TRAVELZOO 10-Q

Item 1. Financial Statements 3 TRAVELZOO CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except par value) September 30, 2021 December 31, 2020 ASSETS Current assets: Cash and cash equivalents $ 65,204 $ 63,061 Accounts receivable, less allowance for doubtful accounts of $ 2,045 and $ 2,814 as of September 30, 2021 and December 31, 2020, respectively 9,084 4,519 Prepaid income taxes 2,882 931 Prepaid expenses and other 3,184 1,303 Assets from discontinued operations 63 230 Total current assets 80,417 70,044 Deposits and other 8,219 745 Deferred tax assets 3,637 5,067 Restricted cash 1,154 1,178 Operating lease right-of-use assets 8,005 8,541 Property and equipment, net 794 1,347 Intangible assets, net 3,700 4,534 Goodwill 10,944 10,944 Total assets $ 116,870 $ 102,400 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 11,875 $ 6,996 Merchant payables 73,183 57,104 Accrued expenses and other 7,546 8,649 Deferred revenue 1,805 2,688 Operating lease liabilities 3,482 3,587 PPP notes payable (current portion) — 2,849 Income tax payable 61 326 Liabilities from discontinued operations 469 671 Total current liabilities 98,421 82,870 PPP notes payables — 814 Deferred tax liabilities — 357 Long-term operating lease liabilities 9,721 10,774 Other long-term liabilities 2,249 1,085 Total liabilities 110,391 95,900 Commitments and contingencies — — Non-controlling interest 4,608 4,609 Stockholders’ equity: Common stock, $ 0.01 par value ( 20,000 shares authorized; 11,923 shares issued and 11,823 shares outstanding as of September 30, 2021 and 11,365 shares issued and outstanding as of December 31, 2020) 118 114 Treasury stock (at cost, 100 shares and 0 shares at September 30, 2021 and December 31, 2020, respectively) ( 1,583 ) — Additional paid in capital 3,432 6,239 Retained earnings (accumulated deficit) 3,792 ( 403 ) Accumulated other comprehensive loss ( 3,888 ) ( 4,059 ) Total stockholders’ equity 1,871 1,891 Total liabilities and stockholders’ equity $ 116,870 $ 102,400 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, 2021 2020 2021 2020 Revenues $ 15,688 $ 13,787 $ 49,051 $ 41,118 Cost of revenues 2,992 2,924 8,532 7,768 Gross profit 12,696 10,863 40,519 33,350 Operating expenses: Sales and marketing 7,709 6,929 21,839 24,311 Product development 684 592 2,052 2,586 General and administrative 4,564 4,545 14,180 16,709 Impairment of intangible assets and goodwill — — — 2,920 Total operating expenses 12,957 12,066 38,071 46,526 Operating income (loss) ( 261 ) ( 1,203 ) 2,448 ( 13,176 ) Other income (loss), net 3,344 ( 37 ) 3,862 ( 222 ) Income (loss) from continuing operations before income taxes 3,083 ( 1,240 ) 6,310 ( 13,398 ) Income tax expense (benefit) 233 ( 244 ) 2,111 ( 2,070 ) Income (loss) from continuing operations 2,850 ( 996 ) 4,199 ( 11,328 ) Income (loss) from discontinued operations, net of taxes ( 19 ) ( 230 ) ( 5 ) ( 3,944 ) Net income (loss) 2,831 ( 1,226 ) 4,194 ( 15,272 ) Net income (loss) attributable to non-controlling interest 8 125 ( 1 ) ( 1,122 ) Net income (loss) attributable to Travelzoo $ 2,823 $ ( 1,351 ) $ 4,195 $ ( 14,150 ) Net income (loss) attributable to Travelzoo—continuing operations $ 2,842 $ ( 1,121 ) $ 4,200 $ ( 10,206 ) Net income (loss) attributable to Travelzoo—discontinued operations $ ( 19 ) $ ( 230 ) $ ( 5 ) $ ( 3,944 ) Income (loss) per share—basic Continuing operations $ 0.24 $ ( 0.10 ) $ 0.36 $ ( 0.90 ) Discontinued operations $ — $ ( 0.02 ) $ — $ ( 0.35 ) Net income (loss) per share —basic $ 0.24 $ ( 0.12 ) $ 0.36 $ ( 1.25 ) Income (loss) per share—diluted Continuing operations $ 0.22 $ ( 0.10 ) $ 0.32 $ ( 0.90 ) Discontinued operations $ — $ ( 0.02 ) $ — $ ( 0.35 ) Income (loss) per share—diluted $ 0.22 $ ( 0.12 ) $ 0.32 $ ( 1.25 ) Shares used in per share calculation from continuing operations—basic 11,648 11,310 11,510 11,353 Shares used in per share calculation from discontinued operations—basic 11,648 11,310 11,510 11,353 Shares used in per share calculation from continuing operations—diluted 12,904 11,310 13,132 11,353 Shares used in per share calculation from discontinued operations—diluted 11,648 11,310 11,510 11,353 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, 2021 2020 2021 2020 Net income (loss) $ 2,831 $ ( 1,226 ) $ 4,194 $ ( 15,272 ) Other comprehensive income (loss): Foreign currency translation adjustment ( 401 ) 532 171 ( 682 ) Total comprehensive income (loss) $ 2,430 $ ( 694 ) $ 4,365 $ ( 15,954 ) 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, 2021 2020 Cash flows from operating activities: Net income (loss) $ 4,194 $ ( 15,272 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 1,408 1,806 Stock-based compensation 2,788 5,243 Deferred income tax 1,073 ( 1,747 ) Impairment of intangible assets and goodwill — 2,920 Gain on promissory notes payable settlement — ( 1,500 ) Loss on long-lived assets — 437 Loss on equity investment in WeGo — 474 Gain on PPP notes payable forgiveness ( 3,588 ) — Net foreign currency effect ( 300 ) ( 542 ) Provision for (reversal of) loss on accounts receivable, refund reserve and other ( 1,725 ) 3,923 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable ( 3,848 ) 6,246 Prepaid income taxes ( 2,007 ) 685 Prepaid expenses and other ( 9,473 ) 1,626 Accounts payable 5,024 12,709 Merchant payable 16,486 20,532 Accrued expenses and other ( 452 ) ( 1,381 ) Income tax payable ( 263 ) ( 479 ) Other liabilities ( 34 ) 1,904 Net cash provided by operating activities 9,283 37,584 Cash flows from investing activities: Acquisition of business, net of cash acquired — ( 679 ) Other investments — ( 430 ) Purchases of property and equipment ( 24 ) ( 252 ) Net cash used in investing activities ( 24 ) ( 1,361 ) Cash flows from financing activities: Repurchase of common stock ( 1,583 ) ( 1,205 ) Payment of notes payables ( 110 ) ( 7,800 ) Proceeds from PPP notes payable — 3,663 Exercise of stock options and taxes paid for net share settlement ( 5,424 ) — Net cash used in financing activities ( 7,117 ) ( 5,342 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 126 ) 393 Net increase in cash, cash equivalents and restricted cash 2,016 31,274 Cash, cash equivalents and restricted cash at beginning of period 64,385 20,710 Cash, cash equivalents and restricted cash at end of period $ 66,401 $ 51,984 Supplemental disclosure of cash flow information: Cash paid for income taxes, net $ 2,978 $ 1,230 Right-of-use assets obtained in exchange for lease obligations—operating leases $ 1,777 $ 3,207 Cash paid for amounts included in the measurement of lease liabilities $ 3,291 $ 3,063 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 (DEFICIT) (Unaudited) (In thousands) Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Loss Total Stockholders’ Equity (Deficit) Shares Amount Balances, January 1, 2021 11,365 $ 114 $ — $ 6,239 $ ( 403 ) $ ( 4,059 ) $ 1,891 Stock-based compensation expense — — — 882 — — 882 Treasury stock — ( 1,583 ) — — — ( 1,583 ) Exercise of stock options and taxes paid for net share settlement of equity awards 205 1 — ( 2,842 ) — ( 2,841 ) Foreign currency translation adjustment — — — — — 410 410 Net loss–Travelzoo — — — — ( 1,642 ) — ( 1,642 ) Balances, March 31, 2021 11,570 115 ( 1,583 ) 4,279 ( 2,045 ) ( 3,649 ) ( 2,883 ) Stock-based compensation expense — — — 935 — — 935 Exercise of stock options and taxes paid for net share settlement 24 — — ( 226 ) — — ( 226 ) Foreign currency translation adjustment — — — — — 162 162 Net income—Travelzoo — — — — 3,014 — 3,014 Balances, June 30, 2021 11,594 115 ( 1,583 ) 4,988 969 ( 3,487 ) 1,002 Stock-based compensation expense — — — 971 — — 971 Exercise of stock options and taxes paid for net share settlement 329 3 — ( 2,527 ) — — ( 2,524 ) Foreign currency translation adjustment — — — — — ( 401 ) ( 401 ) Net income—Travelzoo — — — — 2,823 — 2,823 Balances, September 30, 2021 11,923 $ 118 $ ( 1,583 ) $ 3,432 $ 3,792 $ ( 3,888 ) $ 1,871 8 Common Stock Additional Paid-In Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Loss Total Stockholders’ Equity 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 See accompanying notes to unaudited condensed consolidated financial statements. 9 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 more than 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. Travelzoo (the “Company” or "we") attracts a high-quality audience of travel enthusiasts across multiple digital platforms, including email, web, social media and mobile applications. Our insider deals and email newsletters are published by Travelzoo and its licensees worldwide. Our publications and products include the Travelzoo website (travelzoo.com), the Travelzoo iPhone and Android apps, the Travelzoo Top 20 ® email newsletter, the Newsflash email alert service, and the Travelzoo Network . 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 also license the use of these products and our intellectual property in various countries in Asia Pacific, including but not limited to Australia, New Zealand, Japan, South Korea and Southeast Asia. We are also the majority shareholder of JFC Travel Group Co. (“Jack’s Flight Club”), which operates Jack’s Flight Club . For our voucher products, we receive a percentage of the face value of the voucher from the local businesses. APAC Exit and Pivot to Licensing Model In March 2020, Travelzoo exited its loss-making Asia Pacific business and pivoted to a licensing model, whereby Travelzoo’s business practices and intellectual property are utilized by local licensees to continue to provide high quality insider deals and content to Travelzoo members throughout Asia Pacific. Such existing members in Asia Pacific will continue to be owned by Travelzoo as the licensor. 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. Travelzoo currently has license agreements in Japan and South Korea, as well as Australia, New Zealand and Singapore. The license agreement for Japan provides a license to the licensee 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. The territory subject to the license was amended to also include South Korea. An interest free loan was provided to the licensee 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, 2021. The license agreement for Australia, New Zealand and Singapore provides a license to the licensee to use the intellectual property of Travelzoo exclusively in Australia, New Zealand and Singapore for quarterly royalty payments based upon net revenue over a 5 year term, with an option to renew. 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. The Company recognized royalties of $ 2,000 for its licensing arrangements from AUS Buyer for the three and nine months ended September 30, 2021. We expect the royalty payments to increase over time as the effects of the pandemic subside. WeGo Investment The Company previously held a minority share equal to 33.7 % in weekengo GmbH ("WeGo"), which the Company sold to trivago N.V. (“trivago”) on December 23, 2020. Per the Share Purchase Agreement, by and among Travelzoo (Europe) Limited, trivago, and the other shareholders of WeGo (the “trivago SPA”), the Company sold all of its shares in WeGo to trivago for a total purchase price of approximately $ 2.9 million, of which $ 213,000 was placed in escrow for one year. The Company recorded $ 468,000 gain in Other income (loss), net. for the sale of WeGo shares in 2020. The Company’s advertising revenues from WeGo for the years ended December 31, 2020 and 2019 were $ 384,000 and $ 1.2 million, respectively. WeGo agreed to pay in a lump sum the remaining amount outstanding pursuant to the Insertion Order equal to approximately $ 200,000 . The payment was made and recorded in the first quarter of 2021. The Second Insertion Order and any obligation for additional payments from WeGo for marketing were terminated. 10 The Company acquired the domain name and trademark “weekend.com” in 2005 which was amortized over five years . Concurrently with the sale of the shares, the Company also sold the domain name and trademark “weekend.com” to trivago in exchange for a payment of $ 822,000 . The Company recorded $ 822,000 gain in general and administrative expenses for the sale of the domain name and trademark “weekend.com” in 2020. Jack’s Flight Club 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, 2021, Jack’s Flight Club h ad 1.7 million subscribers. Jack’s Flight Club’s revenues are generated by subscription fees paid by members. See Note 3 to the unaudited condensed consolidated financial statements for further information. Ownership Ralph Bartel, who founded Travelzoo and who is the Chairman of the Board of Directors 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, 2021, Azzurro is the Company's largest shareholder, holding approximately 38.9 % of the Company's outstanding shares. 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, 2020, included in the Company’s Form 10-K filed with the SEC on March 31, 2021. 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. Management of the Company has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with accounting principles generally accepted in the U.S. Significant estimates included in the consolidated financial statements and related notes include revenue recognition, refund liability, income taxes, stock-based compensation, loss contingencies, useful lives of property and equipment, purchase price allocation for the business combination and related impairment assessment, relating to the projections and assumptions used. Actual results could differ materially from those estimates. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or any other future period, and the Company makes no representations related thereto. (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. (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, 2020. 11 Revenue Recognition The Company follows Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers" (Topic 606). 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 and subscription revenues from Jack's Flight Club. 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. 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 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. Deferred revenue primarily consists of customer prepayments and undelivered performance obligations related to the Company’s contracts with multiple performance obligations. At December 31, 2020, $ 1.3 million was recorded as deferred 12 revenue for Travelzoo North America and Travelzoo Euro pe, of which $ 620,000 was recognized as revenue during the nine months ended September 30, 2021. At September 30, 2021, the deferred revenue balance was $ 1.8 million, of which $ 429,000 was for Travelzoo North America and Travelzoo Europe, and the remaining $ 1.4 million was for Jack's Flight Club. Reserve for Refunds to Members The Company records an estimated reserve for refunds to members based on our historical experience at the time revenue is recorded for Local Deals and Getaways voucher sales. We consider many key factors such as the historical refunds based upon the time lag since the sale, historical reasons for refunds, time period that remains until the deal expiration date, any changes in refund procedures and estimates of redemptions and breakage. 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 2021 through December 2023. The revenues generated from Local Deals vouchers and entertainment offers are based upon a percentage of the face value of the vouchers, commission on actual sales or a listing fee based on audience reach. For Local Deals vouchers, we recognize a percentage of the face value of vouchers upon the sale of the vouchers. 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, 2021 the Company had approximately $ 18.3 million of unredeemed vouchers that had been sold through September 30, 2021 representing the Company’s commission earned from the sale. The Company had estimated a refund liability of $ 3.1 million for these unredeemed vouchers as of September 30, 2021 which is recorded as a reduction of revenues and is reflected as a current liability in Accrued expenses and other on the consolidated balance sheet. As of December 31, 2020, the Company had approximately $ 15.2 million of unredeemed vouchers that had been sold during 2020 representing the Company’s commission earned from the sale and estimated a refund liability of $ 3.9 million for these unredeemed vouchers as of December 31, 2020 which is recorded as a reduction of revenues and is reflected as a current liability in Accrued expenses and other on the consolidated balance sheet. The Company has recorded Merchant Payables of $ 73.2 million as of September 30, 2021 related to unredeemed vouchers. Insertion orders and merchant agreements for Travelzoo Local are typically for periods between one month and twelve months and are not automatically renewed except for merchant contracts in foreign locations. Should any of these factors change, the estimates made by management will also change, which could impact the level of our future reserve for refunds to member. Specifically, if the financial condition of our advertisers, the business that is providing the vouchered service, were to deteriorate, affecting their ability to provide the services to our members, additional reserves for refunds to members may be required and may adversely affect future revenue as the liability is recorded against revenue. Estimated member refunds that are determined to be recoverable from the merchant are recorded in the consolidated statements of operations as a reduction to revenue. We accrue costs associated with refunds in accrued expenses on the consolidated balance sheets. Estimated member refunds that are determined not to be recoverable from the merchant are presented as a cost of revenue. If our judgments regarding estimated member refunds are inaccurate, reported results of operations could differ from the amount we previously accrued. 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 13 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 performed its annual test as of October 31, 2020 and no impairment charge was identified in connection with the annual impairment tes t. The Company did not identify any indicators of impairment during the nine months ended September 30, 2021. 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 global pandemic and recorded an impairment expense of $ 2.1 million. The Company performed its annual impairment test as of October 31, 2020 and no impairment charge was identified in connection with the annual impairment test . The Company did not identify any indicators of impairment during the nine months ended September 30, 2021. Operating 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 (loss), 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 pandemic 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 the global pandemic 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 a ccounts 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. As of September 30, 2021 and December 31, 2020, the Company did not have any customers that accounted for 10% or more of accounts receivable. Many of the Company’s advertisers and partners are part of the global travel and hospitality industry. The measures implemented to contain COVID have had, and are expected to continue to have, a significant negative effect on the Company’s business, financial condition, results of operations, and cash flows. The measures implemented led to many of the Company’s advertisers pausing, canceling, or stopping advertising with us, as well as a high level of cancellations for our hotel partners and travel package partners, and refund requests for vouchers sold by Travelzoo for restaurant and spa partners. It is difficult to estimate the impact of the COVID pandemic on the Company’s future revenues, results of operations, cash flows, liquidity, or financial condition. As of September 30, 2021, the Company had merchant payables of $ 73.2 million related to the sale of vouchers. In the Company’s financial statements presented in this 10-Q report, following GAAP accounting principles, we classified all merchant payables as current. When all merchant payables are classified as current, there is negative net working capital (which 14 is defined as current assets minus current liabilities) of $ 18.0 million. Payables to merchants are generally due upon redemption of vouchers. The vouchers have maturities from October 2021 through December 2023. Management believes that redemptions may be delayed for international vouchers in the current environment. Based on current projections of redemption activity, management expect that cash on hand as of September 30, 2021 will be sufficient to provide for working capital needs for at least the next twelve months. However, if redemption activity is more accelerated, if the Company’s business is not profitable, or if the Company’s planned targets for cash flows from operations are not met, the Company may need to obtain additional financing to meet its working capital needs in the future. The Company believes that it could obtain additional financing if needed, but there can be no assurance that financing will be available on terms that are acceptable to the Company, if at all. Cash, Cash Equivalents and Restricted Cash Cash equivalents consist of highly liquid investments with maturities of three months or less on the date of purchase. 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 refundable deposits and funds held in escrow. 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, 2021 2020 Cash and cash equivalents $ 65,204 $ 63,061 Restricted cash 1,154 1,178 Cash, cash equivalents and restricted cash–discontinued operations 43 146 Total cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows $ 66,401 $ 64,385 The Company’s restricted cash was included in noncurrent assets as of September 30, 2021 and December 31, 2020. 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. 15 The following table sets forth the calculation of basic and diluted net income (loss) per share (in thousands, except per share amounts): Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Numerator: Net income (loss) attributable to Travelzoo—continuing operations $ 2,842 $ ( 1,121 ) $ 4,200 $ ( 10,206 ) Net loss attributable to Travelzoo—discontinued operations $ ( 19 ) $ ( 230 ) $ ( 5 ) $ ( 3,944 ) Denominator: Weighted average common shares—basic 11,648 11,310 11,510 11,353 Effect of dilutive securities: stock options 1,256 — 1,622 — Weighted average common shares—diluted 12,904 11,310 13,132 11,353 Income (loss) per share—basic Continuing operations $ 0.24 $ ( 0.10 ) $ 0.36 $ ( 0.90 ) Discontinued operations — ( 0.02 ) — ( 0.35 ) Net income (loss) per share —basic $ 0.24 $ ( 0.12 ) $ 0.36 $ ( 1.25 ) Income (loss) per share—diluted Continuing operations $ 0.22 $ ( 0.10 ) $ 0.32 $ ( 0.90 ) Discontinued operations — ( 0.02 ) — ( 0.35 ) Net income (loss) per share—diluted $ 0.22 $ ( 0.12 ) $ 0.32 $ ( 1.25 ) For the three and nine months ended September 30, 2021 and 2020, options to purchase 50,000 s hares and 3.4 million shares of common stock, respectively, were not included in the computation of diluted net income (loss) 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. The results of Jack's Flight Club in 2020 did not meet the thresholds required for the put/call option to be exercisable. 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. 16 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 global 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 and during the fourth 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 of $ 2.1 million. 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”) for $ 810,000 before impairing goodwill. 17 The following table summar izes the goodwill activity for the three months ended March 31, 2020 (in thousands): Goodwill—January 1, 2020 $ — Acquisition 13,054 Impairment—March 31, 2020 ( 2,110 ) Goodwill—March 31, 2020 $ 10,944 There has been no change in goodwill for the nine months ended September 30, 2021 and no changes since March 31, 2020. 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 nine months ended September 30, 2021 (in thousands): Fair Value Intangible assets—January 1, 2020 $ — Acquisition 6,620 Impairment of trade name ( 810 ) Amortization of intangible assets with definite lives ( 1,276 ) Intangible assets- December 31, 2020 4,534 Amortization of intangible assets with definite lives ( 284 ) Intangible assets- March 31, 2021 4,250 Amortization of intangible assets with definite lives ( 275 ) Intangible assets- June 30, 2021 3,975 Amortization of intangible assets with definite lives ( 275 ) Intangible assets- September 30, 2021 $ 3,700 18 Amortization expense for acquired intangibles was $ 275,000 and $ 333,000 for the three months ended September 30, 2021 and 2020, respectively. Amortization expense for acquired intangibles was $ 833,000 and $ 943,000 for the nine months ended September 30, 2021 and 2020, respectively. Expected future amortization expense of acquired intangible assets as of September 30, 2021 is as follows (in thousands): Years ending December 31, 2021 remainder $ 274 2022 875 2023 641 2024 250 2025 10 $ 2,050 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 performed its annual impairment testing of Trade name during the fourth fiscal quarter and did not identify any additional impairment in 2 020. The Company did not identify any indicators of impairment during the nine months ended September 30, 2021. Unaudited 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 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, 2020 September 30, 2020 Revenues $ 13,787 $ 41,239 Net loss $ ( 1,226 ) $ ( 15,247 ) 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. The Company recorded $ 1.5 million gain in “General and administrative expenses” for the partial forgiveness of the outstanding loan in the second quarter of 2020. The $ 1.7 million new promissory notes was paid off in October 2020. Total interest expense for the Promissory Notes of $ 142,000 was recorded in Other income (loss), net in 2020. 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 and accrued $ 448,000 in “General and administrative expenses” in 2020. $ 492,000 was paid to the Sellers during the first quarter of 2021 relating to this agreement. 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 determined that the extension of the one year period did not change the fair value of the put/call option materially. 19 Note 4: Commitments and Contingencies From time to time, the Company is subject to various claims and legal proceedings, either asserted or unasserted, that arise in the ordinary course of business. The Company accrues for legal contingencies if the Company can estimate the potential liability and if the Company believes it is probable that the case will be ruled against it. If a legal claim for which the Company did not accrue is resolved against it, the Company would record the expense in the period in which the ruling was made. The Company believes that the likelihood of an ultimate amount of liability, if any, for any pending claims of any type (alone or combined) that will materially affect the Company’s financial position, results of operations or cash flows is remote. The ultimate outcome of any litigation is uncertain, however, and unfavorable outcomes could have a material negative impact on the Company’s financial condition and operating results. Regardless of outcome, litigation can have an adverse impact on the Company because of defense costs, negative publicity, diversion of management resources and other factors. 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, 2021 and 2020. 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 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 to up to nine years . Refer to Note 11 for Leases as of September 30, 2021. The Company maintains several standby letters of credit (“LOC”) to serve as collateral issued to certain landlords. The LOCs are collateralized with cash which is included in the line item “Restricted cash” in the Consolidated Balance Sheets. The Company has purchase commitments aggregating approximately $ 3.4 million as of September 30, 2021, which represent the minimum obligations the Company has under agreements with certain suppliers. These minimum obligations are less than the Company's projected use for those periods. Payments may be more than the minimum obligations based on actual use. 20 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 global pandemic, and difficulty forecasting the calendar year 2021 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 effe ctive rate for the nine months ended September 30, 2021 . The Company's effective tax rate from continuing operations was 8 % and 20 %, respectively, for the three months ended September 30, 2021 and 2020. The Company’s effective tax rate for the three months ended September 30, 2021 decreased from the three months ended September 30, 2020 primarily due to PPP loan forgiveness income generated in the three months ended September 30, 2021 that is exempt from tax. The Company's effective tax rate from continuing operations was 33 % and 15 %, respectively, for the nine months ended September 30, 2021 and 2020. The Company's effective tax rate increased for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to changes in deferred tax assets from limitations on deductible stock-based compensation , offset by PPP Loan forgiveness income exempt from tax. As of September 30, 2021, 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 $ 723,000 . The Company maintains liabilities for uncertain tax positions. At September 30, 2021, the Company had approximately $ 961,000 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, 2021 and December 31, 2020, the Company had approximately $ 278,000 and $ 235,000 in accrued interest, and $ 89,000 and $ 0 in accrued penalties, 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 2017 and forward and is subject to California tax examinations for years after 2016. 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 q uarter. 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 the global pandemic that may be issued. 21 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, 2021 2020 2021 2020 Beginning balance $ ( 3,487 ) $ ( 4,666 ) $ ( 4,059 ) $ ( 3,452 ) Other comprehensive income (loss) due to foreign currency translation, net of tax ( 401 ) 349 171 ( 460 ) Reclassification of amounts to income relating to APAC discontinued operations, net of tax — 183 — ( 222 ) Ending balance $ ( 3,888 ) $ ( 4,134 ) $ ( 3,888 ) $ ( 4,134 ) The Company reclassified $ 599,000 from accumulated other comprehensive income (loss) for the year ended December 31, 2020 due to Asia Pacific was considered a discontinued operation in March 2020. There were no amounts reclassified from accumulated other comprehensive loss for the three and nine months ended September 30, 2021. Accumulated other comprehensive income (loss) consists of foreign currency translation gain or loss. 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 second quarter of 2020. During the three months ended September 30, 2021, 500,000 options granted pursuant to the 2015 Option Agreement and 160,000 options granted pursuant to the 2019 Option Agreement were exercised by Mr. Bartel, 188,737 shares of common stock were issued as the result of a cashless exercise and 112,901 shares of common stock were issued as the result of net settlement with respect to the exercise price were approved by Travelzoo's Board of Directors. During the nine months ended September 30, 2021, 600,000 options granted pursuant to the 2015 Option Agreement, 300,000 options granted pursuant to the 2017 Option Agreement and 160,000 options granted pursuant to the 2019 Option Agreement were exercised by Mr. Bartel, 367,086 shares of common stock were issued as the result of a cashless exercise and 112,901 shares of common stock were 22 issued as the result of net settlement with respect to the exercise price were approved by Travelzoo's Board of Directors. Mr. Bartel did not exercise options in the second quarter of 2021. Total stock-based compensation of $ 382,000 was recorded in general and administrative expenses for each of the three months ended September 30, 2021 and 2020, respectively. Total stock-based compensation of $ 1.1 million and $ 3.9 million was recorded in general and administrative expenses for the nine months ended September 30, 2021 and 2020, respectively. As of September 30, 2021, there was approximately $ 382,000 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 last three months of 2021. 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. Total stock-based compensation of $ 0 and $ 34,000 was recorded in sales and marketing expense for the three and nine months ended September 30, 2020. Upon the departure of the employee in 2020, 25,000 unvested options were forfeited and 25,000 vested option were canceled. 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. 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. Total stock-based compensation of $ 44,000 was recorded in general and administrative expenses for the first quarter of 2020. Upon the departure of the employee in the second quarter of 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. In September 2019, pursuant to executed Option Agreements, the Company granted 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. In 2020, 100,000 unvested options were forfeited upo n an employee’s departure, 75,000 options were exercised and 54,258 shares of common stock were issued as the result of a cashless exercise approved by Travelzoo ’ s Board of Directors. During the nine months ended September 30, 2021, 75,000 unvested options were forfeited upo n an employee’s departure, 100,000 options were exercised and 54,110 shares of common stock were issued as the result of the cashless exercises. Total stock-based compensation related to these option grants of $ 97,000 and $ 362,000 was recorded in general and administrative expenses for the three months ended September 30, 2021 and 2020. Total stock-based compensation related to these option grants of $ 248,000 and $ 523,000 was recorded in general and administrative expenses for the nine months ended September 30, 2021 and 2020. As of September 30, 2021, there was approximately $ 741,000 of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over the next 1.9 years. On May 29, 2020, pursu ant 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 was recorded in general and administrative expenses for each of the three months ended September 30, 2021 and 2020. Total stock-based compensation related to these option grants of $ 1.2 million and $ 771,000 was recorded in general and administrative expenses for the nine months ended September 30, 2021 and 2020. As of September 30, 2021, there was approximately $ 771,000 of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over the next six months . 23 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. This amount is expected to be recognized over the next year. During the nine months ended September 30, 2021, 50,000 options were exercised and 24,474 shares of common stock were issued as the result of the cashless exercises. Total stock-based compensation related to these option grants of $ 49,000 and $ 59,000 was recorded in general and administrative expenses for the three months ended September 30, 2021 and 2020. Total stock-based compensation related to these option grants of $ 157,000 and $ 79,000 was recorded in general and administrative expenses for the nine months ended September 30, 2021 and 2020. As of September 30, 2021, there was approximately $ 491,000 of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over the next 2.5 years. On June 1, 2021, pursuant to an executed Option Agreement, the shareholders of the Company approved the grant of stock options to purchase 50,000 shares of common stock to one employee, with an exercise price of $ 9.44 , with annual vesting starting January 1, 2022 and ending on January 1, 2025. The options expire in January 2026. Total stock-based compensation related to these option grants of $ 62,000 and $ 82,000 was recorded in general and administrative expenses for the three and nine months ended September 30, 2021 . As of September 30, 2021, there was approximately $ 492,000 of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over the next 3.3 years. Note 8: Stock Repur chase Program The Company ’ s stock repurchase programs assist in offsetting the impact of dilution from employee equity compensation and assist with capital allocation. Management is allowed discretion in the execution of the repurchase program based upon market conditions and consideration of capital allocation. 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 repurchased and retired 436,369 shares of common stock in 2019. During the first quarter of 2020, the Company repurchased 169,602 shares of common stock for an aggregate purchase price of $ 1.2 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. There were 395,029 shares remaining to be repurchased under this program as of September 30, 2021 . In March 2021, the Company entered into a Stock Repurchase Agreement with Mr. Holger Bartel to privately repurchase an aggregate of 100,000 shares of the Company’s common stock for an aggregate purchase price of $ 1.6 million , which were recorded as part of treasury stock as of September 30, 2021. This transaction was approved by the Compensation Committee of the Board of Directors. 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, 2021, 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. 24 The following is a summary of operating results by business segment (in thousands): Three Months Ended September 30, 2021 Travelzoo North America Travelzoo Europe Jack’s Flight Club Elimination Consolidated Revenues from unaffiliated customers $ 9,527 $ 5,365 $ 796 $ — $ 15,688 Intersegment revenues (expenses) 136 ( 136 ) — — — Total net revenues 9,663 5,229 796 — 15,688 Operating profit (loss) $ ( 918 ) $ 600 $ 57 $ — $ ( 261 ) 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 ) Nine Months Ended September 30, 2021 Travelzoo North America Travelzoo Europe Jack’s Flight Club Elimination Consolidated Revenues from unaffiliated customers $ 33,005 $ 13,503 $ 2,543 $ — $ 49,051 Intersegment revenues (expenses) 462 ( 462 ) — — — Total net revenues 33,467 13,041 2,543 — 49,051 Operating profit (loss) $ 2,654 $ ( 323 ) $ 117 $ — $ 2,448 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 loss $ ( 6,374 ) $ ( 3,781 ) $ ( 3,013 ) $ ( 8 ) $ ( 13,176 ) 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, 2021 Travelzoo North America Travelzoo Europe Jack’s Flight Club Elimination Consolidated Long-lived assets $ 685 $ 109 $ — $ — $ 794 Total assets excluding discontinued operations $ 140,116 $ 34,754 $ 6,468 $ ( 64,531 ) $ 116,807 As of December 31, 2020 Travelzoo North America Travelzoo Europe Jack’s Flight Club Elimination Consolidated Long-lived assets $ 1,123 $ 224 $ — $ — $ 1,347 Total assets excluding discontinued operations $ 138,020 $ 31,659 $ 5,796 $ ( 73,305 ) $ 102,170 For the nine months ended September 30, 2021 and 2020, the Company did not have any customers that accounted for 10% or more of revenue. As of September 30, 2021 and December 31, 2020, the Company did not have any customers that accounted for 10% or more of accounts receivable. 25 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, 2021 2020 2021 2020 Travelzoo North America Travel $ 9,078 $ 8,706 $ 31,141 $ 23,772 Local 585 437 2,326 2,270 Total Travelzoo North America revenues 9,663 9,143 33,467 26,042 Travelzoo Europe Travel 4,772 3,449 11,796 11,442 Local 457 208 1,245 1,019 Total Travelzoo Europe revenues 5,229 3,657 13,041 12,461 Jack’s Flight Club 796 987 2,543 2,615 Consolidated Travelzoo Travel 13,850 12,155 42,937 35,214 Travelzoo Local 1,042 645 3,571 3,289 Jack’s Flight Club 796 987 2,543 2,615 Total revenues $ 15,688 $ 13,787 $ 49,051 $ 41,118 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, 2021 2020 2021 2020 Revenue United States $ 8,607 $ 8,345 $ 31,042 $ 23,753 United Kingdom 4,218 3,095 9,325 10,189 Germany 1,390 1,386 4,287 4,148 Rest of the world 1,473 961 4,397 3,028 Total revenues $ 15,688 $ 13,787 $ 49,051 $ 41,118 The following table sets forth property and equipment by geographic area (in thousands): September 30, December 31, 2021 2020 United States $ 522 $ 912 Rest of the world 272 435 Total long-lived assets $ 794 $ 1,347 Note 10: Discontinued Operations 26 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. 27 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 ) 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 nine 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, 2021 (in thousands): Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Operating lease cost $ 735 $ 1,011 $ 2,537 $ 3,423 Short-term lease cost — 6 12 19 Variable lease cost 207 227 754 779 Sublease income ( 84 ) ( 84 ) ( 252 ) ( 252 ) Total lease cost $ 858 $ 1,160 $ 3,051 $ 3,969 For the nine months ended September 30, 2021 and 2020, cash payments against the operating lease liabilities total ed $ 3.3 million and $ 3.1 million, respectively. ROU assets obtained in exchange for lease obligations was $ 1.8 million and $ 3.2 million for nine months ended September 30, 2021 and 2020, respectively. 28 The following table summarizes the presentation in our condensed consolidated balance sheets of our operating leases (in thousands): September 30, 2021 December 31, 2020 Assets: Operating lease right-of-use assets $ 8,005 $ 8,541 Liabilities: Operating lease liabilities $ 3,482 $ 3,587 Long-term operating lease liabilities 9,721 10,774 Total operating lease liabilities $ 13,203 $ 14,361 Weighted average remaining lease term (years) 6.68 7.28 Weighted average discount rate 3.4 % 3.6 % Maturities of lease liabilities were as follows (in thousands): Years ending December 31, 2021 (excluding the nine months ended September 30, 2021) $ 1,015 2022 3,203 2023 2,125 2024 1,426 2025 1,350 Thereafter 5,625 Total lease payments 14,744 Less interest ( 1,541 ) Present value of operating lease liabilities $ 13,203 Note 12: Debt Pursuant to the SPA with Jack’s Flight Club on January 13, 2020, the Company issued a Promissory Note for $ 11.0 million as part of the purchase price with an interest rate of 1.6 % and a due date of January 31, 2020. On June 3, 2020, the parties reached a negotiated settlement: (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 $ 6.8 million and the accrued interest was paid in the second quarter of 2020, the remaining $ 1.7 million promissory note and the accrued interest was paid in the fourth quarter of 2020. Total interest expense for the Promissory Notes of $ 142,000 was paid and recorded in Other income (loss), net in 2020. 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 Company used the funds from these loans only for the purposes included in the PPP, including payroll, employee benefits, and rent, and also intends to apply for forgiveness of a portion of the loans in compliance with the CARES Act. Interest expense of $ 25,000 for the PPP notes payable in 2020 was recorded in Other income (loss), net. In the second quarter of 2021, the Company settled the $ 535,000 PPP loan, $ 429,000 was forgiven which was recorded as gain in “Other income (loss), net”, the remaining outstanding balance of the loan and interest of $ 111,000 was paid off. On July 1, 2021, the principal and the interest of the $ 3.1 million PPP loan were forgiven and a gain was recorded in “Other income (loss), net”, in the three months ended September 30, 2021 . It is possible that the SBA could subsequently audit the forgiven loans. The Company believes it was eligible to participate in PPP, calculated the loan amount correctly, spent loan proceeds on allowable uses and is entitled to loan forgiveness. The Company will hold onto its financial documents relating to the PPP loans for six years as required. 29 Note 13: Related Party Transactions License Agreement with Azzurro Brands Inc. On March 12, 2021, the Company, with the approval of the Audit Committee of the Board of Directors, entered into a License Agreement (the “License Agreement”) with Azzurro Brands Inc., a New York corporation (“Azzurro Brands”) that is a wholly-owned subsidiary of Azzurro Capital Inc., the Company’s largest shareholder. Pursuant to the terms of the License Agreement, the Company was granted the exclusive right and license to use a database of 2.2 million non-duplicated subscribers that Azzurro Brands purchased from a competitor of Travelzoo. The License Agreement requires that the Company pay a license fee of $ 413,000 per quarter with an initial payment of $ 894,000 due upon execution, which covers the period from execution until September 30, 2021. The payment of $ 894,000 was made in the first quarter of 2021 and recorded in sales and marketing expenses for the nine months ended September 30, 2021. The second payment of $ 701,000 was made in the second quarter of 2021 which covers the period from October 2021 through March 2022 and recorded in prepaid expenses and other as of September 30, 2021. The License Agreement has a term of one ( 1 ) year with an automatic renewal, terminable by either party with sixty ( 60 ) days’ written notice before the end of the term. The License Agreement contains customary representations and warranties. Stock Repurchase Agreement Travelzoo, from time to time, engages in share repurchases, and on March 27, 2021, the Company entered into a Stock Repurchase Agreement (the “SRA”) with Holger Bartel, the Company's Global Chief Executive Officer, to repurchase an aggregate of 100,000 shares of the Company’s common stock at a price of $ 15.83 per share. The SRA provides that the purchase price is based on the 10-day volume weighted average price calculated using the VWAP function on Bloomberg, from the dates of March 15, 2021 through and including March 26, 2021, less a 5 % discount. The aggregate purchase price of $ 1.6 million was paid on the first business day following the execution of the SRA. Prior to the execution of the SRA and because Mr. Bartel is an executive officer of the Company, the Company’s Board of Directors and Audit Committee of the Board of Directors delegated to its Compensation Committee, which consists of independent and disinterested directors, the exclusive power and authority to determine whether any potential transaction to acquire shares from Mr. Bartel was advisable, fair to and in the best interests of the Company and its stockholders, other than Mr. Bartel. In connection with its determination, the Compensation Committee engaged independent legal counsel and an independent financial advisor and unanimously approved the SRA. The SRA contains customary terms for transactions of this type, including, but not limited to, representations and warranties made by the Company and Mr. Bartel. 30