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Discontinued Operation | 9 Months Ended
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Sep. 30, 2021
Discontinued Operations and Disposal Groups [Abstract] |
Discontinued Operation | Discontinued Operations On March 10, 2020, Travelzoo issued a press release announcing that it will exit its loss-making 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. The Asia Pacific business ceased operations as of March 31, 2020, except for the Company’s Japan and Singapore units, which were held for sale. 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 six months ended September 30, 2021 and 2020 (in thousands):
| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2021 |  | 2020 |  | 2021 |  | 2020
Revenues | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 970 |
Cost of revenues | — |  |  | — |  |  | — |  |  | 6 |
Gross profit | — |  |  | — |  |  | — |  |  | 964 |
Operating expenses: |  |  |  |  |  |  |
Sales and marketing | — |  |  | — |  |  | — |  |  | 1,712 |
Product development | — |  |  | — |  |  | — |  |  | — |
General and administrative | 17 |  |  | 69 |  |  | 29 |  |  | 3,413 |
Total operating expenses | 17 |  |  | 69 |  |  | 29 |  |  | 5,125 |
Loss from operations | (17) |  |  | (69) |  |  | (29) |  |  | (4,161) |
Other income (loss), net | (2) |  |  | (161) |  |  | 24 |  |  | 217 |
Income (loss) before income taxes | (19) |  |  | (230) |  |  | (5) |  |  | (3,944) |
Income tax expense | — |  |  | — |  |  | — |  |  | — |
Net income (loss) | $ | (19) |  |  | $ | (230) |  |  | $ | (5) |  |  | $ | (3,944) |
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. $64,000 of cost of revenues were reclassified from the discontinued operations to continued operations and $7,000 of cost of revenues were reclassified from the continued operations to discontinued operations for the nine months ended September 30, 2020. 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. (“Travelzoo Japan”) to Mr. Hajime Suzuki, the former General Manager of Japan of the Company (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 Travelzoo Japan obtained a license to use the intellectual property of Travelzoo exclusively in Japan and South Korea 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. Travelzoo was not able to estimate whether Travelzoo Japan will generate positive EBITDA based on the uncertainties, and no amount has been recorded for future royalties under this agreement. Licensing revenue is booked with a lag of one quarter. The Company did not record royalties from Travelzoo Japan for 2020. The Company records royalties for its licensing arrangements on a one-quarter lag basis. The Company recognized royalties of $0 and 9,000 from Travelzoo Japan for the three and nine months ended September 30, 2021. 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) Pty Ltd (“Travelzoo Singapore”), to an unaffiliated entity, Finest Hotels Pty Ltd d/b/a Travelzoo (“AUS Buyer”), which is fully owned by Mr. Julian Rembrandt, the former General Manager of Southeast 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. Travelzoo was 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. Licensing revenue is booked with a lag of one quarter. The Company recognized royalties of $2,000 from Travelzoo Singapore for 2020 or for the three and nine months ended September 30, 2021. 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, 2021 |  | December 31, 2020
ASSETS |  |  |
Cash, cash equivalents and restricted cash | $ | 43 |  |  | $ | 146 |
Accounts receivable, net | — |  |  | 69 |
Prepaid expenses and other | 20 |  |  | 15 |
Total assets from discontinued operations | $ | 63 |  |  | $ | 230 |
LIABILITIES |  |  |
Accounts payable | $ | 457 |  |  | $ | 611 |
Accrued expenses and other | — |  |  | 48 |
Deferred revenue | 12 |  |  | 12 |
Total liabilities from discontinued operations | $ | 469 |  |  | $ | 671 |
The net cash used in operating activities for the discontinued operations for the nine months ended September 30, 2021 and 2020, were as follows (in thousands):
| Nine Months Ended
| September 30,
| 2021 |  | 2020
Net cash used in operating activities | $ | 10 |  |  | $ | (1,821) |

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- Definition The entire disclosure related to a disposal group. Includes, but is not limited to, a discontinued operation, disposal classified as held-for-sale or disposed of by means other than sale or disposal of an individually significant component. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -URI http://asc.fasb.org/topic&trid=2155823 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 + Details
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