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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________________________
Form 10-Q
______________________________________________________________________________ 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
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)
 ________________________________________________________________________________
Delaware36-4415727
(State or other jurisdiction of
incorporation or organization)
(I.R.S. employer
identification no.)
590 Madison Avenue, 35th Floor
New York, New York
10022
(Address of principal executive offices)(Zip code)
Registrant’s telephone number, including area code: (212484-4900

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueTZOOThe NASDAQ Stock Market
_________________________________________________________________________________ 
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 every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer¨Accelerated filer¨
Non-accelerated filerSmaller reporting company
Emerging growth company¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revisited financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  x
The number of shares of Travelzoo common stock outstanding as of November 5, 2021 was 12,258,624 shares.
1


TRAVELZOO
Table of Contents
 
PART I—FINANCIAL INFORMATIONPage
PART II—OTHER INFORMATION
 
2



PART I—FINANCIAL INFORMATION

Item 1.        Financial Statements

3


TRAVELZOO
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except par value) 
September 30,
2021
December 31,
2020
ASSETS
Current assets:
Cash and cash equivalents$65,204 $63,061 
Accounts receivable, less allowance for doubtful accounts of $2,045 and $2,814 as of September 30, 2021 and December 31, 2020, respectively
9,084 4,519 
Prepaid income taxes2,882 931 
Prepaid expenses and other 3,184 1,303 
Assets from discontinued operations63 230 
Total current assets80,417 70,044 
Deposits and other8,219 745 
Deferred tax assets3,637 5,067 
Restricted cash1,154 1,178 
Operating lease right-of-use assets8,005 8,541 
Property and equipment, net794 1,347 
Intangible assets, net3,700 4,534 
Goodwill10,944 10,944 
Total assets$116,870 $102,400 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$11,875 $6,996 
Merchant payables73,183 57,104 
Accrued expenses and other 7,546 8,649 
Deferred revenue1,805 2,688 
Operating lease liabilities3,482 3,587 
PPP notes payable (current portion) 2,849 
Income tax payable61 326 
Liabilities from discontinued operations469 671 
Total current liabilities98,421 82,870 
PPP notes payables 814 
Deferred tax liabilities 357 
Long-term operating lease liabilities9,721 10,774 
Other long-term liabilities2,249 1,085 
Total liabilities110,391 95,900 
Commitments and contingencies  
Non-controlling interest4,608 4,609 
Stockholders’ equity:
Common stock, $0.01 par value (20,000 shares authorized; 11,923 shares issued and 11,823 shares outstanding as of September 30, 2021 and 11,365 shares issued and outstanding as of December 31, 2020)
118 114 
Treasury stock (at cost, 100 shares and 0 shares at September 30, 2021 and December 31, 2020, respectively)
(1,583) 
Additional paid in capital3,432 6,239 
Retained earnings (accumulated deficit)3,792 (403)
Accumulated other comprehensive loss(3,888)(4,059)
Total stockholders’ equity 1,871 1,891 
Total liabilities and stockholders’ equity$116,870 $102,400 
See accompanying notes to unaudited condensed consolidated financial statements.
4


TRAVELZOO
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
 Three Months EndedNine Months Ended
September 30,September 30,
 2021202020212020
Revenues$15,688 $13,787 $49,051 $41,118 
Cost of revenues2,992 2,924 8,532 7,768 
Gross profit12,696 10,863 40,519 33,350 
Operating expenses:
Sales and marketing7,709 6,929 21,839 24,311 
Product development 684 592 2,052 2,586 
General and administrative4,564 4,545 14,180 16,709 
Impairment of intangible assets and goodwill   2,920 
Total operating expenses12,957 12,066 38,071 46,526 
Operating income (loss)(261)(1,203)2,448 (13,176)
Other income (loss), net3,344 (37)3,862 (222)
Income (loss) from continuing operations before income taxes3,083 (1,240)6,310 (13,398)
Income tax expense (benefit)233 (244)2,111 (2,070)
Income (loss) from continuing operations2,850 (996)4,199 (11,328)
Income (loss) from discontinued operations, net of taxes(19)(230)(5)(3,944)
Net income (loss)2,831 (1,226)4,194 (15,272)
Net income (loss) attributable to non-controlling interest8 125 (1)(1,122)
Net income (loss) attributable to Travelzoo$2,823 $(1,351)$4,195 $(14,150)
Net income (loss) attributable to Travelzoo—continuing operations$2,842 $(1,121)$4,200 $(10,206)
Net income (loss) attributable to Travelzoo—discontinued operations$(19)$(230)$(5)$(3,944)
Income (loss) per share—basic
Continuing operations$0.24 $(0.10)$0.36 $(0.90)
Discontinued operations$ $(0.02)$ $(0.35)
Net income (loss) per share —basic$0.24 $(0.12)$0.36 $(1.25)
Income (loss) per share—diluted
Continuing operations$0.22 $(0.10)$0.32 $(0.90)
Discontinued operations$ $(0.02)$ $(0.35)
Income (loss) per share—diluted$0.22 $(0.12)$0.32 $(1.25)
Shares used in per share calculation from continuing operations—basic11,648 11,310 11,510 11,353 
Shares used in per share calculation from discontinued operations—basic11,648 11,310 11,510 11,353 
Shares used in per share calculation from continuing operations—diluted12,904 11,310 13,132 11,353 
Shares used in per share calculation from discontinued operations—diluted11,648 11,310 11,510 11,353 

See accompanying notes to unaudited condensed consolidated financial statements.
5


TRAVELZOO
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands)
 
 Three Months EndedNine Months Ended
September 30,September 30,
 2021202020212020
Net income (loss)$2,831 $(1,226)$4,194 $(15,272)
Other comprehensive income (loss):
Foreign currency translation adjustment(401)532 171 (682)
Total comprehensive income (loss)$2,430 $(694)$4,365 $(15,954)

See accompanying notes to unaudited condensed consolidated financial statements.

6


TRAVELZOO
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 Nine Months Ended
September 30,
 20212020
Cash flows from operating activities:
Net income (loss)$4,194 $(15,272)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization1,408 1,806 
Stock-based compensation2,788 5,243 
Deferred income tax1,073 (1,747)
Impairment of intangible assets and goodwill  2,920 
Gain on promissory notes payable settlement (1,500)
Loss on long-lived assets 437 
Loss on equity investment in WeGo 474 
Gain on PPP notes payable forgiveness(3,588) 
Net foreign currency effect(300)(542)
Provision for (reversal of) loss on accounts receivable, refund reserve and other(1,725)3,923 
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable(3,848)6,246 
Prepaid income taxes(2,007)685 
Prepaid expenses and other (9,473)1,626 
Accounts payable 5,024 12,709 
Merchant payable16,486 20,532 
Accrued expenses and other(452)(1,381)
Income tax payable(263)(479)
Other liabilities(34)1,904 
Net cash provided by operating activities9,283 37,584 
Cash flows from investing activities:
Acquisition of business, net of cash acquired (679)
Other investments (430)
Purchases of property and equipment(24)(252)
Net cash used in investing activities(24)(1,361)
Cash flows from financing activities:
Repurchase of common stock(1,583)(1,205)
Payment of notes payables(110)(7,800)
Proceeds from PPP notes payable 3,663 
Exercise of stock options and taxes paid for net share settlement(5,424) 
Net cash used in financing activities(7,117)(5,342)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(126)393 
Net increase in cash, cash equivalents and restricted cash2,016 31,274 
Cash, cash equivalents and restricted cash at beginning of period64,385 20,710 
Cash, cash equivalents and restricted cash at end of period$66,401 $51,984 
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net$2,978 $1,230 
Right-of-use assets obtained in exchange for lease obligations—operating leases$1,777 $3,207 
Cash paid for amounts included in the measurement of lease liabilities$3,291 $3,063 
Non-cash investing and financing activities:
Issuance of promissory notes to the sellers of Jack's Flight Club$ $11,000 
See accompanying notes to unaudited condensed consolidated financial statements.
7


TRAVELZOO
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
 (In thousands)
 Common StockTreasury StockAdditional
Paid-In
Capital
Retained
Earnings (Accumulated Deficit)
Accumulated
Other
Comprehensive
Loss
Total
Stockholders’
Equity (Deficit)
 SharesAmount
Balances, January 1, 202111,365 $114 $ $6,239 $(403)$(4,059)$1,891 
Stock-based compensation expense— — — 882 — — 882 
Treasury stock— (1,583)— — — (1,583)
Exercise of stock options and taxes paid for net share
settlement of equity awards
205 1 — (2,842)— (2,841)
Foreign currency translation adjustment— — — — — 410 410 
Net loss–Travelzoo— — — — (1,642)— (1,642)
Balances, March 31, 202111,570 115 (1,583)4,279 (2,045)(3,649)(2,883)
Stock-based compensation expense— — — 935 — — 935 
Exercise of stock options and taxes paid for net share
settlement
24 — — (226)— — (226)
Foreign currency translation adjustment— — — — — 162 162 
Net income—Travelzoo— — — — 3,014 — 3,014 
Balances, June 30, 202111,594 115 (1,583)4,988 969 (3,487)1,002 
Stock-based compensation expense— — — 971 — — 971 
Exercise of stock options and taxes paid for net share
settlement
329 3 — (2,527)— — (2,524)
Foreign currency translation adjustment— — — — — (401)(401)
Net income—Travelzoo— — — — 2,823 — 2,823 
Balances, September 30, 202111,923 $118 $(1,583)$3,432 $3,792 $(3,888)$1,871 


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 Common StockAdditional
Paid-In
Capital
Retained
Earnings (Accumulated Deficit)
Accumulated
Other
Comprehensive
Loss
Total
Stockholders’
Equity
 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)
Stock-based compensation expense— — 1,189 — — 1,189 
Foreign currency translation adjustment— — — — 532 532 
Net loss—Travelzoo— — — (1,351)— (1,351)
Balances, September 30, 202011,310 $113 $5,220 $(1,130)$(4,134)$69 

See accompanying notes to unaudited condensed consolidated financial statements.
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TRAVELZOO
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Summary of Significant Accounting Policies
(a) The Company and Basis of Presentation
Travelzoo® is a global Internet media company. We provide our more than 30 million members insider deals and one-of-a-kind experiences personally reviewed by one of our deal experts around the globe. We have our finger on the pulse of outstanding travel, entertainment, and lifestyle experiences. For over 20 years we have worked in partnership with more than 5,000 top travel suppliers—our long-standing relationships give Travelzoo members access to irresistible deals. Travelzoo's revenues are generated primarily from advertising fees.
Travelzoo (the “Company” or "we") attracts a high-quality audience of travel enthusiasts across multiple digital platforms, including email, web, social media and mobile applications. Our insider deals and email newsletters are published by Travelzoo and its licensees worldwide. Our publications and products include the Travelzoo website (travelzoo.com), the Travelzoo iPhone and Android apps, the Travelzoo Top 20® email newsletter, the Newsflash email alert service, and the Travelzoo Network. Our Travelzoo website includes Local Deals and Getaways listings that allow our members to purchase vouchers for deals from local businesses such as spas, hotels and restaurants.
We also license the use of these products and our intellectual property in various countries in Asia Pacific, including but not limited to Australia, New Zealand, Japan, South Korea and Southeast Asia. We are also the majority shareholder of JFC Travel Group Co. (“Jack’s Flight Club”), which operates Jack’s Flight Club.
For our voucher products, we receive a percentage of the face value of the voucher from the local businesses.
APAC Exit and Pivot to Licensing Model
In March 2020, Travelzoo exited its loss-making Asia Pacific business and pivoted to a licensing model, whereby Travelzoo’s business practices and intellectual property are utilized by local licensees to continue to provide high quality insider deals and content to Travelzoo members throughout Asia Pacific. Such existing members in Asia Pacific will continue to be owned by Travelzoo as the licensor. The Company’s Asia Pacific business was classified as discontinued operations at March 31, 2020. Prior periods have been reclassified to conform with the current presentation.
Travelzoo currently has license agreements in Japan and South Korea, as well as Australia, New Zealand and Singapore. The license agreement for Japan provides a license to the licensee to use the intellectual property of Travelzoo exclusively in Japan in exchange for quarterly royalty payments based on net revenue over a 5 year term, with an option to renew. The territory subject to the license was amended to also include South Korea. An interest free loan was provided to the licensee for JPY 46 million (approximately $430,000) to be repaid over 3 years which the Company recorded as other assets on the unaudited condensed consolidated balance sheet as of September 30, 2021.
The license agreement for Australia, New Zealand and Singapore provides a license to the licensee to use the intellectual property of Travelzoo exclusively in Australia, New Zealand and Singapore for quarterly royalty payments based upon net revenue over a 5 year term, with an option to renew.
The Company records royalties for its licensing arrangements on a one-quarter lag basis. The Company recognized royalties of $0 and $9,000 from Travelzoo Japan for the three and nine months ended September 30, 2021. The Company recognized royalties of $2,000 for its licensing arrangements from AUS Buyer for the three and nine months ended September 30, 2021. We expect the royalty payments to increase over time as the effects of the pandemic subside.
WeGo Investment
The Company previously held a minority share equal to 33.7% in weekengo GmbH ("WeGo"), which the Company sold to trivago N.V. (“trivago”) on December 23, 2020.
Per the Share Purchase Agreement, by and among Travelzoo (Europe) Limited, trivago, and the other shareholders of WeGo (the “trivago SPA”), the Company sold all of its shares in WeGo to trivago for a total purchase price of approximately $2.9 million, of which $213,000 was placed in escrow for one year. The Company recorded $468,000 gain in Other income (loss), net. for the sale of WeGo shares in 2020.
The Company’s advertising revenues from WeGo for the years ended December 31, 2020 and 2019 were $384,000 and $1.2 million, respectively. WeGo agreed to pay in a lump sum the remaining amount outstanding pursuant to the Insertion Order equal to approximately $200,000. The payment was made and recorded in the first quarter of 2021. The Second Insertion Order and any obligation for additional payments from WeGo for marketing were terminated.
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The Company acquired the domain name and trademark “weekend.com” in 2005 which was amortized over five years. Concurrently with the sale of the shares, the Company also sold the domain name and trademark “weekend.com” to trivago in exchange for a payment of $822,000. The Company recorded $822,000 gain in general and administrative expenses for the sale of the domain name and trademark “weekend.com” in 2020.
Jack’s Flight Club
In January 2020, Travelzoo acquired Jack’s Flight Club, which operates Jack’s Flight Club, a subscription service that provides members with information about exceptional airfares. As of September 30, 2021, Jack’s Flight Club had 1.7 million subscribers. Jack’s Flight Club’s revenues are generated by subscription fees paid by members. See Note 3 to the unaudited condensed consolidated financial statements for further information.
Ownership
Ralph Bartel, who founded Travelzoo and who is the Chairman of the Board of Directors of the Company, is the sole beneficiary of the Ralph Bartel 2005 Trust, which is the controlling shareholder of Azzurro Capital Inc. (“Azzurro”). As of September 30, 2021, Azzurro is the Company's largest shareholder, holding approximately 38.9% of the Company's outstanding shares.
Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to state fairly the financial position of the Company and its results of operations and cash flows. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes as of and for the year ended December 31, 2020, included in the Company’s Form 10-K filed with the SEC on March 31, 2021.
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The financial results of Jack’s Flight Club have been included in our consolidated financial statements from the date of acquisition. Investments in entities where the Company does not have control, but does have significant influence, are accounted for as equity method investments.
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with accounting principles generally accepted in the U.S. Significant estimates included in the consolidated financial statements and related notes include revenue recognition, refund liability, income taxes, stock-based compensation, loss contingencies, useful lives of property and equipment, purchase price allocation for the business combination and related impairment assessment, relating to the projections and assumptions used. Actual results could differ materially from those estimates. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or any other future period, and the Company makes no representations related thereto.
(b) Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which provides new guidance on the measurement of credit losses for financial assets measured at amortized cost, which includes accounts receivable. The new guidance replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. This update is effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For Smaller Reporting Companies (as such term is defined by the SEC), such as Travelzoo, the standard will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Entities are required to apply this update on a modified retrospective basis with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the impact on its financial position and results of operations.
(c) Significant Accounting Policies
Below are a summary of the Company's significant accounting policies. For a comprehensive description of our accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, 2020.
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Revenue Recognition
The Company follows Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers" (Topic 606).
Under Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
The Company's revenues are primarily advertising fees generated from the publishing of travel and entertainment deals on the Travelzoo website, in the Top 20 email newsletter, in Newsflash and through the Travelzoo Network. The Company also generates transaction-based revenues from the sale of vouchers through our Local Deals and Getaways products and operation of a hotel booking platform and limited offerings of vacation packages and subscription revenues from Jack's Flight Club. The Company's disaggregated revenues are included in “Note 9: Segment Reporting and Significant Customer Information”.
For fixed-fee website advertising, the Company recognizes revenues ratably over the contracted placement period.
For the Top 20 email newsletter and other email products, the Company recognizes revenues when the emails are delivered to its members.
The Company offers advertising on a cost-per-click basis, which means that an advertiser pays the Company only when a user clicks on an advertisement on Travelzoo properties or Travelzoo Network members’ properties. For these customers, the Company recognizes revenues each time a user clicks on the ad.
The Company also offers advertising on other bases, such as cost-per-impression, which means that an advertiser pays the Company based on the number of times their advertisement is displayed on Travelzoo properties, email advertisements, Travelzoo Network properties, or social media properties. For these customers, the Company recognizes revenues each time an advertisement is shown or email delivered.
For transaction based revenues, including products such as Local Deals, Getaways, hotel platform and vacation packages, the Company evaluates whether it is the principal (i.e., report revenue on a gross basis) versus an agent (i.e., report revenue on a net basis). The Company reports transaction revenue on a net basis because the supplier is primarily responsible for providing the underlying service, and we do not control the service provided by the supplier prior to its transfer to the customer.
For Local Deals and Getaways products, the Company earns a fee for acting as an agent for the sale of vouchers that can be redeemed for services with third-party merchants. Revenues are presented net of the amounts due to the third-party merchants for fulfilling the underlying services and an estimated amount for future refunds. Since the second quarter of 2020, the Company expanded its vouchers refund policy in order to entice customers given the current economic climate to fully refundable until the voucher expires or is redeemed by the customer. Certain merchant contracts allow the Company to retain the proceeds from unredeemed vouchers. With these contracts, the Company estimates the value of vouchers that will ultimately not be redeemed and records the estimate as revenues in the same period
Jack’s Flight Club revenue is generated from paid subscriptions by members. Subscription options are quarterly, semi-annually, and annually. We recognize the revenue on a pro-rated basis based upon the subscription option.
Commission revenue related to hotel platform is recognized ratably over the period of guest stay, net of an allowance for cancellations based upon historical patterns. For arrangements for booking non-cancelable reservations where the Company’s performance obligation is deemed to be the successful booking of a hotel reservation, we record revenue for the commissions upon completion of the hotel booking.
The Company’s contracts with customers may include multiple performance obligations in which the Company allocates revenues to each performance obligation based upon its standalone selling price. The Company determines standalone selling price based on its overall pricing objectives, taking into consideration the type of services, geographical region of the customers, normal rate card pricing and customary discounts. Standalone selling price is generally determined based on the prices charged to customers when the product is sold separately.
The Company relies upon the following practical expedients and exemptions allowed for in the ASC 606. The Company expenses sales commissions when incurred because the amortization period would be one year or less. These costs are recorded in sales and marketing expenses. In addition, the Company does not disclose the value of unsatisfied performance obligations for (a) contracts with an original expected length of one year or less and (b) contracts for which it recognizes revenues at the amount to which it has the right to invoice for services performed.
Deferred revenue primarily consists of customer prepayments and undelivered performance obligations related to the Company’s contracts with multiple performance obligations. At December 31, 2020, $1.3 million was recorded as deferred
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revenue for Travelzoo North America and Travelzoo Europe, of which $620,000 was recognized as revenue during the nine months ended September 30, 2021. At September 30, 2021, the deferred revenue balance was $1.8 million, of which $429,000 was for Travelzoo North America and Travelzoo Europe, and the remaining $1.4 million was for Jack's Flight Club.
Reserve for Refunds to Members
The Company records an estimated reserve for refunds to members based on our historical experience at the time revenue is recorded for Local Deals and Getaways voucher sales. We consider many key factors such as the historical refunds based upon the time lag since the sale, historical reasons for refunds, time period that remains until the deal expiration date, any changes in refund procedures and estimates of redemptions and breakage.
For publishing revenue, we recognize revenue upon delivery of the emails and delivery of the clicks, over the period of the placement of the advertising. Insertion orders for publishing revenue are typically for periods between one month and twelve months and are not automatically renewed. For Getaways vouchers, we recognize a percentage of the face value of the vouchers upon the sale of the vouchers. Merchant agreements for Getaways advertisers are typically for periods between twelve months and twenty-four months and are not automatically renewed. Since the second quarter of 2020, the Company expanded its vouchers refund policy in order to entice customers given the current economic climate to fully refundable until the voucher expires or is redeemed by the customer. The Company now offers fully refundable refunds for vouchers that have not been redeemed or expired. The expiration dates of vouchers range between October 2021 through December 2023. The revenues generated from Local Deals vouchers and entertainment offers are based upon a percentage of the face value of the vouchers, commission on actual sales or a listing fee based on audience reach. For Local Deals vouchers, we recognize a percentage of the face value of vouchers upon the sale of the vouchers. The Company estimated the refund reserve by using historical and current refund rates by product and by merchant location to calculate the estimated future refunds. As of September 30, 2021 the Company had approximately $18.3 million of unredeemed vouchers that had been sold through September 30, 2021 representing the Company’s commission earned from the sale. The Company had estimated a refund liability of $3.1 million for these unredeemed vouchers as of September 30, 2021 which is recorded as a reduction of revenues and is reflected as a current liability in Accrued expenses and other on the consolidated balance sheet. As of December 31, 2020, the Company had approximately $15.2 million of unredeemed vouchers that had been sold during 2020 representing the Company’s commission earned from the sale and estimated a refund liability of $3.9 million for these unredeemed vouchers as of December 31, 2020 which is recorded as a reduction of revenues and is reflected as a current liability in Accrued expenses and other on the consolidated balance sheet. The Company has recorded Merchant Payables of $73.2 million as of September 30, 2021 related to unredeemed vouchers. Insertion orders and merchant agreements for Travelzoo Local are typically for periods between one month and twelve months and are not automatically renewed except for merchant contracts in foreign locations. Should any of these factors change, the estimates made by management will also change, which could impact the level of our future reserve for refunds to member. Specifically, if the financial condition of our advertisers, the business that is providing the vouchered service, were to deteriorate, affecting their ability to provide the services to our members, additional reserves for refunds to members may be required and may adversely affect future revenue as the liability is recorded against revenue.
Estimated member refunds that are determined to be recoverable from the merchant are recorded in the consolidated statements of operations as a reduction to revenue. We accrue costs associated with refunds in accrued expenses on the consolidated balance sheets. Estimated member refunds that are determined not to be recoverable from the merchant are presented as a cost of revenue. If our judgments regarding estimated member refunds are inaccurate, reported results of operations could differ from the amount we previously accrued.
Business Combinations
The purchase price of an acquisition is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. To the extent the purchase price exceeds the fair value of the net identifiable tangible and intangible assets acquired and liabilities assumed, such excess is allocated to goodwill. The Company determines the estimated fair values after review and consideration of relevant information, including discounted cash flows, quoted market prices and estimates made by management. The Company records the net assets and results of operations of an acquired entity from the acquisition date and adjusts the preliminary purchase price allocation, as necessary, during the measurement period of up to one year after the acquisition closing date as it obtains more information as to facts and circumstances existing at the acquisition date impacting asset valuations and liabilities assumed. Acquisition-related costs are recognized separately from the acquisition and are expensed as incurred.
Identifiable intangible assets
Upon acquisition, identifiable intangible assets are recorded at fair value and are carried at cost less accumulated amortization. Identifiable intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives. The carrying values of all intangible assets are reviewed for impairment whenever events or changes in circumstances
13


indicate that their carrying amounts may not be recoverable. The Company evaluated intangible assets in the first quarter of 2020 due to the coronavirus (COVID-19) pandemic and recorded an impairment expense of $810,000. The Company performed its annual test as of October 31, 2020 and no impairment charge was identified in connection with the annual impairment test. The Company did not identify any indicators of impairment during the nine months ended September 30, 2021.
Goodwill
Goodwill represents the excess of the purchase price of an acquired business over the fair value of the underlying net tangible and intangible assets. Goodwill is evaluated for impairment annually, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. In testing goodwill for impairment, the Company first uses a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount. If the qualitative assessment indicates that goodwill impairment is more likely than not, the Company performs an impairment test by comparing the book value of net assets to the fair value of the reporting units. The Company evaluated goodwill in the first quarter of 2020 due to the global pandemic and recorded an impairment expense of $2.1 million. The Company performed its annual impairment test as of October 31, 2020 and no impairment charge was identified in connection with the annual impairment test. The Company did not identify any indicators of impairment during the nine months ended September 30, 2021.
Operating Leases
The Company determines if an arrangement contains a lease at inception. Operating lease right-of-use (“ROU”) assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The lease payments used to determine the operating lease assets may include lease incentives and stated rent increases. The Company does not include options to extend or terminate until it is reasonably certain that the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the lease liabilities as the Company’s leases generally do not provide an implicit rate. The Company elected not to recognize leases with an initial term of 12 months or less on its unaudited condensed consolidated balance sheets.
The Company’s leases are reflected in operating lease ROU assets, operating lease liabilities and long-term operating lease liabilities in our unaudited condensed consolidated balance sheets. The lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company also has a real estate lease agreement which is subleased to a third party. The Company recognizes sublease income in “Other income (loss), net”, on a straight-line basis over the lease term in its condensed consolidated statements of income.
Certain Risks and Uncertainties
The Company’s business is subject to risks associated with its ability to attract and retain advertisers and offer products or services on compelling terms to our members. The global pandemic is having an unprecedented impact on the global travel and hospitality industries. Governmental authorities have implemented numerous measures to try to contain the virus, including restrictions on travel, quarantines, shelter-in-place orders, business restrictions and complete shut-downs. The measures implemented to contain the global pandemic have had, and are expected to continue to have, a significant negative effect on our business, financial condition, results of operations and cash flows.
The Company’s cash, cash equivalents and 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. As of September 30, 2021 and December 31, 2020, the Company did not have any customers that accounted for 10% or more of accounts receivable.
Many of the Company’s advertisers and partners are part of the global travel and hospitality industry. The measures implemented to contain COVID have had, and are expected to continue to have, a significant negative effect on the Company’s business, financial condition, results of operations, and cash flows. The measures implemented led to many of the Company’s advertisers pausing, canceling, or stopping advertising with us, as well as a high level of cancellations for our hotel partners and travel package partners, and refund requests for vouchers sold by Travelzoo for restaurant and spa partners. It is difficult to estimate the impact of the COVID pandemic on the Company’s future revenues, results of operations, cash flows, liquidity, or financial condition.
As of September 30, 2021, the Company had merchant payables of $73.2 million related to the sale of vouchers. In the Company’s financial statements presented in this 10-Q report, following GAAP accounting principles, we classified all merchant payables as current. When all merchant payables are classified as current, there is negative net working capital (which
14


is defined as current assets minus current liabilities) of $18.0 million. Payables to merchants are generally due upon redemption of vouchers. The vouchers have maturities from October 2021 through December 2023. Management believes that redemptions may be delayed for international vouchers in the current environment. Based on current projections of redemption activity, management expect that cash on hand as of September 30, 2021 will be sufficient to provide for working capital needs for at least the next twelve months. However, if redemption activity is more accelerated, if the Company’s business is not profitable, or if the Company’s planned targets for cash flows from operations are not met, the Company may need to obtain additional financing to meet its working capital needs in the future. The Company believes that it could obtain additional financing if needed, but there can be no assurance that financing will be available on terms that are acceptable to the Company, if at all.
Cash, Cash Equivalents and Restricted Cash
Cash equivalents consist of highly liquid investments with maturities of three months or less on the date of purchase. Restricted cash includes cash and cash equivalents that is restricted through legal contracts, regulations or our intention to use the cash for a specific purpose. Our restricted cash primarily relates to refundable deposits and funds held in escrow.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited condensed consolidated balance sheets to the total amounts shown in the unaudited condensed consolidated statements of cash flows:
 September 30,December 31,
20212020
Cash and cash equivalents$65,204 $63,061 
Restricted cash 1,154 1,178 
Cash, cash equivalents and restricted cash–discontinued operations43 146 
Total cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows$66,401 $64,385 
The Company’s restricted cash was included in noncurrent assets as of September 30, 2021 and December 31, 2020.
Note 2: Net Income (Loss) Per Share
Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding for the period. Diluted net income per share is computed by adjusting the weighted-average number of common shares outstanding for the effect of dilutive potential common shares outstanding during the period. Potential common shares included in the diluted calculation consist of incremental shares issuable upon the exercise of outstanding stock options calculated using the treasury stock method.
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The following table sets forth the calculation of basic and diluted net income (loss) per share (in thousands, except per share amounts):
 
Three Months EndedNine Months Ended
 September 30,September 30,
 2021202020212020
Numerator:
Net income (loss) attributable to Travelzoo—continuing operations$2,842 $(1,121)$4,200 $(10,206)
Net loss attributable to Travelzoo—discontinued operations$(19)$(230)$(5)$(3,944)
Denominator:
Weighted average common shares—basic11,648 11,310 11,510 11,353 
Effect of dilutive securities: stock options1,256  1,622  
Weighted average common shares—diluted12,904 11,310 13,132 11,353 
Income (loss) per share—basic
Continuing operations$0.24 $(0.10)$0.36 $(0.90)
Discontinued operations (0.02) (0.35)
Net income (loss) per share —basic$0.24 $(0.12)$0.36 $(1.25)
Income (loss) per share—diluted
Continuing operations$0.22 $(0.10)$0.32 $(0.90)
Discontinued operations (0.02) (0.35)
Net income (loss) per share—diluted$0.22 $(0.12)$0.32 $(1.25)
For the three and nine months ended September 30, 2021 and 2020, options to purchase 50,000 shares and 3.4 million shares of common stock, respectively, were not included in the computation of diluted net income (loss) per share because the effect would have been anti-dilutive. 
Note 3: Acquisition

On January 13, 2020, Travelzoo entered into the SPA with the shareholders of Jack’s Flight Club for the purchase of up to 100% of the outstanding capital stock of Jack’s Flight Club (the “Shares”). Pursuant to the SPA, on January 13, 2020, the Sellers sold 60% of the Shares to the Company for an aggregate purchase price of $12.0 million, $1.0 million of which was paid in cash and $11.0 million of which was paid in Promissory Notes. The Promissory Notes contain an interest rate of 1.6% per annum and a due date of January 31, 2020, with a one-time right to extend the maturity date up to April 30, 2020 with a principal payment of $1.0 million on January 31, 2020, which the Company exercised. The remaining 40% of the Shares are subject to a call/put option exercisable by the Company or the Sellers, as applicable, on or around January 1, 2021, subject to the terms and conditions set forth in the SPA. The results of Jack's Flight Club in 2020 did not meet the thresholds required for the put/call option to be exercisable.

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

The strategic rationale for the Jack’s Flight Club acquisition was to expand Jack’s Flight Club’s membership to Travelzoo members worldwide, so the members from Travelzoo could also sign up to receive offers from Jack’s Flight Club.
The acquisition has been accounted for using the acquisition method in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations. Under the acquisition method of accounting, the total purchase consideration of the acquisition is allocated to the tangible assets and identifiable intangible assets and liabilities assumed based on their relative fair values. The excess of the purchase consideration over the net tangible and identifiable intangible assets is recorded as goodwill. The acquisition related costs were not significant and were expensed as incurred.
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Purchase Price Allocation
The purchase price allocation is based on estimates, assumptions and third-party valuations. The aggregate purchase price and allocation was as follows (in thousands):
 
Purchase 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 agreements 660 
Current assets acquired, including cash of $321
324 
Current liabilities assumed(40)
Deferred revenue(881)
Deferred tax liabilities(1,391)
Non-controlling interest(5,572)
$12,114 

The Company determined the estimated fair value of the put/call option using the Monte Carlo Simulation approach and the identifiable intangible assets acquired primarily using the income approach. Non-controlling interests represent third-party shareholders and are measured at fair value on the date acquired.
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Company’s share of the identifiable net assets of the acquired subsidiary. Goodwill is evaluated for impairment annually, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. The Company determined that the global pandemic was a triggering event requiring the Company to assess its long-lived assets including goodwill for impairment. The Company performed an impairment test during the first quarter of 2020 and during the fourth quarter of 2020 by comparing the carrying value of Jack’s Flight Club net assets to the fair value of the Jack’s Flight Club reporting unit based on an updated discounted cash flow analysis. The fair value of the Jack’s Flight Club reporting unit was determined to be less than the carrying value, and the difference between the estimated fair value of goodwill and the carrying value was recorded as goodwill impairment of $2.1 million. The Company also performed an ASC 360 analysis for long-lived assets noting no impairment of such assets based on the undiscounted cash flows of the Jack’s Flight Club asset group. The Company first impaired indefinite lived intangible assets (“Trade name”) for $810,000 before impairing goodwill.

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The following table summarizes the goodwill activity for the three months ended March 31, 2020 (in thousands):
Goodwill—January 1, 2020$ 
Acquisition13,054 
Impairment—March 31, 2020(2,110)
Goodwill—March 31, 2020$10,944 

There has been no change in goodwill for the nine months ended September 30, 2021 and no changes since March 31, 2020.

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

The fair value of intangible assets of $6.6 million has been allocated to the following three asset categories: 1) customer relationships, 2) trade name, and 3) non-compete agreements. These assets are included within “Intangible assets” on our consolidated balance sheets. Customer relationships and non-compete agreements are being amortized to operating expenses over their estimated useful lives using the straight-line basis for non-compete agreements or on an accelerated basis for customer relationships.
The following table represents the activities of intangible assets for the nine months ended September 30, 2021 (in thousands):
Fair Value
Intangible assets—January 1, 2020$ 
Acquisition6,620 
Impairment of trade name(810)
Amortization of intangible assets with definite lives(1,276)
Intangible assets- December 31, 20204,534 
Amortization of intangible assets with definite lives(284)
Intangible assets- March 31, 20214,250 
Amortization of intangible assets with definite lives(275)
Intangible assets- June 30, 20213,975 
Amortization of intangible assets with definite lives(275)
Intangible assets- September 30, 2021$3,700 


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Amortization expense for acquired intangibles was $275,000 and $333,000 for the three months ended September 30, 2021 and 2020, respectively. Amortization expense for acquired intangibles was $833,000 and $943,000 for the nine months ended September 30, 2021 and 2020, respectively. Expected future amortization expense of acquired intangible assets as of September 30, 2021 is as follows (in thousands):
Years ending December 31,
2021 remainder$274 
2022875 
2023641 
2024250 
202510 
$2,050 
As previously discussed in “Goodwill”, the Company's impairment test indicated that Jack’s Flight Club’s indefinite lived intangible assets (“Trade name”) was impaired for $810,000 for the first quarter of 2020. The Company performed its annual impairment testing of Trade name during the fourth fiscal quarter and did not identify any additional impairment in 2020. The Company did not identify any indicators of impairment during the nine months ended September 30, 2021.
Unaudited Pro Forma Information
The acquired company was consolidated into our financial statements starting on the acquisition date. The unaudited financial information in the table below summarizes the combined results of operations of Travelzoo and Jack’s Flight Club, on a pro forma basis, as though the companies had been combined as of the beginning of the fiscal year presented. The debt was issued to finance the acquisition of Jack’s Flight Club. The unaudited pro forma information has been calculated after applying the Company’s accounting policies and includes adjustments to reflect the amortization charges from acquired intangible assets, adjustments to deferred revenue, interest expense and related tax effects. The unaudited pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the fiscal year presented.
The following table summarizes the pro forma financial information (in thousands):
Three Months EndedNine Months Ended
 September 30, 2020September 30, 2020
Revenues$13,787 $41,239 
Net loss$(1,226)$(15,247)

Jack's Flight Club Settlement
On June 3, 2020, the Company and the Seller renegotiated the SPA. Pursuant to the original terms of the outstanding Promissory Notes, the Company owed $10.0 million plus interest (the “Outstanding Amount”) to the Sellers on April 30, 2020. On June 3, 2020, the parties reached a negotiated settlement for the Outstanding Amount with the following terms: (a) $1.5 million was forgiven in settlement of certain outstanding indemnification claims disputed by the Sellers; (b) $6.8 million, plus accrued interest, was paid to the Sellers by Travelzoo, and (c) the remaining $1.7 million to be paid by June 2021 pursuant to new promissory notes with each of the Sellers that contain a 12% interest rate. The Company recorded $1.5 million gain in “General and administrative expenses” for the partial forgiveness of the outstanding loan in the second quarter of 2020. The $1.7 million new promissory notes was paid off in October 2020. Total interest expense for the Promissory Notes of $142,000 was recorded in Other income (loss), net in 2020.

Travelzoo also agreed that the additional payment set forth in the SPA (equal to 20% of 2020 net income) would be payable to the Sellers regardless of whether EBITDA targets are achieved and the put/call is exercised in 2021. The Company estimated and accrued $448,000 in “General and administrative expenses” in 2020. $492,000 was paid to the Sellers during the first quarter of 2021 relating to this agreement.

The parties also agreed to a new put/call option exercisable in 2022 by the Sellers or Travelzoo, as applicable, only if the put/call option for 2021 as set forth in the SPA is not exercised, with a EBITDA threshold of $4.3 million and a purchase price equal to 40% of 2021 EBITDA multiplied by 3.5, and an additional payment equal to 20% of 2021 net income if the EBITDA threshold is achieved. The Company re-evaluated the fair value of the put/call option by using the Monte Carlo Simulation approach and determined that the extension of the one year period did not change the fair value of the put/call option materially.
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Note 4: Commitments and Contingencies
From time to time, the Company is subject to various claims and legal proceedings, either asserted or unasserted, that arise in the ordinary course of business. The Company accrues for legal contingencies if the Company can estimate the potential liability and if the Company believes it is probable that the case will be ruled against it. If a legal claim for which the Company did not accrue is resolved against it, the Company would record the expense in the period in which the ruling was made. The Company believes that the likelihood of an ultimate amount of liability, if any, for any pending claims of any type (alone or combined) that will materially affect the Company’s financial position, results of operations or cash flows is remote. The ultimate outcome of any litigation is uncertain, however, and unfavorable outcomes could have a material negative impact on the Company’s financial condition and operating results. Regardless of outcome, litigation can have an adverse impact on the Company because of defense costs, negative publicity, diversion of management resources and other factors.
The Company was formed as a result of a combination and merger of entities founded by the Company’s principal shareholder, Ralph Bartel. In 2002, Travelzoo.com Corporation (“Netsurfers”) was merged into the Company. Under and subject to the terms of the merger agreement, holders of promotional shares of Netsurfers who established that they had satisfied certain prerequisite qualifications were allowed a period of 2 years following the effective date of the merger to receive one share of the Company in exchange for each share of common stock of Netsurfers. In 2004, two years following the effective date of the merger, certain promotional shares remained unexchanged. As the right to exchange these promotional shares expired, no additional shares were reserved for issuance. Thereafter, the Company began to offer a voluntary cash program for those who established that they had satisfied certain prerequisite qualifications for Netsurfers promotional shares as further described below.
During 2010 through 2014, the Company became subject to unclaimed property audits of various states in the United States related to the above unexchanged promotional shares and completed settlements with all states. Although the Company has settled the unclaimed property claims with all states, the Company may still receive inquiries from certain potential Netsurfers promotional shareholders that had not provided their state of residence to the Company by April 25, 2004. Therefore, the Company is continuing its voluntary program under which it makes cash payments to individuals related to the promotional shares for individuals whose residence was unknown by the Company and who establish that they satisfy the original conditions required for them to receive shares of Netsurfers, and who failed to submit requests to convert their shares into shares of Travelzoo within the required time period. This voluntary program is not available for individuals whose promotional shares have been escheated to a state by the Company, except those individuals for which their residence was unknown to the Company. The Company did not make any payments for the nine months ended September 30, 2021 and 2020.
The total cost of this program cannot be reliably estimated because it is based on the ultimate number of valid requests received and future levels of the Company’s common stock price. The Company’s common stock price affects the liability because the amount of cash payments under the program is based in part on the recent level of the stock price at the date valid requests are received. The Company does not know how many of the requests for shares originally received by Netsurfers in 1998 were valid, but the Company believes that only a portion of such requests were valid. In order to receive payment under this voluntary program, a person is required to establish that such person validly held shares in Netsurfers.
The Company leases office space in Canada, France, Germany, Spain, the U.K., and the U.S. under operating leases. Our leases have remaining lease terms ranging from less than one year to up to nine years. Refer to Note 11 for Leases as of September 30, 2021. The Company maintains several standby letters of credit (“LOC”) to serve as collateral issued to certain landlords. The LOCs are collateralized with cash which is included in the line item “Restricted cash” in the Consolidated Balance Sheets.
The Company has purchase commitments aggregating approximately $3.4 million as of September 30, 2021, which represent the minimum obligations the Company has under agreements with certain suppliers. These minimum obligations are less than the Company's projected use for those periods. Payments may be more than the minimum obligations based on actual use.
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Note 5: Income Taxes
Ordinarily, in determining the quarterly provisions for income taxes, the Company uses an estimated annual effective tax rate, which is generally based on our expected annual income and statutory tax rates in the U.S., Canada, and the U.K. Due to the global pandemic, and difficulty forecasting the calendar year 2021 of income (loss) by jurisdiction, we determined the estimated annual effective rate method would not provide a reliable estimate of the Company’s overall annual effective tax rate. As such, we have calculated the tax provision using the actual effective rate for the nine months ended September 30, 2021. The Company's effective tax rate from continuing operations was 8% and 20%, respectively, for the three months ended September 30, 2021 and 2020. The Company’s effective tax rate for the three months ended September 30, 2021 decreased from the three months ended September 30, 2020 primarily due to PPP loan forgiveness income generated in the three months ended September 30, 2021 that is exempt from tax. The Company's effective tax rate from continuing operations was 33% and 15%, respectively, for the nine months ended September 30, 2021 and 2020. The Company's effective tax rate increased for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to changes in deferred tax assets from limitations on deductible stock-based compensation, offset by PPP Loan forgiveness income exempt from tax.
As of September 30, 2021, the Company is permanently reinvested in certain of its non-U.S. subsidiaries and does not have a deferred tax liability related to its undistributed foreign earnings. The estimated amount of the unrecognized deferred tax liability attributed to future withholding taxes on dividend distributions of undistributed earnings for certain non-U.S. subsidiaries, which the Company intends to reinvest the related earnings indefinitely in its operations outside the U.S., is approximately $723,000.
The Company maintains liabilities for uncertain tax positions. At September 30, 2021, the Company had approximately $961,000 in total unrecognized tax benefits, which if recognized, would favorably affect the Company’s effective income tax rate.
The Company’s policy is to include interest and penalties related to unrecognized tax positions in income tax expense. To the extent accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction in the overall income tax provision in the period that such determination is made. At September 30, 2021 and December 31, 2020, the Company had approximately $278,000 and $235,000 in accrued interest, and $89,000 and $0 in accrued penalties, respectively.
The Company files income tax returns in the U.S. federal jurisdiction, various U.S. states and foreign jurisdictions. The Company is subject to U.S. federal and certain state tax examinations for certain years from 2017 and forward and is subject to California tax examinations for years after 2016.
We do not know what our income taxes will be in future periods. There may be fluctuations that have a material impact on our results of operations. Our income taxes are dependent on numerous factors such as the geographic mix of our taxable income, federal and state and foreign country tax law and regulations and changes thereto, the determination of whether valuation allowances for certain tax assets are required or not, audits of prior years' tax returns resulting in adjustments, resolution of uncertain tax positions and different treatment for certain items for tax versus books. We expect fluctuations in our income taxes from year to year and from quarter to quarter. Some of the fluctuations may be significant and have a material impact on our results of operations.
On March 27, 2020, President Trump signed into law the CARES Act, which, along with earlier issued IRS guidance, provides for deferral of certain taxes. The CARES Act, among other things, also contains numerous other provisions which may benefit the Company. We continue to assess the effect of the CARES Act and ongoing government guidance related to the global pandemic that may be issued.
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Note 6: Accumulated Other Comprehensive Loss
The following table summarizes the changes in accumulated other comprehensive loss (in thousands):
Three Months EndedNine Months Ended
September 30,September 30,
 2021202020212020
Beginning balance$(3,487)$(4,666)$(4,059)$(3,452)
Other comprehensive income (loss) due to foreign currency translation, net of tax(401)349 171 (460)
Reclassification of amounts to income relating to APAC discontinued operations, net of tax 183  (222)
Ending balance$(3,888)$(4,134)$(3,888)$(4,134)
The Company reclassified $599,000 from accumulated other comprehensive income (loss) for the year ended December 31, 2020 due to Asia Pacific was considered a discontinued operation in March 2020. There were no amounts reclassified from accumulated other comprehensive loss for the three and nine months ended September 30, 2021. Accumulated other comprehensive income (loss) consists of foreign currency translation gain or loss.
Note 7: Stock-Based Compensation and Stock Options
The Company accounts for its employee stock options under the fair value method, which requires stock-based compensation to be estimated using the fair value on the date of grant using an option-pricing model. The value of the portion of the award that is expected to vest is recognized on a straight-line basis as expense over the related employees’ requisite service periods in the Company’s condensed consolidated statements of operations.
In September 2015, pursuant to an executed Option Agreement, the Company granted its Global Chief Executive Officer, Holger Bartel, options to purchase 400,000 shares of common stock of the Company, with an exercise price of $8.07 and quarterly vesting beginning on March 31, 2016 (the “2015 Option Agreement”). The 2015 Option Agreement expires in September 2025. The options are now fully vested and the stock-based compensation related to these