##### Table of Contents



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.
    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.
   12




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##### Table of Contents



Risks
    Related to Our Markets and Strategy
  Our
    international expansion is expected to result in substantial
    operating losses, and is subject to other material
    risks.
    Fly.com
    
    trade barriers and changes in trade regulations;
    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
    name.
  Travelzoo Fly.com
  Our
    business may be sensitive to events affecting the travel
    industry in general.
    We
    will not be able to attract travel and entertainment companies
    or Internet users if we do not continually enhance and develop
    the content and features of our products and
    services.
   13




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##### Table of Contents



We may
    lose business if we fail to keep pace with rapidly changing
    technologies and client 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 travel company, entertainment company, and Internet
    user requirements.    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.
   14




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##### Table of Contents



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.
    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.
     15




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##### Table of Contents



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.
  e-mail e-mail e-mail e-mail
  Claims
    may be asserted against us relating to shares not issued in our
    2002 merger.
     16




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Our
    internal controls over financial reporting may not be effective,
    and our independent auditors may not be able to certify as to
    their effectiveness, 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
 17




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##### Table of Contents



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.
    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties        Item 3.
    Legal
    Proceedings    Item 4.
    (Removed
    and Reserved)   18




---



##### Table of Contents



PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  Market
    Information
    High

Low2009:Fourth Quarter

$
15.38


$
12.00Third Quarter

$
14.94


$
10.51Second Quarter

$
12.35


$
5.93First Quarter

$
6.84


$
3.722008:Fourth Quarter

$
8.39


$
4.11Third Quarter

$
9.54


$
6.42Second Quarter

$
13.26


$
8.57First Quarter

$
17.20


$
9.61       Dividend
    Policy
    Sales of
    Unregistered Securities
    Repurchases
    of Equity Securities
   19




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##### Table of Contents



Performance
    Graph
    
  Measurement Point


12/31/2004


12/31/2005


12/31/2006


12/31/2007


12/31/2008


12/31/2009Travelzoo Inc.


$
100.00



$
23.05



$
31.38



$
14.34



$
5.83



$
12.88NASDAQ Market Index


$
100.00



$
101.37



$
111.03



$
121.92



$
72.49



$
104.31S&P 500 Publishing


$
100.00



$
87.26



$
100.62



$
75.56



$
32.44



$
49.40  20




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##### Table of Contents



Item 6.
    Selected
    Consolidated Financial Data    Consolidated
    Statement of Operations Data:
  Year Ended December 31,2009

2008

2007

2006

2005(In thousands, except per share data)Revenues

$
93,973


$
80,817


$
78,904


$
69,525


$
50,772Income from continuing operations


13,708



13,312



23,679



29,753



14,870Income from continuing operations, net of taxes


6,418



5,913



12,108



16,803



7,963Loss from discontinued operations, net of taxes


(1,233
)


(10,029
)


(2,999
)






Net income (loss)


5,185



(4,116
)


9,109



16,803



7,963Basic net income (loss) per share from:Continuing operations

$
0.39


$
0.41


$
0.82


$
1.08


$
0.49Discontinued operations

$
(0.08
)

$
(0.70
)

$
(0.20
)

$



$
Net income (loss) per share

$
0.32


$
(0.29
)

$
0.61


$
1.08


$
0.49Diluted net income (loss) per share from:Continuing operations

$
0.39


$
0.37


$
0.75


$
1.01


$
0.45Discontinued operations

$
(0.08
)

$
(0.62
)

$
(0.19
)

$



$
Net income (loss) per share

$
0.32


$
(0.25
)

$
0.57


$
1.01


$
0.45Shares used in per share calculation  basic


16,408



14,273



14,847



15,503



16,249Shares used in per share calculation  diluted


16,416



16,190



16,074



16,712



17,731   Consolidated
    Balance Sheet Data:
  December 31,2009

2008

2007

2006

2005(In thousands)Cash and cash equivalents

$
19,776


$
14,179


$
22,641


$
33,415


$
24,469Short term investments


















19,887Working capital


27,250



17,642



26,202



36,472



48,136Total assets


46,132



35,322



37,286



43,700



55,452Stockholders equity


30,771



20,763



25,902



36,817



48,533   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
  Travelzoo Travelzoo Top 20 e-mail Newsflash e-mail
  Travelzoo Travelzoo Top 20 e-mail Newsflash e-mail SuperSearch, Travelzoo
    Network Fly.com
      
    Growth of number of subscribers of the Companys
    newsletters and page views of the homepages of the TravelzooWeb sites;
    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
    Revenue
    Recognition
   22




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##### Table of Contents




    Evidence of an arrangement.  We consider an
    insertion order signed by the client 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 client.
    Collection is deemed reasonably assured if we expect that the
    client 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 client 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
    Liability
    to Former Stockholders
   23




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##### Table of Contents



Results
    of Operations
    Year EndedDecember 31,2009

2008

2007Revenues


100.0
%


100.0
%


100.0
%Cost of revenues


6.0



3.5



1.2Gross profit


94.0



96.5



98.8Operating expenses:Sales and marketing


52.9



53.6



51.4General and administrative


26.5



26.4



17.4Total operating expenses


79.4



80.0



68.8Income from operations


14.6



16.5



30.0Other income and expenses, net


(0.1
)


1.0



1.9Income from continuing operations before income taxes


14.5



17.5



31.9Income taxes


7.7



10.1



16.5Income from continuing operations


6.8



7.4



15.4Loss from discontinued operations, net of taxes


(1.3
)


(12.4
)


(3.8
)Net income (loss)


5.5
%


(5.0
)%


11.6
%     Fly.com Fly.com
   24




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##### Table of Contents



Reach
  e-mail Travelzoo Travelzoo
  Year Ended December 31,

Year-Over-Year2009

2008

Growth(1)Subscribers:North AmericaTravelzoo Top 20


12,680,000



10,769,000



18
%Newsflash


10,905,000



8,888,000



23
%EuropeTravelzoo Top 20,


3,206,000



2,176,000



47
%Newsflash


3,116,000



2,075,000



50
%Page views of homepages of TravelzooWeb sites:North America


36,455,000



28,600,000



27
%Europe


16,491,000



7,237,000



128
%     (1)
    
    The comparability of year-over-year changes of page views of the
    homepages of TravelzooWeb sites may be limited due to
    the design and navigation of the Web sites.  Travelzoo Top 20 e-mail Travelzoo Travelzoo Top
    20 e-mail
  Travelzoo Top 20 e-mail Travelzoo
 25




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##### Table of Contents



Travelzoo Top
    20 e-mail
  Revenues
  Travelzoo Top 20 e-mail Travelzoo Travelzoo Top 20 e-mail Travelzoo Newsflash e-mail Travelzoo Travelzoo Top 20 e-mail Newsflash e-mail SuperSearch Fly.com Fly.com
  Travelzoo Top 20 e-mail Travelzoo Travelzoo Travelzoo Top 20 Newsflash SuperSearch. Travelzoo Network
      
    Our ability to increase our advertising rates;
    Our ability to sell more advertising to existing clients;
    Our ability to increase the number of clients;
    Our ability to develop new revenue streams; and
    Our ability to launch new products. 26




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##### Table of Contents



Cost
    of Revenues
  Travelzoo Network Fly.com Fly.com Travelzoo
    Network Travelzoo Network
  Operating
    Expenses
  Sales and
    Marketing
  e-mail Fly.com
   27




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##### Table of Contents



e-mail Travelzoo Fly.com.
    build-up
  General
    and Administrative
          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. 28




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##### Table of Contents




    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.    Average Cost per



SubscribersAcquisition of a New



Removed fromPeriod

Subscriber

New Subscribers

List

BalanceQ1 2007

$
2.61



730,063



(345,896
)


10,611,505Q2 2007

$
3.03



552,488



(335,304
)


10,828,689Q3 2007

$
3.92



385,408



(255,008
)


10,959,089Q4 2007

$
3.78



279,967



(242,822
)


10,996,234Q1 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
)


13,248,273     Average Cost per



SubscribersAcquisition of a New



Removed fromPeriod

Subscriber

New Subscribers

List

BalanceQ1 2007

$
3.89



159,439



(31,350
)


783,379Q2 2007

$
4.43



206,003



(39,690
)


949,692Q3 2007

$
2.96



331,903



(32,689
)


1,248,906Q4 2007

$
5.85



165,781



(33,357
)


1,381,330Q1 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
)


3,600,992      29




---



##### Table of Contents



Segment
    Information
    North
    America
  Year Ended December 31,2009

2008

2007(In thousands)Net revenues

$
77,967


$
71,339


$
73,232Income from operations


19,227



21,118



28,959Income from operations as % of revenues


25
%


30
%


40
%   Fly.com Travelzoo Network Fly.com e-mail
   30




---



##### Table of Contents



Europe
  Year Ended December 31,2009

2008

2007(In thousands)Net revenues

$
16,339


$
9,623


$
5,856Loss from operations


(5,463
)


(7,809
)


(5,172
)Loss from operations as % of revenues


33
%


81
%


88
%   e-mail
  e-mail
  Interest
    Income
    Income
    Taxes
   31




---



##### Table of Contents



Discontinued
    Operations
    Liquidity
    and Capital Resources
    Year Ended December 31,2009


2008


2007(In thousands)Net cash provided by (used in) operating activities

$
5,125


$
(3,325
)

$
9,894Net cash used in investing activities


(3,752
)


(4,742
)


(663
)Net cash provided by (used in) financing activities


4,219



185



(19,822
)Effect of exchange rate changes on cash and cash equivalents


5



(580
)


(183
)Net increase (decrease) in cash and cash equivalents

$
5,597


$
(8,462
)

$
(10,774
)    32




---



##### Table of Contents



Fly.com
    Travelzoo
       33




---



##### Table of Contents



Form 8-K
    2010


2011


2012


2013


2014


TotalOperating lease obligations

$
3,894


$
2,923


$
2,033


$
1,924


$
161


$
10,935Purchase obligations


1,205



















1,205Total commitments

$
5,099


$
2,923


$
2,033


$
1,924


$
161


$
12,140     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).
    Fly.com:  We want to grow revenue and operating
    profits through building up Fly.com, our new meta-search
    engine for airfares. We have identified meta-search as an
    opportunity with attractive economics and great synergies with
    Travelzoo.  Travelzoo Fly.com
  Recent
    Accounting Pronouncements
     34




---



##### Table of Contents



2009-01, 2009-01). 2009-01 2009-01 2009-01
  2009-05,
  2009-13,
 35




---



##### Table of Contents



2010-06,
  Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk     36




---



##### Table of Contents



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


38Consolidated Balance Sheets


39Consolidated Statements of Operations


40Consolidated Statements of Stockholders
    Equity and Comprehensive Income (Loss)


41Consolidated Statements of Cash Flows


42Notes to Consolidated Financial Statements


43  37




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  The Board of
    Directors and Stockholders 
    Travelzoo Inc.:
  Internal Control 
    Integrated Framework
        Internal Control  Integrated Framework
  KPMG
    LLP
   38




---



##### Table of Contents



TRAVELZOO
    INC.
    CONSOLIDATED BALANCE SHEETS  December 31,2009


2008(In thousands, except per share amounts)ASSETSCurrent assets:Cash and cash equivalents

$
19,776


$
14,179Accounts receivable, less allowance for doubtful accounts of
    $501 and $357 at 2009 and 2008, respectively


11,279



11,397Income tax receivable


6,061



1,709Deposits


139



185Prepaid expenses and other current assets


1,103



647Deferred tax assets


966



1,089Assets held for sale






831Total current assets


39,324



30,037Deposits, less current portion


381



292Deferred tax assets, less current portion


52



Restricted cash


875



875Property and equipment, net


4,089



4,100Intangible assets, net


1,411



18Total assets

$
46,132


$
35,322LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
6,834


$
6,434Accrued expenses


4,278



3,913Deferred revenue


828



666Deferred rent


134



101Liabilities related to assets held for sale






1,281Total current liabilities


12,074



12,395Deferred tax liabilities


533



465Long-term tax liabilities


2,139



900Deferred rent, less current portion


615



799Commitments 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 and 14,285 shares issued and outstanding
    at 2009 and 2008, respectively)


164



143Additional paid-in capital


4,772



185Retained earnings


27,008



21,823Accumulated other comprehensive loss


(1,173
)


(1,388
)Total stockholders equity


30,771



20,763Total liabilities and stockholders equity

$
46,132


$
35,322    39




---



##### Table of Contents



TRAVELZOO
    INC.
    CONSOLIDATED STATEMENTS OF OPERATIONS  Year Ended December 31,2009


2008


2007(In thousands, except per share amounts)Revenues

$
93,973


$
80,817


$
78,904Cost of revenues


5,628



2,842



957Gross profit


88,345



77,975



77,947Operating expenses:Sales and marketing


49,707



43,297



40,526General and administrative


24,930



21,366



13,742Total operating expenses


74,637



64,663



54,268Income from continuing operations


13,708



13,312



23,679Interest income and other income


61



284



1,302Gain (loss) on foreign currency


(78
)


494



180Income from continuing operations before income tax expense


13,691



14,090



25,161Income tax expense


7,273



8,177



13,053Income from continuing operations


6,418



5,913



12,108Loss from discontinued operations, net of tax


(5,642
)


(10,029
)


(2,999
)Income tax benefit related to dissolution of Asia Pacific
    business segment


4,409







Loss from discontinued operations


(1,233
)


(10,029
)


(2,999
)Net Income (loss)

$
5,185


$
(4,116
)

$
9,109Basic net income (loss) per share from:Continuing operations

$
0.39


$
0.41


$
0.82Discontinued operations

$
(0.08
)

$
(0.70
)

$
(0.20
)Net income (loss)

$
0.32


$
(0.29
)

$
0.61Diluted net income (loss) per share from:Continuing operations

$
0.39


$
0.37


$
0.75Discontinued operations

$
(0.08
)

$
(0.62
)

$
(0.19
)Net income (loss)

$
0.32


$
(0.25
)

$
0.57Shares used in computing basic net income (loss) per share


16,408



14,273



14,847Shares used in computing diluted net income (loss) per share


16,416



16,190



16,074    40




---



##### Table of Contents



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





Other


TotalCommon Stock


Treasury


Paid-In


Retained


Comprehensive


StockholdersShares


Amount


Stock


Capital


Earnings


Income (Loss)


Equity(In thousands)Balances, December 31, 2006


15,250


$
153






$
2,076


$
34,566


$
22


$
36,817Repurchase of common stock


(1,000
)






(19,822
)














(19,822
)Retirement of common stock






(10
)


19,822



(2,076
)


(17,736
)






Comprehensive income:Foreign currency translation adjustment






















(202
)


(202
)Net income


















9,109







9,109Total comprehensive income


























8,907Balances, 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 income: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 loss: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
)

$
30,771    41




---



##### Table of Contents



TRAVELZOO
    INC.
    CONSOLIDATED STATEMENTS OF CASH FLOWS  Year Ended December 31,2009


2008


2007(In thousands)Cash flows from operating activities:Net income (loss)

$
5,185


$
(4,116
)

$
9,109Adjustments to reconcile net income (loss) to net cash provided
    by (used in) operating activities:Depreciation and amortization


1,992



667



193Deferred income taxes


139



769



584Stock-based compensation


94







Provision for losses on accounts receivable


258



316



(48
)Tax benefit of stock option exercises






(110
)


Foreign currency translation loss related to dissolution of Asia
    Pacific business segment


110







Net foreign currency effects


78



(500
)


Changes in operating assets and liabilities:Accounts receivable


(197
)


(2,443
)


(2,614
)Deposits


(15
)


25



(300
)Income tax receivable


(4,352
)


(1,709
)


Prepaid expenses and other current assets


(357
)


1,059



(1,465
)Accounts payable


877



1,054



2,110Accrued expenses


77



877



2,404Deferred revenue


160



314



(302
)Deferred rent


(163
)


828



109Income tax payable










3Other non-current liabilities


1,239



(356
)


111Net cash provided by (used in) operating activities


5,125



(3,325
)


9,894Cash flows from investing activities:Purchases of property and equipment


(1,992
)


(3,867
)


(627
)Purchases of restricted cash






(875
)


Purchases of intangible assets


(1,760
)






(36
)Net cash used in investing activities


(3,752
)


(4,742
)


(663
)Cash flows from financing activities:Proceeds from stock option exercises


2,158



75



Tax benefit from exercise of stock options






110



Repurchase of common stock










(19,822
)Proceeds from sale of Asia Pacific business segment, net of cash
    provided


2,061







Net cash provided by (used in) financing activities


4,219



185



(19,822
)Effect of exchange rate changes on cash and cash equivalents


5



(580
)


(183
)Net increase (decrease) in cash and cash equivalents


5,597



(8,462
)


(10,774
)Cash and cash equivalents at beginning of year


14,179



22,641



33,415Cash and cash equivalents at end of year

$
19,776


$
14,179


$
22,641Supplemental disclosure of cash flow information:Cash paid for income taxes, net of refunds received

$
5,760


$
8,193


$
13,334    42




---



##### Table of Contents



TRAVELZOO
    INC.



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    December 31, 2009, 2008, and 2007  (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,
  Travelzoo Travelzoo Top 20 e-mail Newsflash e-mail
        Travelzoo
   43




---



##### Table of Contents



44




---



##### Table of Contents



(b)
    Revenue
    Recognition  Travelzoo Travelzoo Top 20 e-mail Newsflash SuperSearch Travelzoo Network, Fly.com.
      
    Evidence of an arrangement.  The Company
    considers an insertion order signed by the client 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.  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
    client. Collection is deemed reasonably assured if it is
    expected that the client 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 client 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



Year EndedDecember 31,2009


2008


2007Net income (loss):Net income from continuing operations, net of tax

$
6,418


$
5,913


$
12,108Loss from discontinued operations, net of tax


(1,233
)


(10,029
)


(2,999
)Net income (loss)

$
5,185


$
(4,116
)

$
9,109Weighted average common shares


16,408



14,273



14,847Effect of dilutive securities  stock options


8



1,917



1,227Diluted weighted average common shares


16,416



16,190



16,074Basic net income (loss) per share from:Continuing operations

$
0.39


$
0.41


$
0.82Discontinued operations

$
(0.08
)

$
(0.70
)

$
(0.20
)Net income (loss)

$
0.32


$
(0.29
)

$
0.61Diluted net income (loss) per share from:Continuing operations

$
0.39


$
0.37


$
0.75Discontinued operations

$
(0.08
)

$
(0.62
)

$
(0.19
)Net income (loss)

$
0.32


$
(0.25
)

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




---



##### Table of Contents



December 31,2009


2008Computer hardware and software

$
2,374


$
1,794Office equipment and office furniture


2,229



1,637Capitalized internal-use software and Web site development


1,319



1,265Leasehold improvements


781



7016,703



5,397Less accumulated depreciation


(2,614
)


(1,297
)Total

$
4,089


$
4,100         (f)
    Intangible
    Assets    December 31,2009


2008Acquired amortized intangible assets:Internet domain names

$
2,117


$
381Less accumulated amortization


706



363Total

$
1,411


$
18         Year ended December 31,2010

$
3542011


3542012


3522013


351$
1,411    47




---



##### Table of Contents



(g)
    Cash
    and Cash Equivalents    (h)
    Advertising
    Costs    (i)
    Income
    Taxes    (j)
    Comprehensive
    Income (Loss)      Year Ended December 31,2009


2008


2007Net income (loss)

$
5,185


$
(4,116
)

$
9,109Other comprehensive income (loss):Foreign currency translation adjustments


215



(1,208
)


(202
)Total comprehensive income (loss)

$
5,400


$
(5,324
)

$
8,907     (k)
    Impairment
    of Long-Lived Assets   48




---



##### Table of Contents



(l)
    Stock-Based
    Compensation      (m)
    Foreign
    Currency      (n)
    Certain
    Risks and Uncertainties      (o)
    Recent
    Accounting Pronouncements     49




---



##### Table of Contents



2009-01, 2009-01). 2009-01 2009-01 2009-01
  2009-05,
  2009-13,
  2010-06,
 50




---



##### Table of Contents



(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

$
16,673


$
16,673


$



$
Total

$
16,673


$
16,673


$



$
   (3)
    Commitments
    and Contingencies    2010

2011

2012

2013

2014

TotalMinimum rental payments

$
3,894


$
2,923


$
2,033


$
1,924


$
161


$
10,935    51




---



##### Table of Contents



(4)
    Other
    Balance Sheet Items    Balance at December 31, 2006

$
726Additions  charged to costs and expenses, net


(48
)Deductions  write-offs


(388
)Balance at December 31, 2007


290Additions  charged to costs and expenses, net


321Deductions  write-offs


(254
)Balance at December 31, 2008


357Additions  charged to costs and expenses, net


258Deductions  write-offs


(114
)Balance at December 31, 2009

$
501     December 31,2009


2008Prepaid expenses

$
1,009


$
523Other current assets


94



124Total prepaid expenses and other current assets

$
1,103


$
647  52




---



##### Table of Contents



December 31,2009


2008Accrued compensation expense

$
2,627


$
1,790Accrued advertising expense


1,207



1,404Accrued professional services expense


140



266Accrued payments to third-party partners of the Travelzoo
    Network


122



308Other accrued expenses


182



145Total accrued expenses

$
4,278


$
3,913   (5)
    Income
    Taxes    2009


2008


2007U.S.

$
17,879


$
21,762


$
30,891Foreign


(4,188
)


(7,672
)


(5,730
)$
13,691


$
14,090


$
25,161     Current


Deferred


Total(In thousands)2009: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


$
8,1772007:Federal

$
9,368


$
483


$
9,851State


3,101



101



3,202$
12,469


$
584


$
13,053    53




---



##### Table of Contents



2009


2008


2007Federal tax at statutory rates

$
4,792


$
1,368


$
7,739State taxes, net of federal income tax benefit


1,004



885



2,079Foreign losses not benefited


1,434



6,166



3,073Non-deductible expenses and other


43



(242
)


162Total income tax expense

$
7,273


$
8,177


$
13,053       2009


2008Deferred tax assets:Foreign net operating loss carryforwards

$
5,799


$
7,793Capital loss


1,820



Accruals and allowances


352



180Deferred rent


320



342Deferred revenue


245



166State income taxes


102



401Total deferred tax assets


8,638



8,882Valuation allowance


(7,620
)


(7,793
)Total deferred tax assets net of valuation allowance


1,018



1,089Deferred tax liabilities:Property, equipment and intangible assets


(533
)


(465
)Total deferred tax liabilities


(533
)


(465
)Net deferred tax assets

$
485


$
624      54




---



##### Table of Contents



Unrecognized tax benefits balance at January 1, 2007

$
1,107Increase related to prior year tax positions


38Decrease related to prior year tax positions


Increase related to current year tax positions


Settlements


Lapse of statute of limitations


Unrecognized tax benefits balance at December 31, 2007


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

$
2,003       (6)
    Stockholders
    Equity   55




---



##### Table of Contents



(7)
    Stock-based
    Compensation and Stock Options             56




---



##### Table of Contents



2009Weighted-average fair value of options granted per share

$
11.56Implied volatility


93
%Risk-free interest rate


2.56
%Dividend yield


Expected life in years


6.25       AggregateWeighted-Average

IntrinsicWeighted-Average

Remaining

ValueShares

Exercise Price

Contractual Life

(in thousands)Outstanding at January 1, 2007


2,211,074


$
1.03Outstanding at December 31, 2007


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


$
177   in-the-money
      Shares

Weighted-AverageOutstanding and

Remaining

Weighted-AverageExercise Price

Exercisable

Contractual Life

Exercise Price$2.00


12,725



1.83 years


$
2.00$3.00


5,000



2.25 years


$
3.00$14.97


300,000



9.89 years


$
14.97317,725



9.44 years


$
14.26  57




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##### Table of Contents



(8)
    Segment
    Reporting and Significant Customer Information        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   Year Ended December 31, 2007:

North America


Europe


Elimination


ConsolidatedRevenues from unaffiliated customers

$
73,062


$
5,842


$



$
78,904Intersegment revenues


171



14



(185
)


Total net revenues


73,233



5,856



(185
)


78,904Operating income (loss)


28,959



(5,172
)


(108
)


23,679   DiscontinuedAs of December 31, 2009:

North America

Europe

Operations

Elimination

ConsolidatedProperty and equipment, net:

$
3,908


$
181


$



$



$
4,089Total assets


64,095



4,960







(22,923
)


46,132   DiscontinuedAs of December 31, 2008:

North America

Europe

Operations

Elimination

ConsolidatedProperty and equipment, net:

$
3,890


$
210


$



$



$
4,100Total assets


63,476



3,934



831



(32,919
)


35,322       Percent of

Percent ofRevenues

Accounts ReceivableYear Ended December 31,

December 31,

December 31,Customer

2009

2008

2007

2009

2008Orbitz Worldwide



*


13
%


15
%



*


16
%Expedia, Inc.



*



*


11
%



*



*     *
    
    Less than 10% 58




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##### Table of Contents



(9)
    Employee
    Benefit Plan    (10)
    Related
    Party Transaction      (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. 59




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##### Table of Contents




    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



Twelve Months Ended December 312009


2008


2007Revenues

$
2,134


$
586


$
7Cost of revenues


173



153



62Gross profit


1,961



433



(55
)Operating expenses:Sales and marketing


3,821



5,837



914General and administrative


3,828



4,797



2,086Total operating expenses


7,649



10,634



3,000Operating loss from discontinued operations


(5,688
)


(10,201
)


(3,055
)Other income and (expense)


(33
)


20



5Income tax benefit


79



152



51Loss from discontinued operations


(5,642
)


(10,029
)


(2,999
)Income tax benefit related to dissolution of Asia Pacific
    business segment


4,409







Loss from discontinued operations, net of tax

$
(1,233
)

$
(10,029
)

$
(2,999
)    61




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##### Table of Contents



(12)
    Unaudited
    Quarterly Information    Quarters EndedDec 31,


Sept 30,


June 30,


Mar 31,


Dec 31,


Sept 30,


June 30,


Mar 31,2009


2009


2009


2009


2008


2008


2008


2008(In thousands, except per share amounts)Revenues

$
23,779


$
23,576


$
23,638


$
22,980


$
19,609


$
18,600


$
21,680


$
20,928Cost of revenues


1,488



1,464



1,458



1,218



908



819



599



516Gross profit


22,291



22,112



22,180



21,762



18,701



17,781



21,081



20,412Operating expenses:Sales and marketing


12,258



13,437



12,599



11,414



10,601



10,326



10,625



11,745General and administrative


6,509



6,395



6,211



5,814



5,703



5,480



5,540



4,643Total operating expenses


18,767



19,832



18,810



17,228



16,304



15,806



16,165



16,388Operating income from continuing operations


3,524



2,280



3,370



4,534



2,397



1,975



4,916



4,024Interest income and other income


21



8



13



19



18



59



74



133Gain (loss) on foreign currency


(94
)


320



(116
)


(187
)


424



(69
)


(2
)


141Income from continuing operations before income tax expense


3,451



2,608



3,267



4,366



2,839



1,965



4,988



4,298Income tax expense


1,981



1,308



1,659



2,325



1,114



1,451



2,993



2,619Income from continuing operations, net of tax


1,470



1,300



1,608



2,041



1,725



514



1,995



1,679Income (loss) from discontinued operations, net of tax


3,863



(1,595
)


(1,799
)


(1,703
)


(1,853
)


(2,303
)


(3,188
)


(2,685
)Net income (loss)

$
5,333


$
(295
)

$
(191
)

$
338


$
(128
)

$
(1,789
)

$
(1,193
)

$
(1,006
)Basic net income (loss) per share fromContinuing operations

$
.09


$
.08


$
.10


$
.13


$
.12


$
.04


$
.14


$
.12Discontinue operations

$
.23


$
(.10
)

$
(.11
)

$
(.10
)

$
(.13
)

$
(.16
)

$
(.22
)

$
(.19
)Net income (loss) per share

$
.32


$
(.02
)

$
(.01
)

$
.02


$
(.01
)

$
(.13
)

$
(.08
)

$
(.07
)Diluted net income (loss) per share from:Continuing operations

$
.09


$
.08


$
.10


$
.13


$
.11


$
.03


$
.12


$
.10Discontinue operations

$
.23


$
(.10
)

$
(.11
)

$
(.10
)

$
(.12
)

$
(.14
)

$
(.20
)

$
(.17
)Net income (loss) per share

$
.32


$
(.02
)

$
(.01
)

$
.02


$
(.01
)

$
(.11
)

$
(.07
)

$
(.06
)   Item 9.
    Changes
    in and Disagreements With Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Rule 13a-15(e).
 62




---



##### Table of Contents



Rule 13a-15(f))
  Managements
    Report on Internal Control Over Financial Reporting
      Internal Control  Integrated Framework. Form 10-K.
   HOLGER
    BARTEL
   Chief Executive Officer
   WAYNE
    LEE
   Chief Financial Officer
   63




---



##### Table of Contents



Item 9B.
    Other
    Information   PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance of the
    Registrant      Name

Age

PositionHolger Bartel, Ph.D.


43


Chief Executive OfficerWayne Lee


38


Chief Financial OfficerChristopher Loughlin


36


Executive Vice President, EuropeMax Rayner


49


Chief Technology OfficerShirley Tafoya


46


President, North America   Holger Bartel, Ph.D
  Wayne Lee, CPA
  Christopher Loughlin
  Max Rayner
  Shirley Tafoya
  Item 11.
    Executive
    Compensation   64




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##### 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


38Consolidated Balance Sheets


39Consolidated Statements of Operations


40Consolidated Statements of Stockholders
    Equity and Comprehensive Income (Loss)


41Consolidated Statements of Cash Flows


42Notes to Consolidated Financial Statements


43   Supplementary Consolidated Financial Statement
    Schedules:
    Exhibits:
   65




---



##### Table of Contents



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

Title(s)

Date/s/  RALPH
    BARTELRalph
    Bartel

Chairman of the Board

March 16, 2010/s/  HOLGER
    BARTELHolger
    Bartel

Chief Executive Officer and Director

March 16, 2010/s/  WAYNE
    LEEWayne
    Lee

Chief Financial Officer and Principal Accounting Officer

March 16, 2010/s/  DAVID
    J. EHRLICHDavid
    J. Ehrlich

Director

March 16, 2010/s/  DONOVAN
    NEALE-MAYDonovan
    Neale-May

Director

March 16, 2010/s/  KELLY
    M. URSOKelly
    M. Urso

Director

March 16, 2010  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*



Christopher Loughlin Service Agreement, dated as of May 16,
    2005, between Travelzoo UK Ltd and Christopher Loughlin
    (Incorporated by reference to Exhibit 10.1 on
    Form 10-Q
    (File No.
    000-50171),
    filed August 15, 2005)10
.3*



Christopher Loughlin Amended Service Agreement, effective as of
    July 1, 2006, between Travelzoo (Europe) Limited and
    Christopher Loughlin (Incorporated by reference to
    Exhibit 10.2 on
    Form 10-Q
    (File
    No. 000-50171),
    filed August 9, 2006)10
.4*



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
.5*



Employment Agreement, dated May 8, 2001 by and between
    Shirley Tafoya and Travelzoo Inc., as amended, and 2007 Addendum
    to Employment Agreement by and between Travelzoo Inc. and
    Shirley Tafoya (Incorporated by reference to
    Exhibit 10.2 on
    Form 10-Q
    (File
    No. 000-50171),
    filed April 11, 2007)10
.6*



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
.7*



Amendment to Service Agreement between Travelzoo (Europe)
    Limited and Christopher Loughlin dated as of August 13,
    2007 (Incorporated by reference to Exhibit 10.1 on
    Form 8-K
    (File No.
    000-50171),
    filed August 15, 2007)10
.8



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
.9*



Employment Agreement, effective as of October 1, 2008, by
    and between Travelzoo Inc. and Holger Bartel (Incorporated
    by reference to Exhibit 99.1 on
    Form 8-K
    (File
    No. 000-50171),
    filed September 23, 2008)10
.10*



Amendment No. 1 to Employment Agreement, effective as
    September 23, 2008, by and between Travelzoo Inc. and Max
    Rayner (Incorporated by reference to Exhibit 99.1 on
    Form 8-K
    (File No.
    000-50171),
    filed September 29, 2008)10
.11*



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
.12*



Amended and Restated Employment Agreement, effective as of
    September 1, 2009, by and between Travelzoo Inc. and Max
    Rayner (Incorporated by reference to Exhibit 10.1 on
    Form 8-K
    (File No.
    000-50171),
    filed September 2, 2009)10
.13



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
.14



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
.15



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) 67




---



##### Table of Contents



ExhibitNumber



Description10
.16*



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
.17*



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)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. 68