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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________________________
Form 10-Q
______________________________________________________________________________
(Mark One)

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020
or

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .
Commission File No.: 000-50171
_______________________________________________________________________________
Travelzoo
(Exact name of registrant as specified in its charter)
________________________________________________________________________________

Delaware | 36-4415727
(State or other jurisdiction of incorporation or organization) | (I.R.S. employer identification no.)
590 Madison Avenue, 35th Floor New York, New York | 10022
(Address of principal executive offices) | (Zip code)

Registrant’s telephone number, including area code: (212) 484-4900
_________________________________________________________________________________
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ¨ | Accelerated filer | ☒
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ☒
|  | Emerging growth company | ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revisited financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
The number of shares of Travelzoo common stock outstanding as of November 5, 2020 was 11,310,431 shares.
1

TRAVELZOO
Table of Contents

PART I—FINANCIAL INFORMATION | Page
Item 1. Financial Statements (Unaudited) | 3
Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019 | 4
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019 | 5
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2020 and 2019 | 6
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 | 7
Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2020 and 2019 | 8
Notes to Condensed Consolidated Financial Statements | 9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 28
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 41
Item 4. Controls and Procedures | 42
PART II—OTHER INFORMATION |
Item 1. Legal Proceedings | 43
Item 1A. Risk Factors | 43
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 43
Item 6. Exhibits | 44
Signature | 45

2

PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
3

TRAVELZOO
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except par value)

| September 30, 2020 |  | December 31, 2019
ASSETS |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 50,528 |  |  | $ | 18,743 |
Accounts receivable, less allowance for doubtful accounts of $2,841 and $1,106 as of September 30, 2020 and December 31, 2019, respectively | 4,195 |  |  | 11,209 |
Prepaid income taxes | 304 |  |  | 989 |
Deposits | 98 |  |  | 105 |
Prepaid expenses and other | 990 |  |  | 2,288 |
Assets from discontinued operations | 454 |  |  | 3,961 |
Total current assets | 56,569 |  |  | 37,295 |
Deposits and other | 806 |  |  | 572 |
Deferred tax assets | 4,415 |  |  | 2,051 |
Restricted cash | 1,155 |  |  | 1,135 |
Investment in WeGo | 2,101 |  |  | 2,484 |
Operating lease right-of-use assets | 9,076 |  |  | 8,140 |
Property and equipment, net | 1,499 |  |  | 2,861 |
Intangible assets, net | 4,867 |  |  | — |
Goodwill | 10,944 |  |  | — |
Total assets | $ | 91,432 |  |  | $ | 54,538 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |
Current liabilities: |  |  |
Accounts payable | $ | 11,296 |  |  | $ | 6,382 |
Merchant payable | 41,722 |  |  | 12,967 |
Accrued expenses and other | 6,953 |  |  | 6,281 |
Deferred revenue | 2,777 |  |  | 786 |
Operating lease liabilities | 3,988 |  |  | 4,847 |
Promissory notes payable | 1,700 |  |  | — |
Income tax payable | 373 |  |  | 914 |
Liabilities from discontinued operations | 1,509 |  |  | 3,135 |
Total current liabilities | 70,318 |  |  | 35,312 |
PPP notes payable | 3,663 |  |  | — |
Deferred tax liabilities | 851 |  |  | — |
Long-term operating lease liabilities | 11,425 |  |  | 7,920 |
Other long-term liabilities | 473 |  |  | 443 |
Total liabilities | 86,730 |  |  | 43,675 |
Commitments and contingencies |  |  |
Non-controlling interest | 4,633 |  |  | — |
Stockholders’ equity: |  |  |
Common stock, $0.01 par value (20,000 shares authorized; 11,310 and 11,479 shares issued and outstanding as of September 30, 2020 and December 31, 2019) | 113 |  |  | 115 |
Additional paid in capital | 5,220 |  |  | — |
Retained earnings (accumulated deficit) | (1,130) |  |  | 14,200 |
Accumulated other comprehensive loss | (4,134) |  |  | (3,452) |
Total stockholders’ equity | 69 |  |  | 10,863 |
Total liabilities and stockholders’ equity | $ | 91,432 |  |  | $ | 54,538 |

See accompanying notes to unaudited condensed consolidated financial statements.
4

TRAVELZOO
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)

| Three Months Ended |  | Nine Months Ended |  |
| September 30, |  | September 30, |  |
| 2020 |  | 2019 |  | 2020 |  | 2019 |  |  |  |
Revenues | $ | 13,787 |  |  | $ | 23,833 |  |  | $ | 41,118 |  |  | $ | 79,599 |  |  |  |  |
Cost of revenues | 2,924 |  |  | 2,852 |  |  | 7,768 |  |  | 8,389 |  |  |  |  |
Gross profit | 10,863 |  |  | 20,981 |  |  | 33,350 |  |  | 71,210 |  |  |  |  |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |
Sales and marketing | 6,929 |  |  | 11,967 |  |  | 24,311 |  |  | 38,605 |  |  |  |  |
Product development | 592 |  |  | 1,434 |  |  | 2,586 |  |  | 4,856 |  |  |  |  |
General and administrative | 4,545 |  |  | 4,188 |  |  | 16,709 |  |  | 13,634 |  |  |  |  |
Impairment of intangible assets and goodwill | — |  |  | — |  |  | 2,920 |  |  | — |  |  |  |  |
Total operating expenses | 12,066 |  |  | 17,589 |  |  | 46,526 |  |  | 57,095 |  |  |  |  |
Operating income (loss) | (1,203) |  |  | 3,392 |  |  | (13,176) |  |  | 14,115 |  |  |  |  |
Other income (loss), net | (37) |  |  | 32 |  |  | (222) |  |  | 48 |  |  |  |  |
Income (loss) from continuing operations before income taxes | (1,240) |  |  | 3,424 |  |  | (13,398) |  |  | 14,163 |  |  |  |  |
Income tax expense (benefit) | (244) |  |  | 860 |  |  | (2,070) |  |  | 3,596 |  |  |  |  |
Income (loss) from continuing operations | (996) |  |  | 2,564 |  |  | (11,328) |  |  | 10,567 |  |  |  |  |
Income (loss) from discontinued operations, net of taxes | (230) |  |  | (2,258) |  |  | (3,944) |  |  | (5,813) |  |  |  |  |
Net income (loss) | (1,226) |  |  | 306 |  |  | (15,272) |  |  | 4,754 |  |  |  |  |
Net income (loss) attributable to non-controlling interest | 125 |  |  | — |  |  | (1,122) |  |  | — |  |  |  |  |
Net income (loss) attributable to Travelzoo | $ | (1,351) |  |  | $ | 306 |  |  | $ | (14,150) |  |  | $ | 4,754 |  |  |  |  |
Net income (loss) attributable to Travelzoo—continuing operations | $ | (1,121) |  |  | $ | 2,564 |  |  | $ | (10,206) |  |  | $ | 10,567 |  |  |  |  |
Net income (loss) attributable to Travelzoo—discontinued operations | $ | (230) |  |  | $ | (2,258) |  |  | $ | (3,944) |  |  | $ | (5,813) |  |  |  |  |
Income (loss) per share—basic |  |  |  |  |  |  |  |  |  |  |
Continuing operations | $ | (0.10) |  |  | $ | 0.22 |  |  | $ | (0.90) |  |  | $ | 0.89 |  |  |  |  |
Discontinued operations | $ | (0.02) |  |  | $ | (0.19) |  |  | $ | (0.35) |  |  | $ | (0.49) |  |  |  |  |
Net income (loss) per share —basic | $ | (0.12) |  |  | $ | 0.03 |  |  | $ | (1.25) |  |  | $ | 0.40 |  |  |  |  |
Income (loss) per share—diluted |  |  |  |  |  |  |  |  |  |  |
Continuing operations | $ | (0.10) |  |  | $ | 0.21 |  |  | $ | (0.90) |  |  | $ | 0.87 |  |  |  |  |
Discontinued operations | $ | (0.02) |  |  | $ | (0.19) |  |  | $ | (0.35) |  |  | $ | (0.49) |  |  |  |  |
Net income (loss) per share—diluted | $ | (0.12) |  |  | $ | 0.03 |  |  | $ | (1.25) |  |  | $ | 0.39 |  |  |  |  |
Shares used in per share calculation from continuing operations—basic | 11,310 |  |  | 11,767 |  |  | 11,353 |  |  | 11,894 |  |  |  |  |
Shares used in per share calculation from discontinued operations—basic | 11,310 |  |  | 11,767 |  |  | 11,353 |  |  | 11,894 |  |  |  |  |
Shares used in per share calculation from continuing operations—diluted | 11,310 |  |  | 11,956 |  |  | 11,353 |  |  | 12,152 |  |  |  |  |
Shares used in per share calculation from discontinued operations—diluted | 11,310 |  |  | 11,767 |  |  | 11,353 |  |  | 11,894 |  |  |  |  |

See accompanying notes to unaudited condensed consolidated financial statements.
5

TRAVELZOO
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands)

| Three Months Ended |  | Nine Months Ended |  |
| September 30, |  | September 30, |  |
| 2020 |  | 2019 |  | 2020 |  | 2019 |  |  |  |
Net income (loss) | $ | (1,226) |  |  | $ | 306 |  |  | $ | (15,272) |  |  | $ | 4,754 |  |  |  |  |
Other comprehensive income (loss): |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation adjustment | 532 |  |  | (221) |  |  | (682) |  |  | (236) |  |  |  |  |
Total comprehensive income (loss) | $ | (694) |  |  | $ | 85 |  |  | $ | (15,954) |  |  | $ | 4,518 |  |  |  |  |

See accompanying notes to unaudited condensed consolidated financial statements.
6

TRAVELZOO
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

| Nine Months Ended
| September 30,
| 2020 |  | 2019
Cash flows from operating activities: |  |  |
Net income (loss) | $ | (15,272) |  |  | $ | 4,754 |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |  |
Depreciation and amortization | 1,806 |  |  | 999 |
Stock-based compensation | 5,243 |  |  | 876 |
Deferred income tax | (1,747) |  |  | 431 |
Impairment of intangible assets and goodwill | 2,920 |  |  | — |
Loss on long-lived assets | 437 |  |  | — |
Loss on equity investment in WeGo | 474 |  |  | 611 |
Gain on promissory notes payable settlement | (1,500) |  |  | — |
Net foreign currency effect | (542) |  |  | 59 |
Provision for loss on accounts receivable, refund reserve and other | 3,923 |  |  | 132 |
Changes in operating assets and liabilities, net of acquisitions: |  |  |
Accounts receivable | 6,246 |  |  | (127) |
Prepaid income taxes | 685 |  |  | (541) |
Prepaid expenses and other | 1,626 |  |  | (3) |
Accounts payable and merchant payable | 33,241 |  |  | (3,971) |
Accrued expenses and other | (1,381) |  |  | (442) |
Deferred revenue | 1,228 |  |  | — |
Income tax payable | (479) |  |  | (36) |
Other liabilities | 676 |  |  | (816) |
Net cash provided by operating activities | 37,584 |  |  | 1,926 |
Cash flows from investing activities: |  |  |
Acquisition of business, net of cash acquired | (679) |  |  | — |
Other investments | (430) |  |  | (673) |
Purchases of property and equipment | (252) |  |  | (350) |
Net cash used in investing activities | (1,361) |  |  | (1,023) |
Cash flows from financing activities: |  |  |
Repurchase of common stock | (1,205) |  |  | (8,768) |
Payment of promissory notes payable | (7,800) |  |  | — |
Proceeds from PPP notes payable | 3,663 |  |  | — |
Proceeds from exercise of stock options, net of taxes paid for net share settlement | — |  |  | 1,712 |
Net cash used in financing activities | (5,342) |  |  | (7,056) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | 393 |  |  | (395) |
Net increase (decrease) in cash, cash equivalents and restricted cash | 31,274 |  |  | (6,548) |
Cash, cash equivalents and restricted cash at beginning of period | 20,710 |  |  | 19,461 |
Cash, cash equivalents and restricted cash at end of period | $ | 51,984 |  |  | $ | 12,913 |
Supplemental disclosure of cash flow information: |  |  |
Cash paid for income taxes, net | $ | 1,230 |  |  | $ | 3,776 |
Right-of-use assets obtained in exchange for lease obligations—operating leases | $ | 3,207 |  |  | $ | 7,578 |
Cash paid for amounts included in the measurement of lease liabilities | $ | 3,063 |  |  | $ | 4,084 |
Non-cash investing and financing activities: |  |  |
Issuance of promissory notes to the sellers of Jack's Flight Club | $ | 11,000 |  |  | $ | — |

See accompanying notes to unaudited condensed consolidated financial statements.
7

TRAVELZOO
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands)

| Common Stock |  | Additional Paid-In Capital |  | Retained Earnings (Accumulated Deficit) |  | Accumulated Other Comprehensive Loss |  | Total Stockholders’ Equity (Deficit)
| Shares |  | Amount
Balances, January 1, 2020 | 11,479 |  |  | $ | 115 |  |  | $ | — |  |  | $ | 14,200 |  |  | $ | (3,452) |  |  | $ | 10,863 |
Stock-based compensation expense | — |  |  | — |  |  | 23 |  |  | — |  |  | — |  |  | 23 |
Repurchase and retirement of common stock | (169) |  |  | (2) |  |  | (23) |  |  | (1,180) |  |  | — |  |  | (1,205) |
Foreign currency translation adjustment | — |  |  | — |  |  | — |  |  | — |  |  | (871) |  |  | (871) |
Net loss–Travelzoo | — |  |  | — |  |  | — |  |  | (6,609) |  |  | — |  |  | (6,609) |
Balances, March 31, 2020 | 11,310 |  |  | 113 |  |  | — |  |  | 6,411 |  |  | (4,323) |  |  | 2,201 |
Stock-based compensation expense | — |  |  | — |  |  | 4,031 |  |  | — |  |  | — |  |  | 4,031 |
Foreign currency translation adjustment | — |  |  | — |  |  | — |  |  | — |  |  | (343) |  |  | (343) |
Net loss—Travelzoo | — |  |  | — |  |  | — |  |  | (6,190) |  |  | — |  |  | (6,190) |
Balances, June 30, 2020 | 11,310 |  |  | 113 |  |  | 4,031 |  |  | 221 |  |  | (4,666) |  |  | (301) |
Stock-based compensation expense | — |  |  | — |  |  | 1,189 |  |  | — |  |  | — |  |  | 1,189 |
Foreign currency translation adjustment | — |  |  | — |  |  | — |  |  | — |  |  | 532 |  |  | 532 |
Net loss—Travelzoo | — |  |  | — |  |  | — |  |  | (1,351) |  |  | — |  |  | (1,351) |
Balances, September 30, 2020 | 11,310 |  |  | $ | 113 |  |  | $ | 5,220 |  |  | $ | (1,130) |  |  | $ | (4,134) |  |  | $ | 69 |

| Common Stock |  | Additional Paid-In Capital |  | Retained Earnings (Accumulated Deficit) |  | Accumulated Other Comprehensive Loss |  | Total Stockholders’ Equity
| Shares |  | Amount
Balances, January 1, 2019 | 11,962 |  |  | $ | 120 |  |  | $ | — |  |  | $ | 18,153 |  |  | $ | (4,214) |  |  | $ | 14,059 |
Stock-based compensation expense | — |  |  | — |  |  | 163 |  |  | — |  |  | — |  |  | 163 |
Repurchase and retirement of common stock | (100) |  |  | (1) |  |  | (137) |  |  | (1,452) |  |  | — |  |  | (1,590) |
Taxes paid for net share settlement of equity awards | 3 |  |  | — |  |  | (26) |  |  | — |  |  | — |  |  | (26) |
Foreign currency translation adjustment | — |  |  | — |  |  | — |  |  | — |  |  | (89) |  |  | (89) |
Net income—Travelzoo | — |  |  | — |  |  | — |  |  | 3,120 |  |  | — |  |  | 3,120 |
Balances, March 31, 2019 | 11,865 |  |  | 119 |  |  | — |  |  | 19,821 |  |  | (4,303) |  |  | 15,637 |
Stock-based compensation expense | — |  |  | — |  |  | 319 |  |  | — |  |  | — |  |  | 319 |
Repurchase and retirement of common stock | (250) |  |  | (2) |  |  | (2,055) |  |  | (2,812) |  |  | — |  |  | (4,869) |
Exercise of stock options and taxes paid for net share settlement of equity awards | 250 |  |  | 2 |  |  | 1,736 |  |  | — |  |  | — |  |  | 1,738 |
Foreign currency translation adjustment | — |  |  | — |  |  | — |  |  | — |  |  | 74 |  |  | 74 |
Net income—Travelzoo | — |  |  | — |  |  | — |  |  | 1,328 |  |  | — |  |  | 1,328 |
Balances, June 30, 2019 | 11,865 |  |  | 119 |  |  | — |  |  | 18,337 |  |  | (4,229) |  |  | 14,227 |
Stock-based compensation expense | — |  |  | — |  |  | 394 |  |  | — |  |  | — |  |  | 394 |
Repurchase and retirement of common stock | (186) |  |  | (2) |  |  | (394) |  |  | (1,912) |  |  | — |  |  | (2,308) |
Foreign currency translation adjustment | — |  |  | — |  |  | — |  |  | — |  |  | (221) |  |  | (221) |
Net income—Travelzoo | — |  |  | — |  |  | — |  |  | 306 |  |  | — |  |  | 306 |
Balances, September 30, 2019 | 11,679 |  |  | $ | 117 |  |  | $ | — |  |  | $ | 16,731 |  |  | $ | (4,450) |  |  | $ | 12,398 |

See accompanying notes to unaudited condensed consolidated financial statements.
8

TRAVELZOO
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Summary of Significant Accounting Policies
(a) The Company and Basis of Presentation
Travelzoo® is a global Internet media company. We provide our 30 million members insider deals and one-of-a-kind experiences personally reviewed by one of our deal experts around the globe. We have our finger on the pulse of outstanding travel, entertainment, and lifestyle experiences. For over 20 years we have worked in partnership with more than 5,000 top travel suppliers—our long-standing relationships give Travelzoo members access to irresistible deals. Travelzoo's revenues are generated primarily from advertising fees.
Our publications and products include the Travelzoo website, the Travelzoo iPhone and Android apps, the Travelzoo Top 20® email newsletter, the Newsflash email alert service, and the Travelzoo Network, a network of third-party websites that list travel deals published by Travelzoo (“Travelzoo” or the "Company"). Our Travelzoo website includes Local Deals and Getaways listings that allow our members to purchase vouchers for deals from local businesses such as spas, hotels and restaurants. We receive a percentage of the face value of the voucher from the local businesses.
APAC Exit
In March 2020, Travelzoo exited its loss-making Asia Pacific business. The Company’s Asia Pacific business was classified as discontinued operations at March 31, 2020. Prior periods have been reclassified to conform with the current presentation.
On June 16, 2020, in connection with its Asia Pacific exit plan, the Company completed a sale of 100% of the outstanding capital stock of Travelzoo Japan K.K, a stock company organized under the laws of Japan (“Travelzoo Japan”), to Mr. Hajime Suzuki, the former General Manager of Japan (the "Japan Buyer") for consideration of 1 Japanese Yen. The Company recorded approximately $128,000 loss upon disposal of Japan in the Condensed Consolidated Financial Statements during the nine months ended September 30, 2020. The parties also entered into a License Agreement, whereby the Travelzoo Japan obtained a license to use the intellectual property of Travelzoo exclusively in Japan in exchange for quarterly royalty payments based on net revenue over a 5 year term, with an option to renew. An interest free loan was provided to the Japan Buyer for JPY 46 million (approximately $430,000) to be repaid over 3 years which the Company recorded as other assets on the unaudited condensed consolidated balance sheet as of September 30, 2020.
Additionally, on August 24, 2020, the Company completed a sale of 100% of the outstanding capital stock of Travelzoo (Singapore) Pty Ltd, a limited company organized under the laws of Singapore (“Travelzoo Singapore”), to an unaffiliated entity, Finest Hotels Pty Ltd, a limited company organized under the laws of Australia (“AUS Buyer”), which is fully owned by Mr. Julian Rembrandt, the former General Manager of South East Asia and Australia of the Company for consideration of 1 Singapore Dollar. The parties also entered into a License Agreement, whereby the AUS Buyer obtained a license to use the intellectual property of Travelzoo exclusively in Australia, New Zealand and Singapore and non-exclusively in China and Hong Kong for quarterly royalty payments based upon net revenue over a 5 year term, with an option to renew. There was no gain or loss from the sale of Travelzoo Singapore.
WeGo Investment
The Company has a minority investment in weekengo GmbH ("WeGo"). WeGo is a technology company which provides an app and a search engine for spontaneous travelers looking for short getaways. The Company accounts for this private company investment using the equity method of accounting by recording its share of the results of WeGo in “Other income (expense)”, net on a one-quarter lag basis. In accounting for the initial investment, the Company allocated $1.0 million of its purchase price to tangible assets and allocated approximately $485,000 of the purchase price to technology-related intangible assets to be amortized over a 3-year life. The remaining $1.5 million of the purchase price was allocated to goodwill.
In February 2020, Travelzoo signed an amended investment agreement (the “Investment Agreement”) with WeGo and agreed to invest an additional $1.7 million when WeGo meets certain performance targets. The original investment agreement with WeGo was executed in April 2018 (the “Original Investment Agreement”). At that time, Travelzoo invested $3.0 million in WeGo for a 25% ownership interest. In April 2019, the Company invested an additional $673,000 in WeGo and increased the Company's ownership interest to 26.6%.
9

As of September 30, 2020, WeGo has not met the performance targets set forth in the Investment Agreement and no additional investment has been made by the Company. In connection with the Original Investment Agreement, WeGo signed an insertion order for $2.1 million in advertising services with Travelzoo in April 2018. The Company's advertising services provided to WeGo in the three months ended September 30, 2020 and 2019 were $23,000 and $130,000, respectively. The Company's advertising services provided to WeGo in the nine months ended September 30, 2020 and 2019 were $383,000 a nd $924,000, respectively.
During the three and nine months ended September 30, 2020, the Company recorded $51,000 and $384,000 for its share of WeGo losses, amortization of basis differences and currency translation adjustment. During the three and nine months ended September 30, 2019, the Company recorded $323,000 and $732,000 for its share of WeGo losses, amortization of basis differences and currency translation adjustment. This equity method investment is reported as a long-term investment on the Company's condensed consolidated balance sheets.
Jack’s Flight Club
In January 2020, Travelzoo acquired JFC Travel Group Co. (“Jack’s Flight Club”), which operates Jack’s Flight Club, a subscription service that provides members with information about exceptional airfares. As of September 30, 2020, Jack’s Flight Club had 1.7 million subscribers. Jack’s Flight Club’s revenues are generated by subscription fees paid by members. In June 2020, the Company renegotiated certain aspects of that certain Stock Purchase Agreement, dated as of January 13, 2020 (the “SPA”), by and among Travelzoo, Jack’s Flight Club and the sellers party thereto (the “Sellers”) with the Sellers and reached a settlement for the outstanding Promissory Notes, dated as of January 13, 2020, by and between Travelzoo and each Seller (the “Promissory Notes”). See Note 3 to the unaudited condensed consolidated financial statements for further information.
PPP Loans
On April 24, 2020 and May 5, 2020, the Company received $3.1 million and $535,000, respectively, pursuant to loans under the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the Small Business Association. The loans have a maturity of two (2) years from the disbursement of the funds and an annual interest rate of 1%. The PPP loan was recorded as long-term PPP notes payabl e on t he unaudited condensed consolidated balance sheet as of September 30, 2020. Interest expense for the PPP notes payable of $9,000 and $16,000 for the three and nine months ended September 30, 2020, respectively, was recorded in Other income (loss), net. The Company intends to use the funds from these loan only for the purposes included in the PPP, including payroll, employee benefits, and rent, and to apply for forg iveness of a portion of the loans in compliance with the CARES Act.
Ownership
Ralph Bartel, who founded the Company and who is a Director of the Company is the sole beneficiary of the Ralph Bartel 2005 Trust, which is the controlling shareholder of Azzurro Capital Inc. (“Azzurro”). As of September 30, 2020, Azzurro is the Company's largest shareholder, holding approximately 39.5% of the Company's outstanding shares. As of September 30, 2020, Azzurro holds a proxy given to it by Holger Bartel that provides it with a total of 39.9% of the voting power.
Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to state fairly the financial position of the Company and its results of operations and cash flows. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes as of and for the year ended December 31, 2019, included in the Company’s Form 10-K filed with the SEC on March 20, 2020.
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The financial results of Jack’s Flight Club have been included in our consolidated financial statements from the date of acquisition. Investments in entities where the Company does not have control, but does have significant influence, are accounted for as equity method investments.
The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020 or any other future period, and the Company makes no representations related thereto.
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(b) Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which provides new guidance on the measurement of credit losses for financial assets measured at amortized cost, which includes accounts receivable. The new guidance replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. This update is effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For Smaller Reporting Companies (as such term is defined by the SEC), such as Travelzoo, the standard will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Entities are required to apply this update on a modified retrospective basis with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the impact on its financial position and results of operations.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment.” ASU 2017-04 simplifies the accounting for goodwill impairment by eliminating the Step 2 requirement to calculate the implied fair value of goodwill. As a result, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units' fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The ASU is effective for fiscal years beginning after December 15, 2022 for Smaller Reporting Companies, including interim periods within those fiscal years, with early adoption permitted. The Company early adopted ASU 2017-04 as of January 1, 2020 and the adoption did not have a material impact on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract.” The new guidance requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. The guidance is effective for calendar-year public business entities in 2020. Early adoption is permitted. The adoption did not have a material impact on the Company’s financial position, results of operations and cash flows.
(c) Significant Accounting Policies
Below are a summary of the Company's significant accounting policies. For a comprehensive description of our accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, 2019.
Business Combinations
The purchase price of an acquisition is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. To the extent the purchase price exceeds the fair value of the net identifiable tangible and intangible assets acquired and liabilities assumed, such excess is allocated to goodwill. The Company determines the estimated fair values after review and consideration of relevant information, including discounted cash flows, quoted market prices and estimates made by management. The Company records the net assets and results of operations of an acquired entity from the acquisition date and adjusts the preliminary purchase price allocation, as necessary, during the measurement period of up to one year after the acquisition closing date as it obtains more information as to facts and circumstances existing at the acquisition date impacting asset valuations and liabilities assumed. Acquisition-related costs are recognized separately from the acquisition and are expensed as incurred.
Identifiable intangible assets
Upon acquisition, identifiable intangible assets are recorded at fair value and are carried at cost less accumulated amortization. Identifiable intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives. The carrying values of all intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. The Company evaluated intangible assets in the first quarter of 2020 due to the coronavirus (COVID-19) pandemic and recorded an impairment expense of $810,000. The Company did not identify any indicators of impairment during the second and third quarters of 2020.
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Goodwill
Goodwill represents the excess of the purchase price of an acquired business over the fair value of the underlying net tangible and intangible assets. Goodwill is evaluated for impairment annually, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. In testing goodwill for impairment, the Company first uses a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount. If the qualitative assessment indicates that goodwill impairment is more likely than not, the Company performs an impairment test by comparing the book value of net assets to the fair value of the reporting units. The Company evaluated goodwill in the first quarter of 2020 due to the COVID-19 pandemic and recorded an impairment expense of $2.1 million. The Company did not identify any indicators of impairment during the second and third quarters of 2020.
Leases
The Company determines if an arrangement contains a lease at inception. Operating lease right-of-use (“ROU”) assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The lease payments used to determine the operating lease assets may include lease incentives and stated rent increases. The Company does not include options to extend or terminate until it is reasonably certain that the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the lease liabilities as the Company’s leases generally do not provide an implicit rate. The Company elected not to recognize leases with an initial term of 12 months or less on its unaudited condensed consolidated balance sheets.
The Company’s leases are reflected in operating lease ROU assets, operating lease liabilities and long-term operating lease liabilities in our unaudited condensed consolidated balance sheets. The lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company also has a real estate lease agreement which is subleased to a third party. The Company recognizes sublease income in “Other income (expense), net”, on a straight-line basis over the lease term in its condensed consolidated statements of income.
Certain Risks and Uncertainties
The Company’s business is subject to risks associated with its ability to attract and retain advertisers and offer products or services on compelling terms to our members. The global outbreak of COVID-19 is having an unprecedented impact on the global travel and hospitality industries. Governmental authorities have implemented numerous measures to try to contain the virus, including restrictions on travel, quarantines, shelter-in-place orders, business restrictions and complete shut-downs. The measures implemented to contain COVID-19 have had, and are expected to continue to have, a significant negative effect on our business, financial condition, results of operations and cash flows.
The Company’s cash, cash equivalents and accounts receivable are potentially subject to concentration of credit risk. Cash and cash equivalents are placed with financial institutions that the management believes are of high credit quality. The accounts receivables are derived from revenue earned from customers located in the U.S. and internationally. During the nine months ended September 30, 2020, the Company experienced the adverse impact of COVID-19. Many of the Company's advertising partners paused, canceled, and stopped advertising with the Company. Additionally, there has been a significant level of cancellations for the Company's hotel partners and travel package partners as well as refund requests for our vouchers with the Company’s restaurant and spa partners. The Company has modified its policies and will continue to adopt new policies as the situation evolves. However, the uncertainties of the pandemic, such as its duration and severity, will likely negatively impact and continue to negatively impact our partners and customers. As of September 30, 2020, we had negative working capital of $13.7 million primarily due to an increase in accounts payable related to merchants from the sale of vouchers. The payable to merchants is generally due upon redemption of the vouchers. The vouchers have maturities that begin in 2020 through December 2022, and we believe that redemption patterns may be delayed for international vouchers under the current environment. Based on current projections of redemption activity, we expect that cash on hand as of September 30, 2020 will be sufficient to provide for working capital needs for at least the next twelve months. However, if redemption activity is more accelerated, or if we are not able to reduce our operating losses, we may need to obtain additional financing to meet our working capital needs in the future. We believe that we could obtain additional financing if needed, but there can be no assurance that financing will be available on terms that are acceptable to us, if at all. As of September 30, 2020 and December 31, 2019, the Company did not have any customers that accounted for 10% or more of accounts receivable.
Cash, Cash Equivalents and Restricted Cash
Restricted cash includes cash and cash equivalents that is restricted through legal contracts, regulations or our intention to use the cash for a specific purpose. Our restricted cash primarily relates to cash held for letters of credit for real estate leases.
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The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited condensed consolidated balance sheets to the total amounts shown in the unaudited condensed consolidated statements of cash flows:

| September 30, |  | December 31,
| 2020 |  | 2019
Cash and cash equivalents | $ | 50,528 |  |  | $ | 18,743 |
Restricted cash | 1,155 |  |  | 1,135 |
Cash, cash equivalents and restricted cash–discontinued operations | 301 |  |  | 832 |
Total cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows | $ | 51,984 |  |  | $ | 20,710 |

The Company’s restricted cash was included in noncurrent assets as of September 30, 2020 and December 31, 2019.
Revenue Recognition
On January 1, 2018, the Company adopted Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers" (Topic 606), using the modified retrospective transition method applied to those contracts which were not completed as of January 1, 2018.
Under Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
The Company's revenues are primarily advertising fees generated from the publishing of travel and entertainment deals on the Travelzoo website, in the Top 20 email newsletter, in Newsflash and through the Travelzoo Network. The Company also generates transaction-based revenues from the sale of vouchers through our Local Deals and Getaways products and operation of a hotel booking platform and limited offerings of vacation packages. The Company's disaggregated revenues are included in “Note 9: Segment Reporting and Significant Customer Information”.
For fixed-fee website advertising, the Company recognizes revenues ratably over the contracted placement period.
For the Top 20 email newsletter and other email products, the Company recognizes revenues when the emails are delivered to its members.
The Company offers advertising on a cost-per-click basis, which means that an advertiser pays the Company only when a user clicks on an advertisement on Travelzoo properties or Travelzoo Network members’ properties. For these customers, the Company recognizes revenues each time a user clicks on the ad.
The Company also offers advertising on other bases, such as cost-per-impression, which means that an advertiser pays the Company based on the number of times their advertisement is displayed on Travelzoo properties, email advertisements, Travelzoo Network properties, or social media properties. For these customers, the Company recognizes revenues each time an advertisement is shown or email delivered.
For transaction based revenues, including products such as Local Deals, Getaways, hotel platform and vacation packages, the Company evaluates whether it is the principal (i.e., report revenue on a gross basis) versus an agent (i.e., report revenue on a net basis). The Company reports transaction revenue on a net basis because the supplier is primarily responsible for providing the underlying service, and we do not control the service provided by the supplier prior to its transfer to the customer.
For Local Deals and Getaways products, the Company earns a fee for acting as an agent for the sale of vouchers that can be redeemed for services with third-party merchants. Revenues are presented net of the amounts due to the third-party merchants for fulfilling the underlying services and an estimated amount for future refunds. Since the second quarter of 2020, the Company expanded its vouchers refund policy in order to entice customers given the current economic climate to fully refundable until the voucher expires or is redeemed by the customer. The Company now offers fully refundable refunds for vouchers that have not been redeemed or expired. The expiration dates of vouchers range between October 2020 through December 2022. The Company estimated the refund reserve by using historical and current refund rates by product and by merchant location to calculate the estimated future refunds. As of September 30, 2020, $2.3 million were reserved for vouchers sold which is recorded as a reduction of revenues and is reflected as a current liability in Accrued expenses and other on the condensed consolidated balance sheet. Certain merchant contracts allow the Company to retain the proceeds from unredeemed vouchers. With these contracts, the Company estimates the value of vouchers that will ultimately not be redeemed and records the estimate as revenues in the same period.
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Jack’s Flight Club revenue is generated from paid subscriptions by members. Subscription options are quarterly, semi-annually, and annually. We recognize the revenue on a pro-rated basis based upon the subscription option.
Commission revenue related to hotel platform is recognized ratably over the period of guest stay, net of an allowance for cancellations based upon historical patterns. For arrangements for booking non-cancelable reservations where the Company’s performance obligation is deemed to be the successful booking of a hotel reservation, we record revenue for the commissions upon completion of the hotel booking.
The Company’s contracts with customers may include multiple performance obligations in which the Company allocates revenues to each performance obligation based upon its standalone selling price. The Company determines standalone selling price based on its overall pricing objectives, taking into consideration the type of services, geographical region of the customers, normal rate card pricing and customary discounts. Standalone selling price is generally determined based on the prices charged to customers when the product is sold separately.
The Company relies upon the following practical expedients and exemptions allowed for in the ASC 606. The Company expenses sales commissions when incurred because the amortization period would be one year or less. These costs are recorded in sales and marketing expenses. In addition, the Company does not disclose the value of unsatisfied performance obligations for (a) contracts with an original expected length of one year or less and (b) contracts for which it recognizes revenues at the amount to which it has the right to invoice for services performed.
Travelzoo deferred revenue primarily consists of customer prepayments and undelivered performance obligations related to the Company’s contracts with multiple performance obligations. At December 31, 2019, $786,000 was recorded as deferred revenue, of which $17,000 and $344,000 was recognized as revenue during the three and nine months ended September 30, 2020, respectively.
Note 2: Net Income (Loss) Per Share
Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding for the period. Diluted net income per share is computed by adjusting the weighted-average number of common shares outstanding for the effect of dilutive potential common shares outstanding during the period. Potential common shares included in the diluted calculation consist of incremental shares issuable upon the exercise of outstanding stock options calculated using the treasury stock method.
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The following table sets forth the calculation of basic and diluted net income per share (in thousands, except per share amounts):

| Three Months Ended |  | Nine Months Ended |  |
| September 30, |  | September 30, |  |
| 2020 |  | 2019 |  | 2020 |  | 2019 |  |  |  |
Numerator: |  |  |  |  |  |  |  |  |  |  |
Net income (loss) attributable to Travelzoo—continuing operations | $ | (1,121) |  |  | $ | 2,564 |  |  | $ | (10,206) |  |  | $ | 10,567 |  |  |  |  |
Net income (loss) attributable to Travelzoo—discontinued operations | $ | (230) |  |  | $ | (2,258) |  |  | $ | (3,944) |  |  | $ | (5,813) |  |  |  |  |
Denominator: |  |  |  |  |  |  |  |  |  |  |
Weighted average common shares—basic | 11,310 |  |  | 11,767 |  |  | 11,353 |  |  | 11,894 |  |  |  |  |
Effect of dilutive securities: stock options | — |  |  | 189 |  |  | — |  |  | 258 |  |  |  |  |
Weighted average common shares—diluted | 11,310 |  |  | 11,956 |  |  | 11,353 |  |  | 12,152 |  |  |  |  |
Income (loss) per share—basic |  |  |  |  |  |  |  |  |  |  |
Continuing operations | $ | (0.10) |  |  | $ | 0.22 |  |  | $ | (0.90) |  |  | $ | 0.89 |  |  |  |  |
Discontinued operations | (0.02) |  |  | (0.19) |  |  | (0.35) |  |  | (0.49) |  |  |  |  |
Net income (loss) per share —basic | $ | (0.12) |  |  | $ | 0.03 |  |  | $ | (1.25) |  |  | $ | 0.40 |  |  |  |  |
Income (loss) per share—diluted |  |  |  |  |  |  |  |  |  |  |
Continuing operations | $ | (0.10) |  |  | $ | 0.21 |  |  | $ | (0.90) |  |  | $ | 0.87 |  |  |  |  |
Discontinued operations | (0.02) |  |  | (0.19) |  |  | (0.35) |  |  | (0.49) |  |  |  |  |
Net income (loss) per share—diluted | $ | (0.12) |  |  | $ | 0.03 |  |  | $ | (1.25) |  |  | $ | 0.39 |  |  |  |  |

For the three and nine months ended September 30, 2020, options to purchase 3.4 million shares of common stock were not included in the computation of diluted net income per share because of the net loss. For the three and nine months ended September 30, 2019, options to purchase 1.1 million shares of common stock were not included in the computation of diluted net income per share because the effect would have been anti-dilutive.
Note 3: Acquisition
On January 13, 2020, Travelzoo entered into the SPA with the shareholders of Jack’s Flight Club for the purchase of up to 100% of the outstanding capital stock of Jack’s Flight Club (the “Shares”). Pursuant to the SPA, on January 13, 2020, the Sellers sold 60% of the Shares to the Company for an aggregate purchase price of $12.0 million, $1.0 million of which was paid in cash and $11.0 million of which was paid in Promissory Notes. The Promissory Notes contain an interest rate of 1.6% per annum and a due date of January 31, 2020, with a one-time right to extend the maturity date up to April 30, 2020 with a principal payment of $1.0 million on January 31, 2020, which the Company exercised. The remaining 40% of the Shares are subject to a call/put option exercisable by the Company or the Sellers, as applicable, on or around January 1, 2021, subject to the terms and conditions set forth in the SPA.
On June 3, 2020, the Company renegotiated the SPA with the Sellers of Jack’s Flight Club and reached a negotiated settlement. The Company recorded adjustments accordingly, however, these adjustments are not considered measurement period adjustments to the purchase consideration since there is not a clear and direct link to the consideration transferred in the SPA entered into on January 13, 2020.
The strategic rationale for the Jack’s Flight Club acquisition was to expand Jack’s Flight Club’s membership to Travelzoo members worldwide, so the members from Travelzoo could also sign up to receive offers from Jack’s Flight Club.
The acquisition has been accounted for using the acquisition method in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations. Under the acquisition method of accounting, the total purchase consideration of the acquisition is allocated to the tangible assets and identifiable intangible assets and liabilities assumed based on their relative fair values. The excess of the purchase consideration over the net tangible and identifiable intangible assets is recorded as goodwill. The acquisition related costs were not significant and were expensed as incurred.
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Purchase Price Allocation
The purchase price allocation is based on estimates, assumptions and third-party valuations. The aggregate purchase price and allocation was as follows (in thousands):

Purchase Price | Jack’s Flight Club
Cash paid | $ | 1,000 |
Promissory notes issued | 10,931 |
Fair Value of Put/Call Option | 183 |
| $ | 12,114 |
Allocation |
Goodwill | $ | 13,054 |
Intangible assets |
Customer relationships | 3,500 |
Trade name | 2,460 |
Non-compete agreements | 660 |
Current assets acquired, including cash of $321 | 324 |
Current liabilities assumed | (40) |
Deferred revenue | (881) |
Deferred tax liabilities | (1,391) |
Non-controlling interest | (5,572) |
| $ | 12,114 |

The Company determined the estimated fair value of the put/call option using the Monte Carlo Simulation approach and the identifiable intangible assets acquired primarily using the income approach. Non-controlling interests represent third-party shareholders and are measured at fair value on the date acquired.
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Company’s share of the identifiable net assets of the acquired subsidiary. Goodwill is evaluated for impairment annually, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. The Company determined that the COVID-19 pandemic was a triggering event requiring the Company to assess its long-lived assets including goodwill for impairment. The Company performed an impairment test during the first quarter of 2020 by comparing the carrying value of Jack’s Flight Club net assets to the fair value of the Jack’s Flight Club reporting unit based on an updated discounted cash flow analysis. The fair value of the Jack’s Flight Club reporting unit was determined to be less than the carrying value, and the difference between the estimated fair value of goodwill and the carrying value was recorded as goodwill impairment. The Company also performed an ASC 360 analysis for long-lived assets noting no impairment of such assets based on the undiscounted cash flows of the Jack’s Flight Club asset group. The Company first impaired indefinite lived intangible assets (“Trade name”) before impairing goodwill. The following table summarizes the goodwill activity for the nine months ended September 30, 2020 (in thousands):

Goodwill—January 1, 2020 | $ | — |
Acquisition | 13,054 |
Impairment—March 31, 2020 | (2,110) |
Goodwill—September 30, 2020 | $ | 10,944 |

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Intangible Assets
The following table represents the fair value and estimated useful lives of intangible assets (in thousands):

| Fair Value |  | Estimated Life (Years)
Customer relationships | $ | 3,500 |  |  | 5
Trade name | 2,460 |  |  | indefinite
Non-compete agreements | 660 |  |  | 4

The fair value of intangible assets of $6.6 million has been allocated to the following three asset categories: 1) customer relationships, 2) trade name, and 3) non-compete agreements. These assets are included within “Intangible assets” on our consolidated balance sheets. Customer relationships and non-compete agreements are being amortized to operating expenses over their estimated useful lives using the straight-line basis for non-compete agreements or on an accelerated basis for customer relationships.
The following table represents the activities of intangible assets for the three and nine months ended September 30, 2020 (in thousands):

| Fair Value
Intangible assets—January 1, 2020 | $ | — |
Acquisition | 6,620 |
Impairment of trade name | (810) |
Amortization of intangible assets with definite lives | (215) |
Intangible assets- March 31, 2020 | 5,595 |
Amortization of intangible assets with definite lives | (395) |
Intangible assets- June 30, 2020 | 5,200 |
Amortization of intangible assets with definite lives | (333) |
Intangible assets- September 30, 2020 | $ | 4,867 |

Amortization expense for acquired intangibles was $333,000 and $943,000 for the three and nine months ended September 30, 2020. Expected future amortization expense of acquired intangible assets as of September 30, 2020 is as follows (in thousands):

Years ending December 31, |
2020 remainder | $ | 333 |
2021 | 1,108 |
2022 | 875 |
2023 | 641 |
2024 | 250 |
Thereafter | 10 |
| $ | 3,217 |

As previously discussed in “Goodwill”, the Company's impairment test indicated that Jack’s Flight Club’s indefinite lived intangible assets (“Trade name”) was impaired for $810,000 for the first quarter of 2020. The Company did not identify any indicators of impairment during the second and third quarters of 2020.
Pro Forma Information
The acquired company was consolidated into our financial statements starting on the acquisition date. The unaudited financial information in the table below summarizes the combined results of operations of Travelzoo and Jack’s Flight Club, on a pro forma basis, as though the companies had been combined as of the beginning of the fiscal year presented. The debt was issued to finance the acquisition of Jack’s Flight Club. The unaudited pro forma information has been calculated after applying the Company’s accounting policies and includes adjustments to reflect the amortization charges from acquired intangible assets, adjustments to deferred revenue, interest expense and related tax effects. The unaudited pro forma financial information is
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presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the fiscal year presented.
The following table summarizes the pro forma financial information (in thousands):

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
Revenues | $ | 13,787 |  |  | $ | 27,349 |  |  | $ | 41,239 |  |  | $ | 81,807 |
Net income (loss) | $ | (1,226) |  |  | $ | 1,231 |  |  | $ | (15,247) |  |  | $ | 4,626 |

Jack's Flight Club Settlement
On June 3, 2020, the Company and the Seller renegotiated the SPA. Pursuant to the original terms of the outstanding Promissory Notes, the Company owed $10.0 million plus interest (the “Outstanding Amount”) to the Sellers on April 30, 2020. On June 3, 2020, the parties reached a negotiated settlement for the Outstanding Amount with the following terms: (a) $1.5 million was forgiven in settlement of certain outstanding indemnification claims disputed by the Sellers; (b) $6.8 million, plus accrued interest, was paid to the Sellers by Travelzoo, and (c) the remaining $1.7 million to be paid by June 2021 pursuant to new promissory notes with each of the Sellers that contain a 12% interest rate. For the three months ended June 30, 2020, the Company recorded $1.5 million gain in “General and administrative expenses” for the partial forgiveness of the outstanding loan. Interest expense for the Promissory Notes of $52,000 and $131,000 for the three and nine months ended September 30, 2020, respectively, was recorded in Other income (loss), net.
Travelzoo also agreed that the additional payment set forth in the SPA (equal to 20% of 2020 net income) would be payable to the Sellers regardless of whether EBITDA targets are achieved and the put/call is exercised in 2021. The Company estimated the total payment and recorded $448,000 expense in “General and administrative expenses” for the nine months ended September 30, 2020.
The parties also agreed to a new put/call option exercisable in 2022 by the Sellers or Travelzoo, as applicable, only if the put/call option for 2021 as set forth in the SPA is not exercised, with a EBITDA threshold of $4.3 million and a purchase price equal to 40% of 2021 EBITDA multiplied by 3.5, and an additional payment equal to 20% of 2021 net income if the EBITDA threshold is achieved. The Company re-evaluated the fair value of the put/call option by using the Monte Carlo Simulation approach and the identifiable intangible assets acquired primarily by using the income approach and determined that the extension of the one year period did not change the fair value of the put/call option materially.
Note 4: Commitments and Contingencies
The Company was formed as a result of a combination and merger of entities founded by the Company’s principal shareholder, Ralph Bartel. In 2002, Travelzoo.com Corporation (“Netsurfers”) was merged into the Company. Under and subject to the terms of the merger agreement, holders of promotional shares of Netsurfers who established that they had satisfied certain prerequisite qualifications were allowed a period of 2 years following the effective date of the merger to receive one share of the Company in exchange for each share of common stock of Netsurfers. In 2004, two years following the effective date of the merger, certain promotional shares remained unexchanged. As the right to exchange these promotional shares expired, no additional shares were reserved for issuance. Thereafter, the Company began to offer a voluntary cash program for those who established that they had satisfied certain prerequisite qualifications for Netsurfers promotional shares as further described below.
During 2010 through 2014, the Company became subject to unclaimed property audits of various states in the United States related to the above unexchanged promotional shares and completed settlements with all states. Although the Company has settled the unclaimed property claims with all states, the Company may still receive inquiries from certain potential Netsurfers promotional shareholders that had not provided their state of residence to the Company by April 25, 2004. Therefore, the Company is continuing its voluntary program under which it makes cash payments to individuals related to the promotional shares for individuals whose residence was unknown by the Company and who establish that they satisfy the original conditions required for them to receive shares of Netsurfers, and who failed to submit requests to convert their shares into shares of Travelzoo within the required time period. This voluntary program is not available for individuals whose promotional shares have been escheated to a state by the Company, except those individuals for which their residence was unknown to the Company. The Company did not make any payments for the nine months ended September 30, 2020 and 2019.
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The total cost of this program cannot be reliably estimated because it is based on the ultimate number of valid requests received and future levels of the Company’s common stock price. The Company’s common stock price affects the liability because the amount of cash payments under the program is based in part on the recent level of the stock price at the date valid requests are received. The Company does not know how many of the requests for shares originally received by Netsurfers in 1998 were valid, but the Company believes that only a portion of such requests were valid. In order to receive payment under this voluntary program, a person is required to establish that such person validly held shares in Netsurfers.
The Company has promissory notes payable related to the acquisition of Jack’s Flight Club. The Company also has PPP notes payable for funds received under the PPP program. Refer to Note 1 and Note 3 for further information. The Company also has operating leases. Refer to Note 11for Leases as of September 30, 2020.
Note 5: Income Taxes
Ordinarily, in determining the quarterly provisions for income taxes, the Company uses an estimated annual effective tax rate, which is generally based on our expected annual income and statutory tax rates in the U.S., Canada, and the U.K. Due to the COVID-19 pandemic, and difficulty forecasting the calendar year 2020 of income (loss) by jurisdiction, we determined the estimated annual effective rate method would not provide a reliable estimate of the Company’s overall annual effective tax rate. As such, we have calculated the tax provision using the actual effective rate for the nine months ended September 30, 2020. The Company's effective tax rate from continuing operations w as 20% and 25%, respectively, for the three months ended September 30, 2020 and 2019. The Company's effective tax rate from continuing operations was 15% and 25%, respectively, for the nine months ended September 30, 2020 and 2019. The Company's effective tax rate decreased for the three and nine months ended September 30, 2020 from the corresponding three and nine months ended September 30, 2019, primarily due to operating losses not benefited.
As of September 30, 2020, the Company is permanently reinvested in certain of its non-U.S. subsidiaries and does not have a deferred tax liability related to its undistributed foreign earnings. The estimated amount of the unrecognized deferred tax liability attributed to future withholding taxes on dividend distributions of undistributed earnings for certain non-U.S. subsidiaries, which the Company intends to reinvest the related earnings indefinitely in its operations outside the U.S., is approximately $549,000.
The Company maintains liabilities for uncertain tax positions. At September 30, 2020, the Company had approximately $152,000 in total unrecognized tax benefits, which if recognized, would favorably affect the Company’s effective income tax rate.
The Company’s policy is to include interest and penalties related to unrecognized tax positions in income tax expense. To the extent accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction in the overall income tax provision in the period that such determination is made. At September 30, 2020 and December 31, 2019, the Company had approximately $229,000 and $207,000 in accrued interest, respectively.
The Company files income tax returns in the U.S. federal jurisdiction, various U.S. states and foreign jurisdictions. The Company is subject to U.S. federal and certain state tax examinations for certain years from 2016 and forward and is subject to California tax examinations for years from 2015 and forward.
We do not know what our income taxes will be in future periods. There may be fluctuations that have a material impact on our results of operations. Our income taxes are dependent on numerous factors such as the geographic mix of our taxable income, federal and state and foreign country tax law and regulations and changes thereto, the determination of whether valuation allowances for certain tax assets are required or not, audits of prior years' tax returns resulting in adjustments, resolution of uncertain tax positions and different treatment for certain items for tax versus books. We expect fluctuations in our income taxes from year to year and from quarter to quarter. Some of the fluctuations may be significant and have a material impact on our results of operations.
On March 27, 2020, President Trump signed into law the CARES Act, which, along with earlier issued IRS guidance, provides for deferral of certain taxes. The CARES Act, among other things, also contains numerous other provisions which may benefit the Company. We continue to assess the effect of the CARES Act and ongoing government guidance related to COVID-19 that may be issued.
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Note 6: Accumulated Other Comprehensive Loss
The following table summarizes the changes in accumulated other comprehensive loss (in thousands):

| Three Months Ended |  | Nine Months Ended |  |
| September 30, |  | September 30, |  |
| 2020 |  | 2019 |  | 2020 |  | 2019 |  |  |  |
Beginning balance | $ | (4,666) |  |  | $ | (4,229) |  |  | $ | (3,452) |  |  | $ | (4,214) |  |  |  |  |
Other comprehensive income (loss) due to foreign currency translation, net of tax | 349 |  |  | (221) |  |  | (460) |  |  | (236) |  |  |  |  |
Reclassification of amounts to income relating to APAC discontinued operations, net of tax | 183 |  |  | — |  |  | (222) |  |  | — |  |  |  |  |
Ending balance | $ | (4,134) |  |  | $ | (4,450) |  |  | $ | (4,134) |  |  | $ | (4,450) |  |  |  |  |

There were no amounts reclassified from accumulated other comprehensive loss for the three and nine months ended September 30, 2019.
Note 7: Stock-Based Compensation and Stock Options
The Company accounts for its employee stock options under the fair value method, which requires stock-based compensation to be estimated using the fair value on the date of grant using an option-pricing model. The value of the portion of the award that is expected to vest is recognized on a straight-line basis as expense over the related employees’ requisite service periods in the Company’s condensed consolidated stateme nts of operations.
In September 2015, pursuant to an executed Option Agreement, the Company granted its Global Chief Executive Officer, Holger Bartel, options to purchase 400,000 shares of common stock of the Company, with an exercise price of $8.07 and quarterly vesting beginning on March 31, 2016 (the “2015 Option Agreement”). The 2015 Option Agreement expires in September 2025. The options are now fully vested and the stock-based compensation related to these options was fully expensed. In October 2017, pursuant to an executed Option Agreement, the Company granted Mr. Bartel options to purchase 400,000 shares of common stock, with an exercise price of $6.95 and quarterly vesting beginning on March 31, 2018 (the “2017 Option Agreement”). The 2017 Option Agreement expires in 2027. During 2019, 250,000 options granted pursuant to the 2017 Option Agreement were exercised by Mr. Bartel. The remaining 150,000 options are fully vested and the stock-based compensation related to these options was fully expensed. In September 2019, the Company granted Mr. Bartel options to purchase 400,000 shares of common stock subject to shareholder approval, with an exercise price of $10.79 and quarterly vesting beginning on March 31, 2020 and ending on December 31, 2021 (the “2019 Option Agreement” and together with the 2015 Option Agreement and the 2017 Option Agreements, the “Bartel Option Agreements”). The 2019 Option Agreement expires in 2024.
On May 29, 2020, the shareholders of the Company approved certain amendments to the Bartel Option Agreements, which increased and repriced all outstanding, unexercised options granted to Mr. Bartel (the “Option Agreement Amendments”). Pursuant to the Option Agreement Amendments and subject to shareholder approval, the exercise price for the options was repriced to the official NASDAQ closing share price on March 30, 2020 (the date of execution of the Option Agreement Amendments, which immediately followed the date of approval of the grants from the Board of Directors of the Company), which was $3.49. Additionally, the Option Agreement Amendments made the following increases: (a) 400,000 additional options to purchase the Company’s common stock pursuant to the 2015 Option Agreement, (b) 150,000 additional options to purchase the Company’s common stock pursuant to the 2017 Option Agreement, and (c) 400,000 additional options to purchase the Company’s common stock pursuant to the 2019 Option Agreement, which resulted in a total of 1,900,000 options granted to Mr. Bartel pursuant to the Option Agreement Amendments. Mr. Bartel’s amended options pursuant to the 2015 Option Agreement and the 2017 Option Agreement were fully vested upon the execution of the applicable Option Agreement Amendment. Therefore, stock-based compensation related to these options was fully expensed in the three months ended June 30, 2020. Total stock-based compensation of $382,000 and $3.9 million was recorded in general and administrative expenses for the three and nine months ended September 30, 2020. As of September 30, 2020, there was approximately $1.9 million of unrecognized stock-based compensation expense relating to the 2019 Option Agreement and applicable Option Agreement Amendment. This amount is expected to be recognized over the next 1.2 years.
In May 2018, pursuant to executed Option Agreements, the Company granted an employee options to purchase 50,000 shares of common stock with an exercise price of $14.70 and annual vesting beginning in May 2019. The options expire in May 2028. During the nine months ended September 30, 2020, 25,000 unvested options were forfeited and 25,000 vested option
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were canceled upon the departure of the employee. Total stock-based compensation of $0 and $22,000 was recorded in sales and marketing expense for the three months ended September 30, 2020 and 2019, respectively. Total stock-based compensation of $34,000 and $67,000 was recorded in sales and marketing expense for the nine months ended September 30, 2020 and 2019, respectively.
In June 2018, pursuant to an executed Option Agreement, the Company granted an employee options to purchase 50,000 shares of common stock with an exercise price of $16.65 and annual vesting beginning June 2019. The options expire in June 2023. Total stock-based compensation of $21,000 and $53,000 was recorded in product development expense for the three and nine months ended September 30, 2019, respectively. During the nine months ended September 30, 2020, 37,500 unvested options were forfeited and the compensation expense of $43,000 was reversed from product development expense upo n the employee's notification of departure.
In May 2019, pursuant to an executed Option Agreement, the Company granted an employee options to purchase 100,000 shares of common stock with an exercise price of $19.28, of which 10,000 options vested and became exercisable in May 2019, 15,000 options vested and became exercisable in September 2019, and the remaining 75,000 will vest in three equal installments beginning in May 2021 and ending in May 2024. The options expire in May 2024. During the nine months ended September 30, 2020, 75,000 unvested options were forfeited, 25,000 of vested option were canceled, and the compensation expense of $107,000 was reversed fro m general and administrative expenses upon the departure of the employee.
I n September 2019, pursuant to executed Option Agreements, the Company granted, subject to shareholder approval, six employees stock options to purchase 50,000 shares of common stock each (300,000 in the aggregate) with an exercise price of $10.79, of which 75,000 options vest and become exercisable annually starting on September 5, 2020 and ending on December 31, 2023. The options expire in September 2024. On May 29, 2020, the shareholders of the Company approved the grants, as well as certain amendments to the Option Agreements, which increased and repriced all outstanding, unexercised options granted to such employees. Pursuant to the applicable amendments, the exercise price for the options was repriced to the official NASDAQ closing share price on March 30, 2020 (the date of execution of the amendments to the Option Agreements, which immediately followed the date of approval of the grants from the Board of Directors of the Company), which was $3.49, the option grants were each increased to 100,000 each, resulting in 300,000 additional options in the aggregate. During the nine months ended September 30, 2020, 100,000 unvested options were forfeited upo n an employee's departure. Total stock-based compensation related to these option grants of $362,000 and $523,000 was recorded in general and administrative expenses for the three and nine months ended September 30, 2020, respectively. As of September 30, 2020, there was approximately $1.4 million of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over the next 2.9 years.
On May 29, 2020, pursuant to an executed Option Agreement, the shareholders of the Company approved the grant of stock options to purchase 800,000 shares of common stock to Mr. Ralph Bartel, Chairman of the Board of Directors of the Company, with an exercise price of $3.49 and quarterly vesting beginning June 30, 2020 and ending on March 31, 2022. The options expire in March 2025. This grant was approved at the 2020 Annual Meeting of the shareholders. Total stock-based compensation related to these option grants of $385,000 and $771,000 was recorded in general and administrative expenses for the three and nine months ended September 30, 2020, respectively. As of September 30, 2020, there was approximately $2.3 million of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over the next 1.5 years.
On May 29, 2020, pursuant to an executed Option Agreement, the shareholders of the Company approved the grant of stock options to purchase 200,000 shares of common stock to two key employees, with an exercise price of $3.49 with annual vesting starting March 30, 2021 and ending on March 31, 2024. The options expire in March 2025. Total stock-based compensation related to these option grants of $59,000 and $79,000 was recorded in general and administrative expenses for the three and nine months ended September 30, 2020, respectively. As of September 30, 2020, there was approximately $707,000 of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over the next 3.5 years.
Note 8: Stock Repurchase Program
The Company's stock repurchase programs assist in offsetting the impact of dilution from employee equity compensation and assist with capital allocation. Upon approval from the Board of Directors of the Company, management is allowed discretion in the execution of the repurchase program based upon market conditions and consideration of capital allocation.
In February 2019, the Company entered into a Stock Repurchase Agreement with Azzurro, a significant shareholder of the Company and repurchased 100,000 shares of the Company’s common stock for an aggregate purchase price of $1.6 million, which were retired and recorded as a reduction of additional paid-in capital until extinguished with the remaining amount reflected as a reduction of retained earnings.
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In May 2019, the Company announced a stock repurchase program authorizing the repurchase of up to 1,000,000 shares of the Company’s outstanding common stock. The Company did not purchase common stock during the three months ended September 30, 2020. During the three months ended September 30, 2019, the Company repurchased 186,369 shares of common stock for an aggregate purchase price of $2.3 million. During the nine months ended September 30, 2020 and 2019, the Company repurchased 169,602 shares and 436,369 shares of common stock for an aggregate purchase price of $1.2 million and $7.2 million, respectively, under the stock repurchase program. There were 395,029 shares remaining to be repurchased under this program as of September 30, 2020.
In November 2019, the Company entered into a Stock Repurchase Agreement with Mr. Holger Bartel to repurchase an aggregate of 200,000 shares of the Company’s common stock for an aggregate purchase price of $2.0 million, which were retired and recorded as a reduction of additional paid-in capital until extinguished with the remaining amount reflected as a reduction of retained earnings.
Note 9: Segment Reporting and Significant Customer Information
The Company determines its reportable segments based upon the Company's chief operating decision maker managing the performance of the business. Historically, the Company managed its business geographically and operated in three reportable segments including Asia Pacific, Europe and North America. During the nine months ended September 30, 2020, the Company classified the results of its Asia Pacific segment as discontinued operations in its condensed consolidated financial statements for current and prior periods presented. On January 13, 2020, Travelzoo agreed to the SPA with the Sellers of Jack’s Flight Club to purchase 60% of the Shares. Upon acquisition, the Company's chief operating decision maker reviewed and evaluated Jack's Flight Club as a separate segment. The Company currently has three reportable operating segments: Travelzoo North America, Travelzoo Europe and Jack’s Flight Club. Travelzoo North America consists of the Company’s operations in Canada and the U.S. Travelzoo Europe consists of the Company’s operations in France, Germany, Spain, and the U.K. Jack’s Flight Club consists of subscription revenue from premium members to access and receive flight deals from Jack’s Flight Club via email or via Android or Apple mobile applications.
Management relies on an internal management reporting process that provides revenue and segment operating profit (loss) for making financial decisions and allocating resources. Management believes that segment revenues and operating profit (loss) are appropriate measures of evaluating the operational performance of the Company’s segments.
The following is a summary of operating results by business segment (in thousands):

Three Months Ended September 30, 2020 | Travelzoo North America |  | Travelzoo Europe |  | Jack’s Flight Club |  | Elimination |  | Consolidated
Revenues from unaffiliated customers | $ | 9,002 |  |  | $ | 3,798 |  |  | $ | 987 |  |  | $ | — |  |  | $ | 13,787 |
Intersegment revenues (expenses) | 141 |  |  | (141) |  |  | — |  |  | — |  |  | — |
Total net revenues | 9,143 |  |  | 3,657 |  |  | 987 |  |  | — |  |  | 13,787 |
Operating profit (loss) | $ | (696) |  |  | $ | (757) |  |  | $ | 250 |  |  | $ | — |  |  | $ | (1,203) |

Three Months Ended September 30, 2019 | Travelzoo North America |  | Travelzoo Europe |  | Jack’s Flight Club |  | Elimination |  | Consolidated
Revenues from unaffiliated customers | $ | 14,444 |  |  | $ | 9,432 |  |  | $ | — |  |  | $ | (43) |  |  | $ | 23,833 |
Intersegment revenues (expenses) | 895 |  |  | (938) |  |  | — |  |  | 43 |  |  | — |
Total net revenues | 15,339 |  |  | 8,494 |  |  | — |  |  | — |  |  | 23,833 |
Operating profit (loss) | $ | 2,620 |  |  | $ | 815 |  |  | $ | — |  |  | $ | (43) |  |  | $ | 3,392 |

Nine Months Ended September 30, 2020 | Travelzoo North America |  | Travelzoo Europe |  | Jack’s Flight Club |  | Elimination |  | Consolidated
Revenues from unaffiliated customers | $ | 25,805 |  |  | $ | 12,706 |  |  | $ | 2,615 |  |  | $ | (8) |  |  | $ | 41,118 |
Intersegment revenues (expenses) | 237 |  |  | (245) |  |  | — |  |  | 8 |  |  | — |
Total net revenues | 26,042 |  |  | 12,461 |  |  | 2,615 |  |  | — |  |  | 41,118 |
Operating profit (loss) | $ | (6,374) |  |  | $ | (3,781) |  |  | $ | (3,013) |  |  | $ | (8) |  |  | $ | (13,176) |

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Nine Months Ended September 30, 2019 | Travelzoo North America |  | Travelzoo Europe |  | Jack’s Flight Club |  | Elimination |  | Consolidated
Revenues from unaffiliated customers | $ | 50,074 |  |  | $ | 29,619 |  |  | $ | — |  |  | $ | (94) |  |  | $ | 79,599 |
Intersegment revenues (expenses) | 1,776 |  |  | (1,870) |  |  | — |  |  | 94 |  |  | — |
Total net revenues | 51,850 |  |  | 27,749 |  |  | — |  |  | — |  |  | 79,599 |
Operating profit (loss) | $ | 10,673 |  |  | $ | 3,536 |  |  | $ | — |  |  | $ | (94) |  |  | $ | 14,115 |

Property and equipment are attributed to the geographic region in which the assets are located. Revenues from unaffiliated customers excludes intersegment revenues and represents revenue with parties unaffiliated with the Company and its wholly owned subsidiaries.
The following is a summary of assets by business segment (in thousands):

As of September 30, 2020 | Travelzoo North America |  | Travelzoo Europe |  | Jack’s Flight Club |  | Elimination |  | Consolidated
Long-lived assets | $ | 1,243 |  |  | $ | 256 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,499 |
Total assets excluding discontinued operations | $ | 122,067 |  |  | $ | 84,361 |  |  | $ | 5,797 |  |  | $ | (121,247) |  |  | $ | 90,978 |

As of December 31, 2019 | Travelzoo North America |  | Travelzoo Europe |  | Elimination |  | Consolidated
Long-lived assets | $ | 2,598 |  |  | $ | 263 |  |  | $ | — |  |  | $ | 2,861 |
Total assets excluding discontinued operations | $ | 66,057 |  |  | $ | 74,604 |  |  | $ | (90,084) |  |  | $ | 50,577 |

For the nine months ended September 30, 2020 and 2019, the Company did not have any customers that accounted for 10% or more of revenue. As of September 30, 2020 and December 31, 2019, the Company did not have any customers that accounted for 10% or more of accounts receivable.
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The following table sets forth the breakdown of revenues (in thousands) by category and segment. Travel revenue includes travel publications (Top 20, Travelzoo website, Newsflash, Travelzoo Network), Getaways vouchers, hotel platform and vacation packages. Local revenue includes Local Deals vouchers and entertainment offers (vouchers and direct bookings).

| Three Months Ended |  | Nine Months Ended |  |
| September 30, |  | September 30, |  |
| 2020 |  | 2019 |  | 2020 |  | 2019 |  |  |  |
Travelzoo North America |  |  |  |  |  |  |  |  |  |  |
Travel | $ | 8,706 |  |  | $ | 12,899 |  |  | $ | 23,772 |  |  | $ | 44,470 |  |  |  |  |
Local | 437 |  |  | 2,440 |  |  | 2,270 |  |  | 7,380 |  |  |  |  |
Total Travelzoo North America revenues | 9,143 |  |  | 15,339 |  |  | 26,042 |  |  | 51,850 |  |  |  |  |
Travelzoo Europe |  |  |  |  |  |  |  |  |  |  |
Travel | 3,449 |  |  | 7,727 |  |  | 11,442 |  |  | 24,804 |  |  |  |  |
Local | 208 |  |  | 767 |  |  | 1,019 |  |  | 2,945 |  |  |  |  |
Total Travelzoo Europe revenues | 3,657 |  |  | 8,494 |  |  | 12,461 |  |  | 27,749 |  |  |  |  |
Jack’s Flight Club | 987 |  |  | — |  |  | 2,615 |  |  | — |  |  |  |  |
Consolidated |  |  |  |  |  |  |  |  |  |  |
Travelzoo Travel | 12,155 |  |  | 20,626 |  |  | 35,214 |  |  | 69,274 |  |  |  |  |
Travelzoo Local | 645 |  |  | 3,207 |  |  | 3,289 |  |  | 10,325 |  |  |  |  |
Jack’s Flight Club | 987 |  |  | — |  |  | 2,615 |  |  | — |  |  |  |  |
Total revenues | $ | 13,787 |  |  | $ | 23,833 |  |  | $ | 41,118 |  |  | $ | 79,599 |  |  |  |  |

Revenue by geography is based on the billing address of the advertiser. Long-lived assets attributed to the U.S. and international geographies are based upon the country in which the asset is located or owned. The following table sets forth revenue for countries that exceed 10% of total revenue (in thousands):

| Three Months Ended |  | Nine Months Ended |  |
| September 30, |  | September 30, |  |
| 2020 |  | 2019 |  | 2020 |  | 2019 |  |  |  |
Revenue |  |  |  |  |  |  |  |  |  |  |
United States | $ | 8,345 |  |  | $ | 13,817 |  |  | $ | 23,753 |  |  | $ | 47,041 |  |  |  |  |
United Kingdom | 3,095 |  |  | 4,335 |  |  | 10,189 |  |  | 14,930 |  |  |  |  |
Germany | 1,386 |  |  | 2,830 |  |  | 4,148 |  |  | 9,262 |  |  |  |  |
Rest of the world | 961 |  |  | 2,851 |  |  | 3,028 |  |  | 8,366 |  |  |  |  |
Total revenues | $ | 13,787 |  |  | $ | 23,833 |  |  | $ | 41,118 |  |  | $ | 79,599 |  |  |  |  |

The following table sets forth property and equipment by geographic area (in thousands):

| September 30, |  | December 31,
| 2020 |  | 2019
United States | $ | 1,025 |  |  | $ | 2,359 |
Rest of the world | 474 |  |  | 502 |
Total long-lived assets | $ | 1,499 |  |  | $ | 2,861 |

Note 10: Discontinued Operation
On March 10, 2020, Travelzoo issued a press release announcing that it will exit its business in Asia Pacific. The decision supports the Company's strategy to focus on value creation for shareholders by focusing on growing the businesses in North America and Europe, where the Company continues to see strong interest from our members in travel deals.
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The Asia Pacific business shut down and ceased operations as of March 31, 2020, except for the Company's Japan unit, which was held for sale. The Company considers this decision to be a strategic shift in its strategy which will have a major effect on its operations. The Company has classified Asia Pacific as discontinued operations at March 31, 2020. Prior periods have been reclassified to conform with the current presentation. The following table provides a summary of amounts included in discontinued operations for the three and nine months ended September 30, 2020 and 2019 (in thousands):

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
Revenues | $ | — |  |  | $ | 1,672 |  |  | $ | 970 |  |  | $ | 4,915 |
Cost of revenues | — |  |  | 128 |  |  | 6 |  |  | 294 |
Gross profit | — |  |  | 1,544 |  |  | 964 |  |  | 4,621 |
Operating expenses: |  |  |  |  |  |  |
Sales and marketing | — |  |  | 2,266 |  |  | 1,712 |  |  | 6,591 |
Product development | — |  |  | 44 |  |  | — |  |  | 124 |
General and administrative | 69 |  |  | 1,412 |  |  | 3,413 |  |  | 3,412 |
Total operating expenses | 69 |  |  | 3,722 |  |  | 5,125 |  |  | 10,127 |
Loss from operations | (69) |  |  | (2,178) |  |  | (4,161) |  |  | (5,506) |
Other income (loss), net | (161) |  |  | (170) |  |  | 217 |  |  | (428) |
Loss before income taxes | (230) |  |  | (2,348) |  |  | (3,944) |  |  | (5,934) |
Income tax expense | — |  |  | (90) |  |  | — |  |  | (121) |
Net loss | $ | (230) |  |  | $ | (2,258) |  |  | $ | (3,944) |  |  | $ | (5,813) |

The Company recorded severance and disposal costs of $1.6 million during the first quarter of fiscal year 2020 for the shut down and such costs were classified in “general and administrative” in the table above. Certain reclassifications have been made for current and prior periods between the continued operations and the discontinued operations in accordance with U.S. GAAP. Those reclassifications included direct operating expenses and certain inter-company charges that will not continue. $0 and $64,000 of cost of revenues were reclassified from the discontinued operations to continued operations for the three and nine months ended September 30, 2020, respectively. $24,000 and $94,000 of cost of revenues were reclassified from the discontinued operations to continued operations for the three and nine months ended September 30, 2019, respectively. In addition, $0 and $7,000 of operating expenses that were reclassified from discontinued operations to continued operations for the three and nine months ended September 30, 2020, respectively. $150,000 and $129,000 of operating expenses that were reclassified from continued operations to discontinued operations for the three and nine months ended September 30, 2019, respectively.
On June 16, 2020, in connection with its Asia Pacific exit plan, the Company completed a sale of 100% of the outstanding capital stock of Travelzoo Japan to the Japan Buyer for consideration of 1 Japanese Yen. The Company recognized a pre-tax loss of $128,000. T he parties also entered into a License Agreement, whereby the Travelzoo Japan btained a license to use the intellectual property of Travelzoo exclusively in Japan in exchange for quarterly royalty payments based on revenue over a 5 year term, with an option to renew. However, Travelzoo Japan is only obligated to pay Travelzoo if Travelzoo Japan has a positive EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted pro forma before royalty expenses, according to Travelzoo Japan’s income statement. The Company will record royalties from Travelzoo Japan on a one-quarter lag basis. However, Travelzoo is not able to estimate whether Travelzoo Japan will generate positive EBITDA b ased on the current uncertainties, and no amount has been recorded for future royalties under this agreement. A n interest free loan was provided to the Japan Buyer for JPY 46.0 million (approximately $430,000) to be repaid over 3 years.
On August 24, 2020, the Company completed a sale of 100% of the outstanding capital stock of Travelzoo Singapore, to an unaffiliated entity, AUS Buyer, which is fully owned by Mr. Julian Rembrandt, the former General Manager of South East Asia and Australia of the Company for consideration of Singapore Dollar1. The parties also entered into a License Agreement, whereby the AUS Buyer obtained a license to use the intellectual property of Travelzoo exclusively in Australia, New Zealand and Singapore and non-exclusively in China and Hong Kong for quarterly royalty payments based upon revenue over a 5 year term, with an option to renew. The Company will record royalties from the AUS Buyer on a one-quarter lag basis. However,
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Travelzoo is not able to estimate whether the AUS Buyer will generate revenues based on the current uncertainties, and no amount has been recorded for future royalties under this agreement.
The following table presents information related to the major classes of assets and liabilities that were classified as assets and liabilities from discontinued operations in the Condensed Consolidated Balance Sheets (in thousands):

| September 30, 2020 |  | December 31, 2019
ASSETS |  |  |
Cash, cash equivalents and restricted cash | $ | 301 |  |  | $ | 832 |
Accounts receivable, net | 115 |  |  | 1,797 |
Deposits | — |  |  | 9 |
Prepaid expenses and other | 36 |  |  | 208 |
Deposits and other | 2 |  |  | 248 |
Operating lease right-of-use assets | — |  |  | 746 |
Property and equipment, net | — |  |  | 121 |
Total assets from discontinued operations | $ | 454 |  |  | $ | 3,961 |
LIABILITIES |  |  |
Accounts payable | $ | 729 |  |  | $ | 1,057 |
Accrued expenses and other | 767 |  |  | 1,188 |
Deferred revenue | 13 |  |  | 118 |
Operating lease right-of-use liabilities | — |  |  | 772 |
Total liabilities from discontinued operations | $ | 1,509 |  |  | $ | 3,135 |

The net cash used in operating activities and investing activities for the discontinued operations for the nine months ended September 30, 2020 and 2019, were as follows (in thousands):

| Nine Months Ended
| September 30,
| 2020 |  | 2019
Net cash used in operating activities | $ | (1,821) |  |  | $ | (5,324) |
Net cash used in investing activities | $ | — |  |  | $ | (60) |

Note 11: Leases
The Company has operating leases for real estate and certain equipment. The Company leases office space in Canada, France, Germany, Spain, the U.K., and the U.S. under operating leases. Our leases have remaining lease terms ranging from less than one year up to ten years. Certain leases include one or more options to renew. In addition, we sublease real estate to a third party. All of our leases qualify as operating leases.
The following table summarizes the components of lease expense for the three and nine months ended September 30, 2020 and 2019 (in thousands):

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
Operating lease cost | $ | 1,011 |  |  | $ | 995 |  |  | $ | 3,423 |  |  | $ | 3,337 |
Short-term lease cost | 6 |  |  | 45 |  |  | 19 |  |  | 771 |
Variable lease cost | 227 |  |  | 329 |  |  | 779 |  |  | 925 |
Sublease income | (84) |  |  | (84) |  |  | (252) |  |  | (252) |
Total lease cost | $ | 1,160 |  |  | $ | 1,285 |  |  | $ | 3,969 |  |  | $ | 4,781 |

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For the nine months ended September 30, 2020 and 2019, cash payments against the operating lease liabilities total ed $3.1 million and $4.1 million, respectively. ROU assets obtained in exchange for lease obligations was $3.2 million and $7.6 million for nine months ended September 30, 2020 and 2019, respectively.
The following table summarizes the presentation in our condensed consolidated balance sheets of our operating leases (in thousands):

|  |  | September 30, 2020 |  | December 31, 2019
Assets: |  |  |  |
| Operating lease right-of-use assets |  | $ | 9,076 |  |  | $ | 8,140 |
Liabilities: |  |  |  |
| Operating lease liabilities |  | $ | 3,988 |  |  | $ | 4,847 |
| Long-term operating lease liabilities |  | 11,425 |  |  | 7,920 |
| Total operating lease liabilities |  | $ | 15,413 |  |  | $ | 12,767 |
Weighted average remaining lease term (years) |  | 7.21 |  | 4.50
Weighted average discount rate |  | 3.7 | % |  | 3.4 | %

Maturities of lease liabilities were as follows (in thousands):

Years ending December 31, |
2020 (excluding the nine months ended September 30, 2020) | $ | 1,216 |
2021 | 3,642 |
2022 | 2,282 |
2023 | 1,875 |
2024 | 1,423 |
Thereafter | 6,975 |
Total lease payments | 17,413 |
Less interest | (2,000) |
Present value of operating lease liabilities | $ | 15,413 |

Note 12: Subsequent Event
On October 22, 2020, Azzurro, a siginficant shareholder of the Company, purchased 50,000 shares of the Company’s common stock from Mr. Holger Bartel at a price of $7.80 based on the closing price of October 21, 2020. Ralph Bartel, who founded the Company and who is a Director of the Company, is the sole beneficiary of the Ralph Bartel 2005 Trust, which is the controlling shareholder of Azzurro. Mr. Holger Bartel had previously granted a proxy to Azzurro with power to vote these shares. Azzurro had reported those shares as beneficially owned by it because of the voting power, although it disclaimed beneficial ownership and had no pecuniary interest in the shares. This related party transaction was reviewed and approved in advance by the Audit Committee of the Board of Directors of the Company.
In October 2020, the Company paid the remaining $1.7 million of promissory notes payable, plus accrued interest of $79,000, to the Sellers of Jack's Flight Club (See Note 3: Acquisition).
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The information in this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based upon current expectations, assumptions, estimates and projections about Travelzoo and our industry. These forward-looking statements are subject to the many risks and uncertainties that exist in our operations and business environment that may cause actual results, performance or achievements of Travelzoo to be different from those expected or anticipated in the forward-looking statements. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, words such as “may”, “will”, “should”, “estimates”, “predicts”, “potential”, “continue”, “strategy”, “believes”, “anticipates”, “plans”, “expects”, “intends”, and similar expressions are intended to identify forward-looking statements. Travelzoo’s actual results and the timing of certain events could differ significantly from those anticipated in such forward-looking statements. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those discussed elsewhere in this report in the section entitled “Risk Factors” and the risks discussed in our other SEC filings. The forward-looking statements included in this report reflect the beliefs of our management on the date of this report. Travelzoo undertakes no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other circumstances occur in the future.
Overview
Travelzoo® is a global Internet media company. We provide our 30 million members insider deals and one-of-a-kind experiences personally reviewed by one of our deal experts around the globe. We have our finger on the pulse of outstanding travel, entertainment, and lifestyle experiences. For over 20 years we have worked in partnership with more than 5,000 top travel suppliers—our long-standing relationships give Travelzoo members access to irresistible deals.
Our publications and products include the Travelzoo website, the Travelzoo iPhone and Android apps, the Travelzoo Top 20® email newsletter, the Newsflash email alert service, and the Travelzoo Network, a network of third-party websites that list travel deals published by Travelzoo. Our Travelzoo website includes Local Deals and Getaways listings that allow our members to purchase vouchers for deals from local businesses such as spas, hotels and restaurants.
In March 2020, Travelzoo exited its loss-making Asia Pacific business. The Company’s Asia Pacific business was classified as discontinued operations at March 31, 2020. Prior periods have been reclassified to conform with the current presentation. On June 16, 2020, in connection with its Asia Pacific exit plan, the Company completed a sale of 100% of the outstanding capital stock of Travelzoo Japan to the Japan Buyer for consideration of 1 Japanese Yen. The Company recorded approximately $128,000 loss upon disposal of Travelzoo Japan in the Condensed Consolidated Financial Statements during the nine months ended September 30, 2020. The parties also entered into a License Agreement, whereby the Japan Buyer obtained a license to use the intellectual property of Travelzoo exclusively in Japan in exchange for quarterly royalty payments based on revenue over a 5 year term, with an option to renew. An interest free loan was provided to the Japan Buyer for JPY 46 million (approximately $430,000) to be repaid over 3 years which the Company recorded as other assets on the unaudited condensed consolidated balance sheet as of September 30, 2020. Additionally, on August 24, 2020, the Company completed a sale of 100% of the outstanding capital stock of Travelzoo Singapore, to an unaffiliated entity, AUS Buyer, which is fully owned by Mr. Julian Rembrandt, the former General Manager of South East Asia and Australia of the Company for consideration of 1 Singapore Dollar. The parties also entered into a License Agreement, whereby the AUS Buyer obtained a license to use the intellectual property of Travelzoo exclusively in Australia, New Zealand and Singapore and non-exclusively in China and Hong Kong for quarterly royalty payments based upon revenue over a 5 year term, with an option to renew. There was no gain or loss from the sale of Travelzoo Singapore.
The Company has a minority investment in WeGo. WeGo is a technology company which provides an app and a search engine for spontaneous travelers looking for short getaways. The Company accounts for this private company investment using the equity method of accounting by recording its share of the results of WeGo in “Other income (expense)”, net on a one-quarter lag basis. In accounting for the initial investment, the Company allocated $1.0 million of its purchase price to tangible assets and allocated approximately $485,000 of the purchase price to technology-related intangible assets to be amortized over a 3-year life. The remaining $1.5 million of the purchase price was allocated to goodwill.
In February 2020, Travelzoo signed the Investment Agreement with WeGo and agreed to invest an additional $1.7 million when WeGo meets certain performance targets. The Original Investment Agreement with WeGo was executed in April 2018. At that time, Travelzoo invested $3.0 million in WeGo for a 25% ownership interest. In April 2019, the Company invested an additional $673,000 in WeGo and increased the Company's ownership interest to 26.6%.
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As of September 30, 2020, WeGo has not met these performance targets and no additional investment has been made by the Company. In connection with the Original Investment Agreement, WeGo signed an insertion order for $2.1 million in advertising services with Travelzoo in April 2018. The Company's advertising services provided to WeGo in the three months ended September 30, 2020 and 2019 were $23,000 and $130,000, respectively. The Company's advertising services provided to WeGo in the nine months ended September 30, 2020 and 2019 were $383,000 a nd $924,000, respectively.
During the three and nine months ended September 30, 2020, the Company recorded $51,000 and $384,000 for its share of WeGo losses, amortization of basis differences and currency translation adjustment. During the three and nine months ended September 30, 2019, the Company recorded $323,000 and $732,000 for its share of WeGo losses, amortization of basis differences and currency translation adjustment. This equity method investment is reported as a long-term investment on the Company's condensed consolidated balance sheets.
In January 2020, Travelzoo acquired Jack’s Flight Club, which operates Jack’s Flight Club, a subscription service that provides members with information about exceptional airfares. As of September 30, 2020, Jack’s Flight Club had 1.7 million subscribers. Jack’s Flight Club’s revenues are generated by subscription fees paid by members. In June 2020, the Company renegotiated certain aspects of that certain SPA with the Sellers and reached a settlement for the outstanding Promissory Notes.
Historically, the Company managed its business geographically and operated in three reportable segments including Asia Pacific, Europe and North America. During the three and nine months ended September 30, 2020, the Company classified the results of its Asia Pacific segment as discontinued operations in its condensed consolidated financial statements for current and prior periods presented. On January 13, 2020, Travelzoo entered into a Sales Purchase Agreement with the Sellers of Jack’s Flight Club to purchase 60% of the Shares. Upon the acquisition, the Company's chief operating decision maker reviewed and evaluated Jack’s Flight Club as a separate segment. Travelzoo currently has three reportable operating segments: Travelzoo North America, Travelzoo Europe and Jack’s Flight Club. Travelzoo North America consists of the Company’s operations in Canada and the U.S. Travelzoo Europe consists of the Company’s operations in France, Germany, Spain, and the UK.
When evaluating the financial condition and operating performance of the Company, management focuses on financial and non-financial indicators such as growth in the number of members to the Company’s newsletters, operating margin, growth in revenues in the absolute and relative to the growth in reach of the Company’s publications measured as revenue per member and revenue per employee as a measure of productivity. The Company’s Asia Pacific business was classified as discontinued operations as of March 31, 2020. Prior periods have been reclassified to conform with the current presentation for all periods presented.
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How We Generate Revenues
Travelzoo
Revenues from the Travelzoo brand and business are generated primarily from advertising fees from two categories of revenue: Travel and Local.
The “Travel” category consists of advertising or publishing revenues, primarily (a) listing fees paid by travel companies for the publishing of their offers on Travelzoo’s media properties and (b) commission from the sale of Getaways vouchers. Listing fees are based on audience reach, placement, number of listings, number of impressions, number of clicks, and actual sales. For publishing revenue, we recognize revenue upon delivery of the emails and delivery of the clicks, over the period of the placement of the advertising. Insertion orders for publishing revenue are typically for periods between one month and twelve months and are not automatically renewed. For Getaways vouchers, we recognize a percentage of the face value of the vouchers upon the sale of the vouchers. Merchant agreements for Getaways advertisers are typically for periods between twelve months and twenty-four months and are not automatically renewed. Since the second quarter of 2020, the Company expanded its vouchers refund policy in order to entice customers given the current economic climate to fully refundable until the voucher expires or is redeemed by the customer. The Company now offers fully refundable refunds for vouchers that have not been redeemed or expired. The expiration dates of vouchers range between October 2020 through December 2022. The Company estimated the refund reserve by using historical and current refund rates by product and by merchant location to calculate the estimated future refunds. As of September 30, 2020, $2.3 million were reserved for vouchers sold which is recorded as a reduction of revenues and is reflected as a current liability in Accrued expenses and other on the condensed consolidated balance sheet. Certain merchant contracts allow the Company to retain the proceeds from unredeemed vouchers. With these contracts, the Company estimates the value of vouchers that will ultimately not be redeemed and records the estimate as revenues in the same period.
The "Local" category consists of publishing revenue for negotiated high-quality deals from local businesses, such as restaurants, spas, shows, and other activities and includes Local Deals vouchers and entertainment offers (vouchers and direct bookings). The revenues generated from these products are based upon a percentage of the face value of the vouchers, commission on actual sales or a listing fee based on audience reach. We recognize revenue upon the sale of the vouchers, upon notification of the amount of direct bookings or upon delivery of the emails. For Local Deals vouchers, we recognize a percentage of the face value of vouchers upon the sale of the vouchers. Insertion orders and merchant agreements for Local are typically for periods between one month and twelve months and are not automatically renewed. Certain merchant contracts in foreign locations allow us to retain fees related to vouchers sold that are not redeemed by purchasers upon expiration, which we recognize as revenue based upon estimates at the time of sale.
Jack’s Flight Club
Jack’s Flight Club revenue is generated from paid subscriptions by members. Subscription options are quarterly, semi-annually, and annually. We recognize the revenue on a pro-rated basis based upon the subscription option.
Trends in Our Business
Our ability to generate revenues in the future depends on numerous factors such as our ability to sell more advertising to existing and new advertisers, our ability to increase our audience reach and advertising rates, our ability to have sufficient supply of hotels offered at competitive rates and our ability to develop and launch new products. Our ability to generate revenues is also dependent on trends impacting the travel industry more broadly.
Our current revenue model primarily depends on advertising fees paid primarily by travel, entertainment and local businesses. A number of factors can influence whether current and new advertisers decide to advertise their offers with us. We have been impacted and expect to continue to be impacted by external factors such as the shift from offline to online advertising, the relative condition of the economy, competition and the introduction of new methods of advertising, and the decline in consumer demand for vouchers and travel more generally. A number of factors will have impact on our revenue, such as the reduction in spending by travel intermediaries due to their focus on improving profitability, the trend towards mobile usage by consumers, the willingness of consumers to purchase the deals we advertise, and the willingness of certain competitors to grow their business unprofitably. In addition, we have been impacted and expect to continue to be impacted by internal factors such as introduction of new technologies and advertising products, hiring and relying on key employees for the continued maintenance and growth of our business and ensuring our advertising products continue to attract the audience that advertisers desire. We also have been impacted and expect to continue to be impacted by external factors, such as the COVID-19 pandemic, which decrease consumer’s discretionary income and decrease the demand for travel and entertainment.
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Additionally, existing advertisers may shift from one advertising service (e.g. Top 20) to another (e.g. Local Deals and Getaways). These shifts between advertising services by advertisers could result in no incremental revenue or less revenue than in previous periods depending on the amount purchased by the advertisers, and in particular with Local Deals and Getaways, depending on how many vouchers are purchased by members.
Local revenues have been and may continue to decline over time due to market conditions driven by competition and declines in consumer demand. In the last several years, we have seen a decline in the number of vouchers sold and a decrease in the average take rate earned by us from the merchants for voucher sold. However, due to the COVID-19 pandemic and the increase in demand by consumers for fully refundable travel options, we have now begun to see a slight reversal of this trend and an increase in the sale of Getaways hotel vouchers. Demand for restaurants and spas continues to be low due to the COVID-19 pandemic.
Our ability to continue to generate advertising revenue depends heavily upon our ability to maintain and grow an attractive audience for our publications. We monitor our members to assess our efforts to maintain and grow our audience reach. We obtain additional members and activity on our websites by acquiring traffic from Internet search companies. The costs to grow our audience have had, and we expect will continue to have, a significant impact on our financial results and can vary from period to period. We may have to increase our expenditures on acquiring traffic to continue to grow or maintain our reach of our publications due to competition. We continue to see a shift in the audience to accessing our services through mobile devices and social media. When funds are available for marketing spend, we are addressing this growing channel of our audience through increased marketing on social media channels. However, we will need to keep pace with technological change and this trend to further address this shift in the audience behavior in order to offset any related declines in revenue.
We believe that we can increase our advertising rates only if the reach of our publications increases. We do not know if we will be able to increase the reach of our publications. If we are able to increase the reach of our publications, we still may not be able to or want to increase rates given market conditions such as intense competition in our industry. We have not had any significant rate increase in recent years due to intense competition in our industry. Even if we increase our rates, the increased price may reduce the number of advertisers willing to advertise with us and, therefore, decrease our revenue. We may need to decrease our rates based on competitive market conditions and the performance of our audience in order to maintain or grow our revenue.
We do not know what our cost of revenues as a percentage of revenues will be in future periods. Our cost of revenues may increase if the face value of vouchers that we sell for Local Deals and Getaways increases or the total number of vouchers sold increases because we have credit card fees based upon face value of vouchers sold, due to customer service costs related to vouchers sold and due to refunds to members on vouchers sold. We expect fluctuations in cost of revenues as a percentage of revenues from quarter to quarter. Some of the fluctuations may be significant and may have a material impact on our results of operations.
We do not know what our sales and marketing expenses as a percentage of revenue will be in future periods. Increased competition in our industry may require us to increase advertising for our brand and for our products. In order to increase the reach of our publications, we have to acquire a significant number of new members in every quarter and continue to promote our brand. One significant factor that impacts our advertising expenses is the average cost per acquisition of a new member. Increases in the average cost of acquiring new members may result in an increase of sales and marketing expenses as a percentage of revenue. We believe that the average cost per acquisition depends mainly on the advertising rates which we pay for media buys, our ability to manage our member acquisition efforts successfully, the regions we choose to acquire new members and the relative costs for that region, and the degree of competition in our industry. We may decide to accelerate our member acquisition, including through merger and acquisition activity, for various strategic and tactical reasons and, as a result, increase our marketing and other expenses. We expect the average cost per acquisition to increase with our increased expectations for the quality of the members we acquire. We may see an unique opportunity for a brand marketing campaign that will result in an increase of marketing expenses. In addition, there may be a significant number of members that cancel or we may cancel their subscription for various reasons, which may drive us to spend more on member acquisition in order to replace the lost members. We expect fluctuations in sales and marketing expenses as a percentage of revenue from year to year and from quarter to quarter. Some of the fluctuations may be significant and have a material impact on our results of operations. We expect increased marketing expense to spur continued growth in members and revenue in future periods; however, we cannot be assured of this due to the many factors that impact our growth in members and revenue. We expect to adjust the level of such incremental spending during any given quarter based upon market conditions, as well as our performance in each quarter.
We do not know what our product development expenses as a percentage of revenue will be in future periods. There may be fluctuations that have a material impact on our results of operations. Product development changes may lead to reductions of revenue based on changes in presentation of our offerings to our audience. We expect our efforts on developing our product and services will continue to be a focus in the future, which may lead to increased product development expenses. This increase in
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expense may be the result of an increase in costs related to third party technology service providers and software licenses, headcount, the compensation related to existing headcount and the increased use of professional services.
We do not know what our general and administrative expenses as a percentage of revenue will be in future periods. There may be fluctuations that have a material impact on our results of operations.
We do not know what our income taxes will be in future periods. There may be fluctuations that have a material impact on our results of operations. Our income taxes are dependent on numerous factors such as the geographic mix of our taxable income, foreign, federal, state and local tax law and regulations and changes thereto. Our income taxes are also dependent on the determination of whether valuation allowances for certain tax assets are required or not, audits of prior years' tax returns that result in adjustments, resolution of uncertain tax positions and different treatments for certain items for tax versus books. We expect fluctuations in our income taxes from year to year and from quarter to quarter. Some of the fluctuations may be significant and have a material impact on our results of operations.
With respect to the COVID-19 outbreak specifically, we currently expect that our 2020 and 2021 financial results will be negatively impacted compared to historical results. Additionally, we expect the COVID-19 outbreak will continue to negatively impact our business beyond 2020, but the extent and duration of such impact in the long term is largely uncertain as it is dependent on future developments that cannot be accurately predicted at this time, including but not limited to the severity and transmission rate of the virus, the extent and effectiveness of containment actions taken, including travel restrictions, and the impact of these and other factors on travel behavior. With the impact to revenues caused by COVID-19, spending in many areas within the business has been slowed or stopped, including but not limited to, marketing, technology and human resources.
The key elements of our growth strategy include building a travel and lifestyle brand with a large, high-quality user base and offering our users products that keep pace with consumer preference and technology, such as the trend toward mobile usage by consumers and toward fully refundable travel deals given the uncertainty of the COVID-19 pandemic. We expect to continue our efforts to grow; however, we may not grow or we may experience slower growth.
We believe that we can sell more advertising if the market for online advertising continues to grow and if we can maintain or increase our market share. We believe that the market for advertising continues to shift from offline to online. We do not know if we will be able to maintain or increase our market share. We do not know if we will be able to increase the number of our advertisers in the future. We do not know if we will have market acceptance of our new products or whether the market will continue to accept our existing products.
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Results of Operations
The following table sets forth, as a percentage of total revenues, the results from our operations for the periods indicated.

| Three Months Ended |  | Nine Months Ended |  |  |
| September 30, |  | September 30, |  |  |
| 2020 |  | 2019 |  | 2020 |  | 2019 |  |  |  |  |
Revenues | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  |  |  |  |
Cost of revenues | 21.2 |  |  | 12.0 |  |  | 18.9 |  |  | 10.6 |  |  |  |  |  |
Gross profit | 78.8 |  |  | 88.0 |  |  | 81.1 |  |  | 89.4 |  |  |  |  |  |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |
Sales and marketing | 50.2 |  |  | 50.2 |  |  | 59.1 |  |  | 48.5 |  |  |  |  |  |
Product development | 4.3 |  |  | 6.0 |  |  | 6.3 |  |  | 6.1 |  |  |  |  |  |
General and administrative | 33.0 |  |  | 17.6 |  |  | 40.6 |  |  | 17.1 |  |  |  |  |  |
Impairment of intangible assets and goodwill | — |  |  | — |  |  | 7.1 |  |  |  |  |  |  |  |
Total operating expenses | 87.5 |  |  | 73.8 |  |  | 113.1 |  |  | 71.7 |  |  |  |  |  |
Operating income (loss) | (8.7) |  |  | 14.2 |  |  | (32.0) |  |  | 17.7 |  |  |  |  |  |
Other income (expense), net | (0.3) |  |  | 0.2 |  |  | (0.5) |  |  | 0.1 |  |  |  |  |  |
Income (loss) from continuing operations before income taxes | (9.0) |  |  | 14.4 |  |  | (32.5) |  |  | 17.8 |  |  |  |  |  |
Income tax expense (benefit) | (1.8) |  |  | 3.6 |  |  | (5.0) |  |  | 4.5 |  |  |  |  |  |
Income (loss) from continuing operations | (7.2) |  |  | 10.8 |  |  | (27.5) |  |  | 13.3 |  |  |  |  |  |
Income (loss) from discontinued operations, net of taxes | (1.7) |  |  | (9.5) |  |  | (9.6) |  |  | (7.3) |  |  |  |  |  |
Net income (loss) | (8.9) |  |  | 1.3 |  |  | (37.1) |  |  | 6.0 |  |  |  |  |  |
Net income (loss) attributable to non-controlling interest | 0.9 |  |  | — |  |  | (2.7) |  |  | — |  |  |  |  |  |
Net income (loss) attributable to Travelzoo | (9.8) | % |  | 1.3 | % |  | (34.4) | % |  | 6.0 | % |  |  |  |  |

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Operating Metrics
The following table sets forth selected operating metrics for Europe and North America:

| Three Months Ended
| September 30,
| 2020 |  | 2019
North America |  |  |
Total members (1) | 16,480,000 |  |  | 17,630,000 |
Average cost per acquisition of a new member | N/A |  | $ | 2.20 |
Revenue per member (2) | $ | 1.16 |  |  | $ | 3.96 |
Revenue per employee (3) | $ | 169,000 |  |  | $ | 368,000 |
Mobile application downloads | 3,771,000 |  |  | 3,636,000 |
Social media followers | 3,267,000 |  |  | 3,232,000 |
Europe |  |  |
Total members (1) | 8,865,000 |  |  | 9,121,000 |
Average cost per acquisition of a new member | N/A |  | $ | 2.19 |
Revenue per member (2) | $ | 1.25 |  |  | $ | 4.22 |
Revenue per employee (3) | $ | 120,000 |  |  | $ | 249,000 |
Mobile application downloads | 2,134,000 |  |  | 2,033,000 |
Social media followers | 900,000 |  |  | 889,000 |
Jack's Flight Club |  |  |
Total members | 1,691,000 |  |  | — |
Consolidated |  |  |
Total members (1) | 30,518,000 |  |  | 30,273,000 |
Average cost per acquisition of a new member | N/A |  | $ | 2.33 |
Revenue per member (2) | $ | 1.05 |  |  | $ | 3.79 |
Revenue per employee (3) | $ | 147,000 |  |  | $ | 272,000 |
Mobile application downloads | 6,748,000 |  |  | 6,487,000 |
Social media followers | 4,167,000 |  |  | 4,729,000 |

(1)Members represent individuals who are signed up to receive one or more of our free email publications that present our travel, entertainment and local deals.
(2)Annualized revenue divided by number of members at the beginning of the year.
(3)Annualized revenue divided by number of employees at the end of the quarter.
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Revenues
The following table sets forth the breakdown of revenues (in thousands) by category and segment. Travel revenue includes travel publications (Top 20, Travelzoo website, Newsflash, Travelzoo Network), Getaways vouchers, and hotel platform and vacation packages. Local revenue includes Local Deals vouchers and entertainment offers (vouchers and direct bookings).

| Three Months Ended |  | Nine Months Ended |  |
| September 30, |  | September 30, |  |
| 2020 |  | 2019 |  | 2020 |  | 2019 |  |  |  |
Travelzoo North America |  |  |  |  |  |  |  |  |  |  |
Travel | $ | 8,706 |  |  | $ | 12,899 |  |  | $ | 23,772 |  |  | $ | 44,470 |  |  |  |  |
Local | 437 |  |  | 2,440 |  |  | 2,270 |  |  | 7,380 |  |  |  |  |
Total Travelzoo North America revenues | 9,143 |  |  | 15,339 |  |  | 26,042 |  |  | 51,850 |  |  |  |  |
Travelzoo Europe |  |  |  |  |  |  |  |  |  |  |
Travel | 3,449 |  |  | 7,727 |  |  | 11,442 |  |  | 24,804 |  |  |  |  |
Local | 208 |  |  | 767 |  |  | 1,019 |  |  | 2,945 |  |  |  |  |
Total Travelzoo Europe revenues | 3,657 |  |  | 8,494 |  |  | 12,461 |  |  | 27,749 |  |  |  |  |
Jack’s Flight Club | 987 |  |  | — |  |  | 2,615 |  |  | — |  |  |  |  |
Consolidated |  |  |  |  |  |  |  |  |  |  |
Travelzoo Travel | 12,155 |  |  | 20,626 |  |  | 35,214 |  |  | 69,274 |  |  |  |  |
Travelzoo Local | 645 |  |  | 3,207 |  |  | 3,289 |  |  | 10,325 |  |  |  |  |
Jack’s Flight Club | 987 |  |  | — |  |  | 2,615 |  |  | — |  |  |  |  |
Total revenues | $ | 13,787 |  |  | $ | 23,833 |  |  | $ | 41,118 |  |  | $ | 79,599 |  |  |  |  |

Travelzoo North America
North America revenues decreased $6.2 million for the three months ended September 30, 2020 from the three months ended September 30, 2019. This decrease was primarily due to $4.2 million decrease in Travel revenues and $2.0 million decrease in Local revenues. Both Travel revenues and Local revenue have dropped significantly due to the global outbreak of COVID-19 during the three months ended September 30, 2020. The decrease in Travel revenue of $4.2 million was primarily due to $4.7 million decrease as a result of lower revenues from Top 20 and Newsflash and $3.0 million decrease in our website advertisements, offset partially by $5.0 million increase in Getaways vouchers due to increase in number of vouchers sold. The decrease in Local revenues of $2.0 million was primarily due to the decrease in number of Local Deals vouchers sold.
North America revenues decreased $25.8 million for the nine months ended September 30, 2020 from the nine months ended September 30, 2019. This decrease was primarily due to $20.7 million decrease in Travel revenues and $5.1 million decrease in Local revenues. The decrease in Travel revenue of $20.7 million was primarily due to $15.4 million decrease as a result of lower revenues from Top 20 and Newsflash and $8.1 million decrease in our website advertisements, offset partially by $6.2 million increase due to increase in number of Getaways vouchers sold. The decrease in Local revenues of $5.1 million was primarily due to the decrease in number of Local Deals vouchers sold.
Travelzoo Europe
Europe revenues decreased $4.8 million for the three months ended September 30, 2020 from the three months ended September 30, 2019. The decrease was primarily due to $4.4 million decrease in Travel revenues and $566,000 decrease in Local revenues, offset partially by $160,000 positive impact from foreign currency movements relative to the U.S. dollar. The decrease in Travel revenue of $4.4 million was primarily due to $3.6 million as a result of decrease in revenue from Top 20 and Newsflash and $1.6 million decrease in our website advertisements, offset partially by $1.5 million increase in Getaways due to increase in number of vouchers sold. The decrease in Local revenues of $566,000 was primarily due to the decrease in number of Local Deals vouchers sold.
Europe revenues decreased $15.3 million for the nine months ended September 30, 2020 from the nine months ended September 30, 2019. The decrease was primarily due to $13.4 million decrease in Travel revenues and $1.9 million decrease in Local revenues and $1,000 negative impact from foreign currency movements relative to the U.S. dollar. The decrease in Travel revenue of $13.4 million was primarily due to $8.9 million decrease in revenue from Top 20 and Newsflash and $4.1 million decrease in our website advertisements, offset partially by $1.7 million increase in Getaways due to increase in vouchers sold. The decrease in Local revenues of $1.9 million was primarily due to the decrease in number of Local Deals vouchers sold.
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Jack’s Flight Club
Travelzoo acquired 60% of the Shares of Jack’s Flight Club on January 13, 2020. Jack’s Flight Club's premium members pay subscription fees quarterly, semi-annually or annually to receive emails or app notifications of flight deals. Jack’s Flight Club's revenue was $987,000 for the three months ended September 30, 2020 and $2.6 million from January 13, 2020 through September 30, 2020.
Cost of Revenues
Cost of revenues consists primarily of network expenses, including fees we pay for co-location services and depreciation and maintenance of network equipment, payments made to third-party partners of the Travelzoo Network, amortization of capitalized website development costs, credit card fees, certain estimated refunds to members and customer service costs associated with vouchers we sell and hotel bookings, and salary expenses associated with network operations and customer service staff. Cost of revenues was $2.9 million for each of the three months ended September 30, 2020 and 2019. Cost of revenues was $7.8 million and $8.4 million for the for the nine months ended September 30, 2020 and 2019, respectively.
Cost of revenue for the three months ended September 30, 2020 included $76,000 from Jack’s Flight Club. Without Jack’s Flight Club, cost of revenue decreased by $4,000 for the three months ended September 30, 2020 from the three months ended September 30, 2019.
Cost of revenue for the nine months ended September 30, 2020 included $274,000 from Jack’s Flight Club. Without Jack’s Flight Club, cost of revenue decreased by $895,000 for the nine months ended September 30, 2020 from the nine months ended September 30, 2019. The decrease was primarily due to $1.3 million decrease in expenses from third-party partners of the Travelzoo Network.
Operating Expenses
Sales and Marketing
Sales and marketing expenses consist primarily of advertising and promotional expenses, salary expenses associated with sales, marketing and production employees, expenses related to our participation in industry conferences, public relations expenses and facilities costs. Sales and marketing expenses were $6.9 million and $12.0 million for the three months ended September 30, 2020 and 2019, respectively. Sales and marketing expenses were $24.3 million and $38.6 million for the nine months ended September 30, 2020 and September 30, 2019, respectively. Advertising expenses consist primarily of online advertising referred to as traffic acquisition cost and member acquisition costs. For the three months ended September 30, 2020 and 2019, advertising expenses accounted for 1% and 19% of the total sales and marketing expenses. For the nine months ended September 30, 2020 and 2019, advertising expenses accounted for 10% and 20% of the total sales and marketing expense, respectively. The goal of our advertising was to acquire new members to our email products, increase the traffic to our websites, increase brand awareness and increase our audience through mobile and social media channels.
Sales and marketing expenses for the three months ended September 30, 2020 included $156,000 from Jack’s Flight Club. Without Jack’s Flight Club, sales and marketing expenses decr eased $5.2 million for the three months ended September 30, 2020 from the three months ended September 30, 2019 primarily due to $1.9 million decrease for headcount related expenses and $1.4 million decrease in member acquisition costs.
Sales and marketing expenses for the nine months ended September 30, 2020 included $458,000 from Jack’s Flight Club. Without Jack’s Flight Club, sales and marketing expenses decreased $14.8 million for the nine months ended September 30, 2020 from the nine months ended September 30, 2019 primarily due to $6.4 million decrease for headcount related expenses, $4.6 million decrease in member acquisition costs and $1.0 million decrease in travel expenses.
Product Development
Product development expenses consist primarily of compensation for software development staff, fees for professional services, software maintenance, amortization, and facilities costs. Product development expenses were $592,000 and $1.4 million for the three months ended September 30, 2020 and 2019, respectively. Product development expenses were $2.6 million and $4.9 million for the nine months ended September 30, 2020 and 2019, respectively.
Product development expenses decreased $842,000 for three months ended September 30, 2020 from the three months ended September 30, 2019 primarily due to $361,000 decrease in headcount related expenses and $329,000 decrease in professional services fees.
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Product development expenses decreased $2.3 million for nine months ended September 30, 2020 from the nine months ended September 30, 2019 primarily due to $1.0 million decrease in professional services fees and $823,000 decrease in headcount related expenses.
General and Administrative
General and administrative expenses consist primarily of compensation for administrative and executive staff, bad debt expense, professional service expenses for audit and tax preparation, legal expenses, amortization of intangible assets, general office expense and facilities costs. General and administrative expenses were $4.5 million and $4.2 million for the three months ended September 30, 2020 and 2019, respectively. General and administrative expenses were $16.7 million and $13.6 million for the nine months ended September 30, 2020 and 2019, respectively.
General and administrative expenses for the three months ended September 30, 2020 included $505,000 from Jack’s Flight Club. Without Jack’s Flight Club, general and administrative expenses decreased $148,000 for the three months ended September 30, 2020 from the three months ended September 30, 2019 primarily due to $568,000 decrease in headcount related expenses, $2 05,000 decrease in travel expenses and $165,000 decrease in bad debt expense, offset partially by $845,000 increase in stock-based compensation expense as the result of the shareholders' approval in May 2020 of newly granted options and increases and repricing of certain previously granted options.
General and administrative expenses for the nine months ended September 30, 2020 included $2.0 million from Jack’s Flight Club. Without Jack’s Flight Club, general and administrative expenses increased $1.1 million for the nine months ended September 30, 2020 from the nine months ended September 30, 2019. The increase was primarily due to $4.5 million increase in stock-based compensation expense as the result of the shareholders' approval in May 2020 of newly granted options and increases and repricing of certain previously granted options, offset partially by $1.5 million gain relating to Jack Flight Club's promissory note forgiveness and $1.4 million decrease in headcount related expenses.
Income Taxes
Our income is generally taxed in the U.S., Canada and U.K. Our income tax provision reflects federal, state and country statutory rates applicable to our worldwide income, adjusted to take into account losses that are treated as having no recognizable tax benefit. Income tax benefit was $244,000 and $2.1 million for the three and nine months ended September 30, 2020, respectively. Our effective tax rate was 20% and 15% for the three and nine months ended September 30, 2020, respectively. Income tax expense was $860,000 and $3.6 million for the three and nine months ended September 30, 2019, respectively. Our effective tax rate was 25% for each of the three and nine months ended September 30, 2019, respectively.
Our effective tax rate decreased for the three and nine months ended September 30, 2020 from the three and nine months ended September 30, 2019 primarily due to operating losses in 2020 as a result of the COVID-19 pandemic. We expect our effective tax rate to fluctuate in future periods depending on the geographic mix of our worldwide income or losses mainly incurred by our operations, statutory tax rate changes that may occur, existing or new uncertain tax matters that may arise and require changes in tax reserves, the use of accumulated losses to offset current taxable income and the need for valuation allowances on certain tax assets, if any. See “Note 5: Income Taxes” to the accompanying unaudited condensed consolidated financial statements for further information.
Travelzoo North America

| Three Months Ended September 30, |  | Nine Months Ended September 30, |  |
| 2020 |  | 2019 |  | 2020 |  | 2019 |  |  |  |
| (In thousands) |  | (In thousands) |  |  |  |
Revenue | $ | 9,143 |  |  | $ | 15,339 |  |  | $ | 26,042 |  |  | $ | 51,850 |  |  |  |  |
Operating profit (loss) | $ | (696) |  |  | $ | 2,620 |  |  | $ | (6,374) |  |  | $ | 10,673 |  |  |  |  |
Operating profit (loss) as a % of revenue | (7.6) | % |  | 17.1 | % |  | (24.5) | % |  | 20.6 | % |  |  |  |

North America revenues decreased by $6.2 million for the three months ended September 30, 2020 from the three months ended September 30, 2019 (see “Revenues” above). North America expenses decreased by $2.9 million for the three months ended September 30, 2020 from the three months ended September 30, 2019. The decrease was primarily due to $1.4 million decrease in expenses for headcount related expenses and $767,000 decrease in member acquisition costs.
North America revenues decreased by $25.8 million for the nine months ended September 30, 2020 from the nine months ended September 30, 2019 (see “Revenues” above). North America expenses decreased by $8.8 million for the nine months
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ended September 30, 2020 from the nine months ended September 30, 2019. The decrease was primarily due to $5.3 million decrease in headcount related expenses, $2.3 million decrease in payments made to the third-party partners of the Travelzoo Network, $1.5 million gain in relates to Jack Flight Club's promissory note forgiveness and $1.3 million decrease in member acquisition costs, offset partially by $4.3 million increase in stock-based compensation expense as the result of the shareholders’ approval in May 2020 of newly granted options and increases and repricing of certain previously granted options.
Travelzoo Europe

| Three Months Ended September 30, |  | Nine Months Ended September 30, |  |
| 2020 |  | 2019 |  | 2020 |  | 2019 |  |  |  |
| (In thousands) |  | (In thousands) |  |
Revenue | $ | 3,657 |  |  | $ | 8,494 |  |  | $ | 12,461 |  |  | $ | 27,749 |  |  |  |  |
Operating profit (loss) | $ | (757) |  |  | $ | 815 |  |  | $ | (3,781) |  |  | $ | 3,536 |  |  |  |  |
Operating profit (loss) as a % of revenue | (20.7) | % |  | 9.6 | % |  | (30.3) | % |  | 12.7 | % |  |  |  |

Europe revenues decreased by $4.8 million for the three months ended September 30, 2020 from the three months ended September 30, 2019 (see “Revenues” above). Europe expenses decreased by $3.3 million for the three months ended September 30, 2020 from the three months ended September 30, 2019. The decrease was primarily due to $617,000 million decrease in headcount related expenses, $639,000 decrease in member acquisition costs and $480,000 decrease in travel expenses.
Europe revenues decreased by $15.3 million for the nine months ended September 30, 2020 from the nine months ended September 30, 2019 (see “Revenues” above). Europe expenses decreased by $8.0 million for the nine months ended September 30, 2020 from the nine months ended September 30, 2019. The decrease was primarily due to $3.3 million decrease in headcount related expenses and $2.3 million decrease in member acquisition costs.
Foreign currency movements relative to the U.S. dollar negatively impacted our local currency income from our operations in Europe by approximately $33,000 and $0 for the three and nine months ended September 30, 2020, respectively. Foreign currency movements relative to the U.S. dollar negatively impacted our local currency income from our operations in Europe by approximately $46,000 and $218,000 for the three and nine months ended September 30, 2019, respectively.
Liquidity and Capital Resources
As of September 30, 2020, we had $50.5 million in cash and cash equivalents, of which $29.1 million was held outside the U.S. in our foreign operations. If this cash is distributed to the U.S., we may be subject to additional U.S. taxes in certain circumstances. Cash and cash equivalents increased from $18.7 million as of December 31, 2019 primarily by cash provided by operating activities, offset by cash used to purchase Jack’s Flight Club. As of September 30, 2020, we had promissory notes payable to the sellers of Jack’s Flight Club aggregating $1.7 million which are due in June 2021, as well as PPP loans aggregating $3.6 million due in April 2022. As of September 30, 2020, we had negative working capital of $13.7 million primarily due to an increase in accounts payable related to merchants from the sale of vouchers. The payable to merchants is generally due upon redemption of the voucher. The vouchers have maturities that extend into 2021 and 2022 and we believe that redemption patterns may be delayed under the current environment. Based on the current projections of redemption activity, we expect that cash on hand as of September 30, 2020 will be sufficient to provide for working capital needs for at least the next twelve months. However, if redemption activity is more accelerated, or if we are not able to reduce operating losses, we may need to obtain additional financing to meet our working capital needs in the future. We believe that we could obtain additional financing if needed, but there can be no assurance that financing will be available on terms that are acceptable to us, if at all.
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The following table provides a summary of our cash flows from operating, investing and financing activities:

| Nine Months Ended September 30,
| 2020 |  | 2019
| (In thousands)
Net cash provided by operating activities | $ | 37,584 |  |  | $ | 1,926 |
Net cash used in investing activities | (1,361) |  |  | (1,023) |
Net cash used in financing activities | (5,342) |  |  | (7,056) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | 393 |  |  | (395) |
Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 31,274 |  |  | $ | (6,548) |

Net cash provided by operating activities is net income (loss) adjusted for certain non-cash items and changes in assets and liabilities. Net cash provided by operating activities for the nine months ended September 30, 2020 was $37.6 million, which consisted of $41.8 million increase in cash from changes in operating assets and liabilities and $11.0 million non-cash items, offset partially by net loss of $15.3 million. The increase in cash from changes in operating assets and liabilities primarily consisted of the $33.2 million increase in accounts payable and $6.2 million decrease in accounts receivable. Adjustments for non-cash items primarily was consisted of $5.2 million of stock-based compensation, 3.9 million of provision of loss on accounts receivable and other, $2.9 million impairment of goodwill and intangible assets and $1.8 million depreciation and amortization, offset partially by $1.7 million deferred income tax and $1.5 million gain relating to Jack Flight Club's Promissory notes forgiveness.
Net cash provided by operating activities for the nine months ended September 30, 2019 was $1.9 million, which consisted of net income of $4.8 million and adjustments for non-cash items of $3.1 million, offset by a $5.9 million decrease in cash from changes in operating assets and liabilities. The decrease in cash from changes in operating assets and liabilities primarily consisted of the $4.4 million net decrease in accounts payable and accrued expenses.
Cash paid for income tax, net of refunds received, during the nine months ended September 30, 2020 and 2019 was $1.2 million and $3.8 million, respectively.
Net cash used in investing activities for the nine months ended September 30, 2020 and 2019 was $1.4 million and $1.0 million, respectively. The cash used in investing activities for the nine months ended September 30, 2020 was primarily due to the $1.0 million investment in Jack’s Flight Club acquisition less acquired cash of $321,000, $430,000 other investments and $252,000 in purchases of property and equipment. The cash used in investing activities for the nine months ended September 30, 2019 was primarily due to $673,000 investment in WeekenGO and $350,000 in purchases of property and equipment.
Net cash used in financing activities for the nine months ended September 30, 2020 and 2019 was $5.3 million and $7.1 million, respectively. The cash used in financing activities for the nine months ended September 30, 2020 was primarily due to the $7.8 million promissory note payment for Jack’s Flight Club stock purchase and $1.2 million payment to repurchase common stock, offset partially by $3.7 million proceeds from PPP loans. Net cash used in financing activities for the nine months ended September 30, 2019 was $7.1 million primarily due to a $8.8 million payment for repurchase common stock, offset partially by proceeds from the issuance of common stock, net of tax paid for the net share settlement, of $1.7 million.
Although we have settled the states unclaimed property claims with all states, we may still receive inquiries from certain potential Netsurfers promotional shareholders that had not provided their state of residence to us by April 25, 2004. Therefore, we are continuing our voluntary program under which we make cash payments to individuals related to the promotional shares for individuals whose residence was unknown by us and who establish that they satisfied the conditions to receive shares of Netsurfers, and who failed to submit requests to convert their shares into shares of Travelzoo within the required time period. This voluntary program is not available for individuals whose promotional shares have been escheated to a state by us.
Our capital requirements depend on a number of factors, including market acceptance of our products and services, the amount of our resources we devote to the development of new products, cash payments related to former shareholders of Netsurfers, expansion of our operations, and the amount of resources we devote to promoting awareness of the Travelzoo brand. Since the inception of the voluntary program under which we make cash payments to people who establish that they were former shareholders of Netsurfers, and who failed to submit requests to convert their shares into shares of Travelzoo within the required time period, we have incurred expenses of $2.9 million. While future payments for this program are expected to decrease, the total cost of this voluntary program is still undeterminable because it is dependent on our stock price and on the number of valid requests ultimately received.
Consistent with our growth, we have experienced fluctuations in our cost of revenues, sales and marketing expenses and our general and administrative expenses, including increases in product development costs, and we anticipate that these
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increases will continue for the foreseeable future. We believe cash on hand will be sufficient to pay such costs for at least the next twelve months. In addition, we will continue to evaluate possible investments in businesses, products and technologies, the consummation of any of which would increase our capital requirements.
We are subject to risks and uncertainties as a result of the COVID-19 pandemic. Since COVID-19 has spread globally, many of our advertisers have paused, canceled, and stopped advertising with us. Additionally, there have been a large amount of cancellations for our hotel and travel package partners as well as refund requests for our vouchers with the Company’s restaurant and spa partners. We are taking steps to adopt new policies and reduce expenses in an effort to maintain our cash position, while we evaluate potential business options and strategic alternatives that may be available.
Although we currently believe that we have sufficient capital resources to meet our anticipated working capital and capital expenditure requirements for at least the next twelve months, unanticipated events and opportunities or a less favorable than expected development of our business with one or more of our advertising formats may require us to sell additional equity or debt securities or establish new credit facilities to raise capital in order to meet our capital requirements.
If we sell additional equity or convertible debt securities, the sale could dilute the ownership of our existing shareholders. If we issue debt securities or establish a new credit facility, our fixed obligations could increase, and we may be required to agree to operating covenants that would restrict our operations. We cannot be sure that any such financing will be available in amounts or on terms acceptable to us.
If the development of our business is less favorable than expected, we may decide to significantly reduce the size of our operations and marketing expenses in certain markets with the objective of reducing cash outflow.
The information set forth under “Note 4: Commitments and Contingencies” and “Note 11: Leases” to the accompanying unaudited condensed consolidated financial statements included in Part I, Item 1 of this report is incorporated herein by reference. Litigation and claims against the Company may result in legal defense costs, settlements or judgments that could have a material impact on our financial condition.
We also have contingencies related to net unrecognized tax benefits, including interest, of approximately $381,000 as of September 30, 2020. See “Note 5: Income Taxes” to the accompanying unaudited condensed consolidated financial statements for further information.
Critical Accounting Policies and Estimates
Critical accounting policies and estimates are those that we believe are important in the preparation of our consolidated financial statements because they require that we use judgment and estimates in applying those policies. Preparation of the consolidated financial statements and accompanying notes requires that we make estimates and assumptions that affect the reported amounts and classifications of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements as well as revenue and expenses during the periods reported. We base our estimates on historical experience, where applicable, and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions. Our critical accounting policies include revenue recognition, reserve for member refunds, allowance for doubtful accounts, income taxes and loss contingencies. For additional information about our critical accounting policies and estimates, see the disclosure included in our Annual Report on Form 10-K for the year ended December 31, 2019 as well as updates in the current fiscal year provided in “Note 1 Summary of Significant Accounting Policies” in the notes to the condensed consolidated financial statements.
Recent Accounting Pronouncements
See “Note 1—The Company and Basis of Presentation” to the accompanying unaudited condensed consolidated financial statements included in this report, regarding the impact of certain recent accounting pronouncements on our unaudited condensed consolidated financial statements.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
We believe that our potential exposure to changes in market interest rates is not material. The Company is not a party to any derivative transactions. We invest in highly liquid investments with short maturities. Accordingly, we do not expect any material loss from these investments.
Our operations in Canada expose us to foreign currency risk associated with agreements being denominated in Canadian dollars. Our operations in Europe expose us to foreign currency risk associated with agreements being denominated in British Pound Sterling and Euros. Our discontinued operations in Asia Pacific expose us to foreign currency risk associated with agreements being denominated in Australian dollars, Chinese Yuan, Hong Kong dollar, Japanese Yen and Taiwanese Dollar. We are exposed to foreign currency risk associated with fluctuations of these currencies as the financial position and operating results of our operations in Asia Pacific, Canada and Europe are translated into U.S. dollars for consolidation purposes. We do not use derivative instruments to hedge these exposures. We are a net receiver of U.S. dollars from our foreign subsidiaries and therefore benefit from a weaker U.S. dollar and are adversely affected by a stronger U.S. dollar relative to the foreign currency used by the foreign subsidiary as its functional currency. We have performed a sensitivity analysis as of September 30, 2020, using a modeling technique that measures the change in the fair values arising from a hypothetical 10% adverse movement in the levels of foreign currency exchange rates relative to the U.S. dollar with all other variables held constant. The foreign currency exchange rates we used were based on market rates in effect at September 30, 2020. The sensitivity analysis indicated that a hypothetical 10% adverse movement in foreign currency exchange rates would result in an incremental $647,000 fore ign exchange loss for the nine months ended September 30, 2020.
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Item 4. Controls and Procedures
Based on management’s evaluation (with the participation of the Company’s Global Chief Executive Officer (CEO) and Chief Accounting Officer (CAO), as of September 30, 2020, our CEO and CAO have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in U.S. SEC rules and forms, and that such information is accumulated and communicated to management, including our CEO and CAO, as appropriate, to allow timely decisions regarding required disclosure.
During the quarter ended September 30, 2020, there were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings
The information set forth under “Note 4—Commitments and Contingencies” to the accompanying unaudited condensed consolidated financial statements included in Part I, Item 1 of this report is incorporated herein by reference.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and in our Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2020, which could materially affect our business, financial position, or results of operations. These are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial position, or results of operations.
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
Repurchases of Equity Securities
We did not purchase our equity securities during the three months ended September 30, 2020. In May 2019, the Company announced a stock repurchase program authorizing the repurchase of up to 1,000,000 shares of the Company’s outstanding common stock. The Company purchased 436,369 shares in 2019. During the nine months ended September 30, 2020, the Company repurchased 168,602 shares of common stock and therefore there were 395,029 shares remaining to be repurchased under this program as of September 30, 2020.
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Item 6. Exhibits
The following table sets forth a list of exhibits:

Exhibit Number | Description
3.1 | — | Certificate of Incorporation of Travelzoo (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 | — | Certificate of Amendment of Certificate Incorporation of Travelzoo (File No. 000-50171), filed May 10, 2017)
3.3 | — | Travelzoo's Certificate of Incorporation to Authorize a Reduction of the Authorized Number of Shares of Our Common Stock from 40,000,000 to 20,000,000 Shares
3.4 | — | By-laws of Travelzoo (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)
31.1‡ | — | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2‡ | — | Certification of Chief Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1† | — | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2† | — | Certification of Chief Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS† |  | XBRL Instance Document
101.SCH† |  | XBRL Taxonomy Extension Schema Document
101.CAL† |  | XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF† |  | XBRL Taxonomy Extension Definition Linkbase Document
101.LAB† |  | XBRL Taxonomy Extension Label Linkbase Document
101.PRE† |  | XBRL Taxonomy Extension Presentation Linkbase Document

* This exhibit is a management contract or a compensatory plan or arrangement.
‡ Filed herewith
† Furnished herewith
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

| TRAVELZOO
| (Registrant)
| By: | /s/ LISA SU
|  | Lisa Su
|  | On behalf of the Registrant and as Chief Accounting Officer

Date: November 6, 2020
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