UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

______________________________________________________________________________
(Mark One)
x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20192020
or
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             .
Commission File No.: 000-50171

_______________________________________________________________________________
Travelzoo
(Exact name of registrant as specified in its charter)

________________________________________________________________________________
DELAWAREDelaware36-4415727
(State or other jurisdiction of

incorporation or organization)
(I.R.S. employer

identification no.)
590 Madison Avenue, 37th35th Floor
New York, New York
10022
(Address of principal executive offices)(Zip code)
Registrant’s telephone number, including area code: (212) 484-4900
_________________________________________________________________________________ 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer¨Accelerated filerx☒
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting companyx☒
Emerging growth company¨☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revisited financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨☐    No  x
The number of shares of Travelzoo common stock outstanding as of October 25, 2019August 7, 2020 was 11,679,03311,310,431 shares.

1


TRAVELZOO
Table of Contents
 

PART I—FINANCIAL INFORMATIONPage
PART I—FINANCIAL INFORMATIONPage
3
Condensed Consolidated Balance Sheets as of SeptemberJune 30, 20192020 and December 31, 20182019
34
Condensed Consolidated Statements of IncomeOperations for the Three and NineSix Months Ended SeptemberJune 30, 20192020 and 20182019
45
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and NineSix Months Ended SeptemberJune 30, 20192020 and 20182019
56
Condensed Consolidated Statements of Cash Flows for the NineSix Months Ended SeptemberJune 30, 20192020 and 20182019
67
Condensed Consolidated Statements of Stockholders' Equity (Deficit) for the Three and NineSix Months Ended SeptemberJune 30, 20192020 and 20182019
78
Notes to Condensed Consolidated Financial Statements
9
1927
3140
3241
PART II—OTHER INFORMATION
3342
3342
42
3643
3744
 

2




PART I—FINANCIAL INFORMATION


Item 1.  Financial Statements


3

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

 September 30,
2019		 December 31,
2018
ASSETS   
Current assets:   
Cash and cash equivalents$11,605
 $18,017
Accounts receivable, less allowance for doubtful accounts of $943 and $692 as of September 30, 2019 and December 31, 2018, respectively12,317
 12,646
Income tax receivable930
 389
Deposits141
 167
Prepaid expenses and other1,965
 1,947
Total current assets26,958
 33,166
Deposits and other669
 685
Deferred tax assets1,347
 1,645
Restricted cash1,308
 1,444
Investment in WeekenGO2,635
 2,694
Operating lease right-of-use assets17,523
 —
Property and equipment, net3,142
 3,790
Total assets$53,582
 $43,424
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities:   
Accounts payable$13,007
 $17,129
Accrued expenses and other6,866
 7,853
Deferred revenue1,119
 1,339
Operating lease liabilities7,028
 —
Income tax payable446
 489
Total current liabilities28,466
 26,810
Long-term tax liabilities343
 418
Long-term operating lease liabilities12,291
 —
Long-term deferred rent and other84
 2,137
Commitments and contingencies
 
Stockholders’ equity:   
Common stock, $0.01 par value (20,000 shares authorized; 11,679 and 11,962 shares issued and outstanding as of September 30, 2019 and December 31, 2018)117
 120
Additional paid in capital—
 —
Retained earnings16,731
 18,153
Accumulated other comprehensive loss(4,450) (4,214)
Total stockholders’ equity12,398
 14,059
Total liabilities and stockholders’ equity$53,582
 $43,424
See accompanying notes to unaudited condensed consolidated financial statements.


TRAVELZOO
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2019 2018 2019 2018
Revenues$25,505
 $25,301
 $84,514
 $84,260
Cost of revenues2,980
 2,987
 8,683
 9,388
Gross profit22,525
 22,314
 75,831
 74,872
        
Operating expenses:       
Sales and marketing14,233
 13,375
 45,196
 44,545
Product development1,478
 2,297
 4,980
 7,194
General and administrative5,600
 5,928
 17,046
 17,684
Total operating expenses21,311
 21,600
 67,222
 69,423
Income from operations1,214
 714
 8,609
 5,449
Other income (expense), net(138) (91) (380) 100
Income before income taxes1,076
 623
 8,229
 5,549
Income tax expense770
 505
 3,475
 2,452
Net income$306
 $118
 $4,754
 $3,097
        
Net income per share—basic$0.03
 $0.01
 $0.40
 $0.25
Net income per share—diluted$0.03
 $0.01
 $0.39
 $0.25
        
Shares used in computing basic net income per share11,767
 12,314
 11,894
 12,412
Shares used in computing diluted net income per share11,956
 12,663
 12,152
 12,630

June 30,
2020		December 31,
2019
ASSETS
Current assets:
Cash and cash equivalents$25,563  $18,743  
Accounts receivable, less allowance for doubtful accounts of $2,813 and $1,106 as of June 30, 2020 and December 31, 2019, respectively4,031  11,209  
Prepaid income taxes—  989  
Deposits112  105  
Prepaid expenses and other1,173  2,288  
Assets from discontinued operations590  3,961  
Total current assets31,469  37,295  
Deposits and other829  572  
Deferred tax assets4,341  2,051  
Restricted cash1,138  1,135  
Investment in WeGo2,152  2,484  
Operating lease right-of-use assets9,929  8,140  
Property and equipment, net1,689  2,861  
Intangible assets, net5,200  —  
Goodwill10,944  —  
Total assets$67,691  $54,538  
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable$29,674  $19,349  
Accrued expenses and other5,436  6,281  
Deferred revenue2,779  786  
Operating lease liabilities4,440  4,847  
Promissory notes payable1,700  —  
Income tax payable773  914  
Liabilities from discontinued operations1,456  3,135  
Total current liabilities46,258  35,312  
PPP notes payable3,663  —  
Deferred tax liabilities1,044  —  
Long-term operating lease liabilities12,062  7,920  
Other long-term liabilities457  443  
Total liabilities63,484  43,675  
Commitments and contingencies
Non-controlling interest4,508  —  
Stockholders’ equity (deficit):
Common stock, $0.01 par value (20,000 shares authorized; 11,310 and 11,479 shares issued and outstanding as of June 30, 2020 and December 31, 2019)113  115  
Additional paid in capital4,031  —  
Retained earnings221  14,200  
Accumulated other comprehensive loss(4,666) (3,452) 
Total stockholders’ equity (deficit)(301) 10,863  
Total liabilities and stockholders’ equity (deficit)$67,691  $54,538  
See accompanying notes to unaudited condensed consolidated financial statements.

4



TRAVELZOO
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEOPERATIONS
(Unaudited)
(In thousands)thousands, except per share amounts)
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2019 2018 2019 2018
Net income$306
 $118
 $4,754
 $3,097
Other comprehensive income (loss):       
Foreign currency translation adjustment(221) 138
 (236) (380)
Total comprehensive income$85
 $256
 $4,518
 $2,717

 Three Months EndedSix Months Ended
June 30,June 30,
 2020201920202019
Revenues$7,004  $26,606  $27,331  $55,766  
Cost of revenues2,141  2,672  4,844  5,537  
Gross profit4,863  23,934  22,487  50,229  
Operating expenses:
Sales and marketing4,288  13,104  17,382  26,638  
Product development566  1,763  1,994  3,422  
General and administrative6,642  4,914  12,164  9,446  
Impairment of intangible assets and goodwill—  —  2,920  —  
Total operating expenses11,496  19,781  34,460  39,506  
Operating income (loss)(6,633) 4,153  (11,973) 10,723  
Other income (loss), net(179) (29) (185) 16  
Income (loss) from continuing operations before income taxes(6,812) 4,124  (12,158) 10,739  
Income tax expense (benefit)(1,309) 1,066  (1,826) 2,736  
Income (loss) from continuing operations(5,503) 3,058  (10,332) 8,003  
Income (loss) from discontinued operations, net of taxes(795) (1,730) (3,714) (3,555) 
Net income (loss)(6,298) 1,328  (14,046) 4,448  
Net income (loss) attributable to non-controlling interest(108) —  (1,247) —  
Net income (loss) attributable to Travelzoo$(6,190) $1,328  $(12,799) $4,448  
Net income (loss) attributable to Travelzoo—continuing operations$(5,395) $3,058  $(9,085) $8,003  
Net income (loss) attributable to Travelzoo—discontinued operations$(795) $(1,730) $(3,714) $(3,555) 
Income (loss) per share—basic
Continuing operations$(0.48) $0.25  $(0.80) $0.67  
Discontinued operations$(0.07) $(0.14) $(0.33) $(0.30) 
Net income (loss) per share —basic$(0.55) $0.11  $(1.13) $0.37  
Income (loss) per share—diluted
Continuing operations$(0.48) $0.25  $(0.80) $0.66  
Discontinued operations$(0.07) $(0.14) $(0.33) $(0.30) 
Net income (loss) per share—diluted$(0.55) $0.11  $(1.13) $0.36  
Shares used in per share calculation from continuing operations—basic11,310  12,003  11,375  11,959  
Shares used in per share calculation from discontinued operations—basic11,310  12,003  11,375  11,959  
Shares used in per share calculation from continuing operations—diluted11,310  12,278  11,375  12,251  
Shares used in per share calculation from discontinued operations—diluted11,310  12,003  11,375  11,959  
See accompanying notes to unaudited condensed consolidated financial statements.

5



TRAVELZOO
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands)
 Three Months EndedSix Months Ended
June 30,June 30,
 2020201920202019
Net income (loss)$(6,298) $1,328  $(14,046) $4,448  
Other comprehensive income (loss):
Foreign currency translation adjustment(343) 74  (1,214) (15) 
Total comprehensive income (loss)$(6,641) $1,402  $(15,260) $4,433  

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,
 2019 2018
Cash flows from operating activities:   
Net income$4,754
 $3,097
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization999
 1,390
Stock-based compensation876
 763
Deferred income tax431
 (96)
Gain from sale of property and equipment—
 (143)
Loss on equity investment in WeekenGO611
 85
Net foreign currency effect59
 (77)
Other132
 77
Changes in operating assets and liabilities:   
Accounts receivable(127) (1,086)
Income tax receivable(541) (350)
Prepaid expenses and other(3) 420
Accounts payable(3,971) (3,600)
Accrued expenses and other(442) (248)
Income tax payable(36) (65)
Other liabilities(816) (131)
Net cash provided by operating activities1,926
 36
Cash flows from investing activities:   
Proceeds from sale of property and equipment—
 150
Investment in WeekenGO(673) (3,083)
Purchases of property and equipment(350) (666)
Net cash used in investing activities(1,023) (3,599)
Cash flows from financing activities:   
Repurchase of common stock(8,768) (2,873)
Proceeds from exercise of stock options, net of taxes paid for net share settlement of equity awards1,712
 —
Net cash used in financing activities(7,056) (2,873)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(395) (333)
Net decrease in cash, cash equivalents and restricted cash(6,548) (6,769)
Cash, cash equivalents and restricted cash at beginning of period19,461
 24,001
Cash, cash equivalents and restricted cash at end of period$12,913
 $17,232
Supplemental disclosure of cash flow information:   
Cash paid for income taxes, net$3,776
 $2,963
Right-of-use assets obtained in exchange for lease obligations:   
Operating leases$7,578
 $—
Cash paid for amounts included in the measurement of lease liabilities:   
Operating cash flows$4,084
 $—
See accompanying notes to unaudited condensed consolidated financial statements.


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

 Common Stock Additional
Paid-In
Capital		 Retained
Earnings		 Accumulated
Other
Comprehensive
Loss		 Total
Stockholders’
Equity
 Shares Amount
Balances, January 1, 201911,962
 $120
 $—
 $18,153
 $(4,214) $14,059
Stock-based compensation expense—
 —
 163
 —
 —
 163
Repurchase and retirement of common stock(100) (1) (137) (1,452) —
 (1,590)
Taxes paid for net share settlement of equity awards3
 —
 (26) —
 —
 (26)
Foreign currency translation adjustment—
 —
 —
 —
 (89) (89)
Net income—
 —
 —
 3,120
 —
 3,120
Balances, March 31, 201911,865
 119
 —
 19,821
 (4,303) 15,637
Stock-based compensation expense—
 —
 319
 —
 —
 319
Repurchase and retirement of common stock(250) (2) (2,055) (2,812) —
 (4,869)
Exercise of stock options and taxes paid for net share settlement of equity awards250
 2
 1,736
 —
 —
 1,738
Foreign currency translation adjustment—
 —
 —
 —
 74
 74
Net income—
 —
 —
 1,328
 —
 1,328
Balances, June 30, 201911,865
 119
 —
 18,337
 (4,229) 14,227
Stock-based compensation expense—
 —
 394
 —
 —
 394
Repurchase and retirement of common stock(186) (2) (394) (1,912) —
 (2,308)
Foreign currency translation adjustment—
 —
 —
 —
 (221) (221)
Net income—
 —
 —
 306
 —
 306
Balances, September 30, 201911,679
 $117
 $—
 $16,731
 $(4,450) $12,398



 Common Stock Additional
Paid-In
Capital		 Retained
Earnings		 Accumulated
Other
Comprehensive
Loss		 Total
Stockholders’
Equity
 Shares Amount
Balances, January 1, 201812,462
 $125
   $16,550
 $(3,597) $13,078
Stock-based compensation expense—
 —
 173
 —
 —
 173
Foreign currency translation adjustment—
 —
 —
 —
 (183) (183)
Net income—
 —
 —
 2,502
 —
 2,502
Cumulative effect adjustment from the adoption of ASC 606—
 —
 —
 1,314
 —
 1,314
Balances, March 31, 201812,462
 125
 173
 20,366
 (3,780) 16,884
Stock-based compensation expense—
 —
 349
 —
 —
 349
Foreign currency translation adjustment—
 —
 —
 —
 (335) (335)
Net income—
 —
 —
 477
 —
 477
Balances, June 30, 201812,462
 125
 522
 20,843
 (4,115) 17,375
Stock-based compensation expense—
 —
 243
 —
 —
 243
Repurchase and retirement of common stock(218) (3) (765) (2,107) —
 (2,875)
Foreign currency translation adjustment—
 —
 —
 —
 138
 138
Net income—
 —
 —
 118
 —
 118
Balances, September 30, 201812,244
 $122
 $—
 $18,854
 $(3,977) $14,999

 Six Months Ended
June 30,
 20202019
Cash flows from operating activities:
Net income (loss)$(14,046) $4,448  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization1,218  663  
Stock-based compensation4,054  482  
Deferred income tax(1,761) 345  
Impairment of intangible assets and goodwill2,920  —  
Loss on long-lived assets437  —  
Loss on equity investment in WeGo336  397  
Gain on promissory notes payable settlement(1,500) —  
Net foreign currency effect(456) (26) 
Provision for loss on accounts receivable and other2,427  26  
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable6,183  (2,779) 
Prepaid income taxes989  (428) 
Prepaid expenses and other1,420  239  
Accounts payable10,309  (2,788) 
Accrued expenses and other(1,380) 1,291  
Deferred revenue1,249  —  
Income tax payable(67) (96) 
Other liabilities1,091  (174) 
Net cash provided by operating activities13,423  1,600  
Cash flows from investing activities:
Acquisition of business, net of cash acquired(679) —  
Other investments(430) (673) 
Purchases of property and equipment(203) (201) 
Net cash used in investing activities(1,312) (874) 
Cash flows from financing activities:
Repurchase of common stock(1,205) (6,460) 
Payment of promissory notes payable(7,800) —  
Proceeds from PPP notes payable3,663  —  
Proceeds from exercise of stock options, net of taxes paid for net share settlement—  1,712  
Net cash used in financing activities(5,342) (4,748) 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(511) 5  
Net increase (decrease) in cash, cash equivalents and restricted cash6,258  (4,017) 
Cash, cash equivalents and restricted cash at beginning of period20,710  19,461  
Cash, cash equivalents and restricted cash at end of period$26,968  $15,444  
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net$482  $2,859  
Right-of-use assets obtained in exchange for lease obligations—operating leases$3,207  $2,802  
Cash paid for amounts included in the measurement of lease liabilities$1,622  $2,557  
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 StockAdditional
Paid-In
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Loss		Total
Stockholders’
Equity (Deficit)
 SharesAmount
Balances, January 1, 202011,479  $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, 202011,310  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, 202011,310  $113  $4,031  $221  $(4,666) $(301) 

 Common StockAdditional
Paid-In
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Loss		Total
Stockholders’
Equity
 SharesAmount
Balances, January 1, 201911,962  $120  $—  $18,153  $(4,214) $14,059  
Stock-based compensation expense—  —  163  —  —  163  
Repurchase and retirement of common stock(100) (1) (137) (1,452) —  (1,590) 
Taxes paid for net share settlement of equity awards3  —  (26) —  —  (26) 
Foreign currency translation adjustment—  —  —  —  (89) (89) 
Net income—  —  —  3,120  —  3,120  
Balances, March 31, 201911,865  119  —  19,821  (4,303) 15,637  
Stock-based compensation expense—  —  319  —  —  319  
Repurchase and retirement of common stock(250) (2) (2,055) (2,812) —  (4,869) 
Exercise of stock options and taxes paid for net share settlement of equity awards250  2  1,736  —  —  1,738  
Foreign currency translation adjustment—  —  —  —  74  74  
Net income—  —  —  1,328  —  1,328  
Balances, June 30, 201911,865  $119  $—  $18,337  $(4,229) $14,227  


See accompanying notes to unaudited condensed consolidated financial statements.

8

TRAVELZOO
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Note 1: Summary of Significant Accounting Policies
(a) The Company and Basis of Presentation
Travelzoo® providesis a global Internet media company. We provide our 30 million members insider deals and one-of-a-kind experiences personally reviewed by one of our deal experts around the globe. With 25 offices worldwide, weWe have our finger on the pulse of outstanding travel, entertainment, and lifestyle experiences. For over 20 years we have worked in partnership with more than 5,000 top travel suppliers—our long-standing relationships give Travelzoo members access to irresistible deals. Travelzoo's revenues are generated primarily from advertising fees.
Our publications and products include the Travelzoo website, the Travelzoo iPhone and Android apps, the Travelzoo Top 2020® email newsletter, the Newsflashemail alert service, and the Travelzoo Network, a network of third-party websites that list travel deals published by Travelzoo.Travelzoo (“Travelzoo” or the "Company"). Our Travelzoowebsite includes Local Deals and Getaways listings that allow our members to purchase vouchers for deals from local businesses such as spas, hotels and restaurants. We receive a percentage of the face value of the voucher from the local businesses.
APAC Exit
In March 2020, Travelzoo exited its loss-making Asia Pacific business. The Company’s Asia Pacific business was classified as discontinued operations at March 31, 2020. Prior periods have been reclassified to conform with the current presentation. On June 16, 2020, in connection with its Asia Pacific exit plan, the Company completed a sale of 100% of the outstanding capital stock of Travelzoo Japan K.K to Mr. Hajime Suzuki, the General Manager of Japan (the "Buyer") for consideration of JPY 1. The Company recorded approximately $128,000 loss upon disposal of Japan in the Condensed Consolidated Financial Statements during the three and six months ended June 30, 2020. The parties also entered into a License Agreement, whereby the Buyer obtained a license to use intellectual property from Travelzoo exclusively in Japan in exchange for quarterly royalty payments based on revenue over a 5 year term, with an option to renew. An interest free loan was provided to the Buyer for JPY 46.0 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 June 30, 2020.
WeGo Investment
The Company has a minority investment in weekengo GmbH ("WeGo"). WeGo is a technology company which provides an app and a search engine for spontaneous travelers looking for short getaways. The Company accounts for this private company investment using the equity method of accounting by recording its share of the results of WeGo in “Other income (expense)”, net on a one-quarter lag basis. In accounting for the initial investment, the Company allocated $1.0 million of its purchase price to tangible assets and allocated approximately $485,000 of the purchase price to technology-related intangible assets to be amortized over a three-year life. The remaining $1.5 million of the purchase price was allocated to goodwill.
In February 2020, Travelzoo signed an amended investment agreement (the “Investment Agreement”) with WeGo and agreed to invest an additional $1.7 million when WeGo meets certain performance targets. The original Investment Agreement with WeGo was executed in April 2018. At that time, Travelzoo invested $3.0 million in WeGo for a 25% ownership interest. In April 2019, the Company invested an additional $673,000 in WeGo and increased the Company's ownership interest to 26.6%.
As of June 30, 2020, WeGo has not met these performance targets and no additional investment has been made by the Company. In connection with the Investment Agreement, WeGo signed an insertion order for $2.1 million in advertising services with Travelzoo in April 2018. The Company's advertising services provided to WeGo in the three months ended June 30, 2020 and 2019 were $3,000 and $239,000, respectively. The Company's advertising services provided to WeGo in the six months ended June 30, 2020 and 2019 were $360,000 and $794,000, respectively.
During the three and six months ended June 30, 2020, the Company recorded $106,000 and $333,000 for its share of WeGo losses, amortization of basis differences and currency translation adjustment. During the three and six months ended June 30, 2019, the Company recorded $198,000 and $409,000 for its share of WeGo losses, amortization of basis differences and currency translation adjustment. This equity method investment is reported as a long-term investment on the Company's condensed consolidated balance sheets.

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Jack’s Flight Club
In January 2020, Travelzoo acquired JFC Travel Group Co. (“Jack’s Flight Club”), which operates Jack’s Flight Club, a subscription service that provides members with information about exceptional airfares. As of June 30, 2020, Jack’s Flight Club had 1.7 million subscribers. Jack’s Flight Club’s revenues are generated by subscription fees paid by members. In June 2020, the Company renegotiated certain aspects of that certain Stock Purchase Agreement, dated as of January 13, 2020 (the “SPA”), by and among Travelzoo, Jack’s Flight Club and the sellers party thereto (the “Sellers”) with the Sellers and reached a settlement for the outstanding Promissory Notes, dated as of January 13, 2020, by and between Travelzoo and each Seller (the “Promissory Notes”). See Note 3 to the unaudited condensed consolidated financial statements for further information.
PPP Loans
On April 24, 2020 and May 5, 2020, the Company received $3.1 million and $535,000, respectively, pursuant to loans under the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the Small Business Association. The loans have a maturity of two (2) years from the disbursement of the funds and an interest rate of 1%. The PPP loan was recorded as long-term PPP notes payable on the unaudited condensed consolidated balance sheet as of June 30, 2020. Interest expense for the PPP notes payable was $7,000 for the six months ended June 30, 2020. The Company intends to use the funds from these loan only for the purposes included in the PPP, including payroll, employee benefits, and rent, and to apply for forgiveness of a portion of the loans in compliance with the CARES Act.
Ownership
Ralph Bartel, who founded Travelzoo (the "Company")the Company and who is a Director of the Company is the sole beneficiary of the Ralph Bartel 2005 Trust, which is the controlling shareholder of Azzurro Capital Inc. ("Azzurro"(“Azzurro”). As of SeptemberJune 30, 2019,2020, Azzurro is the Company's largest stockholder,shareholder, holding approximately 47.0%39.5% of the Company's outstanding shares. Azzurro currently holds a proxy given to it by Holger Bartel that provides it with a total of 49.1%39.9% of the voting power.
Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to state fairly the financial position of the Company and its results of operations and cash flows. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes as of and for the year ended December 31, 2018,2019, included in the Company’s Form 10-K filed with the SEC on March 11, 2019.20, 2020.
The condensed consolidated financial statements include the accounts of the Company and its wholly-ownedwholly 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.
In April 2018, Travelzoo entered into an agreement with WeekenGO GmbH ("WeekenGo"), a start-up company in Germany. WeekenGO uses new technology to promote vacation packages. Travelzoo initially invested $3.0 million in WeekenGO for a 25% ownership interest. The Company accounts for this private company investment using the equity method of accounting by recording its share of the results of WeekenGO in Other income (expense), net on a one-quarter lag basis. In accounting for the investment, the Company allocated $1.0 million of its purchase price to tangible assets and allocated approximately $485,000 of the purchase to technology-related intangible assets to be amortized over a three-year life. The remaining $1.5 million of the purchase price was allocated to goodwill. In April 2019, the Company invested an additional $673,000 in WeekenGO and increased the Company's ownership interest to 26.6%. WeekenGO is in the process of obtaining additional capital funding. If WeekenGO is unsuccessful in this round of funding, it will face cash flow liquidity risk, and the Company’s investment in WeekenGO may become impaired. 
During the three and nine months ended September 30, 2019, the Company recorded $323,000 and $732,000, respectively, for its share of WeekenGO losses, amortization of basis differences and currency translation adjustment. This equity method investment is reported as a long-term investment on the Company's condensed consolidated balance sheets.
WeekenGO signed a $2.1 million insertion order for advertising with Travelzoo in April 2018. The Company's advertising services provided to WeekenGO in the three and nine months ended September 30, 2019 were $130,000 and $924,000, respectively.
The results of operations for the three and ninesix months ended SeptemberJune 30, 20192020 are not necessarily indicative of the results that may be expected for the year ending December 31, 20192020 or any other future period, and the Company makes no representations related thereto.


(b) Recent Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which provides new guidance on the measurement of credit losses for financial assets measured at amortized cost, which includes accounts receivable. The new guidance replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. This update is effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For Smaller Reporting Companies (as such term is defined by the SEC), such as Travelzoo, the standard will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Entities are required to apply this update on a modified retrospective basis with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the impact on its financial position and results of operations.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment.” ASU 2017-04 simplifies the accounting for goodwill impairment by eliminating the Step 2 requirement to calculate the implied fair value of goodwill. As a result, an entity should perform its annual, or interim, goodwill
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impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units' fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The ASU is effective for fiscal years beginning after December 15, 2022 for Smaller Reporting Companies, including interim periods within those fiscal years, with early adoption permitted. The Company early adopted ASU 2017-04 as of January 1, 2020 and the adoption did not have a material impact on its consolidated financial statements.
In August 2018, the Financial Accounting Standards Board ("FASB")FASB issued ASU No. 2018-15, "Customer’s“Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract."” The new guidance requiredrequires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. The guidance is effective for calendar-year public business entities in 2020. For all other calendar-year entities, it is effective for annual periods beginning in 2021 and interim periods in 2022. Early adoption is permitted. The Company is currently inadoption did not have a material impact on the process of evaluating the impact of the adoption on itsCompany’s financial position, results of operations and cash flows.

(c) Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued an ASU 2016-02, "Leases," codified in Accounting Standard Codification 842 ("ASC 842"), which requires that lease arrangements longer than 12 months result in an entity recognizing an asset and liability on its balance sheet. The Company adopted ASC 842on January 1, 2019, using the alternative modified transition method with no restatement of prior periods or cumulative adjustment to retained earnings. Upon adoption, the Company elected the package of transition practical expedients: (i) not to reassess prior conclusions related to whether any expired or existing contracts are or contain leases; (ii) not to reassess the lease classification for any expired or existing leases; (iii) not to reassess initial direct costs for existing leases; and (iv) not to reassess certain land easements. Upon adoption of the standard, the Company recognized an operating lease right-of-use assets of approximately $13.4 million and a corresponding operating lease liability of approximately $16.0 million, which includes reclassifying existing deferred rent liability of $2.6 million to operating lease right-of-use assets.
(d) Significant Accounting Policies
Below are a summary of the Company's significant accounting policies as a result of the recently adopted accounting pronouncements.policies. For a comprehensive description of our accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, 2018.2019.
Business Combinations
The purchase price of an acquisition is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. To the extent the purchase price exceeds the fair value of the net identifiable tangible and intangible assets acquired and liabilities assumed, such excess is allocated to goodwill. The Company determines the estimated fair values after review and consideration of relevant information, including discounted cash flows, quoted market prices and estimates made by management. The Company records the net assets and results of operations of an acquired entity from the acquisition date and adjusts the preliminary purchase price allocation, as necessary, during the measurement period of up to one year after the acquisition closing date as it obtains more information as to facts and circumstances existing at the acquisition date impacting asset valuations and liabilities assumed. Acquisition-related costs are recognized separately from the acquisition and are expensed as incurred.
Identifiable intangible assets
Upon acquisition, identifiable intangible assets are recorded at fair value and are carried at cost less accumulated amortization. Identifiable intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives. The carrying values of all intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. The Company evaluated intangible assets in the first quarter of 2020 due to the coronavirus (COVID-19) pandemic and recorded an impairment expense of $810,000. The Company did not identify any indicators of impairment during the three months ended June 30, 2020.
Goodwill
Goodwill represents the excess of the purchase price of an acquired business over the fair value of the underlying net tangible and intangible assets. Goodwill is evaluated for impairment annually, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. In testing goodwill for impairment, the Company first uses a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount. If the qualitative assessment indicates that goodwill impairment is more likely than not, the Company performs an impairment test by comparing the book value of net assets to the fair value of the reporting units. The Company evaluated goodwill in the first quarter of 2020 due to the COVID-19 pandemic and recorded an impairment expense of $2.1 million. The Company did not identify any indicators of impairment during the three months ended June 30, 2020.
Leases
The Company determines if an arrangement contains a lease at inception. Operating lease right-of-use (“ROU”) assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The lease payments used to determine the operating lease assets may include lease incentives and stated rent increases. The Company does not include options to extend or terminate until it is reasonably certain that the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the lease liabilities as the Company’s leases generally do not provide an implicit rate. The Company elected not to recognize leases with an initial term of 12 months or less on its unaudited condensed consolidated balance sheets.
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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. LeaseThe 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“Other income (expense), netnet”, on a straight-line basis over the lease term in its condensed consolidated statements of income.
Certain Risks and Uncertainties
The Company’s business is subject to risks associated with its ability to attract and retain advertisers and offer products or services on compelling terms to our members. The global outbreak of COVID-19 is having an unprecedented impact on the global travel and hospitality industries. Governmental authorities have implemented numerous measures to try to contain the virus, including restrictions on travel, quarantines, shelter-in-place orders, business restrictions and complete shut-downs. The measures implemented to contain COVID-19 have had, and are expected to continue to have, a significant negative effect on our business, financial condition, results of operations and cash flows.

The Company’s cash, cash equivalents and accounts receivable are potentially subject to concentration of credit risk. Cash and cash equivalents are placed with financial institutions that the management believes are of high credit quality. The accounts receivables are derived from revenue earned from customers located in the U.S. and internationally. During the six months ended June 30, 2020, the Company experienced the adverse impact of COVID-19. Many of the Company's advertising partners paused, canceled, and stopped advertising with the Company. Additionally, there has been a significant level of cancellations for the Company's hotel partners and travel package partners as well as refund requests for our vouchers with the Company’s restaurant and spa partners. The Company has modified its policies and will continue to adopt new policies as the situation evolves. However, the uncertainties of the pandemic, such as its duration and severity, will likely negatively impact and continue to negatively impact our partners and customers. As of June 30, 2020 and December 31, 2019, the Company did not have any customers that accounted for 10% or more of accounts receivable.
Cash, Cash Equivalents and Restricted Cash
Restricted cash includes cash and cash equivalents that is restricted through legal contracts, regulations or our intention to use the cash for a specific purpose. Our restricted cash primarily relates to refundable deposits and fundscash held in escrow.


for letters of credit for real estate leases.
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, June 30,December 31,
2019 201820202019
Cash and cash equivalents$11,605
 $18,017
Cash and cash equivalents$25,563  $18,743  
Restricted cash1,308
 1,444
Restricted cash1,138  1,135  
Cash, cash equivalents and restricted cash–discontinued operationsCash, cash equivalents and restricted cash–discontinued operations267  832  
Total cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows$12,913
 $19,461
Total cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows$26,968  $20,710  
The Company’s restricted cash was included in noncurrent assets as of SeptemberJune 30, 20192020 and December 31, 2018.2019.
Revenue Recognition
On January 1, 2018, the Company adopted Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers" (Topic 606), using the modified retrospective transition method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts have not been adjusted and continue to be reported in accordance with our historic accounting under Topic 605.
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 generatesCompany's revenues are primarily by delivering advertising fees generated from the publishing of travel and entertainment deals on the Travelzoo website, in the Top 20 email newsletter, in Newsflash and fromthrough the Travelzoo Network. The Company also generates transaction-based revenues from the sale of vouchers through our Local Deals and Getaways products and operation of a hotel booking platform and limited offerings of vacation packages. The Company's disaggregated revenues are included in "Note 8:“Note 9: Segment Reporting and Significant Customer Information"Information”.
For fixed-fee website advertising, the Company recognizes revenues ratably over the contracted placement period.
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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 adadvertisement 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 adadvertisement is displayedshown 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.services and an estimated amount for future refunds. 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 in the same period as the voucher sale.
Commission revenue related to our 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 onupon 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, 2018, $1.3 million2019, $786,000 was recorded as deferred revenue, of which $89,000$31,000 and $1.1 million$327,000 was recognized as revenue during the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively.
Note 2: Net Income (Loss) Per Share
Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding for the period. Diluted net income per share is computed by adjusting the weighted-average number of common shares outstanding for the effect of dilutive potential common shares outstanding during the period. Potential common shares included in the diluted calculation consist of incremental shares issuable upon the exercise of outstanding stock options calculated using the treasury stock method.
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The following table sets forth the calculation of basic and diluted net income per share (in thousands, except per share amounts):
 
Three Months EndedSix Months Ended
 June 30,June 30,
 2020201920202019
Numerator:
Net income (loss) attributable to Travelzoo—continuing operations$(5,395) $3,058  $(9,085) $8,003  
Net income (loss) attributable to Travelzoo—discontinued operations$(795) $(1,730) $(3,714) $(3,555) 
Denominator:
Weighted average common shares—basic11,310  12,003  11,375  11,959  
Effect of dilutive securities: stock options—  275  —  292  
Weighted average common shares—diluted11,310  12,278  11,375  12,251  
Income (loss) per share—basic
Continuing operations$(0.48) $0.25  $(0.80) $0.67  
Discontinued operations(0.07) (0.14) (0.33) (0.30) 
Net income (loss) per share —basic$(0.55) $0.11  $(1.13) $0.37  
Income (loss) per share—diluted
Continuing operations$(0.48) $0.25  $(0.80) $0.66  
Discontinued operations(0.07) (0.14) (0.33) (0.30) 
Net income (loss) per share—diluted$(0.55) $0.11  $(1.13) $0.36  
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2019 2018 2019 2018
Numerator:       
Net income$306
 $118
 $4,754
 $3,097
Denominator:       
Weighted average common shares—basic11,767
 12,314
 11,894
 12,412
Effect of dilutive securities: stock options189
 349
 258
 218
Weighted average common shares—diluted11,956
 12,663
 12,152
 12,630
        
Net income per share—basic$0.03
 $0.01
 $0.40
 $0.25
Net income per share—diluted$0.03
 $0.01
 $0.39
 $0.25

For the three and ninesix months ended SeptemberJune 30, 2019,2020, options to purchase 1,050,0003.4 million shares of common stock were not included in the computation of diluted net income per share because of the effect would have been anti-dilutive.net loss. For the three and ninesix months ended SeptemberJune 30, 2018,2019, options to purchase 220,000200,000 shares of common stock were not included in the computation of diluted net income per share because the effect would have been anti-dilutive. 
Note 3: Acquisition

On January 13, 2020, Travelzoo entered into the SPA with the shareholders of Jack’s Flight Club for the purchase of up to 100% of the outstanding capital stock of Jack’s Flight Club (the “Shares”). Pursuant to the SPA, on January 13, 2020, the Sellers sold 60% of the Shares to the Company for an aggregate purchase price of $12.0 million, $1.0 million of which was paid in cash and $11.0 million of which was paid in Promissory Notes. The Promissory Notes contain an interest rate of 1.6% per annum and a due date of January 31, 2020, with a one-time right to extend the maturity date up to April 30, 2020 with a principal payment of $1.0 million on January 31, 2020, which the Company exercised. The remaining 40% of the Shares are subject to a call/put option exercisable by the Company or the Sellers, as applicable, on or around January 1, 2021, subject to the terms and conditions set forth in the SPA.

On June 3, 2020, the Company renegotiated the SPA with the Sellers of Jack’s Flight Club and reached a negotiated settlement. The Company recorded adjustments accordingly, however, these adjustments are not considered measurement period adjustments to the purchase consideration since there is not a clear and direct link to the consideration transferred in the SPA entered into on January 13, 2020.

The strategic rationale for the Jack’s Flight Club acquisition was to expand Jack’s Flight Club’s membership to Travelzoo members worldwide, so the members from Travelzoo could also sign up to receive offers from Jack’s Flight Club.
The acquisition has been accounted for using the acquisition method in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations. Under the acquisition method of accounting, the total purchase consideration of the acquisition is allocated to the tangible assets and identifiable intangible assets and liabilities assumed based
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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.
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 PriceJack’s Flight Club
Cash paid$1,000 
Promissory notes issued10,931 
Fair Value of Put/Call Option183 
$12,114 
Allocation
Goodwill$13,054 
Intangible assets
Customer relationships3,500 
Trade name2,460 
Non-compete agreements660 
Current assets acquired, including cash of $321324 
Current liabilities assumed(40)
Deferred revenue(881)
Deferred tax liabilities(1,391)
Non-controlling interest(5,572)
$12,114 

The Company determined the estimated fair value of the put/call option using the Monte Carlo Simulation approach and the identifiable intangible assets acquired primarily using the income approach. Non-controlling interests represent third-party shareholders and are measured at fair value on the date acquired.
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Company’s share of the identifiable net assets of the acquired subsidiary. Goodwill is evaluated for impairment annually, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. The Company determined that the COVID-19 pandemic was a triggering event requiring the Company to assess its long-lived assets including goodwill for impairment. The Company performed an impairment test during the first quarter of 2020 by comparing the carrying value of Jack’s Flight Club net assets to the fair value of the Jack’s Flight Club reporting unit based on an updated discounted cash flow analysis. The fair value of the Jack’s Flight Club reporting unit was determined to be less than the carrying value, and the difference between the estimated fair value of goodwill and the carrying value was recorded as goodwill impairment. The Company also performed an ASC 360 analysis for long-lived assets noting no impairment of such assets based on the undiscounted cash flows of the Jack’s Flight Club asset group. The Company first impaired indefinite lived intangible assets (“Trade name”) before impairing goodwill. The following table summarizes the goodwill activity for the six months ended June 30, 2020 (in thousands):
Goodwill—January 1, 2020$— 
Acquisition13,054 
Impairment(2,110)
Goodwill—June 3, 2020$10,944 


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Intangible Assets
The following table represents the fair value and estimated useful lives of intangible assets (in thousands):
Fair ValueEstimated Life (Years)
Customer relationships$3,500  5
Trade name2,460  indefinite
Non-compete agreements660  4

The fair value of intangible assets of $6.6 million has been allocated to the following three asset categories: 1) customer relationships, 2) trade name, and 3) non-compete agreements. These assets are included within “Intangible assets” on our consolidated balance sheets. Customer relationships and non-compete agreements are being amortized to operating expenses over their estimated useful lives using the straight-line basis for non-compete agreements or on an accelerated basis for customer relationships.
The following table represents the activities of intangible assets for the three and six months ended June 30, 2020 (in thousands):
Fair Value
Intangible assets—January 1, 2020$— 
Acquisition6,620 
Impairment of trade name(810)
Amortization of intangible assets with definite lives(215)
Intangible assets- March 31, 20205,595 
Amortization of intangible assets with definite lives(395)
Intangible assets- June 30, 2020$5,200 

Amortization expense for acquired intangibles was $395,000 and $610,000 for the three and six months ended June 30, 2020. Expected future amortization expense of acquired intangible assets as of June 30, 2020 is as follows (in thousands):
Years ending December 31,
2020 remainder$666  
20211,108  
2022875  
2023641  
2024250  
Thereafter10  
$3,550  
As previously discussed in “Goodwill”, the Company's impairment test indicated that Jack’s Flight Club’s indefinite lived intangible assets (“Trade name”) was impaired for $810,000 for the first quarter of 2020. The Company did not identify any indicators of impairment during the three months ended June 30, 2020.
Pro Forma Information
The acquired company was consolidated into our financial statements starting on the acquisition date. The unaudited financial information in the table below summarizes the combined results of operations of Travelzoo and Jack’s Flight Club, on a pro forma basis, as though the companies had been combined as of the beginning of the fiscal year presented. The debt was issued to finance the acquisition of Jack’s Flight Club. The unaudited pro forma information has been calculated after applying the Company’s accounting policies and includes adjustments to reflect the amortization charges from acquired intangible assets, adjustments to deferred revenue, interest expense and related tax effects. The unaudited pro forma financial information is 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.

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The following table summarizes the pro forma financial information (in thousands):
Three Months EndedSix Months Ended
 June 30,June 30,June 30,June 30,
 2020201920202019
Revenues$7,004  $27,349  $27,452  $57,014  
Net income (loss)$(6,298) $1,231  $(14,021) $4,308  

Jack's Flight Club Settlement
On June 3, 2020, the Company and the Seller renegotiated the SPA. Pursuant to the original terms of the outstanding Promissory Notes, the Company owed $10.0 million plus interest (the “Outstanding Amount”) to the Sellers on April 30, 2020. On June 3, 2020, the parties reached a negotiated settlement for the Outstanding Amount with the following terms: (a) $1.5 million was forgiven in settlement of certain outstanding indemnification claims disputed by the Sellers; (b) $6.8 million, plus accrued interest, was paid to the Sellers by Travelzoo, and (c) the remaining $1.7 million to be paid by June 2021 pursuant to new promissory notes with each of the Sellers that contain a 12% interest rate. For the three months ended June 30, 2020, the Company recorded $1.5 million gain in “General and administrative expenses” for the partial forgiveness of the outstanding loan. Interest expense for the Promissory Notes was $79,000 and $154,000 for the three and six months ended June 30, 2020, respectively.

Travelzoo also agreed that the additional payment set forth in the SPA (equal to 20% of 2020 net income) would be payable to the Sellers regardless of whether EBITDA targets are achieved and the put/call is exercised in 2021. The Company estimated the total payment and recorded $448,000 expense in “General and administrative expenses” for the three months ended June 30, 2020.

The parties also agreed to a new put/call option exercisable in 2022 by the Sellers or Travelzoo, as applicable, only if the put/call option for 2021 as set forth in the SPA is not exercised, with a EBITDA threshold of $4.3 million and a purchase price equal to 40% of 2021 EBITDA multiplied by 3.5, and an additional payment equal to 20% of 2021 net income if the EBITDA threshold is achieved. The Company re-evaluated the fair value of the put/call option by using the Monte Carlo Simulation approach and the identifiable intangible assets acquired primarily by using the income approach and determined that the extension of the one year period did not change the fair value of the put/call option materially.
Note 3:4: Commitments and Contingencies
The Company was formed as a result of a combination and merger of entities founded by the Company’s principal stockholder,shareholder, Ralph Bartel. In 2002, Travelzoo.com Corporation (“Netsurfers”) was merged into Travelzoo.the Company. Under and subject to the terms of the merger agreement, holders of promotional shares of Travelzoo.com Corporation (“Netsurfers”)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 one1 share of Travelzoothe 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 stockholdersshareholders 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 three and ninesix months ended SeptemberJune 30, 20192020 and 2018.2019.
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The total cost of this program cannot be reliably estimated because it is based on the ultimate number of valid requests received and future levels of the Company’s common stock price. The Company’s common stock price affects the liability because the amount of cash payments under the program is based in part on the recent level of the stock price at the date valid requests are received. The Company does not know how many of the requests for shares originally received by Netsurfers in 1998 were valid, but the Company believes that only a portion of such requests were valid. In order to receive payment under this voluntary program, a person is required to establish that such person validly held shares in Netsurfers.
The Company has promissory notes payable related to the acquisition of Jack’s Flight Club. The Company also has PPP notes payable for funds received under the PPP program. Refer to Note 1 and Note 3 for further information. The Company also has operating leases. Refer to Note 911 for contractual commitments as of SeptemberJune 30, 2019.2020.
Local Deals and Getaways merchant payables included in accounts payable were $7.1$20.8 million and $11.8$6.1 million, as of SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively.
Note 4:5: Income Taxes
InOrdinarily, 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, Japan, Hong Kong, and the U.K. ForDue to the COVID-19 pandemic, and difficulty forecasting the calendar year 2020 of income (loss) by jurisdiction, we determined the estimated annual effective rate method would not provide a reliable estimate of the Company’s overall annual effective tax rate. As such, we have calculated the tax provision using the actual effective rate for the six months ended June 30, 2020. The Company's effective tax rate from continuing operations was 19% and 26%, respectively, for the three months ended SeptemberJune 30, 20192020 and 2018, the2019. The Company's effective tax rate from continuing operations was 72%15% and 81%25%, respectively. Forrespectively, for the ninesix months ended SeptemberJune 30, 20192020 and 2018, the Company's effective tax rate was 42% and 44%, respectively. The2019.The Company's effective tax rate decreased for the three and ninesix months ended SeptemberJune 30, 20192020 from the corresponding three and nine months ended SeptemberJune 30, 2018,2019, primarily due to the geographic mix of income from continuing operations, and foreignoperating losses not benefited.
As of SeptemberJune 30, 2019,2020, the Company is permanently reinvested in certain of its non-U.S. subsidiaries and does not have a deferred tax liability related to its undistributed foreign earnings. The estimated amount of the unrecognized deferred tax liability attributed to future withholding taxes on dividend distributions of undistributed earnings for certain non-U.S. subsidiaries, which the Company intends to reinvest the related earnings indefinitely in its operations outside the U.S., is approximately $469,000.$467,000.
The Company maintains liabilities for uncertain tax positions. At SeptemberJune 30, 2019,2020, the Company had approximately $145,000$152,000 in total unrecognized tax benefits, which if recognized, would favorably affect the Company’s effective income tax rate.
The Company’s policy is to include interest and penalties related to unrecognized tax positions in income tax expense. To the extent accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction in the overall income tax provision in the period that such determination is made. At SeptemberJune 30, 20192020 and December 31, 2018,2019, the Company had approximately $204,000$222,000 and $212,000$207,000 in accrued interest, respectively.
The Company files income tax returns in the U.S. federal jurisdiction, and various U.S. states and foreign jurisdictions. The Company is subject to U.S. federal and certain state tax examinations for certain years after 20152016 and is subject to California tax examinations for years after 2013.2015.
We do not know what our income taxes will be in future periods. There may be fluctuations that have a material impact on our results of operations. Our income taxes are dependent on numerous factors such as the geographic mix of our taxable income, federal and state and foreign country tax law and regulations and changes thereto, the determination of whether valuation allowances for certain tax assets are required or not, audits of prior years' tax returns resulting in adjustments, resolution of uncertain tax positions and different treatment for certain items for tax versus books. We expect fluctuations in our income taxes from year to year and from quarter to quarter. Some of the fluctuations may be significant and have a material impact on our results of operations.

On March 27, 2020, President Trump signed into law the CARES Act, which, along with earlier issued IRS guidance, provides for deferral of certain taxes. The CARES Act, among other things, also contains numerous other provisions which may benefit the Company. We continue to assess the effect of the CARES Act and ongoing government guidance related to COVID-19 that may be issued.

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Note 5:6: Accumulated Other Comprehensive Loss
The following table summarizes the changes in accumulated other comprehensive loss (in thousands):
Three Months EndedSix Months Ended
June 30,June 30,
 2020201920202019
Beginning balance$(4,323) $(4,303) $(3,452) $(4,214) 
Other comprehensive income (loss) due to foreign currency translation, net of tax(537) 74  (809) (15) 
Reclass of amounts to income relating to APAC discontinued operations, net of tax194  —  (405) —  
Ending balance$(4,666) $(4,229) $(4,666) $(4,229) 
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2019 2018
2019 2018
Beginning balance$(4,229) $(4,115) $(4,214) $(3,597)
Other comprehensive income (loss) due to foreign currency translation, net of tax(221) 138
 (236) (380)
Ending balance$(4,450) $(3,977)
$(4,450) $(3,977)
There were no0 amounts reclassified from accumulated other comprehensive loss for the three and six months ended SeptemberJune 30, 2019 and 2018.2019.
Note 6:7: 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 statementsstatements of operations.
In January 2012,September 2015, pursuant to an executed Option Agreement, the Company granted certain executives stockits Global Chief Executive Officer, Holger Bartel, options to purchase 100,000400,000 shares of common stock of the Company, with an exercise price of $28.98, of which 25,000 options became exercisable annually starting January 23, 2013.$8.07 and quarterly vesting beginning on March 31, 2016 (the “2015 Option Agreement”). The 2015 Option Agreement expires in September 2025. The options expire in January 2022. During 2014, 25,000 options were canceledare now fully vested and 25,000 options were forfeited upon the departure of an executive. During the first quarter of 2019, the remaining 50,000 options were canceled upon the departure of an executive. Stock-basedstock-based compensation related to these options was fully expensed.
In September 2015,October 2017, pursuant to an executed Option Agreement, the Company granted an executive stockMr. Bartel options to purchase 400,000 shares of common stock, with an exercise price of $8.07, of which 50,000 options became exercisable$6.95 and quarterly startingvesting beginning on March 31, 2016.2018 (the “2017 Option Agreement”). The 2017 Option Agreement expires in 2027. During 2019, 250,000 options expire in September 2025. Stock-basedgranted pursuant to the 2017 Option Agreement were exercised by Mr. Bartel. The remaining 150,000 options are fully vested and the stock-based compensation related to these options was fully expensed. In September 2019, the Company granted Mr. Bartel options to purchase 400,000 shares of common stock subject to shareholder approval, with an exercise price of $10.79 and quarterly vesting beginning on March 31, 2020 and ending on December 31, 2021 (the “2019 Option Agreement” and together with the 2015 Option Agreement and the 2017 Option Agreements, the “Bartel Option Agreements”). The 2019 Option Agreement expires in 2024.
On May 29, 2020, the shareholders of the Company approved certain amendments to the Bartel Option Agreements, which increased and repriced all outstanding, unexercised options granted to Mr. Bartel (the “Option Agreement Amendments”). Pursuant to the Option Agreement Amendments and subject to shareholder approval, the exercise price for the options was repriced to the official NASDAQ closing share price on March 30, 2020 (the date of execution of the Option Agreement Amendments, which immediately followed the date of approval of the grants from the Board of Directors of the Company), which was $3.49. Additionally, the Option Agreement Amendments made the following increases: (a) 400,000 additional options to purchase the Company’s common stock pursuant to the 2015 Option Agreement, (b) 150,000 additional options to purchase the Company’s common stock pursuant to the 2017 Option Agreement, and (c) 400,000 additional options to purchase the Company’s common stock pursuant to the 2019 Option Agreement, which resulted in a total of 1,900,000 options granted to Mr. Bartel pursuant to the Option Agreement Amendments. Mr. Bartel’s amended options pursuant to the 2015 Option Agreement and the 2017 Option Agreement were fully vested upon the execution of the applicable Option Agreement Amendment. Therefore, stock-based compensation related to these options was fully expensed in the three months ended June 30, 2020. Total stock-based compensation of $3.6 million was recorded in general and administrative expenses for the three months ended June 30, 2020. As of SeptemberJune 30, 2020, there was approximately $2.3 million of unrecognized stock-based compensation expense relating to the 2019 400,000 options were vestedOption Agreement and outstanding.applicable Option Agreement Amendment. This amount is expected to be recognized over the next 1.5 years.
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In March 2016, pursuant to executed Option Agreements, the Company granted certaintwo executives stock options to purchase 150,000 shares of common stock with an exercise price of $8.55 of which 37,500 options vest and become exercisable annually starting onannual vesting beginning in March 7, 2017. The options expire in March 2026. In 2017, 37,500 options were forfeited and 12,500 options were canceled upon the departure of an executive and the compensation expense of $19,000 was reversed. In 2018, 50,000 options were forfeited upon the departure of an executive and the compensation expense of $59,000 was reversed. During the first quarter ofIn 2019, the remaining 50,000 options were net exercised for 4,000 shares of common stock.


In October 2017, the Company granted an executive stock options to purchase 400,000 shares of common stock with an exercise price of $6.95, of which 50,000 shares are exercisable quarterly starting March 31, 2018 and ending on December 31, 2019. The options expire in 2027. During the nine months ended September 30, 2019, 250,000 options were exercised. As of September 30, 2019, 150,000 options were outstanding and 100,000 of these options were vested. Total stock-based compensation for the three and nine months ended September 30, 2019, related to these option grants was $143,000 and $430,000, respectively. As of September 30, 2019, there was approximately $143,000 of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over 0.3 years.

In April 2018, the Company granted an employee stock options to purchase 50,000 shares of common stock with an exercise price of $10.50. The options vest in twelve equal installments. The first installment vested on April 26, 2018, and the remaining eleven installments vest from June 30, 2018 to December 31, 2020. During the first quarter of 2019, the Company recognized $34,000 stock-based compensation and canceled the 50,000 options upon the departure of the employee.
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 of which 12,500 options will vest and become exercisable annually starting onannual vesting beginning in May 2019.The options expire in May 2028. During the three months ended June 30, 2020, 25,000 unvested options were forfeited upon the departure of the employee. As of SeptemberJune 30, 2019, 50,0002020, 25,000 options were outstanding and 12,500vested, but pursuant to the terms of these options were vested.the applicable Option Agreement, will be forfeited if not exercised within ninety (90) days of the employee’s last day with the Company. Total stock-based compensation of $11,000 and $22,000 was recorded in sales and marketing expense for the three and nine months ended SeptemberJune 30, 2020 and 2019, related to these option grants was $22,000 and $67,000, respectively. As of September 30, 2019, there was approximately $235,000 of unrecognizedTotal stock-based compensation of $34,000 and $45,000 was recorded in sales and marketing expense relating to these options. This amount is expected to be recognized over 2.6 years.for the six months ended June 30, 2020 and 2019, respectively


In June 2018, pursuant to an executed Option Agreement, the Company granted an employee options to purchase 50,000 shares of common stock with an exercise price of $16.65 of which 12,500 options will vest and become exercisable annually starting onannual vesting beginning June 2019. As of September 30, 2019, 50,000The options were outstanding and 12,500 of these options were vested.expire in June 2023. Total stock-based compensation of $7,000 and $32,000 was recorded in product development expense for the three and ninesix months ended SeptemberJune 30, 2019, related to these option grants was $21,000respectively. During the six months ended June 30, 2020, 37,500 unvested options were forfeited and $53,000, respectively. As of September 30, 2019, there was approximately $226,000 of unrecognized stock-basedthe compensation expense relating to these options. This amount is expected to be recognized over 2.7 years.of $43,000 was reversed from product development expense upon 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 becomebecame exercisable in September 2019, and the remaining 75,000 will vest in three3 equal installments starting onbeginning in May 20, 2021 and ending onin May 20, 2023.2024. The options expire in May 2024. During the three months ended June 30, 2020, 75,000 unvested options were forfeited and the compensation expense of $107,000 was reversed from general and administrative expenses upon the departure of the employee. As of SeptemberJune 30, 2019, 100,000 options were outstanding and2020, 25,000 of these options were vested. Total stock-based compensation foroutstanding and vested, but pursuant to the three and nine months ended September 30, 2019, related to these option grants was $93,000 and $239,000, respectively. Asterms of September 30, 2019, there was approximately $639,000the applicable agreement, will be forfeited if not exercised within ninety (90) days of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over 3.6 years.the employee’s last day with the Company.
In
In September 2019, pursuant to executed Option Agreements, the Company granted, subject to shareholder approval, six employees stock options to purchase 450,00050,000 shares of common stock each (300,000 in the aggregate) with an exercise price of $10.79, of which 112,50075,000 options vest and become exercisable annually starting on September 5, 2020 and ending on December 31, 2023. These grants are subject to approval byThe options expire in September 2024. On May 29, 2020, the shareholders of the Company atapproved 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 annual meeting(the date of shareholders and may be unwound ifexecution of the amendments to the Option Agreements, which immediately followed the date of approval is not received. Theof 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 expire in 2024. As of Septemberthe aggregate. During the three months ended June 30, 2019, 450,0002020, 100,000 unvested options were outstanding and none of these options were vested.forfeited upon an employee's departure. Total stock-based compensation for the three and nine months ended September 30, 2019, related to these option grants of $193,000 was $46,000.recorded in general and administrative expenses for the three months ended June 30, 2020. As of SeptemberJune 30, 2019,2020, there was approximately $2.2$2.1 million of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over 3.9 years.the next 3.2 years
In September 2019,
On May 29, 2020, pursuant to an executed Option Agreement, the shareholders of the Company granted an executiveapproved the grant of stock options to purchase 400,000800,000 shares of common stock to Mr. Ralph Bartel, Chairman of the Board of Directors of the Company, with an exercise price of $10.79, of which 50,000 shares are exercisable$3.49 and quarterly starting March 31,vesting beginning June 30, 2020 and ending on DecemberMarch 31, 2021. This grant is subject to approval by the shareholders of the Company at the 2020 annual meeting of shareholders and may be unwound if approval is not received.2022. The options expire in 2024. AsMarch 2025. This grant was approved at the 2020 Annual Meeting of September 30, 2019, 400,000 options were outstanding and none of these options were vested. the shareholders. Total stock-based compensation for the three and nine months ended September 30, 2019, related to these option grants of $385,000 was $68,000.recorded in general and administrative expenses for the three months ended June 30, 2020. As of SeptemberJune 30, 2019,2020, there was approximately $1.8$2.7 million of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over 2.3the next 1.75 years.

On May 29, 2020, pursuant to an executed Option Agreement, the shareholders of the Company approved the grant of stock options to purchase 200,000 shares of common stock to two key employees, with an exercise price of $3.49 with annual vesting starting March 30, 2021 and ending on March 31, 2024. The options expire in March 2025. Total stock-based compensation related to these option grants of $20,000 was recorded in general and administrative expenses for the three months ended June 30, 2020. As of June 30, 2020, there was approximately $766,000 of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over the next 3.75 years.
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Note 7:8: Stock Repurchase Program
The Company's stock repurchase programs assist in offsetting the impact of dilution from employee equity compensation and assist with capital allocation. ManagementUpon approval from the Board of Directors of the Company, management is allowed discretion in the execution of the repurchase program based upon market conditions and consideration of capital allocation.
In February 2019, the Company entered into a Stock Repurchase Agreement with Azzurro, a majority shareholder of the Company and repurchased 100,000 shares of the Company’s common stock for an aggregate purchase price of $1.6 million, which were retired and recorded as a reduction of additional paid-in capital until extinguished with the remaining amount reflected as a reduction of retained earnings.
In May 2019, the Company announced a stock repurchase program authorizing the repurchase of up to 1,000,000 shares of the Company’s outstanding common stock. The Company did not purchase common stock during the three months ended June 30, 2020. During the three and nine months ended SeptemberJune 30, 2019, the Company repurchased 186,369 and 436,369250,000 shares of common stock for an aggregate purchase price of $2.3$4.9 million. During the six months ended June 30, 2020 and 2019, the Company repurchased 169,602 shares and 350,000 shares of common stock for an aggregate purchase price of $1.2 million and $7.2$6.5 million, respectively,respectively. There were 395,029 shares remaining to be repurchased under this program as of June 30, 2020.

In November 2019, the Company entered into a Stock Repurchase Agreement with Mr. Holger Bartel to repurchase an aggregate of 200,000 shares of the Company’s common stock repurchase program.

for an aggregate purchase price of $2.0 million, which were retired and recorded as a reduction of additional paid-in capital until extinguished with the remaining amount reflected as a reduction of retained earnings.

Note 8:9: Segment Reporting and Significant Customer Information
The Company managesdetermines 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 has operated in three reportable operating segments:segments including Asia Pacific, Europe and North America. During the six months ended June 30, 2020, the Company classified the results of its Asia Pacific segment as discontinued operations in its condensed consolidated financial statements for current and prior periods presented. On January 13, 2020, Travelzoo agreed to the SPA with the Sellers of Jack’s Flight Club to purchase 60% of the Shares. Upon acquisition, the Company's chief operating decision maker reviewed and evaluated Jack's Flight Club as a separate segment. The Company currently has 3 reportable operating segments: North America, Europe and Jack’s Flight Club. North America consists of the Company'sCompany’s operations in Australia, China, Hong Kong, Japan,Canada and Southeast Asia.the U.S. Europe consists of the Company’s operations in France, Germany, Spain, and the U.K. North AmericaJack’s Flight Club consists of the Company’s operations in Canadasubscription revenue from premium members to access and the U.S.receive flight deals from Jack’s Flight Club via email or via Android or Apple mobile applications.
Management relies on an internal management reporting process that provides revenue and segment operating profit (loss) for making financial decisions and allocating resources. Management believes that segment revenues and operating profit (loss) are appropriate measures of evaluating the operational performance of the Company’s segments.
The following is a summary of operating results (in thousands) by business segment:segment (in thousands):
Three Months Ended June 30, 2020Travelzoo North
America		Travelzoo EuropeJack’s Flight ClubEliminationConsolidated
Revenues from unaffiliated customers$4,254  $1,805  $945  $—  $7,004  
Intersegment revenues (expenses)(52) 52  —  —  —  
Total net revenues4,202  1,857  945  —  7,004  
Operating profit (loss)$(4,702) $(1,683) $(248) $—  $(6,633) 
Three Months Ended June 30, 2019Travelzoo North
America		Travelzoo EuropeJack’s Flight ClubEliminationConsolidated
Revenues from unaffiliated customers$17,494  $9,133  $—  $(21) $26,606  
Intersegment revenues (expenses)430  (451) —  21  —  
Total net revenues17,924  8,682  —  —  26,606  
Operating profit (loss)$3,590  $584  $—  $(21) $4,153  
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Six Months Ended June 30, 2020Travelzoo North
America		Travelzoo EuropeJack’s Flight ClubEliminationConsolidated
Revenues from unaffiliated customers$16,803  $8,908  $1,628  $(8) $27,331  
Intersegment revenues (expenses)96  (104) —  8  —  
Total net revenues16,899  8,804  1,628  —  27,331  
Operating profit (loss)$(5,678) $(3,024) $(3,263) $(8) $(11,973) 
Six Months Ended June 30, 2019Travelzoo North
America		Travelzoo EuropeJack’s Flight ClubEliminationConsolidated
Revenues from unaffiliated customers$35,630  $20,187  $—  $(51) $55,766  
Intersegment revenues (expenses)881  (932) —  51  —  
Total net revenues36,511  19,255  —  —  55,766  
Operating profit (loss)$8,053  $2,721  $—  $(51) $10,723  
 
Three Months Ended September 30, 2019Asia Pacific Europe 
North
America
Consolidated
Revenues from unaffiliated customers$1,630
 $9,432
 $14,443
$25,505
Intersegment revenues (expenses)43
 (938) 895
—
Total net revenues1,673
 8,494
 15,338
25,505
Operating profit (loss)$(2,051) $815
 $2,450
$1,214
Three Months Ended September 30, 2018Asia Pacific Europe 
North
America
 Consolidated
Revenues from unaffiliated customers$1,977
 $8,396
 $14,928
 $25,301
Intersegment revenues (expenses)10
 (18) 8
 —
Total net revenues1,987
 8,378
 14,936
 25,301
Operating profit (loss)$(1,600) $940
 $1,374
 $714

Nine Months Ended September 30, 2019Asia Pacific Europe North
America		Consolidated
Revenues from unaffiliated customers$4,822
 $29,619
 $50,073
$84,514
Intersegment revenues (expenses)96
 (1,870) 1,774
—
Total net revenues4,918
 27,749

51,847
84,514
Operating profit (loss)$(5,469) $3,536
 $10,542
$8,609

Nine Months Ended September 30, 2018Asia Pacific Europe North
America		 Consolidated
Revenues from unaffiliated customers$6,092
 $27,255
 $50,913
 $84,260
Intersegment revenues (expenses)(19) (97) 116
 —
Total net revenues6,073
 27,158
 51,029
 84,260
Operating profit (loss)$(4,812) $3,347
 $6,914
 $5,449
Revenue for each segment is recognized based on the customer location within a designated geographic region. 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 Travelzoothe Company and its wholly owned subsidiaries.
The following is a summary of assets by business segment (in thousands):
As of June 30, 2020Travelzoo North
America		Travelzoo EuropeJack’s Flight ClubEliminationConsolidated
Long-lived assets$1,415  $274  $—  $—  $1,689  
Total assets exclude discontinued operations$89,888  $70,529  $5,918  $(99,234) $67,101  
As of December 31, 2019Travelzoo North
America		Travelzoo EuropeEliminationConsolidated
Long-lived assets$2,598  $263  $—  $2,861  
Total assets exclude discontinued operations$66,057  $74,604  $(90,084) $50,577  
For the three and ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, the Company did not have any customers that accounted for 10% or more of revenue. As of SeptemberJune 30, 20192020 and December 31, 2018,2019, the Company did not have any customers that accounted for 10% or more of accounts receivable.



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The following table sets forth the breakdown of revenues (in thousands) by category and segment. Travel revenue includes travel publications (Top 20, WebsiteTravelzoo website, Newsflash, Newsflash, Travelzoo Network), Getaways vouchers, and hotel platform and vacation packages. Local revenue includes Local Deals vouchers and entertainment offers (vouchers and direct bookings). 
Three Months EndedSix Months Ended
Three Months Ended Nine Months Ended June 30,June 30,
September 30, September 30, 2020201920202019
2019 2018 2019 2018
Asia Pacific       
Travelzoo North AmericaTravelzoo North America
Travel$1,619
 $1,851
 $4,751
 $5,682
Travel$3,910  $15,254  $15,066  $31,571  
Local54
 136
 167
 391
Local292  2,670  1,833  4,940  
Total Asia Pacific revenues$1,673
 $1,987
 $4,918
 $6,073
Europe       
Total Travelzoo North America revenuesTotal Travelzoo North America revenues4,202  17,924  16,899  36,511  
Travelzoo EuropeTravelzoo Europe
Travel$7,727
 $7,387
 $24,804
 $23,849
Travel1,756  7,565  7,993  17,077  
Local767
 991
 2,945
 3,309
Local101  1,117  811  2,178  
Total Europe revenues$8,494
 $8,378
 $27,749
 $27,158
North America       
Travel$12,898
 $12,224
 $44,467
 $42,856
Local2,440
 2,712
 7,380
 8,173
Total North America revenues$15,338
 $14,936
 $51,847
 $51,029
Total Travelzoo Europe revenuesTotal Travelzoo Europe revenues1,857  8,682  8,804  19,255  
Jack’s Flight Club
Jack’s Flight Club
945  —  1,628  —  
Consolidated       Consolidated
Travel$22,244
 $21,462
 $74,022
 $72,387
Local3,261
 3,839
 10,492
 11,873
Travelzoo TravelTravelzoo Travel5,666  22,819  23,059  48,648  
Travelzoo LocalTravelzoo Local393  3,787  2,644  7,118  
Jack’s Flight Club
Jack’s Flight Club
945  —  1,628  —  
Total revenues$25,505
 $25,301
 $84,514
 $84,260
Total revenues$7,004  $26,606  $27,331  $55,766  
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 EndedThree Months EndedSix Months Ended
September 30, September 30,June 30,June 30,
2019 2018 2019 2018 2020201920202019
Revenue       Revenue
United States$13,817
 $13,472
 $47,041
 $46,564
United States$3,893  $16,329  $15,408  $33,224  
United Kingdom4,335
 4,921
 14,930
 15,940
United Kingdom1,981  4,736  7,094  10,595  
Germany2,830
 2,832
 9,262
 9,123
Germany747  2,791  2,762  6,432  
Rest of the world4,523
 4,076
 13,281
 12,633
Rest of the world383  2,750  2,067  5,515  
Total revenues$25,505
 $25,301
 $84,514
 $84,260
Total revenues$7,004  $26,606  $27,331  $55,766  

The following table sets forth property and equipment by geographic area (in thousands):  
September 30, December 31, June 30,December 31,
2019 2018 20202019
United States$2,514
 $3,035
United States$1,218  $2,359  
Rest of the world628
 755
Rest of the world471  502  
Total long lived assets$3,142
 $3,790
Total long-lived assetsTotal long-lived assets$1,689  $2,861  
Note 9:10: Discontinued Operation

On March 10, 2020, Travelzoo issued a press release announcing that it will exit its business in Asia Pacific. The decision supports the Company's strategy to focus on value creation for shareholders by focusing on growing the businesses in North America and Europe, where the Company continues to see strong interest from our members in travel deals.
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The Asia Pacific business shut down and ceased operations as of March 31, 2020, except for the Company's Japan unit, which was held for sale. The Company considers this decision to be a strategic shift in its strategy which will have a major effect on its operations. The Company has classified Asia Pacific as discontinued operations at March 31, 2020. Prior periods have been reclassified to conform with the current presentation. The following table provides a summary of amounts included in discontinued operations for the three and six months ended June 30, 2020 and 2019 (in thousands):
 Three Months EndedSix Months Ended
June 30,June 30,
 2020201920202019
Revenues$66  $1,578  $970  $3,243  
Cost of revenues—  85  6  166  
Gross profit66  1,493  964  3,077  
Operating expenses:
Sales and marketing—  2,253  1,712  4,325  
Product development—  36  —  80  
General and administrative705  933  3,344  2,000  
Total operating expenses705  3,222  5,056  6,405  
Loss from operations(639) (1,729) (4,092) (3,328) 
Other income (expense), net(156) (114) 378  (258) 
Loss before income taxes(795) (1,843) (3,714) (3,586) 
Income tax expense—  (113) —  (31) 
Net loss$(795) $(1,730) $(3,714) $(3,555) 

The Company recorded severance and disposal costs of $1.6 million during the first quarter of fiscal year 2020 for the shut down and such costs were classified in “general and administrative” in the table above. Certain reclassifications have been made for current and prior periods between the continued operations and the discontinued operations in accordance with U.S. GAAP. Those reclassifications included direct operating expenses and certain inter-company charges that will not continue. $0 and $36,000 of cost of revenues were reclassified from the discontinued operations to continued operations for the three months ended June 30, 2020 and 2019, respectively. $64,000 and $70,000 of cost of revenues were reclassified from the discontinued operations to continued operations for the six months ended June 30, 2020 and 2019, respectively. In addition, $0 and $18,000 of operating expenses that were reclassified from discontinued operations to continued operations for the three months ended June 30, 2020 and 2019, respectively. $7,000 and $21,000 of operating expenses that were reclassified from discontinued operations to continued operations for the six months ended June 30, 2020 and 2019, respectively.

On June 16, 2020, in connection with its Asia Pacific exit plan, the Company completed a sale of 100% of the outstanding capital stock of Travelzoo Japan K.K to the Buyer for consideration of JPY1. The Company recognized a pre-tax loss of$128,000. The parties also entered into a License Agreement, whereby the Buyer obtained a license to use intellectual property from Travelzoo exclusively in Japan in exchange for quarterly royalty payments based on revenue over a 5 year term, with an option to renew. However, the Buyer is only obligated to pay Travelzoo if the Buyer has a positive EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted pro forma before royalty expenses, according to the Buyer’s income statement. Based on the current uncertainties, Travelzoo is not able to estimate whether the Buyer will generate positive EBITDA and no amount has been recorded for future royalties under this agreement. An interest free loan was provided to the Buyer for JPY 46.0 million (approximately $430,000) to be repaid over 3 years.


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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):
June 30,
2020		December 31,
2019
ASSETS
Cash, cash equivalents and restricted cash$267  $832  
Accounts receivable, net288  1,797  
Deposits—  9  
Prepaid expenses and other16  208  
Deposits and other19  248  
Operating lease right-of-use assets—  746  
Property and equipment, net—  121  
Total assets from discontinued operations$590  $3,961  
LIABILITIES
Accounts payable$661  $1,057  
Accrued expenses and other782  1,188  
Deferred revenue13  118  
Operating lease right-of-use liabilities—  772  
Total liabilities from discontinued operations$1,456  $3,135  

The net cash used in operating activities and investing activities for the discontinued operations for the six months ended June 30, 2020 and 2019, were as follows (in thousands):
 Six Months Ended
June 30,
 20202019
Net cash used in operating activities$(1,806) $(3,201) 
Net cash used in investing activities$—  $(42) 

Note 11: Leases
The Company has operating leases for real estate and certain equipment. The Company leases office space in Australia, Canada, China, France, Germany, Hong Kong, Japan, Singapore, 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 November 2024.ten years. Certain leases include one or more options to renew. In addition, we sublease certain 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 ninesix months ended SeptemberJune 30, 2020 and 2019 ((in(in thousands):
Three Months EndedSix Months Ended
June 30June 30
2020201920202019
Operating lease cost$1,255  $1,158  $2,412  $2,342  
Short-term lease cost7  311  13  726  
Variable lease cost262  296  552  596  
Sublease income(84) (84) (168) (168) 
    Total lease cost$1,440  $1,681  $2,809  $3,496  
  Three Months Ended Nine Months Ended
  September 30, 2019 September 30, 2019
Operating lease cost $995
 $3,337
Short-term lease cost 45
 771
Variable lease cost 329
 925
Sublease income (84) (252)
    Total lease cost $1,285
 $4,781
For the three and ninesix months ended SeptemberJune 30, 2020 and 2019, cash payments against the operating lease liabilities totaled $1.5totaled $1.6 million and $4.1$2.6 million, respectively. ROU assets obtained in exchange for lease obligations was $4.8$3.2 million and $7.6$2.8 million for threesix months ended June 30, 2020 and nine months ended September 30, 2019.2019, respectively.

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The following table summarizes the presentation in our condensed consolidated balance sheets of our operating leases (in thousands):
 September 30, 2019June 30, 2020December 31, 2019
Assets:Assets:  Assets:
Operating lease right-of-use assets $17,523
Operating lease right-of-use assets$9,929  $8,140  
  
Liabilities:Liabilities:  Liabilities:
Operating lease liabilities $7,028
Operating lease liabilities$4,440  $4,847  
Long-term operating lease liabilities 12,291
Long-term operating lease liabilities12,062  7,920  
Total operating lease liabilities $19,319
Total operating lease liabilities$16,502  $12,767  
  
Weighted average remaining lease term (years)Weighted average remaining lease term (years) 3.42
Weighted average remaining lease term (years)7.134.50
Weighted average discount rateWeighted average discount rate 4.4%Weighted average discount rate3.8 %3.4 %
  
Maturities of lease liabilities were as follows (in thousands):
Years ending December 31,
2020 (excluding the six months ended June 30, 2020)$2,494  
20213,645  
20222,273  
20231,873  
20241,421  
Thereafter6,975  
    Total lease payments18,681  
Less interest(2,179) 
    Present value of operating lease liabilities$16,502  
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Years ending December 31, 
2019 (excluding the nine months ended September 30, 2019)$1,902
20206,875
20215,279
20223,794
20231,924
Thereafter1,037
    Total lease payments20,811
Less interest(1,492)
    Present value of operating lease liabilities$19,319







Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
The information in this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based upon current expectations, assumptions, estimates and projections about Travelzoo and our industry. These forward-looking statements are subject to the many risks and uncertainties that exist in our operations and business environment that may cause actual results, performance or achievements of Travelzoo to be different from those expected or anticipated in the forward-looking statements. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, words such as “may”, “will”, “should”, “estimates”, “predicts”, “potential”, “continue”, “strategy”, “believes”, “anticipates”, “plans”, “expects”, “intends”, and similar expressions are intended to identify forward-looking statements. Travelzoo’s actual results and the timing of certain events could differ significantly from those anticipated in such forward-looking statements. Factors that might cause or contribute to such a discrepancy include, but are not limited to,
those discussed elsewhere in this report in the section entitled “Risk Factors” and the risks discussed in our other SEC filings. The forward-looking statements included in this report reflect the beliefs of our management on the date of this report. Travelzoo undertakes no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other circumstances occur in the future.
Overview
Travelzoo® providesis a global Internet media company. We provide our 2830 million members insider deals and one-of-a-kind experiences personally reviewed by one of our deal experts around the globe. With 25 offices worldwide, weWe 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 2,0005,000 top travel suppliers—our long-standing relationships give Travelzoo members access to irresistible deals.
Our publications and products include the Travelzoo website, (travelzoo.com), the Travelzoo iPhone and Android apps, the TravelzooTop 2020® email newsletter, the Newsflashemail alert service, and the Newsflash email alert service. We operate the Travelzoo Network, a network of third-party websites that list travel deals published by Travelzoo. Our Travelzoo website includes Local DealsandGetaways listings that allow our members to purchase vouchers for deals from local businesses such as spas, hotels and restaurants. We receive
In March 2020, Travelzoo exited its loss-making Asia Pacific business. The Company’s Asia Pacific business was classified as discontinued operations at March 31, 2020. Prior periods have been reclassified to conform with the current presentation. On June 16, 2020, in connection with its Asia Pacific exit plan, the Company completed a percentagesale of 100% of the face valueoutstanding capital stock of Travelzoo Japan K.K to Buyer for consideration of JPY1. The Company recorded approximately $128,000 loss on disposal of Japan in the Condensed Consolidated Financial Statements during the three and six months ended June 30, 2020. The parties also entered into a License Agreement, whereby the Buyer obtained a license to use intellectual property from Travelzoo exclusively in Japan in exchange for quarterly royalty payments based on revenue over a 5 year term, with an option to renew. An interest free loan was provided to the Buyer for JPY46.0 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 June 30, 2020.
The Company has a minority investment in weekengo GmbH ("WeGo"). WeGo is a technology company which provides an app and a search engine for spontaneous travelers looking for short getaways. The Company accounts for this private company investment using the equity method of accounting by recording its share of the voucher fromresults of WeGo in “Other income (expense)”, net on a one-quarter lag basis. In accounting for the local businesses.
More than 2,000 companies use our services, including but not limitedinitial investment, the Company allocated $1.0 million of its purchase price to Air France, Air New Zealand, British Airways, Cathay Pacific Airways, Ctrip, Emirates, Etihad, Expedia, Fairmont Hotelstangible assets and Resorts, Hawaiian Airlines, Hilton Hotels & Resorts, InterContinental Hotels Group, JPB Corporation, Lion World Travel, Lufthansa, Nexus Holidays, Princess Cruises, Royal Caribbean, Singapore Airlines, Starwood Hotels & Resorts Worldwide, Tourism Australia, Tourism Ireland, and United Airlines.
We have three operating segments based on geographic regions: Asia Pacific, Europe and North America. Asia Pacific consistsallocated approximately $485,000 of our operations in Australia, China, Hong Kong, Japan, and Southeast Asia. Europe consiststhe purchase price to technology-related intangible assets to be amortized over a three-year life. The remaining $1.5 million of our operations in France, Germany, Spain, and the U.K. North America consists of our operations in Canada and the U.S.purchase price was allocated to goodwill.
In February 2020, Travelzoo signed an amended investment agreement (the “Investment Agreement”) with WeGo and agreed to invest an additional $1.7 million when WeGo meets certain performance targets. The original Investment Agreement with WeGo was executed in April 2018, the Company entered into an agreement with WeekenGO, a startup company in Germany. WeekenGO uses new technology to promote vacation packages.2018. At that time, Travelzoo invested $3.0 million in WeekenGOWeGo for a 25% ownership interest. In April 2019, the Company invested an additional $673,000 in WeekenGOWeGo and increased the Company's ownership interest to 26.6%.
WeekenGOAs of June 30, 2020, WeGo has not met these performance targets and no additional investment has been made by the Company. In connection with the Investment Agreement, WeGo signed a $2.1 millionan insertion order for $2.1 million in advertising services with Travelzoo in April 2018. See "Note 1: SummaryThe Company's advertising services provided to WeGo in the three months ended June 30, 2020 and 2019 were $3,000 and $239,000, respectively. The Company's advertising services provided to WeGo in the six months ended June 30, 2020 and 2019 were $360,000 and $794,000, respectively.
During the three and six months ended June 30, 2020, the Company recorded $106,000 and $333,000 for its share of Significant Accounting Policies" toWeGo losses, amortization of basis differences and currency translation adjustment. During the accompanying unauditedthree and six months ended June 30, 2019, the Company recorded $198,000 and $409,000 for its share of WeGo losses, amortization of basis differences
27

and currency translation adjustment. This equity method investment is reported as a long-term investment on the Company's condensed consolidated balance sheets.
In January 2020, Travelzoo acquired Jack’s Flight Club, which operates Jack’s Flight Club, a subscription service that provides members with information about exceptional airfares. As of June 30, 2020, Jack’s Flight Club had 1.7 million subscribers. Jack’s Flight Club’s revenues are generated by subscription fees paid by members. In June 2020, the Company renegotiated certain aspects of that certain Stock Purchase Agreement, dated as of January 13, 2020 (the “SPA”), by and among Travelzoo, Jack’s Flight Club and the Sellers with the Sellers and reached a settlement for the outstanding Promissory Notes.
Historically, the Company managed its business geographically and operated in three reportable segments including Asia Pacific, Europe and North America. During the three and six months ended June 30, 2020, the Company classified the results of its Asia Pacific segment as discontinued operations in its condensed consolidated financial statements for further information.current and prior periods presented. On January 13, 2020, Travelzoo entered into a Sales Purchase Agreement with the Sellers of Jack’s Flight Club to purchase 60% of the Shares. Upon the acquisition, the Company's chief operating decision maker reviewed and evaluated Jack’s Flight Club as a separate segment. Travelzoo currently has three reportable operating segments: North America, Europe and Jack’s Flight Club. North America consists of the Company’s operations in Canada and the U.S. Europe consists of the Company’s operations in France, Germany, Spain, and the UK.
When evaluating the financial condition and operating performance of the Company, management focuses on financial and non-financial indicators such as growth in the number of members to the Company’s newsletters, operating margin, growth in revenues in the absolute and relative to the growth in reach of the Company’s publications measured as revenue per member and revenue per employee as a measure of productivity.

The Company’s Asia Pacific business was classified as discontinued operations as of March 31, 2020. Prior periods have been reclassified to conform with the current presentation for all periods presented.

28

How We Generate Revenues
Our revenuesTravelzoo
Revenues from the Travelzoo brand and business are generated primarily from advertising fees from two categories of revenue: Travel and Local.
The “Travel” category consists of advertising revenues, consisting primarily of listing fees paid by travel entertainment and local businesses to advertisecompanies for the publishing of their offers on Travelzoo’s media properties.properties and commission from sale of Getaways vouchers. Listing fees are based on audience reach, placement, number of listings, number of impressions, number of clicks, number of referrals, or percentageand actual sales. For publishing revenue, we recognize revenue upon delivery of the face valueemails, delivery of vouchers sold.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. Merchant agreements for Local Deals and For Getaways advertisers are typically for twelve months and are not automatically renewed. We have two separate groups of our advertising products: Travel and Local.
Our Travel category of revenue includes the publishing revenue for negotiated high-quality deals from travel companies, such as hotels, airlines, cruises or car rentals and includes products such as Top 20, Travelzoo website, Newsflash, Travelzoo Network as well as Getaways vouchers. The revenues generated from these products are based upon a fee for number of emails delivered to our audience, a fee for clicks delivered to the advertisers, a fee for placement of the advertising on our website or a fee based on vouchers, we recognize a percentage of the face value of vouchers sold, hotel booking stays or other items sold. We recognize revenue upon delivery of the emails, delivery of the clicks, over the period of placement of the advertising, upon hotel booking stays and 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. Certain merchant contracts in foreign locations allow us to retain fees related to vouchers or other items sold.sold that are not redeemed by purchasers upon expiration, which we recognize as revenue based upon estimates at the time of sale.
Our LocalThe "Local" category of revenue includes theconsists of publishing revenue for negotiated high-quality deals from local businesses, such as restaurants, spas, shows, and other activities and includes Local Deals vouchers and entertainment offers (vouchers and direct bookings). The revenues generated from these products are based upon a percentage of the face value of vouchers, or items soldcommission on actual sales or a listing fee for clicks delivered to the advertisers.based on audience reach. We recognize revenue upon the sale of the vouchers, when we receiveupon notification of the amount of direct bookings or upon delivery of the clicks. The Company earnsemails. For Local Deals vouchers, we recognize a fee for acting as an agent in these transactions, which is recorded on a net basis and is included in revenue upon completionpercentage of the voucher sale.face value of vouchers upon the sale of the vouchers. Insertion orders and merchant agreements for Local are typically for periods between one month and twelve months and are not automatically renewed. Certain merchant contracts in foreign locations allow us to retain fees related to vouchers sold that are not redeemed by purchasers upon expiration, which we recognize as revenue based upon estimates at the time of sale.
Jack’s Flight Club
Jack’s Flight Club revenue is generated from paid subscriptions by members. Subscription options are quarterly, semi-annually, and annually. We recognize the revenue on a pro-rated basis based upon the subscription option.
Trends in Our Business
Our ability to generate revenues in the future depends on numerous factors such as our ability to sell more advertising to existing and new advertisers, our ability to increase our audience reach and advertising rates, our ability to have sufficient supply of hotels offered at competitive rates and our ability to develop and launch new products. Our ability to generate revenues is also dependent on trends impacting the travel industry more broadly.
Our current revenue model primarily depends on advertising fees paid primarily by travel, entertainment and local businesses. A number of factors can influence whether current and new advertisers decide to advertise their offers with us. We have been impacted and expect to continue to be impacted by external factors such as the shift from offline to online advertising, the relative condition of the economy, competition and the introduction of new methods of advertising, and the decline in consumer demand for vouchers.vouchers and travel more generally. A number of factors will have impact on our revenue, such as the reduction in spending by travel intermediaries due to their focus on improving profitability, the trend towards mobile usage by consumers, the willingness of consumers to purchase the deals we advertise, and the willingness of certain competitors to grow their business unprofitably. In addition, we have been impacted and expect to continue to be impacted by internal factors such as introduction of new technologies and advertising products, hiring and relying on key employees for the continued maintenance and growth of our business and ensuring our advertising products continue to attract the audience that advertisers desire. We also have been impacted and expect to continue to be impacted by external factors, such as the COVID-19 pandemic, which decrease consumer’s discretionary income and decrease the demand for travel and entertainment.

ExistingAdditionally, existing advertisers may shift from one advertising service (e.g. Top 20) to another (e.g. Local Deals and Getaways). These shifts between advertising services by advertisers could result in no incremental revenue or less revenue than in previous periods depending on the amount purchased by the advertisers, and in particular with Local Deals and Getaways, depending on how many vouchers are purchased by members. In addition, we are anticipating a shift from our existing hotel revenue to commission-based hotel revenue as we expand the use of our hotel platform, which may result in lower revenue depending on volume of hotel bookings.

Local revenues have been and may continue to decline over time due to market conditions driven by competition and declines in consumer demand. In the last several years, we have seen a decline in the number of vouchers sold and a decrease in the average take rate earned by us from the merchants for voucher sold. However, due to the COVID-19 pandemic and the

29


increase in demand by consumers for fully refundable travel options, we have now begun to see a slight reversal of this trend and an increase in the sale of Getaways hotel vouchers. Demand for restaurants and spas continues to be low due to the COVID-19 pandemic.


Our ability to continue to generate advertising revenue depends heavily upon our ability to maintain and grow an attractive audience for our publications. We monitor our members to assess our efforts to maintain and grow our audience reach. We obtain additional members and activity on our websites by acquiring traffic from Internet search companies. The costs to grow our audience have had, and we expect will continue to have, a significant impact on our financial results and can vary from period to period. We may have to increase our expenditures on acquiring traffic to continue to grow or maintain our reach of our publications due to competition. We continue to see a shift in the audience to accessing our services through mobile devices and social media. WeWhen funds are available for marketing spend, we are addressing this growing channel of our audience through development of our mobile applications and throughincreased marketing on social media channels. However, we will need to keep pace with technological change and this trend to further address this shift in the audience behavior in order to offset any related declines in revenue.

We believe that we can increase our advertising rates only if the reach of our publications increases. We do not know if we will be able to increase the reach of our publications. If we are able to increase the reach of our publications, we still may not be able to or want to increase rates given market conditions such as intense competition in our industry. We have not had any significant rate increase in recent years due to intense competition in our industry. Even if we increase our rates, the increased price may reduce the number of advertisers willing to advertise with us and, therefore, decrease our revenue. We may need to decrease our rates based on competitive market conditions and the performance of our audience in order to maintain or grow our revenue.
We do not know what our cost of revenues as a percentage of revenues will be in future periods. Our cost of revenues may increase if the face value of vouchers that we sell for Local Deals and Getaways increases or the total number of vouchers sold increases because we have credit card fees based upon face value of vouchers sold, due to customer service costs related to vouchers sold and due to refunds to members on vouchers sold. Our cost of revenues are also expected to increase due to our effort to develop our hotel booking platform. We expect fluctuations in cost of revenues as a percentage of revenues from quarter to quarter. Some of the fluctuations may be significant and may have a material impact on our results of operations.
We do not know what our sales and marketing expenses as a percentage of revenue will be in future periods. Increased competition in our industry may require us to increase advertising for our brand and for our products. In order to increase the reach of our publications, we have to acquire a significant number of new members in every quarter and continue to promote our brand. One significant factor that impacts our advertising expenses is the average cost per acquisition of a new member. Increases in the average cost of acquiring new members may result in an increase of sales and marketing expenses as a percentage of revenue. We believe that the average cost per acquisition depends mainly on the advertising rates which we pay for media buys, our ability to manage our member acquisition efforts successfully, the regions we choose to acquire new members and the relative costs for that region, and the degree of competition in our industry. We may decide to accelerate our member acquisition for various strategic and tactical reasons and, as a result, increase our marketing expenses. We expect the average cost per acquisition to increase with our increased expectations for the quality of the members we acquire. We may see an unique opportunity for a brand marketing campaign that will result in an increase of marketing expenses. In addition, there may be a significant number of members that cancel or we may cancel their subscription for various reasons, which may drive us to spend more on member acquisition in order to replace the lost members. Further, we expect to continue our strategy over time to replicate our business model in selected foreign markets to result in a significant increase in our sales and marketing expenses and have a material adverse impact on our results of operations. For example, in August of 2015 we acquired our Asia Pacific business, which we intend on increasing our investment in audience in this region. Due to the continued desire to grow our business in Asia Pacific, Europe and North America, we expect relatively high level of sales and marketing expenses in the foreseeable future. We expect fluctuations in sales and marketing expenses as a percentage of revenue from year to year and from quarter to quarter. Some of the fluctuations may be significant and have a material impact on our results of operations. We expect increased marketing expense to spur continued growth in members and revenue in future periods; however, we cannot be assured of this due to the many factors that impact our growth in members and revenue. We expect to adjust the level of such incremental spending during any given quarter based upon market conditions, as well as our performance in each quarter. We have increased and may continue to increase our spending on sales and marketing to increase the number of our members and address the growing audience from mobile and social media channels, as well as to increase our analytic capabilities to continuously improve the presentation of our offerings to our audience.
We do not know what our product development expenses as a percentage of revenue will be in future periods. There may be fluctuations that have a material impact on our results of operations. Product development changes may lead to reductions of revenue based on changes in presentation of our offerings to our audience. We expect our efforts on developing our product and services will continue to be a focus in the future, which may lead to increased product development expenses. This increase in expense may be the result of an increase in costs related to third party technology service providers and software licenses, headcount, the compensation related to existing headcount and the increased use of professional services. We expect our continued expansion into foreign markets and development of new advertising formats to result in a significant additional increase in our product development expenses. We expect to incur additional costs related to the development of our hotel platform capabilities, which we are developing, in part, to address the shift to mobile devices. We


also may increase our investment in product development to ensure our products are suited for different regions such as Asia Pacific. In addition, we expect to incur additional costs related to the development of our search capabilities of our website and mobile applications.
We do not know what our general and administrative expenses as a percentage of revenue will be in future periods. There may be fluctuations that have a material impact on our results of operations. We expect our headcount to continue to increase in the future. The Company’s headcount is the main driver of general and administrative expenses. Therefore, we expect our absolute general and administrative expenses to continue to increase. We expect our continued expansion into foreign markets to result in an increase in our general and administrative expenses. We expect an increase in professional fees for various initiatives.
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We do not know what our income taxes will be in future periods. There may be fluctuations that have a material impact on our results of operations. Our income taxes are dependent on numerous factors such as the geographic mix of our taxable income, foreign, federal, state and local tax law and regulations and changes thereto. Our income taxes are also dependent on the determination of whether valuation allowances for certain tax assets are required or not, audits of prior years' tax returns that result in adjustments, resolution of uncertain tax positions and different treatments for certain items for tax versus books, such as the disposition of our Asia Pacific business in 2009 and the acquisition of our Asia Pacific business in 2015.books. We expect fluctuations in our income taxes from year to year and from quarter to quarter. Some of the fluctuations may be significant and have a material impact on our results of operations.
With respect to the COVID-19 outbreak specifically, we currently expect that our 2020 financial results will be negatively impacted. Additionally, we expect the COVID-19 outbreak will continue to negatively impact our business beyond the first half of 2020, but the extent and duration of such impact in the long term is largely uncertain as it is dependent on future developments that cannot be accurately predicted at this time, including but not limited to the severity and transmission rate of the virus, the extent and effectiveness of containment actions taken, including travel restrictions, and the impact of these and other factors on travel behavior. With the impact to revenues caused by COVID-19, spending in many areas within the business has been slowed or stopped, including but not limited to, marketing, technology and human resources.
The key elements of our growth strategy include building a travel and lifestyle brand with a large, high-quality user base and offering our users products that keep pace with consumer preference and technology, such as the trend toward mobile usage by consumers.consumers and toward fully refundable travel deals given the uncertainty of the COVID-19 pandemic. We expect to continue our efforts to grow; however, we may not grow or we may experience slower growth. Some examples of our efforts to expand our business internationally since our inception in the U.S. have been expansion to the U.K. in 2005, Canada in 2006, Germany in 2006, France in 2007, and Spain in 2008. In addition, from 2007 through 2009 we began operations in Asia Pacific, including in Australia, China, Hong Kong, Japan, and Southeast Asia. We also have launched new products to grow our revenue, such as Local Deals in 2010, Getaways in 2011, as well as our mobile application launches in 2011 and 2012. In late 2012, we bought an online hotel platform to assist in our development of a product to better serve hotels and to facilitate the development of our hotel platform. We have also increased our spending on addressing the shift of our audience to mobile devices and social media. In April 2018, the Company entered into an agreement with WeekenGO, a startup company in Germany. WeekenGO uses technology to promote vacation packages. Travelzoo invested $3.0 million in WeekenGO for a 25% ownership interest. In April 2019, the Company invested an additional $673,000 in WeekenGO and increased the Company's ownership interest to 26.6%. WeekenGO is in the process of obtaining additional capital funding. If WeekenGO is unsuccessful in this round of funding, it will face cash flow liquidity risk, and the Company’s investment in WeekenGO may become impaired. 
We believe that we can sell more advertising if the market for online advertising continues to grow and if we can maintain or increase our market share. We believe that the market for advertising continues to shift from offline to online. We do not know if we will be able to maintain or increase our market share. We do not know if we will be able to increase the number of our advertisers in the future. We do not know if we will have market acceptance of our new products or whether the market will continue to accept our existing products.

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Results of Operations
The following table sets forth, as a percentage of total revenues, the results from our operations for the periods indicated.
 
Three Months EndedSix Months Ended
 June 30,June 30,
 2020201920202019
Revenues100.0 %100.0 %100.0 %100.0 %
Cost of revenues30.6  10.0  17.7  9.9  
Gross profit69.4  90.0  82.3  90.1  
Operating expenses:
Sales and marketing61.2  49.3  63.6  47.8  
Product development8.1  6.6  7.3  6.1  
General and administrative94.8  18.5  44.5  16.9  
Impairment of intangible assets and goodwill—  —  10.7  
Total operating expenses164.1  74.4  126.1  70.8  
Operating income (loss)(94.7) 15.6  (43.8) 19.3  
Other income (expense), net(2.5) (0.1) (0.7) —  
Income (loss) from continuing operations before income taxes(97.2) 15.5  (44.5) 19.3  
Income tax expense (benefit)(18.7) 4.0  (6.7) 4.9  
Income (loss) from continuing operations(78.5) 11.5  (37.8) 14.4  
Income (loss) from discontinued operations, net of taxes(11.4) (6.5) (13.6) (6.4) 
Net income (loss)(89.9) 5.0  (51.4) 8.0  
Net income (loss) attributable to non-controlling interest(1.5) —  (4.6) —  
Net income (loss) attributable to Travelzoo(88.4)%5.0 %(46.8)%8.0 %
32
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2019 2018 2019 2018
Revenues100.0% 100.0% 100.0% 100.0%
Cost of revenues11.7
 11.8
 10.3
 11.1
Gross profit88.3
 88.2
 89.7
 88.9
Operating expenses:       
Sales and marketing55.8
 52.9
 53.5
 52.9
Product development5.8
 9.1
 5.9
 8.5
General and administrative22.0
 23.4
 20.2
 21.0
Total operating expenses83.6
 85.4
 79.6
 82.4
Income from operations4.7
 2.8
 10.1
 6.5
Other income (loss), net(0.5) (0.3) (0.4) 0.1
Income before income taxes4.2
 2.5
 9.7
 6.6
Income tax expense3.0
 2.0
 4.1
 2.9
Net income1.2% 0.5% 5.6% 3.7%



Operating Metrics
The following table sets forth selected operating metrics for Asia Pacific, Europe and North America:
 
Three Months Ended
 June 30,
 20202019
North America
Total members (1)16,755,000  17,561,000  
Average cost per acquisition of a new memberN/A$3.68  
Revenue per member (2)$2.00  $4.18  
Revenue per employee (3)$158,000  $403,000  
Mobile application downloads3,771,000  5,572,000  
Social media followers3,271,000  3,211,000  
Europe
Total members (1)9,043,000  9,082,000  
Average cost per acquisition of a new memberN/A$3.19  
Revenue per member (2)$1.92  $4.40  
Revenue per employee (3)$148,000  $245,000  
Mobile application downloads2,134,000  1,978,000  
Social media followers901,000  884,000  
Jack's Flight Club
Total members1,700,000  —  
Consolidated
Total members (1)30,981,000  30,154,000  
Average cost per acquisition of a new memberN/A$3.43  
Revenue per member (2)$1.74  $3.75  
Revenue per employee (3)$154,000  $330  
Mobile application downloads6,748,000  6,351,000  
Social media followers4,172,000  4,698,000  

(1)Members represent individuals who are signed up to receive one or more of our free email publications that present our travel, entertainment and local deals.
(2)Annualized revenue divided by number of members at the beginning of the year.
(3)Annualized revenue divided by number of employees at the end of the quarter.

33
 Three Months Ended
 September 30,
 2019 2018
Asia Pacific   
Total members (1)3,648,000
 3,638,000
Average cost per acquisition of a new member$3.87
 $2.09
Revenue per member (2)$1.81
 $2.24
Revenue per employee (3)$84,000
 $95,000
Mobile application downloads818,000
 765,000
Social media followers608,000
 594,000
Europe   
Total members (1)9,121,000
 8,758,000
Average cost per acquisition of a new member$2.19
 $2.15
Revenue per member (2)$4.22
 $4.25
Revenue per employee (3)$249,000
 $225,000
Mobile application downloads2,033,000
 1,825,000
Social media followers889,000
 883,000
North America   
Total members (1)17,630,000
 17,491,000
Average cost per acquisition of a new member$2.20
 $1.37
Revenue per member (2)$3.96
 $3.92
Revenue per employee (3)$368,000
 $318,000
Mobile application downloads3,636,000
 3,385,000
Social media followers3,232,000
 3,123,000
Consolidated   
Total members (1)30,273,000
 29,758,000
Average cost per acquisition of a new member$2.33
 $1.74
Revenue per member (2)$3.79
 $3.82
Revenue per employee (3)$272,000
 $241,000
Mobile application downloads6,487,000
 5,975,000
Social media followers4,729,000
 4,600,000


(1)Members represent individuals who are signed up to receive one or more of our free email publications that present our travel, entertainment and local deals.
(2)Annualized revenue divided by number of members at the beginning of the year.
(3)Annualized revenue divided by number of employees at the end of the quarter.



Revenues
The following table sets forth the breakdown of revenues (in thousands) by category and segment. Travel revenue includes travel publications (Top 20, WebsiteTravelzoo website, Newsflash, Newsflash, Travelzoo Network), Getaways vouchers, and hotel platform and vacation packages. Local revenue includes Local Deals vouchers and entertainment offers (vouchers and direct bookings).
Three Months EndedSix Months Ended
 June 30,June 30,
 2020201920202019
Travelzoo North America
Travel$3,910  $15,254  $15,066  $31,571  
Local292  2,670  1,833  4,940  
Total Travelzoo North America revenues4,202  17,924  16,899  36,511  
Travelzoo Europe
Travel1,756  7,565  7,993  17,077  
Local101  1,117  811  2,178  
Total Travelzoo Europe revenues1,857  8,682  8,804  19,255  
Jack’s Flight Club945  —  1,628  —  
Consolidated
Travelzoo Travel5,666  22,819  23,059  48,648  
Travelzoo Local393  3,787  2,644  7,118  
Jack’s Flight Club945  —  1,628  —  
Total revenues$7,004  $26,606  $27,331  $55,766  
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2019 2018 2019 2018
Asia Pacific       
Travel$1,619
 $1,851
 $4,751
 $5,682
Local54
 136
 167
 391
Total Asia Pacific revenues$1,673
 $1,987
 $4,918
 $6,073
Europe       
Travel$7,727
 $7,387
 $24,804
 $23,849
Local767
 991
 2,945
 3,309
Total Europe revenues$8,494
 $8,378
 $27,749
 $27,158
North America       
Travel$12,898
 $12,224
 $44,467
 $42,856
Local2,440
 2,712
 7,380
 8,173
Total North America revenues$15,338
 $14,936
 $51,847
 $51,029
Consolidated       
Travel$22,244
 $21,462
 $74,022
 $72,387
Local3,261
 3,839
 10,492
 11,873
Total revenues$25,505
 $25,301
 $84,514
 $84,260
North America
Asia Pacific
Asia PacificNorth America revenues decreased $314,000$13.7 million for the three months ended SeptemberJune 30, 20192020 from the three months ended SeptemberJune 30, 2018.2019. This decrease was primarily due to $11.3 million decrease in Travel revenues and $2.4 million decrease in Local revenues. Both Travel revenues and Local revenue have dropped significantly due to the global outbreak of COVID-19 during the three months ended June 30, 2020. The decrease in Travel revenue of $11.3 million was primarily due to $8.3 million decrease in the number of emails sent and $3.7 million decrease in our website advertisements, offset partially by $2.7 million increase in Getaways vouchers sold. The decrease in Local revenues of $2.4 million was primarily due to the decrease in number of Local Deals vouchers sold.
North America revenues decreased $19.6 million for the six months ended June 30, 2020 from the six months ended June 30, 2019. This decrease was primarily due to $16.5 million decrease in Travel revenues and $3.1 million decrease in Local revenues. The decrease in Travel revenue of $16.5 million was primarily due to $10.7 million decrease in the number of emails sent and $5.1 million decrease in our website advertisements, offset partially by $2.1 million increase in Getaways vouchers sold. The decrease in Local revenues of $3.1 million was primarily due to the decrease in number of Local Deals vouchers sold.
Europe
Europe revenues decreased $6.8 million for the three months ended June 30, 2020 from the three months ended June 30, 2019. The decrease was primarily due to a $180,000$5.8 million decrease in Travel revenue, a $76,000revenues and $1.0 million decrease in Local revenues and a $58,000$47,000 negative impact from foreign currency movements relative to the U.S. dollar. The decrease in Travel revenue of $180,000$5.8 million was primarily due to $3.7 million decrease in the decreased number of emails sent.sent and $1.7 million decrease in our website advertisements. The decrease in Local revenues of $76,000$1.0 million was primarily due to the decrease in number of Local Dealsvouchers sold.
Asia PacificEurope revenues decreased $1.2$10.5 million for the ninesix months ended SeptemberJune 30, 20192020 from the ninesix months ended SeptemberJune 30, 2018.2019. The decrease was primarily due to a $753,000$8.9 million decrease in Travel revenue, a $209,000revenues and $1.3 million decrease in Local revenues and a $194,000$161,000 negative impact from foreign currency movements relative to the U.S. dollar. The decrease in Travel revenue of $753,000$8.9 million was primarily due to $5.3 million decrease in the decreased number of emails sent.sent and $2.5 million decrease in our website advertisements. The decrease in Local revenues of $209,000$1.3 million was primarily due to the decrease in number of Local Dealsvouchers sold.
Europe
Europe revenues increased $116,000
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Jack’s Flight Club
Travelzoo acquired 60% of the Shares of Jack’s Flight Club on January 13, 2020. Jack’s Flight Club's premium members pay subscription fees quarterly, semi-annually or annually to receive emails or app notifications of flight deals. Jack’s Flight Club's revenue was $945,000 for the three months ended SeptemberJune 30, 2019 from the three months ended September 30, 2018. The increase was primarily due to a $715,000 increase in Travel revenues, offset partially by a $188,000 decrease in Local revenues2020 and a $411,000 negative impact from foreign currency movements relative to the U.S. dollar. The increase in Travel revenue of $715,000 was primarily due to the increased number of emails sent. The decrease in Local revenues of $188,000 was primarily due to the decreased number of Local Deals vouchers sold.
Europe revenues increased $591,000 for the nine months ended September 30, 2019 from the nine months ended September 30, 2018. The increase was primarily due to a $2.5 million increase in Travel revenues, offset partially by a $187,000 decrease in Local revenues and a $1.7 million negative impact from foreign currency movements relative to the U.S. dollar. The increase in Travel revenue of $2.5 million was primarily due to the increased number of emails sent. The decrease in Local revenues of $187,000 was primarily due to the decreased number of Local Deals vouchers sold.
North America


North America revenues increased $402,000 for the three months ended September 30, 2019 from the three months ended September 30, 2018. This increase was primarily due to a $674,000 increase in Travel revenues, offset partially by a $272,000 decrease in Local revenues. The increase in Travel revenue of $674,000 was primarily due to the increased number of emails sent. The decrease in Local revenues of $272,000 was primarily due to the decreased number of Local Deals vouchers sold.
North America revenues increased $818,000 for the nine months ended September 30, 2019 from the nine months ended September 30, 2018. This increase was primarily due to a $1.6 million increase in Travel revenues, offset partially by a $793,000 decrease in Local revenues. The increase in Travel revenue of $1.6 million was primarily due to increased number of emails sent. The decrease in Local revenues of $793,000 was primarily due to the decreased number of Local Deals vouchers sold.from January 13, 2020 through June 30, 2020.
For the three and nine months ended September 30, 2019 and 2018, none of our customers accounted for 10% or more of our revenue.
Cost of Revenues
Cost of revenues consists primarily of network expenses, including fees we pay for co-location services and depreciation and maintenance of network equipment, payments made to third-party partners of the Travelzoo Network, amortization of capitalized website development costs, credit card fees, certain estimated refunds to members and customer service costs associated with vouchers we sell and hotel bookings, and salary expenses associated with network operations and customer service staff. Cost of revenues was $3.0$2.1 million and $2.7 million for each of the three months ended SeptemberJune 30, 20192020 and September 30, 2018,2019, respectively. Cost of revenues was $8.7$4.8 million and $9.4$5.5 million for the ninefor the six months ended SeptemberJune 30, 2020 and 2019, and September 30, 2018, respectively.
Cost of revenue decreased slightly by $7,000 for the three months ended SeptemberJune 30, 20192020 included $101,000 from Jack’s Flight Club. Without Jack’s Flight Club, cost of revenue decreased by $632,000 for the three months ended June 30, 2020 from the three months ended SeptemberJune 30, 2018.2019. The decrease was primarily due to $528,000 decrease in expenses from third-party partners.
Cost of revenue decreased $705,000 for the ninesix months ended SeptemberJune 30, 20192020 included $198,000 from Jack’s Flight Club. Without Jack’s Flight Club, cost of revenue decreased by $891,000 for the six months ended June 30, 2020 from the ninesix months ended SeptemberJune 30, 20182019. The decrease was primarily due to a $647,000$705,000 decrease in customer service costs.expenses from third-party partners.
Operating Expenses
Sales and Marketing
Sales and marketing expenses consist primarily of advertising and promotional expenses, salary expenses associated with sales, marketing and production staff,employees, expenses related to our participation in industry conferences, public relations expenses and facilities costs. Sales and marketing expenses were $14.2$4.3 million and $13.4$13.1 million for the three months ended SeptemberJune 30, 20192020 and 2018,2019, respectively. Sales and marketing expenses were $45.2$17.4 million and $44.5$26.6 million for the ninesix months ended SeptemberJune 30, 20192020 and 2018,June 30, 2019, respectively. Advertising expenses consist primarily of online advertising referred to as traffic acquisition cost and member acquisition costs. We did not incur advertising expenses for the three months ended June 30, 2020. For the three months ended SeptemberJune 30, 2019, and 2018, advertising expenses accounted for 19% and 11%21% of the total sales and marketing expenses, respectively.expenses. For the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, advertising expenses accounted for 20%14% and 15%20% of the total sales and marketing expenses,expense, respectively. The goal of our advertising was to acquire new members to our email products, increase the traffic to our websites, increase brand awareness and increase our audience through mobile and social media channels.
Sales and marketing expenses increased $858,000 for the three months ended SeptemberJune 30, 20192020 included $62,000 from Jack’s Flight Club. Without Jack’s Flight Club, sales and marketing expenses decreased $8.9 million for the three months ended June 30, 2020 from the three months ended SeptemberJune 30, 20182019 primarily due to a $800,000 increase$4.3 million decrease for headcount related expenses and $2.5 million decrease in member acquisition costs.
Sales and marketing expenses increased $651,000 for the ninesix months ended SeptemberJune 30, 20192020 included $302,000 from Jack’s Flight Club. Without Jack’s Flight Club, sales and marketing expenses decreased $9.6 million for the six months ended June 30, 2020 from the ninesix months ended SeptemberJune 30, 20182019 primarily due to a $1.7$5.2 million increasedecrease for headcount related expenses and $3.2 million decrease in member acquisition costs, offset partially by a $780,000 decrease in facilities costs and a $378,000 decrease in salary, employee and contractor related expenses.costs.
Product Development
Product development expenses consist primarily of compensation for software development staff, fees for professional services, software maintenance and amortization, and facilities costs. Product development expenses were $1.5 million$566,000 and $2.3$1.8 million for the three months ended SeptemberJune 30, 20192020 and 2018,2019, respectively. Product development expenses were $5.0$2.0 million and $7.2$3.4 million for the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, respectively.

35


Product development expenses decreased $819,000$1.2 million for three months ended SeptemberJune 30, 20192020 from the three months ended SeptemberJune 30, 20182019 primarily due to the$525,000 decrease in salary and employeeheadcount related expenses as the result of aand $513,000 decrease in headcount.professional services fees.
Product development expenses decreased $2.2$1.4 million for ninesix months ended SeptemberJune 30, 20192020 from the ninesix months ended SeptemberJune 30, 20182019 primarily due to a $1.7 million$674,000 decrease in salaryprofessional services fees and employee related expenses as the result of a$511,000 decrease in headcount and a $301,000 decrease in professional servicerelated expenses.
General and Administrative
General and administrative expenses consist primarily of compensation for administrative and executive staff, bad debt expense, amortization of intangible assets, general office expense and facilities costs. General and administrative expenses were $5.6$6.6 million and $5.9$4.9 million for the three months ended SeptemberJune 30, 20192020 and 2018,2019, respectively. General and administrative expenses were $17.0$12.2 million and $17.7$9.4 million for the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, respectively.
General and administrative expenses decreased $328,000 for the three months ended SeptemberJune 30, 20192020 included $1.0 million from Jack’s Flight Club. Without Jack’s Flight Club, general and administrative expenses increased $698,000 for the three months ended June 30, 2020 from the three months ended SeptemberJune 30, 20182019. The increase was primarily due to a $381,000$3.7 million increase in stock-based compensation expense as the result of the shareholder's approval in May 2020 of newly granted options and increases and repricing of certain previously granted options, offset by $1.5 million gain relating to Jack Flight Club's promissory note forgiveness, $1.1 million decrease in professional serviceheadcount related expenses and $502,000 decrease in office expenses.
General and administrative expenses decreased $638,000 for the ninesix months ended SeptemberJune 30, 20192020 included $1.4 million from Jack’s Flight Club. Without Jack’s Flight Club, general and administrative expenses increased $1.3 million for the six months ended June 30, 2020 from the ninesix months ended SeptemberJune 30, 20182019. The increase was primarily due to a $790,000$3.6 million increase in stock-based compensation expense as the result of the shareholder's approval in May 2020 of newly granted options and increases and repricing of certain previously granted options and $1.2 million increase in the bad debt expenses in consideration of the potential impacts of COVID-19 to our business, offset by $1.5 million gain relating to Jack Flight Club's promissory note forgiveness, $1.1 million decrease in professional serviceheadcount related expenses and $502,000 decrease in office expenses.
Income Taxes
Our income is generally taxed in the U.S., Canada and U.K. Our income tax provision reflects federal, state and country statutory rates applicable to our worldwide income, adjusted to take into account expenseslosses that are treated as having no recognizable tax benefit. Income tax expensebenefit was $770,000$1.3 million and $505,000$1.8 million for the three and six months ended SeptemberJune 30, 2019 and 2018,2020, respectively. Our effective tax rate was 72%19% and 81%15% for the three and six months ended SeptemberJune 30, 2019 and 2018,2020, respectively. Income tax expense was $3.5$1.1 million and $2.5$2.7 million for the ninethree and six months ended SeptemberJune 30, 2019, and 2018, respectively. Our effective tax rate was 42%26% and 44%25% for the ninethree and six months ended SeptemberJune 30, 2019, and 2018, respectively.
Our effective tax rate decreased for the three and ninesix months ended SeptemberJune 30, 20192020 from the three and ninesix months ended SeptemberJune 30, 20182019 primarily due to operating losses in 2020 as a result of the change of geographic mix of our worldwide taxable income and foreign losses not benefited.COVID-19 pandemic. We expect our effective tax rate to fluctuate in future periods depending on the geographic mix of our worldwide income or losses mainly incurred by our operations, in Asia Pacific, statutory tax rate changes that may occur, existing or new uncertain tax matters that may arise and require changes in tax reserves, the use of accumulated losses to offset current taxable income in Asia Pacific and the need for valuation allowances on certain tax assets, if any. See "Note 4:“Note 5: Income Taxes"Taxes” to the accompanying unaudited condensed consolidated financial statements for further information.
Segment InformationNorth America
Asia Pacific  
 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
 (In thousands)(In thousands)
Revenue$4,202  $17,924  $16,899  $36,511  
Operating profit (loss)$(4,702) $3,590  $(5,678) $8,053  
Operating profit (loss) as a % of revenue(111.9)%20.0 %(33.6)%22.1 %
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
 (In thousands) (In thousands)
Revenue$1,673
 $1,987
 $4,918
 $6,073
Operating loss$(2,051) $(1,600) $(5,469) $(4,812)
Operating loss as a % of revenue(122.6)% (80.5)% (111.2)% (79.2)%
Asia PacificNorth America revenues decreased $314,000by $13.7 million for the three months ended SeptemberJune 30, 20192020 from the three months ended SeptemberJune 30, 20182019 (see “Revenues” above). Asia PacificNorth America expenses increased $137,000decreased by $5.4 million for the three months ended SeptemberJune 30, 20192020 from the three months ended SeptemberJune 30, 2018. This increase was primarily due to a $309,000 one-time consulting fee for developing Asia Pacific's operating strategy, offset partially by a $157,000 decrease in salary and employee related expenses.
Asia Pacific revenues decreased $1.2 million for the nine months ended September 30, 2019 from the nine months ended September 30, 2018 (see “Revenues” above). Asia Pacific expenses decreased $498,000 for the nine months ended September 30, 2019 from the nine months ended September 30, 2018. This2019. The decrease was primarily due to a $799,000$4.1 million decrease in expenses

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in salary and employeefor headcount related expenses, $1.5 million gain relating to Jack Flight Club's promissory note forgiveness and $1.4 million decrease in member acquisition costs, offset partially by a $309,000 one-time consulting fee$3.7 million increase in stock-based compensation expense as the result of the shareholder's approval in May 2020 of newly granted options and increases and repricing of certain previously granted options.
North America revenues decreased by $19.6 million for developing Asia Pacific's operating strategy.the six months ended June 30, 2020 from the six months ended June 30, 2019 (see “Revenues” above). North America expenses decreased by $5.9 for the six months ended June 30, 2020 from the six months ended June 30, 2019. The decrease was primarily due to $4.5 million decrease in headcount related expenses, $1.5 million gain in relates to Jack Flight Club's promissory note forgiveness and $1.5 million decrease in member acquisition costs, offset partially by $3.6 million increase in stock-based compensation expense as the result of the shareholder's approval in May 2020 of newly granted options and increases and repricing of certain previously granted options.
Europe
 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
 (In thousands)(In thousands)
Revenue$1,857  $8,682  $8,804  $19,255  
Operating profit (loss)$(1,683) $584  $(3,024) $2,721  
Operating profit (loss) as a % of revenue(90.6)%6.7 %(34.3)%14.1 %
Europe revenues decreased by $6.8 million for the three months ended June 30, 2020 from the three months ended June 30, 2019 (see “Revenues” above). Europe expenses decreased by $4.6 million for the three months ended June 30, 2020 from the three months ended June 30, 2019. The decrease was primarily due to $2.2 million decrease in headcount related expenses and $1.1 million decrease in member acquisition costs.
Europe revenues decreased by $10.5 million for the six months ended June 30, 2020 from the six months ended June 30, 2019 (see “Revenues” above). Europe expenses decreased by $4.7 million for the six months ended June 30, 2020 from the six months ended June 30, 2019. The decrease was primarily due to $2.2 million decrease in headcount related expenses and $1.6 million decrease in member acquisition costs.
Foreign currency movements relative to the U.S. dollar positively impacted our loss from our operations in Asia Pacific by approximately $30,000 and $289,000 for the three and nine months ended September 30, 2019, respectively. Foreign currency movements relative to the U.S. dollar positively impacted our loss from our operations in Asia Pacific by approximately $44,000 for the three months ended September 30, 2018. Foreign currency movements relative to the U.S. dollar negatively impacted our loss from our operations in Asia Pacific by approximately $42,000 for the nine months ended September 30, 2018.
Europe
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
 (In thousands) (In thousands)
Revenue$8,494
 $8,378
 $27,749
 $27,158
Operating profit$815
 $940
 $3,536
 $3,347
Operating profit as a % of revenue9.6% 11.2% 12.7% 12.3%
Europe revenues increased $116,000 for the three months ended September 30, 2019 from the three months ended September 30, 2018 (see “Revenues” above). Europe expenses increased by $241,000 for the three months ended September 30, 2019 from the three months ended September 30, 2018 primarily due to a $359,000 increase in trade and brand marketing expenses and a $245,000 increase in member acquisition costs, offset partially by a $288,000 decrease in salary and employee related expenses.
Europe revenues increased $591,000 for the nine months ended September 30, 2019 from the nine months ended September 30, 2018 (see “Revenues” above). Europe expenses increased $402,000 for the nine months ended September 30, 2019 from the nine months ended September 30, 2018 primarily due to a $703,000 increase in member acquisition costs and a $422,000 increase in trade and brand marketing expenses, offset partially by a $603,000 decrease in salary and employee related expenses.
Foreign currency movements relative to the U.S. dollar negatively impacted our local currency income from our operations in Europe by approximately $46,000$49,000 and $218,000$79,000 for the three and ninesix months ended months ended SeptemberJune 30, 2019,2020, respectively. Foreign currency movements relative to the U.S. dollar negatively impacted our local currency income from our operations in Europe by approximately $4,000$28,000 for the three months ended SeptemberJune 30, 2018.2019. Foreign currency movements relative to the U.S. dollar positively impacted our local currency income from our operations in Europe by approximately $189,000$16,000 for the ninesix months ended SeptemberJune 30, 20182019.
North America
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
 (In thousands)    
Revenue$15,338
 $14,936
 $51,847
 $51,029
Operating profit$2,450
 $1,374
 $10,542
 $6,914
Operating profit as a % of revenue16.0% 9.2% 20.3% 13.5%
North America revenues increased $402,000 for the three months ended September 30, 2019 from the three months ended September 30, 2018 (see “Revenues” above). North America expenses decreased $674,000 for the three months ended September 30, 2019 from the three months ended September 30, 2018 primarily due to a $341,000 decrease in professional service expenses, a $339,000 decrease in rent expenses and a $277,000 decrease in salary and employee related expenses, offset partially by a $429,000 increase in member acquisition costs.
North America revenues increased $818,000 for the nine months ended September 30, 2019 from the nine months ended September 30, 2018 (see “Revenues” above). North America expenses decreased $2.8 million for the nine months ended September 30, 2019 from the nine months ended September 30, 2018 primarily due to a $1.7 million decrease in salary and


employee related expenses, a $1.0 million decrease in professional service expenses, a $628,000 decrease in trade and brand marketing expenses, a $400,000 decrease in rent expenses, offset partially by a $989,000 increase in member acquisition costs.
Liquidity and Capital Resources
As of SeptemberJune 30, 2019,2020, we had $11.6$25.6 million in cash and cash equivalents, of which $8.7$13.4 million was held outside the U.S. in certain of our foreign operations. If these assets arethis cash is distributed to the U.S., we may be subject to additional U.S. taxes in certain circumstances. Cash and cash equivalents decreasedincreased from $18.0$18.7 million as of December 31, 20182019 primarily by cash used for repurchases of our common stock, offset partially by cash provided by operating activities. Weactivities, offset by cash used to purchase Jack’s Flight Club. As of June 30, 2020, we had promissory notes payable to the sellers of Jack’s Flight Club aggregating $1.7 million which are due in June 2021, as well as PPP loans aggregating $3.6 million due in April 2022. As of June 30, 2020, we had negative working capital of $14.8 million primarily due to an increase in accounts payable related to merchants from the sale of vouchers. The payable to merchants is generally due upon redemption of the voucher. The vouchers have maturities that extend into 2021 and 2022 and we believe that redemption patterns may be delayed under the current environment. Based on the current projections of redemption activity, we expect that cash on hand as of June 30, 2020 will be sufficient to provide for working capital needs for at least the next twelve monthsmonths. However, if redemption activity is more accelerated, or if we are not able to reduce operating losses, we may need to obtain additional financing to meet our working capital needs in the future. We believe that we could obtain additional financing if needed, but there can be no assurance that financing will be available on terms that are acceptable to us, if at all.

The following table provides a summary of our cash flows from operating, investing and financing activities:
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Nine Months Ended September 30, Six Months Ended June 30,
2019 2018 20202019
(In thousands) (In thousands)
Net cash provided by operating activities$1,926
 $36
Net cash provided by operating activities$13,423  $1,600  
Net cash used in investing activities(1,023) (3,599)Net cash used in investing activities(1,312) (874) 
Net cash used in financing activities(7,056) (2,873)Net cash used in financing activities(5,342) (4,748) 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(395) (333)Effect of exchange rate changes on cash, cash equivalents and restricted cash(511) 5  
Net decrease in cash, cash equivalents and restricted cash$(6,548) $(6,769)
Net increase (decrease) in cash, cash equivalents and restricted cashNet increase (decrease) in cash, cash equivalents and restricted cash$6,258  $(4,017) 
Net cash provided by operating activities is net income (loss) adjusted for certain non-cash items and changes in assets and liabilities. Net cash provided by operating activities for the ninesix months ended SeptemberJune 30, 2020 was $13.4 million, which consisted of $19.8 million increase in cash from changes in operating assets and liabilities and $7.7 million non-cash items, offset partially by net loss of $14.0 million. The increase in cash from changes in operating assets and liabilities primarily consisted of the $10.3 million increase in accounts payable and $6.2 million decrease in accounts receivable. Adjustments for non-cash items primarily was consisted of $4.1 million stock-based compensation, $2.9 million impairment of goodwill and intangible assets and a $2.4 million of provision of loss on accounts receivable and other, offset partially by $1.5 million gain relating to Jack Flight Club's Promissory notes forgiveness.

Net cash provided by operating activities for the six months ended June 30, 2019 was $1.9$1.6 million, which consisted of net income of $4.8$4.4 million and adjustments for non-cash items of $3.1$1.9 million, offset by a $5.9$4.7 million decrease in cash from changes in operating assets and liabilities. The decrease in cash from changes in operating assets and liabilities primarily consisted of $2.8 million increase in accounts receivable and the $4.4$1.5 million net decrease in accounts payable and accrued expenses.expenses and other.
Net cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities. Net cash provided by operating activities for the nine months ended September 30, 2018 was $36,000, which consisted of net income of $3.1 million and adjustments for non-cash items of $2.0 million, offset by a $5.1 million decrease in cash from changes in operating assets and liabilities. Adjustments for non-cash items primarily consisted of $1.4 million depreciation and amortization expense and $763,000 of stock-based compensation expense. The decrease in cash from changes in operating assets and liabilities primarily consisted of $3.6 million decrease in accounts payable and $1.1 million increase in accounts receivable.


Cash paid for income tax, net of refunds received, during the ninesix months ended SeptemberJune 30, 2020 and 2019 was $482,000 and September 30, 2018 was $3.8 million and $3.0$2.9 million, respectively.
Net cash used in investing activities for the ninesix months ended SeptemberJune 30, 2020 and 2019 and September 30, 2018 was $1.0$1.3 million and $3.6 million,$874,000, respectively. The cash used in investing activities for the ninesix months ended SeptemberJune 30, 20192020 was primarily due to $673,000the $1.0 million investment in WeekenGOJack’s Flight Club acquisition less acquired cash of $321,000, $430,000 other investments and $350,000$203,000 in purchases of property and equipment. The cash used in investing activities for the ninesix months ended SeptemberJune 30, 20182019 was primarily due to $3.1 million$673,000 investment in WeekenGOWeGo and $666,000$201,000 in purchases of property and equipment, offset partially by $150,000 proceeds from sale of property and equipment.
Net cash used in financing activities for the ninesix months ended SeptemberJune 30, 2020 and 2019 was $5.3 million and $4.7 million, respectively. The cash used in financing activities for the six months ended June 30, 2020 was primarily due to the $7.8 million promissory note payment for Jack’s Flight Club stock purchase and $1.2 million payment to repurchase common stock, offset partially by $3.7 million proceeds from PPP loans. Net cash used in financing activities for the six months ended June 30, 2019 was $7.1$4.7 million primarily due to a $8.8$6.5 million payment for repurchase common stock, offset partially by proceeds from the issuance of common stock, net of tax paid for the net share settlement, of $1.7 million. Net cash used in financing activities for the nine months ended September 30, 2018 was due to repurchases of our common stock.
Although we have settled the states unclaimed property claims with all states, we may still receive inquiries from certain potential Netsurfers promotional stockholdersshareholders that had not provided their state of residence to us by April 25, 2004. Therefore, we are continuing our voluntary program under which we make cash payments to individuals related to the promotional shares for individuals whose residence was unknown by us and who establish that they satisfied the conditions to receive shares of Netsurfers, and who failed to submit requests to convert their shares into shares of Travelzoo within the required time period. This voluntary program is not available for individuals whose promotional shares have been escheated to a state by us.


Our capital requirements depend on a number of factors, including market acceptance of our products and services, the amount of our resources we devote to the development of new products, cash payments related to former stockholdersshareholders of Netsurfers, expansion of our operations, and the amount of resources we devote to promoting awareness of the Travelzoo brand. Since the inception of the voluntary program under which we make cash payments to people who establish that they were former stockholdersshareholders of Netsurfers, and who failed to submit requests to convert their shares into shares of Travelzoo within the required time period, we have incurred expenses of $2.9 million. While future payments for this program are expected to decrease, the total cost of this voluntary program is still undeterminable because it is dependent on our stock price and on the number of valid requests ultimately received.
Consistent with our growth, we have experienced fluctuations in our cost of revenues, sales and marketing expenses and our general and administrative expenses, including increases in product development costs, and we anticipate that these increases will continue for the foreseeable future. We believe cash on hand will be sufficient to pay such costs for at least the
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next twelve months. In addition, we will continue to evaluate possible investments in businesses, products and technologies, the consummation of any of which would increase our capital requirements.
We are subject to risks and uncertainties as a result of the COVID-19 pandemic. Since COVID-19 has spread globally, many of our advertisers have paused, canceled, and stopped advertising with us. Additionally, there have been a large amount of cancellations for our hotel and travel package partners as well as refund requests for our vouchers with the Company’s restaurant and spa partners. We are taking steps to adopt new policies and reduce expenses in an effort to maintain our cash position, while we evaluate potential business options and strategic alternatives that may be available.
Although we currently believe that we have sufficient capital resources to meet our anticipated working capital and capital expenditure requirements for at least the next twelve months, unanticipated events and opportunities or a less favorable than expected development of our business with one or more of our advertising formats may require us to sell additional equity or debt securities or establish new credit facilities to raise capital in order to meet our capital requirements.
If we sell additional equity or convertible debt securities, the sale could dilute the ownership of our existing stockholders.shareholders. If we issue debt securities or establish a new credit facility, our fixed obligations could increase, and we may be required to agree to operating covenants that would restrict our operations. We cannot be sure that any such financing will be available in amounts or on terms acceptable to us.
If the development of our business is less favorable than expected, we may decide to significantly reduce the size of our operations and marketing expenses in certain markets with the objective of reducing cash outflow.
The information set forth under "Note 3:“Note 4: Commitments and Contingencies"Contingencies” and "Note 9: Leases"“Note 11: Leases” to the accompanying unaudited condensed consolidated financial statements included in Part I, Item 1 of this report is incorporated herein by reference. Litigation and claims against the Company may result in legal defense costs, settlements or judgments that could have a material impact on our financial condition.


We also have contingencies related to net unrecognized tax benefits, including interest, of approximately $349,000$374,000 as of SeptemberJune 30, 2019.2020. See "Note 4:“Note 5: Income Taxes"Taxes” to the accompanying unaudited condensed consolidated financial statements for further information.
Critical Accounting Policies and Estimates
Critical accounting policies and estimates are those that we believe are important in the preparation of our consolidated financial statements because they require that we use judgment and estimates in applying those policies. Preparation of the consolidated financial statements and accompanying notes requires that we make estimates and assumptions that affect the reported amounts and classifications of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements as well as revenue and expenses during the periods reported. We base our estimates on historical experience, where applicable, and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions. Our critical accounting policies include revenue recognition, reserve for member refunds, allowance for doubtful accounts, income taxes and loss contingencies. For additional information about our critical accounting policies and estimates, see the disclosure included in our Annual Report on Form 10-K for the year ended December 31, 20182019 as well as updates in the current fiscal year provided in “Note 1 Summary of Significant Accounting Policies” in the notes to the condensed consolidated financial statements.
Recent Accounting Pronouncements
See "Note“Note 1—The Company and Basis of Presentation"Presentation” to the accompanying unaudited condensed consolidated financial statements included in this report, regarding the impact of certain recent accounting pronouncements on our unaudited condensed consolidated financial statements.


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Item 3.  Quantitative and Qualitative Disclosures About Market Risk
We believe that our potential exposure to changes in market interest rates is not material. The Company is not a party to any derivative transactions. We invest in highly liquid investments with short maturities. Accordingly, we do not expect any material loss from these investments.
Our operations in Canada expose us to foreign currency risk associated with agreements being denominated in Canadian dollars. Our operations in Europe expose us to foreign currency risk associated with agreements being denominated in British Pound Sterling and Euros. Our discontinued operations in Asia Pacific expose us to foreign currency risk associated with agreements being denominated in Australian dollars, Chinese Yuan, Hong Kong dollar, Japanese Yen and Taiwanese Dollar. We are exposed to foreign currency risk associated with fluctuations of these currencies as the financial position and operating results of our operations in Asia Pacific, Canada and Europe are translated into U.S. dollars for consolidation purposes. We do not use derivative instruments to hedge these exposures. We are a net receiver of U.S. dollars from our foreign subsidiaries and therefore benefit from a weaker U.S. dollar and are adversely affected by a stronger U.S. dollar relative to the foreign currency used by the foreign subsidiary as its functional currency. We have performed a sensitivity analysis as of SeptemberJune 30, 2019,2020, using a modeling technique that measures the change in the fair values arising from a hypothetical 10% adverse movement in the levels of foreign currency exchange rates relative to the U.S. dollar with all other variables held constant. The foreign currency exchange rates we used were based on market rates in effect at SeptemberJune 30, 2019.2020. The sensitivity analysis indicated that a hypothetical 10% adverse movement in foreign currency exchange rates would result in an incremental $58,000 foreign$423,000 foreign exchange loss for the ninesix months ended SeptemberJune 30, 2019.

2020.

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Item 4.  Controls and Procedures
Based on management’s evaluation (with the participation of the Company’s Global Chief Executive Officer (CEO) and Chief Accounting Officer (CAO)), as of SeptemberJune 30, 2019,2020, our CEO and CAO have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in U.S. SEC rules and forms, and that such information is accumulated and communicated to management, including our CEO and CAO, as appropriate, to allow timely decisions regarding required disclosure.
During the quarter ended SeptemberJune 30, 2019,2020, there were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.








41

PART II—OTHER INFORMATION
Item 1.  Legal Proceedings
The information set forth under “Note 3—Commitments and Contingencies” to the accompanying unaudited condensed consolidated financial statements included in Part I, Item 1 of this report is incorporated herein by reference.

Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018,2019 and in our Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2020, which could materially affect our business, financial position, or results of operations. These are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial position, or results of operations.
Our business could be negatively affected by changes in search engine algorithms and dynamics or other traffic-generating arrangements.
We utilize Internet search engines such as Google, principally through the purchase of travel-related keywords, to generate additional traffic to our websites. The number of users we attract from search engines to our websites is due in large part to how and where information from, and links to, our websites are displayed on search engine results pages. The display, including rankings, of unpaid search results can be affected by a number of factors, many of which are not in our control and may change frequently. Search engines, including Google, frequently update and change the logic that determines the placement and display of results of a user’s search, such that the purchased or algorithmic placement of links to our websites can be negatively affected. In addition, a significant amount of traffic is directed to our websites through our participation in pay-per-click and display advertising campaigns on search engines, including Google, travel metasearch engines, including Kayak, and Internet media properties, including TripAdvisor. Pricing and operating dynamics for these traffic sources can experience rapid change, both technically and competitively. Moreover, a search or metasearch engine could, for competitive or other purposes, alter its search algorithms or results causing a website to place lower in search query results. In June 2017 and March 2019, the European Commission fined Google 2.4 billion Euros and 1.5 billion Euros, respectively, for anti-competitive behavior relating to its comparison-shopping service and online search advertising services. If a major search engine, such as Google, changes its algorithms or results, whether as a result of a court order, investigation or other reason, in a manner that negatively affects the search engine ranking, paid or unpaid, of our websites or that of our third-party distribution partners, or if competitive dynamics impact the costs or effectiveness of search engine optimization, search engine marketing or other traffic-generating arrangements in a negative manner, our business and financial performance would be adversely affected, potentially to a material extent.
Additionally, an area of increased scrutiny, particularly in Europe, involves contractual search term bidding restrictions where one contracting party agrees not to bid on certain key search terms related to the other party (e.g., such other party’s name). In some of our contracts we or the other party have agreed to bidding restrictions. If bidding restrictions are held to be illegal or otherwise unenforceable, our performance marketing costs may increase if bidding on affected key words (especially those related to us) becomes more expensive, which could adversely affect our performance marketing efficiency and results of operations.
Changes to our technology and user interfaces for our website and mobile applications used to present our deals could adversely affect our revenue and business.
Our business depends on website and mobile technology interfaces in order to present deals to our members and generate revenue from our advertisers. Changes to our website and mobile technology and user interface intended to enhance the user experience may have an adverse impact on our member activity and may reduce revenue from advertisers. For example, in October 2016, we launched our fully responsive website that adjusts to different screen sizes and allows our members to more readily search our deals, which we believe has improved the user experience on our site. However, additional changes to the website, mobile application and/or the general user experience may lead to unforeseen issues that could adversely affect our revenue and business.
“Cookie” laws could negatively impact the way we do business.
A "cookie" is a text file that is stored on a user's computer or mobile device. Cookies are common tools used by thousands of websites and mobile apps to, among other things, store or gather information (e.g., remember log-on details so a user does not have to re-enter them when revisiting a website or opening an app), market to consumers and enhance the user experience. Cookies are valuable tools to improve the customer experience and increase conversion. Many jurisdictions,


including the European Union and more recently, California, have adopted regulations governing the use of "cookies." To the extent any such regulations require "opt-in" consent before certain cookies can be placed on a user's computer or mobile device, our ability to serve certain customers in the manner we currently do might be adversely affected and our ability to continue to improve and optimize performance on our website might be impaired, either of which could negatively affect a consumer's experience using our services and our business, market share and results of operations.
Our business may be sensitive to events affecting the travel industry in general.
Events like Middle East conflicts, terrorist attacks, mass shooting incidents and natural disasters, such as hurricanes, earthquakes, fires, droughts, floods and volcanic activity, have a negative impact on the travel industry and affect travelers’ behavior by limiting their ability or willingness to visit certain locations. In addition, advertisers may choose to limit advertising spend on certain destinations given the recent terror attacks and natural disasters, which can adversely impact our business. We are not in a position to evaluate the net effect of these circumstances on our business; however, we believe there has been negative impact to our business by such events. Furthermore, in the longer term, our business might be negatively affected by financial pressures on or changes to the travel industry. For example, certain jurisdictions, particularly in Europe, are considering regulations intended to address the issue of "overtourism" including by restricting access to city centers or popular tourist destinations or limiting accommodation offerings in surrounding areas, such as by restricting construction of new hotels or the renting of homes or apartments. Such regulations could adversely affect travel to, or our ability to offer accommodations in, such markets, which could negatively impact our business, growth and results of operations. The United States has implemented or proposed, or is considering, various travel restrictions and actions that could affect U.S. trade policy or practices, which could also adversely affect travel to or from the United States. If such events result in a long-term negative impact on the travel industry, such impact could have a material adverse effect on our business.
In addition, the United Kingdom’s withdrawal the European Union, including uncertainty or delays in the implementation of Brexit, could continue to lead to economic uncertainty and have a negative impact on the travel industry and our European business. The United Kingdom could lose access to the single European Union market, travel between the United Kingdom and European Union countries could be restricted, and we could face new regulatory costs and challenges, the scope of which are presently unknown.
Intense competition may adversely affect our ability to achieve or maintain market share and operate profitably.
The markets for the services we offer are intensely competitive, constantly evolving and subject to rapid change, and current and new competitors can launch new services at a relatively low cost. We compete for advertising dollars with large Internet portal sites, such as Trip Advisor, that offer listings or other advertising opportunities to travel, entertainment and local businesses. These companies have significantly greater financial, technical, marketing and other resources and larger advertiser bases. We compete with search engines like Google that offer pay-per-click listings. Additionally, certain search engines have increased their focus on acquiring or launching travel products. For example, Google has continued to add features and functionality to its flight and hotel metasearch products (“Google Flights” and “Hotel Ads”), which have grown and are continuing to grow rapidly and has also further integrated its “Book on Google” reservation functionality into the Hotel Ads product. We compete with travel metasearch engines like Kayak.com (owned by Booking Holdings) and online travel and entertainment deal publishers (including online restaurant reservation services). We compete with large online travel agencies like the Expedia Group and Booking Holdings, as well as thousands of individual travel agencies around the world, that also offer advertising placements and hotel booking platforms and capture consumer interest. As a result of our acquisition of Travelzoo Asia Pacific, we compete or may compete in the future with large online travel service providers, like Ctrip (which owns Trip.com) and eLong. There has been substantial consolidation of the global travel industry and we believe this trend will continue. Some of our competitors are large companies that have significant resources and substantial international operations. These large companies have completed acquisitions to further consolidate the online travel industry. For example, Ctrip acquired Skyscanner and Priceline (now Booking Holdings) acquired Momondo. The Expedia Group is comprised of Travelocity, Orbitz, Hotels.com, Hotwire, Trivago, and HomeAway, among others. Booking Holdings owns Booking.com, Priceline.com, Agoda.com, Kayak.com, Cheapflights, Rentalcars.com, Momondo, and OpenTable, among others. The continued consolidation of the global travel market may impact our ability to compete in certain areas.
There has also been a proliferation of new channels and platforms through which accommodation providers can offer reservations.  For example, companies such as Airbnb (which recently acquired HotelTonight),HomeAway and VRBO (which are both owned by Expedia Group) offer services providing alternative accommodation property owners, particularly individuals, an online place to list their alternative accommodations where travelers can search and book such properties and compete with our hotel booking platform and hotel offers. Further, meta-search services may lower the cost for new companies to enter the market by providing a distribution channel without the cost of promoting the new entrant's brand to drive consumers directly to its website. Some of our competitors and potential competitors offer a variety of online services, such as food delivery, shopping, gaming or search services, many of which are used by consumers more frequently than online travel


services. As a result, a competitor or potential competitor that has established other, more frequent online interactions with consumers may be able to more easily or cost-effectively acquire customers for its online travel services than we can. For example, some competitors or potential competitors with more frequent online interactions with consumers are seeking to create "super-apps" where consumers can use many online services without leaving that company's app, in particular in markets such as Asia where online activity (including e-commerce) is conducted primarily through apps on mobile devices. If any of these platforms are successful in offering services similar to ours to consumers who would otherwise use our platforms or if we are unable to offer our services to consumers within these super-apps, our customer acquisition efforts could be less effective and our customer acquisition costs, including our brand and performance marketing expenses, could increase, either of which would harm our business and results of operations.
We also compete with companies like Groupon that sell vouchers for deals from local businesses such as spas, hotels and restaurants, as well as sell deals from tour operators for vacation packages. We expect to face increased competition from other Internet and technology-based businesses such as Google. To the extent that Google, or other leading search or metasearch engines that have a significant presence in our key markets, offer comprehensive travel planning or shopping capabilities, or refer those leads to suppliers directly, or to other favored partners, there could be an adverse impact on our business and financial performance. We also have seen that some competitors will accept lower margins, or negative margins, to attract attention and acquire new members. If competitors engage in group buying initiatives in which merchants receive a higher percentage of the face value than we currently offer, we may be forced to pay a higher percentage of the face value than we currently offer, which may reduce our revenue. In addition, we compete with newspapers, magazines and other traditional media companies that operate websites which provide online advertising opportunities. We expect to face additional competition as other established and emerging companies, including print media companies, enter the online advertising market. Competition could result in reduced margins on our services, loss of market share or less use of Travelzoo by advertisers and consumers. If we are not able to compete effectively with current or future competitors as a result of these and other factors, our business could be materially adversely affected.
Technological or other assaults on our service could harm our business.
We are vulnerable to coordinated attempts to overload our systems with data, whether by bots or otherwise, which could result in denial or reduction of service to some or all of our users for a period of time. We have experienced denial of service attacks in the past, and may experience such attempts in the future. Any such event could reduce our revenue and harm our operating results and financial condition. We do not carry business interruption insurance to compensate us for losses that may occur as a result of any of these events. In addition, such incidents may also result in a decline in our active user base or engagement levels.
We are subject to laws and regulations worldwide, changes to which could increase the Company’s costs and individually or in the aggregate adversely affect the Company’s business.
The Company is subject to laws and regulations affecting its domestic and international operations in a number of areas. These U.S. and foreign laws and regulations affect the Company’s activities including, but not limited to, in areas of employment related laws and regulations, advertising, digital content, consumer protection, real estate, billing, e-commerce, promotions, intellectual property ownership and infringement, tax, anti-corruption, foreign exchange controls and cash repatriation restrictions, data privacy requirements, anti-competition, health and safety, and vacation packaging.
Compliance with these laws, regulations and similar requirements may be onerous and expensive, and they may be inconsistent from jurisdiction to jurisdiction, further increasing the cost of compliance and doing business. Any such costs, which may rise in the future as a result of changes in these laws and regulations or in their interpretation, could individually or in the aggregate make the Company’s services less attractive to the Company’s customers, delay the introduction of new products in one or more regions, or cause the Company to change or limit its business practices or incur more costs to comply or defend itself. The Company has implemented policies and procedures designed to ensure compliance with applicable laws and regulations, but there can be no assurance that the Company’s employees, contractors, partners, or agents will not violate such laws and regulations or the Company’s policies and procedures.
Item  2:Unregistered Sales of Equity Securities and Use of Proceeds
Item  2:Unregistered Sales of Equity Securities and Use of Proceeds
Repurchases of Equity Securities
We repurchased 186,369 shares ofdid not purchase our equity securities during the three months ended SeptemberJune 30, 2019.
PeriodTotal Number of
Shares
Repurchased		 Average Price
Paid
per Share		 Total Number of
Shares
Repurchased
as Part of
Publicly
Announced
Programs		 Maximum Shares
that May Yet
be Repurchased Under
the Programs
July 1, 2019–July 31, 201972,673
 $12.73
 72,673
 677,327
August 1, 2019–August 31, 201956,955
 $12.15
 56,955
 620,372
September 1, 2019–September 30, 201956,741
 $12.18
 56,741
 563,631
 186,369
   186,369
  
        
2020. In May 2019, the Company announced a stock repurchase program authorizing the repurchase of up to 1,000,000 shares of the Company’s outstanding common stock. The Company purchased 436,369 shares in 2019. During the threesix months ended SeptemberJune 30, 2019,2020, the Company repurchased 186,369168,602 shares of common stock and therefore there were 563,631395,029 shares remaining to be repurchased under this program as of SeptemberJune 30, 2019.

2020.

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Item 6.  Exhibits
The following table sets forth a list of exhibits:
 
Exhibit
Number
Description
—  Certificate of Incorporation of Travelzoo (Incorporated by reference to our Pre-Effective Amendment No. 6 to our Registration Statement on Form S-4 (File No. 333-55026), filed February 14, 2002)
—  Certificate of Amendment of Certificate Incorporation of Travelzoo (File No. 000-50171), filed May 10, 2017)
—  Travelzoo's Certificate of Incorporation to Authorize a Reduction of the Authorized Number of Shares of Our Common Stock from 40,000,000 to 20,000,000 Shares
—  By-laws of Travelzoo (Incorporated by reference to our Pre-Effective Amendment No. 6 to our Registration Statement on Form S-4 (File No. 333-55026), filed February 14, 2002).
—  Form of Director and Officer Indemnification Agreement (Incorporated by reference to Exhibit 10.1 on Form 10-Q (File No. 000-50171), filed November 9, 2007)
—  Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
—  Certification of Chief Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
—  Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
—  Certification of Chief Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS†XBRL Instance Document
101.SCH†XBRL Taxonomy Extension Schema Document
101.CAL†XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF†XBRL Taxonomy Extension Definition Linkbase Document
101.LAB†XBRL Taxonomy Extension Label Linkbase Document
101.PRE†XBRL Taxonomy Extension Presentation Linkbase Document


* This exhibit is a management contract or a compensatory plan or arrangement.
‡ Filed herewith
† Furnished herewith




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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
TRAVELZOO
(Registrant)
TRAVELZOO
(Registrant)
By:
/s/    LISA SU
Lisa Su
On behalf of the Registrant and as Chief Accounting Officer


Date: November 1, 2019August 10, 2020



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