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in addition , our personnel expenses are decreased by the capitalization of payroll costs related to a project to develop software for internal use and the payroll costs associated with the processing and settlement of hurricane irma claims which are recoverable from reinsurers under reinsurance contracts . the year-over-year increase of $ 5,204,000 was primarily attributable to an increase in the headcount of temporary and full-time employees , merit increases for non-executive employees effective in late march 2019 , higher share-based compensation expense , and an increase in employee incentive bonus . interest expense for the years ended december 31 , 2019 and 2018 was approximately $ 13,055,0000 and $ 18,096,000 , respectively . the decrease resulted from the repayment of our 3.875 % convertible senior notes in march 2019. income tax expense for the year ended december 31 , 2019 was approximately $ 9,517,000 for state , federal , and foreign income taxes compared with income tax expense of approximately $ 9,177,000 for the year ended december 31 , 2018 , resulting in an effective tax rate of 26.4 % for 2019 and 34.1 % for 2018. the decrease was primarily attributable to the negative effect of the derecognition of deferred tax assets of approximately $ 1,825,000 and the nondeductible expense of approximately $ 1,887,000 , both of which occurred in 2018 and related to restricted stock awards with market conditions that were not met . ( see restricted stock awards in note 21 -- “ stock-based compensation ” to our consolidated financial statements under item 8 of this annual report on form 10-k ) . ratios : the loss ratio applicable to the year ended december 31 , 2019 ( losses and loss adjustment expenses incurred related to net premiums earned ) was 49.7 % compared with 51.2 % for the year ended december 31 , 2018. the decrease was primarily due to the increase in net premiums earned combined with the decrease in losses and loss adjustment expenses . the expense ratio applicable to the year ended december 31 , 2019 ( defined as underwriting expenses , general and administrative personnel expenses , interest and other operating expenses related to net premiums earned ) was 45.7 % compared with 44.6 % for the year ended december 31 , 2018. the increase in our expense ratio was primarily attributable to the increases in policy acquisition expenses and general and administrative personnel expenses , offset by the increase in net premiums earned as described earlier . the combined ratio is the measure of overall underwriting profitability before other income . our combined ratio for the year ended december 31 , 2019 was 95.4 % compared with 95.8 % for the year ended december 31 , 2018. the decrease was primarily to the increase in net premiums earned as described earlier . due to the impact our reinsurance costs have on net premiums earned from period to period , our management believes the combined ratio measured to gross premiums earned is more relevant in assessing overall performance . the combined ratio to gross premiums earned for the year ended december 31 , 2019 was 60.3 % compared with 59.6 % for the year ended december 31 , 2018. the increase in 2019 was primarily attributable to the net increase in total expenses . comparison of the year ended december 31 , 2018 with the year ended december 31 , 2017 our results of operations for the year ended december 31 , 2018 reflect net income of $ 17,725,000 , or $ 2.34 earnings per diluted common share , compared with a net loss of $ 6,893,000 , or $ 0.75 loss per common share , for the year ended december 31 , 2017. losses and loss adjustment expenses were approximately $ 56,301,000 lower in 2018 , attributable to lower catastrophe losses and decreased adverse development . catastrophe losses in 2018 primarily included net losses of approximately $ 16,520,000 from hurricane michael versus net losses of approximately $ 54,000,000 from hurricane irma in 2017. the year-over-year improvement in losses and loss adjustment expenses was offset by a net $ 11,196,000 decrease in net premiums earned , a net $ 3,315,000 decrease in income from investment activities and a $ 1,329,000 increase in interest expense . income tax expense in 2018 was negatively impacted by the derecognition of deferred tax assets of approximately $ 1,825,000 related to unvested restricted stock with market conditions and the nondeductible expense of approximately $ 1,887,000 associated with the reclassified dividends on such restricted stock awards , offset by a lower federal corporate income tax rate effective january 1 , 2018 . 25 r evenue gross premiums earned for the years ended december 31 , 2018 and 2017 were approximately $ 343,065,000 and $ 358,253,000 , respectively . the decrease in 2018 was primarily attributable to a net decrease in policies in force offset by an increase in the average premium per policy . premiums ceded for the years ended december 31 , 2018 and 2017 were approximately $ 129,643,000 and $ 133,635,000 , respectively , representing 37.8 % and 37.3 % , respectively , of gross premiums earned . the $ 3,992,000 decrease was primarily attributable to an unfavorable adjustment of $ 12,465,000 to premiums ceded in connection with retrospective provisions under certain reinsurance contracts due to losses incurred by hurricane irma during the third quarter of 2017 , offset by the recognition of additional premiums ceded of approximately $ 1,222,000 resulting from the termination of one reinsurance contract during the second quarter of 2018 ( see note 26 -- “ related party transactions ” to our audited consolidated financial statements under item 8 of this annual report on form 10-k for additional information ) and an increase in premiums ceded attributable to a lower retention level for the reinsurance contract year 2019/20 . for the year ended december 31 , 2018 , premiums ceded included a net decrease of approximately $ 485,000 versus a net increase of approximately $ 5,740,000 for the year ended december 31 , 2017 related to retrospective provisions . story_separator_special_tag net premiums written for the years ended december 31 , 2018 and 2017 totaled approximately $ 206,813,000 and $ 213,711,000 , respectively . net premiums written represent the premiums charged on policies issued during a fiscal period less any applicable reinsurance costs . the decrease in 2018 resulted primarily from a decrease in gross premiums written during the period due to policy attrition , offset by the decrease in premiums ceded as described above . we had approximately 127,000 policies in force at december 31 , 2018 versus approximately 139,000 policies in force at december 31 , 2017. net premiums earned for the years ended december 31 , 2018 and 2017 were approximately $ 213,422,000 and $ 224,618,000 , respectively , and reflect the gross premiums earned less reinsurance costs as described above . the following is a reconciliation of our net premiums written to net premiums earned for the years ended december 31 , 2018 and 2017 ( amounts in thousands ) : replace_table_token_9_th * unearned premiums are impacted by the timing and size of any takeout completed during the year net of attrition . net investment income for the years ended december 31 , 2018 and 2017 was approximately $ 16,581,000 and $ 11,439,000 , respectively . the year-over-year increase was attributable to an increase in income from limited partnership investments of approximately $ 2,096,000 , an increase of approximately $ 1,358,000 in income from real estate investments , and an increase in interest income from cash and short-term investments . see note 5 -- “ investments ” under net investment income to our consolidated financial statements under item 8 of this annual report on form 10-k. net realized investment gains for the years ended december 31 , 2018 and 2017 were approximately $ 6,183,000 and $ 4,346,000 , respectively . the gains in 2018 resulted primarily from sales intended to rebalance our investment portfolio to mitigate the impact from the rising interest rate trend and to decrease our holdings in municipal bonds as they become less attractive in a low tax rate environment . net unrealized investment losses for the year ended december 31 , 2018 were approximately $ 10,202,000 versus approximately $ 92,000 of net unrealized investment gains for the year ended december 31 , 2017. net unrealized investment gains or losses represent the net change in the fair value of equity securities . the decrease in 2018 primarily resulted from the adoption of the new accounting standard with regard to equity securities , combined with a general downturn in the u.s. securities markets in december 2018. net other-than-temporary impairment losses for the years ended december 31 , 2018 and 2017 were approximately $ 80,000 and $ 1,467,000 , respectively . during 2018 , we recognized impairment loss on one fixed-maturity security versus impairment losses specific to four fixed-maturity securities and six equity securities during 2017 . 26 expenses our losses and loss adjustment expenses amounted to approximately $ 109,328,000 and $ 165,629,000 for the years ended december 31 , 2018 and 2017 , respectively . during 2018 , losses and loss adjustment expenses included net losses of approximately $ 16,520,000 for hurricane michael as well as adverse development related to hurricane matthew of approximately $ 2,100,000 and adverse development related to non-catastrophe claims of approximately $ 9,900,000 primarily related to assignment of benefits litigation . losses and loss adjustment expenses in 2017 included net losses related to hurricane irma of approximately $ 54,000,000 as well as adverse development related to hurricane matthew of approximately $ 2,500,000 and adverse development related to non-catastrophe claims of approximately $ 16,200,000 primarily related to assignment of benefits litigation . policy acquisition and other underwriting expenses for the years ended december 31 , 2018 and 2017 were approximately $ 38,943,000 and $ 39,663,000 , respectively . the decrease from 2017 was primarily attributable to decreased commissions and premium taxes resulting from the net decrease in policies in force . general and administrative personnel expenses for the years ended december 31 , 2018 and 2017 were approximately $ 25,908,000 and $ 25,127,000 , respectively . the year-over-year increase of $ 781,000 was primarily attributable to the recognition of approximately $ 1,505,000 of cumulative dividends paid on unvested restricted stock awards of which market conditions will not be met and an increase of approximately $ 606,000 in employee incentive bonus , offset by an increase in recoverable hurricane irma payroll costs of $ 1,231,000 and lower share-based compensation expense during 2018. interest expense for the years ended december 31 , 2018 and 2017 was approximately $ 18,096,0000 and $ 16,767,000 , respectively . the increase primarily resulted from the 4.25 % convertible debt offering completed in march 2017. loss on repurchases of senior notes for the year ended december 31 , 2017 was approximately $ 743,000 , resulting from the early extinguishment of our 8 % senior notes . income tax expense for the year ended december 31 , 2018 was approximately $ 9,177,000 for state , federal , and foreign income taxes compared with income tax benefit of approximately $ 8,731,000 for the year ended december 31 , 2017 , resulting in an effective tax rate of 34.1 % for 2018 and 55.9 % for 2017. the decrease was primarily attributable to the positive impact from a lower federal corporate income tax rate effective january 1 , 2018 , offset by the negative effect of the derecognition of deferred tax assets of approximately $ 1,825,000 and the nondeductible expense of approximately $ 1,887,000 , both of which related to restricted stock awards with market conditions that will not be met . ( see restricted stock awards in note 21 -- “ stock-based compensation ” to our consolidated financial statements under item 8 of this annual report on form 10-k ) . ratios : the loss ratio applicable to the year ended december 31 , 2018 was 51.2 % compared with 73.8 % for the year ended december 31 , 2017. the decrease was primarily due to the decrease in losses and loss adjustment expenses as described previously .
| the $ 3,878,000 decrease was primarily attributable to a $ 6,778,000 reduction related to retrospective provisions under one reinsurance contract as opposed to a net reduction of approximately $ 485,000 in 2018 under the same contract . see “ economic impact of reinsurance contracts with retrospective provisions ” under “ critical accounting policies and estimates. ” premiums ceded in the prior year also included the recognition of additional premiums ceded of approximately $ 1,222,000 resulting from the termination of one reinsurance contract during the second quarter of 2018 ( see note 26 -- “ related party transactions ” to our audited consolidated financial statements under item 8 of this annual report on form 10-k for additional information ) . net premiums written for the years ended december 31 , 2019 and 2018 totaled approximately $ 239,190,000 and $ 206,813,000 , respectively . net premiums written represent the premiums charged on policies issued during a fiscal period less any applicable reinsurance costs . the increase in 2019 resulted primarily from an increase in gross premiums written from the growth in typtap business combined with the decrease in premiums ceded as described above . hcpci 's and typtap 's gross premiums written were approximately $ 304,683,000 and $ 60,272,000 , respectively , for 2019 compared with approximately $ 321,939,000 and $ 14,517,000 , respectively , for 2018. we had approximately 131,000 policies in force at december 31 , 2019 versus approximately 127,000 policies in force at december 31 , 2018. net premiums earned for the years ended december 31 , 2019 and 2018 were approximately $ 216,314,000 and $ 213,422,000 , respectively , and reflect the gross premiums earned less reinsurance costs as described above . the following is a reconciliation of our net premiums written to net premiums earned for the years ended december 31 , 2019 and 2018 ( amounts in thousands ) : replace_table_token_8_th net investment income for the years ended december 31 , 2019 and 2018 was approximately $ 13,642,000 and $ 16,581,000 , respectively . the year-over-year decrease was primarily attributable to a decrease
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in december 2009 , the epa determined that six ghgs , including carbon dioxide and methane , endanger the public health and welfare of current and future generations . in the same rulemaking , the epa found that emission of ghgs from new motor vehicles and their engines contribute to greenhouse gas pollution . although massachusetts v. epa did not involve the epa 's authority to regulate ghg emissions from stationary sources , such as coal-fueled power plants , the decision is likely to impact regulation of stationary sources . several petitioners have challenged the epa 's findings in the washington d.c. circuit court of appeals , and that litigation is ongoing . distributable cash flow under our partnership agreement , we are required to distribute all of our available cash each quarter . because distributable cash flow is a significant liquidity metric that is an indicator of our ability to generate cash flows at a level that can sustain or support an increase in quarterly cash distributions paid to our partners , we view it as the most important measure of our success as a company . distributable cash flow is also the quantitative standard used in the investment community with respect to publicly traded partnerships . our distributable cash flow represents cash flow from operations less actual principal payments and cash reserves set aside for future scheduled principal payments on our senior notes . although distributable cash flow is a non-gaap financial measure , we believe it is a useful adjunct to net cash provided by operating activities 38 under gaap . distributable cash flow is not a measure of financial performance under gaap and should not be considered as an alternative to cash flows from operating , investing or financing activities . distributable cash flow may not be calculated the same for nrp as for other companies . a reconciliation of distributable cash flow to net cash provided by operating activities is set forth below . reconciliation of gaap net cash provided by operating activities to non-gaap distributable cash flow replace_table_token_7_th recent acquisitions we are a growth-oriented company and have closed a number of acquisitions over the last several years . our most recent acquisitions are briefly described below . colt . between september 2009 and february 2012 , we had acquired approximately 118.1 million tons of an estimated total of 200 million tons of reserves related to the deer run mine in illinois from colt , llc , an affiliate of the cline group , for approximately $ 215 million of the $ 255 million purchase price . the final closing is anticipated to occur in the third quarter of 2012. oklahoma oil and gas . from december 2011 through february 2012 , we acquired approximately 9,500 net mineral acres located in the mississippian lime oil play in northern oklahoma for $ 32.6 million . royal . in july 2011 , we acquired approximately 44,000 acres of coal reserves and coal bed methane located in pennsylvania and illinois from royal oil and gas corporation for $ 8.0 million . nbr sand . in june 2011 , we acquired an overriding royalty interest in approximately 711 acres of frac sand reserves near tyler , texas for $ 16.5 million . east tennessee materials . in march 2011 , we acquired approximately 500 acres of mineral and surface rights related to limestone reserves in cleveland , tennessee near chattanooga for $ 4.7 million . calx resources . in february 2011 , we acquired approximately 500 acres of mineral and surface rights related to limestone reserves on the tennessee river near paducah , kentucky for $ 16.0 million , of which $ 15.5 million was paid as of the date of this filing and the remaining $ 0.5 million will be paid as certain milestones are completed . brp llc . in june 2010 , we and international paper company formed a venture , brp llc , to own and manage mineral assets previously owned by international paper . some of these assets are currently subject to leases , and certain other assets have not yet been developed but are available for future development by the venture . in exchange for a $ 42.5 million contribution we became the managing and controlling member with the right to designate two of the three managers of brp . identified tangible assets in the transaction include oil and gas , coal and aggregate reserves , as well the rights to coal bed methane , geothermal , co 2 sequestration , water rights , precious metals , industrial minerals and base metals . certain properties , including oil and gas , coal and aggregates , as well as land leased for cell towers , are currently under lease and generating revenues . rockmart slate . in june 2010 , we acquired approximately 100 acres of mineral and surface rights related to slate reserves in rockmart , georgia from a local operator for a purchase price of $ 6.7 million . 39 sierra silica . in april 2010 , we acquired the rights to silica reserves on a 1,000 acre property in northern california from sierra silica resources llc for $ 17.0 million . north american limestone . in april 2010 , we signed an agreement to build and own for the construction of a fine grind processing facility for high calcium carbonate limestone located in putnam county , indiana . we lease the facility to a local operator . the total cost of the facility was $ 6.5 million . northgate-thayer . story_separator_special_tag in march 2010 , we acquired approximately 100 acres of mineral and surface rights related to dolomite limestone reserves in white county , indiana from a local operator for a purchase price of $ 7.5 million . massey-override . in march 2010 , we acquired from massey energy ( now alpha natural resources ) subsidiaries overriding royalty interests in coal reserves located in southern west virginia and eastern kentucky . total consideration for this purchase was $ 3.0 million . critical accounting policies coal and aggregate royalties . coal and aggregate royalty revenues are recognized on the basis of tons of mineral sold by our lessees and the corresponding revenue from those sales . generally , the lessees make payments to us based on the greater of a percentage of the gross sales price or a fixed price per ton of mineral they sell , subject to minimum annual or quarterly payments . processing and transportation fees . processing fees are recognized on the basis of tons of coal processed through the facilities by our lessees and the corresponding revenue from those sales . generally , the lessees of the processing facilities make payments to us based on the greater of a percentage of the gross sales price or a fixed price per ton of coal that is processed and sold from the facilities . the processing leases are structured so that the lessees are responsible for operating and maintenance expenses associated with the facilities . coal transportation fees are recognized on the basis of tons of coal transported over the beltlines . under the terms of the transportation contracts , we receive a fixed price per ton for all coal transported on the beltlines . oil and gas royalties . oil and gas royalties are recognized on the basis of volume of hydrocarbons sold by lessees and the corresponding revenue from those sales . generally , the lessees make payments based on a percentage of the selling price . some are subject to minimum annual payments or delay rentals . minimum royalties . most of our lessees must make minimum annual or quarterly payments which are generally recoupable over certain time periods . these minimum payments are recorded as deferred revenue . the deferred revenue attributable to the minimum payment is recognized as revenues either when the lessee recoups the minimum payment through production or when the period during which the lessee is allowed to recoup the minimum payment expires . depreciation , depletion and amortization . we depreciate our plant and equipment on a straight line basis over the estimated useful life of the asset . we deplete mineral properties on a units-of-production basis by lease , based upon minerals mined in relation to the net cost of the mineral properties and estimated proven and probable tonnage in those properties . we amortize intangible assets on a units-of-production basis , unless classified as a temporarily idled asset then a minimum amortization is applied . we estimate proven and probable mineral reserves with the assistance of third-party mining consultants , and we use estimation techniques and recoverability assumptions . we update our estimates of mineral reserves periodically and this may result in material adjustments to mineral reserves and depletion rates that we recognize prospectively . historical revisions have not been material . asset impairment . if facts and circumstances suggest that a long-lived asset or an intangible asset may be impaired , the carrying value is reviewed . if this review indicates that the value of the asset will not be recoverable , as determined based on projected undiscounted cash flows related to the asset over its remaining life , then the carrying value of the asset is reduced to its estimated fair value . share-based payments . we account for awards under our long-term incentive plan under financial accounting standards board 's ( fasb ) stock compensation authoritative guidance . this authoritative guidance 40 provides that grants must be accounted for using the fair value method , which requires us to estimate the fair value of the grant and charge or credit the estimated fair value to expense over the service or vesting period of the grant based on fluctuations in value . in addition , this authoritative guidance requires that estimated forfeitures be included in the periodic computation of the fair value of the liability and that the fair value be recalculated at each reporting date over the service or vesting period of the grant . recent accounting pronouncements in june 2011 , the fasb amended the presentation of comprehensive income . the amendments in this update give us the option to present the total comprehensive income , the components of net income , and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements . these amendments are effective for fiscal years and interim periods within those years , beginning on or after december 15 , 2011. we have not determined which method of presentation we will elect . in may 2011 , the fasb amended fair value measurement and disclosure requirements . the amendments result in common fair value measurement and disclosure requirements in u.s. gaap and international financial reporting standards ( ifrss ) . some of the amendments clarify the fasb 's intent about the application of existing fair value measurement requirements . other amendments change a particular principal or requirement for measuring fair value or for disclosing information about fair value measurements . the amendment likely to have the most impact on us relates to the fair value disclosure of the senior notes ' quantitative information about unobservable inputs used in fair value measurements , that is categorized within level 3 of the fair value hierarchy . these amendments are effective for fiscal years and interim periods within those years , beginning on or after december 15 , 2011. we do not expect this adoption to have a material impact on
| these other sources include : oil and gas royalties , property taxes , minimums recognized , overriding royalties , timber , rentals , wheelage and other income . minimums recognized as revenues increased in 2010 by $ 12.9 million primarily due to a non-recoupable minimum on our colt reserves received in 2010. in future years , the minimums received with respect to this property will be reflected as revenue only when recouped through production . 45 operating costs and expenses . included in total expenses are : depreciation , depletion and amortization were $ 65.1 million , $ 57.0 million and $ 60.0 million for the years ended december 31 , 2011 , 2010 and 2009 , respectively . excluding a one-time expense of $ 8.2 million for a terminated lease due to a mine closure , depletion increased from 2009 due to a refinement of our accounting policy for contract amortization during 2010. other than the one-time adjustment , depreciation , depletion and amortization was approximately the same for all three years . general and administrative expenses were $ 29.6 million , $ 29.9 million and $ 23.1 million for the years ended december 31 , 2011 , 2010 and 2009 , respectively . the change in general and administrative expense is primarily due to accruals under our long-term incentive plan attributable to fluctuations in our unit price and additional personnel required to manage our properties . the increase from 2010 over 2009 also reflects expenses of $ 2.5 million associated with the formation of the venture with international paper company during 2010. property , franchise and other taxes were $ 14.5 million , $ 15.1 million and $ 15.0 million for the years ended december 31 , 2011 , 2010 and 2009 , respectively . a substantial portion of our property taxes is reimbursed to us by our lessees and is reflected as property tax revenue on our statements of income . interest expense . interest expense was $ 49.1 million , $ 41.6 million and $ 40.1 million for the years ended december 31 , 2011 , 2010 and 2009 , respectively . due to additional
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section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 * 32.2 certification by the chief financial officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 * * filed herewith signatures in accordance with section 13 or 15 ( d ) of the exchange act , the registrant caused this report to be signed on its behalf by the undersigned , thereunto duly authorized on july 14 , 2020. all state properties holdings , inc. . by : / s/ joseph c , passalaqua joseph c. passalaqua chief executive officer ( principal executive officer ) by : / s/ joseph c , passalaqua joseph c. passalaqua chief financial officer ( principal financial officer ) 27 story_separator_special_tag forward looking statements this section and other parts of this form 10-k annual report includes `` forward-looking statements '' , that involves risks and uncertainties . all statements other than statements of historical facts , included in this form 10-k that address activities , events , or developments that we expect or anticipate will or may occur in the future , including such things as future capital expenditures ( including the amount and nature thereof ) , business strategy and measures to implement strategy , competitive strength , goals , expansion and growth of our business and operations , plans , references to future success , reference to intentions as to future matters , and other such matters are forward-looking statements . in some cases , you can identify forward-looking statements by terminology such as `` may , '' `` will , '' `` should , '' `` expects , '' `` plans , '' `` anticipates , '' `` believes , '' `` estimates , '' `` predicts , '' `` potential , '' or `` continue , '' or the negative of such terms or other comparable terminology . these statements are only predictions . actual events or results may differ materially . these statements are based upon certain assumptions and analyses made by us in light of our experience and our perception of historical trends , current conditions and expected future developments as well as other factors that we believe are appropriate in the circumstances . however , whether actual results and developments will conform to our expectations and predictions is subject to a number of risks , uncertainties , and other factors , many of which are beyond our control . although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance , or achievements . moreover , we do not assume responsibility for the accuracy and completeness of such forward-looking statements . we are under no duty to update any of the forward-looking statements after the date of this report to conform such statements to actual results . overview all state properties holdings , inc. ( the `` company '' , `` we '' , or `` us '' ) was incorporated under the laws of the state of nevada on april 24 , 2008. all state properties holdings , inc. is to serve as a vehicle to effect a merger , exchange of capital stock , asset acquisition , or other business combination with a domestic or foreign private business . the company not commenced planned principal operations . the company has a june 30 year end . as of june 30 , 2019 , the issued and outstanding shares of common stock totaled 2,964,181,540. certain statements contained below are forward-looking statements ( rather than historical facts ) that are subject to risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements . we are considered a start-up corporation . our auditors have issued a going concern opinion in the financial statements for the year ended june 30 , 2020. story_separator_special_tag roman ; margin:0 ; color : # 000000 ; background-color : # ffffff '' > contractual obligations as a `` smaller reporting company '' as defined by item 10 of regulation s-k , we are not required to provide this information . critical accounting policies we have one main products , namely the concealed weapons detection system . in all cases revenue is considered earned when the product is shipped to the customer , installed ( if necessary ) and accepted by the customer as a completed sale . each product has an unconditional 30-day warranty , during which time the product can be returned for a complete refund . customers can purchase extended warranties , which provide for replacement or repair of the unit beyond the period provided by the unconditional warranty . warranties can be purchased for various periods but generally they are for one-year period that begins after any other warranties expire . the revenue from warranties is recognized on a straight-line bases over the period covered by the warranty . prior to the issuance of financial statements management reviews any returns subsequent to the end of the accounting period which are from sales recognized during the accounting period and makes appropriate adjustments as necessary . product prices are fixed or determinable and products are only shipped when collectability is reasonably assured . stock based compensation we account for share-based compensation at fair value . stock based compensation cost for stock options granted to employees , board members and service providers is determined at the grant date using an option pricing model . the value of the award that is ultimately expected to vest is recognized as expensed on a straight-line basis over the requisite service period . story_separator_special_tag section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 * 32.2 certification by the chief financial officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 * * filed herewith signatures in accordance with section 13 or 15 ( d ) of the exchange act , the registrant caused this report to be signed on its behalf by the undersigned , thereunto duly authorized on july 14 , 2020. all state properties holdings , inc. . by : / s/ joseph c , passalaqua joseph c. passalaqua chief executive officer ( principal executive officer ) by : / s/ joseph c , passalaqua joseph c. passalaqua chief financial officer ( principal financial officer ) 27 story_separator_special_tag forward looking statements this section and other parts of this form 10-k annual report includes `` forward-looking statements '' , that involves risks and uncertainties . all statements other than statements of historical facts , included in this form 10-k that address activities , events , or developments that we expect or anticipate will or may occur in the future , including such things as future capital expenditures ( including the amount and nature thereof ) , business strategy and measures to implement strategy , competitive strength , goals , expansion and growth of our business and operations , plans , references to future success , reference to intentions as to future matters , and other such matters are forward-looking statements . in some cases , you can identify forward-looking statements by terminology such as `` may , '' `` will , '' `` should , '' `` expects , '' `` plans , '' `` anticipates , '' `` believes , '' `` estimates , '' `` predicts , '' `` potential , '' or `` continue , '' or the negative of such terms or other comparable terminology . these statements are only predictions . actual events or results may differ materially . these statements are based upon certain assumptions and analyses made by us in light of our experience and our perception of historical trends , current conditions and expected future developments as well as other factors that we believe are appropriate in the circumstances . however , whether actual results and developments will conform to our expectations and predictions is subject to a number of risks , uncertainties , and other factors , many of which are beyond our control . although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance , or achievements . moreover , we do not assume responsibility for the accuracy and completeness of such forward-looking statements . we are under no duty to update any of the forward-looking statements after the date of this report to conform such statements to actual results . overview all state properties holdings , inc. ( the `` company '' , `` we '' , or `` us '' ) was incorporated under the laws of the state of nevada on april 24 , 2008. all state properties holdings , inc. is to serve as a vehicle to effect a merger , exchange of capital stock , asset acquisition , or other business combination with a domestic or foreign private business . the company not commenced planned principal operations . the company has a june 30 year end . as of june 30 , 2019 , the issued and outstanding shares of common stock totaled 2,964,181,540. certain statements contained below are forward-looking statements ( rather than historical facts ) that are subject to risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements . we are considered a start-up corporation . our auditors have issued a going concern opinion in the financial statements for the year ended june 30 , 2020. story_separator_special_tag roman ; margin:0 ; color : # 000000 ; background-color : # ffffff '' > contractual obligations as a `` smaller reporting company '' as defined by item 10 of regulation s-k , we are not required to provide this information . critical accounting policies we have one main products , namely the concealed weapons detection system . in all cases revenue is considered earned when the product is shipped to the customer , installed ( if necessary ) and accepted by the customer as a completed sale . each product has an unconditional 30-day warranty , during which time the product can be returned for a complete refund . customers can purchase extended warranties , which provide for replacement or repair of the unit beyond the period provided by the unconditional warranty . warranties can be purchased for various periods but generally they are for one-year period that begins after any other warranties expire . the revenue from warranties is recognized on a straight-line bases over the period covered by the warranty . prior to the issuance of financial statements management reviews any returns subsequent to the end of the accounting period which are from sales recognized during the accounting period and makes appropriate adjustments as necessary . product prices are fixed or determinable and products are only shipped when collectability is reasonably assured . stock based compensation we account for share-based compensation at fair value . stock based compensation cost for stock options granted to employees , board members and service providers is determined at the grant date using an option pricing model . the value of the award that is ultimately expected to vest is recognized as expensed on a straight-line basis over the requisite service period .
| and accrued liabilities from $ 3,500 on june 30 , 2019 to $ 15,223 on june 30 , 2020 and an increase in due to related parties from $ 70,061 on june 30,2019 to $ 75,673 on june 30 , 2020. cashflows from operating activities during the year ended june 30 , 2020 and june 30 , 2019 , the company did not used any cash for operating activities . cashflows from financing activities during the years ended june 30 , 2020 and june 30 , 2019 , the company did not receive any cash from financing activities . subsequent developments on april 27 , 2020 , the district court in clark county nevada issued a default judgement against defendants wayne mower , robert kroff and joseph moretti stating that their actions including authorizing a 7,500 for 1 reverse stock split of the registrant were neither authorized nor permitted . the court stated that the defendants were not authorized to engage in a reverse stock split . neither did these defendants had any ownership or management interest in the company . the court stated that these defendants acted with clear disregard of the rights of the shareholders and management . that these defendants conspired to deprive the shareholders , of their interest in the company . the court concluded that the acts of these defendants were those of fraudulent rogue actors without any authority . on may 28 , 2020 , the majority of the shareholders and board of directors of the registrant approved a name change for the registrant to petro u.s.a. , inc. to reflect a change in the business to become an operator of truck stops and travel centers in the united states , offering diesel fuel and gasoline , full service and fast food restaurants , maintenance and repair service for trucks , and groceries and convenience goods , among other products and services . the majority of the shareholders and board of directors
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revenues and expenses are translated at the average rate during the period . equity transactions are translated using historical exchange rates . adjustments resulting from translating foreign currency financial statements into u.s. dollars are included in accumulated other comprehensive loss . we may incur negative foreign currency translation changes as a result of changes in currency exchange rates . acquisition on december 17 , 2014 , pieris , pieris gmbh and the former stockholders of pieris gmbh entered into an acquisition agreement ( acquisition agreement ) , and completed the acquisition , pursuant to which the stockholders of pieris gmbh contributed all of their equity interests in pieris gmbh in exchange for shares of pieris common stock , which resulted in pieris gmbh becoming a wholly owned subsidiary of pieris , which we refer to as the acquisition . on december 5 , 2014 , pieris completed a 2.272727-for-1 forward split of its common stock in the form of a share dividend , with the result that 6,100,000 shares of common stock outstanding immediately prior to the stock split became 13,863,647 shares of common stock outstanding immediately thereafter . on december 16 , 2014 , prior to the closing of the acquisition , pieris amended and restated its articles of incorporation to , among other things , change its name from marika inc. to pieris pharmaceuticals , inc. , and increase its authorized capital stock from 75,000,000 shares of common stock , par value $ 0.001 per share , to 300,000,000 shares of common stock , par value $ 0.001 per share , and 10,000,000 shares of blank check preferred stock , par value $ 0.001 per share . on december 17 , 2014 , pieris transferred its pre-acquisition assets and liabilities to its former majority stockholder , aleksandrs sviks , in exchange for the surrender by him and cancellation of 11,363,635 shares of pieris common stock . all share and per share numbers in this annual report on form 10-k relating to our shares of common stock have been adjusted to give effect to the stock split described above , unless otherwise stated . at the closing of the acquisition , pieris issued an aggregate of 20,000,000 shares of its common stock to the former stockholders of pieris gmbh in exchange for all of the outstanding shares ( common and preferred ) of pieris gmbh 's capital stock . 84 in accordance with financial accounting standards board , or fasb , accounting standards codification , or asc , section 805 entitled , business combinations , pieris gmbh was considered the accounting acquirer in the acquisition and accounted for the transaction as a capital transaction . consequently , the assets and liabilities and the historical operations that will be reflected in our financial statements are those of pieris gmbh and are be recorded at the historical cost basis of pieris gmbh . tum arbitration since march 20 , 2014 , the company was in arbitration proceedings , or the tum arbitration , against technische universität münchen , or munich technical university and hereafter tum , to address issues regarding the calculation of payments due from the company to tum under the tum license agreement . under the agreement , tum has exclusively licensed , or in some cases assigned , to pieris gmbh certain intellectual property and know-how that has become part of the anticalin ® proprietary technologies . in return , pieris gmbh agreed to pay to tum certain annual license fees , milestones and royalties for its own proprietary drug development and sales , as well as a variable fee as a function of out-licensing revenues , or the out-license fee , where such out-license fee is creditable against annual license payments to tum . as required by the agreement , pieris gmbh provided to tum its calculation of the out-license fee for the period beginning july 4 , 2003 and ending on december 31 , 2012 in the amount of $ 0.4 million excluding value-added tax . tum has asserted that the out-license fee for this period amounts to 2.5 million ( $ 3.0 million ) excluding value-added tax and has threatened to terminate the license agreement if the out-license fee is not paid . we instituted arbitration to request confirmation that our calculation of the payments owed to tum is accurate and will govern all current and future payments due in respect of the out-license fee under the agreement . on november 19 , 2015 , the company received notification from the arbitration tribunal of its award . in its award , as corrected on january 25 , 2016 , the tribunal dismissed the company 's request for declaratory judgment and granted tum 's counterclaim in an amount of 0.9 million ( $ 0.9 million ) , plus interest expense of $ 0.2 million . the tribunal dismissed the remainder of tum´s counterclaim . the tribunal also ruled that tum must reimburse us in the amount of 0.1 million ( $ 0.1 million ) for legal fees incurred and dismissed tum 's claim for reimbursement of its costs . key financial terms and metrics the following discussion summarizes the key factors our management believes are necessary for an understanding of our consolidated financial statements . revenues we have not generated any revenues from product sales to date , and we do not expect to generate revenues from product sales for the foreseeable future . our revenues for the last two years have been primarily from the license and collaboration agreements with sanofi group , or sanofi , and daiichi sankyo company limited , or daiichi sankyo and , to a much lesser extent , grants from government agencies . the revenues from sanofi and daiichi sankyo have been comprised primarily of upfront payments , research and development services and milestone payments . we recognized revenues from upfront payments under these agreements on a straight-line basis over the required service period because we determined that the licenses to which the payments related did not have standalone value . story_separator_special_tag research service revenue is recognized when the costs are incurred and the services have been performed . revenue from milestone payments is recognized when all of the following conditions are met : ( 1 ) the milestone payments are non-refundable , ( 2 ) the probability of the achievement of the milestone is near certain , ( 3 ) substantive effort on our part is involved in achieving the milestone , ( 4 ) the amount of the milestone payment is reasonable in relation to the effort expended or the risk associated with achievement of the milestone , and ( 5 ) a reasonable amount of time passes between the up-front license payment and the first milestone payment . 85 we expect our revenues for the next several years to consist of upfront payments , research funding and milestone payments from strategic collaborations we currently have or may establish in the future . research and development expenses the process of researching and developing drugs for human use is lengthy , unpredictable and subject to many risks . we expect to continue incurring substantial expenses for the next several years as we continue to develop our clinical and preclinical drug candidates and programs . we are unable with any certainty to estimate either the costs or the timelines in which those costs will be incurred . our current development plans focus on three lead drug candidates : prs-080 , prs-060 and 300-series . these programs consume a large proportion of our current , as well as projected , resources . our research and development costs include costs that are directly attributable to the creation of certain of our anticalin ® drug candidates and are comprised of : internal recurring costs , such as labor and fringe benefits , materials and supplies , facilities and maintenance costs ; and fees paid to external parties who provide us with contract services , such as preclinical testing , manufacturing and related testing , and clinical trial activities . in 2016 we expect our research and development expenses to increase significantly as a result of continuing to further our drug candidates and programs . general and administrative expenses general and administrative expenses consist primarily of payroll , employee benefits , equity compensation , and other personnel-related costs associated with executive , administrative and other support staff . other significant general and administrative expenses include the costs associated with professional fees for accounting , auditing , insurance costs , consulting and legal services . story_separator_special_tag style= '' margin-top:0pt ; margin-bottom:0pt ; font-size:10pt ; font-family : times new roman '' > 88 in april 2014 , we entered into a repayment agreement with tbg technologie-beteiligungs-gesellschaft mbh ( tbg ) , the subsidiary of kfw bank , frankfurt ( kfw ) , regarding our repayment of our liabilities to tbg outstanding at december 31 , 2013 in a total amount 1.2 million ( $ 1.3 million ) . these liabilities were repaid during 2015 and as of december 31 , 2015 there were no liabilities to tbg owed . on december 17 , 2014 we entered into a securities purchase agreement , with the investors , providing for the issuance and sale to such investors of an aggregate of 6,779,510 shares of our common stock in the private placement for gross proceeds to us of $ 13.6 million . after deducting for placement agent and other fees and expenses , the aggregate net proceeds from the private placement were $ 12.0 million . on july 6 , 2015 the company closed a public offering of an aggregate of 9,090,909 shares of the company´s common stock at a purchase price of $ 2.75 per share . on july 28 , 2015 the underwriters exercised their option to purchase an additional 1,211,827 shares of common stock at the public offering price of $ 2.75 per share . gross proceeds from the offering , including the over-allotment option , were $ 28.3 million and net proceeds were approximately $ 25.8 million . we will need to obtain additional funding in order to continue our operations and pursue our business plans . if we are unable to raise capital when needed or on attractive terms , we would be forced to delay , reduce or eliminate our research and development programs or future commercialization efforts . we expect that our existing cash and cash equivalents will enable us to fund our operations and capital expenditure requirements for at least the next twelve months . our requirements for additional capital will depend on many factors , including the following : the scope , rate of progress , results and cost of our clinical studies , preclinical testing and other related activities ; the cost of manufacturing clinical supplies , and establishing commercial supplies , of our drug candidates and any products that we may develop ; the number and characteristics of drug candidates that we pursue ; the cost , timing and outcomes of regulatory approvals ; the cost and timing of establishing sales , marketing and distribution capabilities ; the terms and timing of any collaborative , licensing and other arrangements that we may establish ; the timing , receipt and amount of sales , profit sharing or royalties , if any , from our potential products ; the cost of preparing , filing , prosecuting , defending and enforcing any patent claims and other intellectual property rights ; and the extent to which we acquire or invest in businesses , products or technologies , although we currently have no commitments or agreements relating to any of these types of transactions . we can not be sure that future funding will be available to us on acceptable terms , or adequate enough at all . due to often volatile nature of the financial markets , equity and debt financing may be difficult to obtain . in addition , any unfavorable development or delay in the progress for our 300-series programs , including prs-343 and prs-080 and prs-060 could have a material adverse impact on our ability to raise additional capital .
| 2015 as compared to $ 5.6 million for the fiscal year ended december 31 , 2014. the $ 2.6 million increase in total research and development expenses in the fiscal year ended december 31 , 2015 compared to the fiscal year ended december 31 , 2014 is primarily due to a $ 2.3 million increase for consulting expenses , labs supplies and personnel costs associated with our 300-series programs in the fiscal year ended december 31 , 2015. our prs-060 program increased $ 0.4 million due to increased preclinical efforts involving research studies . our prs-080 program increased by $ 0.2 million due to the phase ia clinical trial activity that began in late 2014 , and was completed during 2015 , as well as clinical manufacturing costs . other r & d 87 activities decreased by $ 0.3 million . included in other r & d activities in the 2015 period is $ 0.9 million of license fees associated with the tum license agreement offset by an estimated tax credit of $ 0.3 million attributable to 2015 r & d expenses incurred in australia and an additional reduction of costs related to other projects , as we focused work on our major projects during 2015. general and administrative expenses general and administrative expenses were $ 8.4 million for the fiscal year ended december 31 , 2015 as compared to $ 7.0 million for the fiscal year ended december 31 , 2014. the increase of $ 1.4 million resulted primarily from a $ 1.1 million increase in investor relations expense , directors and officer insurance premiums , and board fees associated with being a public company . personnel and travel related costs increased by $ 0.6 million , offset by a decrease of $ 0.6 million in lower consulting costs . stock compensation expenses increased by $ 0.2 million for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 .
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in connection with the closure of the duluth mill , we recognized $ 65 million of accelerated depreciation which is included in depreciation and amortization on the consolidated statement of operations for the year ended december 31 , 2020. in addition , we recognized $ 6 million in charges associated with certain contract termination , write-off of property , plant and equipment , spare parts and inventory , and $ 1 million in additional severance and related benefits in the fourth quarter of 2020 due to a further reduction in the remaining employees . on february 8 , 2021 , we decided to permanently shut down the no . 14 paper machine and certain other long-lived assets at our paper mill in wisconsin rapids , wisconsin , while continuing to explore viable and sustainable alternatives with the remaining assets , including our converting operations , no . 16 paper machine and other remaining long-lived assets . this decision will permanently reduce our total annual production capacity by 185,000 tons of coated paper . we furloughed approximately 700 employees when the wisconsin rapids mill was idled in july 2020 and do not expect to further reduce the number of 27 employees remaining at the mill . in the first quarter of 2021 , we expect to recognize $ 95 million to $ 105 million of accelerated depreciation and pre-tax non-cash charges associated with the no . 14 paper machine and certain other long-lived assets . luke mill on april 30 , 2019 , we announced the permanent shutdown of our paper mill in luke , maryland in response to the continuing decline in customer demand for the grades of coated freesheet paper produced at the luke mill , along with rising input costs , a significant influx of imports and rising compliance costs and infrastructure challenges associated with environmental regulation . we completed the shutdown and closure of the luke mill in june 2019 , which reduced our coated freesheet production capacity by approximately 450,000 tons and eliminated approximately 675 positions . on august 1 , 2020 , we entered into an equipment purchase agreement with halkali kagit karton sanayi ve tic . a.s. , a company organized under the laws of turkey , whereby we agreed to sell , and the buyer agreed to purchase , certain equipment at our luke mill , primarily including two paper machines . the purchase price was $ 11 million in cash due at various milestones . we received $ 8 million in non-refundable deposits associated with the sale during the year ended december 31 , 2020 , and an additional $ 1 million in the first quarter of 2021. we expect to receive an additional $ 1 million in the second quarter of 2021 and the final payment of $ 1 million by the third quarter of 2021. the closing of the equipment purchase , including the transfer of title and ownership of the equipment to the buyer , will occur upon satisfactory completion of the disassembly and removal of the equipment and the receipt , by us , of all payments due from the buyer . on october 30 , 2020 , we received $ 4 million of cash proceeds for the sale of ancillary land associated with our luke mill , with a net book value of $ 4 million . we have evaluated the remaining assets of our luke mill and have received a letter of intent to purchase these assets . negotiations for a purchase agreement are ongoing . changes to directors and officers on january 30 , 2020 , we entered into a cooperation agreement with lapetus capital ii llc together with its affiliates , including atlas and blue wolf and certain of their respective affiliates , which settled the proxy contest with respect to our 2019 annual meeting . pursuant to the cooperation agreement , verso , atlas and blue wolf agreed to take the necessary actions for verso 's board of directors to consist of the following individuals immediately after our 2019 annual meeting : dr. robert k. beckler , marvin cooper , sean t. erwin , jeffrey e. kirt , randy j. nebel , nancy m. taylor and adam st. john . immediately following the certification of voting result of the 2019 annual meeting on february 6 , 2020 , marvin cooper was appointed to fill a vacancy on the board . on september 30 , 2020 , adam st. john resigned from his role as president and chief executive officer and from our board of directors and randy j. nebel , a member of our board of directors , was appointed as our interim president and chief executive officer . on january 27 , 2021 , the board of directors appointed randy j. nebel as verso 's president and chief executive officer . covid-19 pandemic the outbreak of covid-19 , which was declared by the world health organization to be a global pandemic , is impacting worldwide economic activity . in an effort to contain and combat the spread of covid-19 , government and health authorities around the world have taken extraordinary and wide-ranging actions , including orders to close all businesses not deemed essential , quarantines and “ stay-at-home ” orders . although some of these governmental restrictions have since been lifted or scaled back , recent surges of covid-19 and the discovery of new variants of the virus may lead to restrictions being implemented in an effort to reduce the spread of covid-19 . we serve as an essential manufacturing business and , as a result , we have continued to be operational during this time in order to meet the ongoing needs of our customers , including those in other essential business sectors , which provide food , medical and hygiene products needed in a global health crisis . the guidelines and orders enacted by federal , state and local governments have impacted demand from retailers , political campaigns , and sports and entertainment events , driving reduced purchases of printed materials and substantially impacting our graphic paper business . story_separator_special_tag our covid-19 preparedness and response team has been monitoring the pandemic and related events and preparing and implementing responses in accordance cdc and osha recommendations as well as federal , state and local guidelines . 28 while we can not reasonably estimate the full impact of covid-19 on our business , financial position , results of operations and cash flows , the pandemic will continue to have a negative impact on our business and financial results . the full extent to which covid-19 impacts our operations will depend on future developments , which are highly uncertain , including , among others , the duration of the outbreak , new information that may emerge concerning the severity of covid-19 and the actions taken , especially those by governmental authorities , to contain its spread or treat its impact including the availability , effectiveness and or public acceptance of any fda approved covid-19 vaccines . share repurchase authorization on february 26 , 2020 , our board of directors authorized up to $ 250 million of net proceeds from the pixelle sale to be used to repurchase outstanding shares of our common stock . during the year ended december 31 , 2020 , we purchased approximately 2.2 million shares of our common stock through open market purchases and 10b-5 programs under the share repurchase authorization at a weighted average cost of $ 13.39 per share . in conjunction with the declaration of the special cash dividend of $ 3.00 per share , or $ 101 million , on august 5 , 2020 , our board of directors reduced the total amount of the share repurchase authorization from $ 250 million to $ 150 million . as of december 31 , 2020 , $ 121 million of the $ 150 million authorized remained . selected factors affecting operating results net sales our sales , which we report net of rebates , allowances and discounts , are a function of the number of tons of paper that we sell and the price at which we sell our paper . paper prices historically have been a function of macroeconomic factors which influence supply and demand . price has historically been substantially more variable than volume and can change significantly over relatively short time periods . we are primarily focused on serving the following end-user categories : specialty converters , general commercial print , catalogs and magazine publishers . coated paper demand is primarily driven by advertising and print media usage . to offset the decline in demand for graphic paper , we are constantly looking at new product development and production improvements to reposition our assets into more stable markets . many of our customers provide us with forecasts , which allow us to plan our production runs in advance , optimizing production over our integrated mill system and thereby reducing costs and increasing overall efficiency . generally , our sales agreements do not extend beyond the calendar year and provide for quarterly or semiannual price adjustments based on market price movements . we reach our end-users through several channels , including merchants , brokers , printers and direct sales to end-users . we sell our products to approximately 200 customers which comprise approximately 1,100 end-user accounts . in 2020 , our two largest customers , central national-gottesman and veritiv corporation , together accounted for 33 % of our net sales . cost of products sold we are subject to changes in our cost of sales caused by movements in underlying commodity prices . the principal components of our cost of sales are wood fiber , wood pulp , chemicals , energy , labor and maintenance . costs for commodities , including wood fiber , wood pulp , chemicals and energy , are the most variable component of our cost of sales because their prices can fluctuate substantially , sometimes within a relatively short period of time . in addition , our aggregate commodity purchases fluctuate based on the volume of paper that we produce . wood fiber . we source our wood fiber from a broad group of timberland and sawmill owners located in the regions around our mills . our cost to purchase wood is affected directly by the market price of wood in our regional markets and indirectly by the variability of fuel cost for the logging and transportation of timber to our facilities . while we have fiber supply agreements in place that ensure delivery of a substantial portion of our wood requirements , purchases under these agreements are typically at market rates . wood pulp . we source bleached wood pulp from market producers to supplement fiber requirements at our mills . the primary pulp procured is northern bleached softwood kraft , or “ nbsk. ” nbsk pulp is produced using a chemical process , whereby softwood chips are combined with chemicals and steam to separate the wood fibers . the fibers are washed and screened to 29 remove the chemicals and lignin . then the pulp is bleached to the necessary brightness . nbsk pulp provides a brighter fiber and the long fiber length from softwood pulp is beneficial for paper strength . we expect imbalances in supply and demand to create volatility in prices for market nbsk from time to time . chemicals . chemicals utilized in the manufacturing of coated paper include latex , clay , starch , calcium carbonate , caustic soda , sodium chlorate and titanium dioxide . we purchase these chemicals from a variety of suppliers and are not dependent on any single supplier to satisfy our chemical needs . we expect imbalances in supply and demand to periodically create volatility in prices for certain chemicals . energy . we produce a significant portion of our energy needs for our paper mills from sources such as waste wood , waste heat recovery , liquid biomass from our pulping process and internal energy cogeneration facilities . our external energy purchases include fuel oil , natural gas , coal and electricity .
| by the covid-19 pandemic . operating income ( loss ) . operating loss was $ 128 million for the year ended december 31 , 2020 , a decrease of $ 91 million when compared to operating loss of $ 37 million for the year ended december 31 , 2019. operating results for the year ended december 31 , 2020 were positively impacted by : lower input costs of $ 20 million , driven by lower chemical , energy and purchased pulp costs , partially offset by higher fiber costs lower freight costs of $ 9 million lower depreciation expense of $ 30 million primarily due to $ 76 million in accelerated depreciation associated with the closure of our luke mill in june 2019 , as well as the sale of our androscoggin and stevens point mills in february 2020 , partially offset by $ 65 million in accelerated depreciation associated with the closure of our duluth mill in december 2020 reduced planned major maintenance costs of $ 28 million , primarily driven by the cancellation of the annual outage at our wisconsin rapids mill , costs incurred at our androscoggin mill in 2019 that did not recur in 2020 and timing of a biannual outage at our quinnesec mill lower restructuring charges of $ 40 million primarily associated with the closure of our luke mill in june 2019 , partially offset by the closure of our duluth mill in december 2020 lower selling , general and administrative costs of $ 27 million primarily driven by cost reduction initiatives in connection with the sale of our androscoggin and stevens point mills in february 2020 and lower equity 33 compensation expense , partially offset by increased severance costs incurred due to our headcount reduction initiatives and costs associated with the proxy solicitation contest higher other operating income of $ 93 million , primarily as a result of the $ 94 million gain on the sale of our androscoggin and
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a randomized clinical study of the lai formulation in schizophrenia is planned to begin in 2019. a randomized study of fanapt ® in bipolar disorder is planned to begin in 2019. vtr-297 enrollment is ongoing in a phase i clinical study ( 1101 ) of vtr-297 in hematologic malignancies . tradipitant - partial clinical hold and fda dispute in april 2018 , we submitted a protocol amendment to the fda , proposing a 52-week open-label extension ( ole ) period for patients who had completed the tradipitant phase ii clinical study ( 2301 ) in gastroparesis . in may 2018 , based on feedback from the fda , we amended the protocol limiting the duration of treatment in the 2301 study to a total of three months , while continuing to seek further dialogue with the fda on extending the study duration to 52-weeks . as a part of this negotiation process , in september 2018 , we submitted a new follow-on 52-week ole protocol to the fda ( 2302 ) for patients who had completed the 2301 study . while waiting for further feedback , no patients were ever enrolled in any study beyond 12 weeks . on december 19 , 2018 , the fda imposed a partial clinical hold ( pch ) on the two proposed studies , stating that we are required first to conduct additional chronic toxicity studies in canines , monkeys or minipigs before allowing patients access in any clinical protocol beyond 12 weeks . the pch was not based on any safety or efficacy data related to tradipitant . rather , the fda informed us that these additional toxicity studies are required by a guidance document . on february 5 , 2019 , we filed a lawsuit against the fda in the united states district court for the district of columbia , challenging the fda 's legal authority to issue the pch , and seeking an order to set it aside ( see part i , item 3 , legal proceedings of this annual report on form 10-k for additional information ) . we do not expect the pch to have any material impact on our ongoing clinical studies in atopic dermatitis and motion sickness or the planned phase iii study in gastroparesis . at present , the pch has not had any impact on the potential timing of an nda filing or approval for these indications . we will continually reassess this situation as events unfold . since we began operations in march 2003 , we have devoted substantially all of our resources to the in-licensing , clinical development and commercialization of our products . our ability to generate meaningful product sales and achieve profitability largely depends on our level of success in commercializing hetlioz ® and fanapt ® in the u.s. and europe , on our ability , alone or with others , to complete the development of our products , and to obtain the regulatory approvals for and to manufacture , market and sell our products . the results of our operations will vary significantly from year-to-year and quarter-to-quarter and depend on a number of factors , including risks related to our business , risks related to our industry , and other risks which are detailed in risk factors reported in item 1a of part i of this annual report on form 10-k. 56 as described in part i , item 3 , legal proceedings , of this annual report on form 10-k , we have initiated lawsuits to enforce our patent rights against certain generic pharmaceutical companies . critical accounting policies the preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements , as well as the reported revenues and expenses during the reported periods . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . a summary of our significant accounting policies appears in the notes to our audited consolidated financial statements for the year ended december 31 , 2018 included in this annual report on form 10-k. however , we believe that the following accounting policies are important to understanding and evaluating our reported financial results , and we have accordingly included them in this discussion . inventory . inventory , which is recorded at the lower of cost or net realizable value , includes the cost of third-party manufacturing and other direct and indirect costs and is valued using the first-in , first-out method . we capitalize inventory costs associated with our products upon regulatory approval when , based on management 's judgment , future commercialization is considered probable and the future economic benefit is expected to be realized ; otherwise , such costs are expensed as research and development . inventory not expected to be sold within 12 months following the balance sheet date are classified as non-current . net product sales . our net product sales consist of sales of hetlioz ® and sales of fanapt ® . in accordance with accounting standards codification ( asc ) subtopic 606 revenue from contracts with customers ( asc 606 ) , which we adopted january 1 , 2018 , we account for a contract when it has approval and commitment from both parties , the rights of the parties are identified , payment terms are identified , the contract has commercial substance and collectability of consideration is probable . we recognize revenue when control of the product is transferred to the customer in an amount that reflects the consideration we expect to be entitled to in exchange for those product sales , which is typically once the product physically arrives at the customer . story_separator_special_tag sales , value add , and usage-based taxes are excluded from revenues . hetlioz ® is only available in the u.s. for distribution through a limited number of specialty pharmacies , and is not available in retail pharmacies . fanapt ® is available in the u.s. for distribution through a limited number of wholesalers and is available in retail pharmacies . we invoice and record revenue when customers , specialty pharmacies and wholesalers , receive product from the third-party logistics warehouse which is the point at which control is transferred to the customer . revenues and accounts receivable are concentrated with these customers . outside the u.s. , we commercially launched hetlioz ® in germany in august 2016. we have also entered into a distribution agreement with megapharm ltd. for the commercialization of fanapt ® in israel . the transaction price is determined based upon the consideration to which we will be entitled in exchange for transferring product to the customer . our product sales are recorded net of applicable discounts , rebates , chargebacks , service fees , co-pay assistance and product returns that are applicable for various government and commercial payors . we estimate the amount of variable consideration that should be included in the transaction price utilizing the most likely amount method and update our estimate at each reporting date . variable consideration is included in the transaction price if , in our judgment , it is probable that a significant future reversal of cumulative revenue under the contract will not occur . reserves for variable consideration for rebates , chargebacks and co-pay assistance are based upon the insurance benefits of the end customer , which are estimated using historical activity and , where available , actual and pending prescriptions for which we have validated the insurance benefits . reserves for variable consideration are classified as product revenue allowances on the consolidated balance sheets , with the exception of prompt-pay discounts which are classified as reductions of accounts receivable . the reserve for product returns for products that may not be returned for a period of greater than one year from the balance sheet date is classified other non-current liabilities on the consolidated balance sheets . uncertainties related to variable consideration are generally resolved in the quarter subsequent to period end , with the exception of product returns which are resolved during the product expiry period specified in the customer contract . we currently record sales allowances for the following : prompt-pay : specialty pharmacies and wholesalers are offered discounts for prompt payment . we expect that the specialty pharmacies and wholesalers will earn prompt payment discounts and , therefore , deduct the full amount of these discounts from total product sales when revenues are recognized . 57 rebates : allowances for rebates include mandated and supplemental discounts under the medicaid drug rebate program as well as contracted rebate programs with other payors . rebate amounts owed after the final dispensing of the product to a benefit plan participant are based upon contractual agreements or legal requirements with public sector benefit providers , such as medicaid . the allowance for rebates is based on statutory or contracted discount rates and expected patient utilization . chargebacks : chargebacks are discounts that occur when contracted indirect customers purchase directly from specialty pharmacies and wholesalers . contracted indirect customers , which currently consist primarily of public health service institutions , non-profit clinics , and federal government entities purchasing via the federal supply schedule , generally purchase the product at a discounted price . the specialty pharmacy or wholesaler , in turn , charges back the difference between the price initially paid by the specialty pharmacy or wholesaler and the discounted price paid to the specialty pharmacy or wholesaler by the contracted customer . medicare part d coverage gap : medicare part d prescription drug benefit mandates manufacturers to fund approximately 50 % of the medicare part d insurance coverage gap for prescription drugs sold to eligible patients through 2018. public law no . 115-123 , also known as the bipartisan budget act of 2018 enacted on february 9 , 2018 increased the manufacturer discount from 50 % to 70 % effective in 2019 for applicable drugs . we account for the medicare part d coverage gap using a point of sale model . estimates for expected medicare part d coverage gap are based in part on historical activity and , where available , actual and pending prescriptions for we have validated the insurance benefits . service fees : we receive sales order management , data and distribution services from certain customers . these fees are based on contracted terms and are known amounts . we accrue service fees at the time of revenue recognition , resulting in a reduction of product sales and the recognition of an accrued liability , unless it is a payment for a distinct good or service from the customer in which case the fair value of those distinct goods or services are recorded as selling , general and administrative expense . co-payment assistance : patients who have commercial insurance and meet certain eligibility requirements may receive co-payment assistance . co-pay assistance utilization is based on information provided by our third-party administrator . product returns : consistent with industry practice , we generally offer direct customers a limited right to return as defined within our returns policy . we consider several factors in the estimation process , including historical return activity , expiration dates of product shipped to specialty pharmacies , inventory levels within the distribution channel , product shelf life , prescription trends and other relevant factors . we do not expect returned goods to be resalable . there was no right of return asset as of december 31 , 2018 or 2017 .
| cost of goods sold increased by $ 2.7 million , or 15 % , to $ 20.5 million for the year ended december 31 , 2018 compared to $ 17.8 million for the year ended december 31 , 2017 . cost of goods sold includes third party manufacturing costs of product sold , third party royalty costs and distribution and other costs . third party royalty costs were 10 % of net sales of hetlioz ® in the u.s. and 9 % of net sales of fanapt ® . in addition to third party royalty costs , hetlioz ® and fanapt ® cost of goods sold as a percentage of revenue depends upon our cost to manufacture inventory at normalized production levels with our third party manufacturers . we expect that , in the future , total hetlioz ® manufacturing costs included in cost of goods sold will continue to be less than 2 % of our net hetlioz ® product sales . we expect that , in the future , total u.s. fanapt ® manufacturing costs included in cost of goods sold will continue to be less than 3 % of our net u.s. fanapt ® product sales . research and development expenses . research and development expenses increased by $ 5.0 million , or 13 % , to $ 43.6 million for the year ended december 31 , 2018 compared to $ 38.5 million for the year ended december 31 , 2017 . the increase 60 was primarily due to an increase in clinical trial expenses associated with the tradipitant gastroparesis and chronic pruritus in atopic dermatitis programs , preclinical expenses associated with the cftr programs , as well as clinical manufacturing expenses for our fanapt lai program , partially offset by a decrease in expenses associated with the hetlioz ® clinical programs and a $ 2.0 million expense accrued during the year ended december 31 , 2017 for a milestone obligation payable to eli lilly and company ( lilly ) for tradipitant . the following table summarizes the costs of our product development initiatives for the year ended december 31 , 2018 and 2017 . replace_table_token_5_th
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as a result , we are not subject to federal income taxes to the extent that we distribute annually 100 % of our reit taxable income to our stockholders and satisfy certain other requirements defined in the internal revenue code . we have established trs entities pursuant to the provisions of the internal revenue code . our trs entities are able to engage in activities resulting in income that would be nonqualifying income for a reit . as a result , certain activities of our company which occur within our trs entities are subject to federal and state income taxes . as of december 31 , 2013 and 2012 , we had accrued a deferred income tax liability of $ 705,000. in addition , we have recorded an income tax liability of $ 0 and $ 17,700 as of december 31 , 2013 and 2012 , respectively . story_separator_special_tag $ 32,569,000 in 2012 , compared to $ 27,419,000 in 2011. rental income increased $ 4,808,000 due to the acquisition of 25 properties in 2012 along with the full year impact of 10 properties acquired in 2011. the increase was also the result of the development of a mcdonalds in southfield , michigan in may 2012 , and the development of a chase bank located in venice , florida in november 2012. our revenue increases from these developments amounted to $ 99,000. in addition , rental income increased $ 243,000 as a result of other rental income adjustments . percentage rents decreased from $ 31,000 in 2011 to $ 24,000 in 2012. operating cost reimbursements increased $ 203,000 , or 11 % , to $ 1,971,000 in 2012 , compared to $ 1,768,000 in 2011. operating cost reimbursements increased due to an improved recovery ratio on recoverable property operating expenses . we earned development fee income of $ 895,000 in 2011 related to a project that we completed in berkeley , california . there were no development fee projects in 2012 and no additional development fee projects are currently anticipated . other income decreased $ 90,000 , or 60 % , to $ 60,000 in 2012 , compared to $ 150,000 in 2011 due primarily to non-recurring fee income in 2011. real estate taxes were $ 1,786,000 and $ 1,699,000 in 2012 and 2011 . 31 property operating expenses ( shopping center maintenance , snow removal , insurance and utilities ) decreased $ 80,000 , or 8 % , to $ 968,000 in 2012 compared to $ 1,048,000 in 2011. the decrease was the result of a decrease in shopping center maintenance expenses of $ 89,000 including utilities for vacant space , and a decrease in snow removal costs of $ 33,000 , offset by an increase in insurance costs of $ 42,000. land lease payments decreased $ 147,000 , or 20 % , to $ 574,000 in 2012 compared to $ 721,000 for 2011. the decrease is the result of our purchase of the underlying land at our property in ann arbor , michigan in june 2012. general and administrative expenses increased $ 20,000 , to $ 5,682,000 in 2012 compared to $ 5,662,000 in 2011. general and administrative expenses as a percentage of total rental income ( minimum and percentage rents ) decreased to 16.0 % for 2012 from 16.4 % in 2011 without the impact of the deferred revenue recognition . depreciation and amortization increased $ 1,041,000 , or 20 % , to $ 6,241,000 in 2012 compared to $ 5,200,000 in 2011. the increase was the result of the acquisition of 25 properties in 2012 and the acquisition of 10 properties in 2011. in 2011 , we incurred an impairment charge of $ 600,000 , for our continuing operations , as a result of writing down the carrying value of our real estate assets for properties formerly leased to borders . interest expense increased $ 1,177,000 , or 30 % , to $ 5,134,000 in 2012 , from $ 3,957,000 in 2011. the increase in interest expense is a result of higher levels of borrowings for the acquisition of additional properties during 2012 and 2011. in 2011 , we recognized a gain on extinguishment of debt in the amount of $ 2,360,000. we recognized a gain of $ 2,097,000 on the disposition of properties in 2012. we sold six non-core properties ; a vacant office property for approximately $ 650,000 ; two vacant single tenant properties for $ 4,460,000 ; a kmart anchored shopping center in charlevoix , michigan for $ 3,500,000 , and two kmart anchored shopping centers , located in plymouth and shawano , wisconsin for $ 7,475,000. in addition , we conveyed four mortgaged properties to the lender pursuant to a consensual deed-in-lieu-of-foreclosure process that satisfied the loans , which had an aggregate principal amount outstanding of approximately $ 9.2 million as of december 31 , 2011. the company also classified a single tenant property located in ypsilanti , michigan as held for sale as of december 31 , 2012. the company completed the sale of the ypsilanti property for approximately $ 5,600,000 on january 11 , 2013. we recognized a gain of $ 110,000 on the disposition of properties in 2011. we sold three properties , conveyed the former borders corporate headquarters to the lender , and terminated the ground lease on a property during 2011 and conveyed a portion of the property to the ground lessor . the properties were located in tulsa , oklahoma ( 2 ) , norman , oklahoma and ann arbor , michigan ( 2 ) . income from discontinued operations was $ 2,267,000 in 2012 compared to loss from discontinued operations of $ 3,957,000 in 2011. the income from discontinued operations in 2012 was a result of the sale of six properties , one in march , one in may , one in june , two in august , one in september , and the conveyance of four former borders properties to the lender in march , one of which was occupied . story_separator_special_tag we also classified a single tenant property located in ypsilanti , michigan as held for sale as of december 31 , 2012. the loss from discontinued operations in 2011 was a result of impairment charges of $ 12,900,000 , offset by $ 5,697,000 due to the recognition of deferred revenue . we sold two properties in january 2011 , sold one property in december 2011 , conveyed the former borders corporate headquarters to the lender in december 2011 , and terminated the ground lease on a property in december 2011 and conveyed a portion of the property to the ground lessor . our net income increased $ 8,714,000 , or 88 % , to $ 18,604,000 in 2012 , from $ 9,890,000 in 2011 as a result of the foregoing factors . liquidity and capital resources our principal demands for liquidity are operations , distributions to our stockholders , debt repayment , development of new properties , redevelopment of existing properties and future property acquisitions . we intend to meet our short-term liquidity requirements , including capital expenditures related to the leasing and improvement of the properties , through cash flow provided by operations and the credit facility . we believe that adequate cash flow will be available to fund our operations and pay dividends in accordance with reit requirements for at least the next 12 months . we may obtain additional funds for future development or acquisitions through other borrowings or the issuance of additional shares of common stock . although market conditions have limited the availability of new sources of financing and capital , which may have an impact on our ability to obtain financing for planned new development projects in the near term , we believe that these financing sources will enable us to generate funds sufficient to meet both our short-term and long-term capital needs . 32 we completed a follow-on offering of 1,495,000 shares of common stock in january/february of 2012. the offering , which included the full exercise of the overallotment option by the underwriters , raised net proceeds of approximately $ 35.1 million after deducting the underwriting discount . the proceeds from the offering were used to pay down amounts outstanding under the credit facility and for general corporate purposes . we completed a follow-on offering of 1,725,000 shares of common stock in january of 2013. the offering , which included the full exercise of the overallotment option by the underwriters , raised net proceeds of approximately $ 44.9 million after deducting the underwriting discount . the proceeds from the offering were used to pay down amounts outstanding under the credit facility and for general corporate purposes . we completed a follow-on offering of 1,650,000 shares of common stock in november of 2013. the offering raised net proceeds of approximately $ 48.8 million after deducting the underwriting discount . the proceeds from the offering were used to pay down amounts outstanding under the credit facility and for general corporate purposes . our cash flows from operations increased $ 8,384,000 to $ 29,590,000 in 2013 , compared to $ 21,206,000 in 2012 due to increased cash flow from the additional investment in real estate assets . cash used in investing activities increased $ 16,004,000 to $ 85,260,000 in 2013 , compared to $ 69,256,000 in 2012 due to additional investments through the acquisition and development of real estate assets and lower net proceeds from the sale of assets . cash provided by financing activities increased $ 21,620,000 to $ 68,938,000 in 2013 , compared to $ 47,318,000 in 2012 due primarily to two common stock offerings in 2013. our cash and cash equivalents increased by $ 13,267,000 to $ 14,537,000 as of december 31 , 2013 as a result of the foregoing factors . during 2013 , we spent approximately $ 1,488,000 at our existing community shopping centers for tenant improvement or allowance costs , $ 18,000 for leasing commissions and $ 87,000 for other capital items . during 2012 , we spent approximately $ 1,229,000 at our existing community shopping centers for tenant improvement or allowance costs , $ 56,000 for leasing commissions and $ 171,000 for other capital items . we intend to maintain a ratio of total indebtedness ( including construction or acquisition financing ) to total market capitalization of 65 % or less . nevertheless , we may operate with debt levels which are in excess of 65 % of total market capitalization for extended periods of time . at december 31 , 2013 , our ratio of indebtedness to total market capitalization was approximately 26.4 % . this ratio decreased from 33.8 % as of december 31 , 2012 as a result of the increase in shares outstanding from our 2013 follow on offerings in january 2013 and november 2013 and an increase in the market price of our common stock , offset by an increase in debt due to our 2013 property acquisitions and development expenditures . dividends during the quarter ended december 31 , 2013 , we declared a quarterly dividend of $ .41 per share . the cash dividend was paid on january 3 , 2014 to holders of record on december 20 , 2013. during the quarter ending march 31 , 2014 , we declared a quarterly dividend of $ .43 per share . the cash dividend will be paid on april 8 , 2014 to holders of record on march 31 , 2014. debt agree limited partnership ( the “ operating partnership ” ) has in place an $ 85,000,000 unsecured revolving credit facility ( “ credit facility ” ) , which is guaranteed by the company . subject to customary conditions , at the company 's option , total commitments under the credit facility may be increased up to an aggregate of $ 135,000,000. the company intends to use borrowings under the credit facility for general corporate purposes , including working capital , development and acquisition activities , capital expenditures , repayment of indebtedness or other corporate activities .
| result of our purchase of the underlying land at our property in ann arbor , michigan in june 2012. general and administrative expenses increased $ 270,000 , to $ 5,952,000 in 2013 compared to $ 5,682,000 in 2012. the increase in general and administrative expenses was primarily the result of increased employee costs of $ 196,000 , increased professional fees of $ 99,000 , offset by net decreases in other expenses of $ 25,000. general and administrative expenses as a percentage of total rental income ( minimum and percentage rents ) decreased to 14.2 % for 2013 from 16.0 % in 2012 . 30 depreciation and amortization increased $ 2,248,000 , or 36 % , to $ 8,489,000 in 2013 compared to $ 6,241,000 in 2012. the increase was the result of the acquisition of 18 properties in 2013 and the acquisition of 25 properties in 2012. interest expense increased $ 1,341,000 , or 26 % , to $ 6,475,000 in 2013 , from $ 5,134,000 in 2012. the increase in interest expense is a result of higher levels of borrowings for the acquisition and development of additional properties during 2013 and 2012. we recognized a gain of $ 946,000 on the disposition of a net leased property in ypsilanti , michigan in january 2013 for $ 5,600,000. the company also classified a non-core kmart anchored shopping center located in ironwood , michigan as held for sale as of december 31 , 2013. the company completed the sale of the ironwood property for $ 5,000,000 on january 15 , 2014. during 2012 we recognized gains of $ 2,097,000 on the dispositions of properties . in 2012 , w e sold six non-core properties , a vacant office property for approximately $ 650,000 ; two vacant single tenant properties for $ 4,460,000 ; a kmart anchored shopping center in charlevoix , michigan for $ 3,500,000 , and two kmart anchored shopping centers , located in plymouth and shawano , wisconsin for $ 7,475,000 .
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amca data security incident on june 3 , 2019 , the company reported that retrieval-masters creditors bureau , inc./american medical collection agency ( “ amca ” ) had informed the company and optum360 llc ( `` optum360 '' ) , which provides revenue management services to the company , about a data security incident involving amca ( the “ amca data security incident ” ) . amca ( which provided debt collection services to optum360 ) informed the company and optum360 that amca had learned that an unauthorized user had access to amca 's system between august 1 , 2018 and march 30 , 2019. amca first informed the company of the amca data security incident on may 14 , 2019. amca 's affected system included financial information ( e.g. , credit card numbers and bank account information ) , medical information and other personal information ( e.g. , social security numbers ) . test results were not included . neither optum360 's nor the company 's systems or databases were involved in the incident . amca also informed us that information pertaining to other laboratories ' customers was also affected . following announcement of the amca data security incident , amca sought protection under the u.s. bankruptcy laws . while the impact of this incident to the company 's results of operations and cash flows was not material for the year ended december 31 , 2019 , our future financial results may be negatively impacted by costs associated with the incident and disruption of our accounts receivable collection processes . two point strategy our two point strategy is described in detail in `` item 1. business : our strategy . '' we continued to execute our strategy during 2019 as follows : long-term strategic partnership with unitedhealthcare effective january 1 , 2019 , we established a long-term strategic partnership with unitedhealthcare , including collaborating on a variety of value-based programs . on july 1 , 2019 , we became a unitedhealthcare preferred lab network provider , meeting exceptional criteria for access , cost , data , quality and service . 58 acquisition of the clinical laboratory services business of boyce & bynum pathology laboratories , p.c . on february 11 , 2019 , we completed our acquisition of certain assets of the clinical laboratory services business of boyce & bynum pathology laboratories , p.c . ( `` boyce & bynum '' ) , in an all cash transaction for $ 61 million , which consisted of cash consideration of $ 55 million and contingent consideration initially estimated at $ 6 million . the contingent consideration arrangement is dependent upon the achievement of certain testing volume benchmarks . the acquired business is included in our dis business . for details regarding our acquisitions , see note 6 to the audited consolidated financial statements . invigorate program we are engaged in a multi-year program called invigorate , which is designed to reduce our cost structure and improve our performance . we currently aim annually to save approximately 3 % of our costs , and in 2019 we achieved that goal . invigorate has consisted of several flagship programs , with structured plans in each , to drive savings and improve performance across the customer value chain . these flagship programs include : organization excellence ; information technology excellence ; procurement excellence ; field and customer service excellence ; lab excellence ; and revenue services excellence . in addition to these programs , we have identified key themes to change how we operate including reducing denials and patient concessions ; further digitizing our business ; standardization and automation ; and optimization initiatives in our lab network and patient service center network . we believe that our efforts to standardize our information technology systems , equipment and data also foster our efforts to strengthen our foundation for growth and support the value creation initiatives of our clinical franchises by enhancing our operational flexibility , empowering and enhancing the customer experience , facilitating the delivery of actionable insights and bolstering our large data platform . for the year ended december 31 , 2019 , we incurred $ 60 million of pre-tax charges under our invigorate program primarily consisting of systems conversion and integration costs , all of which result in cash expenditures . additional restructuring charges may be incurred in future periods as we identify additional opportunities to achieve further cost savings . for further details of the invigorate program and associated costs , see note 5 to the audited consolidated financial statements . outlook and trends the healthcare system in the united states is evolving ; significant change is taking place in the system . we expect that the evolution of the healthcare industry will continue , and that industry change is likely to be extensive . there are a number of key trends that are having , and that we expect will continue to have , a significant impact on the diagnostic information services business in the united states and on our business . we believe that several of the trends , including consolidation , price transparency and consumerization , are favorable to our business . for additional information on our key trends , which present both opportunities and risks , see `` item 1. business : the clinical testing industry . '' healthcare market participants , including governments , are focusing on controlling costs , including potentially by reducing reimbursement for healthcare services , changing reimbursement for healthcare services ( including but not limited to a shift from fee-for-service to capitation ) , changing medical coverage policies ( e.g . , healthcare benefits design ) , denying coverage for services , requiring preauthorization of laboratory testing , requiring co-pays , introducing laboratory spend management utilities and payment and patient care innovations such as acos and patient-centered medical homes . the ongoing trend of rising patient responsibility and increasing payer denials has resulted in an increase in patient revenues as a percentage of total revenue , which has resulted in an increase in our reserves for patient price concessions . story_separator_special_tag as health plans and government programs require greater levels of patient cost-sharing , our patient price concessions may continue to be negatively impacted and adversely impact our results of operations . as previously mentioned , there could be a shift to capitation arrangements where we agree to a predetermined monthly reimbursement rate for each member enrolled in a restricted plan , generally regardless of the number or cost of services provided by us . in both 2019 and 2018 , we derived approximately 3 % of our consolidated net revenues from capitated payment arrangements . in 2019 and 2018 , we derived approximately 10 % and 11 % , respectively , of our testing volume from capitated payment arrangements . historically , the medicare clinical laboratory fee schedule ( `` clfs '' ) and the medicare physician fee schedule established under part b of the medicare program have been subject to change , including each year . pursuant to the protecting access to medicare act ( `` pama '' ) , the centers for medicare and medicaid services ( `` cms '' ) promulgated revised reimbursement schedules for 2018-2020 for clinical laboratory testing services provided under medicare . under the revised 59 medicare clinical laboratory fee schedule ( in 2019 clfs revenues comprised 11 % of our consolidated net revenues ) , reimbursement rates for clinical laboratory testing were reduced in 2018 and 2019 and are scheduled to be reduced again by approximately 10 % in 2020. pama calls for further revision of the clfs for years after 2020 , based on future surveys of market rates ; reimbursement reduction from 2021-23 is capped by pama at 15 % . in late 2019 , the laboratory access for beneficiaries act ( the “ lab act ” ) was signed into law . the lab act delays pama 's next data collection and reporting period until january 1 , 2021 and orders a study to determine ways to improve future collection of more representative market rate data under pama . we expect total reimbursement rate pressure for 2020 to be slightly more than 2 % , of which pama and associated impacts are expected to be $ 80 million to $ 85 million . we expect a similar impact from pama in 2021. in addition , the trend of consolidating , converging and diversifying among our customers and payers has continued . consolidation is increasing price transparency and bargaining power , and encouraging internalization of clinical testing . we also believe that pama may be a further catalyst for consolidation as diagnostic information services providers realize lower medicare reimbursement rates and large diagnostic information services providers may be able to increase their share of the overall diagnostic information services industry due to their large networks and lower cost structures . for additional information on our key trends , which present both opportunities and risks , see `` item 1. business : the clinical testing industry . '' impact of new accounting standards the adoption of new accounting standards , including the new standard related to accounting for leases , are discussed in note 2 to the audited consolidated financial statements . for further details regarding our leases , refer to note 14 to the audited consolidated financial statements . critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires us to make estimates and assumptions and select accounting policies that affect our reported financial results and the disclosure of contingent assets and liabilities . our revenues are primarily comprised of a high volume of relatively low-dollar transactions , and about one-half of our total costs and expenses consist of employee compensation and benefits . due to the nature of our business , several of our accounting policies involve significant estimates and judgments : revenues and accounts receivable associated with dis ; reserves for general and professional liability claims ; reserves for other legal proceedings ; and accounting for and recoverability of goodwill . revenues and accounts receivable associated with dis the process for estimating revenues and the ultimate collection of receivables associated with our dis business involves significant assumptions and judgments . we recognize as revenue the amount of consideration to which we expect to be entitled upon completion of the testing process , when results are reported , or when services have been rendered . we estimate the amount of consideration we expect to be entitled to receive from customer groups , using the portfolio approach , in exchange for providing services . these estimates include the impact of contractual allowances , including payer denials , and price concessions , as discussed below . the portfolios determined using the portfolio approach consist of the following customers : healthcare insurers government payers client payers patients 60 we have a standardized approach to estimate the amount of consideration that we expect to be entitled to , including the impact of contractual allowances , including payer denials , and price concessions . historical collection and payer reimbursement experience ( along with the period the receivables have been outstanding ) is an integral part of the estimation process related to revenues and receivables . adjustments to our estimated contractual allowances and implicit price concessions are recorded in the current period as changes in estimates . further adjustments to the allowances , based on actual receipts , may be recorded upon settlement . we regularly assess the state of our billing operations in order to identify issues which may impact the collectibility of receivables or revenue estimates . we believe that the collectibility of our receivables is directly linked to the quality of our billing processes , most notably those related to obtaining the correct information in order to bill effectively for the services we provide . as such , we continue to implement “ best practices ” and endeavor to increase the use of electronic ordering to reduce the number of requisitions that we receive from healthcare providers with missing or incorrect billing information .
| , net offset by a $ 6 million charge in selling , general and administrative expenses ) , or $ 0.50 per diluted share , primarily due to a gain associated with the sale and leaseback of a property , a gain associated with the decrease in the fair value of the contingent consideration accruals associated with previous acquisitions , and a gain associated with an insurance claim for hurricane related losses , partially offset by costs incurred related to the amca data security incident , and non-cash asset impairment charges ; and excess tax benefits associated with stock-based compensation arrangements of $ 13 million , or $ 0.10 per diluted share , recorded in income tax expense . results for the year ended december 31 , 2018 were affected by certain items that on a net basis reduced diluted earnings per share from continuing operations by $ 1.02 as follows : pre-tax amortization expense of $ 107 million ( $ 90 million in amortization of intangible assets and $ 17 million in equity in earnings of equity method investees , net of taxes ) or $ 0.57 per diluted share ; pre-tax charges of $ 122 million ( $ 56 million in cost of services , $ 65 million in selling , general and administrative expenses , and $ 1 million in other operating income , net ) , or $ 0.66 per diluted share , primarily associated with workforce reductions , systems conversions and integration incurred in connection with further restructuring and integrating our business ; excess tax benefits associated with stock-based compensation arrangements of $ 18 million , or $ 0.13 per diluted share , recorded in income tax expense ; an income tax benefit of $ 14 million , or $ 0.09 per diluted share , associated with a change in a tax return accounting method that enabled us to accelerate the deduction of certain expenses on our 2017 tax return at the federal corporate statutory
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when there is solar power , the solar modules produce renewable energy that is collected through a solar inverter , which charges a bank of batteries through a battery inverter . after the batteries are fully charged , the excess electricity is then combined with water through a hydrogen generator that extracts the hydrogen from the water in a gasified state , which is safely transferred to the hydrogen tank and stored for later use . if the tank is full , excess electricity is sent from the batteries through the battery inverter to the utility grid , which results in energy credits for the system owner . the hc-1 system is connected to the residential or commercial property through the inverters . the electricity is always provided by the charged batteries . if there is no solar power to charge the batteries , the system keeps the batteries fully charged by using hydrogen stored in the tank , which processed through a fuel cell , creates the electricity . as the system is able to produce hydrogen , that keeps the hydrogen tank full , it provides a continuous supply of clean energy and sustainability that is independent from the grid . 21 each hc-1 system is custom designed to accommodate the electrical loads for an end user . the system is completely scalable . if the customer is connected to the electric grid , energy production that is converted to hydrogen in excess of the amount stored in the hydrogen tank is transferred to the local electric company , creating energy credits . if a customer wishes to connect our system to the electrical grid in order to generate renewable energy credits , the customer needs to obtain interconnection agreements from the applicable local primary electricity utility . in our experience , there has not been any cost involved in obtaining an interconnection agreement , but as the requirements are determined on a local basis , it may be possible that some nominal costs are involved in connection with the process . if the customer obtains an interconnection agreement , once the hc-1 system is operational , the hc-1 system end user can eliminate their electric bill and , if in a permissible state , can begin generating energy credits . in certain states , an end user receives one energy credit for each 1,000 kwh produced through renewal energy . the customer sells these credits to a broker who in turn sells the credits to a utility company so that the utility company can demonstrate their compliance with the regulatory obligations to reduce greenhouse gas emissions . the price per credit can vary depending on supply and demand . many other states that may not offer an energy credit program , do offer other cash incentives for renewable energy systems . current operating trends currently , our employees are licensed to install our hc-1 systems in the state of new jersey and the commonwealth of pennsylvania . pride sells , designs , installs and maintains a variety of technology products in the security systems market , including commercial alarm systems , access control , video surveillance , cctv ( closed circuit television ) /matv ( master antenna television ) systems , biometric technology , audio/visual systems , nurse call systems and public announcement systems . pride also provides programs for annual maintenance of its products and systems . the division generates approximately half of its revenue from government contracts and the other half from the commercial sector . pride has recurring annual maintenance revenue of close to aud $ 2 million . pride is a certified security systems integrator for the queensland government and has various government contracts in place for installation , maintenance and project services . pride also works with a number of general contractors as a subcontractor for security systems integration . we intend to aggressively grow our business , both organically and through strategic acquisitions . we intend to acquire companies with licensed contractors in various states and regions , which will allow us to expand the territories in which we can install our systems . these acquired companies will also provide us with a consistent revenue stream , a customer base for marketing our hc-1 systems and technicians . initially , we intend to focus on states or countries whose government supports a regulatory standard requiring its utility companies to increase their production of energy from renewable energy sources . these governments have established various incentives and financial mechanisms to accelerate and promote the use of renewable energy sources . currently , many states comply with regulatory standards including new jersey , massachusetts , pennsylvania , maryland , ohio , delaware , north carolina , virginia , kentucky , west virginia , michigan , indiana , illinois as well as the district of columbia . in addition , countries such as the united kingdom , australia , italy , poland , sweden , belgium and chile have adopted regulatory standards . the list is expanding each year . we are also searching for suitable acquisition targets that will complement our services , create revenue production , allow us to expand our sales and technical staff and provide us with a larger customer base to pursue with greater geographic coverage . as of the date of this quarterly report , we have no written agreements or understandings to acquire any companies and no assurances can be given that we will identify or successfully acquire any other companies . story_separator_special_tag story_separator_special_tag of sales tax payable , $ 44,257 of income tax payable and $ 31,257 of related party management fee payables , which made up current liabilities at december 31 , 2017. for the year ended december 31 , 2017 , we used $ 69,898 of cash in operating activities , which represented our net income of $ 8,897 , $ 5,128 of changes in accounts payable , $ 51,625 of stock-based compensation , $ 44,257 of increased deferred tax assets , $ 40,373 of costs in excess of billings , $ 32,585 of depreciation and amortization , $ 3,668 of billings in excess of cost , $ 420 of prepaid expenses and $ 77 gain on fixed asset sales , offset by $ 157,164 of changes in accounts receivables . for the year ended december 31 , 2016 , cash provided by operating activities was $ 120,270 , which represented our net loss of $ 706,727 , $ 682,866 of changes in accounts receivables , $ 387,450 of stock-based compensation , $ 96,079 of costs in excess of billings , $ 25,319 loss on fixed asset sales , $ 22,117 of depreciation and amortization , and $ 5,822 of prepaid expenses , offset by $ 247,383 of changes in accounts payable and $ 53,845 of billings in excess of cost . 23 for the year ended december 31 , 2017 , we used $ 24,974 in investing activities relating to the purchase of fixed assets of $ 36,943 , offset by $ 11,969 of proceeds from the disposition of property and equipment . for the year ended december 31 , 2016 , we used $ 63,483 of cash from investing activities relating to $ 20,077 of proceeds from the disposition of property and equipment offset by the purchase of fixed assets of $ 83,560. for the year ended december 31 , 2017 , we received $ 1,000 from financing activities , which represented proceeds from the exercise of stock options . for the year ended december 31 , 2016 , we received $ 336,181 from financing activities , which represented $ 450,000 of proceeds from the sale of our common stock , offset by $ 108,399 in expenses associated with the capital raises and $ 5,420 of repayment to stockholders . in the future we expect to incur expenses related to compliance for being a public company and travel related to visiting potential customer sites . we expect that our general and administrative expenses will increase as we expand our business development , add infrastructure and incur additional costs related to being a public company , including incremental audit fees , investor relations programs and increased professional services . our future capital requirements will depend on a number of factors , including the progress of our sales and marketing of our services , the timing and outcome of potential acquisitions , the costs involved in operating as a public reporting company , the status of competitive services , the availability of financing and our success in developing markets for our services . when we enter into contacts with customers , they will be required to make payments in tranches , including a payment after a contract is executed but prior to commencement of the project . we believe our existing cash , together with revenue generated by operations , will be sufficient to fund our operating expenses and capital equipment requirements for at least the next 12 months . we presently do not have any available credit , bank financing or other external sources of liquidity . while we have achieved net income from operations for the year ended december 31 , 2017 , our operations historically have not been a source of liquidity and we can not be assured they will be in the near future . we may need to obtain additional capital in order to expand operations and fund our activities . future financing may include the issuance of equity or debt securities , obtaining credit facilities , or other financing mechanisms . even if we are able to raise the funds if required , it is possible that we could incur unexpected costs and expenses , fail to collect significant amounts owed to us , or experience unexpected cash requirements that would force us to seek alternative financing . furthermore , if we issue additional equity or debt securities , stockholders may experience additional dilution or the new equity securities may have rights , preferences or privileges senior to those of existing holders of our common stock . if additional financing is not available or is not available on acceptable terms , we may be required to delay , reduce the scope of or eliminate our marketing and business development services . critical accounting policies our discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with u.s. gaap . the preparation of these financial statements requires us to make estimates and judgments that affect our reported amounts of assets , liabilities , revenues and expenses . on an ongoing basis , we evaluate our estimates and judgments , including those related to accrued expenses and stock-based compensation . we based our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources . actual results may differ from these estimates . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . cash and cash equivalents cash and cash equivalents includes cash in bank and money market funds as well as other highly liquid investments with an original maturity of year or less .
| facilities lease for the pride offices totaled $ 91,111. consulting/dues and subscription fees were $ 4,000 which pertained to miscellaneous business subscriptions and renewals . professional fees of $ 13,827 consisted of legal and accounting fees incurred for tax and human resources advice . other expenses included $ 66,255 of insurance , $ 28,529 of telecommunications , $ 27,176 of computer expenses and $ 19,362 of utilities and safety expenses . we also incurred $ 31,985 of depreciation , $ 24,311 of bad debt expense , $ 7,295 of interest expense , $ 2,041 of travel and entertainment , and $ 30,810 of other miscellaneous fees . during the year ended december 31 , 2016 , expenses for our general and administrative expenses were $ 2,355,154 . $ 478,834 was related to the renewable systems integration segment , including corporate expenses . we incurred $ 387,450 of stock-based compensation , $ 33,064 of professional fees , which consisted of legal fees incurred in connection with capital raising activities and accounting fees , $ 31,357 of dues and subscriptions relating to edgar fees , transfer agent fees and an otcqb application fee , $ 15,991 of travel and entertainment related to a renewables industry convention and $ 4,258 of advertising/promotional fees . we also incurred $ 2,000 in research and development and $ 4,714 of miscellaneous expenses . the non-renewable systems integration segment incurred general and administrative expenses during the year ended december 31 , 2016 of $ 1,878,320 , including $ 680,120 of management and administrative salaries , $ 494,927 of other various employee expenses , such as vacation and sick time , and management fees of $ 158,015. automobile expenses totaled $ 213,431 , which included repairs , fuel , lease and auto allowance . facilities lease for the pride offices totaled $ 89,662. in addition , we incurred $ 54,002 for telecommunications , $ 62,969 of insurance , $ 23,562 for computer services , $ 21,517 of depreciation , $ 21,433 of legal and accounting fees , $ 14,657 for postage and printing , $ 14,423 of travel , $ 12,991 for safety/environmental
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asc topic 740 , “ income taxes ” , requires us to analyze all positive and negative evidence to determine if , based on the weight of available evidence , we are more likely than not to realize the benefit of the state deferred tax assets . the recognition of the net deferred tax assets and related tax benefits is based upon our conclusions regarding , among other considerations , estimates of future earnings based on information currently available , current and anticipated customers , contracts and product introductions , as well as recent operating results during 2011 , 2010 and 2009 , and certain tax planning strategies . we have evaluated the available evidence and the likelihood of realizing the benefit of our net deferred tax assets . from our evaluation we have concluded that based on the weight of available evidence , we are more likely than not to not realize a portion of the benefit of our state deferred tax assets recorded at december 31 , 2011. accordingly , we established a valuation allowance totaling approximately $ 250,000 for the portion of benefit of state deferred tax assets that more likely than not will not be realized . we can not presently estimate what , if any , changes to the valuation of our deferred tax assets may be deemed appropriate in the future . if we incur future losses , it may be necessary to record a valuation allowance related to the deferred tax assets recognized as of december 31 , 2011. accounting for income taxes we account for income taxes using the asset and liability method specified by asc topic 740 “ income taxes ” , as modified by asc topic 740-10-05. deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using the enacted tax rates expected to apply in the period in which the deferred tax asset or liability is expected to be realized . the effect of changes in net deferred tax assets and liabilities is recognized on our consolidated balance sheets and consolidated statements of income in the period in which the change is recognized . valuation allowances are provided to the extent that it is more likely than not that some portion , or all , of deferred tax assets will not be realized . in determining whether a tax asset is realizable , we consider among other things , estimates of future earnings based on information currently available , current and anticipated customers , contracts and new product introductions , as well as recent operating results during 2011 , 2010 and 2009 , and certain tax planning strategies . if we fail to achieve the future results anticipated in the calculation and valuation of net deferred tax assets , we may be required to adjust our valuation allowance related to our deferred tax assets in the future . 16 fiscal year 2010 compared with fiscal year 2009 sales , net sales in 2010 decreased $ 2.0 million ( 7.3 % ) to approximately $ 26.0 million compared with $ 28.0 million for the prior year . sales of p-25 digital products in 2010 increased $ 0.3 million ( 1.6 % ) to approximately $ 16.6 million , compared with $ 16.3 million for 2009. the decrease in total sales compared with the prior year was attributed primarily to a decline in orders from agencies of the dod as well as some other federal and state agencies . the overall decrease in total sales was partially offset by increased sales with legacy customers such as the usfs and doi purchasing our d-series p-25 digital radios . during 2010 , we added several products to our kng line of p-25 digital radios . most important was the fourth quarter launch of our p-25 digital trunked products ; the first such products in relm 's history . this enabled us to address a significant portion of the land mobile radio market that previously was beyond the scope of our product line . cost of products and gross margins cost of products as a percentage of sales for 2010 was 56.4 % compared with 51.2 % in 2009. our cost of products and gross margins are primarily related to product mix , manufacturing volumes and pricing . compared with last year , our gross margins for the year reflected reduced sales and the impact of additional manufacturing costs , some of which relate to the start of new product production . competitive pricing considerations and a change in the mix of products sold were also contributing factors . we continued to utilize contract manufacturing relationships to maximize production efficiencies and minimize material and labor costs . selling , general and administrative expenses selling , general and administrative ( sg & a ) expenses consisted of marketing , sales , commissions , engineering , product development , management information systems , accounting , headquarters expenses and non-cash share-based employee compensation expense . for 2010 , sg & a expenses increased approximately $ 1.8 million ( 17.6 % ) to approximately $ 12 million or 46.0 % of sales compared with approximately $ 10 million or 36.3 % of sales for the prior year . engineering and product development expenses in 2010 increased by $ 1.3 million ( 36.6 % ) compared with last year . this increase was largely the result of efforts to advance the completion and launch of our p-25 trunking capability , as well as other p-25 radios and features in our expanding kng product line . marketing and selling expenses in 2010 increased by approximately $ 373,000 ( 9.6 % ) compared with last year . story_separator_special_tag during the year we increased sales staffing and incurred additional sales and marketing expenses focused on raising the profile of our new kng product line and capabilities , and penetrating new markets and customers . general and administrative expenses in 2010 increased by approximately $ 114,000 ( 4.2 % ) compared with last year primarily due to non-cash share-based employee compensation expense . operating ( loss ) income we reported an operating loss of approximately $ 628,000 for 2010 , compared with operating income of approximately $ 3.5 million last year . during 2010 , total sales decreased $ 2.0 million , or 7.3 % , from the previous year and there were additional manufacturing costs , some of which were associated with production of new products . also , the mix of product sales was less favorable . 17 interest expense , net for 2010 , we incurred approximately $ 29,000 in net interest expense compared with approximately $ 41,000 for the prior year . we earn interest income on our cash balances and incur interest expense on borrowings from our revolving line of credit . we had $ 2.0 million in borrowings outstanding under the credit facility as of december 31 , 2010 , compared with no borrowings outstanding as of the end of the prior year . the interest rate on such revolving credit facility as of december 31 , 2010 was 3.75 % per annum . this rate is variable based on the prime rate plus 50 basis points . income tax expense we recorded net income tax expense of approximately $ 7,000 for 2010 compared with approximately $ 1.1 million last year . our income tax expense is largely non-cash as a result of the deferred tax asset related primarily to federal and state net operating loss carryforwards . as of december 31 , 2010 , we had deferred tax assets of approximately $ 7.8 million , which was materially unchanged from the start of the year . these assets are primarily composed of net operating loss carry forwards ( nols ) , which are available to offset federal and state taxable income . these nols totaled approximately $ 13.6 million for federal and approximately $ 19.4 million for state purposes as of december 31 , 2010 , with expirations starting in 2017 through 2028. during 2010 , we generated $ 106,000 of nols . in order to fully utilize the net deferred tax assets , sufficient taxable income must be generated in future years to utilize our nols prior to their expiration . asc topic 740 , “ income taxes ” , requires us to analyze all positive and negative evidence to determine if , based on the weight of available evidence , we are more likely than not to realize the benefit of the state deferred tax assets . the recognition of the net deferred tax assets and related tax benefits is based upon our conclusions regarding , among other considerations , estimates of future earnings based on information currently available , current and anticipated customers , contracts and product introductions , as well as recent operating results during 2010 , 2009 and 2008 , and certain tax planning strategies . we evaluated the available evidence and the likelihood of realizing the benefit of our net deferred tax assets . from our evaluation we concluded that based on the weight of available evidence , we were more likely than not to not realize a portion of the benefit of our state deferred tax assets recorded at december 31 , 2010. accordingly , we established a valuation allowance totaling approximately $ 320,000 for the portion of benefit of state deferred tax assets that more likely than not will not be realized . we could not estimate what , if any , changes to the valuation of our deferred tax assets might be deemed appropriate in the future . accounting for income taxes we accounted for income taxes using the asset and liability method specified by asc topic 740 “ income taxes ” , as modified by asc topic 740-10-05. deferred tax assets and liabilities were recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities were measured using the enacted tax rates expected to apply in the period in which the deferred tax asset or liability was expected to be realized . the effect of changes in net deferred tax assets and liabilities was recognized on our consolidated balance sheets and consolidated statements of income in the period in which the change was recognized . valuation allowances are provided to the extent that it is more likely than not that some portion , or all , of deferred tax assets will not be realized . in determining whether a tax asset was realizable , we considered among other things , estimates of future earnings based on information then available , current and anticipated customers , contracts and new product introductions , as well as recent operating results during 2010 , 2009 and 2008 , and certain tax planning strategies . changing prices changing prices for the years ended december 31 , 2011 , 2010 and 2009 did not have a material impact on our operations . during 2010 , in some instances , product unit prices were reduced to convert sales opportunities into sales , which reduced gross margins . the extent of competitive pricing pressure in the future and its impact is uncertain . 18 liquidity and capital resources for the year ended december 31 , 2011 , net cash used in operating activities totaled approximately $ 142,000 compared with net cash used in operating activities of approximately $ 3.1 million last year . cash used in operating activities was primarily related to a net loss combined with payments of trade payables and increased inventories and trade receivables .
| as of december 31 , 2011 , working capital totaled approximately $ 19.5 million , of which $ 6.8 million was comprised of cash and trade receivables . this compares with working capital totaling approximately $ 19.7 million at year end 2010 , which included $ 9.0 million of cash and trade receivables . during 2011 we repaid all borrowings outstanding under our revolving credit facility . consequently , there were no borrowings outstanding as of december 31 , 2011 , compared with borrowings of $ 2 million as of year end 2010. we experience seasonality in our quarterly results in part due to governmental customer spending patterns that are influenced by government fiscal year-end budgets and appropriations . we also experience seasonality in our quarterly results in part due to our concentration of sales to federal and state agencies that participate in fire-suppression efforts , which are typically the greatest during the summer season when forest fire activity is heightened . in some years , these factors may cause an increase in sales for the second and third quarters compared with the first and fourth quarters of the same fiscal year . such increases in sales may cause quarterly variances in our cash flow from operations and overall financial condition . results of operations as an aid to understanding our operating results , the following table shows items from our consolidated statements of operations expressed as a percent of sales : replace_table_token_5_th fiscal year 2011 compared with fiscal year 2010 sales , net sales in 2011 decreased $ 1.9 million ( 7.1 % ) to approximately $ 24.1 million compared with approximately $ 26.0 million for the prior year . sales of p-25 digital products in 2011 decreased approximately $ 1.2 million ( 7.3 % ) to approximately $ 15.4 million , compared with approximately $ 16.6 million for 2010 . 14 the decrease in total sales and p-25 digital sales compared with the prior year was attributed primarily to federal government agencies . these agencies , including
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this business segment 's operating income slightly increased and operating margins slightly decreased in fiscal 2015 compared to fiscal 2014. these trends are due to the increase in gross profit noted above and the increase in sg & a expenses in fiscal 2015 compared to fiscal 2014.the increase in sg & a expenses in fiscal 2015 is primarily due to the increase in net sales . as previously announced , at the end of the third quarter of fiscal 2015 we closed our finished goods warehouse and distribution facility located in poznan , poland , primarily as a result of ongoing economic weakness in europe . as a result , we incurred a charge of approximately $ 200,000 for closing related costs during fiscal 2015. currently , we remain very interested in developing business in europe , and we are assessing the best strategy for selling upholstery fabric into this market as business conditions improve . segment assets segment assets consist of accounts receivable , inventory , and property , plant , and equipment . replace_table_token_14_th accounts receivable & inventory at may 3 , 2015 , accounts receivable for this segment was $ 11.9 million compared with $ 12.8 million as of april 27 , 2014. this decrease is due to increased sales with customers with discounted payment terms in fiscal 2015 compared with fiscal 2014 , which resulted in customers paying off receivables more quickly . 29 at may 3 , 2015 , inventory for this segment was $ 18.0 million compared with $ 19.0 million as of april 27 , 2014. this decrease is primarily due to improved inventory management and the reduction of inventory associated with the closure of our culp europe operation located in poland . property , plant & equipment the $ 1.5 million at may 3 , 2015 , represents property , plant , and equipment located in the u.s. of $ 848,000 and located in china of $ 619,000. the $ 1.6 million at april 27 , 2014 , represents property , plant , and equipment located in the u.s. of $ 957,000 , located in china of $ 572,000 , and located in poland of $ 44,000. other income statement categories selling , general and administrative expenses sg & a expenses for the company as a whole were $ 32.8 million for fiscal 2015 compared with $ 28.7 million for fiscal 2014. sg & a as a percent of net sales was 10.6 % and 10.0 % in fiscal 2015 and 2014 , respectively . the increase is sg & a expenses is primarily due to the increase in net sales noted above and higher incentive compensation expense reflecting stronger financial results in relation to pre-established performance targets in fiscal 2015 compared to fiscal 2014. interest expense interest expense was $ 64,000 for fiscal 2015 compared with $ 427,000 for fiscal 2014. this trend reflects lower outstanding balances of long-term debt in fiscal 2015 compared with fiscal 2014. also , interest expense was reduced by $ 171,000 for interest costs associated with the mattress fabric segment capital expansion project that were capitalized during fiscal 2015. these interest costs will be depreciated over the related assets ' useful lives . no interest costs were capitalized in fiscal 2014. interest income interest income was $ 622,000 in fiscal 2015 compared with $ 482,000 for fiscal 2014. this trend reflects higher cash and cash equivalent and short-term investment balances held with foreign subsidiaries during fiscal 2015 compared to fiscal 2014. cash and cash equivalents and short-term investment balances held by our foreign subsidiaries earn higher interest rates as compared to funds held in the united states . other expense other expense was $ 391,000 million for fiscal 2015 compared with $ 1.3 million for fiscal 2014. this decrease was primarily due to more favorable foreign currency exchange rates associated with operations located in china for fiscal 2015 compared with the same period a year ago . we recorded a foreign currency exchange gain of $ 241,000 in fiscal 2015 compared to a foreign currency exchange loss of $ 571,000 in fiscal 2014 regarding our operations located in china . we have been able to mitigate the effects of foreign exchange rate fluctuations associated with our subsidiaries domiciled in canada and poland through the maintenance of a natural hedge by keeping a balance of assets and liabilities denominated in foreign currencies other than the u.s. dollar . although we will continue to try and maintain this natural hedge , there is no assurance that we will be able to continue to do so in the future reporting periods . 30 also , a non-recurring charge of $ 206,000 was recorded in the first quarter of fiscal 2014 for the settlement of litigation relating to the environmental claims associated with a closed facility , and there was no comparable charge recorded in fiscal 2015. income taxes significant judgment is required in determining the provision for income taxes . during the ordinary course of business , there are many transactions and calculations for which the ultimate tax determination is uncertain . we account for income taxes using the asset and liability approach as prescribed by asc topic 740 , “ income taxes. ” this approach requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or income tax returns . using the enacted tax rates in effect for the fiscal year in which differences are expected to reverse , deferred tax assets and liabilities are determined based on the differences between financial reporting and tax basis of an asset or liability . if a change in the effective tax rate to be applied to a timing difference is determined to be appropriate , it will affect the provision for income taxes during the period that the determination is made . story_separator_special_tag effective income tax rate we recorded income tax expense of $ 7.9 million , or 34.3 % of income before income tax expense , in fiscal 2015 compared with income tax expense of $ 1.6 million , or 8.4 % of income before income tax expense , in fiscal 2014. the following schedule summarizes the principal differences between income tax expense at the federal income tax rate and the effective income tax rate reflected in the consolidated financial statements : replace_table_token_15_th deferred income taxes – valuation allowance summary in accordance with asc topic 740 , we evaluate our deferred income taxes to determine if a valuation allowance is required . asc topic 740 requires that companies assess whether a valuation allowance should be established based on the consideration of all available evidence using a “ more likely than not ” standard with significant weight being given to evidence that can be objectively verified . since the company operates in multiple jurisdictions , we assess the need for a valuation allowance on a jurisdiction-by-jurisdiction basis , taking into account the effects of local tax law . based on our assessment at may 3 , 2015 , we recorded a partial valuation allowance of $ 922,000 , of which $ 561,000 pertained to certain u.s. state net operating loss carryforwards and credits and $ 361,000 pertained to loss carryforwards associated with our culp europe operation located in poland . based on our assessment at april 27 , 2014 , we recorded a partial valuation allowance of $ 977,000 , of which $ 666,000 pertained to certain u.s. state net operating loss carryforwards and credits and $ 311,000 pertained to loss carryforwards associated with our culp europe operation located in poland . no valuation allowance was recorded against our net deferred tax assets associated with our operations located in china and canada at may 3 , 2015 and april 27 , 2014 , respectively . 31 united states our net deferred tax asset regarding our u.s. operations includes u.s. loss carryforwards totaling $ 32.2 million , $ 45.7 million , and $ 50.7 million at may 3 , 2015 , april 27 , 2014 , and april 28 , 2013 , respectively . fiscal 2013 due to the favorable results of our multi-year restructuring process in our upholstery fabric operations and key acquisitions and capital investments made in our mattress fabric operations , our u.s operations ' financial results started to improve in fiscal 2011 and this improvement continued through the second quarter of fiscal 2013. our u.s. operations earned a pre-tax income on a cumulative three-year basis as of april 29 , 2012 ( the end of our fiscal 2012 ) of $ 11.9 million and an additional $ 3.4 million through the second quarter of fiscal 2013. this continued earnings improvement from our u.s. operations was primarily due to the operating performance of our mattress fabric operations . through the second quarter of fiscal 2013 , our mattress fabric operations had net sales that totaled $ 77.7 million , an increase of 15 % compared with $ 67.4 million through the second quarter of fiscal 2012. in addition , our mattress fabric operations reported operating income of $ 10.3 million through the second quarter of fiscal 2013 , an increase of 49 % compared with $ 7.0 million through the second quarter of fiscal 2012. these improved results through the second quarter of fiscal 2013 , which were better than expected , were attributed to the evolution of the bedding industry into a more decorative business with growing consumer demand for better bedding and a higher quality mattress fabric , and the stabilization of raw material prices . based on the positive evidence at the end of our second quarter of fiscal 2013 , as supported by our cumulative earnings history , current and expected earnings improvement driven by our u.s. mattress fabric operations , and the significant source of u.s. taxable income from the undistributed earnings of our foreign subsidiaries ( see separate section below ) , we recorded an income tax benefit of $ 12.2 million to reverse substantially all of the valuation allowance against our u.s. net deferred tax assets . in the third quarter of fiscal 2013 , we recorded an income tax charge of $ 103,000 , due to a change in our second quarter estimate of the recoverability of our u.s. state net loss operating carryforwards . after this valuation allowance reversal of $ 12.1 million , we had a remaining valuation allowance against our u.s. net deferred tax assets totaling $ 722,000 as of april 28 , 2013. this valuation allowance pertained to certain u.s. state net operating loss carryforwards and credits in which it is “ more likely than not ” that these u.s. state net operating loss carryforwards and credits would not be realized prior to their respective expiration dates . fiscal 2014 at april 27 , 2014 , we had a remaining valuation allowance against our u.s net deferred tax assets totaling $ 666,000. this valuation allowance pertained to u.s. state net operating loss carryforwards and credits in which it is “ more likely than not ” that these u.s. state net operating loss carryforwards and credits would not be realized prior to their respective expiration dates . in fiscal 2014 , we recorded an income tax benefit of $ 56,000 that reduced our valuation allowance against our u.s. net deferred tax assets . this income tax benefit pertained to a change in estimate of the recoverability of our u.s. state net loss operating carryforwards at the end of fiscal 2014. fiscal 2015 at may 3 , 2015 , we had a remaining valuation allowance against our u.s net deferred tax assets totaling $ 561,000. this valuation allowance pertained to u.s. state net operating loss carryforwards and credits in which it is “ more likely than not ” that these u.s. state net operating loss carryforwards and credits would not be realized prior to their respective expiration dates .
| additionally , income before income taxes for fiscal 2015 was affected by the decrease in other expense in comparison to fiscal 2014. other expense was $ 391,000 and $ 1.3 million for fiscal 2015 and 2014 , respectively . this decrease was primarily due to more favorable foreign currency exchange rates associated with operations located in china for fiscal 2015 compared with the same period a year ago . also , a non-recurring charge of $ 206,000 was recorded in the first quarter of fiscal 2014 for the settlement of litigation relating to the environmental claims associated with a closed facility , and there was no comparable charge recorded in fiscal 2015. see the segment analysis section located in the results of operations for further details . income taxes we reported income tax expense of $ 7.9 million or 34.3 % of income before income taxes for fiscal 2015 , compared to income tax expense of $ 1.6 million or 8.4 % of income before income taxes for fiscal 2014. the income tax expense reported in fiscal 2014 included an income tax benefit of $ 5.4 million to record the u.s. income tax effects of the undistributed earnings from our foreign subsidiaries located in china , which was treated as a discrete event in the third quarter of fiscal 2014 , as it pertained to a change in judgment on prior period 's accumulated earnings and profits . there was no comparable income tax benefit recorded in fiscal 2015. see the income taxes section located in the results of operations and note 9 of the consolidated financial statements for further details . liquidity at may 3 , 2015 , our cash and cash equivalents and short-term investments totaled $ 39.7 million and exceeded our total debt ( all of which is classified in current maturities of long-term debt ) of $ 2.2 million . we currently have one remaining annual $ 2.2 million principal payment due on our long-term debt in august 2015 . 24 the $ 39.7 million is up from $ 35.6 million at the end of last
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we experienced an increase in demand in the first half of fiscal 2020 that resulted in approximately 13 % of our total revenue being generated from customers in china , as compared to approximately 11 % during the first half of fiscal 2019. this was followed by an additional increase in demand in the second half of fiscal 2020 that resulted in approximately 17 % of our revenue being generated from customers in china , as compared to approximately 10 % during the second half of fiscal 2019. during fiscal 2021 , we expect revenue from our customers in china to be consistent , as a percentage of total revenue , with the first half of fiscal 2020. beginning in the second quarter of fiscal 2019 , we have not been able to deliver maintenance or support for certain customers in china due to the u.s. department of commerce 's designation of these customers to the “ entity list. ” we expect these restrictions and new or expanded trade restrictions to continue to impact revenue from certain customers in china . for the primary factors contributing to the change in revenue for other geographies during fiscal 2020 , as compared to fiscal 2019 , see the general description under “ revenue by year ” and “ revenue by product category ” above . 31 revenue by geography as a percent of total revenue replace_table_token_8_th most of our revenue is transacted in the united states dollar . however , certain revenue transactions are denominated in foreign currencies . for an additional description of how changes in foreign exchange rates affect our consolidated financial statements , see the discussion under item 7a , “ quantitative and qualitative disclosures about market risk – foreign currency risk. ” cost of revenue replace_table_token_9_th the following table shows cost of revenue as a percentage of related revenue for fiscal 2020 and 2019 : replace_table_token_10_th cost of product and maintenance cost of product and maintenance includes costs associated with the sale and lease of our emulation and prototyping hardware and licensing of our software and ip products , certain employee salary and benefits and other employee-related costs , cost of our customer support services , amortization of technology-related and maintenance-related acquired intangibles , costs of technical documentation and royalties payable to third-party vendors . cost of product and maintenance depends primarily on our hardware product sales in any given period , but is also affected by employee salary and benefits and other employee-related costs , reserves for inventory , and the timing and extent to which we acquire intangible assets , license third-party technology or ip , and sell our products that include such acquired or licensed technology or ip . a summary of cost of product and maintenance for fiscal 2020 and 2019 is as follows : replace_table_token_11_th 32 product and maintenance-related costs increased during fiscal 2020 , when compared to fiscal 2019 , due to the following : change 2020 vs. 2019 ( in millions ) emulation and prototyping hardware costs 34.1 professional services 2.5 salary , benefits and other employee-related costs 1.8 other items ( 1.7 ) total change in product and maintenance-related costs $ 36.7 costs associated with our emulation and prototyping hardware products include components , assembly , testing , applicable reserves and overhead . these costs make our cost of emulation and prototyping hardware products higher , as a percentage of revenue , than our cost of software and ip products . the increase in emulation and prototyping hardware costs during fiscal 2020 , as compared to fiscal 2019 , was primarily due to increased demand for our emulation and prototyping hardware , increased reserves for inventory , and the mix of products generating revenue . amortization of acquired intangibles included in cost of product and maintenance increased by $ 9.4 million during fiscal 2020 , as compared to fiscal 2019 , due to technology-related intangible assets acquired from awr and integrand during fiscal 2020 and in-process technology being placed into service during fiscal 2020 and 2019. this increase was partially offset by certain technology-related intangible assets becoming fully amortized during fiscal 2020 and 2019. cost of services cost of services primarily includes employee salary , benefits and other employee-related costs to perform work on revenue-generating projects and costs to maintain the infrastructure necessary to manage a services organization . cost of services may fluctuate from period to period based on our utilization of design services engineers on revenue-generating projects rather than internal development projects . despite an increase in services revenue , cost of services decreased during fiscal 2020 , as compared to fiscal 2019 , due to a higher margin on the mix of services arrangements in fiscal 2020 , compared to fiscal 2019 , and temporary savings due to the covid pandemic . operating expenses our operating expenses include marketing and sales , research and development , and general and administrative expenses . factors that tend to cause our operating expenses to fluctuate include changes in the number of employees due to hiring and acquisitions , stock-based compensation , restructuring activities , foreign exchange rate movements , and the impact of our variable compensation programs that are driven by operating results . during fiscal 2020 we experienced decreased operating expenses for travel , meetings and events due to various measures implemented to contain covid-19 . many of our operating expenses are transacted in various foreign currencies . we recognize lower expenses in periods when the united states dollar strengthens in value against other currencies and we recognize higher expenses when the united states dollar weakens against other currencies . for an additional description of how changes in foreign exchange rates affect our consolidated financial statements , see the discussion in item 7a , “ quantitative and qualitative disclosures about market risk – foreign currency risk. story_separator_special_tag ” our operating expenses for fiscal 2020 and 2019 were as follows : replace_table_token_12_th our operating expenses , as a percentage of total revenue , for fiscal 2020 and 2019 were as follows : replace_table_token_13_th 33 marketing and sales the changes in marketing and sales expense were due to the following : change 2020 vs. 2019 ( in millions ) salary , benefits and other employee-related costs $ 41.7 stock-based compensation 3.0 home office-related expenses 2.0 travel and sales meetings ( 13.0 ) other items 1.1 total change in marketing and sales expense $ 34.8 salary , benefits and other employee-related costs included in marketing and sales increased during fiscal 2020 , as compared to fiscal 2019 , salary , benefits and other employee-related costs included in marketing and sales expense increased due primarily to additional headcount from hiring and acquisitions and variable compensation as we continue to invest in technical sales support in response to our customers ' increasing technological requirements . this increase was partially offset by reduced costs for marketing events and travel due to covid-19 . research and development the changes in research and development expense were due to the following : replace_table_token_14_th salary , benefits and other employee-related costs included in research and development expense increased during fiscal 2020 , as compared to fiscal 2019 , due primarily to additional headcount from hiring and acquisitions and variable compensation as we continue to expand and enhance our product portfolio . this increase was partially offset by reduced costs for travel due to covid-19 . general and administrative the changes in general and administrative expense were due to the following : change 2020 vs. 2019 ( in millions ) salary , benefits and other employee-related costs $ 6.5 facilities and other infrastructure costs 2.6 university endowment 2.0 stock-based compensation 2.0 other items 1.5 total change in general and administrative expense $ 14.6 salary , benefits and other employee-related costs included in general and administrative expense increased during fiscal 2020 , as compared to fiscal 2019 , due primarily to an increase in variable compensation and additional headcount from hiring . 34 amortization of acquired intangibles amortization of acquired intangibles consists primarily of amortization of customer relationships , acquired backlog , trade names , trademarks and patents . amortization in any given period depends primarily the timing and extent to which we acquire intangible assets . replace_table_token_15_th amortization of acquired intangibles increased by $ 7.3 million during fiscal 2020 , as compared to fiscal 2019 , due to intangibles assets acquired from awr and integrand during fiscal 2020. this increase was partially offset by certain intangible assets becoming fully amortized during fiscal 2020 and 2019. restructuring and other charges we have initiated restructuring plans in recent years to better align our resources with our business strategy . because the restructuring charges and related benefits are derived from management 's estimates made during the formulation of the restructuring plans , based on then-currently available information , our restructuring plans may not achieve the benefits anticipated on the timetable or at the level contemplated . additional actions , including further restructuring of our operations , may be required in the future . the following table presents restructuring and other charges , net for our restructuring plans : replace_table_token_16_th for an additional description of our restructuring plans , see note 13 in the notes to consolidated financial statements . operating margin operating margin represents income from operations as a percentage of total revenue . our operating margin for fiscal 2020 and 2019 was as follows : replace_table_token_17_th operating margin increased during fiscal , 2020 , as compared to fiscal 2019 , because revenue growth exceeded the growth of our costs and expenses . during fiscal 2021 , we expect growth in operating margin will be more moderate due to an increase in costs and expenses associated with acquisitions , including increased amortization of intangibles . we also expect an increase in expenses related to travel , meetings and events if measures implemented to contain covid-19 are lifted . interest expense interest expense for fiscal 2020 and 2019 was comprised of the following : replace_table_token_18_th interest expense increased during fiscal 2020 , as compared to fiscal 2019 , due to borrowings of $ 350 million under our revolving credit facility during the first quarter of fiscal 2020 as a precautionary measure to provide additional liquidity in light of global economic uncertainty . all outstanding borrowings under our revolving credit facility were repaid in the fourth quarter of fiscal 2020. for an additional description of our debt arrangements , including our revolving credit facility , see note 3 in the notes to consolidated financial statements . 35 income taxes the following table presents the provision ( benefit ) for income taxes and the effective tax rate for fiscal 2020 and 2019 : replace_table_token_19_th in june 2020 , the state of california enacted legislation that , for a three-year period beginning in fiscal 2020 , will limit our utilization of california research and development tax credits to $ 5 million annually and will suspend the use of california net operating loss deductions . we accounted for the effects of the california tax law change and we recognized a tax benefit of approximately $ 22.2 million due to a partial release of the valuation allowance on our california research and development tax credit deferred tax assets as a result of certain tax elections made in our 2019 california tax return .
| ip , selling or leasing our emulation and prototyping hardware technology , providing maintenance for our software , hardware and ip , providing engineering services and earning royalties generated from the use of our ip . the timing of our revenue is significantly affected by the mix of software , hardware and ip products generating revenue in any given period and whether the revenue is recognized over time or at a point in time , upon completion of delivery . in any fiscal year , we expect that between 85 % and 90 % of our annual revenue will be characterized as recurring revenue . revenue characterized as recurring includes revenue recognized over time from our software arrangements , services , royalties , maintenance on ip licenses and hardware , and operating leases of hardware and revenue recognized at varying points in time over the term of our ip access agreements . the remainder of our revenue is characterized as up-front revenue . up-front revenue is primarily generated by our sales of emulation and prototyping hardware and individual ip licenses . the percentage of our recurring and up-front revenue may be impacted by delivery of hardware and ip products to our customers in any single fiscal period . revenue by year the following table shows our revenue for fiscal 2020 and 2019 and the change in revenue between years : replace_table_token_5_th product and maintenance revenue increased during fiscal 2020 , as compared to fiscal 2019 , primarily because of increased investments by our customers in new , complex designs for their products that include the design of electronic systems for consumer , hyperscale computing , 5g communications , automotive , aerospace and defense , industrial and healthcare . services revenue may fluctuate from period to period based on the timing of fulfillment of our services and ip performance obligations . no one customer accounted for 10 % or more of total revenue during fiscal 2020 or 2019 . 30 revenue by product category the following
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the aerospace industry , in particular , remains highly fragmented , with many of the companies in the industry being small private businesses or small non-core operations of larger businesses . we have significant experience among our management team in executing acquisitions and integrating acquired businesses into our company and culture . as of the date of this report , we have successfully acquired 49 businesses and or product lines since our formation in 1993. many of these acquisitions have been integrated into an existing transdigm production facility , which enables a higher production capacity utilization , which in turn improves gross profit levels due to the ability to spread the fixed manufacturing overhead costs over higher production volume . acquisitions and divestitures during the previous three fiscal years are more fully described in note 2 , acquisitions in the notes to the consolidated financial statements included herein . 28 ebitda and ebitda as defined the following table sets forth a reconciliation of net income to ebitda and ebitda as defined : replace_table_token_10_th ( 1 ) ebitda represents earnings before interest , taxes , depreciation and amortization . ebitda as defined represents ebitda plus , as applicable for each relevant period , certain adjustments as set forth in the reconciliation of net income to ebitda and ebitda as defined . see non-gaap financial measures for additional information and limitations regarding these non-gaap financial measures . ( 2 ) represents accounting adjustments to inventory associated with acquisitions of businesses and product lines that were charged to cost of sales when the inventory was sold . ( 3 ) represents costs incurred to integrate acquired businesses and product lines into td group 's operations , facility relocation costs and other acquisition-related costs . ( 4 ) represents transaction-related costs comprising deal fees ; legal , financial and tax due diligence expenses ; and valuation costs that are required to be expensed as incurred . ( 5 ) represents the compensation expense recognized by td group under our stock option plans . ( 6 ) represents debt issue costs expensed in conjunction with the repurchase of the 2018 notes in june 2014 . ( 7 ) represents debt issue costs expensed in conjunction with the refinancing of our 2010 credit facility and 2011 credit facility in february 2013 . 29 the following table sets forth a reconciliation of net cash provided by operating activities to ebitda and ebitda as defined : replace_table_token_11_th ( 1 ) represents interest expense excluding the amortization of debt issue costs and note premium and discount . ( 2 ) represents the compensation expense recognized by td group under our stock option plans . ( 3 ) represents debt issue costs expensed in conjunction with the repurchase of the 2018 notes in june 2014 . ( 4 ) represents debt issue costs expensed in conjunction with the refinancing of our 2010 credit facility and 2011 credit facility in february 2013 . ( 5 ) ebitda represents earnings before interest , taxes , depreciation and amortization . ebitda as defined represents ebitda plus , as applicable for each relevant period , certain adjustments as set forth in the reconciliation of net cash provided by operating activities to ebitda and ebitda as defined . see non-gaap financial measures for additional information and limitations regarding these non-gaap financial measures . ( 6 ) represents accounting adjustments to inventory associated with acquisitions of businesses and product lines that were charged to cost of sales when the inventory was sold . ( 7 ) represents costs incurred to integrate acquired businesses and product lines into td group 's operations , facility relocation costs and other acquisition-related costs . ( 8 ) represents transaction-related costs comprising deal fees ; legal , financial and tax due diligence expenses ; and valuation costs that are required to be expensed as incurred . trend information we predominantly serve customers in the commercial , regional , business jet and general aviation aftermarket , which accounts for approximately 37 % of total sales ; the commercial aerospace oem market , comprising large commercial transport manufacturers and regional and business jet manufacturers , which accounts for approximately 28 % of total sales ; and the defense market , which accounts for approximately 30 % of total sales . non-aerospace sales comprise approximately 5 % of our total sales . 30 the commercial aerospace industry , including the aftermarket and oem market , is impacted by the health of the global economy and geo-political events around the world . the commercial aerospace industry had shown strength with increases in revenue passenger miles , or rpms , between 2003 and 2008 , as well as increases in oem production and backlog . however , in 2009 , the global economic downturn negatively impacted the commercial aerospace industry causing rpms to decline slightly . this market sector began to rebound in 2010 and positive growth has continued thru 2014 with increases in rpms , as well as the growth in the large commercial oem sector ( aircraft with 100 or more seats ) with order announcements by the boeing company and airbus s.a.s . leading to planned increases in production . the 2015 leading indicators and industry consensus suggest a continuation of current trends in the commercial transport market sector supported by continued rpm growth and increases in production at the oem level . the defense aerospace market is dependent on government budget constraints , the timing of orders and the extent of global conflicts . it is not necessarily affected by general economic conditions that affect the commercial aerospace industry . our presence in both the commercial aerospace and military sectors of the aerospace industry may mitigate the impact on our business of any specific industry risk . we service a diversified customer base in the commercial and military aerospace industry , and we provide components to a diverse installed base of aircraft , which mitigates our exposure to any individual airframe platform . at times , declines in sales in one channel have been offset by increased sales in another . story_separator_special_tag however , due to differences between the profitability of our products sold to oem and aftermarket customers , variation in product mix can cause variation in gross margin . there are many short-term factors ( including inventory corrections , unannounced changes in order patterns , strikes and mergers and acquisitions ) that can cause short-term disruptions in our quarterly shipment patterns as compared to previous quarters and the same periods in prior years . as such , it can be difficult to determine longer-term trends in our business based on quarterly comparisons . to normalize for short-term fluctuations , we tend to look at our performance over several quarters or years of activity rather than discrete short-term periods . there are also fluctuations in oem and aftermarket ordering and delivery requests from quarter-to-quarter , as well as variations in product mix from quarter-to-quarter , that may cause positive or negative variations in gross profit margins since commercial aftermarket sales have historically produced a higher gross margin than sales to commercial oems . again , in many instances these are timing events between quarters and must be balanced with macro aerospace industry indicators . commercial aftermarket the key growth factors in the commercial aftermarket include worldwide rpms and the size and activity level of the worldwide fleet of aircraft . after a decline in rpms in 2009 , worldwide rpms returned to growth between 2010 and 2014 and current industry consensus indicates that positive rpm growth will continue in 2015. commercial oem market the commercial transport market sector continued to grow during 2014. our commercial transport oem shipments and revenues generally run ahead of the boeing and airbus airframe delivery schedules . as a result and consistent with prior years , our fiscal 2015 shipments will be a function of , among other things , the estimated 2015 and 2016 commercial airframe production rates . we have been experiencing increased sales in the large commercial oem sector ( aircraft with 100 or more seats ) driven by an increase in production by the boeing company and airbus s.a.s tied to previous order announcements . industry consensus indicates this production increase will continue in 2015 and 2016 , though the growth may moderate and begin to flatten . 31 the business jet oem market significantly declined between 2008 and 2010 , impacted by the slowdown in economic growth , corporate profits , commodity prices and stock market returns across the world . however , the business jet oem market started to modestly recover in 2012 , but has remained sluggish through 2014 and could show modest growth in 2015. defense our military business fluctuates from year to year , and is dependent , to a degree , on government budget constraints , the timing of orders and the extent of global conflicts . in recent years , defense spending has reached historic highs , due in part to the military engagements in afghanistan and iraq and the war on terrorism . for a variety of reasons , the military spending outlook is very uncertain . for planning purposes we assume that military related sales of our types of products to be flat to modestly down in future years over the recent high levels . critical accounting policies our consolidated financial statements have been prepared in conformity with gaap , which often requires the judgment of management in the selection and application of certain accounting principles and methods . management believes that the quality and reasonableness of our most critical policies enable the fair presentation of our financial position and results of operations . however , investors are cautioned that the sensitivity of financial statements to these methods , assumptions and estimates could create materially different results under different conditions or using different assumptions . below are those policies applied in preparing our financial statements that management believes are the most dependent on the application of estimates and assumptions . for additional accounting policies , see note 3 , summary of significant accounting policies in the notes to the consolidated financial statements included herein . revenue recognition and related allowances : revenue is recognized from the sale of products when title and risk of loss passes to the customer , which is generally at the time of shipment . substantially all product sales are made pursuant to firm , fixed-price purchase orders received from customers . collectability of amounts recorded as revenue is reasonably assured at the time of sale . provisions for returns , uncollectible accounts and the cost of repairs under contract warranty provisions are provided for in the same period as the related revenues are recorded and are principally based on historical results modified , as appropriate , by the most current information available . we have a history of making reasonably dependable estimates of such allowances ; however , due to uncertainties inherent in the estimation process , it is possible that actual results may vary from the estimates and the differences could be material . management estimates the allowance for doubtful accounts based on the aging of the accounts receivable and customer creditworthiness . the allowance also incorporates a provision for the estimated impact of disputes with customers . management 's estimate of the allowance amounts that are necessary includes amounts for specifically identified credit losses and estimated credit losses based on historical information . the determination of the amount of the allowance for doubtful accounts is subject to significant levels of judgment and estimation by management . depending on the resolution of potential credit and other collection issues , or if the financial condition of any of the company 's customers were to deteriorate and their ability to make required payments were to become impaired , increases in these allowances may be required . historically , changes in estimates in the allowance for doubtful accounts have not been significant . inventories : inventories are stated at the lower of cost or market .
| cost of sales increased by $ 230.2 million , or 26.3 % , to $ 1,105.0 million for the fiscal year ended september 30 , 2014 compared to $ 874.8 million for the fiscal year ended september 30 , 2013. cost of sales and the related percentage of total sales for the fiscal years ended september 30 , 2014 and 2013 were as follows ( amounts in millions ) : replace_table_token_14_th the increase in the dollar amount of cost of sales during the fiscal year ended september 30 , 2014 was primarily due to increased volume associated with the sales from acquisitions and organic sales growth partially offset by lower stock compensation expense related to the accelerated vesting in the prior year ( discussed further below ) and lower acquisition-related costs as shown in the table above . 35 gross profit as a percentage of sales decreased by 1.1 percentage points to 53.4 % for the fiscal year ended september 30 , 2014 from 54.5 % for the fiscal year ended september 30 , 2013. the dollar amount of gross profit increased by $ 218.3 million , or 20.8 % , for the fiscal year ended september 30 , 2014 compared to the comparable period last year due to the following items : gross profit on the sales from the acquisitions indicated above ( excluding acquisition-related costs ) was approximately $ 108 million for the fiscal year ended september 30 , 2014 , which represented gross profit of approximately 37 % of the acquisition sales . the lower gross profit margin on the acquisition sales reduced gross profit as a percentage of consolidated sales by approximately 2 percentage points . impact of lower inventory purchase accounting adjustments and acquisition integration costs charged to cost of sales of approximately $ 2 million . impact of lower stock compensation expense of $ 3 million mainly due to accelerated vesting in the prior year ( discussed further below ) . organic sales growth described above , application of our three core value-driven operating strategies ( obtaining profitable new business , continually improving our cost structure , and providing highly engineered value-added products to customers ) , and positive leverage on our fixed overhead costs spread over a higher production volume , resulted in a net increase in gross profit of approximately $ 105 million for the fiscal year ended september 30 , 2014. selling and administrative expenses . selling and administrative expenses increased by $ 22.0 million to
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we also seek to continuously improve our customer service , and we use the net promoter score ( nps ) framework to track the feedback of our customers for virtually all customer interactions . we believe that higher nps scores will allow us to increasingly provide a differentiated service experience for our customers , which will support our growth . we are focused on expanding our margins , and we utilize the lean framework to eliminate waste and simplify how we do business . on april 2 , 2015 , we entered into an agreement to purchase a terrestrial fiber network on the north slope of alaska . this network allows us to provide broadband solutions to the oil and gas sector in a market that previously had no competition , and continue to advance our sales of managed it services . also on april 2 , 2015 , the company entered into a joint venture agreement with quintillion for the purpose of expanding the fiber optic network , and making the network available to other telecom carriers . the joint venture may also participate in and facilitate other capital and service initiatives in the telecom industry . we may also participate with quintillion in acquiring capacity on other parts of the system they are building in alaska . the contribution from this investment was not material in 2015 and 2016 as we are focused on operationalizing the network to meet our service level standards . on march 13 , 2017 , we entered into the 2017 senior credit facility consisting of a term a-1 facility of $ 120.0 million , a term a-2 facility of $ 60.0 million and a revolving facility of $ 15.0 million . upon the satisfaction of certain conditions , on or before march 28 , 2017 , we will utilize proceeds from the 2017 senior credit facility and cash on hand to repay in full our 2015 senior credit facilities , including accrued interest and fees , of approximately $ 87.8 million , fund the tender of our 6.25 % notes in the amount of $ 94.0 million as described below and fund fees and expenses associated with this transaction . this refinancing transaction will result in the extension of scheduled principal payments under our senior credit agreements from 2018 out through 2023. pursuant to the 2017 senior credit facility , we intend to commence a tender offer for our outstanding 6.25 % convertible notes due 2018. the offer will commence upon the filing of schedule to with the securities and exchange commission . the outstanding principal balance of the 6.25 % notes was $ 94.0 million at december 31 , 2016. on march 13 , 2017 , we announced that our board of directors authorized a stock repurchase program for the company to repurchase up to $ 10.0 million of its common stock through december 2019. business plan core principles our results of operations , financial position and sources and uses of cash in the current and future periods reflect our focus on being the most successful broadband solutions company in alaska by delivering the best customer experience in the markets we choose to serve . to do this we will continue to : create a workplace that develops our people and celebrates success . we believe an engaged workforce is critical to our success . we are deeply committed to the development of our people and creating opportunities for them . create a consistent customer experience every time . we strive to deliver service as promised to our customers , and make it right if our customers are not satisfied with what we delivered . we track virtually every customer interaction and we utilize the net promoter score framework for assessing the satisfaction of our customers . relentlessly simplify how we do business . we believe we must reduce waste , which is defined as any activity that does not add value to its intended customer . doing so improves the experience we deliver to our customers . we make investments in technology and process improvement , utilize the lean framework , and expect these efforts to meaningfully impact our financial performance in the long-term . 33 offer broadband solutions to our customers at work and home . we are building on strength in designing , building and operating quality broadband networks and providing new products and solutions to our customers . we believe we can create value for our shareholders by : driving revenue growth through increasing business broadband and managed it service revenues , generating adjusted ebitda and adjusted free cash flow growth through margin management , and careful allocation of capital , including selectively investing success based capital into opportunities that generate appropriate returns on investments . 2017 operating initiatives business and wholesale revenue growth driven by new customers , including those utilizing the north slope fiber network . continued expansion of managed it services , including increased product offerings to existing customers . consumer revenue growth driven by sustained broadband additions at 10mb and above and new product offerings . manage cost structure growth by effective allocation of resources , and managing labor and healthcare costs . effectively manage capital spending , focusing on customer opportunities , strategic initiatives , maintenance and utilization of funding received through caf ii support . continue improving the service experience to all of our customers in a differentiated manner from our competition . drive continued improvements in our service delivery organization to shorten service intervals and meet customers ' desired due dates . consider strategic opportunities in and out of alaska that address scale and geographic diversification and reduce the risk of investments made in our company . continue our deployment of broadband solutions such as hosted voip and vpls , and take advantage of our metro ethernet forum designation . continue building strategic customer relationships , including with anchor tenant type customers . revenue sources by customer group we manage our revenues based on the sale of services and products to the three wireline customer categories listed below . story_separator_special_tag prior to the wireless sale in the first quarter of 2015 we also provided retail wireless services and generated certain revenue streams related to our ownership in awn . business and wholesale ( broadband , voice and managed it services ) consumer ( broadband and voice services ) regulatory ( access charges , surcharges and federal and state support ) business and wholesale providing services to business and wholesale customers provides the majority of our revenues and is expected to continue being the primary driver of our growth over the next few years . our business customers include large enterprises , government customers and small and medium business . we were the first alaska-based carrier to be carrier ethernet 2.0 certified and are currently the only alaska-based carrier certified for multipoint-to-multipoint service . this certification means that we meet international standards for the quality of our broadband services . we also offer ip based voice including the largest 34 sip implementations in the state of alaska , and are the first microsoft express route provider in the state . we believe our network differentiates us in the markets we serve , because we prefer not to compete on price ; but on the quality , reliability and the overall value of our solutions . accordingly , we have significant capacity to sell into the network we operate and do so at what we believe are attractive incremental gross margins . business services have experienced significant growth and we believe the incremental economics of business services are attractive . given the demand from our customers for more bandwidth and services , we expect revenue growth from these customers to continue for the foreseeable future . we provide services such as voice and broadband , managed it services including remote network monitoring and support , managed it security and it professional services , and long distance services primarily over our own terrestrial network . we are also positioning the company to become the premier cloud enabler for business in the state of alaska . our wholesale customers are primarily national and international telecommunications carriers who rely on us to provide connectivity for broadband and other needs to access their customers over our alaskan network . the wholesale market is characterized by larger transactions that can create variability in our operating performance . we have a dedicated sales team that sells into this customer segment , and we expect wholesale revenue to grow for the foreseeable future . consumer we provide voice and broadband services to residential customers . given that our primary competitor has extensive quad play capabilities ( video , voice , wireless and broadband ) we target how and where we offer products and services to this customer group in order to maintain our returns . our focus is to leverage the capabilities of our existing network and sell customers our highest available bandwidth . our primary competitive advantage is that we offer reliable internet service without data caps , while our competitor charges customers or throttles customers ' speeds for exceeding given levels of data usage . revenues from these customers began to stabilize in the second half of 2016 and we expect modest growth beginning in 2017. regulatory regulatory revenue is generated from three primary sources : ( i ) access charges , which include interstate and intrastate switched access and special access charges , and cellular access ; ( ii ) surcharges billed to the end user ( pass-through and non-pass-through ) ; and ( iii ) federal and state support . we provide voice and broadband origination and termination services to interstate and intrastate carriers . while we are compensated for these services , these revenue streams have been in decline and we expect them to continue to decline . in addition , as regulators have reformed traditional access charges , they have simultaneously implemented new end user surcharges that contribute to our revenue . access charges interstate and intrastate switched access are services based primarily on originating and terminating access minutes from other carriers . special access is primarily access to dedicated circuits sold to wholesale customers , substantially all of which is generated from interstate services . cellular access is the transport of tariffed local network services between switches for cellular companies based on individually negotiated contracts . for the years ended december 31 , 2016 , 2015 and 2014 , access charges represented approximately 2.5 % , 2.8 % and 3.2 % , respectively , of our total wireline revenue . surcharges we assess our customers for surcharges , typically on a monthly basis , as required by various state and federal regulatory agencies , and remit these surcharges to these agencies . these pass-through surcharges include federal universal access and state universal access . these surcharges vary from year to year , and are primarily recognized as revenue , and the subsequent remittance to the state or federal agency as a cost of sale and service . the rates imposed by the regulators continue to increase . however , because the charges are only assessed on a portion of our services , and that portion continues to decline , we expect these revenue streams to decline over time as the revenue base declines . other non-pass-through surcharges are collected from our customers as authorized by the regulatory body . the amount charged is based on the type of line : single line business , multi-line business , consumer or 35 lifeline . the rates are established based on federal or state orders . these charges are recorded as revenue and do not have a direct associated cost . rather , they represent a revenue recovery mechanism established by the fcc or the regulatory commission of alaska . for the years ended december 31 , 2016 , 2015 and 2014 , pass-through surcharges represented approximately 32 % , 30 % and 28 % , respectively , of the total surcharge revenue billed to our end customers .
| these increases were partially offset by a $ 2.2 million total decrease in voice and other revenue due primarily to 4,394 fewer business and wholesale voice connections year over year . business voice arpu of $ 23.45 in 2016 increased marginally compared with $ 23.40 in 2015. while connections and arpu serve as data points to support the analysis of period-over-period changes in revenue , they are not critical indicators utilized by the company to manage the business and wholesale customer group . consumer consumer revenue of $ 37.7 million decreased $ 2.3 million , or 5.7 % , in 2016 from $ 40.0 million in 2015. broadband revenue decreased $ 0.6 million to $ 25.0 million in 2016 from $ 25.6 million in 2015 due to a decrease in arpu from $ 61.32 to $ 60.73 , largely offset by a 1,328 increase in connections year over year . the effect of customers subscribing to higher levels of bandwidth speeds was partially offset by the effect of 40 customers moving to the company 's one price , unlimited home internet package beginning in the third quarter of 2015. voice and other revenue decreased $ 1.6 million primarily due to 4,265 fewer connections , partially offset by an increase in arpu to $ 28.71 from $ 27.65 in the prior year . the downward trend in voice connections is expected to continue as more customers discontinue using their fixed landline voice service and move to wireless alternatives . regulatory regulatory revenue of $ 52.3 million decreased $ 1.0 million , or 2.0 % , in 2016 from $ 53.3 million in 2015 due to a $ 1.2 million decline in access revenue caused primarily by lower eligible access lines combined with lower rates , partially offset by a one-time $ 0.2 million increase in high cost support . wireless and awn related wireless and awn related revenue of $ 13.0 million in 2015 included service , equipment sales and other revenue of $ 6.3 million , transition services
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product development initiatives our future success depends on both our existing product portfolio and our pipeline of new products , including new products that we may develop through joint ventures and products that we are able to obtain through license or acquisition . we believe we are an industry leader in animal health r & d , with a track record of generating new products and product lifecycle innovation . the majority of our r & d programs focus on product lifecycle innovation , which is defined as r & d programs that leverage existing animal health products by adding new species or claims , achieving approvals in new markets or creating new combinations and reformulations . in addition to traditional medicines and vaccines , we develop products across additional categories to address the needs of veterinarians and producers to predict , prevent , detect and treat conditions in both livestock and companion animals , including products in genetics and precision livestock farming , diagnostics and digital and data analytics . perceptions of product quality , safety and reliability we believe that animal health customers value high-quality manufacturing and reliability of supply . the importance of quality and safety concerns to pet owners , veterinarians and livestock producers also contributes to animal health brand loyalty , which often continues after the loss of patent-based and regulatory exclusivity . we depend on positive perceptions of the safety and quality of our products by our customers , veterinarians and end-users . in addition , negative beliefs about animal health products generally could impact demand for our products . for example , the issue of the potential transfer of increased antibacterial resistance in bacteria from food-producing animals to human pathogens , and the causality of that transfer , continue to be the subject of global scientific and regulatory discussion . antibacterials refer to small molecules that can be used to treat or prevent bacterial infections and are a sub-categorization of the products that make up our anti-infectives and medicated feed additives portfolios . in some countries , this issue has led to government restrictions and bans on the use of specific antibacterials in some food-producing animals , regardless of the route of administration ( in feed or injectable ) . these restrictions are more prevalent in countries where animal protein is plentiful and governments are willing to take action even when there is scientific uncertainty . in addition , consumer preferences in some markets have impacted the use of antibacterials in food producing animals . such restrictions and consumer preferences in some cases may negatively impact sales of our antibacterial products , but in other instances may increase sales of our products that can be used as antibacterial alternatives . our total revenue attributable to antibacterials for livestock was approximately $ 1.2 billion for the year ended december 31 , 2019 . similarly , concerns regarding greenhouse gas emissions and other potential environmental impacts of livestock production have led to some consumers opting to limit or avoid consuming animal products . however , we believe the impact of this trend is limited as the livestock industry is still expected to continue to grow in order to feed a growing global population . changing distribution channels for companion animal products in most markets , companion animal owners typically purchase their animal health products directly from veterinarians . however , in the u.s. and certain other markets , companion animal owners increasingly have the option to purchase animal health products from sources other than veterinarians , such as internet-based retailers , “ big-box ” retail stores or other over-the-counter distribution channels . this trend has been demonstrated by the shift away from the veterinarian distribution channel in the sale of flea and tick products in recent years . we believe the ability of pet owners to purchase our products online and from retail stores may increase pet owner compliance and result in increased sales , particularly in the near term . however , over time , we may be unable to sustain our current margins due to the increased purchasing power of such retailers as compared to traditional veterinary practices . in addition , this trend could negatively impact the sales of products we primarily sell through the veterinarian distribution channel , as any decrease in visits to veterinarians by companion animal owners could reduce our market share and sales of such products . a reduction in the number of pet owners who purchase our products directly from their veterinarian could also lead to increased use of generic alternatives to our products or the increased substitution of our products with other animal health products or human health products if such other products are deemed to be lower-cost alternatives . the overall economic environment in addition to industry-specific factors , we , like other businesses , face challenges related to global economic conditions . growth in both the livestock and companion animal sectors is driven by overall economic development and related growth , particularly in many emerging markets . in the past , certain of our customers and suppliers have been affected directly by economic downturns , which decreased the demand for our products and , in some cases , hindered our ability to collect amounts due from customers . the cost of medicines and vaccines to our livestock producer customers is small relative to other production costs , including feed , and the use of these products is intended to improve livestock producers ' economic outcomes . as a result , demand for our products has historically been more stable than demand for other production inputs . similarly , industry sources have reported that pet owners indicated a preference for reducing spending on other aspects of their lifestyle , including entertainment , clothing and household goods , before reducing spending on pet care . story_separator_special_tag while these factors have mitigated the impact of prior downturns in the global economy , future economic challenges could increase cost sensitivity among our customers , which may result in reduced demand for our products , which could have a material adverse effect on our operating results and financial condition . 37 | competition the animal health industry is competitive . although our business is the largest by revenue in the animal health medicines , vaccines and diagnostics industry , we face competition in the regions in which we operate . principal methods of competition vary depending on the particular region , species , product category or individual product . some of these methods include new product development , quality , price , service and promotion to veterinary professionals , pet owners and livestock producers . our competitors include standalone animal health businesses and the animal health businesses of large pharmaceutical companies . in recent years , there has been an increase in consolidation in the animal health industry . there are also several start-up companies working in the animal health area . in addition to competition from established market participants , there could be new entrants to the animal health medicines , vaccines and diagnostics industry in the future . in certain markets , we also compete with companies that produce generic products , but the level of competition from generic products varies from market to market . for example , the level of generic competition is higher in europe and certain emerging markets than in the u.s. weather conditions and the availability of natural resources the animal health industry and demand for many of our animal health products in a particular region are affected by weather conditions , as usage of our products follows varying weather patterns and weather-related pressures from pests , such as ticks . as a result , we may experience regional and seasonal fluctuations in our results of operations . in addition , veterinary hospitals and practitioners depend on visits from and access to the animals under their care . veterinarians ' patient volume and ability to operate could be adversely affected if they experience prolonged snow , ice or other severe weather conditions , particularly in regions not accustomed to sustained inclement weather . furthermore , livestock producers depend on the availability of natural resources , including large supplies of fresh water . their animals ' health and their ability to operate could be adversely affected if they experience a shortage of fresh water due to human population growth or floods , droughts or other weather conditions . in the event of adverse weather conditions or a shortage of fresh water , veterinarians and livestock producers may purchase less of our products . for example , drought conditions could negatively impact , among other things , the supply of corn and the availability of grazing pastures . a decrease in harvested corn results in higher corn prices , which could negatively impact the profitability of livestock producers of cattle , pork and poultry . higher corn prices and reduced availability of grazing pastures contribute to reductions in herd or flock sizes that in turn result in less spending on animal health products . as such , a prolonged drought could have a material adverse impact on our operating results and financial condition . factors influencing the magnitude and timing of effects of a drought on our performance include , but may not be limited to , weather patterns and herd management decisions . adverse weather conditions may also impact the aquaculture business . changes in water temperatures could affect the timing of reproduction and growth of various fish species , as well as trigger the outbreak of certain water borne diseases . disease outbreaks sales of our livestock products could be adversely affected by the outbreak of disease carried by animals . outbreaks of disease may reduce regional or global sales of particular animal-derived food products or result in reduced exports of such products , either due to heightened export restrictions or import prohibitions , which may reduce demand for our products . also , the outbreak of any highly contagious disease near our main production sites could require us to immediately halt production of our products at such sites or force us to incur substantial expenses in procuring raw materials or products elsewhere . alternatively , sales of products that treat specific disease outbreaks may increase . manufacturing and supply in order to sell our products , we must be able to produce and ship our products in sufficient quantities . many of our products involve complex manufacturing processes and are sole-sourced from certain manufacturing sites . minor deviations in our manufacturing or logistical processes , such as temperature excursions or improper package sealing , could result in delays , inventory shortages , unanticipated costs , product recalls , product liability and or regulatory action . in addition , a number of factors could cause production interruptions that could result in launch delays , inventory shortages , recalls , unanticipated costs or issues with our agreements under which we supply third parties . our manufacturing network may be unable to meet the demand for our products or we may have excess capacity if demand for our products changes . the unpredictability of a product 's regulatory or commercial success or failure , the lead time necessary to construct highly technical and complex manufacturing sites , and shifting customer demand increase the potential for capacity imbalances . foreign exchange rates significant portions of our revenue and costs are exposed to changes in foreign exchange rates . our products are sold in more than 100 countries and , as a result , our revenue is influenced by changes in foreign exchange rates . for the year ended december 31 , 2019 , approximately 44 % of our revenue was denominated in foreign currencies .
| for poultry , growth was driven by increased sales of alternatives to antibiotic medicated feed additive products . u.s. segment earnings increased by $ 190 million , or 10 % , in 2019 compared with 2018 , primarily due to revenue growth and improved gross margin , partially offset by higher operating expenses . international operating segment international segment revenue increased by $ 82 million , or 3 % , in 2019 compared with 2018 . operational revenue increased $ 247 million , or 9 % , reflecting growth of $ 216 million in companion animal products and $ 31 million in livestock products . companion animal operational revenue growth resulted primarily from increased sales of our key dermatology portfolio across multiple international markets , growth of sales in parasiticide products , including simparica ® and stronghold ® plus , and the acquisition of abaxis , which was acquired in july 2018. livestock operational revenue growth was driven primarily by increased sales in our cattle and poultry portfolios . cattle products increased due to sales of anti-infectives and vaccines . poultry products also contributed to growth with increased sales of vaccines and medicated feed additive products . swine products sales declined due to the negative impact of african swine fever in china . international segment earnings increased by $ 88 million , or 6 % , in 2019 compared with 2018 . operational earnings growth was $ 143 million , or 10 % , primarily due to higher revenue and improved gross margin . other business activities other business activities includes our css contract manufacturing results , our human health business and expenses associated with our dedicated veterinary medicine r & d organization , research alliances , u.s. regulatory affairs and other operations focused on the development of our products . other r & d-related costs associated with non-u.s. market and regulatory activities are generally included in the international segment . 2019 vs. 2018 other business activities net
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the audit committee investigation included a review of sales transactions for evidence of pull-in sales , the reasons for pull-in sales , whether such transactions were conducted in accordance with the company 's policies and procedures , and whether revenue from pull-in sales was properly recognized in accordance with u.s. gaap . the audit committee investigation concluded that revenue from the pull-in sales under review was appropriately recognized in the quarter in which such sales actually occurred and that there were no financial statement errors related to the pull-in sales . however , the audit committee investigation found that certain revenue pulled into the fourth quarter of 2015 from the first quarter of 2016 was realized as the result of employee actions that involved inappropriate business conduct , including conduct that was inconsistent with , and in violation of company policies and procedures . pull-in sales during the fourth quarter of 2015 were estimated to be between approximately $ 10 to $ 17 and were significantly higher than for other quarters . some portion of these estimated sales did not involve inappropriate business conduct . these estimated pull-in sales represented less than 1 % of total revenue for 2015. during the past two completed fiscal years and through the fourth quarter of 2016 , but excluding the fourth quarter of 2015 , pull-in sales were estimated to be between $ 1 to $ 7 in the aggregate , representing 0 % - 1 % of total revenue . although pull-in sales are not inherently problematic or impermissible , they must not be realized through violations of the company 's policies and procedures and must be in accordance with u.s. gaap . the conclusions concerning the material weakness in the company 's internal controls over financial reporting are discussed further under item 9a “ controls and procedures ” in this form 10-k. 50 critical accounting policies and the use of estimates the significant accounting policies and basis of preparation of our consolidated financial statements are described in note 1 , “ business overview and summary of significant accounting policies ” of the consolidated financial statements included in this annual report on form 10-k. under accounting principles generally accepted in the u.s. , we are required to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , expenses and disclosure of contingent assets and liabilities in our financial statements . actual results could differ from those estimates . we believe the judgments , estimates and assumptions associated with the following critical accounting policies have the greatest potential impact on our consolidated financial statements : revenue recognition ; contingent liabilities ; inventories ; share-based compensation ; valuation of goodwill , acquired intangible assets and in-process research and development ( ipr & d ) ; valuation of contingent consideration ; and income taxes . revenue recognition net product sales our principal source of revenue is product sales . we recognize revenue from product sales when persuasive evidence of an arrangement exists , title to product and associated risk of loss has passed to the customer , the price is fixed or determinable , collection from the customer is reasonably assured , and we have no further performance obligations . depending on these criteria , revenue is usually recorded upon receipt of the product by the end customer , which is typically a hospital , physician 's office , private or government pharmacy or other healthcare facility . on a regular basis , we review revenue arrangements , such as distributor relationships , to determine whether changes in these criteria have an impact on revenue recognition . amounts collected from customers and remitted to governmental authorities , such as value-added taxes ( vat ) in foreign jurisdictions , are presented on a net basis in our consolidated statements of operations and do not impact net product sales . our customers are primarily comprised of distributors , pharmacies , hospitals , hospital buying groups , and other healthcare providers . in some cases , we may also sell product to governments and government agencies . because of factors such as the price of our products , the limited number of patients , the short period from product sale to patient infusion and the lack of contractual return rights , customers often carry limited inventory . we also monitor inventory within our sales channels to determine whether deferrals are appropriate based on factors such as inventory levels compared to demand , contractual terms , financial strength of distributors and our ability to estimate returns . in certain countries , exact quantities of inventory in the channel are not precisely known , requiring us to estimate these amounts . if actual amounts of inventory differ from these estimates , these adjustments could have an impact in the period in which these estimates change . in addition to sales in countries where product is commercially available , we have also recorded revenue on sales for patients receiving treatment through named-patient programs . the relevant authorities or institutions in those countries have agreed to reimburse for product sold on a named-patient basis where product has not received final approval for commercial sale . we record estimated rebates payable under governmental programs , including medicaid in the u.s. and other programs outside the u.s. , as a reduction of revenue at the time of product sale . our calculations related to these rebate accruals require analysis of historical claim patterns and estimates of customer mix to determine which sales will be subject to rebates and the amount of such rebates . we update our estimates and assumptions each period and record any necessary adjustments , which may have an impact on revenue in the period in which the adjustment is made . generally , the length of time between product sale and the processing and reporting of the rebates is three to six months . we have entered into volume-based arrangements with governments in certain countries in which reimbursement is limited to a contractual amount . story_separator_special_tag under this type of arrangement , amounts billed in excess of the contractual limitation are repaid to these governments as a rebate . we estimate incremental discounts resulting from these contractual limitations , based on estimated sales during the limitation period , and we apply the discount percentage to product shipments as a reduction of revenue . our calculations related to these arrangements require estimation of sales during the limitation period , and adjustments in these estimates may have an impact in the period in which these estimates change . 51 we have provided balances and activity in the rebates payable account for the years ended december 31 , 2016 , 2015 and 2014 as follows : replace_table_token_5_th in 2016 compared to 2015 , current provisions relating to sales in the current year increased by $ 25 primarily due to increased unit volumes in the u.s. and europe which were subject to rebates . in 2015 compared to 2014 , current provisions relating to sales in the current year increased by $ 27 primarily due to increased unit volumes in the u.s. and europe which were subject to rebates . in march 2014 , we entered into an agreement with the french government which positively impacts prospective reimbursement of soliris and also provides for reimbursement for shipments in years prior to january 1 , 2014. as a result of this agreement , in the first quarter 2014 , we reduced the rebate payable and recognized $ 88 of net product sales from soliris in france relating to years prior to january 1 , 2014. we record distribution and other fees paid to our customers as a reduction of revenue , unless we receive an identifiable and separate benefit for the consideration and we can reasonably estimate the fair value of the benefit received . if both conditions are met , we record the consideration paid to the customer as an operating expense . these costs are typically known at the time of sale , resulting in minimal adjustments subsequent to the period of sale . we enter into foreign exchange forward contracts to hedge exposures resulting from portions of our forecasted revenues , including intercompany revenues , that are denominated in currencies other than the u.s. dollar . these hedges are designated as cash flow hedges upon inception . we record the effective portion of these cash flow hedges to revenue in the period in which the sale is made to an unrelated third party and the derivative contract is settled . we evaluate the creditworthiness of customers on a regular basis . in certain european countries , sales by us are subject to payment terms that are statutorily determined . this is primarily the case in countries where the payer is government-owned or government-funded , which we consider to be creditworthy . the length of time from sale to receipt of payment in certain countries exceeds our credit terms . in countries in which collections from customers extend beyond normal payment terms , we seek to collect interest . we record interest on customer receivables as interest income when collected . for non-interest bearing receivables with an estimated payment beyond one year , we discount the accounts receivable to present value at the date of sale , with a corresponding adjustment to revenue . subsequent adjustments for further declines in credit rating are recorded as bad debt expense as a component of selling , general and administrative expense . we also use judgments as to our ability to collect outstanding receivables and provide allowances for the portion of receivables if and when collection becomes doubtful , and we also assess on an ongoing basis whether collectibility is reasonably assured at the time of sale . we continue to monitor economic conditions , including volatility associated with international economies and the associated impacts on the financial markets and our business . for additional information related to our concentration of credit risk associated with certain international accounts receivable balances , refer to the “ financial condition , liquidity and capital resources ” section below . 52 contingent liabilities we are currently involved in various claims and legal proceedings . on a quarterly basis , we review the status of each significant matter and assess its potential financial exposure . if the potential loss from any claim , asserted or unasserted , or legal proceeding is considered probable and the amount can be reasonably estimated , we accrue a liability for the estimated loss . because of uncertainties related to claims and litigation , accruals are based on our best estimates based on available information . on a periodic basis , as additional information becomes available , or based on specific events such as the outcome of litigation or settlement of claims , we may reassess the potential liability related to these matters and may revise these estimates , which could result in a material adjustment to our operating results and liquidity . inventories inventories are stated at the lower of cost or estimated realizable value . we determine the cost of inventory on a standard cost basis , which approximates average costs . we capitalize inventory produced for commercial sale , which may include costs incurred for certain products awaiting regulatory approval . we capitalize inventory produced in preparation of product launches sufficient to support estimated initial market demand . capitalization of such inventory begins when we have ( i ) obtained positive results in clinical trials that we believe are necessary to support regulatory approval , ( ii ) concluded that uncertainties regarding regulatory approval have been sufficiently reduced , and ( iii ) determined that the inventory has probable future economic benefit . in evaluating whether these conditions have been met , we consider clinical trial results for the underlying product candidate , results from meetings with regulatory authorities , and the compilation of the regulatory application .
| we recorded a gain in revenue of $ 73 and $ 118 related to our foreign currency cash flow hedging program , for the years ended december 31 , 2016 and 2015 , respectively . we expect the strong dollar compared to other currencies to continue to have a negative impact on revenue into 2017 . 58 cost of sales cost of sales includes manufacturing costs as well as actual and estimated royalty expenses associated with sales of our products . the following table summarizes cost of sales for the year ended december 31 , 2016 and 2015 : replace_table_token_9_th research and development expense our research and development expense includes personnel , facility and external costs associated with the research and development of our product candidates , as well as product development costs . we group our research and development expenses into two major categories : external direct expenses and all other research and development ( r & d ) expenses . external direct expenses are comprised of costs paid to outside parties for clinical development , product development and discovery research , as well as costs associated with strategic licensing agreements we have entered into with third parties . clinical development costs are comprised of costs to conduct and manage clinical trials related to eculizumab and other product candidates , including alx1210 . product development costs are those incurred in performing duties related to manufacturing development and regulatory functions , including manufacturing of material for clinical and research activities . discovery research costs are incurred in conducting laboratory studies and performing preclinical research for other uses of our products and other product candidates . licensing agreement costs include upfront and milestone payments made in connection with strategic licensing arrangements we have entered into with third parties . clinical development costs have been accumulated and allocated to each of our programs , while product development and discovery research costs have not been allocated . all other r & d expenses consist of costs to compensate personnel , to maintain our facility , equipment and overhead and similar costs of our research and development efforts . these costs relate to efforts on
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management 's estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following accounting policies are critical in the portrayal of our financial condition and results of operations and require management 's most significant judgments and estimates in the preparation of our consolidated financial statements . for additional accounting policies see notes to consolidated financial statements note 2. summary of significant accounting policies . revenue recognition our revenue recognition policy involves significant judgment by management . as described below , we consider a broad array of facts and circumstances in determining when to recognize revenue , including contractual future service obligations to the customer , the complexity of the customer 's post-delivery acceptance provisions , payment history , customer creditworthiness and the installation process . in the future , if the post-delivery acceptance provisions and installation process become more complex or result in a materially lower rate of acceptance , we may have to revise our revenue recognition policy , which could delay the timing of revenue recognition . our system sales transactions are made up of multiple elements , including the system itself and elements that are not delivered simultaneously with the system . these undelivered elements might include a combination of installation services , extended warranty and support and spare parts , all of which are generally covered by a single sales price . in january 2011 , we adopted the accounting standards update for multiple deliverable revenue arrangements , as required , using the prospective method . accordingly , this guidance is being applied to all system revenue arrangements entered into or materially modified on or after january 1 , 2011. the adoption of the amended guidance did not change the accounting for arrangements entered into prior to january 1 , 2011. there was no material impact on our financial position , results of operations or cash flows upon adoption . 19 the impact of adopting this amended guidance on our results of operations has been limited to transactions involving the sale of systems . the update amended the previous guidance for multiple-element arrangements . pursuant to the amended guidance , our system revenue arrangements with multiple elements are divided into separate units of accounting if specified criteria are met , including whether the delivered element has stand-alone value to the customer . if the criteria are met , then the consideration received is allocated among the separate units based on their relative selling price , and the revenue is recognized separately for each of the separate units . we determine selling price for each unit of accounting ( element ) using vendor specific objective evidence ( `` vsoe '' ) or third-party evidence ( `` tpe '' ) , if they exist , otherwise , we use best estimated selling price ( `` besp '' ) . the company generally expects that it will not be able to establish tpe due to the nature of its products , and , as such , the company typically will determine selling price using vsoe or besp . where required , the company determines besp for an individual element based on consideration of both market and company-specific factors , including the selling price and profit margin for similar products , the cost to produce the deliverable and the anticipated margin on that deliverable and the characteristics of the varying markets in which the deliverable is sold . the total consideration to be received in the transaction is allocated to each element in the arrangement based upon the relative selling price of each element when compared to the consideration received . systems are not sold separately and vsoe or tpe is not available for the systems element . therefore the selling price associated with systems is based on besp . the allocated value for installation in the arrangement includes ( a ) the greater of ( i ) the relative selling price of the installation or ( ii ) the portion or the sales price that will not be received until the installation is completed ( the `` retention '' ) . the selling price of installation is based upon the fair value of the service performed , including labor , which is based upon the estimated time to complete the installation at hourly rates , and material components , both of which are sold separately . the selling price of all other elements ( extended warranty for support , spare parts , and labor ) is based upon the price charged when these elements are sold separately , or vsoe . product revenue for products which have demonstrated market acceptance , is generally recognized upon shipment provided title and risk of loss has passed to the customer , evidence of an arrangement exists , prices are contractually fixed or determinable , collection is reasonably assured through historical collection results and regular credit evaluations , and there are no uncertainties regarding customer acceptance . revenue from installation services is recognized at the time formal acceptance is received from the customer or , for certain customers , when both the formal acceptance and retention payment have been received . revenue for other elements is recognized at the time products are shipped or the related services are performed . we generally recognize product revenue for systems which have demonstrated market acceptance at the time of shipment because the customer 's post-delivery acceptance provisions and installation process have been established to be routine , commercially inconsequential and perfunctory . while some customers accept axcelis ' standard specifications , the majority of axcelis ' systems are designed and tailored to meet the customer 's specifications , as outlined in the contract between the customer and axcelis . story_separator_special_tag to ensure that the customer 's specifications are satisfied , many customers request that new systems be tested at axcelis ' facilities prior to shipment , normally with the customer present , under conditions that substantially replicate the customer 's production environment and the customer 's criteria are confirmed to have been met . we believe the risk of failure to complete a system installation is remote . should an installation not be completed successfully , the contractual provisions do not provide for forfeiture , refund or other purchase price concession beyond those prescribed by the provisions of the uniform commercial code applicable generally to such transactions . 20 for initial shipments of systems with new technologies or in the small number of instances where we are unsure of meeting the customer 's specifications or obtaining customer acceptance upon shipment of the system , we will defer the recognition of systems revenue and related costs until written customer acceptance of the system is obtained . this deferral period is generally within twelve months of shipment . revenue related to maintenance and service contracts is recognized ratably over the duration of the contracts , or based on parts usage , where appropriate . revenue related to service hours is recognized when the services are performed . impairment of long-lived assets we record impairment losses on long-lived assets when events and circumstances indicate that these assets might not be recoverable . recoverability is measured by a comparison of the assets ' carrying amount to their expected future undiscounted net cash flows . if such assets are considered to be impaired , the impairment is measured based on the amount by which the carrying value exceeds its fair value . future actual performance could be materially different from our current forecasts , which could impact future estimates of undiscounted cash flows and may result in the impairment of the carrying amount of the long-lived assets in the future . this could be caused by strategic decisions made in response to economic and competitive conditions , the impact of the economic environment on our customer base , or a material adverse change in our relationships with significant customers . we completed a test for recoverability due to indicators present at december 31 , 2012 ; specifically the carrying value of our net assets exceeded our current market capitalization . as of december 31 , 2012 , the undiscounted cash flows used in the analysis significantly exceeded the carrying value of our assets . as a result no impairment was recorded . the undiscounted cash flows used in the analysis were derived from our long-term strategic plan . we did not record an impairment charge for the years ended december 31 , 2011 , or 2010. accounts receivableallowance for doubtful accounts we record an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . our allowance for doubtful accounts is established based on a specific assessment of collectability of our customer accounts . if the financial condition of our customers were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances may be necessary . inventoryallowance for excess and obsolescence we record an allowance for estimated excess and obsolete inventory . the allowance is determined using management 's assumptions of materials usage , based on estimates of forecasted and historical demand and market conditions . if actual market conditions become less favorable than those projected by management , additional inventory write-downs may be required . although we make every effort to ensure the accuracy of our forecasts or product demand and pricing assumptions , any significant unanticipated changes in demand , pricing , or technical developments would significantly impact the value of our inventory and our reported operating results . in the future , if we find that estimates are too optimistic and determine that inventory needs to be written down , the company will recognize such costs in our cost of revenue at the time of such determination . conversely , if we find our estimates are too pessimistic and we subsequently sell product that has previously been written down , our gross margin in that period will be favorably impacted . 21 in 2012 , we recorded a $ 14.5 million increase to our inventory reserves . during the fourth quarter , as a result of industry consensus indicating that the semiconductor industry downturn will continue into 2013 , along with our internal projections , we performed a comprehensive review and analysis of our worldwide inventory levels based on historic and projected inventory requirements for all of our products , components and parts . as a result , we recorded a $ 13.4 million increase to inventory reserves in the fourth quarter of 2012. product warranty we generally offer a one year warranty for all of our systems , the terms and conditions of which vary depending upon the product sold . for all systems sold , we accrue a liability for the estimated cost of standard warranty at the time of system shipment and defer the portion of systems revenue attributable to the fair value of non-standard warranty . costs for non-standard warranty are expensed as incurred . factors that affect our warranty liability include the number of installed units , historical and anticipated product failure rates , material usage and service labor costs . we periodically assess the adequacy of our recorded liability and adjust the amount as necessary . share-based compensation stock-based compensation expense is estimated as of the grant date based on the fair value of the award and is recognized as expense over the requisite service period , which generally equals the vesting period , based on the number of awards that are expected to vest . estimating the fair value for stock options requires judgment , including the expected term of our stock options , volatility of our stock , expected dividends , risk-free interest rates over the expected term of the options and the expected forfeiture rate .
| service service revenue , which includes the labor component of maintenance and service contracts and fees for service hours provided by on-site service personnel , was $ 29.1 million , or 14.3 % of revenue for 2012 , compared with $ 32.1 million , or 10.0 % of revenue for 2011. although service revenue should increase with the expansion of the installed base of systems , it can fluctuate from period to period based on capacity utilization at customers ' manufacturing facilities , which affects the need for equipment service . the decrease during 2012 was primarily due to a decrease in fabrication utilization in the semiconductor industry during 2012 . 2011 compared with 2010 revenue increased significantly in 2011 compared to 2010 as the company benefited from improving market conditions and increased capacity utilization at customers ' manufacturing facilities during the first half of 2011. however during the second half of 2011 , deterioration within the industry environment resulted in a decrease in our revenues as compared to the first half of the year . product product revenue was $ 287.3 million or 90.0 % of revenue in 2011 , compared with $ 242.8 million , or 88.2 % of revenue in 2010. the increase in product revenue in 2011 is attributable to the strengthening of the semiconductor market and a related increase in capital spending by semiconductor manufacturers during the first half of 2011. however , our revenues decreased during the second half of 2011 due to the weakening of the semiconductor market and the related delay in capital spending by semiconductor manufacturers . in addition , we had delays in key penetrations in the second half of 2011. these delays were a function of poor market conditions and issues in our prioritization of new technology . despite this market slowdown we believe we gained market traction with our single wafer ion implant systems . during 2011 , we also gained market share with our integra dry strip products . approximately 24.9 % of systems revenue in 2011 was from sales of 200mm products and 75.1 % was from sales of 300mm products , compared with 12.8 % and 87.2 % for sales of 200mm products and 300mm products in 2010 , respectively . 25 a portion of our revenue from system sales is deferred until installation and other services related to future deliverables are performed . the total amount of
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we generated a significant amount of new cloud business in the fourth quarter of fiscal 2018 , which resulted in higher commissions and bonuses without the associated revenue , as we currently recognize those expenses up front while the revenue is recognized ratably over the contract period . higher sales expenses combined with lower margins in our professional services business resulted in a pre-tax loss in fiscal 2018. we expect profitability will improve in fiscal 2019. subscription revenue . subscription revenue consists of recurring fees from customers to access our products via the cloud and other subscription offerings . our cloud offerings typically include access to qad software , hosting , support and product updates , if and when available . included in subscription revenue are the fees for transition services such as set up , configuration , database conversion and migration . sales of qad enterprise applications in the cloud represented over 85 % of our total subscription revenue in fiscal 2018 and 2017. our subscription revenue represented 23 % and 19 % of our total revenue in fiscal 2018 and 2017 , respectively . our cloud customer retention rate is in excess of 90 % . we track our retention rate of cloud and maintenance by calculating the annualized revenue of customer sites with contracts up for renewal during the period compared to the annualized revenue associated with the customer sites that have canceled during the period . the percentage of revenue not canceled is our retention rate . additional users and additional modules are not included in the annualized revenue for purposes of this calculation . on a constant currency basis , subscription revenue increased by $ 17.1 million , or 33 % , in fiscal 2018 when compared to the prior year . subscription margin improved to 56 % in fiscal 2018 from 48 % in fiscal 2017. we expect to achieve annual subscription margins of 60 % in fiscal 2019. growing our cloud solution and offering our products as saas continues to be a key strategic initiative for us . subscription revenue is billed on a quarterly or annual basis and recognized ratably over the term of the agreement , typically 12 to 60 months . our cloud customers include a mix of existing customers who have converted from our on-premise model and new customers who are implementing our cloud solution . new customers typically generate less revenue up front as compared to customers who are converting to cloud . new customers tend to increase the number of users as their sites go live over time . existing customers are already using our product at the time of conversion to the cloud ; therefore , a greater number of sites and users generally go live from the conversion date . internally we track new cloud business in the form of bookings , which we define as the average annual value of the contract . our annual growth in bookings was 53 % year over year . license revenue . license revenue is derived from software license fees that customers pay for our core product , qad enterprise applications , and any add-on modules they purchase . in fiscal 2018 , on a constant currency basis , license revenue increased by $ 1.7 million , or 7 % . license revenue in fiscal 2018 was primarily a result of our existing customers purchasing additional users and modules which we believe was a result of a strong manufacturing economy as denoted by the global pmi in excess of 50 % . during fiscal 2018 the number of license orders was lower when compared to the prior year , but the average size of the orders was higher . our revenue mix has continued to shift from license to subscription revenue as a result of our business model transition . while we expect license revenue to decline over time , we do continue to experience quarterly fluctuations . 34 at times , our license revenue is impacted by deferrals . when we enter into a multi-element transaction with fixed fee services or when we sell licenses for additional users under a pricing model that does not satisfy vendor specific objective evidence ( “ vsoe ” ) requirements , we may be required to recognize license revenue ratably over the longer of the maintenance period or expected services implementation timeframe rather than recognizing license revenue at the time of sale . additionally , if at the time of the license sale we have not finalized the services agreement , we will defer the entire arrangement until the services agreement is signed . we expect new customers are more likely to subscribe to our cloud based offerings rather than purchasing perpetual licenses . as a result , we believe a majority of our license revenue will be generated from existing customers and their affiliates . we anticipate that license revenue will decrease as existing customers elect to subscribe to qad products in the cloud instead of purchasing licenses . maintenance revenue . we offer support services 24 hours a day , seven days a week in addition to providing software upgrades , which include additional or improved functionality , when and if available . in fiscal 2018 , on a constant currency basis , maintenance revenue decreased by $ 4.0 million , or 3 % . as our customers continue to migrate to our cloud offerings , we believe our maintenance revenue is likely to continue to decline . when customers convert to qad enterprise applications in the cloud they no longer pay separately for maintenance as those support services are included as a component of the subscription offering . maintenance revenue fluctuations are influenced by : ( 1 ) new license revenue growth ; ( 2 ) annual renewal of support contracts ; ( 3 ) fluctuations in currency rates ; ( 4 ) adjustments to revenue as a result of revenue recognition rules ; and ( 5 ) customer conversions to the cloud . the vast majority of our customers renew their annual support contracts . story_separator_special_tag over the last three years , our annual retention rate of customers subscribing to maintenance has been greater than 90 % . we track our retention rate of cloud and maintenance by calculating the annualized revenue of customer sites with contracts up for renewal during the period compared to the annualized revenue associated with the customer sites that have canceled during the period . the percentage of revenue not canceled is our retention rate . conversions to the cloud are not considered cancellations for purposes of this calculation . maintenance revenue is generally billed on an annual basis and recognized ratably over the term of the agreement , typically twelve months . professional services revenue . our professional services business includes technical and application consulting ; and training , implementations , migrations and upgrades related to our solutions . in fiscal 2018 , on a constant currency basis , professional services revenue increased by $ 8.9 million , or 12 % . a significant portion of our professional services revenue is generated from cloud implementations and upgrade projects for existing customers . these projects are discretionary in nature and are affected by general economic conditions in the manufacturing industry and our customers ' businesses . as global economic activity has increased , so has our professional services business . we increased our services capacity by adding headcount and partners in fiscal 2018 in order to fulfill additional projects . the investment in hiring and training additional services personnel has negatively impacted our professional services margins in fiscal 2018. we expect to improve services margins in fiscal 2019 to slightly above breakeven . we manage our partners and subcontractors to supplement our internal resources , which provides us with the flexibility to contend with these fluctuations in demand and helps us mitigate low utilization rates in slow times . we believe this also helps us extend our global reach by keeping a higher number of partners engaged and knowledgeable about our products . our professional services organization provides our customers with expertise and assistance in planning and implementing our solutions whether in the cloud or on-premise . consultants typically assist customers with the initial installation of a system , the conversion and transfer of the customer 's historical data into our software , and ongoing training , education , and system upgrades . we believe our professional services help customers implement our software more efficiently , support a customer 's success with our solution , strengthen our customer relationships , and add to our industry-specific knowledge base for use in future implementations and product innovations . our professional services margins have historically ranged from about breakeven to 10 % . we believe we offer competitive rates and view our professional services organization as a department supporting the implementation and deployment of our products which improves the overall customer experience . professional services margins lower our overall operating margin as professional services margins are inherently lower than margins for our subscription , license and maintenance revenues . although our professional services are optional , many of our customers use these services for some of their planning , implementation , or related needs . professional services are typically rendered under time and materials-based contracts with services typically billed on an hourly basis . professional services are sometimes rendered under fixed-fee based contracts with payments due on specific dates or milestones . professional services revenue growth is contingent upon subscription and license revenue growth and customer upgrade cycles , which are influenced by the strength of general economic and business conditions and the competitive position of our software products . our professional services business has competitive exposure to offshore providers which could create the risk of pricing pressure , fewer customer orders and reduced gross margins . 35 cash flow and financial condition . in fiscal 2018 , we generated cash flow from operating activities of $ 10.4 million . our cash and equivalents at january 31 , 2018 totaled $ 147.0 million , with all of the $ 13.8 million of debt on our balance sheet related to the mortgage of our headquarters . our primary uses of cash have been funding investment in research and development , growing our services organization by hiring 87 employees in fiscal 2018 and funding operations to drive revenue and long-term earnings growth . in addition , we use cash for acquisitions , dividend payments , share repurchase programs and other equity-related transactions . in fiscal 2019 , we anticipate that our priorities for use of cash will be developing sales and services resources and continued investment in research and development to drive and support growth and profitability . we will continue to evaluate acquisition opportunities that are complementary to our product footprint , solutions delivery and technology direction . we will also continue to assess share repurchases and dividend payments . we do not anticipate additional borrowing requirements in fiscal 2019. seasonal nature of deferred revenue , accounts receivable and operating cash flow . deferred revenue primarily consists of billings to customers for maintenance and subscription . when renewing maintenance we generally invoice our customers in annual cycles and when renewing subscription we generally invoice our customers quarterly or annually . we typically issue renewal invoices in advance of the renewal period . depending on timing , the initial invoice and the subsequent renewal invoice may occur in different quarters . this may result in quarterly fluctuations in deferred revenue and accounts receivable . there is a disproportionate weighting towards annual billings in the fourth quarter , primarily as a result of large enterprise account buying patterns . our fourth quarter has historically been our strongest quarter for new business and renewals . the year on year compounding effect of this seasonality in both billing patterns and overall new and renewal business causes the value of invoices that we generate in the fourth quarter for both new business and renewals to increase as a proportion of our total annual billings .
| the following table presents revenue by industry for fiscal 2018 , 2017 and 2016 : replace_table_token_11_th on a constant currency basis , total revenue was $ 278.0 million for fiscal 2017 , representing a $ 4.7 million , or 2 % , increase from $ 273.3 million for fiscal 2016. when comparing categories within total revenue at constant rates , our results for fiscal 2017 included an increase in subscription revenue partially offset by decreases in license fees and professional services revenue . maintenance and other revenue was generally flat on a constant currency basis . revenue outside the north america region as a percentage of total revenue was 53 % and 54 % for fiscal 2017 and 2016 , respectively . on a constant currency basis , total revenue increased in our north america , latin america and asia pacific regions and was flat in our emea region during fiscal 2017 when compared to the prior year . subscription revenue . on a constant currency basis , subscription revenue was $ 69.6 million for fiscal 2018 , representing a $ 17.0 million , or 32 % , increase from $ 52.6 million for fiscal 2017. on a constant currency basis , subscription revenue increased in our north america , emea and asia pacific regions and remained relatively flat in our latin america region during fiscal 2018 when compared to the prior year . the increase in subscription revenue was primarily due to sales of qad enterprise applications in the cloud , which represented over 85 % of total subscription revenue in fiscal 2018 and 2017. cloud revenue consists of new customer sites ; existing enterprise applications users converting from on-premise ; and additional users and modules purchased by our existing cloud customers . approximately half of our new cloud deals comes from existing customers converting enterprise applications users to cloud users and the other half comes from new customers and new modules . our cloud customer retention rate is in excess of 90 % . the following table presents cloud revenue by region for fiscal 2018 , 2017 and 2016 : replace_table_token_12_th 43 the following table presents
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on march 11 , 2013 , actinium corporation continued its share exchange with us , whereby we acquired an additional 36 % of the issued and outstanding capital stock of actinium corporation from the actinium corporation shareholders in exchange for the issuance of 7,344,390 shares of common stock of us to the actinium shareholders . on april 11 , 2013 , the change of domicile from the state of nevada to the state of delaware and the change of cactus ventures , inc. 's name from cactus ventures , inc. to actinium pharmaceuticals , inc. became effective in accordance with articles of merger filed with the state of nevada and a certificate of merger filed with the state of delaware . in connection with the name change we also changed ( i ) the name of our subsidiary actinium pharmaceuticals , inc. to actinium corporation , ( ii ) our par value to $ 0.001 per share , and ( iii ) the number of authorized shares of preferred stock to 10 million shares . effective april 18 , 2013 our new trading symbol became atnm . on september 25 , 2013 , we merged with our subsidiary , actinium corporation , and we were the surviving entity of the merger . in january 2014 we increased our authorized shares of common stock to 200 million shares and authorized shares of preferred stock to 50 million shares . on august 22 , 2013 , actinium corporation continued its share exchange with us , whereby we acquired an additional 38.2 % of the issued and outstanding capital stock of actinium corporation from the actinium corporation shareholders in exchange for the issuance of 8,009,550 shares of common stock of us to the actinium shareholders . on september 25 , 2013 in accordance with a certificate of ownership merging actinium corporation into us , we merged with actinium corporation , and actinium corporation ceased to exist . as a result of the merger , actinium corporation stock owned by us has been cancelled and each share of actinium corporation not owned by us was exchanged for 0.333 shares of our common stock . actinium , incorporated on june 13 , 2000 , is a biotechnology company committed to developing breakthrough therapies for life threatening diseases using its alpha particle immunotherapy ( apit ) platform and other related and similar technologies . actinium , together with its wholly owned subsidiary , medactinium , inc. ( mai ) , ( hereinafter referred to collectively as “ actinium ” ) has initiated collaborative efforts with large institutions to establish the proof of concept of alpha particle immunotherapy and has supported one phase 1/2 clinical trial and one phase 1 clinical trial at mskcc under an mskcc physician ind application . in 2012 , actinium launched a multi-center corporate sponsored trial in acute myeloid leukemia ( aml ) patients . actinium 's objective , through research and development , is to produce reliable cancer fighting products which utilize monoclonal antibodies linked with alpha particle emitters or other appropriate payloads to provide very potent targeted therapies . the initial clinical trials of actinium 's compounds have been with patients having acute myeloid leukemia and it is believed that actinium 's apit platform will have wider applicability for different types of cancer where suitable monoclonal antibodies can be found . we develop drugs for treatment of cancer with intent to cure or significantly improve survival of the affected patients . as of now none of our drugs have been approved for sale in the united states or elsewhere . we have no commercial operations in sales or marketing of our products . all our product candidates are under development . in order to market and sell our products we must conduct clinical trials on patients and obtain regulatory approvals from appropriate regulatory agencies like the united states fda in the united states and similar agencies elsewhere in the world . 27 our products under development are monoclonal antibodies labeled with radioisotopes . we have one program with an antibody labeled with a beta emitter and several programs based on a proprietary patent protected platform technology called alpha particle immunotherapy or apit . our apit technology is based on attaching actinium 225 ( ac-225 ) or bismuth 213 ( bi-213 ) alpha emitting radioisotopes to monoclonal antibodies . alpha emitting radioisotopes are unstable chemical elements that decay by releasing alpha particles . alpha particles can kill any cell in whose immediate proximity they are released . monoclonal antibodies are genetically engineered proteins that specifically target certain cells , and can target cancer cells . it is crucial for the success of our drug candidates to contain monoclonal antibodies that can successfully seek cancer cells and can kill them with the attached isotope while not harming nearby normal cells . we do not have technology and operational capabilities to develop and manufacture such monoclonal antibodies and we therefore rely on collaboration with third parties to gain access to such monoclonal antibodies . we have secured rights to two monoclonal antibodies , hum195 ( lintuzumab ) , in 2003 through a collaborative licensing agreement with abbott laboratories and bc8 in 2012 with the fhcrc . we expect to negotiate collaborative agreements with other potential partners that would provide us with access to additional monoclonal antibodies . establishing and maintaining such collaborative agreements is a key to our success as a company . under our own sponsorship as well as activity at fhcrc , we have four product candidates in active clinical trials : actimab-a ( hum195-ac-225 ) , iomab-b ( bc8-i-131 ) , bc8-y-90 and bc8-sa . story_separator_special_tag at this time , the company is actively pursuing development of actimab-a and iomab-b while bc8-y-90 and bc8-sa are in physician sponsored clinical phase i trials at the fred hutchinson cancer research center . actimab-a is a combination of the monoclonal antibody we have in-licensed , lintuzumab ( hum195 ) , and the alpha emitting isotope actinium 225. actimab-a has shown promising results throughout preclinical development and an ongoing clinical trial started in 2006 in treating aml in the elderly . we have expanded the number of patients and number of clinical centers by commencing a new aml clinical trial which we have launched in 2012. this trial targets newly diagnosed aml patients over the age of 60. in order to conduct the trial we are engaged in funding , monitoring and quality assurance and control of the lintuzumab antibody ; procurement of actinium 225 isotope ; funding , monitoring and quality assurance and control of the drug candidate actimab-a manufacturing and organizing and monitoring clinical trials . we estimate that the direct costs to completion of both parts of the ongoing phase 1/2 trial will be approximately $ 7 million . assuming a successful trial we intend to explore out-licensing the actimab-a product and potentially receiving payments for co-developing the product with a partner . iomab-b is a combination of the in-licensed monoclonal antibody bc8 and the beta emitting radioisotope iodine 131. this construct has been extensively tested in phase 1 and phase 2 clinical trials in approximately 250 patients with different blood cancer indications who were in need of a hematopoietic stem cell transplantation ( hsct ) . iomab-b is used to condition the bone marrow of these patients by destroying blood cancer cells in their bone marrow and elsewhere thus allowing for a subsequent transplant containing healthy donor bone marrow stem cells . we have decided to develop this drug candidate by initially focusing on the patients over 50 with active acute myeloid leukemia in relapse and or refractory to existing treatments . our intention is to request the fda to allow us to enter into a pivotal trial with iomab-b . we estimate the direct costs of such a trial to completion anticipated in 2016 will be approximately us $ 15 million , and up to approximately $ 25 million for both trials . we have primarily management position employees and consultants who direct , organize and monitor the activities described above through contractors . much of the in vivo laboratory and clinical work contracted for by us has been conducted at memorial sloan-kettering cancer center in new york . we have also made clinical trial arrangements with other well-known cancer centers . our actimab-a drug candidate and its components are contract manufactured and maintained under our supervision by specialized contract manufacturers and suppliers in the united states. , including isotex diagnostics , oak ridge national laboratory , pacific gmp , fischer bioservices , bioreliance and others . we are a development stage company and have never generated revenue . currently , we do not have a stable recurring source of revenues sufficient to cover our operating costs . as of december 31 , 2013 , we had an accumulated deficit of approximately $ 66.5 million . we incurred net losses of approximately $ 10.8 million and $ 8.4 million in the years ended december 31 , 2013 and 2012 , respectively . opportunities , challenges and risks the market for drugs for cancer treatment is a large market in need of novel products , in which successful products can command multibillion dollars in annual sales . a number of large pharmaceutical and biotechnology company regularly acquire products in development , with preference given to products in phase 2 or later clinical trials . these deals are typically structured to include an upfront payment that ranges from several million dollars to tens of million dollars or more and additional milestone payments tied to regulatory submissions and approvals and sales milestones . our goal is to develop our product candidates through phase 2 clinical trials and enter into partnership agreements with one or more large pharmaceutical and or biotechnology companies . we believe our future success will be heavily dependent upon our ability to successfully conduct clinical trials and preclinical development of our drug candidates . this will in turn depend on our ability to continue our collaboration with mskcc and our clinical advisory board members plan to continue and expand other research and clinical trial collaborations . in addition , we will have to maintain sufficient supply of actinium 225 and successfully maintain and if and when needed replenish or obtain our reserves of monoclonal antibodies . we will have to maintain and improve manufacturing procedures we have developed for production of our drug candidates from the components that include the iodine 131 and actinium 225 isotopes , monoclonal antibodies and other materials . it is possible that despite our best efforts our clinical trials results may not meet regulatory requirements for approval . if our efforts are successful , we will be able to partner our development stage products on commercially favorable terms only if they enjoy appropriate patent coverage and or considerable know-how and other protection that ensures market exclusivity . for that reason we intend to continue our efforts to maintain existing and generate new intellectual property . intellectual property is a key factor in the success of our business as well as market exclusivity . to achieve the goals discussed above we intend to continue to invest in research and development at high and constantly increasing rates thus incurring further losses until one or more of our products are sufficiently developed to partner them to large pharmaceutical and biotechnology companies .
| loss on the change in fair value of the derivative liability offset by an decrease in interest expense associated with the amortization of debt discount to interest expense and a significant decrease in research and development professional fees and payroll related expense . liquidity and capital resources we have financed our operations primarily through sales of the company 's stock and the issuance of convertible promissory notes . the following tables sets forth selected cash flow information for the periods indicated : replace_table_token_4_th net cash used in operating activities was approximately $ 6.3 million for the year ended december 31 , 2013 compared to approximately $ 5.2 million used in operations for the same period in 2012. cash used in operations increased due to the increase in spending related to preparations and eventual launch and conduct of a multicenter trial and an increase in spending related to professional fees combined with an increase in payroll-related expenses . net cash provided by financing activities was approximately $ 6.2 million for the year ended december 31 , 2013 compared to net cash provided by financing activities of approximately $ 5.1 million for the same period in 2012. during the year ended december 31 , 2013 , the company received net proceeds from the exercise of warrants and issued stock and warrants for cash as further discussed below . during the year ended december 31 , 2012 , we received net proceeds of approximately $ 5.1 million from sales of our common stock . we have experienced cumulative losses of approximately $ 66.5 million from inception ( june 13 , 2000 ) through december 31 , 2013 , and have a stockholders ' deficit of approximately $ 1.6 million at december 31 , 2013. we estimate that we will need approximately $ 25 million cash for the period of 2014 to 2016 , i.e . until we receive our first product approval .
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our discussion and analysis of financial condition and results of operations is based upon our audited consolidated financial statements , which have been prepared in accordance with gaap . our operating results for the years ended december 31 , 2012 , 2011 and 2010 include results for any acquired entities from the applicable acquisition date forward and all prior periods have been adjusted to properly reflect discontinued operations . all significant intercompany transactions and balances have been eliminated . revenue recognition . we derive our revenues principally from u.s. mortgage originators and servicers with good creditworthiness . our product and service deliverables are generally comprised of data or other related services . our revenue arrangements with our customers generally include a work order or written agreement specifying the data products or services to be delivered and related terms of sale including payment amounts and terms . the primary revenue recognition-related judgments we exercise are to determine when all of the following criteria have been met : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred or services have been rendered ; ( 3 ) our price to the buyer is fixed or determinable ; and ( 4 ) collectability is reasonably assured . for products or services where delivery occurs at a point in time , we recognize revenue upon delivery . these products or services include sales of tenancy data and analytics , credit solutions for mortgage and automotive industries , under-banked credit services , flood and data services , real estate owned asset management , claims management , asset management and processing solutions , broker price opinions , and field services where we perform property preservation services . for products or services where delivery occurs over time , we recognize revenue ratably on a subscription basis over the contractual service period once initial delivery has occurred . generally these service periods range from one to three years . products or services recognized on a license or subscription basis include information and analytic products , flood database licenses , realtor solutions , and lending solutions . tax service revenues are comprised of periodic loan fees and life-of-loan fees . for periodic loans , we generate monthly fees at a contracted fixed rate for as long as we service the loan . loans serviced with a one-time , life-of-loan fee are billed once the loan is boarded to our tax servicing system in accordance with a customer tax servicing agreement . life-of-loan fees are then deferred and recognized ratably over the expected service period . the rates applied to recognize revenues assume a 10-year contract life and are adjusted to reflect prepayments . we review the tax service contract portfolio quarterly to determine if there have been changes in contract lives , deferred on-boarding costs , expected service period , and or changes in the number and or timing of prepayments . accordingly , we may adjust the rates to reflect current trends . cost of services . cost of services represents costs incurred in the creation and delivery of our products and services . cost of services consists primarily of data acquisition and royalty fees ; customer service costs , which include : personnel costs to collect , maintain and update our proprietary databases , to develop and maintain software application platforms and to provide consumer and customer call center support ; hardware and software expense associated with transaction processing 27 systems ; telecommunication and computer network expense ; and occupancy costs associated with facilities where these functions are performed by employees . selling , general and administrative expenses . selling , general and administrative expenses consist primarily of personnel-related costs , direct and indirect selling costs , restructuring costs , corporate costs , fees for professional and consulting services , advertising costs , uncollectible accounts and other costs of administration such as marketing , human resources , finance and administrative roles . purchase accounting . the purchase method of accounting requires companies to assign values to assets and liabilities acquired based upon their fair values . in most instances there is not a readily defined or listed market price for individual assets and liabilities acquired in connection with a business , including intangible assets . the determination of fair value for assets and liabilities in many instances requires a high degree of estimation . the valuation of intangible assets , in particular , is very subjective . we generally obtain third-party valuations to assist us in estimating fair values . the use of different valuation techniques and assumptions could change the amounts and useful lives assigned to the assets and liabilities acquired , including goodwill and other identifiable intangible assets and related amortization expense . goodwill and other intangible assets . we perform an annual impairment test for goodwill and other indefinite-lived intangible assets for each reporting unit every fourth quarter . in addition to our annual impairment test , we periodically assess whether events or circumstances have occurred that potentially indicate the carrying amounts of these assets may not be recoverable . in assessing the overall carrying value of our goodwill and other intangibles , we first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount . examples of such events or circumstances include the following : cost factors , financial performance , legal and regulatory factors , entity-specific events , industry and market factors , macroeconomic conditions and other considerations . if , after assessing the totality of events or circumstances , we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying value , then management 's impairment testing process may include two additional steps . the first step ( “ step 1 ” ) compares the fair value of each reporting unit to its book value . story_separator_special_tag the fair value of each reporting unit is determined by using discounted cash flow analysis and market approach valuations . if the fair value of the reporting unit exceeds its book value , then goodwill is not considered impaired and no additional analysis is required . however , if the book value is greater than the fair value , a second step ( “ step 2 ” ) must be completed to determine if the fair value of the goodwill exceeds the book value of the goodwill . step 2 involves calculating an implied fair value of goodwill for each reporting unit for which step 1 indicated impairment . the implied fair value of goodwill is determined in a manner similar to the amount of goodwill calculated in a business combination , by measuring the excess of the estimated fair value of the reporting unit , as determined in step 1 , over the aggregate estimated fair values of the individual assets , liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination . if the implied fair value of goodwill exceeds the carrying value of goodwill assigned to the reporting unit , there is no impairment . if the carrying value of goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill , an impairment loss is recorded for the excess . an impairment loss can not exceed the carrying value of goodwill assigned to a reporting unit , and the loss establishes a new basis in the goodwill . subsequent reversal of goodwill impairment losses is not permitted . the valuation of goodwill requires assumptions and estimates of many critical factors including revenue growth , cash flows , market multiples and discount rates . forecasts of future operations are based , in part , on operating results and our expectations as to future market conditions . these types of analysis contain uncertainties because they require us to make assumptions and to apply judgments to estimate industry economic factors and the profitability of future business strategies . however , if actual results are not consistent with our estimates and assumptions , we may be exposed to an additional impairment loss that could be material . these tests utilize a variety of valuation techniques , all of which require us to make estimates and judgments . fair value is determined by employing an expected present value technique , which utilizes multiple cash flow scenarios that reflect a range of possible outcomes and an appropriate discount rate . the use of comparative market multiples ( the “ market approach ” ) compares the reporting unit to other comparable companies ( if such comparables are present in the marketplace ) based on valuation multiples to arrive at a fair value . we also use certain of these valuation techniques in accounting for business combinations , primarily in the determination of the fair value of acquired assets and liabilities . in assessing the fair value , we utilize the results of the valuations ( including the market approach to the extent comparables are available ) and consider the range of fair values determined under all methods and the extent to which the fair value exceeds the book value of the equity . as of december 31 , 2012 , our reporting units are data and analytics , mortgage origination services , and asset management and processing solutions . 28 in connection with our acquisition of cds business mapping , llc ( `` cds '' ) , we separated our spatial solutions business line from our mortgage origination services segment and consolidated it with cds , effectively creating the geospatial solutions business unit within the data and analytics segment . as a result , we revised our reporting for segment disclosure purposes and reassessed our reporting units for purposes of evaluating the carrying value of our goodwill . this assessment required us to perform a fourth quarter reassignment of our goodwill to each reporting unit impacted using the relative fair value approach , based on the fair values of the reporting units as of december 31 , 2012 . determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions , including revenue growth rates , operating margins , discount rates and future market conditions , among others . key assumptions used to determine the fair value of our mortgage origination services reporting unit and geospatial solutions business unit in our testing were : ( a ) expected cash flow for the period from 2013 to 2018 ; and ( b ) a discount rate ranging from 11.0 % to 15.0 % , which was based on management 's best estimate of the after-tax weighted average cost of capital . we performed a qualitative analysis on our reporting units and examined relevant events and circumstances such as : cost factors , financial performance , legal and regulatory factors , entity-specific events , industry and market factors , macroeconomic conditions and other considerations . we also considered the reassignment analysis of geospatial solutions ' goodwill to each reporting unit impacted using the relative fair value approach . based on the qualitative analysis performed , we determined that it is more likely than not that goodwill attributable to our reporting units is not impaired as of december 31 , 2012. it is reasonably possible that changes in the facts , judgments , assumptions and estimates used in assessing the fair value of the goodwill could cause a reporting unit to become impaired . income taxes . we account for income taxes under the asset and liability method , whereby we recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as expected benefits of utilizing net operating loss and credit carryforwards .
| based on our internal estimates , the level of loans seriously delinquent ( loans delinquent 90 days or more ) or in foreclosure decreased approximately 15 % in the year ended december 31 , 2012 relative to the same period of 2011 . additionally , based on our internal analysis and market estimates , we believe the inventory of seriously delinquent mortgage loans and loans in foreclosure will continue to decline . in december 2012 , we completed our acquisition of cds , a leading provider of geographic underwriting information for the property and casualty insurance industry , for a cash purchase price of $ 78.8 million . cds is included in our data and analytics reporting segment . in the third quarter of 2012 , we completed the disposition of our transportation services business ( american driving records ) and completed the shutdown of our appraisal management company and consumer services businesses . as part of our on-going cost efficiency programs , in july 2012 , we announced the launch of our tti with dell services . the objective of the tti is to convert our existing technology infrastructure to a new platform which is expected to provide new functionality , increased performance , and a reduction in application management and development costs . following an initial transition period of thirty months , we expect net operating expense reductions of approximately $ 35.0 to $ 40.0 million per year compared to 2012 cost levels . for the year ended december 31 , 2012 , expenses incurred related to the initiative were $ 33.2 million , of which $ 16.3 million are non-cash charges . on a consolidated basis , our operating revenues increased $ 229.1 million , or 17.1 % , for the year ended december 31 , 2012 compared to 2011 . data and analytics segment operating revenues increased $ 68.0 million , or 12.4 % , in 2012 compared to 2011 , primarily due to higher document retrieval services and the impact of acquisition activity . mortgage origination services segment operating revenues increased $ 153.5 million , or 31.8 % , in 2012 compared to
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autonomous vehicles present many possible benefits , such as a reduction in deadly traffic collisions caused by human error and reduced traffic congestion , but there are also foreseeable challenges such as liability for damage and software safety and reliability . the increased integration of electronics and vehicle connectivity that will likely be required in autonomous vehicle developments will provide an opportunity for suppliers , such as aam , with advanced capabilities in this area to be competitive in this expanding market . global automotive production and industry consolidation as our customers design their products for global markets , they will continue to require global support from their suppliers . for this reason , it is critical that suppliers maintain a global presence in these markets in order to compete for new contracts . we have engineering offices around the world to support our global locations and provide technical solutions to our customers on a regional basis . the cyclical nature of the automotive industry , volatile commodity prices , the shifting demands of consumer preference , regulatory requirements and trade agreements require oems and suppliers to remain agile with regard to product development and global capability . a critical objective for oems and suppliers is the ability to meet these global demands while effectively managing costs . oems and suppliers are preparing for these challenges through merger and acquisition activity , development of strategic partnerships and reduction of vehicle platform complexity . in order to effectively drive technology development , recognize cost synergies , and increase global footprint , the industry may continue to see consolidation in the supply base as companies recognize and respond to the need for scalability . our acquisition of mpg in 2017 was a critical step in achieving the aforementioned objectives . increased demand for fuel efficiency and emissions reductions there has been an increased demand for technologies designed to help reduce emissions , increase fuel economy and minimize the environmental impact of vehicles . as a result , oems and suppliers are competing to develop and market new and alternative technologies , such as electric vehicles , hybrid vehicles , fuel cells , higher speed transmissions , and downsized , fuel-efficient engines . at the same time , oems and suppliers are improving products to increase fuel economy and reduce emissions through lightweighting and efficiency initiatives . we are responding with ongoing research and development ( r & d ) activities that focus on fuel economy , emissions reductions and environmental improvements by integrating electronics and technology . through the development of our ecotrac ® disconnecting awd system , e-aam hybrid and electric driveline systems , quantum tm lightweight axle technology , high-efficiency axles , powerlite ® axles and powerdense ® gears , high strength connecting rod technology , refined vibration control systems , and forged axle tubes , we have significantly advanced our efforts to improve fuel efficiency , safety , and ride and handling performance while reducing emissions and mass . these efforts have led to new business awards and further position us to compete in the global marketplace . in addition to aam 's organic growth in technology and processes , our acquisitions of mpg and certain operations of mitec automotive ag ( mitec ) , as well as our investment in our liuzhou aam joint venture , have provided us with complementary technologies , expanded our product portfolio , significantly diversified our global customer base , and strengthened our long-term financial profile through greater scale . the synergies achieved through our strategic initiatives have enhanced aam 's ability to compete in today 's technological and regulatory environment , while remaining cost competitive through increased scale and integration . 21 the discussion of our results of operations and liquidity and capital resources for 2018 , as compared to 2017 , can be found within `` part ii - item 7. management 's discussion and analysis of financial condition and results of operations '' in our 2018 annual report on form 10-k filed with the sec on february 15 , 2019 , which discussion is incorporated herein by reference . story_separator_special_tag style= '' font-family : arial ; font-size:10pt ; '' > 2018 . the changes in operating income ( loss ) and operating margin in 2019 , as compared to 2018 , were due to the factors discussed in net sales , cost of goods sold , sg & a , amortization of intangible assets , impairment charges , restructuring and acquisition-related costs and ( gain ) loss on sale of business above . interest expense interest expense was $ 217.3 million in 2019 and $ 216.3 million in 2018 . the weighted-average interest rate of our total debt outstanding was 5.8 % in both 2019 and 2018 . we expect our interest expense in 2020 to be approximately $ 200 million to $ 210 million . interest income interest income was $ 5.8 million in 2019 and $ 2.0 million in 2018 . interest income includes interest earned on cash and cash equivalents , realized and unrealized gains and losses on our short-term investments during the period , and the impact of the interest rate differential on our fixed-to-fixed cross-currency swap . other income ( expense ) following are the components of other income ( expense ) for 2019 and 2018 : debt refinancing and redemption costs in july 2019 , holdings , aam , inc. , and certain subsidiaries of holdings entered into the first amendment to the credit agreement . story_separator_special_tag the first amendment , among other things , 23 established $ 340 million in incremental term loan a commitments under the amended credit agreement with a maturity date of july 29 , 2024 ( term loan a facility due 2024 ) , reduced the availability under the revolving credit facility from $ 932 million to $ 925 million and extended the maturity date of the revolving credit facility from april 6 , 2022 to july 29 , 2024 , and modified the applicable margin with respect to interest rates under the term loan a facility due 2024 and interest rates and commitment fees under the revolving credit facility . the applicable margin and the maturity date for the term loan b facility remained unchanged . the proceeds of $ 340 million were used to repay all of the outstanding loans under the existing term loan a facility and a portion of the outstanding term loan b facility , resulting in no additional indebtedness . we expensed $ 5.1 million for the write-off of the unamortized debt issuance costs related to the existing term loan a facility and a portion of the unamortized debt issuance costs related to our term loan b facility that we had been amortizing over the expected life of the borrowings . in december 2019 , we used a portion of the cash proceeds from the casting sale to make a payment on our term loan b facility , which included a principal payment of $ 59.8 million and $ 0.4 million in accrued interest . we also expensed approximately $ 1.0 million for the write-off of a portion of the unamortized debt issuance costs that we had been amortizing over the expected life of the borrowing . in may 2019 , we voluntarily redeemed the remaining balance outstanding under our 7.75 % notes due 2019. this resulted in a principal payment of $ 100 million and $ 0.3 million in accrued interest . we also expensed approximately $ 0.1 million for the write-off of the unamortized debt issuance costs that we had been amortizing over the expected life of the borrowing , and approximately $ 2.2 million for an early redemption premium . in november 2018 , we voluntarily redeemed a portion of our 7.75 % notes due 2019. this resulted in a principal payment of $ 100 million , and a payment of $ 3.9 million in accrued interest . as a result of the redemption , we expensed approximately $ 0.3 million for the write-off of a portion of the unamortized debt issuance costs that we had been amortizing over the expected life of the borrowing , and approximately $ 4.5 million for an early redemption premium . in may 2018 , we voluntarily redeemed a portion of our 6.625 % notes due 2022. this resulted in a principal payment of $ 100 million , and a payment of $ 0.8 million in accrued interest . as a result of the redemption , we expensed $ 0.8 million for the write-off of a portion of the remaining unamortized debt issuance costs that we had been amortizing over the expected life of the borrowing and $ 3.3 million for an early redemption premium . in march 2018 , we made a tender offer for our 6.25 % notes due 2021. under this tender offer , we retired $ 383.1 million of the 6.25 % notes due 2021. we redeemed the remaining $ 16.9 million of the 6.25 % notes due 2021 during the second quarter of 2018. as a result of the tender and subsequent redemption , we expensed $ 2.5 million for the write-off of the remaining unamortized debt issuance costs that we had been amortizing over the expected life of the borrowing and $ 8.0 million in tender premiums . gain on bargain purchase of a business in the fourth quarter of 2019 , we completed the acquisition of mitec , under which we acquired $ 20.2 million of net assets for a purchase price of $ 9.4 million , which was funded entirely with available cash . we recognized a gain on bargain purchase of $ 10.8 million associated with this acquisition . gain on settlement of capital lease in the second quarter of 2018 , we reached a settlement agreement related to a capital lease obligation that we had recognized as a result of the acquisition of mpg . this settlement resulted in a gain of $ 15.6 million , including accrued interest . pension settlement charge in 2019 , we offered a voluntary one-time lump sum payment option to certain eligible terminated vested participants in our u.s. pension plans that , if accepted , would settle our pension obligations to them . this resulted in a non-cash settlement charge of $ 9.8 million in the fourth quarter of 2019 related to the accelerated recognition of certain deferred losses . other , net other , net , which includes the net effect of foreign exchange gains and losses , our proportionate share of earnings from equity in unconsolidated subsidiaries , and all components of net periodic pension and postretirement benefit costs other than service costs and certain settlement charges , was expense of $ 12.5 million in 2019 , compared to expense of $ 2.2 million in 2018 . the increased expense in other , net in 2019 , as compared to 2018 , was primarily the result of increased net foreign currency remeasurement losses of approximately $ 6.3 million . 24 income tax expense ( benefit ) income tax was a benefit of $ 48.9 million in 2019 , as compared to a benefit of $ 57.1 million in 2018 . our effective income tax rate was 9.2 % in 2019 as compared to 50.1 % in 2018 .
| gross margin was 13.8 % in 2019 as compared to 15.7 % in 2018 . gross profit and gross margin were impacted by the factors discussed in net sales and cost of goods sold above . selling , general and administrative expenses ( sg & a ) sg & a ( including r & d ) was $ 364.7 million in 2019 as compared to $ 385.7 million in 2018 . sg & a as a percentage of net sales was 5.6 % in 2019 and 5.3 % in 2018 . r & d spending was $ 144.7 million in 2019 as compared to $ 146.2 million in 2018 . the change in sg & a in 2019 , as compared to 2018 , was primarily attributable to lower compensation-related expense due , in part , to our restructuring initiatives . amortization of intangible assets amortization expense for the year ended december 31 , 2019 was $ 95.4 million as compared to $ 99.4 million for the year ended december 31 , 2018 . the decrease in amortization expense for 2019 as compared to 2018 was primarily attributable to the customer platforms and relationships associated with the u.s. operations of our casting segment , which ceased to be amortized upon being classified as held-for-sale in september 2019. impairment charges in the third quarter of 2019 , we entered into a definitive agreement to sell the u.s. operations of our casting segment . as a result , we recorded a pre-tax impairment charge of $ 225.0 million to reduce the carrying value of this business to fair value less cost to sell upon reclassifying the assets and liabilities to held-for-sale . see note 2 - sale of business for further detail . as a result of our annual goodwill impairment test in the fourth quarter of 2019 , we determined that the carrying value of our metal forming segment was greater than its fair value . as such , we recorded a goodwill impairment charge
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this rate of growth reflects the impact of market rent growth , and more significantly , the impact of portfolio management through dispositions , redevelopment and acquisitions ; increased our conventional portfolio fcf margin by 10 % through the sale of lower-rent properties and reinvestment in higher-rent properties ; reduced by 83 % the percentage of our portfolio represented by “ c ” quality properties and increased by 42 % the percentage of our portfolio represented by “ a ” quality properties ; increased to 90 % the percentage of our conventional property net operating income earned in our target markets ; and increased our conventional portfolio 's rents from 101 % of local market average at the end of 2011 , to 108 % of local market average at the end of 2014. as we execute this portfolio strategy , we expect to continue to increase conventional portfolio average revenue per apartment home at a rate greater than market rent growth ; to increase further fcf margins ; to sell our lower rated apartment communities ; and to increase to 95 % or more the percentage of our conventional property net operating income earned in our target markets . in addition to improving our portfolio through the capital additions , including redevelopment , discussed below under the liquidity and capital resources heading , during the year ended december 31 , 2014 , we upgraded our portfolio through the acquisition of six conventional apartment communities with an aggregate of 1,182 apartment homes for $ 291.9 million . this included the acquisition of a 600 -apartment home community located in metropolitan denver , colorado , for $ 118.5 million . the community is located on the anschutz medical campus in the heart of the fitzsimons life sciences district , and includes 17,400 square feet of commercial space with average monthly revenues of $ 1,365 per apartment home at the time of acquisition , making this an “ a ” quality asset for us . the community has been designated as the “ town center ” for residential and retail use in the area 's master plan and is located on the only land within the campus currently zoned for multifamily use . this acquisition increases our exposure to denver , which is a robust market to which we are underallocated . we also acquired for $ 118.4 million a 324-apartment home community located in san jose , california . this community had average monthly revenues of $ 2,240 per apartment home at the time of acquisition , making this an “ b ” quality asset for us . we expect to add value to this apartment community through property upgrades and operational improvements . in addition , we acquired for $ 25.0 million a 78-apartment home community located in the buckhead neighborhood of atlanta , georgia . this community has 14,000 square feet of commercial space and had average monthly revenues of $ 2,280 per apartment home at the time of acquisition , making this an “ a ” quality asset for us . we expect to add value to this apartment community through operational improvements . we acquired for $ 18.0 million a 140-apartment home community located in boulder , colorado . this low density community , built on more than seven acres in the mid-1970s , is located in a city with strong demand for housing and public policies that discourage new supply . it is across the street from a new community hospital complex and major employment centers . revenues per apartment home at the time of acquisition averaged $ 1,035 , making this a “ b ” quality asset as presently operated . we plan to redevelop this community . 21 finally , we acquired for $ 12.0 million , two buildings containing a total of 40 apartment homes in the upper east side of manhattan . each of these two buildings is contiguous to other buildings we own and operate in manhattan , allowing for operational efficiency and the assembly value of the land and related air rights . the apartment buildings we acquired had average revenues per home of $ 2,120 at the date of their acquisition . we intend to add value to the apartment buildings through redevelopment of apartment homes and operational improvements . in addition to the apartment community acquisitions discussed above , late in 2014 we acquired entities that own 2.4 acres in the heart of downtown la jolla , california , adjoining and overlooking la jolla cove and the pacific ocean . the property , which is zoned for multifamily and mixed-use , is currently occupied by three small commercial buildings and a limited-service hotel , which is managed for us by a third party . we plan to redevelop this property and consider its current use an income-producing “ land bank. ” redevelopment and development we invest in the redevelopment of certain apartment communities in superior locations , when we believe the investment will yield risk-adjusted returns in excess of those from apartment communities sold in paired trades or in excess of the cost of equity issued to fund the equity component of the redevelopments . we have historically undertaken a range of redevelopment projects : from those in which buildings or exteriors are renovated without the need to vacate apartment homes ; to those in which significant renovation of apartment homes may be accomplished upon lease expiration and turnover ; and to those in which an entire building or community is wholly vacated . we execute certain of our redevelopment projects using a phased approach , where we renovate portions of an apartment community in stages , which allows additional flexibility of project costs and the ability to tailor our product offerings to customer response and rent achievement . redevelopment work may also include seeking entitlements from local governments , which enhance the value of our existing portfolio by increasing density , that is , the right to add apartment homes to a site . story_separator_special_tag during the year ended december 31 , 2014 , we completed two redevelopment projects as expected , at pacific bay vistas , in san bruno , california , and at the palazzo at park la brea , in los angeles , california . construction is nearing completion at our two largest on-going redevelopment projects at lincoln place , in venice , california , and the preserve at marin , in corte madera , california . during the year ended december 31 , 2014 , we also completed the first phase of the redevelopment of the sterling in center city , philadelphia and a multi-phase capital project at park towne place in philadelphia , pennsylvania . we undertake ground-up development , either directly in connection with the redevelopment of an existing apartment community or , on a more limited basis , at a new location with a third party development partner with expertise in the local market . during the year ended december 31 , 2014 , we invested $ 46.9 million in the development of one canal street in boston , massachusetts . see below under the liquidity and capital resources – redevelopment and development heading for additional information regarding our our ongoing redevelopment and development projects at december 31 , 2014 . balance sheet and liquidity our leverage strategy seeks to increase financial returns while using leverage with appropriate caution . we target the ratio of debt plus preferred equity to adjusted ebitda to be below 7.0x and we target the ratio of adjusted ebitda coverage of interest and preferred dividends to be greater than 2.5x . we also focus on the ratios of debt to adjusted ebitda and adjusted ebitda coverage of interest . debt , as used in these ratios , represents our proportionate share of debt , net of our proportionate share of cash and restricted cash and our investment in the subordinate tranches of a securitization that holds certain of our property debt , and preferred equity represents aimco 's preferred stock and the aimco operating partnership 's preferred op units . adjusted ebitda is calculated by adding to our pro forma funds from operations , which is calculated on an proportionate basis , our proportionate share of interest expense , taxes , depreciation and amortization related to non-real estate assets , non-cash stock-based compensation , and dividends and distributions on our preferred equity instruments . interest , as used in these ratios , represents our proportionate share of interest expense , excluding debt prepayment penalties and amortization of deferred financing costs , and reduced by interest income we receive on our investment in the subordinate tranches of a securitization that holds certain of our property debt . our leverage ratios for the trailing twelve month and annualized three month periods ended december 31 , 2014 and 2013 , are presented below : 22 replace_table_token_8_th ( 1 ) during january 2015 , aimco completed a common stock offering resulting in net proceeds of approximately $ 367 million . the pro-forma ratios presented for the trailing twelve months ended december 31 , 2014 , have been adjusted to reflect the following : a ) repayment of $ 112.3 million of outstanding borrowings under our credit agreement at december 31 , 2014 ; b ) repayment of $ 102.2 million of property debt that will be repaid in 2015 to further supplement aimco 's unencumbered pool ; c ) repayment of $ 27.0 million of aimco 's cra preferred stock ; and d ) investment of the remaining proceeds from the common offering . refer to note 16 to the consolidated financial statements in item 8 for additional information regarding this stock offering . we expect future leverage reduction from both earnings growth , the lease up of redevelopment communities , and from regularly scheduled property debt amortization repaid from retained earnings . we also expect to increase our financial flexibility by expanding our pool of unencumbered apartment communities . as of december 31 , 2014 , this pool included 15 consolidated apartment communities , which we expect to hold beyond 2015 , with an estimated fair value of more than $ 1 billion . two credit rating agencies rate our creditworthiness , using different methodologies and ratios for assessing our credit . in addition to lowering the cost of borrowings under our line of credit , an improvement to an investment grade rating may lower the cost of any future preferred equity issuance , provide additional flexibility for sources of capital , and provide other intangible benefits . although some of the ratios they use are similar to those we use to measure our leverage , there are differences in our methods of calculation and therefore our leverage ratios disclosed above are not indicative of the ratios that may be calculated by these agencies . in april 2014 , one of the agencies rating us upgraded our credit rating outlook , from bb+ ( stable ) to bb+ ( positive ) . during its review , this agency also outlined the factors that would have a positive impact on our ratings , which include : reducing our leverage , as measured by a debt to ebitda ratio defined by the rating agency , closer to the low end of the range of 7.0x to 7.5x ; reducing our ratio of debt to undepreciated capital ( defined by the agency as the sum of debt , equity and accumulated depreciation ) to 50 % or lower ; and continuing to strengthen our fixed charge coverage ratio such that the agency believes a 2.0x coverage is achievable . in june 2014 , the other agency rating us affirmed its june 2013 bb+ ( positive ) rating of our creditworthiness , and outlined the factors that would have a positive impact on our ratings .
| 2013 compared to 2012 net income attributable to aimco and net income attributable to the aimco operating partnership increased by $ 74.8 million and $ 81.2 million , respectively , during the the year ended december 31 , 2013 , as compared to the year ended december 31 , 2012 . the increase in income for aimco and the aimco operating partnership was principally due to an increase in the net operating income and a decrease in depreciation and amortization of our apartment communities in continuing operations . the following paragraphs discuss these and other items affecting the results of operations of aimco and the aimco operating partnership in more detail . property operations as described under the preceding executive overview heading , our owned real estate portfolio consists primarily of conventional apartment communities , and we also operate a portfolio of affordable apartment communities . our conventional and affordable property operations comprise our reportable segments . in accordance with accounting principles generally accepted in the united states of america , or gaap , we consolidate certain apartment communities in which we hold an insignificant economic interest and in some cases we do not consolidate other apartment communities in which we have a significant economic interest . due to the diversity of our economic ownership interests in our apartment communities , our chief operating decision maker emphasizes as a key measurement of segment profit or loss proportionate property net operating income , which represents our share of the property net operating income of the consolidated and unconsolidated apartment communities that we own and manage . accordingly , the results of operations of our conventional and affordable segments discussed below are presented on a proportionate basis and exclude the results of four conventional apartment communities with 142 apartment homes and eight affordable apartment communities with 739 apartment homes that we do not manage . we do not include property management revenues , offsite costs associated with property management or casualty-related amounts in our assessment of segment performance . accordingly , these items are not allocated to our segment results discussed below . refer to note 15 in the consolidated financial statements in item 8 for further discussion regarding
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tlando was well tolerated upon 52-week exposure with no reports of drug related serious adverse events ( “ saes ” ) . 51 additional pipeline candidates include lpcn 1144 , an oral prodrug of bioidentical testosterone for the treatment of non-alcoholic steatohepatitis ( “ nash ” ) , lpcn 1111 , a next generation oral testosterone therapy product with the potential for once daily dosing which is currently in phase 2 testing and lpcn 1107 , potentially the first oral hydroxyprogesterone caproate product indicated for the prevention of recurrent preterm birth which has completed an end-of-phase 2 meeting with the fda . lpcn 1144 , an oral prodrug of bioidentical testosterone , is being evaluated for the treatment of nash in a proof-of-concept ( “ poc ” ) study to assess liver fat changes in hypogonadal men at risk of developing nash using magnetic resonance imaging , proton density fat fraction ( “ mri-pdff ” ) technique as well as in a biopsy-confirmed nash in-vivo pre-clinical model . we expect results from the poc liver imaging study and the biopsy-confirmed in-vivo poc study in the first quarter of 2019. to date , we have funded our operations primarily through the sale of equity securities , debt and convertible debt and through up-front payments , research funding and royalty and milestone payments from our license and collaboration arrangements . we have not generated any revenues from product sales and we do not expect to generate revenue from product sales unless and until we obtain regulatory approval of tlando or other products . we have incurred losses in most years since our inception . as of december 31 , 2018 , we had an accumulated deficit of $ 138.1 million . income and losses fluctuate year to year , primarily depending on the nature and timing of research and development occurring on our product candidates . our net loss was $ 11.7 million for the year ended december 31 , 2018 , compared to $ 21.0 million for the year ended december 31 , 2017. substantially all of our operating losses resulted from expenses incurred in connection with our product candidate development programs , our research activities and general and administrative costs associated with our operations . we expect to continue to incur significant expenses and operating losses for the foreseeable future as we : conduct the abpm clinical study or any other pre or post-approval clinical studies required in support of tlando ; prepare to resubmit our nda for tlando ; conduct further development of our other product candidates , including lpcn 1144 ; continue our research efforts ; research new products or new uses for our existing products ; maintain , expand and protect our intellectual property portfolio ; and provide general and administrative support for our operations . to fund future long-term operations , we will need to raise additional capital . the amount and timing of future funding requirements will depend on many factors , including capital market conditions , regulatory requirements and outcomes related to tlando including our abpm clinical study , regulatory requirements related to our other development programs , the timing and results of our ongoing development efforts , the potential expansion of our current development programs , potential new development programs , our ability to license our products to third parties , the pursuit of various potential commercial activities and strategies associated with our development programs and related general and administrative support . we anticipate that we will seek to fund our operations through public or private equity or debt financings or other sources , such as potential license , partnering and collaboration agreements . we can not be certain that anticipated additional financing will be available to us on favorable terms , or at all . although we have previously been successful in obtaining financing through public and private equity securities offerings and our license and collaboration agreements , there can be no assurance that we will be able to do so in the future . 52 our product candidates our current portfolio includes our most advanced product candidate , tlando , an oral testosterone replacement . additionally , we are in the process of establishing our pipeline of other clinical candidates including an oral androgen therapy for the treatment of nash , lpcn 1144 , a next-generation potential once daily oral testosterone replacement therapy , lpcn 1111 , and an oral therapy for the prevention of preterm birth , lpcn 1107. our development pipeline tlando : an oral product candidate for testosterone replacement therapy our most advanced product , tlando , is an oral formulation of the chemical , tu , which is an eleven carbon side chain attached to t. tu is an ester prodrug of t. an ester is chemically formed by bonding an acid and an alcohol . upon the cleavage , or breaking , of the ester bond , t is formed . tu has been approved for use outside the united states for many years for delivery via intra-muscular injection and in oral dosage form and recently tu has received regulatory approval in the united states for delivery via intra-muscular injection . we are using our proprietary technology to facilitate steady gastrointestinal solubilization and absorption of tu . proof of concept was initially established in 2006 , and subsequently tlando was licensed in 2009 to solvay pharmaceuticals , inc. which was then acquired by abbott products , inc. ( `` abbott '' ) . following a portfolio review associated with the spin-off of abbvie by abbott in 2011 , the rights to tlando were reacquired by us . all obligations under the prior license agreement have been completed except that lipocine will owe abbott a perpetual 1 % royalty on net sales . such royalties are limited to $ 1 million in the first two calendar years following product launch , after which period there is not a cap on royalties and no maximum aggregate amount . if generic versions of any such product are introduced , then royalties are reduced by 50 % . story_separator_special_tag nda resubmission on june 28 , 2016 , we received a crl from the fda on our original nda submission . a crl is a communication from the fda that informs companies that an application can not be approved in its present form . the crl identified a deficiency related to the dosing algorithm for the label . specifically , the proposed titration scheme for clinical practice was significantly different from the titration scheme used in the phase 3 trial leading to discordance in titration decisions between the phase 3 trial and real-world clinical practice . in response to the crl , we met with the fda in a post action meeting and proposed a dosing regimen to the fda based on analyses of existing data . the fda noted that while the proposed dosing regimen might be acceptable , validation in a clinical trial would be needed prior to resubmission . the dv study was in response to the fda 's request . we also initiated the dosing flexibility ( “ df ” ) study to assess tlando in hypogonadal males on a fixed daily dose of 450 mg divided into three equal doses . we resubmitted our nda to the fda in august 2017 based on the results of the dv study . as described more fully below , the dv study confirmed the efficacy of tlando with a fixed dose regimen without need for dose adjustment . tlando was well tolerated upon 52-week exposure with no reports of drug related serious adverse events ( “ saes ” ) . on may 8 , 2018 tlando received a crl from the fda regarding our nda . the crl identified four deficiencies which include the following : determining the extent , if any , of ex vivo conversion of tu to t in serum blood collection tubes to confirm the reliability of t data ; obtaining definitive evidence pre-approval via an abpm study as to whether tlando causes a clinically meaningful increase in blood pressure in hypogonadal men , which is a surrogate marker of predicting cardiovascular outcomes ; verifying the reliability of cmax data and providing justification for non-applicability of the agreed-upon and prespecified cmax secondary endpoints for tlando ; and , determining the appropriate stopping criteria that can reproducibly and accurately identify those patients who should discontinue use of tlando . the crl also identified additional comments that are not considered approvability issues . on july 19 , 2018 , we completed a post action meeting with the fda in which the deficiencies raised in the crl were discussed and a path forward for nda resubmission for the potential approval of tlando was clarified . the fda provided specific feedback on potential resolution of each deficiency , including clinical design elements where appropriate . we are currently conducting an abpm clinical study in which we enrolled 138 subjects . we expect results during the first quarter of 2019. the abpm clinical study is uncontrolled and is being conducted to assess tlando 's effect on blood pressure , if any , and to assist the fda in determining the appropriate regulatory actions for tlando related to blood pressure effects , if any . fda regulatory action will depend on the findings of the abpm clinical study , including whether risk mitigation beyond labeling , such as risk evaluation and mitigation strategy ( “ rems ” ) , could ensure the benefits of tlando outweigh the risks . subsequent to our advisory committee meeting for tlando on january 10 , 2018 , we conducted a pilot phlebotomy study to assess whether ex vivo conversion of tu to t in serum blood collection tubes occurs post collection . as described more fully below , we completed our definitive phlebotomy study in the fourth quarter of 2018 based on fda study design feedback to exclude any potential clinically meaningful ex vivo tu to t conversion post collection . the definitive phlebotomy study results suggest that there is no significant ex vivo tu to t conversion with testosterone measurements when processed within 30 minutes of sample collection under the tube manufacturer 's recommended conditions and consistent with dv phase 3 instructions and compared against the fda 's recommended time zero control ( processed immediately ) t measurement . finally , we are performing additional analyses of existing data in order to address the cmax deficiency and dose stopping criteria deficiency identified by the fda . although there is no guarantee that tlando will ever be approved by the fda , we believe the data analyses we are performing together with the results from the definitive phlebotomy study and the on-going abpm clinical study should address the deficiencies identified by the fda in its crl . assuming results from the apbm clinical study support resubmission of the tlando nda , we expect resubmission to occur mid-2019 followed by a six-month review by the fda upon fda acceptance . there can be no assurances as to the timing or acceptance of our nda by the fda . 53 results from the definitive phlebotomy study the definitive phlebotomy study was designed based on the fda 's protocol recommendations and conducted in response to a deficiency cited in the tlando crl by the fda to confirm the reliability of tlando phase 3 study results and to assess the impact of any material deviation from instructions on sample collection/processing times by clinical sites . the definitive phlebotomy study measured testosterone concentrations in blood samples collected in plain serum separation tubes ( “ sst ” ) at three-hour and five-hour time points ( n=24 ) post dose and processed within 30 minutes of sample collection under the tube manufacturer 's recommended conditions and consistent with phase 3 instructions . the definitive phlebotomy study enrolled 12 hypogonadal male subjects and dosed subjects with a single oral 225 mg tu dose of tlando .
| other income ( expense ) , net the increase in other expense , net , was primarily due to interest expense of $ 793,000 on our loan and security agreement with svb which was entered into january 2018. the increase in other expense , net , were offset by increased interest income due to higher interest rates on balances of cash , cash equivalents and marketable investment securities in 2018 as compared to 2017. comparison of the years ended december 31 , 2017 and 2016 the following table summarizes our results of operations for the years ended december 31 , 2017 and 2016 : replace_table_token_6_th research and development expenses the increase in research and development expenses during the year ended december 31 , 2017 was primarily due to increased contract research organization and consultant costs of $ 5.0 million for the dv and df studies related to tlando , increased contract manufacturing costs for lpcn 1107 of $ 725,000 , and increased outside services of $ 666,000 related to the advisory committee meeting for tlando . these increases were offset by decreased contract research organization costs for lpcn 1111 of $ 1.4 million , a decrease in validation and commercial batch manufacturing costs for tlando of $ 1.9 million , and a decrease in contract research organization costs for lpcn 1107 of $ 153,000. general and administrative expenses the decrease in general and administrative expenses during the year ended december 31 , 2017 was primarily due to a decrease of $ 534,000 for pre-commercialization marketing and sales activities related to tlando and a decrease of $ 558,000 in legal costs for patent interference offset by an increase of $ 930,000 related to class-action litigation settlement fees . restructuring charges the decrease in restructuring charges in the year ended december 31 , 2017 was the result of our 2016 restructuring plan during the year ended december 31 , 2016. the charge related to restructuring
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at december 31 , 2017 , the company holds 51 % of the shareholdings of greenpro capital village sdn bhd and greenpro family office limited . for the year ended december 31 , 2017 , the company recorded net loss attributable to noncontrolling interest of $ 832,350. for the year ended december 31 , 2016 , the company recorded net income attributable to noncontrolling interest of $ 11,149. the increase in loss attributable to noncontrolling interest was due to impairment of goodwill and intangible assets of $ 795,168 allocated to noncontrolling interests in billion sino holdings limited and yabez ( hong kong ) company limited . net loss net losses were $ 3,116,909 and $ 39,666 for the year ended december 31 , 2017 and 2016 , respectively . the increase in net loss was mainly due to an increase in operating costs and expenses , and impairment of goodwill and intangible assets . there were no seasonal aspects that had a material effect on the financial condition or results of operations of the company . other than as disclosed elsewhere in this annual report , we are not aware of any trends , uncertainties , demands , commitments or events for the year ended december 31 , 2017 that are reasonably likely to have a material adverse effect on our financial condition , changes in our financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources , or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial conditions . off balance sheet arrangements we have no significant off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in our financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to our stockholders as of december 31 , 2017. contractual obligations as of december 31 , 2017 , the company 's subsidiaries lease an office in hong kong under a non-cancellable operating lease that expires in april 2018. in january 2018 , the tenancy agreement was renewed for three years commencing from may 1 , 2018 and expiring on april 30 , 2021 . 27 related party transactions related party transactions amounted to $ 329,645 and $ 406,631 for the years ended december 31 , 2017 and 2016 , respectively , in service revenue and rental revenue . the amount due from related parties was $ 1,761 and $ 30,215 as of december 31 , 2017 and 2016 , respectively . the amounts due to related parties were $ 1,813,930 and $ 1,509,492 as of december 31 , 2017 and 2016 , respectively . our related parties are those companies where greenpro venture capital limited owns a certain percentage of the shares of such companies , and companies that we have determined that we can significantly influence based on our common business relationships . one related party is under common control of mr. loke che chan , gilbert , a director of the company . critical accounting policies and estimates use of estimates the preparation of financial statements in conformity with u.s. generally accepted accounting principles requires management to make estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements , and the reported amounts of revenues and expenses during the reporting period . significant accounting estimates include certain assumptions related to , among others , the allowance for doubtful accounts receivable , impairment analysis of real estate assets and other long term assets including goodwill , valuation allowance on deferred income taxes , and the accrual of potential liabilities . actual results may differ from these estimates . property and equipment , net property and equipment are stated at cost less accumulated depreciation and amortization . depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational and after taking into account their estimated residual values : categories expected useful life residual value office leasehold 27 years furniture and fixtures 3 - 10 years 5 % office equipment 3 - 10 years 5 % - 10 % leasehold improvement over the shorter of estimated useful life or term of lease - management assesses the carrying value of property and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable . if there is indication of impairment , management prepares an estimate of future cash flows expected to result from the use of the asset and its eventual disposition . if these cash flows are less than the carrying amount of the asset , an impairment loss is recognized to write down the asset to its estimated fair value . investment in real estate real estate held for sale is reported at the lower of its carrying amount or fair value , less estimated costs to sell . the cost of real estate held for sale includes the purchase price of property , legal fees , improvement costs to the building structure , and other acquisition costs . project wide costs such as land and building acquisition and certain development costs are allocated to the specific units based upon their relative fair value before construction . we continue to actively market all properties that are designated as held for sale . real estate held for sale is not depreciated . real estate held for investment is stated at cost less accumulated depreciation . story_separator_special_tag depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational and after taking into account their estimated residual values : categories expected useful life residual value leasehold land and buildings 50 years - furniture and fixtures 3 – 10 years 5 % office equipment 3 – 10 years 5 % - 10 % leasehold improvement shorter of the estimated useful life or term of lease - 28 intangible assets , net intangible assets are stated at cost less accumulated amortization . intangible assets represented customer lists and order backlogs acquired in business combinations and certain trademarks registered in hong kong , the prc , and malaysia . intangible assets are amortized on a straight-line basis over their estimated useful life 's ranging from five to ten years . the company follows asc 350 in accounting for intangible assets , which requires impairment losses to be recorded when indicators of impairment are present and the undiscounted cash flows estimated to be generated by the assets are less than the assets ' carrying amounts . the company 's policy is to perform its annual impairment testing for its intangible assets on december 31 , of each fiscal year . goodwill goodwill is the excess of cost of an acquired entity over the fair value of amounts assigned to assets acquired and liabilities assumed in a business combination . under the guidance of asc 350 , goodwill is not amortized , rather it is tested for impairment annually , and will be tested for impairment between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired . an impairment loss generally would be recognized when the carrying amount of the reporting unit 's net assets exceeds the estimated fair value of the reporting unit and would be measured as the excess carrying value of goodwill over the derived fair value of goodwill . the company 's policy is to perform its annual impairment testing for its reporting units on december 31 , of each fiscal year . impairment of long-lived assets long-lived assets primarily include real estate held for investment , real estate held for use , and equipment and intangible assets . in accordance with the provision of asc 360 , the company generally conducts its annual impairment evaluation to its long-lived assets , usually in the fourth quarter of each year , or more frequently if indicators of impairment exist , such as a significant sustained change in the business climate . the recoverability of long-lived assets is measured at the reporting unit level . if the total of the expected undiscounted future net cash flows is less than the carrying amount of the asset , a loss is recognized for the difference between the fair value and carrying amount of the asset . revenue recognition the company recognizes its revenue in accordance with asc 605 , “ revenue recognition ” , upon the delivery of its products when : ( 1 ) delivery has occurred or services rendered ; ( 2 ) persuasive evidence of an arrangement exists ; ( 3 ) there are no continuing obligations to the customer ; and ( 4 ) the collection of related accounts receivable is probable . 29 service revenue revenue from the provision of ( i ) business consulting and advisory services and ( ii ) company secretarial , accounting and financial review services are recognized when there is ( i ) an existence of contract or an arrangement ( ii ) services are rendered , ( iii ) the service price is fixed or determinable , and ( iv ) collectability is reasonable assured . for certain service contracts , the completed performance method is applied . revenue , expenses and gross profit are deferred until the performance obligation is complete and collectability is reasonably assured . for contracts where performance is not completed , deferred costs related to revenue are recorded as incurred and deferred revenue is recorded for any payments received on such yet to be completed performance obligations . when all contractual performance obligations have been met , revenue and expenses will be recorded . on an ongoing basis , management monitors these contracts for profitability and when needed may record a liability if a determination is made that costs will exceed revenue . for other service contracts such as company secretarial , accounting and financial review services , revenue is recognized as services are rendered . rental revenue revenue from rental of leasehold land and buildings are recognized on a straight-line basis over the lease term when collectability is reasonably assured and the tenant has taken possession or controls the physical use of the leased assets . sale of properties revenue from the sale of properties is recognized at the time each unit is delivered and title and possession are transferred to the buyer . specifically , the company utilizes the full accrual method where recognition occurs when ( i ) the collectability of the sales price is reasonably assured , ( ii ) the seller is not obligated to perform significant activities after the sale , ( iii ) the initial investment from the buyer is sufficient , and ( iv ) the company recognizes revenue when it satisfies a performance obligation by transferring control of a promised property to a customer . recent accounting pronouncements refer to note 1 in the accompanying financial statements . 30 liquidity and capital resources as of december 31 , 2017 , we had working capital deficiency of $ 2,070,201 as compared to working capital deficiency of $ 401,241 as of december 31 , 2016. the decrease was mainly due to an increase of amounts due to related parties , an increase of accounts payable and accrued liabilities , and an increase of loan borrowings .
| sale of properties revenue from the sale of properties was $ 423,871 for the year ended december 31 , 2017 , which was derived from the sale of certain commercial properties located in hong kong . there was no revenue generated from the sale of properties for the year ended december 31 , 2016. as opportunities permit , management expects to continue to purchase and sell commercial real estate in the near future . accordingly , we expect revenue and costs attributable to the sale of properties to fluctuate on a going forward basis . 25 service revenue revenue from the provision of business services was $ 3,313,819 and $ 2,991,592 for the years ended december 31 , 2017 and 2016 , respectively . it was derived principally from the provision of business consulting and advisory services as well as company secretarial , accounting and financial review services . we experienced an increase in service income as a result of our integration of clients in connection with our acquisitions and increased focus on high-end services . total operating costs and expenses total operating costs and expenses was $ 6,737,418 and $ 3,059,600 for the years ended december 31 , 2017 and 2016 , respectively . they consist of cost of service revenue , cost of properties sold , cost of rental income , general and administrative and impairment of goodwill and intangible assets . the overall income ( loss ) from operations for the company for the years ended december 31 , 2017 and 2016 were $ ( 2,821,046 ) and $ 32,135 , respectively . the increase in loss from operations was mainly due to an increase in general and administrative expenses and impairment of goodwill and intangible assets . cost of rental revenue cost of rental revenue was $ 68,412 and $ 48,914 for the years ended december 31 , 2017 and 2016 , respectively . it includes the costs associated with government rent and rates , repairs and maintenance , property insurance , depreciation and other related administrative costs . property management fee and utility expenses are paid directly by tenants . cost of service revenue costs of revenue on provision of services
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we have completed an intended-use study to develop and validate a multi-marker algorithm for the assessment of individuals at risk for peripheral arterial disease in 2011. this algorithm will be specifically directed at a primary care population in which the peripheral arterial disease blood test is expected to be used . we plan to seek a development/commercial partner for this product opportunity who will work with us to complete the product development , complete the required fda studies for approval , and eventually commercialize this product opportunity on a global basis . current and former academic and research institutions that we have or have had collaborations with include the johns hopkins university school of medicine ; the university of texas m.d . anderson cancer center ; university college london ; the university of texas medical branch ; the katholieke universiteit leuven ; clinic of gynecology and clinic of oncology , rigshospitalet , copenhagen university hospital ; the ohio state university research foundation ; stanford university ; and the university of kentucky . on february 9 , 2012 , we entered into a settlement agreement and release ( the settlement agreement ) with oppenheimer & co. , inc. ( oppenheimer ) related to losses on our short and long-term investments in previous years . under the terms of the settlement agreement , we received a total settlement of $ 1,000,000 ; $ 535,000 was paid in march 2012 and $ 465,000 was paid in august 2012. we received approximately $ 710,000 of the total settlement , net of legal and related costs . on march 5 , 2012 we announced the receipt of a notice of allowance from the uspto for platelet biomarkers for cancer. the patent resulted from a collaboration with the late dr. judah folkman , a renowned cancer expert , and identifies three biomarkers that can be used to assess changes in endogenous angiogenesis in a subject . angiogenesis is commonly associated with cancer , and novel therapeutics such as bevacizumab ( avastin ® ) target angiogenesis to limit tumor recruitment of blood vessels . the patented biomarkers , which are associated with platelets , can be used to measure ongoing angiogenic activity . the patent covers the measurement of these biomarkers over time and correlating changes in expression with the changing level of endogenous angiogenic activity . consequently , this patent also enables the use of these biomarkers to monitor efficacy of therapy directed at angiogenic pathways . on march 6 , 2012 , the american medical association ( ama ) current procedural terminology ( cpt ® ) panel voted to approve an application for a category i cpt code for ova1 , which became effective january 1 , 2013. on march 28 , 2012 , we announced the receipt of a notice of allowance from the uspto for a patent , methods for diagnosing ovarian cancer. this patent further expands the list of biomarkers we have employed in the diagnosis or status determination of ovarian cancer . in this case , the granted claims cover the use of protein c inhibitor ( pci ) in ovarian cancer tests using blood and several other sample types . on april 16 , 2012 , we announced the receipt of a notice of allowance from the uspto for a patent , biomarkers for ovarian cancer. the patent makes claims in the uses of a urinary small mbl-associated protein c-terminal fragment ( smap ) in the diagnosis of ovarian cancer , ovarian cancer monitoring , and patient management . 38 on april 30 , 2012 , we announced the resolution of four non-contingent contract claims made by bio-rad arising from the instrument business sale . in exchange for a final settlement of the non-contingent claims , bio-rad received $ 700,000 from an escrow account established by the company for the sale transaction and the company received approximately $ 1,080,000 from the escrow account . on may 15 , 2012 , we announced our ceo succession plan beginning the process of identifying a successor to gail s. page , president and ceo . our board of directors formed a search committee as part of the leadership succession plan and ms. page resigned from the board of directors . on june 15 , 2012 , we announced that results of the recent pad multi-marker intended use study were presented at the society for vascular medicine 's 23rd annual scientific sessions , in minneapolis , minnesota . this meeting hosted the nation 's leading vascular medicine specialists , and included sessions on pad guidelines , policy trends , and advances in the diagnosis and treatment of vascular diseases . the poster presented to the meeting was authored by professor of medicine and associate director of stanford cardiovascular institute dr. john cooke , together with colleagues at the university of colorado and is entitled results of a biomarker screen to identify peripheral artery disease. it reported the results of a multi-center clinical study involving 1,025 subjects , prospectively enrolled from the pad at-risk population of subjects aged 70 or older , and diabetics and smokers 50 or older . different multi-marker algorithms were evaluated in patients with or without pad , in comparison with the framingham risk score ( frs ) . the multi-marker models were also assessed for their ability to identify pad in patients below the high-risk frs cutoff . the best model demonstrated a c-statistic of 0.73 and more importantly , identified 17 of 20 ( 85 % ) of patients missed by the frs high-risk cutoff . on july 30 , 2012 , we announced positive results from a new prospective , multi-center clinical study of our ovarian cancer diagnostic ova1 ® . the study , referred to as ova500 , was led by dr. robert e. bristow , director of gynecologic oncology services at university of california irvine healthcare in orange , california , and deputy editor of the journal gynecologic oncology . the ova500 study confirms and extends the pioneering work of dr. fred ueland published last year . story_separator_special_tag it was a prospective , multi-institutional , blinded study with a new cohort of 494 patients representing the intended use population for ova1 : female patients who were scheduled to undergo surgery for an adnexal mass , enrolled from non-gynecologic oncology practices via 27 study coordination centers . all adnexal tumor types were included in the statistical analysis of test performance . the primary objective was to assess the performance of ova1 in the intended use population with a focus on two particularly challenging subgroups : women with early-stage ovarian cancer , where approximately half of patients have a normal ca125 level , and pre-menopausal women , where the incidence of ovarian cancer is low and incidence of benign cysts is high . top-line data from the study are as follows : overall performance of ova1 negative predictive value was reported at 98 % sensitivity was reported at 96 % specificity was reported at 51 % performance in the pre-menopausal population sensitivity was reported at 94 % 39 performance for early-stage ovarian cancer ( i and ii ) sensitivity was reported at 91 % ova1 as a risk stratification test ( ova1 score versus cutoff , independent of physician assessment ) sensitivity was reported at 92 % overall : 91 % for early-stage disease 94 % for pre-menopausal patients 91 % for stage i and ii in pre-menopausal women with a specificity of 61 % the ova500 results were subsequently published online by gynecologic oncology on november 22 , 2012 in the article , ovarian malignancy risk stratification of the adnexal mass using a multivariate index assay. on october 12 , 2012 , we announced the payment to quest diagnostics of approximately $ 5,901,000 , which we believe represents payment in full of all outstanding principal and interest under the secured line of credit agreement dated as of july 22 , 2005 between the company and quest diagnostics . the payoff incorporated $ 1,000,000 in additional principal forgiveness under the terms of the strategic alliance and $ 106,000 in previous principal curtailment payments . however , quest diagnostics has disputed that such milestone forgiveness was achieved or principal curtailment was made . this disputed amount of $ 1,106,000 is reported as short-term debt on our consolidated balance sheet at december 31 , 2012. on november 16 , 2012 , we announced that the delaware court of chancery dismissed with prejudice a lawsuit brought against vermillion , inc. and its board of directors by dissident stockholders , gyorgy b. bessenyei and robert s. goggin , iii . following the decision , a proxy filed with the securities exchange commission ( sec ) by an alleged stockholder group led by bessenyei and goggin describes goggin as honest and trustworthy. however , the delaware court of chancery court issued findings to the contrary . the court ruled that goggin and bessenyei had illegally falsified documents by improperly notarizing court filings in connection with the lawsuit and , moreover , that the conduct of goggin appeared to be a violation of the pennsylvania rules of professional conduct applicable to pennsylvania lawyers . with the suit now dismissed with prejudice , which disallows its re-filing , we were able to move forward with our annual meeting . the meeting had been delayed due to the bessenyei and goggin lawsuit , which prohibited the company from holding a meeting until the matter was resolved . on november 27 , 2012 , we announced the appointment of director bruce a. huebner as interim chief executive officer . he succeeded gail s. page , who had assisted in the transition and served as a strategic advisor to the company as requested by its board of directors . mr. huebner continues to serve on our board of directors . on january 3 , 2013 , the company received a letter ( the delisting notice ) from the nasdaq stock market llc ( nasdaq ) notifying the company that it is not in compliance with nasdaq 's listing rule 5620 ( a ) , which requires the company to hold an annual meeting of shareholders no later than one year after the end of the company 's fiscal year-end , and listing rule 5620 ( b ) , which requires the company to solicit proxies and provide proxy statements for such meeting and to provide copies of such proxy solicitation to nasdaq . the delisting notice stated that unless the company requested an appeal of this determination , trading of the company 's common stock would be suspended on january 14 , 2013 , and a form 25-nse would be filed with the sec , which would remove the company 's securities from listing and registration on nasdaq . the company filed an appeal which stayed the delisting action while the appeal is pending . the annual meeting was delayed due to a lawsuit brought against the company and its board of directors by dissident stockholders , gyorgy b. bessenyei and robert s. goggin , iii , which prohibited the company from 40 holding a meeting until the matter was resolved . as previously announced by the company , the case was dismissed with prejudice on november 16 , 2012. the company has scheduled the 2012 annual meeting for march 21 , 2013. critical accounting policies and estimates the notes to the consolidated financial statements contain a summary of the company 's significant accounting policies that are presented in part ii item 8 , financial statements and supplementary data , of this annual report on form 10-k. we believe that it is important to have an understanding of certain policies , along with the related estimates that we are required to make in recording the financial transactions of the company , in order to have a complete picture of the company 's financial condition . in addition , in arriving at these estimates , we are required to make complex and subjective judgments , many of which include a high degree of uncertainty . the following is a discussion of these critical accounting policies and significant estimates related to these policies .
| gain on litigation settlement , net . on february 9 , 2012 , we entered into a settlement agreement with oppenheimer related to losses on our short and long-term investments in previous years . under the terms of the settlement agreement , the total settlement was $ 1,000,000 ; $ 535,000 ( $ 379,000 net after legal fees and costs ) was paid in march 2012 and $ 465,000 ( $ 331,000 net after legal fees and costs ) was paid in august 2012. the gain on litigation settlement represents recognition of the net proceeds received . 44 change in fair value of warrants . there was no change in fair value of warrants for the year ended december 31 , 2012 compared to $ 378,000 for the same period in 2011. this decrease of $ 378,000 was due primarily to the relative decrease in the company 's stock price during 2011. reorganization items . reorganization items were income of $ 88,000 for the year ended december 31 , 2012 compared to expense of $ 96,000 for the same period in 2011. the increase was due to the one-time recognition of $ 103,000 in claims adjustments upon the formal closure of our voluntary petition for relief ( our bankruptcy filing ) under chapter 11 of the united states bankruptcy code ( chapter 11 ) in the united states bankruptcy court for the district of delaware ( the bankruptcy court ) in january 2012 as well as minimal ongoing reorganization costs in 2012. results of operationsyear ended december 31 , 2011 as compared to year ended december 31 , 2010 the selected summary financial and operating data of vermillion for the years ended december 31 , 2011 and 2010 were as follows : replace_table_token_4_th product revenue . product revenue was $ 1,469,000 for the year ended december 31 , 2011 compared to $ 308,000 for the same period in 2010. we recognized product revenue for the year ended december 31 , 2011 for
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if , for any reason , the proposed merger is not consummated and we are unable to identify and complete an alternative strategic transaction like the merger or potential collaborative , partnering or other strategic arrangements for our assets , or to continue to operate our business due to our inability to raise additional funding , we may be required to dissolve and liquidate our assets . in such case , we would be required to pay all of our debts and contractual obligations , and to set aside certain reserves for potential future claims , and there can be no assurances as to the amount or timing of available cash left to distribute to our stockholders after paying our debts and other obligations and setting aside funds for reserves . to conserve our cash resources , we have substantially reduced our workforce and have wound down and suspended our research and development activities . we are continuing to provide study drug for patients who remain on therapy via investigator sponsored trials ( principal investigator assumes responsibility ) through single patient inds and are continuing our day-to-day business operations including the limited remaining activities required to wrap up the toca 5 trial . atm facility in november 2018 , we entered into an equity distribution agreement with citigroup global markets inc. , or citigroup , pursuant to which we may sell and issue shares of our common stock having an aggregate offering price of up to $ 30,000,000 from time to time through citigroup , as our sales agent , or the atm facility . as of december 31 , 2019 , we sold 760,089 shares of our common stock under the atm facility and received net proceeds of $ 7.7 million . although we have approximately $ 23.3 million of shares of our common stock available for sale under this agreement , given our currently-depressed stock price , the atm facility is not expected to be a practical source of liquidity for us at this time . further , given our currently-depressed stock price , we are significantly limited in our ability to sell shares of common stock under the atm facility since the issuance and sale of our common stock under the atm facility , if it occurs , would be effected under a registration statement on form s-3 that we filed with the securities and exchange commission , and in accordance with the rules governing those registration statements , we generally can only sell shares of our common stock under that registration statement in an amount not to exceed one-third of our public float , which limitation for all practical purposes precludes our ability to obtain any meaningful funding through the atm facility at this time . public offering in december 2018 , we completed a public offering in which we sold an aggregate of 3,000,000 shares of common stock at a price of $ 10.00 per share . net proceeds from the public offering , after deducting underwriting discounts , commissions and offering expenses , were approximately $ 28.0 million . financial operations overview revenue we currently have no products approved for sale and have not generated any revenues from the sale of products . we have not submitted any product candidate for regulatory approval . we expect that any future revenue we generate will fluctuate from quarter to quarter and year to year as a result of the timing and amount of license fees , milestone and other payments , and the amount and timing of payments that we receive upon the sale of our products , to the extent any are successfully commercialized . if we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval of them , our ability to generate future revenue , and our results of operations and financial position , would be materially adversely affected . research and development expenses research and development expenses consist primarily of salaries and related expenses for personnel , including non-cash stock-based compensation costs , preclinical costs , clinical trial costs , costs related to acquiring and manufacturing clinical trial materials , contract services , facilities costs , overhead costs and depreciation . these activities also include research and development related to our gene therapy platform development . all research and development costs are expensed as incurred . 29 the following table sets forth our research and development expense by project for the years ended december 31 , 2019 , 2018 and 2017 ( in thousands ) : replace_table_token_1_th general and administrative expenses general and administrative expenses consist primarily of salaries and related expenses for personnel , including non-cash stock-based compensation costs and travel expenses for our employees in executive , operational , finance and business development functions . other general and administrative expenses include facility-related costs , consulting fees , information technology , insurance , professional fees for accounting and legal services , expenses associated with obtaining and maintaining patents , expenses related to commercial readiness activities and costs associated with being a public company . we anticipate continued expenses related to audit , legal , regulatory and tax-related services associated with maintaining compliance with exchange listing and sec requirements , director and officer insurance premiums and costs associated with being a public company . interest income interest income consists primarily of interest income earned on cash , cash equivalents and marketable securities . interest expense interest expense consists primarily of stated interest and the amortization of related debt issuance costs incurred on the outstanding principal amount of our borrowings under our notes payable . income tax expense income tax expense consists primarily of foreign income tax expense incurred related to our license agreement with apollobio . loss on disposal of assets loss on disposal of assets consists primarily of fixed assets which were either sold or disposed of as part of our reduction in lab and office space . story_separator_special_tag gain on lease modification gain on lease modification consists of adjustments made to our right-of-use asset and lease liability related to our first amendment to our lease agreement . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements which we have prepared in accordance with generally accepted accounting principles in the united states . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenue and expenses during the reporting period . actual results could differ from those estimates . while our significant accounting policies are described in more detail in the note 2 to our financial statements appearing at the end of this annual report on form 10-k , we believe the following accounting policies to be most critical for fully understanding and evaluating our financial condition and results of operations . 30 revenue recognition revenue generally consists of license revenue with upfront payments and development milestones considered probable of achievement . 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 receive from customers in exchange for those goods and services . this process involves identifying the contract with a customer , determining the performance obligations in the contract , determining the transaction price , allocating the contract price to the distinct performance obligations in the contract , and recognizing revenue when or as we satisfy the performance obligation ( s ) . at contract inception , we assess the goods and services promised within each contract and assesses whether each promised good or service is distinct and determine whether those are performance obligations . a performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract . we consider factors such as the research , manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace . we consider a performance obligation satisfied once we have transferred control of a good or service to the customer , meaning the customer has the ability to use and obtain the benefit of the good or service . we recognize revenue for satisfied performance obligations only when we determine there are no uncertainties regarding payment terms or transfer of control . collaborative arrangements we enter into collaborative arrangements with partners that may include payment to us of one or more of the following : ( i ) license fees ; ( ii ) payments related to the achievement of developmental , regulatory , or commercial milestones ; and ( iii ) royalties on net sales of licensed products . where a portion of non‑refundable upfront fees or other payments received are allocated to continuing performance obligations under the terms of a collaborative arrangement , they are recorded as contract liabilities and recognized as revenue when ( or as ) the underlying performance obligation is satisfied . as part of the accounting for these arrangements , we must develop estimates and assumptions that require judgment to determine the underlying stand-alone selling price for each performance obligation which determines how the transaction price is allocated among the performance obligation ( s ) . the stand-alone selling price may include items such as forecasted revenues , development timelines , discount rates , and probabilities of technical and regulatory success . we evaluate each performance obligation to determine if it can be satisfied at a point in time or over time . in addition , variable consideration must be evaluated to determine if it is constrained and , therefore , excluded from the transaction price . license fees if a license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement , we recognize revenue from non-refundable , upfront fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license . for licenses that are bundled with other promises , we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and , if over time , the appropriate method of measuring progress for purposes of recognizing revenue . we evaluate the measure of progress each reporting period and , if necessary , adjusts the measure of performance and related revenue recognition . any such adjustments are recorded on a cumulative catch-up basis , which would affect license , collaboration or other revenues and earnings in the period of adjustment . milestone payments at the inception of each arrangement that includes milestone payments ( variable consideration ) , we evaluate whether the milestones are considered probable of being reached and estimates of the amount to be included in the transaction price . if it is probable that a milestone event would occur at the inception of the arrangement , the associated milestone value is included in the transaction price . milestone payments that are not within our control , such as regulatory approvals , are generally not considered probable of being achieved until those approvals are received . the transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis , for which we recognize revenue as or when the performance obligations under the contract are satisfied . at the end of each reporting period , we evaluate the probability of achievement of such milestones and any related constraint ( s ) , and if necessary , may adjust our estimate of the overall transaction price .
| 32 interest income interest income was $ 1.6 million for the year ended december 31 , 2019 , as compared to $ 1.5 million for the year ended december 31 , 2018 . cash is invested and earning interest dependent on the company 's liquidity needs . interest expense interest expense was $ 3.8 million for the year ended december 31 , 2019 , as compared to $ 2.9 million for the year ended december 31 , 2018. the increase of $ 0.9 million year over year was due to a higher loan balance throughout 2019 compared to 2018. loss on disposal of assets loss on disposal of assets was $ 1.2 million for the year ended december 31 , 2019 , as compared to less than $ 0.1 million for the year ended december 31 , 2018. the 2019 activity was due to equipment sales in connection with the reduction in lab and office space in december 2019. gain on lease modification gain on lease modification was $ 1.4 million for the year ended december 31 , 2019 , as compared to zero for the year ended december 31 , 2018. the 2019 gain was due to the reduction in lab and office lease commitments in december 2019 in connection with the company 's restructuring . income tax expense income tax expense of $ 1.7 million recorded for the year ended december 31 , 2018 was due to foreign income tax expense paid in conjunction with our license agreement with apollobio . comparison of the years ended december 31 , 2018 and 2017 the following table summarizes our results of operations for the years ended december 31 , 2018 and 2017 ( in thousands ) : replace_table_token_3_th license revenue license revenue was $ 18.0 million for the year ended december 31 , 2018 as compared to $ 41,000 for the year ended december 31 , 2017 , an increase of $ 18.0 million . under the license agreement with apollobio , we recognized a $ 16.0 million upfront payment and a $ 2.0 million development milestone payment for the year ended
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management intends to accomplish this by maintaining the company 's leadership position in applied technology , which when combined with the security and processing controls of the bank , makes cass unique in the industry . impact of new and not yet adopted accounting pronouncements in may 2014 , the fasb issued accounting standards update ( “ asu ” ) no . 2014-09 – revenue from contracts with customers . the asu supersedes revenue recognition requirements in topic 605 , revenue recognition , including most industry-specific revenue recognition guidance in the fasb accounting standards codification ( “ asc ” ) . the core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . the guidance identifies specific steps that entities should apply in order to achieve this principle . under the asu , the amendments are effective for interim and annual periods beginning january 1 , 2018 and must be applied retrospectively . the company 's revenue is comprised of net interest income on financial assets and liabilities , which is explicitly excluded from the scope , and non-interest income . the company will use the modified retrospective transition approach and there will not be a significant impact on the company 's consolidated financial statements or results of operations . 17 in january 2016 , the fasb issued asu no . 2016-01 – financial instruments – overall ( asc subtopic 825-10 ) . the asu requires an entity to : ( i ) measure equity investments at fair value through net income , with certain exceptions ; ( ii ) present in oci the changes in instrument-specific credit risk for financial liabilities measured using the fair value option ; ( iii ) present financial assets and financial liabilities by measurement category and form of financial asset ; ( iv ) calculate the fair value of financial instruments for disclosure purposes based on an exit price and ; ( v ) assess a valuation allowance on deferred tax assets related to unrealized losses of afs debt securities in combination with other deferred tax assets . the standard is effective for fiscal periods beginning january 1 , 2018 and will not have a significant impact on the company 's consolidated financial statements or results of operations . in february 2016 , the fasb issued asu no . 2016-02 – leases ( asc topic 842 ) . the asu improves financial reporting about leasing transactions . the asu affects all companies and other organizations that lease assets such as real estate , airplanes , and manufacturing equipment . consistent with current generally accepted accounting principles ( gaap ) , the recognition , measurement , and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease . however , unlike current gaapwhich requires only capital leases to be recognized on the balance sheetthe new asu will require both types of leases to be recognized on the balance sheet . the asu also will require disclosures to help investors and other financial statement users better understand the amount , timing , and uncertainty of cash flows arising from leases . these disclosures include qualitative and quantitative requirements , providing additional information about the amounts recorded in the financial statements . the asu on leases will take effect for public companies for fiscal years , and interim periods within those fiscal years , beginning after december 15 , 2018. a third-party vendor solution has been selected to assist in the application of asu 2016-02. the impact of the adoption of this asu is currently being evaluated but is not expected to have a material impact on the company 's consolidated financial statements or results of operations . in june 2016 , the fasb issued asu no . 2016-13 - financial instruments – credit losses ( topic 326 ) : measurement of credit losses on financial instruments . the asu requires measurement and recognition of expected credit losses for financial assets held . under this standard , it will be required to hold an allowance equal to the expected life-of-loan losses on the loan portfolio . the standard is effective for fiscal periods beginning after december 15 , 2019. the impact of the adoption of this asu is currently being evaluated . in february 2018 , the fasb issued asu no . 2018-02 – income statement – reporting comprehensive income ( topic 220 ) : reclassification of certain tax effects from accumulated other comprehensive income . the asu provides for the reclassification of the effect of remeasuring deferred tax balances related to items within aoci to retained earnings resulting from the tcja . the company early adopted , and as a result , reclassified $ 2,286,000 from aoci to retained earnings . critical accounting policies the company has prepared the consolidated financial statements in this report in accordance with the fasb asc . in preparing the consolidated financial statements , management makes estimates and assumptions that affect the reported amount of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenue and expenses during the reporting period . these estimates have been generally accurate in the past , have been consistent and have not required any material changes . there can be no assurances that actual results will not differ from those estimates . certain accounting policies that require significant management estimates and are deemed critical to the company 's results of operations or financial position have been discussed with the audit committee of the board of directors and are described below . allowance for loan losses . the company performs periodic and systematic detailed reviews of its loan portfolio to assess overall collectability . story_separator_special_tag the level of the allowance for loan losses reflects management 's estimate of the collectability of the loan portfolio . although these estimates are based on established methodologies for determining allowance requirements , actual results can differ significantly from estimated results . these policies affect both segments of the company . the impact and associated risks related to these policies on the company 's business operations are discussed in the “ provision and allowance for loan losses ” section of this report . the company 's estimates have been materially accurate in the past , and accordingly , the company expects to continue to utilize the present processes . 18 summary of results replace_table_token_4_th ( 1 ) presented on a tax-equivalent basis ( 2 ) diluted earnings per share was restated for the stock dividend that occurred on december 15 , 2017 the results of 2017 compared to 2016 include the following significant items : overall , the company 's performance improved as a result of continued growth in the customer base and new revenue-generating services . payment and processing fees and total processing volume increased 12 % and 9 % , respectively . against the backdrop of a strengthening global economy , increased carrier and fuel prices combined with higher volume from current accounts to produce an increase in processing dollars of 8 % . net income in 2017 increased 3 % despite a onetime , non-cash charge to income tax expense of $ 1,824,000 triggered by the passage of the tcja on december 22 , 2017. average earning assets increased 4 % and net interest income after provision for loan losses increased 1 % year over year . the increase in net interest income after provision for loan losses was primarily due to higher average earning assets but was largely offset by a negative provision for loan losses of $ 1,500,000 in 2016 compared to none in 2017. there were no gains from the sale of securities in 2017 and $ 387,000 in 2016. bank service fees increased $ 73,000 , or 6 % , and other income increased $ 81,000. operating expenses increased $ 6,930,000 , or 7 % , as the company continued to invest in staff and technology to win and support new business . the results of 2016 compared to 2015 include the following significant items : overall , the company 's performance was boosted as a result of adding new accounts and expanding service lines as payment and processing fees and total processing volume increased 7 % and 6 % , respectively . lingering adverse economic factors including low interest rates and low energy prices continued to impact total processing dollars , which decreased 4 % , and net interest margin . the decrease in processing dollars generated smaller investable balances that lowered investment income and fees from carrier services . average earning assets and net interest income after provision for loan losses both increased 5 % year over year . the increase in net interest income after provision for loan losses was primarily due to higher average earning assets and a negative provision for loan losses of $ 1,500,000 in 2016 compared to $ 850,000 in 2015. gains from the sale of securities were $ 387,000 in 2016 and $ 2,910,000 in 2015. bank service fees increased $ 53,000 , or 4 % , and other income increased $ 147,000. operating expenses increased $ 3,690,000 , or 4 % , as the company invested in staff and technology to win and support new business and the company received a one-time litigation settlement of $ 1.4 million ( $ 800,000 reduction in other operating expenses and $ 600,000 loan loss recovery ) in the prior year . 19 fee revenue and other income the company 's fee revenue is derived mainly from transportation and facility payment and processing fees . as the company provides its processing and payment services , it is compensated by service fees which are typically calculated on a per-item basis , discounts received for services provided to carriers and by the accounts and drafts payable balances generated in the payment process which can be used to generate interest income . processing volumes , fee revenue and other income were as follows : replace_table_token_5_th ( 1 ) includes energy , telecom and environmental fee revenue and other income in 2017 compared to 2016 include the following significant pre-tax components : in the transportation sector , new business and a growing customer base increased invoice volume 4 % . the strong global economy combined with increased carrier and fuel prices produced a 9 % increase in dollar volume . the increase in dollar volume generated larger investable balances that improved investment income and raised fees from carrier services . expense management transaction volume increased 18 % and dollar volume increased 7 % as a result of new customer wins and increased volumes from current accounts . there were no gains on sales of investment securities . fee revenue and other income in 2016 compared to 2015 include the following significant pre-tax components : in the transportation sector , new business and a growing customer base boosted invoice volume , though lingering negative factors continued to hinder dollar volume growth . reduced average invoice amounts caused by low fuel and carrier prices as well as shifts in modal activity impacted dollar volume . the decrease in dollar volume also generated smaller investable balances that reduced investment income and more significantly lowered fees from carrier services . expense management transaction volume increased 15 % and dollar volume increased 2 % as new customer wins , including several large accounts that migrated from competitors , fueled the increase . gains on sales of investment securities decreased as market conditions were not as favorable in the current year . net interest income net interest income is the difference between interest earned on loans , investments , and other earning assets and interest expense on deposits and other interest-bearing liabilities .
| among other things , the new law ( i ) establishes a new , flat corporate federal statutory income tax rate of 21 % ; ( ii ) eliminates the corporate alternative minimum tax and allows the use of any such carryforwards to offset regular tax liability for any taxable year ; ( iii ) limits the deduction for net interest expense incurred by u.s. corporations ; ( iv ) allows businesses to immediately expense , for tax purposes , the cost of new investments in certain qualified depreciable assets ; ( v ) eliminates or reduces certain deductions related to meals and entertainment expenses ; ( vi ) modifies the limitation on excessive employee remuneration to eliminate the exception for performance-based compensation and clarifies the definition of a covered employee ; and ( vii ) limits the deductibility of deposit insurance premiums . the tcja also significantly changes u.s. tax law related to foreign operations , though , such changes do not currently impact the company on a significant level . 26 also on december 22 , 2017 , the sec issued staff accounting bulletin no . 118 ( sab 118 ) , which provides guidance on accounting for tax effects of the tcja . sab 118 provides a measurement period of up to one year from the enactment date to complete the accounting . based on the information available and current interpretation of the rules , the company has made provisional estimates of the impact of the reduction in the corporate tax rate and remeasurement of certain deferred tax assets and liabilities based on the rate at which they are expected to reverse in the future . the final analysis and measurement will be completed during 2018 when the company files the 2017 u.s. federal income tax return . as more fully described in this item 7 and note 13 , the company 's 2017 results of operations are skewed by a one-time , non-cash charge to income tax expense of $ 1,824,000 , triggered by the passage of the tcja . while the reduction in the federal corporate tax rate negatively impacted 2017 earnings , the rate reduction is projected to significantly boost after-tax earnings in the future . taxable-equivalent adjustments noted throughout this report are the result of increasing income from tax-free loans and investments by an amount equal to the taxes that would be paid if the income were fully taxable based on a 35 % federal tax rate , thus making tax-exempt yields comparable to taxable asset yields . beginning january 1 , 2018 , taxable-equivalent adjustments will be based upon the new tax rate of 21 % as a
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acquisitions acquisition of innovatix and essensa prior to december 2 , 2016 , we , through our consolidated subsidiary , psci , held 50 % of the membership interests in innovatix . on december 2 , 2016 , we , through psci , acquired the remaining 50 % ownership interests of innovatix and 100 % of the ownership interest in essensa . the purchase price , after adjustments pursuant to the purchase agreement , was $ 336.0 million . the acquisition was funded with borrowings under our credit facility dated june 24 , 2014 , as amended on june 4 , 2015 ( the `` credit facility '' ) . we 49 also paid the sellers $ 21.1 million during the fiscal year ended june 30 , 2018 in connection with an earn-out opportunity provided at the time of the acquisition . innovatix and essensa are gpos focused on serving alternate site healthcare providers and other non-healthcare organizations throughout the united states . we report innovatix and essensa as part of our supply chain services segment . see note 3 - business acquisitions for more information . acquisition of acro pharmaceuticals on august 23 , 2016 , we , through our consolidated subsidiary , ns3 health , llc , acquired 100 % of the membership interests of acro pharmaceuticals . the aggregate purchase price , after adjustments pursuant to the purchase agreement , was $ 62.9 million . the acquisition was funded with available cash on hand . acro pharmaceuticals is a specialty pharmacy business that provides customized healthcare management solutions to members . we report acro pharmaceuticals as part of our supply chain services segment . see note 3 - business acquisitions for more information . acquisition of inflow on october 1 , 2015 , we acquired all of the limited liability company membership interests of inflow , a saas-based software developer specializing in improving the operational , financial and strategic performance of physician practices , for $ 6.1 million in cash . the acquisition provides selling members an earn-out opportunity of up to $ 26.9 million based on inflow 's future annual contractual subscription revenues through december 31 , 2019. at june 30 , 2018 and 2017 , the fair value of the earn-out liability was zero and $ 0.2 million , respectively ( see note 5 - fair value measurements ) . the selling members also received restricted stock units of premier with an aggregate equity grant value of $ 2.1 million which vest over a three-year period with restrictions tied to continued employment . we utilized available funds on hand to complete the acquisition . assets acquired and liabilities assumed were recorded at their fair values as of october 1 , 2015 , with the remaining unallocated purchase price recorded as goodwill . we report inflow as part of our performance services segment . see note 3 - business acquisitions for more information . acquisition of cecity on august 20 , 2015 , we acquired 100 % of the outstanding shares of capital stock of cecity , a cloud-based healthcare solutions provider specializing in performance management and improvement , pay-for-value reporting and professional education , for $ 398.3 million in cash . we funded the acquisition with $ 250.0 million of cash and $ 150.0 million of borrowings under our credit facility . assets acquired and liabilities assumed were recorded at their fair values as of august 20 , 2015 , with the remaining unallocated purchase price recorded as goodwill . we report cecity as part of our performance services segment . see note 3 - business acquisitions for more information acquisition of hci on july 31 , 2015 , we acquired all of the limited liability company membership interests of hci , a financial management software developer that provides hospitals and healthcare systems with budgeting , forecasting , labor productivity and cost analytic capabilities , for $ 64.3 million in cash . we utilized available funds on hand to complete the acquisition . assets acquired and liabilities assumed were recorded at their fair values as of july 31 , 2015 , with the remaining unallocated purchase price recorded as goodwill . we report hci as part of our performance services segment . see note 3 - business acquisitions for more information . market and industry trends and outlook we expect that certain trends and economic or industry-wide factors will continue to affect our business , both in the short-term and long-term . we have based our expectations described below on assumptions made by us and on information currently available to us . to the extent our underlying assumptions about , or interpretation of , available information prove to be incorrect our actual results may vary materially from our expected results . see `` cautionary note regarding forward-looking statements '' and `` risk factors . '' trends in the u.s. healthcare market affect our revenues and costs in the supply chain services and performance services segments . the trends we see affecting our current healthcare business include the impact of the implementation of current or future healthcare legislation , particularly the uncertainty regarding the status of the aca , its repeal , replacement or other modification , the enactment of new regulatory and reporting requirements , expansion and contraction of insurance coverage and associated costs that may impact subscriber elections , intense cost pressure , payment reform , provider consolidation , shift in care to the alternate site market and increased data availability and transparency . to meet the demands of this environment , there will be increased focus on scale and cost containment and healthcare providers will need to measure and report on and bear financial risk for outcomes . we believe these trends will result in increased demand for our supply chain services and performance services solutions in the areas of cost management , quality and safety , and population health management , however , there are uncertainties and risks that may affect the actual impact of these anticipated trends or related assumptions on our business . story_separator_special_tag see `` cautionary note regarding forward-looking statements '' for more information . 50 critical accounting policies and estimates below is a discussion of our critical accounting policies and estimates . these and other significant accounting policies are set forth under note 2 - significant accounting policies in the accompanying financial statements . business combinations we account for business acquisitions using the acquisition method . all of the assets acquired , liabilities assumed , contractual contingencies and contingent consideration are recognized at their fair value on the acquisition date . any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill . acquisition-related costs are recorded as expenses in the consolidated financial statements . several valuation methods may be used to determine the fair value of assets acquired and liabilities assumed . for intangible assets , we typically use the income method . this method starts with a forecast of all of the expected future net cash flows for each asset . these cash flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams . some of the more significant estimates and assumptions inherent in the income method or other methods include the amount and timing of projected future cash flows , the discount rate selected to measure the risks inherent in the future cash flows and the assessment of the asset 's life cycle and the competitive trends impacting the asset , including consideration of any technical , legal , regulatory or economic barriers to entry . determining the useful life of an intangible asset also requires judgment as different types of intangible assets will have different useful lives and certain assets may even be considered to have indefinite useful lives . goodwill goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses . goodwill is not amortized . the company performs its annual goodwill impairment testing on the first day of the last fiscal quarter of its fiscal year unless impairment indicators are present which could require an interim impairment test . under accounting rules , the company may elect to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred . this qualitative assessment requires an evaluation of any excess of fair value over the carrying value for a reporting unit and significant judgment regarding potential changes in valuation inputs , including a review of the company 's most recent long-range projections , analysis of operating results versus the prior year , changes in market values , changes in discount rates and changes in terminal growth rate assumptions . if it is determined that an impairment is more likely than not to exist , then we are required to perform a quantitative assessment to determine whether or not goodwill is impaired and to measure the amount of goodwill impairment , if any . goodwill impairment is determined using a two-step process . the first step involves a comparison of the estimated fair value of each of our reporting units to its carrying amount , including goodwill . in performing the first step , we determine the fair value of a reporting unit using a discounted cash flow analysis that is corroborated by a market-based approach . determining fair value requires the exercise of significant judgment , including judgment about appropriate discount rates , perpetual growth rates and the amount and timing of expected future cash flows . the cash flows employed in the discounted cash flow analyses are based on the most recent budget and long-term forecast . the discount rates used in the discounted cash flow analyses are intended to reflect the risks inherent in the future cash flows of the respective reporting units . if the estimated fair value of a reporting unit exceeds its carrying amount , goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary . if the carrying amount of a reporting unit exceeds its estimated fair value , then the second step of the goodwill impairment test must be performed . the second step of the goodwill impairment test compares the implied fair value of the reporting unit 's goodwill with its goodwill carrying amount to measure the amount of impairment , if any . the implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination . in other words , the estimated fair value of the reporting unit is allocated to all of the assets and liabilities of that unit ( including any unrecognized intangible assets ) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid . if the carrying amount of the reporting unit 's goodwill exceeds the implied fair value of that goodwill , an impairment charge is recognized in an amount equal to that excess . the company 's most recent annual impairment testing , which consisted of a quantitative assessment , did not result in any goodwill impairment charges during the fourth quarter of the year ended june 30 , 2018 . tras the company records tax receivable agreements ( `` tra '' ) liabilities based on 85 % of the estimated amount of tax savings the company expects to receive , generally over a 15 -year period , in connection with the additional tax benefits created in conjunction with the ipo . tax payments under the tra will be made to the member owners as the company realizes tax benefits attributable 51 to the initial purchase of class b common units from the member owners made concurrently with the ipo and any subsequent exchanges of class b common units into class a common stock or cash between the company and the member owners .
| the increase was primarily due to growth in cost management saas informatics products subscriptions and quality and cost management consulting services . we also experienced increases in applied science services and government services related revenue , offset by a decrease in ambulatory reporting revenue . other services and support revenue increased $ 25.5 million , or 8 % , to $ 363.1 million from the year ended june 30 , 2016 to 2017 . the increase was primarily due to growth in ambulatory reporting revenue , cost management consulting services and government services revenue . 64 product revenue increased $ 111.2 million , or 21 % , to $ 645.3 million from the year ended june 30 , 2017 to 2018 . the increase was primarily driven by higher sales of certain limited distribution drugs dispensed to treat idiopathic pulmonary fibrosis , oncology and multiple sclerosis , which is also attributable to contributions from expansion and growth in therapy offerings obtained in conjunction with our acquisition of acro pharmaceuticals . these results were partially offset by a slight decrease in the sales of hiv pharmaceuticals . we also experienced increased sales of direct sourcing products . product revenue increased $ 207.5 million , or 64 % , to $ 534.1 million from the year ended june 30 , 2016 to 2017 . the increase was primarily driven by revenues from our acro pharmaceuticals acquisition and increased sales of direct sourcing products , partially offset by decreases in certain drug sales , including hepatitis c pharmaceuticals . we expect our integrated pharmacy and direct sourcing product revenues to continue to grow to the extent we are able to increase our product offerings , expand our product sales to existing members and as additional members begin to utilize our programs . cost of revenue cost of revenue increased $ 118.2 million , or 17 % , from the year ended june 30 , 2017 to 2018 , and
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story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-weight : bold ; '' > amortization of intangibles amortization expense was $ 16.6 million , $ 20.8 million and $ 26.7 million in 2017 , 2016 and 2015 , respectively . the decrease of $ 4.2 million from 2016 to 2017 and the decrease of $ 5.9 million from 2015 to 2016 were driven primarily by the impact of divestiture . interest expense interest expense increased $ 1.1 million to $ 28.8 million in 2017 , compared with $ 27.8 million in 2016 due to higher average borrowings and a higher credit facility fee . the portion of our debt subject to variable rates of interest was less than 1 percent at june 30 , 2017 and 2016. interest expense decreased $ 3.7 million to $ 27.8 million in 2016 , compared with $ 31.5 million in 2015 due to lower average borrowings in 2016. the portion of our debt subject to variable rates of interest was less than 1 percent and approximately 7 percent at june 30 , 2016 and 2015 , respectively . the decrease in the portion of our debt subject to variable rates was due to the decrease in the balance outstanding on our revolving credit facility . other expense ( income ) , net in 2017 , other expense , net was $ 2.2 million compared to other income , net of $ 4.1 million in 2016 . the year-over-year change was due primarily to foreign currency transaction losses and the prior year reduction of a contingent liability associated with a past acquisition that did not repeat in the current year , partially offset by a prior year loss on sale of assets and income from transition services provided to the acquirer of our non-core businesses . in 2016 , other income , net was $ 4.1 million compared to other income , net of $ 1.7 million in 2015. the year-over-year increase is due primarily to the reduction of a contingent liability associated with a prior acquisition and income from transition services provided to the acquirer of our non-core businesses , partially offset by a loss on sale of assets and lower interest income . income taxes the effective tax rate for 2017 was 36.5 percent ( provision on income ) compared to 12.7 percent ( provision on a loss ) for 2016 . the change was primarily driven by the 2016 discrete tax charge for a valuation allowance recorded against our net deferred tax assets in the u.s. , primarily related to asset impairment charges and the loss on divestiture in the prior year . the effective tax rate for 2016 was 12.7 percent ( provision on a loss ) compared to 4.3 percent ( benefit on a loss ) for 2015 . the change in the effective rate from 2015 to 2016 was primarily driven by a 2016 discrete tax charge for a valuation allowance recorded against our net deferred tax assets in the u.s. , primarily related to asset impairment charges and restructuring charges in both periods and the loss on divestiture in 2016 , as well as an overall decrease in demand in u.s. operations . 18 in 2012 , we received an assessment from the italian tax authority that denied certain tax deductions primarily related to our 2008 tax return . attempts at negotiating a reasonable settlement with the tax authority were unsuccessful ; and as a result , we decided to litigate the matter . the outcome of the litigation is still pending ; however , we continue to believe that the assessment is baseless , and do not anticipate making a payment in connection with this assessment . accordingly , no income tax liability has been recorded in connection with this assessment in any period . however , if the italian tax authority were to be successful in litigation , settlement of the amount alleged by the italian tax authority at its face value would result in an approximate 22 million , or $ 25 million , increase to income tax expense . income ( loss ) attributable to kennametal shareholders income attributable to kennametal shareholders was $ 49.1 million , or $ 0.61 earnings per diluted share , in 2017 , compared to a loss of $ 226.0 million , or $ 2.83 loss per diluted share , in 2016 . the year-over-year change is a result of the factors previously discussed . loss from continuing operations attributable to kennametal shareholders was $ 226.0 million or $ 2.83 per diluted share , in 2016 , compared to $ 373.9 million , or $ 4.71 per diluted share , in 2015 . the decrease in loss from continuing operations is a result of the factors previously discussed . business segment review we operate three reportable operating segments consisting of industrial , widia and infrastructure . corporate expenses that are not allocated are reported in corporate . segment determination is based upon internal organizational structure , the manner in which we organize segments for making operating decisions and assessing performance and the availability of separate financial results . amounts for 2016 and 2015 for industrial and widia have been restated to reflect the change in reportable operating segments . industrial replace_table_token_5_th replace_table_token_6_th ( 1 ) excluding the impact of currency exchange and divestiture 19 in 2017 , industrial sales of $ 1,126.3 million increased by $ 27.9 million , or 3 percent , from 2016 . general engineering sales have benefited globally from growth in the indirect channel , supported by increasing demand in the u.s. energy markets and china transportation markets , and to a lesser extent the addition of new distributors . sales to airplane engine manufacturers globally was the primary driver of the sales growth in aerospace . in addition , we experienced growth in frame-related sales in europe and asia that were offset by declines in the americas . story_separator_special_tag oil and gas drilling and power generation in the americas contributed to the growth in energy sales while energy-related sales were down in europe and asia . transportation performance was mixed for the fiscal year with overall growth coming from asia . sales to tier suppliers were up , as strong asia growth was offset by declines in europe and the americas . similarly , growth in sales to oems in asia was offset by declines in the other regions . in addition , railroad-related sales declined primarily in the americas . the sales increase in asia was driven by transportation , general engineering and aerospace and defense . the sales increase in the americas was driven by general engineering and energy and to a lesser extent aerospace and defense , offset partially by decreases in transportation . the sales increase in europe was driven by general engineering and aerospace and defense , offset partially by decreases in transportation and energy . in 2017 , industrial operating income was $ 82.8 million , a $ 7.5 million decrease from 2016 . the primary drivers of the decrease in operating income were $ 20.6 million more in restructuring charges , unfavorable currency exchange , unfavorable business mix , higher performance-based compensation and higher raw material costs , partially offset by $ 40 million incremental restructuring benefits , organic sales growth and prior period loss on divestiture and fixed asset disposal charges of $ 3.6 million and $ 2.6 million , respectively . industrial operating margin was 7.4 percent compared with 8.2 percent in the prior year . in 2016 , industrial sales of $ 1,098.4 million decreased by $ 171.3 million , or 13 percent , from 2015 . industrial sales growth was impacted by the oil and gas downturn , which caused a decline in the energy market , most acutely in the americas , where there was spillover into the broader general engineering market . the downturn was somewhat amplified as inventory levels in the indirect channel were lowered . sales in the transportation market benefited from strong global unit sales offset by lower sales in asia in part due to fewer tooling package sales in the current year . aerospace sales increased modestly as favorable developments in europe and asia where somewhat offset by our decision to exit certain low margin business . the sales decrease in the americas was driven by general engineering and energy and to a lesser extent transportation . the sales decrease in asia was driven by transportation , general engineering and energy , offset partially by an increase in aerospace and defense . the sales decrease in europe was driven by energy and aerospace and defense , offset partially by an increase in transportation . in 2016 , industrial operating income was $ 90.3 million and decreased by $ 75.1 million from 2015 . the primary drivers of the decrease in operating income were organic sales decline , unfavorable currency exchange , lower fixed cost absorption , unfavorable business mix , loss on divestiture of $ 3.6 million and fixed asset disposal charges of $ 2.6 million , offset partially by incremental restructuring program benefits of approximately $ 17 million and lower raw material costs . industrial operating margin was 8.2 percent compared with 13.0 percent in the prior year . 20 widia replace_table_token_7_th replace_table_token_8_th ( 2 ) excluding the impact of currency exchange in 2017 , widia sales of $ 177.7 million increased by $ 6.9 million , or 4 percent , from 2016 . sales have benefited globally from growth in the indirect channel , supported by increasing demand in the u.s. energy markets and china transportation markets , and to a lesser extent the addition of new distributors . unlike the prior year , for those indirect lines where we have visibility , we believe that we did not experience destocking in the indirect channel , as sales were generally consistent with end-user purchases . in 2017 , widia operating loss was $ 9.6 million and increased by $ 0.5 million from 2016 . the primary drivers of the increase in operating loss were $ 3.6 million higher restructuring and related charges , unfavorable mix and unfavorable currency exchange , partially offset by incremental restructuring benefits of approximately $ 6 million , organic sales growth , a prior period other intangible asset impairment charge of $ 2.3 million , lower raw material costs , higher absorption and productivity and prior period fixed asset disposal charges of $ 0.7 million . widia operating loss margin was 5.4 percent compared with 5.3 percent in the prior year . in 2016 , widia sales of $ 170.7 million decreased by $ 21.2 million , or 11 percent , from 2015 . widia sales were impacted by the oil and gas downturn , which caused a decline in the energy market , most acutely in the americas , where there was spillover into the broader general engineering market which widia serves . widia also experienced challenges in the supply chain , which led to more instances of quality and delivery issues that had an unfavorable impact on sales . in 2016 , widia operating loss was $ 9.1 million and increased by $ 4.5 million from 2015 . the primary drivers of the increase in operating loss were organic sales decline , intangible asset impairment of $ 2.3 million and fixed asset disposal charges of $ 0.7 million , offset partially by $ 2.2 million less restructuring and related charges and incremental restructuring program benefits of approximately $ 2 million . widia operating loss margin was 5.3 percent compared with 2.4 percent in the prior year . infrastructure replace_table_token_9_th 21 replace_table_token_10_th ( 1 ) excluding the impact of divestiture and currency exchange in 2017 , infrastructure sales of $ 754.4 million decreased by $ 74.9 million , or 9 percent , from 2016 . excluding the impact of divestiture and unfavorable currency exchange , sales grew 1 percent organically . beginning in 2017 , the segment reported year-over-year quarterly sales declines .
| gross profit decreased $ 189.9 million to $ 616.1 million in 2016 from $ 806.0 million in 2015 . the decrease was primarily due to organic sales decline , unfavorable business mix , lower fixed cost absorption , unfavorable currency exchange and divestiture impact , offset partially by lower raw material costs and restructuring benefits . the gross profit margin for 2016 was 29.4 percent compared to 30.4 percent in 2015 . operating expense operating expense in 2017 was $ 463.2 million , a decrease of $ 31.8 million , or 6.4 percent , compared to $ 495.0 million in 2016 . the decrease is primarily due to incremental restructuring benefits of approximately $ 36 million , divestiture impact of $ 10.5 million , $ 12.7 million less in restructuring-related charges and favorable foreign currency exchange impacts of $ 5.1 million , offset partially by higher performance-based compensation . operating expense in 2016 was $ 495.0 million , a decrease of $ 59.9 million , or 10.8 percent , compared to $ 554.9 million in 2015 . the decrease is primarily due to divestiture impact of $ 18.6 million , favorable foreign currency exchange impacts of $ 23.3 million , restructuring benefits and the impact of cost reduction initiatives , offset partially by $ 8.3 million higher restructuring related charges . restructuring and related charges and asset impairment charges restructuring and related charges during 2017 , we recognized total restructuring and related charges of $ 76.2 million . of this amount , restructuring charges totaled $ 65.6 million , of which $ 0.6 million were charges related to inventory and were recorded in cost of goods sold . restructuring-related charges of $ 7.1 million were recorded in cost of goods sold and $ 3.5 million in operating expense during 2017 . total restructuring and related charges since the inception of our restructuring plans through 2017 were $ 147.7 million . see note 15 in our consolidated financial statements set forth in item
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after the closing , subsidiaries of caesars are the owners of certain parcels of real property located adjacent to hlv ( including the eastside property ) ( collectively , the “ designated property ” ) , all or a portion of which designated property may in the future be improved by a convention center ( in such case , the “ eastside convention center ” ) . due to the put-call agreement on the land parcels , it was determined that the transaction does not meet the requirements of a completed sale for accounting purposes . as a result , we reclassified $ 73.6 million from real estate investments accounted for using the operating method to land . additionally , the company recorded a $ 73.6 million deferred financing liability in its balance sheet . amended and restated right of first refusal agreement on december 22 , 2017 , vici and caesars entered into an amended and restated right of first refusal agreement pursuant to which we also have a right of first refusal on any sale-leaseback by caesars of the gaming facilities of centaur holdings , llc , which are proposed to be acquired by caesars , and certain income-producing improvements if built by caesars in lieu of a large-scale convention center on the eastside property , subject to certain exclusions . $ 2.6 billion senior secured vici propco credit facility and debt refinancing on december 22 , 2017 , we entered into a new $ 2.6 billion senior secured vici propco credit facility , comprised of a $ 2.2 billion senior secured term loan facility ( the “ term b loan facility ” ) and a $ 400.0 million senior secured revolving credit facility ( the “ revolving credit facility ” ) . the proceeds of the term b loan facility , together with $ 300.0 million of borrowings under the revolving credit facility , provided a portion of the proceeds used to purchase the harrah 's las vegas property , to repay in full the prior term loans , to repurchase in full the then outstanding prior cplv mezzanine debt and to discharge in full our obligations under the prior first lien notes . private equity placement on december 22 , 2017 , we sold , contemporaneously with the consummation of the acquisition of the harrah 's las vegas property , 54,054,052 shares of our common stock at a price of $ 18.50 per share in a private placement transaction , for net proceeds of approximately $ 963.8 million . the net proceeds from the transaction were used to partially fund the purchase price for the harrah 's las vegas property and for working capital and general corporate purposes . 46 key trends that may affect our business subsidiaries of caesars are the lessees of all of our properties pursuant to the lease agreements , and caesars or crc guarantees the obligations of the tenants under the lease agreements . the lease agreements account for substantially all of our revenues . additionally , we expect to experience organic growth in rental revenue through annual rent escalators in our lease agreements . accordingly , we are dependent on caesars , the gaming industry and the health of the economies in the areas where our properties are located for the foreseeable future , and an event that has a material adverse effect on caesars ' business , financial condition , liquidity , results of operations or prospects would have a material adverse effect on our business , financial condition , liquidity , results of operations and prospects . see “ risk factors—risks related to our business and operations. ” additionally , we expect to grow our portfolio through acquisitions by pursuing opportunities to execute sale leaseback transactions with caesars , pursuant to : ( i ) the call right agreements , relating to three properties ; ( ii ) rights of first refusal relating to certain domestic gaming facilities proposed to be acquired or developed by caesars located outside the gaming enterprise district of clark county , nevada and the properties that caesars recently agreed to acquire from centaur holdings , llc ; and ( iii ) the put-call agreement , which includes rights relating to the eastside convention center property in las vegas . additionally , we will actively seek to grow our portfolio through acquisitions of experiential real estate in dynamic markets spanning hospitality , entertainment , leisure and gaming properties . finally , we believe the approximately 34 acres ( after giving effect to the sale of approximately 18.4 acres to caesars in december 2017 ) of undeveloped land adjacent to the las vegas strip that we own will provide attractive opportunities for potential future expansion and development . in pursuing external growth initiatives , we will generally seek to acquire properties that can generate stable rental revenue through long-term , triple-net leases with tenants with established operating histories , and we will consider various factors when evaluating acquisitions , including the ability to diversify our tenant base , by potentially leasing properties to parties unaffiliated with caesars , and increasing our geographic diversification . our operating and financial performance in the future will be significantly influenced by the success of our acquisition strategy , and the timing and the availability and terms of financing of any acquisitions that we may complete . we can provide no assurance that we will exercise any of our contractual rights to purchase one or more properties from caesars or otherwise be successful in acquiring any properties . additionally , our ability to successfully implement our acquisition strategy will depend upon the availability and terms of financing , including debt and equity capital . further , the pricing of any acquisitions we may consummate and the terms of any leases that we may enter into will significantly impact our future results . competition to execute sale leaseback transactions with attractive properties and desirable tenants is intense , and we can provide no assurance that any future acquisitions or leases will be on terms as favorable to us as those relating to recent transactions . story_separator_special_tag should we exercise an option to purchase a property under a call right agreement , the purchase price will be equal to ten times the property 's annual rent , which , in turn , will equal approximately 60 % of the trailing property ebitdar at the time of exercise . accordingly , the purchase price and rent for any property we may acquire under a call right agreement and lease to caesars will depend upon the property 's ebitdar at the time of exercise . we anticipate that we would seek to finance these acquisitions with a majority of equity , although no assurance can be given that we would be able to issue equity in such amounts on favorable terms , or at all , or that we would not determine to incur more debt on a relative basis at the relevant time due market conditions or otherwise . in addition to rent , our tenants are required to pay the following : ( 1 ) all facility maintenance ; ( 2 ) all insurance required in connection with the leased properties and the business conducted on the leased properties ; ( 3 ) taxes levied on or with respect to the leased properties ( other than taxes on our income ) ; and ( 4 ) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties . accordingly , due to the “ triple-net ” structure of our leases , we do not expect to incur significant property-level expenses . story_separator_special_tag cellpadding= '' 0 '' cellspacing= '' 0 '' style= '' font-family : times new roman ; font-size:10pt ; width:100 % ; border-collapse : collapse ; text-align : left ; '' > ( in thousands ) for the periodoctober 6 , 2017 to december 31 , 2017 net income attributable to common shareholders $ 42,662 real estate depreciation — ffo 42,662 direct financing lease adjustments attributable to common shareholders ( 8,362 ) loss on extinguishment of debt 38,488 acquisition and transaction costs 9,039 non-cash stock compensation 1,385 amortization of debt issuance costs and original issue discount 156 other depreciation 751 affo 84,119 interest expense , net 62,916 income tax benefit ( 1,901 ) adjusted ebitda $ 145,134 liquidity and capital resources general vici 's intends to use funds for payment of operating expenses , cash distributions , principal and interest on our outstanding indebtedness and other investments . we expect to meet our liquidity and capital resource requirements primarily through currently available cash and cash equivalents , restricted cash , cash received under our lease agreements , borrowings from banks , including undrawn capacity under our revolving credit facility , and proceeds from the issuance of debt and equity securities . as of december 31 , 2017 , our cash balance was $ 183.9 million , our restricted cash balance was $ 13.8 million and we had $ 300.0 million outstanding and $ 100.0 million was available for future borrowings under our revolving credit facility . cash flow analysis the table below summarizes our cash flows for the period from october 6 , 2017 to december 31 , 2017 : replace_table_token_2_th cash flows from operating activities net cash provided by operating activities totaled $ 129.4 million for the period from october 6 , 2017 to december 31 , 2017 with the primary source being from cash rent collected by our leasing operations of $ 213.7 million and the primary use being cash paid for interest on our debt obligations of $ 36.8 million . 50 cash flows from investing activities net cash used in investing activities totaled $ 1,136.3 million for the period from october 6 , 2017 to december 31 , 2017. the acquisition of harrah 's las vegas for $ 1,136.2 million was the primary use of cash from investing activities . the sale of approximately 18.4 acres of undeveloped land located behind the linq hotel & casino and harrah 's las vegas to caesars for $ 73.6 million was the primary source of cash from investing activities . cash flows from financing activities net cash provided by financing activities totaled $ 1,148.4 million million for the period from october 6 , 2017 to december 31 , 2017. the primary sources of cash from financing activities include : proceeds from the issuance of $ 2,200.0 million of term loan b facility ; proceeds from the $ 300.0 million draw from our revolving credit facility ; proceeds from the private placement issuance of $ 1,000.0 million of our common stock ; and the primary uses of cash from financing activities include : repayment of our $ 1,638.4 million senior secured first lien prior term loan ; repayment of our $ 311.7 million first-priority senior secured prior first lien notes ; the purchase by vici propco of the entirety of the outstanding cplv mezzanine debt in the aggregate principal amount of $ 400.0 million ; costs of $ 36.2 million related to our common stock private placement and premium and fees related to the purchase of the mezzanine debt of $ 38.4 million ; and debt issuance costs of $ 31.5 million related to our term loan b facility and revolving credit facility . debt on the formation date , vici issued $ 1,638.4 million of prior term loans ; $ 311.7 million aggregate principal amount of prior first lien notes ; $ 766.9 million aggregate principal amount of second lien notes ; $ 1,550.0 million of cplv cmbs debt and $ 650.0 million of cplv mezzanine debt for a total aggregate face value of debt of $ 4,917.0 million . the weighted average interest rate on the outstanding debt at formation was 5.36 % and had a first year debt service requirements of $ 272.0 million .
| golf course related revenue was $ 18.8 million and $ 18.1 million for the years ended december 31 , 2016 and 2015 , respectively . revenues for the year ended december 31 , 2016 were comprised of golf revenues of $ 14.6 million , food and beverage revenues of $ 2.1 million and other revenues of $ 2.1 million . revenues for the year ended december 2015 were comprised of golf revenues of $ 14.1 million , food and beverage revenues of $ 2.1 million and other revenues of $ 1.9 million . operating expenses general and administrative expenses for the period from october 6 , 2017 to december 31 , 2017 , general and administrative expenses were $ 9.9 million , comprised primarily of $ 5.0 million of compensation costs ; $ 3.4 million of legal and professional fees and $ 1.1 million of franchise and other taxes . transaction and acquisition costs for the period from october 6 , 2017 to december 31 , 2017 , transaction and acquisition costs totaled $ 9.0 million and were comprised of expenses related to the acquisition of harrah 's las vegas and the sale of the eastside property . loss on extinguishment of debt we recognized a loss on extinguishment of debt of $ 38.5 million during the period from october 6 , 2017 to december 31 , 2017 , resulting from the buy down of $ 400.0 million aggregate principal amount of prior cplv mezzanine debt . property taxes property taxes paid or reimbursed by our tenants were $ 19.6 million for the period from october 6 , 2017 to december 31 , 2017. golf-related expenses golf-related expenses totaled $ 4.1 million for the period from october 6 , 2017 to december 31 , 2017 and were primarily comprised of property-related costs consisting of land rent , grounds maintenance , taxes , insurance and utilities directly related to the golf course of $ 1.7 million ; compensation costs of $ 1.1 million ; and food ,
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however , we can not provide any assurances that the initiatives listed above will continue to be successful , and we may need to adjust components of our strategy to meet future market conditions . 27 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > alabama , florida , georgia , mississippi and tennessee south central : louisiana , oklahoma and texas southwest : arizona and new mexico west : california , hawaii , nevada , oregon , utah and washington the following tables and related discussion set forth key operating and financial data for our homebuilding operations by reporting segment as of and for the fiscal years ended september 30 , 2017 , 2016 and 2015 . replace_table_token_5_th _ ( 1 ) net sales orders represent the number and dollar value of new sales contracts executed with customers ( gross sales orders ) , net of cancelled sales orders . 29 replace_table_token_6_th _ ( 1 ) cancellation rate represents the number of cancelled sales orders divided by gross sales orders . net sales orders 2017 versus 2016 the value of net sales orders increased 16 % to $ 13.9 billion ( 46,605 homes ) in 2017 from $ 12.0 billion ( 40,814 homes ) in 2016 , with increases in all of our regions . the increase in the value of sales orders was due to increased volume and to a lesser extent , increased selling prices in some regions . the number of net sales orders increased 14 % , and the average price of net sales orders increased 2 % to $ 299,100 during 2017 compared to 2016 . the increase in net sales orders reflects the continued stable to moderately improved market conditions in most of our markets . our phoenix market contributed the most to the higher volume in our southwest region and our carolina markets contributed most to the higher volume in our east region . our sales order cancellation rate ( cancelled sales orders divided by gross sales orders for the period ) was 22 % in fiscal 2017 compared to 23 % in 2016 . we believe our business is well positioned to continue to generate increased sales volumes ; however , our future sales volumes will depend on the economic strength of each of our operating markets and our ability to successfully implement our operating strategies . 2016 versus 2015 the value of net sales orders increased 12 % to $ 12.0 billion ( 40,814 homes ) in 2016 from $ 10.7 billion ( 37,380 homes ) in 2015 , with increases in all of our regions . the increase in the value of sales orders was due to increased volume and to a lesser extent , increased selling prices in most regions . the number of net sales orders increased 9 % , and the average price of net sales orders increased 2 % to $ 294,000 during 2016 compared to 2015 . our florida markets contributed most to the higher volume in our southeast region and our las vegas market contributed most to the higher volume in our west region . 30 replace_table_token_7_th sales order backlog sales order backlog represents homes under contract but not yet closed at the end of the period . many of the contracts in our sales order backlog are subject to contingencies , including mortgage loan approval and buyers selling their existing homes , which can result in cancellations . a portion of the contracts in backlog will not result in closings due to cancellations . 31 replace_table_token_8_th 2017 versus 2016 revenues from home sales increased 16 % to $ 13.7 billion ( 45,751 homes closed ) in 2017 from $ 11.8 billion ( 40,309 homes closed ) in 2016 . the increase in home sales revenues reflects the continued stable to moderately improved market conditions in most of our markets . the number of homes closed in fiscal 2017 increased 14 % from 2016 due to increases in all of our regions . our phoenix , florida and carolina markets contributed the most to higher closing volumes in our southwest , southeast and east regions , respectively . the average selling price of homes closed during fiscal 2017 was $ 298,400 , up 2 % from the prior year . 2016 versus 2015 revenues from home sales increased 13 % to $ 11.8 billion ( 40,309 homes closed ) in 2016 from $ 10.5 billion ( 36,648 homes closed ) in 2015 . the number of homes closed in fiscal 2016 increased 10 % from 2015 due to increases in most of our regions . our florida and phoenix markets contributed the most to higher closing volumes in our southeast and southwest regions , respectively . the decrease in homes closed in our midwest region was primarily due to lower volume in our chicago and denver markets . 32 homebuilding operating margin analysis replace_table_token_9_th home sales gross profit 2017 versus 2016 gross profit from home sales increased 15 % to $ 2.7 billion in 2017 from $ 2.4 billion in 2016 and decreased 20 basis points to 20.0 % as a percentage of home sales revenues . the 20 basis point decrease in the home sales gross profit percentage resulted from a decrease of 50 basis points due to an increase in warranty and construction defect expenses as a percentage of home sales revenues , partially offset by an improvement of 30 basis points due to a decrease in the amortization of capitalized interest and property taxes . 2016 versus 2015 gross profit from home sales increased 15 % to $ 2.4 billion in 2016 from $ 2.1 billion in 2015 and increased 40 basis points to 20.2 % as a percentage of home sales revenues . story_separator_special_tag the 40 basis point increase in the home sales gross profit percentage resulted from improvements of 30 basis points due to the average selling price of our homes closed increasing by more than the average cost and 10 basis points due to a decrease in the amortization of capitalized interest and property taxes as a percentage of home sales revenues . we remain focused on managing the pricing , incentives and sales pace in each of our communities to optimize the returns on our inventory investments and adjust to local market conditions . our gross profit margins have remained relatively stable in recent years and based on current market conditions , we expect continued stability ; however , our gross profit margins could fluctuate in future periods . 33 land sales and other revenues land sales and other revenues were $ 88.3 million , $ 78.7 million and $ 89.6 million in fiscal 2017 , 2016 and 2015 , respectively . we continually evaluate our land and lot supply , and fluctuations in revenues and profitability from land sales occur based on how we manage our inventory levels in various markets . we generally purchase land and lots with the intent to build and sell homes on them . however , some of the land that we purchase includes commercially zoned parcels that we may sell to commercial developers . we may also sell residential lots or land parcels to manage our supply or for other strategic reasons . as of september 30 , 2017 , we had $ 10.4 million of land held for sale that we expect to sell in the next twelve months . inventory and land option charges at the end of each quarter during fiscal 2017 , we reviewed the performance and outlook for all of our communities and land inventories for indicators of potential impairment and performed detailed impairment evaluations and analyses when necessary . as of september 30 , 2017 , we performed detailed impairment evaluations of communities and land inventories with a combined carrying value of $ 105.3 million and recorded impairment charges of $ 12.8 million during the fourth quarter to reduce the carrying value of impaired communities and land to their estimated fair value . total impairment charges during fiscal 2017 , 2016 and 2015 were $ 23.2 million , $ 20.3 million and $ 44.9 million , respectively . as we manage our inventory investments across our operating markets to optimize returns and cash flows , we may modify our pricing and incentives , construction and development plans or land sale strategies in individual active communities and land held for development , which could result in the affected communities being evaluated for potential impairment . also , if housing or economic conditions weaken in specific markets in which we operate , or if conditions weaken in the broader economy or homebuilding industry , we may be required to evaluate additional communities for potential impairment . these evaluations could result in additional impairment charges . during fiscal 2017 , we wrote off $ 17.0 million of earnest money deposits and pre-acquisition costs related to land option contracts that we have terminated or expect to terminate . earnest money and pre-acquisition cost write-offs for fiscal 2016 and 2015 were $ 11.1 million and $ 15.4 million , respectively . selling , general and administrative ( sg & a ) expense sg & a expense related to homebuilding activities was $ 1.2 billion , $ 1.1 billion and $ 1.0 billion in fiscal 2017 , 2016 and 2015 , respectively , increasing 11 % in 2017 and 10 % in 2016 from the respective prior years . as a percentage of homebuilding revenues , sg & a expense decreased 40 basis points to 8.9 % in 2017 and decreased 20 basis points to 9.3 % in 2016 from the respective prior years . this improvement in sg & a expense as a percentage of homebuilding revenues was achieved primarily through leverage of our fixed overhead costs resulting from the increase in homebuilding revenues . employee compensation and related costs were $ 860.2 million , $ 748.7 million and $ 679.4 million in fiscal 2017 , 2016 and 2015 , respectively . compensation costs represented 70 % of sg & a costs in fiscal 2017 and 68 % of sg & a costs in both fiscal 2016 and 2015 . these costs increased 15 % in 2017 and 10 % in 2016 due to increases in the number of employees and the amount of incentive compensation as compared to the respective prior years . our homebuilding operations employed 5,876 , 5,366 and 4,888 employees at september 30 , 2017 , 2016 and 2015 , respectively . we attempt to control our sg & a costs while ensuring that our infrastructure adequately supports our operations ; however , we can not make assurances that we will be able to maintain or improve upon the current sg & a expense as a percentage of revenues . 34 interest incurred we capitalize interest costs incurred to inventory during active development and construction ( active inventory ) . capitalized interest is charged to cost of sales as the related inventory is delivered to the buyer . interest incurred decreased 15 % to $ 129.3 million in fiscal 2017 and decreased 10 % to $ 152.3 million in fiscal 2016 compared to the respective prior years . these decreases were due to decreases in our average debt of 12 % and 9 % in fiscal 2017 and 2016 , respectively , and lower average interest rates on outstanding debt during the periods . interest charged to cost of sales was 1.4 % , 1.8 % and 1.9 % of total cost of sales ( excluding inventory and land option charges ) in fiscal 2017 , 2016 and 2015 , respectively .
| homebuilding debt to total capital was 24.0 % , improved from 29.2 % . financial services and other : financial services and other revenues increased 18 % to $ 349.5 million . financial services and other pre-tax income increased 27 % to $ 112.8 million , compared to $ 89.1 million . financial services and other pre-tax income as a percentage of financial services and other revenues was 32.3 % compared to 30.1 % . consolidated results : consolidated pre-tax income increased 18 % to $ 1.6 billion compared to $ 1.4 billion . consolidated pre-tax income as a percentage of consolidated revenues was 11.4 % compared to 11.1 % . net income increased 17 % to $ 1.0 billion compared to $ 886.3 million . diluted earnings per share increased 16 % to $ 2.74 compared to $ 2.36 . total equity was $ 7.7 billion compared to $ 6.8 billion . book value per common share increased 13 % to $ 20.66 compared to $ 18.21 . net cash provided by operations was $ 435.1 million compared to $ 618.0 million . 28 results of operations — homebuilding our operating segments are our 41 homebuilding operating divisions , which we aggregate into six reporting segments . these reporting segments , which we also refer to as reporting regions , have homebuilding operations located in the following states : east : delaware , georgia ( savannah only ) , maryland , new jersey , north carolina , pennsylvania , south carolina and virginia midwest : colorado , illinois and minnesota southeast : < font
| 15,810 |
the length of our sales cycle depends on the size of the potential customer and contract , as well as the type of solution or product being purchased . the sales cycle for our global enterprise customers is generally longer than that of our mid-market customers . in addition , the length of the sales cycle tends to increase for larger contracts and for more complex , strategic products like intercompany hub . as we continue to focus on increasing our average contract size and selling more strategic products , we expect our sales cycle to lengthen and become less predictable , which could cause variability in our results for any particular period . we have historically signed a high percentage of agreements with new customers , as well as renewal agreements with existing customers , in the fourth quarter of each year and usually during the last month of the quarter . this can be attributed to buying patterns typical in the software industry . as the terms of most of our customer agreements are measured in full year increments , agreements initially entered into the fourth quarter or last month of any quarter will generally come up for renewal at that same time in subsequent years . this seasonality is reflected in our revenues , though the impact to overall annual or quarterly revenues is minimal due to the fact that we recognize subscription revenue ratably over the term of the customer contract . for the years ended december 31 , 2019 , 2018 , and 2017 , we had revenues totaling $ 289.0 million , $ 227.8 million , and $ 175.6 million , respectively , and we incurred net losses attributable to blackline , inc. of $ 32.5 million , $ 28.7 million , and $ 33.4 million , respectively . key metrics we regularly review a number of metrics , including the following key metrics , to evaluate our business , measure our performance , identify trends affecting our business , formulate financial projections , and make strategic decisions . each of the metrics below exclude the impact of on-premise software . replace_table_token_5_th dollar-based net revenue retention rate . we believe that dollar-based net revenue retention rate is an important metric to measure the long-term value of customer agreements and our ability to retain and grow our relationships with existing customers over time . we calculate dollar-based net revenue retention rate as the implied monthly subscription and support revenue at the end of a period for the base set of customers from which we generated subscription revenue in the year prior to the calculation , divided by the implied monthly subscription and support revenue one year prior to the date of calculation for that same customer base . this calculation does not reflect implied monthly subscription and support revenue for new customers added during the one-year period but does include the effect of customers who terminated during the period . we define implied monthly subscription and support revenue as the total amount of minimum subscription and support revenue contractually committed to , under each of our customer agreements over the entire term of the agreement , divided by the number of months in the term of the agreement . our ability to maximize the lifetime value of our customer relationships will depend , in part , on the willingness of the customer to purchase additional user licenses and products from us . we rely on our customer success and sales teams to support and grow our existing customers by maintaining high customer satisfaction and educating the customer on the value all our products provide . number of customers . we believe that our ability to expand our customer base is an indicator of our market penetration and the growth of our business . we define a customer as an entity with an active subscription agreement as of the measurement date . in situations where an organization has multiple subsidiaries or divisions , each entity that is 39 invoiced as a separate entity is treated as a separate customer . however , where an existing customer requests its invoice be divided for the sole purpose of restructuring its internal billing arrangement without any incremental increase in revenue , such customer continues to be treated as a single customer . for the years ended december 31 , 2019 , 2018 , and 2017 , no single customer accounted for more than 10 % of our total revenues . number of users . since our customers generally pay fees based on the number of users of our platform within their organization , we believe the total number of users is an indicator of the growth of our business . we are also beginning to sell an increasing number of non-user based strategic products , such as transaction matching and intercompany hub . key components of our results of operations revenues subscription and support . the majority of subscriptions are sold through one-year non-cancellable contracts and a growing percentage of subscriptions are sold through three-year contracts . fees are based on a number of factors , including the solutions subscribed for by the customer and the number of users having access to the solutions . the first year of subscription fees are typically payable within 30 days after execution of a contract , and thereafter upon renewal . we initially record the subscription fees as deferred revenue and recognize revenue ratably over the term of the contract . at any time during the subscription period , customers may increase their number of users and add products . additional fees are payable for the remainder of the initial or renewed contract term . customers may only reduce their number of users or subscription to products upon renewal of their arrangement . revenues from subscriptions to our cloud-based software platform comprised approximately 94 % of our revenues for the year ended december 31 , 2019. subscription and support revenues also include revenues associated with sales of on-premise software licenses and related support . story_separator_special_tag prior to our migration to saas in 2012 , we licensed our legacy on-premise software . we no longer develop any new applications or functionality for our legacy on-premise software , but we continue to provide post-contract support to one customer that had not migrated to our saas solution at december 31 , 2019. professional services . we offer our customers implementation and consulting services . although our platform is ready to use immediately after a new customer has access to it , we typically help customers implement our solutions for a fixed fee . we also provide consulting and training services to help customers optimize the use of our products . these services are considered distinct performance obligations . professional services do not result in significant customization of the subscription service . we apply the practical expedient to recognize professional services revenue when we have the right to invoice based on time and materials incurred . professional services revenues comprised approximately 6 % of our revenues for the year ended december 31 , 2019. for a description of our revenue accounting policies , see “ management 's discussion and analysis of financial condition and results of operations—critical accounting policies and estimates. ” cost of revenues subscription and support cost of revenues . subscription and support cost of revenues primarily consists of amortization of developed technology costs resulting from the 2013 acquisition and the runbook acquisition , salaries , benefits and stock-based compensation associated with our hosting operations and support personnel , data center costs related to hosting our cloud-based software , and amortization of capitalized internal-use software costs . we also allocate a portion of overhead to subscription and support cost of revenues . professional services costs of revenues . costs associated with providing professional services primarily consist of salaries , benefits and stock-based compensation associated with our implementation personnel . these costs are expensed as incurred when the services are performed . we also allocate a portion of overhead to professional services cost of revenues . operating expenses sales and marketing . sales and marketing expenses consist primarily of personnel costs of our sales and marketing employees , including salaries , sales commissions and incentives , benefits and stock-based compensation expense , travel and related costs , commissions paid in connection with our strategic relationships , outside consulting fees , marketing programs , including lead generation , costs of our annual conference , advertising , and trade shows , other event expenses , and allocated overhead costs . sales and marketing expenses also include amortization of customer relationship intangible assets . we defer sales and partner commissions and amortize them over an estimated period of 40 benefit of five years . we expect the annual trend in sales and marketing expenses to continue to increase as we expand our direct sales teams and increase sales through our strategic relationships and resellers . research and development . research and development expenses consist primarily of salaries , benefits and stock-based compensation associated with our engineering , product and quality assurance personnel and allocated overhead costs . research and development expenses also include the cost of third-party contractors . other than internal-use software development costs that qualify for capitalization , research and development costs are expensed as incurred . we expect research and development costs to increase as we develop new solutions and make improvements to our existing platform . general and administrative . general and administrative expenses consist primarily of salaries , benefits and stock-based compensation associated with our executive , finance , legal , human resources , compliance , and other administrative personnel , accounting , auditing and legal professional services fees , recruitment costs , other corporate-related expenses , and allocated overhead costs . general and administrative expenses also include amortization of covenant not to compete and tradename intangible assets , and the change in fair value of contingent consideration . we expect that general and administrative expenses will increase as we incur the costs of compliance associated with being a publicly-traded company , including legal , audit and consulting fees . interest income interest income primarily consists of earnings on our cash and cash equivalents and our marketable securities . interest expense interest expense consists primarily of interest expense associated with our convertible senior notes ( the “ notes ” ) issued in august 2019. change in fair value of common stock warrant liability we issued warrants to purchase common stock in connection with our credit facility . the warrants were measured at fair value each period , with changes in fair value recorded in our consolidated statements of operations . the stock warrants were exercised in may 2017 and , accordingly , there will be no further changes in the fair value recorded in our results of operations . provision for ( benefit from ) income taxes we are subject to federal and state income taxes in the united states and taxes in foreign jurisdictions . we use the liability method of accounting for income taxes . under the liability method , deferred taxes are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities , using tax rates expected to be in effect during the years in which the bases differences are expected to reverse . we record a valuation allowance against our deferred tax assets to the extent that realization of the deferred tax assets , including consideration of our deferred tax liabilities , is not more likely than not . for the year ended december 31 , 2019 , for both federal and state income taxes , our deferred assets exceeded our deferred tax liabilities and because of our recent history of operating losses we believe that the realization of the deferred tax assets is currently not more likely than not . accordingly , we have recorded a valuation allowance against our federal , state , and certain foreign deferred tax assets .
| the total number of customers and users increased by 19 % and 13 % , respectively , during the year ended december 31 , 2018. cost of revenues replace_table_token_12_th the increase in cost of revenues for the year ended december 31 , 2019 , compared to the year ended december 31 , 2018 , was primarily due to a $ 4.3 million increase in salaries , benefits , and stock-based compensation ; a $ 2.4 million increase in computer software expenses ; a $ 0.8 million increase in amortization of developed technology ; a $ 0.6 million increase in professional services expense ; and a $ 0.6 million increase in travel-related costs . these increases were partially offset by a $ 1.0 million decrease in depreciation and amortization . the increase in salaries , benefits , and stock-based compensation was primarily driven by a 24 % increase in average cost of revenues-related headcount from the year ended december 31 , 2018 to the year ended december 31 , 2019. computer software expenses increased due to expanded technology infrastructure to support sales growth . amortization of our capitalized software development costs increased due to larger total capitalized costs as we expanded the functionality of our solutions . travel-related costs increased due to increased customer implementations associated with customer growth . depreciation and amortization expense decreased primarily due to a decrease of amortization relating to developed technology from the 2013 acquisition , which became fully amortized in the quarter ended september 30 , 2019. the increase in cost of revenues for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017 , was primarily due to a $ 4.6 million increase in salaries , benefits , and stock-based compensation ; a $ 1.2 million increase in amortization of developed technology ; a $ 1.1 million increase in computer software expenses ; a $ 1.0 million increase in depreciation and amortization ; a $ 0.5 million increase in travel-related costs ; a $ 0.4 million increase in overhead-related expenses ; a $ 0.3 million increase in data center-related costs ; and a $ 0.3 million increase in professional services expense . the increase in salaries , benefits , and stock-based compensation was primarily driven
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casino operating expense as a percentage of casino revenue decreased to 41.2 % for the twelve months ended december 31 , 2016 , compared to 42.1 % in 2015 due to the effect of higher casino revenue partially offset by higher complimentary expense . food and beverage revenue for the twelve months ended december 31 , 2016 increased 6.7 % over the same period in 2015 , due to a 6.4 % increase in average revenue per cover . covers served were flat . food and beverage operating expense as a percentage of food and beverage revenue in the twelve months ended december 31 , 2016 were 40.9 % compared to 39.4 % over the same period in 2015. the increase in expense margin is due primarily to costs , related to the redesign and upgrade of toucan charlie 's buffet at atlantis , which costs were expensed during the first quarter of 2016. hotel revenue increased 3.3 % due to a higher adr of $ 79.52 for the year ended december 31 , 2016 compared to $ 76.92 for the same period in 2015 , partially offset by slightly lower hotel occupancy of 88.2 % in 2016 compared to 89.7 % in 2015. revpar was $ 77.50 and $ 75.24 for the years ended december 31 , 2016 and 2015 , respectively . hotel operating expense as a percent of hotel revenue for the twelve months ended december 31 , 2016 was 30.9 % compared to 30.0 % for the same period in 2015. the increase is due primarily to higher payroll and related benefits expense and expense related to the implementation of advanced analytical tools . other revenue increased 3.9 % in 2016 compared to 2015 , driven primarily by increased atlantis arcade revenue , atlantis spa and salon revenue and retail revenue . 36 promotional allowances as a percentage of gross revenues declined to 17.8 % for the year ended december 31 , 2016 compared to 18.2 % for the year ended december 31 , 2015. this decrease was primarily due to higher revenues and more efficient utilization of complimentaries . sg & a expense increased to $ 57.7 million in the twelve months ended december 31 , 2016 from $ 54.8 million in the same period of 2015 primarily due to : i ) a $ 1.8 million increase in salaries , wages and related benefits expense ; ii ) a $ 0.7 million increase in marketing expense ; iii ) a $ 0.5 million increase in rental expense from the parking lot lease at atlantis ( see note 12. related party transactions ) ; iv ) a $ 0.2 million increase in property tax expense , resulting from the new parking structure at monarch casino black hawk and the addition of the leased parking lot at atlantis ; and v ) a $ 0.2 million increase in legal fees expense , all offset by a decrease in utility expense of $ 0.5 million . depreciation and amortization expense decreased to $ 14.8 million for the year ended december 31 , 2016 as compared to $ 15.9 million for the same period in 2015 as a result of : i ) a $ 1.1 million decrease in depreciation expense on the parking structure at monarch casino black hawk ; and ii ) a $ 0.3 million decrease in depreciation expense at atlantis due to assets having become fully depreciated , all partially offset by the increase in depreciation expense from new assets related to the remodel and upgrade project at monarch casino black hawk . in 2016 , we incurred a $ 0.6 million loss from disposal of assets , primarily as a result of the write off of the remaining net book value of the hotel towers doors at the atlantis , that were replaced with new doors in the second quarter of 2016. during the year ended december 31 , 2016 , we paid down the principal balance on our credit facility by $ 14.7 million , which decreased the outstanding balance of the credit facility to $ 26.2 million at december 31 , 2016 from $ 40.9 million at december 31 , 2015. interest expense , net of amounts capitalized , decreased to $ 0.6 million in 2016 from $ 0.7 million in 2015 primarily as a result of lower borrowings in 2016 compared to 2015 , offset by an increase in commitment fees in relation to the amended credit facility we entered into in july 2016. see “ liquidity and capital resources ” . capital spending and development we seek to continuously upgrade and maintain our facilities in order to present a fresh , high quality product to our guests . capital expenditures during the years ended december 31 , 2017 and 2016 were as follows ( in thousands ) : capital expenditures : replace_table_token_5_th during the twelve months ended december 31 , 2017 and 2016 , capital expenditures related primarily to the work on the monarch black hawk expansion plan , as well as acquisition of gaming equipment to upgrade and replace existing equipment at the monarch casino black hawk and the atlantis . since the acquisition of the monarch casino black hawk , we have upgraded the property 's food and beverage operations ( including an all-new buffet ) and completed the redesign and upgrade of the existing casino floor . our plans also call for the exterior of the existing facility to be refinished to match the master planned expansion . the exterior refinishing is expected to cost approximately $ 11 to $ 13 million and is anticipated to be funded primarily from operating cash flow or the credit facility . monarch black hawk expansion plan in the fourth quarter of 2013 , we began work to convert the monarch casino black hawk into a full-scale casino resort . 37 the multi-phased expansion of the monarch casino black hawk involves construction of a new parking structure , demolition of the existing parking structure and construction of a new hotel tower and casino expansion . story_separator_special_tag in november 2016 , the new nine-story parking structure , offering approximately 1,350 parking spaces , was completed and became available for use by monarch casino black hawk guests . the demolition and removal of the old parking structure , which included a controlled implosion of the old garage , was completed in the first quarter of 2017. on february 8 , 2017 , we broke ground on the hotel tower and casino expansion . the new 23-story tower will nearly double the existing casino space and will include approximately 500 hotel rooms , an upscale spa and pool facility , three additional restaurants and additional bars . we currently expect completion of the entire tower in the second quarter of 2019 at a total cost of approximately $ 229 to $ 234 million . we expect to finance the cost through a combination of operating cash flow and the credit facility . we can provide no assurance that any project will be completed on schedule , if at all , or within established budgets , or that any project will result in increased earnings to us . liquidity and capital resources our principal sources of liquidity have been cash provided by operations and , for capital expansion projects , borrowings available under our credit facilities . for the year ended december 31 , 2017 , net cash provided by operating activities totaled $ 49.5 million , an increase of approximately $ 5.7 million , or 13.1 % , compared to the same period of the prior year . this increase was primarily due to : i ) a $ 6.1 million increase in share based compensation as a result of the adoption of the asu no . 2016-09 , which changes the classification and presentation of the stock-based compensation in the statement of cash flows ; ii ) a $ 3.0 million decrease in the deferred tax asset as a result of a decrease in temporary tax-to-book differences and a revaluation of the deferred tax asset to a 21 % tax rate , established with the tax cuts and jobs act bill of 2017 ; iii ) a $ 1.0 million increase in net income ; and iv ) a $ 0.4 million increase in depreciation and amortization ; offset by a combined increase in ordinary working capital of $ 4.1 million and a decrease in loss on disposal of assets of $ 0.7 million . net cash used in investing activities totaled $ 46.7 million and $ 24.9 million in the years ended december 31 , 2017 and 2016 , respectively . net cash used in investing activities during the year ended december 31 , 2017 consisted primarily of cash used for the new hotel tower and casino expansion at monarch casino black hawk , the purchase of a parcel of land with an industrial warehouse in proximity to the monarch casino black hawk , the re-carpeting of the casino floor and hotel rooms and upgrading the fountains at atlantis , and for acquisition of gaming and other equipment at both properties . net cash used in investing activities during the year ended december 31 , 2016 consisted primarily of cash used for the new parking garage at monarch casino black hawk , the redesign and upgrade of toucan charlie 's buffet at atlantis , improvements to new additional parking spaces at atlantis , and for acquisition of gaming and other equipment at both properties . there were no financing activities during the year ended december 31 , 2017. net cash used in financing activities during the year ended december 31 , 2016 was $ 13.6 million and represented $ 14.7 million in payments under our credit facility , offset by $ 1.1 million in proceeds from stock option exercises , including excess tax benefit from options exercised . on july 20 , 2016 , we entered into an amended and restated credit facility agreement ( the “ amended credit facility ” ) , under which our former $ 100 million credit facility ( which , as of june 30 , 2016 , had borrowing capacity reduced to $ 45.5 million as a result of $ 19.5 million in mandatory reductions pursuant to the agreement and $ 35 million in voluntary reductions , as allowed by the agreement ) was increased to $ 250.0 million , and the maturity date was extended from november 15 , 2016 to july 20 , 2021. as of december 31 , 2017 , we had $ 26.2 million borrowed and a $ 0.6 million standby letter of credit and $ 223.2 million remaining in available borrowings of the $ 250.0 million maximum principal available under the amended credit facility . as of december 31 , 2017 , there have been no withdrawals from the standby letter of credit . 38 the total revolving loan commitment under the amended credit facility will be automatically and permanently reduced to $ 50 million in the first full quarter after completion of the expansion project at the monarch casino black hawk and all then outstanding revolving loans up to $ 200 million under the amended credit facility will be converted to a term loan at such time . we may be required to prepay borrowings under the amended credit facility using excess cash flows depending on our leverage ratio no later than december 31 , 2019. we have an option to permanently reduce the maximum revolving available credit at any time so long as the amount of such reduction is at least $ 0.5 million and in multiples of $ 50,000. borrowings are secured by liens on substantially all of our real and personal property .
| food and beverage operating expense as a percentage of food and beverage revenue in the year ended december 31 , 2017 was 40.6 % compared to 40.9 % over the same period in 2016. the decrease in expense margin is due primarily to the costs , related to the redesign and upgrade of toucan charlie 's buffet at atlantis , which costs were expensed during the first quarter of 2016 and the improved cost of sales percentage in 2017 , offset by increase in labor expenses . hotel revenue increased 6.0 % due to a higher adr of $ 81.46 for the year ended december 31 , 2017 compared to $ 79.52 for the same period in 2016 , combined with higher hotel occupancy of 89.4 % in 2017 compared to 88.2 % in 2016. revpar was $ 82.40 and $ 77.50 for the years ended december 31 , 2017 and 2016 , respectively . hotel operating expense as a percent of hotel revenue for the year ended december 31 , 2017 was 37.6 % compared to 30.9 % for the same period in 2016. the increase is due primarily to higher payroll and related benefits expense , expenses related to the implementation of advanced analytical tools , hotel repair and maintenance expense , as well as expenses related to the shuttle service and expanded valet services implemented at monarch casino black hawk . other revenue increased 7.1 % in 2017 compared to 2016 driven primarily by increased atlantis arcade revenue , spa and salon revenue and retail revenue . promotional allowances as a percentage of gross revenues declined to 17.4 % for the year ended december 31 , 2017 compared to 17.8 % for the year ended december 31 , 2016. this decrease was primarily due to higher revenues and more efficient utilization of complimentaries . 35 selling , general and administrative expense ( “ sg & a expense ” ) increased to $ 62.7 million in the year ended december 31 , 2017 from $ 57.7 million in the same period of 2016 primarily due to : i ) a $ 3.2 million increase in salaries , wages and related employee benefits expense ; ii ) a $ 0.5 million increase in professional fees ; iii ) a $ 0.4
| 15,812 |
neither ffo nor affo represent cash flows from operating activities in accordance with gaap and , therefore , these measures should not be considered indicative of cash flows from operating activities as a measure of liquidity or of funds available to fund our cash needs , including our ability to make cash distributions . rather , adjusted ebitda , ffo , affo and acquisition-adjusted net revenue are presented as we believe each is a useful indicator of our current operating performance . we believe that these metrics are useful to an investor in evaluating our operating performance because ( 1 ) each is a key measure used by our management team for purposes of decision making and for evaluating our core operating results ; ( 2 ) adjusted ebitda is widely used in the industry to measure operating performance as depreciation and amortization may vary significantly among companies depending upon accounting methods and useful lives , particularly where acquisitions and non-operating factors are involved ; ( 3 ) acquisition-adjusted net revenue is a supplement to net revenue to enable investors to compare period over period results on a more consistent basis without the effects of acquisitions and divestures , which reflects our core performance and organic growth ( if any ) during the period in which the assets were owned and managed by us ; ( 4 ) adjusted ebitda , ffo and affo each provides investors with a meaningful measure for evaluating our period-to-period operating performance by eliminating items that are not operational in nature ; and ( 5 ) each provides investors with a measure for comparing our results of operations to those of other companies . our measurement of adjusted ebitda , ffo , affo and acquisition-adjusted net revenue may not , however , be fully comparable to similarly titled measures used by other companies . reconciliations of adjusted ebitda , ffo , affo and acquisition-adjusted net revenue to net income , the most directly comparable gaap measure , have been included herein . results of operations the following table presents certain items in the consolidated statements of income as a percentage of net revenues for the years ended december 31 , 2019 , 2018 and 2017 : replace_table_token_5_th 25 year ended december 31 , 2019 compar ed to year ended december 31 , 2018 net revenues increased $ 126.4 million or 7.8 % to $ 1.754 billion for the year ended december 31 , 2019 from $ 1.627 billion for the same period in 2018. this increase was attributable primarily to an increase in billboard net revenues of $ 124.6 million or 8.8 % over the prior period , which is primarily related to the integration of outdoor assets acquired during 2018 and 2019 , and the addition of approximately 330 digital displays during the year ended december 31 , 2019. in addition , transit revenue increased $ 2.1 million , which represents an increase of 1.6 % over the prior period . net revenues for the year ended december 31 , 2019 , as compared to acquisition-adjusted net revenues for the comparable period in 2018 , increased $ 45.7 million , or 2.7 % . the $ 45.7 million increase in revenue primarily consisted of a $ 41.7 million increase in billboard revenue primarily due to increases in digital revenue and a $ 4.1 million increase in transit revenue over the acquisition-adjusted net revenue for the comparable period in 2018. see “ reconciliations ” below . total operating expenses , exclusive of depreciation and amortization and ( gain ) loss on disposition of assets , increased $ 58.9 million , or 6.3 % to $ 993.1 million for the year ended december 31 , 2019 from $ 934.2 million in the same period in 2018. the $ 58.9 million increase over the prior year is primarily comprised of an increase in total direct , general and administrative and corporate expenses ( excluding stock-based compensation ) of $ 58.7 million primarily related to the operations of our outdoor advertising assets . depreciation and amortization expense increased $ 24.8 million to $ 250.0 million for the year ended december 31 , 2019 as compared to $ 225.3 million for the same period in 2018 , primarily related to the addition of approximately $ 516.2 million of depreciable assets acquired through acquisitions and $ 258.6 million in capitalized expenditures during fiscal years 2018 and 2019. for the year ended december 31 , 2019 , the company recognized a gain on disposition of assets of $ 7.2 million primarily resulting from an amendment of a transit contract in the first quarter of 2019. the gain in 2019 represents an increase of $ 14.5 million over the same period in 2018 , largely due to the gain in 2019 coupled with the company 's loss recognized in 2018 on the sale of its puerto rico assets in april 2018 of $ 7.8 million . due primarily to the above factors , operating income increased $ 57.2 million to $ 517.7 million for the year ended december 31 , 2019 compared to $ 460.6 million for the same period in 2018. during the year ended december 31 , 2018 , the company recorded a $ 15.4 million loss on debt extinguishment related to lamar media 's prepayment of its 5 7/8 % senior subordinated notes due 2022. the $ 15.4 million loss is comprised of a cash redemption premium of $ 9.8 million and a non-cash write off of unamortized deferred financing costs of approximately $ 5.6 million . see “ uses of cash ” for more information . story_separator_special_tag there were no transactions resulting in a loss on debt extinguishment in fiscal year 2019. interest expense increased $ 20.9 million for the year ended december 31 , 2019 to $ 150.6 million as compared to $ 129.7 million for the year ended december 31 , 2018. the increase in interest expense is primarily related to the increased debt outstanding as compared to the same period in 2018. the increase in operating income and decrease in loss on extinguishment of debt , offset by the increase in interest expense over the comparable period in 2018 , resulted in a $ 52.0 million increase in net income before income taxes . the company recorded an income tax benefit of $ 4.2 million for the year ended december 31 , 2019 as compared to income tax expense of $ 10.7 million for the same period in 2018. the $ 4.2 million income tax benefit is comprised of a $ 17.0 million non-cash tax benefit resulting from reit converted assets offset by income tax expense of $ 12.8 million . the $ 12.8 million tax expense equates to an effective tax rate for the year ended december 31 , 2019 of approximately 3.5 % , which differs from the federal statutory rate primarily due to our qualification for taxation as a reit and adjustments for foreign items . as a result of the above factors , the company recognized net income for the year ended december 31 , 2019 of $ 372.1 million , as compared to net income of $ 305.2 million for the same period in 2018. reconciliations : because acquisitions occurring after december 31 , 2017 have contributed to our net revenue results for the periods presented , we provide 2018 acquisition-adjusted net revenue , which adjusts our 2018 net revenue for the year ended december 31 , 2018 by adding to or subtracting from it the net revenue generated by the acquired or divested assets prior to our acquisition or divestiture of these assets for the same time frame that those assets were owned in the year ended december 31 , 2019 . 26 reconciliations of 2018 reported net revenue to 2018 acqu isition-adjusted net revenue for the year ended december 31 , 2018 as well as a comparison of 2018 acquisition-adjusted net revenue to 2019 reported net revenue for the year ended december 31 , 2019 , are provided below : reconciliation and comparison of reported net revenue to acquisition-adjusted net revenue replace_table_token_6_th key performance indicators net income/adjusted ebitda ( in thousands ) replace_table_token_7_th adjusted ebitda for the year ended december 31 , 2019 increased 8.6 % to $ 784.9 million . the increase in adjusted ebitda was primarily attributable to the increase in our gross margin ( net revenue less direct advertising expense , exclusive of depreciation and amortization and the impact of asc 842 adoption ) of $ 92.7 million , and was partially offset by an increase in general and administrative and corporate expenses of $ 30.3 million , excluding the impact of stock-based compensation expense and the impact of asc 842 adoption . 27 net income/ffo/affo ( in thousands ) replace_table_token_8_th ffo for the year ended december 31 , 2019 was $ 584.9 million as compared to ffo of $ 527.0 million for the same period in 2018. affo for the year ended december 31 , 2019 increased 6.8 % to $ 581.4 million as compared to $ 544.5 million for the same period in 2018. affo growth was primarily attributable to the increase in our gross margin ( net revenue less direct advertising expense , exclusive of depreciation and amortization and the impact of asc 842 adoption ) , offset by increases in general and administrative and corporate expenses ( excluding the effect of stock based compensation expense and the impact of asc 842 adoption ) . year ended december 31 , 2018 compared to year ended december 31 , 2017 net revenues increased $ 86.0 million or 5.6 % to $ 1.627 billion for the year ended december 31 , 2018 from $ 1.541 billion for the same period in 2017. this increase was attributable primarily to an increase in billboard net revenues of $ 72.6 million or 5.4 % over the prior period , which is primarily related to the integration of outdoor assets acquired during 2017 and 2018 , and the addition of over 250 digital displays during the year ended december 31 , 2018. in addition , logo sign revenue increased $ 1.5 million , which represents an increase of 1.8 % over the prior period . transit revenue increased $ 11.9 million , which represents an increase of 10.1 % over the prior period , primarily due to several new transit and airport markets acquired in 2017 and 2018. net revenues for the year ended december 31 , 2018 , as compared to acquisition-adjusted net revenues for the comparable period in 2017 , increased $ 53.1 million , or 3.4 % . the $ 53.1 million increase in revenue primarily consisted of a $ 45.1 million increase in billboard revenue primarily due to increases in digital and political revenue , a $ 1.1 million increase in logo revenue and a $ 6.8 million increase in transit revenue over the acquisition-adjusted net revenue for the comparable period in 2017. see “ reconciliations ” below . total operating expenses , exclusive of depreciation and amortization and loss ( gain ) on disposition of assets , increased $ 54.7 million , or 6.2 % to $ 934.2 million for the year ended december 31 , 2018 from $ 879.5 million in the same period in 2017. the $ 54.7 million increase over the prior year is comprised of a $ 19.8 million increase in stock-based compensation expense and a $ 34.9 million increase in total direct , general and administrative and corporate expenses ( excluding stock-based compensation ) primarily related to the operations of our outdoor advertising assets .
| total operating expenses , exclusive of depreciation and amortization and ( gain ) loss on disposition of assets , increased $ 58.9 million , or 6.3 % to $ 992.7 million for the year ended december 31 , 2019 from $ 933.8 million in the same period in 2018. the $ 58.9 million increase over the prior year is primarily comprised of an increase in total direct , general and administrative and corporate expenses ( excluding stock-based compensation ) of $ 58.7 million primarily related to the operations of our outdoor advertising assets . 39 depreciation and amortization expense increased $ 24.8 million to $ 250.0 million for the year ended december 31 , 2019 as compared to $ 225.3 million for the same period in 2018 , primarily related to the addition of approximately $ 516.2 million of depreciable assets acquired through acquisitions and $ 258.6 million in capitalized expendit ures during fiscal years 2018 and 2019. for the year ended december 31 , 2019 , lamar media recognized a gain on disposition of assets of $ 7.2 million primarily resulting from an amendment of a transit contract in the first quarter of 2019. the gain in 2019 represents an increase of $ 14.5 million over the same period in 2018 , largely due to the gain in 2019 coupled with media 's loss recognized in 2018 on the sale of its puerto rico assets in april of 2018 of $ 7.8 million . due primarily to the above factors , operating income increased $ 57.2 million to $ 518.2 million for the year ended december 31 , 2019 compared to $ 461.0 million for the same period in 2018. during the year ended december 31 , 2018 , lamar media recorded a $ 15.4 million loss on debt extinguishment related to lamar media 's prepayment of its 5 7/8 % senior subordinated notes due 2022. the $ 15.4 million loss is comprised of a cash redemption premium of $ 9.8 million and a non-cash write off of unamortized deferred financing costs of approximately $ 5.6 million . see “ uses of cash ” for more information . there were no transactions resulting in a loss on debt extinguishment in fiscal year 2019. interest expense increased $ 20.9 million for the year ended december 31 , 2019 to $ 150.6 million as compared to $ 129.7 million for the year ended december 31 , 2018. the increase in interest
| 15,813 |
although a portion of our revenues are denominated in various currencies , the selling prices of the majority of our sales outside the united states are referenced in u.s. dollars , and as a result , our revenues have not been significantly directly affected by currency movements . we are subject to currency risk to the extent that our costs are denominated in currencies other than those in which we earn revenues . we manufacture some of our major products in brazil and israel and production costs are largely denominated in local currencies , while the selling prices of the products are largely set in u.s. dollars . as such , we are exposed to changes in cost of goods sold resulting from currency movements and may not be able to adjust our selling prices to offset such movements . in addition , we incur selling and administrative expenses in various currencies and are exposed to changes in such expenses resulting from currency movements . because our financial statements are reported in u.s. dollars , changes in currency exchange rates between the u.s. dollar and other currencies have had , and will continue to have , an impact on our results of operations . 56 climate the animal health industry and demand for many of our animal health products in a particular region are affected by changing disease pressures and by weather conditions , as usage of our products follows varying weather patterns and weather-related pressures from diseases . as a result , we may experience regional and seasonal fluctuations in our results of operations . in addition , livestock producers depend on the availability of natural resources , including abundant rainfall to sustain large supplies of drinking water , grasslands and grain production . their animals ' health and their ability to operate could be adversely affected if they experience a shortage of fresh water due to human population growth or floods , droughts or other weather conditions . in the event of adverse weather conditions or a shortage of fresh water , livestock producers may purchase less of our products . product development initiatives our future success depends on both our existing product portfolio , including our ability to obtain cross-clearances enabling the use of our medicated products in conjunction with other products , approval for use of our products with new species , approval for new claims for our products , approval of our products in new markets , and our pipeline of new products , including new products that we may develop through joint ventures and products that we are able to obtain through license or acquisition . the majority of our r & d programs focus on product lifecycle development , which is defined as r & d programs that leverage existing animal health products by adding new species or claims , achieving approvals in new markets or creating new combinations and reformulations . we commit substantial effort , funds and other resources to expanding our product approvals and r & d , both through our own dedicated resources and through collaborations with third parties . recent developments refinancing in june 2017 , we entered into a new credit agreement ( the “ credit agreement ” ) . under the credit agreement , lenders extended credit to us in the form of a term a loan , with an aggregate principal amount of $ 250.0 million ( the “ term a loan ” ) and a revolving credit facility , with an aggregate principal amount of $ 250.0 million ( the “ revolver , ” and together with the term a loan , the “ credit facilities ” ) . we used the proceeds of $ 314.1 million from the credit facilities to repay all debt outstanding as of the closing date and to pay fees and expenses of the transaction . we recorded a $ 2.6 million loss on extinguishment of debt for certain unamortized debt issuance costs and debt discount related to retired debt . see “ notes to consolidated financial statements—debt ” for additional details . in july 2017 , we entered into an interest rate swap agreement on $ 150.0 million of notional principal that effectively converts the floating libor or base rate portion of our interest obligation on that amount of debt , to a fixed interest rate of 1.8325 % plus the applicable rate . the agreement matures concurrent with the credit agreement . 57 analysis of the consolidated statements of operations story_separator_special_tag style= '' padding:0pt ; width:5pt ; '' > * 2,566 * acquisition-related accrued compensation 1,680 1,680 747 — 0 % 933 125 % acquisition-related transaction costs 1,274 618 — 656 106 % 618 * acquisition-related other , net ( 1 ) ( 972 ) — — ( 972 ) * — * pension settlement cost 1,702 — — 1,702 * — * gain on insurance settlement ( 7,500 ) — — ( 7,500 ) * — * story_separator_special_tag foreign currency ( gains ) losses , net ( 113 ) ( 7,609 ) ( 5,400 ) 7,496 * ( 2,209 ) * loss on extinguishment of debt 2,598 — — 2,598 * — * adjusted ebitda $ 120,119 $ 114,060 $ 110,019 $ 6,059 5 % $ 4,041 4 % ( 1 ) acquisition-related other , net includes the net effect of adjustments to contingent consideration on acquisitions and impairments of intangible assets . certain amounts and percentages may reflect rounding adjustments . * calculation not meaningful comparison of fiscal years ended june 30 , 2017 and 2016 net sales net sales of $ 764.3 million for the year ended june 30 , 2017 , increased $ 12.8 million , or 2 % , as compared to the year ended june 30 , 2016. animal health and mineral nutrition grew $ 11.6 million and $ 1.6 million respectively , while performance products declined $ 0.5 million . animal health net sales of $ 497.7 million for the year ended june 30 , 2017 , grew $ 11.6 million , or 2 % . the growth was primarily due to volume increases in the nutritional specialty and vaccine product groups within the segment . nutritional specialty products grew $ 17.2 million , or 18 % , primarily due to volume growth of our products for the u.s. poultry and dairy industries . vaccines grew $ 12.9 million , or 25 % , primarily due to volume growth of our products for the poultry and swine industries . the vaccine sales growth included the effect of products acquired from mvp laboratories , inc. in january 2016 being included in the full year ended june 30 , 2017. mfas and other declined $ 18.5 million , or 5 % , primarily due to volume declines . domestic net sales of mfas and other declined $ 13.8 million as reduced volumes of medically important antimicrobials , due to regulatory changes and consumer preferences , were partially offset by growth in other products . international net sales declined $ 4.7 million due to economic conditions in brazil , partially offset by growth in other regions . 60 mineral nutrition net sales of $ 218.3 million increased $ 1.6 million , or 1 % , for the year ended june 30 , 2017. the increased revenue was primarily due to higher volumes . the increase in volumes was partially offset by lower average selling prices resulting from underlying raw material commodity price declines . performance products net sales of $ 48.2 million decreased $ 0.5 million , or 1 % , for the year ended june 30 , 2017 , due to lower average selling prices of personal care ingredients and lower volumes of copper-based products and chemical catalyst products , partially offset by higher volumes of personal care ingredients . gross profit gross profit of $ 248.2 million for the year ended june 30 , 2017 , increased $ 9.2 million , or 4 % , as compared to the year ended june 30 , 2016. gross profit increased to 32.5 % of net sales for the year ended june 30 , 2017 , as compared to 31.8 % for the year ended june 30 , 2016. the increase included the effect of $ 2.6 million of acquisition-related cost of goods sold recorded for the year ended june 30 , 2016. depreciation and amortization expense included in cost of goods sold increased $ 3.4 million due to recent capital expenditures and the mvp acquisition . excluding the effects of the 2016 acquisition-related cost of goods sold and the increased depreciation and amortization , animal health gross profit increased $ 7.4 million due to volume growth in nutritional specialty and vaccine products , as well as lower unit costs from improved operating efficiencies , partially offset by volume declines in mfas and other products . mineral nutrition gross profit increased $ 2.4 million due to lower raw material costs , partially offset by lower average selling prices . performance products gross profit increased $ 0.1 million due to higher volumes of personal care ingredients and higher average selling prices of copper-based products , partially offset by lower average selling prices of personal care ingredients . selling , general and administrative expenses sg & a of $ 150.3 million for the year ended june 30 , 2017 , decreased $ 3.0 million , or 2 % , as compared to the year ended june 30 , 2016. sg & a for the year ended june 30 , 2017 , included the following unusual items : a $ 7.5 million gain from a payment to us by an insurance carrier . the payment reflected the settlement of our claims against the carrier under our liability insurance policies , which arose from damages incurred in fiscal year 2010 by certain customers resulting from the use of one of our animal health products ; $ 1.7 million in costs relating to the partial settlement of the pension plan ; $ 1.3 million in acquisition-related transaction costs for professional fees and other items in the evaluation and negotiation of an unsuccessful acquisition ; and , a $ 1.0 million gain from the net effect of acquisition-related adjustments to contingent consideration and impairments of intangible assets . sg & a for the year ended june 30 , 2016 , included $ 0.6 million in acquisition-related transaction costs .
| segment net sales and adjusted ebitda : replace_table_token_5_th ( 1 ) reflects ratio to total net sales 59 a reconciliation of net income , as reported under gaap , to adjusted ebitda : change for the years ended june 30 2017 2016 2015 2017/2016 2016/2015 ( in thousands ) net income ( loss ) $ 64,615 $ 82,728 $ 60,280 $ ( 18,113 ) ( 22 ) % $ 22,448 37 % interest expense , net 14,906 16,592 14,305 ( 1,686 ) ( 10 ) % 2,287 16 % provision ( benefit ) for income taxes 15,928 ( 5,967 ) 18,483 21,895 * ( 24,450 ) * depreciation and amortization 26,001 23,452 21,604 2,549 11 % 1,848 9 % ebitda 121,450 116,805 114,672 4,645 4 % 2,133 2 % acquisition-related cost of goods sold — 2,566
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the full texts of the separation agreement , the tax sharing agreement , the employee matters agreement , the transition services agreement and the master advertising agreement ( cpc ) are incorporated by reference on this annual report on form 10-k as exhibits 2.1 , 10.2 , 10.3 , 10.4 and 10.6 ( 10.6 filed in redacted form pursuant to confidential treatment request ) , respectively . for information on our current relationship with expedia and recent material transactions , refer to note 16 related party transactions in the notes to our consolidated and combined financial statements . segment we have one reportable segment . the segment is determined based on how our chief operating decision maker manages our business , makes operating decisions and evaluates operating performance . 40 results of operations selected financial data ( in thousands , except per share data ) replace_table_token_6_th ( 3 ) see adjusted ebitda discussion below for more information and for a reconciliation of adjusted ebitda to operating income , the most directly comparable financial measure calculated and presented in accordance with u.s. generally accepted accounting principles , or gaap . 41 adjusted ebitda to provide investors with additional information regarding our financial results , we have disclosed adjusted ebitda , a non-gaap financial measure , within this annual report on form 10-k. we have provided reconciliations below of adjusted ebitda to operating income , the most directly comparable gaap financial measure . a non-gaap financial measure refers to a numerical measure of a company 's historical or future financial performance , financial position , or cash flows that excludes ( or includes ) amounts that are included in ( or excluded from ) the most directly comparable measure calculated and presented in accordance with gaap in such company 's financial statements . we define adjusted ebitda as operating income , excluding depreciation of property and equipment , which includes internal use software and website development , amortization of intangible assets , stock-based compensation and non-recurring expenses incurred to effect the spin-off from expedia during the year ended december 31 , 2011. adjusted ebitda is the primary metric by which management evaluates the performance of its business and on which internal budgets are based . in particular , the exclusion of certain expenses in calculating adjusted ebitda facilitates operating performance comparisons on a period-to-period basis . adjusted ebitda eliminates items that are either not part of our core operations such as the costs incurred in connection with the spin-off or those costs that do not require a cash outlay , such as stock-based compensation . adjusted ebitda also excludes depreciation and amortization expense , which are based on our estimates of the useful life of tangible and intangible assets . these estimates could vary from actual performance of the asset , are based on historical costs and other factors and may not be indicative of current or future capital expenditures . we believe that by excluding certain items , such as stock-based compensation and non-recurring expenses , adjusted ebitda corresponds more closely to the cash operating income generated from our business and allows investors to gain an understanding of the factors and trends affecting the ongoing cash earnings capabilities of our business , from which capital investments are made and debt is serviced . our use of adjusted ebitda has limitations as an analytical tool , and you should not consider it in isolation or as a substitute for analysis of our results reported in accordance with gaap . some of these limitations are : adjusted ebitda does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments ; adjusted ebitda does not reflect changes in , or cash requirements for , our working capital needs ; adjusted ebitda does not consider the potentially dilutive impact of stock-based compensation ; although depreciation and amortization are non-cash charges , the assets being depreciated and amortized may have to be replaced in the future , and adjusted ebitda does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements ; and other companies , including companies in our own industry , may calculate adjusted ebitda differently than we do , limiting its usefulness as a comparative measure . because of these limitations , you should consider adjusted ebitda alongside other financial performance measures , including various cash flow metrics , net income and our other gaap results . 42 the following table is a reconciliation of adjusted ebitda to operating income , the most directly comparable gaap financial measure for the periods presented : replace_table_token_7_th ( 1 ) includes internal use software and website development costs . ( 2 ) our primary operating metric prior to the spin-off for evaluating operating performance was operating income before amortization , or oiba , as reported on our form s-4 , filed with the sec on november 1 , 2011. oiba is defined as operating income plus : ( 1 ) amortization of intangible assets and any related impairment ; ( 2 ) stock-based compensation expense ; and ( 3 ) non-recurring expenses incurred to effect the spin-off during the year ended december 31 , 2011. this operating metric is no longer being used by our management to measure operating performance and is only being shown above to illustrate the financial impact as we converted to a new operating metric post spin-off and is also currently used to calculate our annual obligation for our charitable foundation . refer to , contractual obligations , commercial commitments and off-balance sheet arrangements , below , in the section entitled management 's discussion and analysis of financial condition and results of operations in this annual report on form 10-k for information on our charitable foundation . story_separator_special_tag reclassifications certain reclassifications have been made to conform the prior period 's data to the current format , which include the reclassifications of our redeemable noncontrolling interest on the consolidated balance sheets from accrued expenses and other current liabilities and the reclassification of accrued marketing costs from accounts payable to accrued expenses and other current liabilities . these reclassifications had no net effect on our consolidated and combined financial statements . revenue we derive substantially all of our revenue through the sale of advertising , primarily through click-based advertising and , to a lesser extent , display-based advertising . in addition , we earn revenue through a combination of subscription-based offerings related to our business listings and vacation rentals products , transaction revenue from selling room nights on our transactional sites sniqueaway and tingo , and other revenue including content licensing . the following discussion of revenue includes references to the number of unique internet protocol , or ip , addresses that visit tripadvisor-branded sites each month . this metric is one of the metrics used by us to analyze revenue and is measured using internally developed analytical tools . each unique ip address is only counted the first time it visits a tripadvisor site during each calendar month . our measurement of unique visitors does not include any visitors to our subsidiary sites that are not tripadvisor-branded , nor does it include any individuals who view tripadvisor content on other sites . while directionally indicative , unique ip address tracking has recently become less valuable as a revenue growth metric because of the continually increasing diversification of our site traffic and usage , particularly in light of our users ' engagement with non-hotel based site content , such as 43 restaurants and attractions . as such , we believe that using hotel shoppers as a metric is a more useful indicator of future revenue growth and began to track this metric using internally developed analytical tools in 2012. replace_table_token_8_th 2012 vs. 2011 revenue increased $ 126 million during the year ended december 31 , 2012 when compared to the same period in 2011 , primarily due to an increase in click-based advertising revenue of $ 88 million . the primary driver of the increase in click-based advertising revenue was an increase in hotel shoppers during the year ended december 31 , 2012 , when compared to the same period for 2011 , of over 30 % , partially offset by lower clicks per hotel shopper due to our site redesign in september 2011 , and lower revenue per click . subscription , transaction and other revenue increased by $ 30 million during the year ended december 31 , 2012 , primarily due to growth in our subscription based products , business listings and vacation rentals products . 2011 vs. 2010 revenue increased $ 152 million or 31 % during the year ended december 31 , 2011 when compared to the same period in 2010 , primarily due to an increase in click-based advertising revenue of $ 116 million or 30 % . a key driver of the increase in click-based advertising revenue was an increase of 29 % in monthly visits from unique ip addresses to the tripadvisor branded sites during the year ended december 31 , 2011 , compared to the same period for 2010 and , to a lesser extent , an increase in the average cost per click rates in 2011. subscription , transaction and other revenue increased by $ 22 million or 76 % in 2011 , primarily due to growth in business listings and having a full year of revenue from the 2010 acquisition of holiday lettings . in addition to the above product revenue discussion , related-party revenue from expedia , which consists primarily of click-based advertising , is as follows : replace_table_token_9_th tripadvisor and expedia entered into new commercial arrangements in connection with the spin-off , as discussed in note 16 related party transactions in the notes to our consolidated and combined financial statements . the new arrangements had terms of up to one year . in connection with the spin-off , expedia expected to lower its cpc pricing by 10-15 % . this change was rolled out throughout the fourth quarter of 2011 , and trended towards the upper end of this expected discount range . related-party revenue from expedia decreased $ 7 million or 3 % during the year ended december 31 , 2012 when compared to the same period in 2011 , primarily due to lower cpc pricing paid by expedia , partially offset by higher click volume sent to expedia in 2012 . 44 cost of revenue cost of revenue consists of expenses that are closely correlated or directly related to revenue generation , including ad serving fees , flight search fees , credit card fees and data center costs . replace_table_token_10_th 2012 vs. 2011 cost of revenue increased $ 1 million during the year ended december 31 , 2012 when compared to the same period in 2011 , primarily due to increased credit card merchant fees . 2011 vs. 2010 cost of revenue increased $ 4 million during the year ended december 31 , 2011 when compared to the same period in 2010 , primarily due to increased data center costs in support of higher site traffic and increased credit card merchant fees . selling and marketing sales and marketing expenses primarily consist of direct costs , including search engine marketing , or sem , other traffic acquisition costs , syndication costs and affiliate program commissions , brand advertising and public relations . in addition , our indirect sales and marketing expense consists of personnel and overhead expenses , including salaries , commissions , benefits , stock-based compensation expense and bonuses for sales , sales support , customer support and marketing employees .
| user conversion on our site is primarily driven by three factors : merchandising , commerce coverage and choice . we think of merchandising as the number and location of ads that are available on a page ; commerce coverage is whether we have a client who can take an online booking for a particular property ; and choice is the number of clients available for any given property , allowing the user to shop for the best price . in summary , our cpc revenue depends on the number of hotel shoppers that are interested in a property , whether there is a commerce link available for that hotel shopper to click on for that property and whether there are several commerce choices available for that property , so the hotel shopper can shop around . the other key driver that we look at is the cpc price that online travel agencies and hoteliers are willing to pay us for our leads . key growth areas we continue to invest in areas of potential growth , including our social , mobile and global initiatives as well as our subscription-based products , such as vacation rentals and business listings . 37 social . our wisdom of friends initiative is a core component of our strategic growth plan ; 76 % of respondents to a recent nielsen study cited recommendations from people i know as the information source that they trust most . we believe that having a strong social presence drives traffic to and engagement on our sites and improves the sites ' stickiness amongst the users . as a result , we continue to deepen our integration with facebook . as of december 31 , 2012 , and according to appdata , an independent application tracking traffic service , tripadvisor has averaged more than 40 million monthly facebook users via it 's tripadvisor facebook application id . we offer these facebook users a personalized and social travel planning experience that enables travelers to engage first with their own facebook friends ' reviews and
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restructuring amended and restated biologistex operating agreement : in connection with the contribution agreement , on the closing date , the company , stllc and biologistex entered into an amended and restated operating agreement of biologistex ( the “ amended jv operating agreement ” ) , amending and restating the limited liability company operating agreement of biologistex initially entered into by such parties on september 29 , 2014. the amended jv operating agreement provides that as of the closing date , biologistex 's membership interests are owned 45 % by the company and 55 % by stllc . pursuant to the amended jv operating agreement , biologistex will be managed by a three member management committee , initially consisting of dana barnard and bruce mccormick , both designated by stllc , and michael rice , designated by the company ( the “ management committee ” ) . certain fundamental actions by the management committee require approval of members holding at least 60 % of the membership interests of biologistex ( including both stllc and the company ) . biologistex 's membership interests are also subject to transfer restrictions in the amended jv operating agreement , including drag-along and tag-along rights . 16 services agreement : in connection with the contribution agreement , on the closing date , the company and biologistex entered into a services agreement ( the “ services agreement ” ) whereby the company will provide certain sales and marketing services to biologistex in exchange for payment by biologistex to the company of ( i ) a cash fee for the first year of the contract only in the amount of $ 100,000 , ( ii ) a commission ( the “ commissions ” ) , paid quarterly , equal to 20 % of the gross revenues of biologistex from any customer account resulting from sales activity or a marketing lead generated by the company ( “ biolife customer revenue ” ) , and ( iii ) reimbursement of pre-approved reasonable direct costs and expenses incurred by the company by or on behalf of biologistex in connection with the services . after the third anniversary of the closing date , the commissions will decrease to 10 % of the biolife customer revenue . the services agreement continues until terminated by either party . the services agreement can be terminated ( a ) by mutual agreement , ( b ) beginning 90 days prior to the third anniversary of the closing date , by either party with 90 days ' notice , ( c ) by biologistex with 90 days ' notice if ( i ) there are certain changes to the management of the company or its subsidiaries , ( ii ) the company transfers all of its equity interests in biologistex or ( iii ) there is a change of control of the company , ( d ) by the company with 90 days ' notice if ( i ) stllc transfers all of its equity interest in biologistex or ( ii ) there is a change of control of stllc or ( e ) by either party ( i ) for a material breach of the services agreement by the other party that is not cured within 30 days or ( ii ) if the other party is subject to certain bankruptcy/insolvency events . if the services agreement is terminated by biologistex under items ( b ) or ( c ) of the preceding sentence , or by the company under items ( d ) or ( e ) of the preceding sentence , the company will be entitled to receive commissions equal to 10 % of the biolife customer revenue during the 12 month period following such termination . credit facility on may 12 , 2016 , we entered into a $ 4 million unsecured credit facility ( the “ original note ” ) with our largest shareholder , wavi . under the related commitment letter , wavi has agreed to make a series of four $ 1 million advances on june 1 , 2016 , september 1 , 2016 , december 1 , 2016 and march 1 , 2017. the original note is unsecured , carries an annual interest rate of 10 % , and matures on june 1 , 2017. in addition , we have agreed not to permit any liens on our assets , subject to certain exceptions . as partial compensation for wavi entering into the commitment letter , we issued wavi a detachable common stock purchase warrant exercisable to purchase up to 550,000 shares of common stock at an exercise price of $ 1.75 per share . the warrant expires on may 12 , 2021. amendment of credit facility on january 9 , 2017 , the company issued an amended and restated promissory note ( the “ note ” ) to wavi . the note , which amends and restates the original note , extends the maturity date of the note from june 1 , 2017 to june 1 , 2022 and includes a long-term repayment schedule as follows : beginning september 1 , 2017 to june 1 , 2018 , the company will make four quarterly cash interest only payments of $ 106,250 and from september 1 , 2018 through june 1 , 2022 , the company will make quarterly cash principal payments of $ 265,625 , in addition to ongoing interest payments . all other terms of the original note , including the $ 4 million principal amount of the note and the 10 % per annum interest rate on the original note , remain the same . overview management 's discussion and analysis provides additional insight into the company and is provided as a supplement to , and should be read in conjunction with , our audited financial statements and accompanying footnotes thereto . we strive to be the leading provider of biopreservation tools for cells , tissues , and organs ; to facilitate basic and applied research and commercialization of new therapies by maintaining the health and function of biologic source material and finished products during manufacturing , distribution and clinical administration . story_separator_special_tag results of operations overview for 2016 in 2016 , we reported financial results that were consistent with the continued execution of our long-term plans . we believe we are the market leader for pre-formulated , clinical grade biopreservation media products . our patented biopreservation media products are formulated to reduce preservation-induced , delayed-onset cell damage and death . our platform enabling technology provides our customers significant shelf life extension of biologic source material and final cell products , and also greatly improved post-preservation cell , tissue , and organ viability and function . our products continue to be widely adopted by this segment . we believe that our products have been incorporated in over 250 applications for new cell and tissue-based regenerative medicine products and therapies . we continue to implement strategies that will increase awareness of the need for improved biopreservation and , through savsu , cold chain logistics monitoring and tracking . 17 our strategies to achieve this objective include : utilize existing biopreservation media sales , distribution and manufacturing infrastructure . we have developed a direct sales and distribution network for our products which we utilize to expand sales to existing customers and to gain additional customers . we believe that our products have been incorporated into over 250 applications for new cell and tissue-based regenerative medicine products and therapies . a significant number involve car-t cells and other types of t cells and mesenchymal stem cells targeting blood cancers , solid tumors and other leading causes of death and disability . in 2016 , key product adoption announcements included : · tissuegene , inc. , specializing in regenerative therapies for the treatment of various orthopedic diseases , signed a 10-year supply agreement with for cryostor® use in invossa osteoarthritis cell-mediated gene therapy . tissuegene will be entering a phase 3 clinical trial for invossa , an allogeneic cell therapy for osteoarthritis of the knee . · promethera biosciences , a clinical stage biopharmaceutical company and the global leader in cell therapy and regenerative medicine for the treatment of inborn and acquired liver diseases with no effective therapeutic cure , has embedded the company 's clinical grade cryostor® cryopreservation freeze media into its manufacturing process for hepastem , a cell-based treatment targeting several metabolic liver disorders such as hemophilia and large clinical indications including acute or chronic liver failure ( aclf ) , fibrosis and nonalcoholic steatohepatitis ( nash ) . · kolon life science , a developer or innovative cell and gene therapies including invossa , incorporated cryostor® cryopreservation freeze media into its manufacturing process for invossa , a cell-mediated gene therapy for knee osteoarthritis to be marketed by kolon life science . · bellicum pharmaceuticals , a clinical stage biopharmaceutical company focused on discovering and developing first- and best-in-class cellular immunotherapies for hematological cancers and solid tumors , as well as orphan inherited blood diseases , signed a 10-year supply agreement for cryostor® for several cellular immunotherapies targeting blood cancers and solid tumors . · cook myosite , a subsidiary of the cook group , developer and subsequent commercialization of technology related to the collection , selection , and expansion of human skeletal muscle cells for the treatment of a variety of disorders , embedded biolife media products into a phase iii trial for an autologous cell therapy for treatment of female stress urinary incontinence . · kite pharma , a leading developer of chimeric antigen receptor ( car ) and t cell receptor ( tcr ) products for various cancers , signed a 10-year supply agreement for cryostor® for use in car t cell therapies . continuously show the scientific results of using our media products in cell and tissue storage . we are continuously testing our products internally and showing the benefits of using our media products to the scientific community . additionally , we communicate the results of independent third party testing of our media products . external studies : selected articles published in 2016 showing results from using our media products include : · the article , “ successful expansion of functional and stable regulatory t cells for immunotherapy in liver transplantation ” , was published in the journal oncotarget and completed at mrc centre for transplantation , division of transplantation immunology and mucosal biology , king 's college london , guy 's hospital , great maze pond , london , and the institute of liver studies , king 's college hospital , denmark hill , london . in this study , treg cells were frozen in cryostor , then thawed and assessed for viability and suppressive function . the authors concluded : · we report the enrichment of a pure , stable population of tregs ( > 95 % cd4+cd25+foxp3+ ) , reaching adequate numbers for their clinical application . · our protocol proved successful in influencing the expansion of superior functional tregs , as compared to freshly isolated cells , whilst also preventing their conversion to th17 cells under pro-inflammatory conditions . · we conclude with the manufacture of the final treg product in the clinical research facility ( crf ) , a prerequisite for the clinical application of these cells . · the article , “ widespread myocardial delivery of heart-derived stem cells by nonocclusive triple-vessel intracoronary infusion in porcine ischemic cardiomyopathy : superior attenuation of adverse remodeling documented by magnetic resonance imaging and histology , a study using cryostor ” was completed at cedars-sinai heart institute in los angeles , and keio university school of medicine in tokyo , japan . the authors concluded : · we have addressed a number of issues that are central to the delivery of cell therapy ( safety and efficacy of stop-flow versus continuous-flow , and of single- versus triple-vessel infusion ) . · our findings give reason to believe that global cell infusion may be a promising translational tool , particularly to treat generalized cardiac disorders .
| in 2016 and 2015 , we derived approximately 12 % and 10 % , respectively , of our revenue from our relationship with one distributor of our products . revenue from customers located in foreign countries represented 17 % and 21 % of total revenue during the years ended december 31 , 2016 and 2015 , respectively . all sales to foreign customers are denominated in united states dollars . 19 operating expenses our operating expenses for the years ended december 31 , 2016 and 2015 were as follows ( in thousands ) : replace_table_token_3_th research and development . research and development expenses consist primarily of salaries and other personnel-related expenses , consulting and other outside services , laboratory supplies , and other costs . we expense all research and development costs as incurred with the exception of the costs associated with the development of customized internal-use software systems , which are capitalized . research and development expenses for 2016 increased compared to 2015 due primarily to biologistex development costs , media development costs and share-based compensation expense . in 2016 , we capitalized $ 0.7 million in costs associated with the development of our biologistex web application . sales and marketing . sales and marketing expenses consist primarily of salaries , trade association sponsorships , and other personnel-related expenses , consulting , trade shows and advertising . the increase in sales and marketing expenses in 2016 compared to 2015 was primarily due to biologistex personnel costs , share-based compensation expense and marketing costs related to biologistex , partially offset by lower recruitment costs . general and administrative expenses . general and administrative expenses consist primarily of personnel-related expenses , non-cash stock-based compensation for administrative personnel and members of the board of directors , professional fees , such as accounting and legal , corporate insurance , and participation fees to stllc related to the biologistex joint venture . the decrease in general and administrative expenses in 2016 compared to 2015 was primarily due to joint venture participation fees of $ 0 in 2016 compared to approximately $ 0.7 million in 2015 , in addition , there was a reversal
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sales and marketing costs are driven primarily by : compensation costs for business development activities ; marketing- and advertising-related activities ; and certain acquisition-related costs . general and administrative costs primarily include costs for non-client-facing personnel , information systems , office space and certain acquisition-related costs . utilization for fiscal 2018 was 91 % , flat with fiscal 2017 . we continue to hire to meet current and projected future demand . we proactively plan and manage the size and composition of our workforce and take actions as needed to address changes in the anticipated demand for our services and solutions , given that compensation costs are the most significant portion of our operating expenses . based on current and projected future demand , we have increased our headcount , the majority of which serve our clients , to approximately 459,000 as of august 31 , 2018 , compared to approximately 425,000 as of august 31 , 2017 . the year-over-year increase in our headcount reflects an overall increase in demand for our services and solutions , as well as headcount added in connection with acquisitions . attrition , excluding involuntary terminations , for fiscal 2018 was 15 % , up from 14 % in fiscal 2017 . we evaluate voluntary attrition , adjust levels of new hiring and use involuntary terminations as means to keep our supply of skills and resources in balance with changes in client demand . in addition , we adjust compensation in certain skill sets and geographies in order to attract and retain appropriate numbers of qualified employees . for the majority of our personnel , compensation increases become effective december 1st of each fiscal year . we strive to adjust pricing and or the mix of resources to reduce the impact of compensation increases on our gross margin . our ability to grow our revenues and maintain or increase our margin could be adversely affected if we are unable to : keep our supply of skills and resources in balance with changes in the types or amounts of services and solutions clients are demanding ; recover increases in compensation ; deploy our employees globally on a timely basis ; manage attrition ; and or effectively assimilate and utilize new employees . gross margin ( net revenues less cost of services before reimbursable expenses as a percentage of net revenues ) for fiscal 2018 was 31.4 % , compared with 31.7 % for fiscal 2017 . the decrease in gross margin for fiscal 2018 was principally due to higher labor costs compared to fiscal 2017 , partially offset by other cost efficiencies in fiscal 2018. sales and marketing and general and administrative costs as a percentage of net revenues were 16.7 % for fiscal 2018 , compared with 16.9 % for fiscal 2017 . we continuously monitor these costs and implement cost-management actions , as appropriate . for fiscal 2018 compared to fiscal 2017 , sales and marketing costs as a percentage of net revenues decreased 20 basis points and general and administrative costs as a percentage of net revenues were flat . during fiscal 2017 , we recorded a $ 510 million pension settlement charge and related $ 198 million reduction in taxes for the u.s. pension plan termination . for additional information , see note 10 ( retirement and profit sharing plans ) to our consolidated financial statements under item 8 , “ financial statements and supplementary data. ” operating margin ( operating income as a percentage of net revenues ) for fiscal 2018 was 14.8 % , compared with 13.3 % for fiscal 2017 . the pension settlement charge decreased operating margin by 150 basis points for fiscal 2017 . excluding the effect of the pension settlement charge , operating margin for fiscal 2017 would have been flat with fiscal 2018 at 14.8 % . the effective tax rate for fiscal 2018 was 27.4 % , compared with 21.3 % for fiscal 2017 . during fiscal 2018 , we recorded a provisional tax charge associated with the enactment of the u.s. tax cuts and jobs act ( the “ tax act ” ) of $ 178 million . absent this charge and $ 81 million of expense from a non-u.s. tax law change , our effective tax rate for fiscal 2018 would have been 23.0 % . absent the pension settlement charge and related taxes described above , our effective tax rate for fiscal 2017 would have also been 23.0 % . for additional information , see note 9 ( income taxes ) to our consolidated financial statements under item 8 , “ financial statements and supplementary data. ” diluted earnings per share were $ 6.34 for fiscal 2018 , compared with $ 5.44 for fiscal 2017 . the impact of tax law changes decreased diluted earnings per share by $ 0.40 in fiscal 2018 . the impact of the pension settlement charge , net of taxes , decreased diluted earnings per share by $ 0.47 in fiscal 2017 . excluding these impacts , diluted earnings per share would have been $ 6.74 and $ 5.91 for fiscal 2018 and 2017 , respectively . we have presented effective tax rate and diluted earnings per share excluding the impacts of the tax law changes in fiscal 2018 and the pension settlement charge in fiscal 2017 as well as operating income and operating margin 29 excluding the impact of the pension settlement charge in fiscal 2017 , as we believe doing so facilitates understanding as to both the impacts of these items and our financial performance when comparing these periods . our operating income and diluted earnings per share are affected by currency exchange rate fluctuations on revenues and costs . most of our costs are incurred in the same currency as the related net revenues . story_separator_special_tag where practical , we seek to manage foreign currency exposure for costs not incurred in the same currency as the related net revenues , such as the costs associated with our global delivery model , by using currency protection provisions in our customer contracts and through our hedging programs . we seek to manage our costs , taking into consideration the residual positive and negative effects of changes in foreign exchange rates on those costs . for more information on our hedging programs , see note 7 ( derivative financial instruments ) to our consolidated financial statements under item 8 , “ financial statements and supplementary data. ” as described further in note 1 ( summary of significant accounting policies ) , on march 13 , 2018 our subsidiary accenture holdings plc merged with and into accenture plc , with accenture plc as the surviving entity . as a result , all of the assets and liabilities of accenture holdings plc were acquired by accenture plc , and accenture holdings plc ceased to exist . the merger was internal and administrative in nature . beginning in fiscal 2019 , we are adopting new accounting standards that will affect the accounting for revenue and pension costs : accounting standards update ( “ asu ” ) no . 2014-09 : “ revenue from contracts with customers ” ( topic 606 ) ; and asu no . 2017-07 : “ compensation—retirement benefits ” ( topic 715 ) . in connection with the adoption , we will present total revenues and will no longer report revenues before reimbursements . also , certain components of pension costs will be reclassified from operating expenses to non-operating expenses . in our subsequent periodic reports , prior-period results will be revised to reflect the fiscal 2019 presentation . additionally , on september 1 , 2018 , we will adopt asu no . 2016-16 : “ income taxes : intra-entity transfers of assets other than inventory ” , which will require us to record deferred tax assets of up to $ 2.1 billion and incremental income tax expense going forward , as these deferred tax assets are utilized . for additional information , see note 1 ( summary of significant accounting policies ) to our consolidated financial statements under item 8 , “ financial statements and supplementary data. ” bookings and backlog new bookings for fiscal 2018 were $ 42.81 billion , with consulting bookings of $ 23.63 billion and outsourcing bookings of $ 19.18 billion . we provide information regarding our new bookings , which include new contracts , including those acquired through acquisitions , as well as renewals , extensions and changes to existing contracts , because we believe doing so provides useful trend information regarding changes in the volume of our new business over time . new bookings can vary significantly quarter to quarter depending in part on the timing of the signing of a small number of large outsourcing contracts . the types of services and solutions clients are demanding and the pace and level of their spending may impact the conversion of new bookings to revenues . for example , outsourcing bookings , which are typically for multi-year contracts , generally convert to revenue over a longer period of time compared to consulting bookings . information regarding our new bookings is not comparable to , nor should it be substituted for , an analysis of our revenues over time . new bookings involve estimates and judgments . there are no third-party standards or requirements governing the calculation of bookings . we do not update our new bookings for material subsequent terminations or reductions related to bookings originally recorded in prior fiscal years . new bookings are recorded using then-existing foreign currency exchange rates and are not subsequently adjusted for foreign currency exchange rate fluctuations . the majority of our contracts are terminable by the client on short notice , and some without notice . accordingly , we do not believe it is appropriate to characterize bookings attributable to these contracts as backlog . normally , if a client terminates a project , the client remains obligated to pay for commitments we have made to third parties in connection with the project , services performed and reimbursable expenses incurred by us through the date of termination . critical accounting policies and estimates the preparation of our consolidated financial statements in conformity with u.s. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses . we continually evaluate our estimates , judgments and assumptions based on available information and experience . because the use of estimates is inherent in the financial reporting process , actual results could differ from those estimates . certain of our accounting policies require higher degrees of judgment than others in their application . these include certain aspects of accounting for revenue recognition and income taxes . 30 revenue recognition our contracts have different terms based on the scope , deliverables and complexity of the engagement , the terms of which frequently require us to make judgments and estimates in recognizing revenues . we have many types of contracts , including time-and-materials contracts , fixed-price contracts and contracts with features of both of these contract types . in addition , some contracts include incentives related to costs incurred , benefits produced or adherence to schedules that may increase the variability in revenues and margins earned on such contracts . we conduct rigorous reviews prior to signing such contracts to evaluate whether these incentives are reasonably achievable . we recognize revenues from technology integration consulting contracts using the percentage-of-completion method of accounting , which involves calculating the percentage of services provided during the reporting period compared with the total estimated services to be provided over the duration of the contract . our contracts for technology integration consulting services generally span six months to two years .
| europe net revenues increased 8 % in local currency , led by the united kingdom and germany , as well as france , spain and switzerland . growth markets net revenues increased 12 % in local currency , led by japan , as well as australia , singapore and china . operating expenses operating expenses for fiscal 2017 increased $ 2,146 million , or 7 % , over fiscal 2016 , and increased as a percentage of revenues to 87.4 % from 86.2 % during this period . operating expenses before reimbursable expenses for fiscal 2017 increased $ 2,145 million , or 8 % , over fiscal 2016 , and increased as a percentage of net revenues to 86.7 % from 85.4 % during this period . cost of services cost of services for fiscal 2017 increased $ 1,215 million , or 5 % , over fiscal 2016 , and decreased as a percentage of revenues to 70.0 % from 70.5 % during this period . cost of services before reimbursable expenses for fiscal 2017 increased $ 1,214 million , or 5 % , over fiscal 2016 , and decreased as a percentage of net revenues to 68.3 % from 68.7 % during this period . gross margin for fiscal 2017 increased to 31.7 % from 31.3 % in fiscal 2016. the increase in gross margin for fiscal 2017 was principally due to lower labor costs as a percentage of net revenues , compared to fiscal 2016. sales and marketing sales and marketing expense for fiscal 2017 increased $ 174 million , or 5 % , over fiscal 2016 , and decreased as a percentage of net revenues to 10.8 % from 10.9 % during this period . general and administrative costs general and administrative costs for fiscal 2017 increased $ 247 million , or 13 % , over fiscal 2016 , and increased as a percentage of net revenues to 6.1 % from 5.7 % during this period . the increase as a percentage of net revenues was principally due to higher technology and facilities costs , as well as higher acquisition-related costs . pension settlement
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revenue recognition licensing in connection with our licensing model , we follow financial accounting standards board , or fasb , accounting standards codification , or asc , topic 606‑10‑55‑65 , by which we recognize revenue at the later of when ( 1 ) the subsequent sale or usage occurs or ( 2 ) the performance obligation to which some or all of the sales- or usage-based royalty has been allocated is satisfied ( in whole or in part ) . more specifically , we separately identify : ( i ) contracts for which , based on experience , royalties are expected to exceed any applicable minimum guaranteed payments , and to which an output-based measure of progress based on the “ right to invoice ” practical expedient is applied because the royalties due for each period correlate directly with the value to the customer of our performance in each period ( this approach is identified as “ view a ” by the fasb revenue recognition transition resource group , “ trg ” ) ; and ( ii ) contracts for which revenue is recognized based on minimum guaranteed payments using an appropriate measure of progress , in which minimum guaranteed payments are straight-lined over the term of the contract and recognized ratably based on the passage of time , and to which the royalty recognition constraint to the sales-based royalties in excess of minimum guaranteed is applied and such sales-based royalties are recognized to distinct period only when the minimum guaranteed is exceeded on a cumulative basis ( this approach is identified as “ view c ” by the trg ) . 34 design fees the company earns design fees for serving as a buying agent for apparel under private labels for large retailers . as a buying agent , the company utilizes its expertise and relationships with manufacturers to facilitate the production of private label apparel to customer specifications . the company 's design fee revenue also includes fees charged for its design and product development services provided to certain suppliers . the company satisfies its performance obligation to its customers by performing the services in buyer agency agreements and thereby earning its design fee at the point in time when the customer 's freight forwarder takes control of the goods . the company satisfies its performance obligation with the suppliers and earns its design fee from the factory at the point in time when the customer 's freight forwarder takes control of the goods . wholesale sales the company generates revenue through sale of branded jewelry and apparel to both domestic and international customers who , in turn , sell the products to their consumers . the company recognizes revenue when performance obligations identified under the terms of contracts with its customers are satisfied , which occurs upon the transfer of control of the merchandise in accordance with the contractual terms and conditions of the sale . direct to consumer sales the company 's revenue associated with its e-commerce jewelry operations is recognized at a point in time when product is shipped to the customer . trademarks and other intangible assets we follow asc topic 350 , “ intangibles - goodwill and other. ” under this standard , goodwill and indefinite-lived intangible assets are not amortized , but are required to be assessed for impairment at least annually . our finite-lived intangible assets are amortized over their estimated useful lives . we perform our annual quantitative analysis of indefinite-lived intangible assets as of december 31 each year . as a result of performing our annual impairment testing for the year ended december 31 , 2019 , we recorded a $ 6.2 million impairment charge related to the ripka brand trademarks , driven by the timing of the continued transition from a licensing model to a wholesale and direct to consumer model . no other impairment charges were recorded for the years ended december 31 , 2019 and 2018. indefinite-lived intangibles the company tests its indefinite-lived intangible assets for recovery in accordance with asc‑820‑10‑55‑3f , which states that the income approach ( “ income approach ” ) converts future amounts ( for example cash flows ) in a single current ( that is , discounted ) amount . when the income approach is used , fair value measurement reflects current market expectations about those future amounts . the income approach is based on the present value of future earnings expected to be generated by a business or asset . income projections for a future period are discounted at a rate commensurate with the degree of risk associated with future proceeds . a residual or terminal value is also added to the present value of the income to quantify the value of the business beyond the projection period . as such , recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to its expected future discounted net cash flows . if the carrying amount of such assets is considered to be impaired , the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the recoverability of the assets . finite-lived intangibles with reference to our finite-lived intangible assets impairment process , the company groups assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of undiscounted future cash flows . if the undiscounted cash flows do not indicate 35 the carrying amount of the asset is recoverable , an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flows analysis or appraisals . stock-based compensation we account for stock-based compensation in accordance with asc topic 718 , “ compensation - stock compensation , ” by recognizing the fair value of stock-based compensation as an operating expense over the service period of the award or term of the corresponding contract , as applicable . story_separator_special_tag stock option awards are valued using a black-scholes option pricing model , which requires the input of subjective assumptions including expected stock price volatility and the estimated life of each award . restricted stock awards are valued using the fair value of our common stock at the date the common stock is granted . for stock option awards for which vesting is contingent upon the achievement of certain performance targets , the timing and amount of compensation expense recognized is based upon the company 's projections and estimates of the relevant performance metric ( s ) . fair value of contingent obligations asc 805-50-30 requires that , when accounting for asset acquisitions , when the fair value of the assets acquired is greater than the consideration paid , any contingent obligations shall be recognized and recorded as the positive difference between the fair value of the assets acquired and the consideration paid for the acquired assets . asc 805-50-30 also requires that when the fair value of the assets acquired is equal to the consideration paid , any contingent obligations shall be recognized based upon the company 's best estimate of the amount that will be paid to settle the liability . we recognized contingent obligations in connection with the acquisition of judith ripka trademarks in 2014 , the acquisition of the c wonder trademarks in 2015 , and the acquisition of the halston heritage trademarks in 2019. leases we determine if an arrangement is a lease at inception . at commencement of a lease , we recognize an operating lease right-of-use ( “ rou ” ) asset , representing our right to use the underlying leased asset for the lease term , and a lease liability , representing our obligation to make future lease payments , based on the present value of the remaining lease payments over the lease term . as most of our leases do not provide an implicit rate , we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments . we may use the implicit rate when readily determinable . operating lease rou assets also include scheduled lease payments made and initial direct costs , and exclude lease incentives and accrued rent . lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option . lease expense for operating lease payments is generally recognized on a straight-line basis over the lease term . for real estate leases of office space , we account for the lease and non-lease components as a single lease component . variable lease payments that do not depend on an index or rate ( such as real estate taxes and building insurance and lessee 's shares thereof ) , if any , are excluded from lease payments at lease commencement date for initial measurement . subsequent to initial measurement , these variable payments are recognized when the event determining the amount of variable consideration to be paid occurs . for leases with a term of 12 months or less , we do not recognize lease liabilities and rou assets , but recognize the lease payments in net income on a straight-line basis over the respective lease terms . we recognize income from subleases ( in which we are the sublessor ) on a straight-line basis over the term of the sublease , as a reduction to lease expense . income taxes income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities . deferred income taxes are determined based on the temporary difference between the financial reporting and tax bases of assets and liabilities using enacted rates in effect during the year in which the differences are expected to reverse . valuation 36 allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized . asc topic 740 , “ accounting for income taxes ” clarifies the accounting for uncertainty in income taxes recognized in an enterprise 's financial statements . tax positions shall initially be recognized in the financial statements when it is more likely than not that the position will be sustained upon examination by the tax authorities . such tax positions shall initially and subsequently be measured as the largest amount of tax benefit that has a probability of fifty percent or greater of being realized upon ultimate settlement with the tax authority , assuming full knowledge of the position and all relevant facts . tax years that remain open for assessment for federal and state tax purposes include the years ended december 31 , 2016 through december 31 , 2019. recently issued accounting pronouncements in august 2018 , the fasb issued asu no . 2018‑13 , “ fair value measurement ( topic 820 ) : disclosure framework – changes to the disclosure requirements for fair value measurement. ” this asu adds , modifies , and removes several disclosure requirements relative to the three levels of inputs used to measure fair value in accordance with topic 820 , “ fair value measurement. ” this guidance is effective for public companies for fiscal years beginning after december 15 , 2019 , with early adoption permitted . we are currently evaluating the new guidance to determine the impact the adoption of this guidance will have on our results of operations , cash flows , and financial condition . in december 2019 , the fasb issued asu no . 2019-12 , “ income taxes ( topic 740 ) : simplifying the accounting for income taxes. ” this asu removes certain exceptions to the general principles in topic 740 , including , but not limited to , intraperiod tax allocations and interim period tax calculations . the asu also provides additional clarification and guidance related to recognition of franchise taxes and changes in tax laws . this guidance is effective for public companies for fiscal years , and interim periods within those fiscal years , beginning after december 15 , 2020 , with early adoption permitted .
| million for the prior year , while gross profit margin decreased from 92 % to 75 % . this decrease was primarily attributable to the decrease in net licensing revenue , partially offset by an increase in net margin from product sales . operating costs and expenses operating costs and expenses increased approximately $ 8.1 million to $ 36.9 million for the current year from approximately $ 28.8 million in the prior year . this increase was primarily attributable to a $ 6.2 million non-cash impairment charge recorded in the current year related to the ripka brand trademarks , driven by the timing of the continued transition from a licensing model to a wholesale and direct to consumer model . also contributing to the increase in total operating costs and expenses was a $ 2.1 million increase in amortization expense for our intangible assets , due to the change in the previously-owned halston trademarks from indefinite-lived assets to finite-lived assets as of january 1 , 2019 , and the february 2019 acquisition of the halston and halston heritage trademarks , also determined to be finite-lived assets . in addition , we incurred $ 1.3 million of costs in the current year in connection with potential acquisitions . 38 these various expense increases were partially offset by a reduction in salary and benefit costs and lower stock-based compensation of $ 0.7 million and $ 0.8 million , respectively . other income during the current year , we recognized a $ 2.85 million gain on the reduction of contingent obligations related to the 2015 acquisition of the c wonder brand . as part of that acquisition , the seller was eligible to earn additional consideration based on future royalties related to the c wonder brand exceeding certain thresholds , and we recorded a liability for the potential future payment of such consideration . the final earn-out period ended on june 30 , 2019 , and the seller ultimately did not earn any
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isystems and pmsi contributed $ 7.4 million and $ 4.4 million , respectively , of the $ 17.1 million in cloud revenue from acquisitions , or 69.3 % . hardware revenue increased by $ 908 , or 23.9 % , over 2016. this was primarily due to a large sale of hardware as part of a major customer contract we successfully gained in 2017. maintenance and support revenue slightly decreased by $ 113 , or 2.5 % , over 2016. maintenance and support revenue was $ 4.5 million in 2017 as compared to $ 4.6 million in 2016. this decrease is primarily a result of movements of clients from on premise to on demand , cloud-based solutions and timing of work performed on contracts . on premise software license revenues decreased $ 826 , or 37.2 % , as compared to 2016. on premise software license revenue was $ 1.4 million in 2017 as compared to $ 2.2 million in 2016. this decrease is primarily a result of movements of clients from on premise to on demand , cloud-based solutions . professional services revenue increased $ 270 , or 6.2 % , over 2016. professional services revenue was $ 4.6 million in 2017 as compared to $ 4.4 million in 2016. professional services revenue increased primarily as a result of the acquisitions of isystems and pmsi in 2017. although our total customer base is widely spread across industries , our sales are concentrated in certain industry sectors , including corporate education , healthcare , government , legal and non-profit . we continue to target small and medium sized businesses and divisions of larger enterprises in these same industries as prospective customers . geographically , we sell our products worldwide , but sales are largely concentrated in the united states , canada and europe . additionally , we have reseller partners in north america , uk , south africa and asia pacific . 29 in addition to continuing to develop our workforce and agile workplace management solutions and release of new software updates and enhancements , we continue to actively explore other opportunities to acquire additional products or technologies to complement our current software and services . through acquisitions in 2011 of adi and legiant , we expanded our cloud computing time and attendance software and management services business . the 2012 acquisition of peoplecube gave us a product line that includes software to assist customers in driving integrated facility management of offices , conference rooms , video conferencing , events and training , alternative workspaces and lobby use . the 2014 acquisitions of fotopunch and roomtag support our vision to deliver innovative cloud-based agile workplace technologies . our march 2016 acquisitions from mangrove enable us to enter into the human resource management , payroll processing and benefits administration services businesses , which we are integrating into our existing asureforce® product line . with respect to the three acquisitions closed in january 2017 , psnw and cpi are top regional service bureaus that resell our hcm products ( formerly mangrove ) and integrate seamlessly into our business , while pmsi is a leading hcm service company that expands our solution , service , and implementation capabilities . our may 2017 acquisition of isystems , a leading national provider of hcm solutions , provides us with additional cross-sell revenue opportunities and cost synergies and our may 2017 acquisition of compass hrm , an existing reseller of our hcm offerings , provides us with a regional hr and payroll service bureau in the southeast . our october 2017 acquisition of ads , a leading regional human resources and payroll services bureau in the southeast and a current reseller of our hcm solution , evolution , was consistent with our vision to deliver a unified saas-based hcm platform and workplace solutions to support an evolving mobile workforce . gross margin consolidated gross margin was $ 41.8 million in 2017 and $ 27.4 million in 2016 , an increase of $ 14.4 million , or 52.5 % . gross margin as a percentage of revenues was 76.8 % for 2017 and 77.2 % for 2016. gross margin increased in line with the increase in total revenue . our cost of sales relates primarily to direct product costs , compensation and related consulting expenses , hardware expenses , facilities and related expenses and the amortization of our purchased software development costs . these expenses represented approximately 95 % of the total cost of sales for 2017 and 93 % for 2016. these expenses increased by approximately $ 4.5 million , or 59.4 % , over 2016. this increase is comprised primarily of increases in salary and benefits expense of $ 2.9 million , or 74.0 % , and an increase in product costs of $ 1.2 million , or 45.5 % , over 2016. we include intangible amortization related to developed and acquired technology within cost of sales . selling , general and administrative expenses selling , general and administrative ( “ sg & a ” ) expenses were $ 33.9 million in 2017 and $ 21.0 million in 2016 , an increase of $ 12.8 million , or 61.0 % . sg & a expenses as a percentage of revenues were 62.2 % and 59.2 % for 2017 and 2016 , respectively . sg & a increased due to a full year of mangrove expenses and acquisition and integration expenses related to the acquisitions of ads , cpi , pmsi , psnw , isystems and compass in 2017 , as well as increased headcount as we continue to expand and increased selling costs as we focus on expanding recognition of our brand . we may incur significant additional legal expenses and or professional services-related expenses in the future if we pursue further acquisitions of products or businesses , even if we ultimately do not consummate any acquisition . research and development expenses research and development ( “ r & d ” ) expenses were $ 4.5 million in 2017 and $ 2.9 million in 2016 , an increase of $ 1.6 million or 53.9 % . story_separator_special_tag r & d expenses as a percentage of revenues were 8.2 % and 8.2 % for 2017 and 2016 , respectively . the $ 1.6 million increase is primarily due to an increase in technical resources , including increased headcount , from our acquisition of isystems in 2017. asure successfully executed its 2017 stated r & d goals of platform , co-innovation and mobility development within our product suites via a mix of capital projects and expansion of the core product and engineering resources . asure was able to deliver the port to a unified and integrated platform between its asurehcm and asureforce products , as well develop enhanced mobile solutions in both its asurespace and asureforce products . with the acquisition of isystems and its evolution product in may 2017 , r & d efforts saw the fulfillment of moving the former payroll centric solution to a fully integrated hcm suite for the smb market . 30 key product highlights include : · asurehcm : port to integrated amazon aws infrastructure ; development of job board and application tracking ( ats ) integration ; port of cobra product set to integrate with asurehcm platform · asureforce : phase one move to amazon aws infrastructure and expanded hcm integration ; new mobile employee self-service product ; diy payroll integration tool · asurespace : expanded integration options with crestron fusion , cisco webex and microsoft exchange ; expanded partnership footprint with additional digital workplace hardware vendors utilizing our open api based platform . · evolutionhcm : previously noted transformation from payroll to integration hcm platform asure will continue the integration and platform development theme in 2018 , again with a mix of capital and core engineering efforts . where 2017 focused on the mid-market integration , 2018 will see the same elements of integration with our smb and channel product , evolution , providing a single vendor solution for our channel partners and direct sales alike . during 2018 asure will continue to make investments in the mid-market and global solution sets , including a unified reporting solution that provides substantive value to the vision of a single vendor , single platform solution for data and analytics . asure sees a continued expansion of the use of this integrated data into future artificial intelligence and business intelligence areas , fulfilling the vision of our people success platform to drive the workplace of the future . amortization of intangible assets amortization expenses in 2017 were $ 4.5 million , an increase of $ 2.2 million , or 98.7 % , as compared to $ 2.3 million in 2016. amortization expenses as a percentage of revenues were 8.2 % and 6.3 % for 2017 and 2016 , respectively . this increase is due to the amortization related to our acquisitions in 2017. other income and loss other loss was $ 4.6 million for the year ended 2017 as compared to $ 2.0 million in the year ended 2016. other loss in 2017 and 2016 was primarily comprised of interest expense . the increase is primarily comprised of an increase in interest expense due to the higher debt balances resulting from our restated credit agreement and debt incurred in connection with our acquisitions . income taxes at december 31 , 2017 , we had federal net operating loss carryforwards of approximately $ 130.1 million , federal r & d credit carryforwards of approximately $ 5.6 million and alternative minimum tax credit carryforwards of approximately $ 123,000. the net operating loss and federal r & d credit carryforwards will expire in varying amounts from 2018 through 2037 , if not utilized . minimum tax credit carryforwards carry forward indefinitely . income tax expense decreased from $ 189,000 in 2016 to $ 96,000 in 2017 , a $ 93,000 , or 49.0 % , decrease . these figures represent an effective tax rate of 1.7 % and 24.1 % in 2017 and 2016 , respectively . income tax expense is primarily due to deferred taxes on the amortization of goodwill for tax purposes and the results of foreign operations . as a result of our various acquisitions in prior years , utilization of the net operating losses and credit carryforwards may be subject to a substantial annual limitation due to the “ change in ownership ” provisions of the internal revenue code of 1986. the annual limitation may result in the expiration of net operating losses before utilization . due to the uncertainty surrounding the timing of realizing the benefits of our favorable tax attributes in future tax returns , we have placed a valuation allowance against our net deferred tax asset , exclusive of goodwill . during 2017 , we decreased the valuation allowance by approximately $ 14.7 million due primarily to operations , acquisitions and the impact of changes in tax law . we consider the undistributed earnings of our foreign subsidiaries permanently reinvested and , accordingly , we have not provided for u.s. federal or state income taxes thereon . net income ( loss ) net loss was $ 5.7 million in 2017. net loss was $ 972,000 in 2016. the increase in net loss was $ 4.8 million , or 488.7 % . net loss as a percentage of total revenues was 10.5 % and 2.7 % in 2017 and 2016 , respectively . 31 liquidity and capital resources replace_table_token_3_th working capital . we had working capital of $ 17.0 million at december 31 , 2017 , an increase of $ 12.8 million from $ 4.2 million at december 31 , 2016. we attribute the increase in our working capital primarily to an increase in cash and cash equivalents of $ 15.7 million as a result of our june 2017 public stock offering and our may 2017 refinancing of our amended credit agreement , offset by our 2017 acquisitions and net cash used by operations . accounts receivable also increased $ 4.1 million due to an increase in revenue , offset by an increase in short term notes payable of $ 3.4 million .
| the aggregate consideration for the assets consisted of ( i ) $ 1.5 million in cash , ( ii ) a subordinated promissory note in the principal amount of $ 500,000 and ( iii ) 112,166 shares of our common stock valued at $ 1.0 million , subject to adjustment . finally , we acquired substantially all the assets of psnw , an oregon corporation . the aggregate consideration for the assets consisted of ( i ) $ 3.010 million in cash and ( ii ) a subordinated promissory note in the principal amount of $ 600,000 , subject to adjustment . 27 in may 2017 , we entered into an equity purchase agreement ( the “ equity purchase agreement ” ) with isystems holdings , llc , a delaware limited liability company , and isystems intermediate holdco , inc. , a delaware corporation ( “ isystems ” ) , pursuant to which we acquired 100 % of the outstanding equity interests of isystems for an aggregate purchase price of $ 55.0 million . the aggregate purchase price consists of ( i ) $ 32.0 million in cash , subject to adjustment , ( ii ) a secured subordinated promissory note ( “ isystems note ” ) in the principal amount of $ 5.0 million , subject to adjustment , and ( iii ) 1,526,332 shares of unregistered common stock valued at $ 18.0 million based on a volume-weighted average of the closing prices of our common stock during a 90-day period . based in vermont , isystems is a leading national provider of hcm solutions to more than 100 payroll and hr service bureaus , providing asure with additional cross-sell revenue opportunities and cost synergies . in may 2017 , we also entered into a stock purchase agreement with compass hrm , inc. ( “ compass ” ) and the sellers and seller representative named therein , pursuant to which the sellers sold 100 % of the outstanding shares of capital stock of compass to us for an aggregate purchase price of $ 6.0 million , subject to adjustment . the aggregate purchase price consists of $ 4.5 million in cash and a subordinated promissory note in the principal amount of $ 1.5 million , subject to adjustment . compass is headquartered in tampa , florida , and
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regulatory approval was received february 27 , 2018. at december 31 , 2017 , the company had approximately $ 1.8 billion in total assets , an increase of $ 0.5 billion compared to $ 1.3 billion at december 31 , 2016. loans net of the allowance for loan losses increased to $ 1,221.8 million at december 31 , 2017 from $ 865.4 million at december 31 , 2016. deposits increased to $ 1,470.6 million at december 31 , 2017 from $ 1,039.2 million at december 31 , 2106. stockholders ' equity increased to $ 222.5 million at december 31 , 2017 from approximately $ 154.5 million at december 31 , 2016. the acquisitions of iberville bank and gulf coast community bank , which were completed on january 1 , 2017 , contributed $ 402.6 million , $ 237.3 million and $ 355.6 million in assets , loans , and deposits , respectively . the first reported net income of $ 12.6 million , $ 11.6 million and $ 9.6 million for the years ended december 31 , 2017 , 2016 , and 2015 , respectively . for the years ended december 31 , 2017 , 2016 and 2015 , the company reported consolidated net income applicable to common stockholders of $ 10.6 million , $ 9.7 million and $ 8.5 million , respectively . the following discussion should be read in conjunction with the “ selected consolidated financial data ” and the company 's consolidated financial statements and the notes thereto and the other financial data included elsewhere . results of operations the following is a summary of the results of operations by the first for the years ended december 31 , 2017 , 2016 , and 2015. replace_table_token_5_th 30 the following reconciles the above table to the amounts reflected in the consolidated financial statements of the company at december 31 , 2017 , 2016 , and 2015 : replace_table_token_6_th consolidated net income the company reported consolidated net income applicable to common stockholders of $ 10.6 million for the year ended december 31 , 2017 , compared to a consolidated net income of $ 9.7 million for the year ended december 31 , 2016 , and consolidated net income of $ 8.5 million for the year ended december 31 , 2015. the increase in income was attributable to an increase in net interest income of $ 18.9 million or 46.8 % , an increase in other income of $ 3.1 million , or 27.7 % , which was offset by an increase in other expenses of $ 18.6 million or 50.4 % . the increase in other expense was primarily due to a charge of $ 6.7 million related to the acquisitions completed in 2017 and a $ 2.1 million charge to income tax expense related to a reduction in our deferred tax asset resulting from the change in tax rate under the tax cuts and jobs act enacted in december of 2017. see note c – business combinations in the accompanying notes to the consolidated financial statements included elsewhere in this report for more information on how the company accounts for business combinations . consolidated net interest income the largest component of net income for the company is net interest income , which is the difference between the income earned on assets and interest paid on deposits and borrowings used to support such assets . net interest income is determined by the rates earned on the company 's interest-earning assets and the rates paid on its interest-bearing liabilities , the relative amounts of interest-earning assets and interest-bearing liabilities , and the degree of mismatch and the maturity and repricing characteristics of its interest-earning assets and interest-bearing liabilities . consolidated net interest income was approximately $ 59.2 for the year ended december 31 , 2017 , as compared to $ 40.3 for the year ended december 31 , 2016. this increase was the direct result of increased loan volumes during 2017 as compared to 2016. average interest-bearing liabilities for the year 2017 were $ 1,247.8 million compared to $ 911.0 million for the year 2016. at december 31 , 2017 , the net interest spread , which is the difference between the yield on earning assets and the rates paid on interest-bearing liabilities , was 3.72 % compared to 3.63 % at december 31 , 2016. the net interest margin , which is net interest income divided by average earning assets , was 3.83 % for the year 2017 compared to 3.71 % for the year 2016. rates paid on average interest-bearing liabilities increased to 0.55 % for the year 2017 compared to 0.47 % for the year 2016. interest earned on assets and interest accrued on liabilities is significantly influenced by market factors , specifically interest rates as set by federal agencies . average loans comprised 74.1 % of average earnings assets for the year 2017 compared to 73.9 % the year 2016 . 31 consolidated net interest income was approximately $ 40.3 million for the year ended december 31 , 2016 , as compared to $ 37.0 million for the year ended december 31 , 2015. this increase was the direct result of increased loan volumes during 2016 as compared to 2015. average interest-bearing liabilities for the year ended december 31 , 2016 were $ 911.0 million compared to $ 822.7 million for the year ended december 31 , 2015. at december 31 , 2016 , the net interest spread was 3.63 % compared to 3.65 % at december 31 , 2015. the net interest margin was 3.71 % for the year 2016 compared to 3.72 % for the year 2015. rates paid on average interest-bearing liabilities increased to 0.47 % for the year 2016 compared to 0.39 % for the year 2015. average loans comprised 73.9 % of average earnings assets for the year 2016 compared to 71.7 % for the year 2015. average balances , income and expenses , and rates . story_separator_special_tag the following tables depict , for the periods indicated , certain information related to the average balance sheet and average yields on assets and average costs of liabilities . such yields are derived by dividing income or expense by the average balance of the corresponding assets or liabilities . average balances have been derived from daily averages . average balances , income and expenses , and rates replace_table_token_7_th _ ( 1 ) all loans and deposits were made to borrowers in the united states . includes non-accrual loans of $ 5,674 , $ 3,265 , and $ 7,368 , for the years ended december 31 , 2017 , 2016 , and 2015 , respectively . loans include held for sale loans . ( 2 ) includes loan fees of $ 1,333 , $ 857 , and $ 692 , for the years ended december 31 , 2017 , 2016 , and 2016 , respectively . ( 3 ) includes excess balance account-mississippi national banker 's bank and federal reserve – new orleans . ( 4 ) tax equivalent yield assuming a 35 % tax rate . 32 analysis of changes in net interest income . the following table presents the consolidated dollar amount of changes in interest income and interest expense attributable to changes in volume and to changes in rate . the combined effect in both volume and rate which can not be separately identified has been allocated proportionately to the change due to volume and due to rate . analysis of changes in consolidated net interest income replace_table_token_8_th interest sensitivity . the company monitors and manages the pricing and maturity of its assets and liabilities in order to diminish the potential adverse impact that changes in interest rates could have on its net interest income . a monitoring technique employed by the company is the measurement of the company 's interest sensitivity `` gap , '' which is the positive or negative dollar difference between assets and liabilities that are subject to interest rate repricing within a given period of time . the company also performs asset/liability modeling to assess the impact varying interest rates and balance sheet mix assumptions will have on net interest income . interest rate sensitivity can be managed by repricing assets or liabilities , selling securities available-for-sale , replacing an asset or liability at maturity , or adjusting the interest rate during the life of an asset or liability . managing the amount of assets and liabilities repricing in the same time interval helps to hedge the risk and minimize the impact on net interest income of rising or falling interest rates . the company evaluates interest sensitivity risk and then formulates guidelines regarding asset generation and repricing , funding sources and pricing , and off-balance sheet commitments in order to decrease interest rate sensitivity risk . 33 the following tables illustrate the company 's consolidated interest rate sensitivity and consolidated cumulative gap position at december 31 , 2017 , 2016 , and 2015. replace_table_token_9_th replace_table_token_10_th 34 replace_table_token_11_th ( 1 ) now and savings accounts are subject to immediate withdrawal and repricing . these deposits do not tend to immediately react to changes in interest rates and the company believes these deposits are fairly stable . therefore , these deposits are included in the repricing period that management believes most closely matches the periods in which they are likely to reprice rather than the period in which the funds can be withdrawn contractually . ( 2 ) securities include mortgage backed and other installment paying obligations based upon stated maturity dates . ( 3 ) does not include subordinated debentures of $ 10,310,000. the company generally would benefit from increasing market rates of interest when it has an asset-sensitive gap and generally from decreasing market rates of interest when it is liability sensitive . the company currently is asset sensitive within the one-year time frame . however , the company 's gap analysis is not a precise indicator of its interest sensitivity position . the analysis presents only a static view of the timing of maturities and repricing opportunities , without taking into consideration that changes in interest rates do not affect all assets and liabilities equally . for example , rates paid on a substantial portion of core deposits may change contractually within a relatively short time frame , but those rates are viewed by management as significantly less interest-sensitive than market-based rates such as those paid on non-core deposits . accordingly , management believes a liability sensitive-position within one year would not be as indicative of the company 's true interest sensitivity as it would be for an organization which depends to a greater extent on purchased funds to support earning assets . net interest income is also affected by other significant factors , including changes in the volume and mix of earning assets and interest-bearing liabilities . 35 the following tables depict , for the periods indicated , certain information related to interest rate sensitivity in net interest income and market value of equity . replace_table_token_12_th replace_table_token_13_th replace_table_token_14_th provision and allowance for loan losses the company has developed policies and procedures for evaluating the overall quality of its credit portfolio and the timely identification of potential problem loans . management 's judgment as to the adequacy of the allowance for loan losses is based upon a number of assumptions about future events which it believes to be reasonable , but which may not prove to be accurate . thus , there can be no assurance that charge-offs in future periods will not exceed the allowance for loan losses or that additional increases in the loan loss allowance will not be required . 36 the company 's allowance consists of two parts . the first part is determined in accordance with authoritative guidance issued by the fasb regarding the allowance . the company 's determination of this part of the allowance is based upon quantitative and qualitative factors . the company uses a loan loss history based upon the prior nine years to determine the appropriate allowance .
| % for the year ended december 31 , 2016 compared to $ 7.6 million for the year ended december 31 , 2015. deposit activity fees were $ 7.4 million for 2017 compared to $ 5.1 million for 2016 and $ 5.0 million for 2015. other service charges increased by $ 0.1 million or 17.4 % for the year ended 2017 to $ 0.6 million from $ 0.5 million for the year ended december 31 , 2016 and other service charges increased $ 0.1 million or 12.8 % for the year ended december 31 , 2016 , compared to $ 0.5 million for the year ended december 31 , 2015. mortgage income increased $ 3.4 million during 2016 due to increased volume from the acquisition of the mortgage connection , llc in december , 2015. non-interest expense was $ 55.4 million at december 31 , 2017 , an increase of $ 18.6 million in year-over-year comparison primarily resulting from increases in salaries and benefits of $ 8.4 million , of which $ 6.7 million relates to the acquisitions of gulf coast community bank and iberville bank . increases in professional services and other non-interest expense increased $ 7.0 million which includes $ 6.7 million in merger-related costs . non-interest expense increased to $ 36.9 million for the year ended december 31 , 2016 , from $ 32.2 million for the year ended december 31 , 2015. the company experienced slight increases in most expense categories . salaries and employee benefits increased $ 3.6 million in 2016 as compared to 2015 , due in part to a full year of the addition of the mortgage connection and the lending teams in mobile , alabama and jackson , mississippi . 42 the following table sets forth the primary components of non-interest expense for the periods indicated : non-interest expense replace_table_token_22_th income tax expense income tax expense consists of two components . the first is the current tax expense which represents the expected income
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since the beginning of 2016 , people 's bank of china injected a significant amount of liquidity to the market to encourage the development of emerging industries such as online-game , filming and virtual reality , which has made it easier than previous two years for entities to gain access to capital . however , the bank lenders are still cautious with smes in traditional industries . the bank lenders usually require an old loan be paid in full upon maturity before they approve a new loan to the same borrower . since the end of the year ended december 31 , 2014 , the banks denied to extend new loans to many smes even after they made the full repayment for the loans due and satisfied other conditions . as a result , some of the sme borrowers for which we provided the guarantees decided to default on the bank loans . therefore the amount of repayment we made to the bank lenders substantially increased since the year ended december 31 , 2014. we have brought collection actions against both the borrowers and their counter-guarantors . however , management was advised by counsel in the collection action that the chance of collection is remote given the large scale bad debt prevalent in wujiang region . as of december 31 , 2017 and 2016 , the management charged off specific provision for 31 and 2 customers in the amount of us $ 10,440,156 and us $ 142,966 , respectively . in december 2017 , the company revisited the classification of its guarantee portfolios within its rating system to test the adequacy of the allowances calculated thereby . as a result of such testing , the company decided to reclassify certain guarantees into different categories . the company reviewed the profile , financial condition and other relevant information and documents of each customer in the guarantee businesses . for customers with several guarantees with different due dates , if one guaranteed loan was past due , the company decided to reclassify all of this customer 's guaranteed loans as past due ( even the other loans that were not mature yet ) . these reclassifications affected numerous customer accounts . we engaged he-partners law firm , one of the largest law firms in suzhou city , to represent us in the legal proceedings against the borrowers and their counter guarantors , and expect to collect part of the outstanding balance in a period ranging from six twelve months to one and a half year upon adjudication by the court in favor of the company . the timing of collection and ultimate amount of funds we can recover depend on a few factors , including the repayment ability of the borrower and their counter-guarantors , the execution time of the court , other obligations the borrowers have and priority over the claim for the company . 51 non-interest expenses non-interest expenses increased from us $ 4,876,002 for the year ended december 31 , 2016 to us $ 5,212,628 for the year ended december 31 , 2017 , representing an increase of us $ 336,626 , or 7 % . non-interest expenses primarily consisted of salary and employee surcharge , office rental expense , business tax and surcharge , legal and consulting expenses relating to acquisition , litigation and settlement cost for the shareholders ' lawsuit , changes in fair value of other noncurrent liabilities , depreciation of equipment , travel expenses , entertainment expenses , professional service fees , and other office supplies . the increase was mainly attributable to net effects of a decrease of salaries and employee surcharge by us $ 306 , 293 , or 24 % , a decrease of rental expenses by us $ 36,593 , or 39 % against a one-time increase of legal and consulting cost relating to a failed acquisition of sorghum by $ 2,749,795 and against a decrease in litigation and settlement cost for the shareholders ' lawsuit by $ 1,641,500 netting off an increase in change of fair value of other noncurrent liabilities for settlement of shares for the shareholders ' lawsuit by 617,500. loan portfolio quality one of our key objectives is to maintain a high level of loan portfolio quality . when a borrower fails to make a scheduled payment , we attempt to cure the deficiency by personally contacting the borrower . initial contacts typically are made seven days after the date the payment is due , and warning letters are sent by our legal counsel approximately 90 days after the default . in most cases , deficiencies are promptly resolved . if the outstanding amount can not be collected within 180 days after the maturity date and the parties could not reach an agreement on a specific repayment program , we will initiate legal proceedings . we also keep the frequency of visits to our customers and observe their daily production on site from time to time to observe their operating condition and collect their financial information . since most of our customers are in the jiangsu area , it is also relatively easy to obtain information about our customers . on loans where the collection of principal or interest payments is doubtful , the accrual of interest income ceases and become “ non-accrual ” loans . except for loans that are sufficiently secured and in the process of collection , it is our policy to discontinue accruing additional interest and reverse any interest accrued on any loan which is 90 days or more past due . we account for our impaired loans in accordance with u.s. gaap . story_separator_special_tag an impaired loan generally is one for which it is probable , based on current information , that the lender will not collect all the amounts due under the contractual terms of the loan . loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired . management determines the significance of payment delays and payment shortfalls on a case-by-case basis , taking into consideration all of the circumstances surrounding the loan and the borrower , including the length of the delay , the reasons for the delay , the borrower 's prior payment history and the amount of the shortfall in relation to the principal and interest owed . impairment is measured on a loan by loan basis for business and personal loans by either the present value of expected future cash flows discounted at the loan 's effective interest rate or the fair value of the collateral if the loan is collateralized . we allow a one-time loan extension with time duration up to the original loan term , which is usually within twelve months . in order to qualify , the borrower must be current with its interest payments . we do not grant concession to borrowers as the principal of the loan remains the same and interest rate is fixed at the current interest rate at the time of extension . we use a comprehensive methodology to monitor credit quality and prudently manage credit concentration within our portfolio of loans . currently our loan portfolio concentrates in the textile industry and during the year ended december 31 , 2017 , both the domestic and international demand for textile products have been decreasing . to maintain our loan portfolio quality , we have modified our loan policy to accept only textile companies with real estate as collateral or guaranteed by guarantee companies . during the year ended december 31 , 2017 , we assessed the loan portfolio quality and charged-off loan receivable balances of $ 21,011,593 as we were of the opinion that these balances were uncollectible . in addition , we plan to minimize our risks by concentrating on smaller amount loans that are below us $ 461,000 ( or approximately rmb 3.0 million ) . currently , the banking industry encourages smes to apply for loans as individuals with recourse so that when it is past due , both the sme and the responsible individual are both liable for the past due amount and the individual borrower carries personal liability . affected by above factors , as of december 31 , 2017 , our loan balance witnessed a decrease of us $ 16,518,819 in business loan and a decrease of us $ 1,325,848 in personal loan , as compared to that as of december 31 , 2016 . 52 the following table sets forth the classification of loans receivable as of december 31 , 2017 and 2016 , respectively : replace_table_token_5_th nonaccrual loans totaled us $ 36.81 million , or 90.48 % of loans receivable as of december 31 , 2017 , as compared with us $ 56.58 million , or 96.68 % of loans receivable , as of december 31 , 2016. the allowance for loan losses was us $ 36.61 million , representing 90.00 % of loans receivable and 99.48 % of non-accrual loans as of december 31 , 2017. as of december 31 , 2016 , the allowance for loan losses was us $ 51.71 million , representing 88.36 % of loans receivable and 91.39 % of non-accrual loans . the following table sets forth information concerning our nonaccrual loans as of december 31 , 2017 and 2016 , respectively : replace_table_token_6_th as a traditional industry , the textile industry , which is the pillar industry in wujiang area , as well as other industries , have been facing downward pressure . as the local smes ' profitability and repayment ability deteriorates , “ special mentioned ” , “ substandard ” and “ doubtful ' bank loans drastically increased . as such , our provision for loan losses remained at a high level as of december 31 , 2017. during the year ended december 31 , 2017 , we reassessed the collectability of the loans and charged off allowance on loans against loan receivable in the amount of $ 21,011,593. a loan is considered impaired when , based on current information and events , it is probable that the company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement . factors considered by management in determining impairment include payment status , collateral value and the probability of collecting scheduled principal and interest payments when due . cash flows and capital resources we have financed our operations primarily through shareholder contributions , cash flow from operations , and public offerings of securities . as a result of our total cash activities , net cash increased from us $ 768,501 as of december 31 , 2016 to us $ 2,498,194 as of december 31 , 2017. going concern the accompanying consolidated financial statements have been prepared on a going concern basis , which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business . the realization of assets and the satisfaction of liabilities in the normal course of business are dependent on , among other things , the company 's ability to operate profitably , to generate cash flows from operations , and to pursue financing arrangements to support its working capital requirements .
| 47 results of operations year ended december 31 , 2017 as compared to year ended december 31 , 2016 replace_table_token_4_th 48 the company 's net loss for the year ended december 31 , 2017 was us $ 10,699,740 , representing an increase of us $ 8,119,604 , or 315 % , from net loss of us $ 2,580,136 for the year ended december 31 , 2016. the change in net loss for the year ended december 31 , 2017 was the net effect of the changes in the following components : ● a decrease in net interest income of us $ 857,003 ; ● a change in the provision for loan losses of us $ 3,548,588 from a reversal of provision of us $ 426,475 for the year ended december 31 , 2016 to a provision of us $ 3,122,113 for the year ended december 31 , 2017 ; ● a decrease in the reversal of provision for direct financing lease losses of us $ 173,254 from us $ 239,852 for the year ended december 31 , 2016 to us $ 66,598 for the year ended december 31 , 2017 ; ● a change in the provision for financial guarantee of us $ 3,122,329 from a reversal of provision of us $ 283,816 for the year ended december 31 , 2016 to a provision of us $ 2,838,513 for the year ended december 31 , 2017 ; and ● an increase in total non-interest expense of us $ 336,626 from us $ 4,876,002 for the year ended december 31 , 2016 to us $ 5,212,628 for the year ended december 31 , 2017. the following paragraphs discuss changes in the components of net loss in greater details during the year ended december 31 , 2017 , as compared to the year ended december 31 , 2016. net interest income net interest income is equal to interest income we generated less interest expense on short-term bank loans . the company 's net interest income decreased by us $ 857,003 , or 68 % to us $ 404,462 during the year ended december 31 , 2017 , as compared to net interest income of us $ 1,261,465 during the year ended december 31 , 2016. the interests and fees on loans , direct financing leases and deposits with banks decreased by us $ 886,591 , or 69 % from us $ 1,291,053 for the year ended december 31 , 2016 to us $ 404,462 for the year ended december 31 , 2017. the decrease is the combined effects of : ( 1 ) the decrease in
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our combined ratio on a net basis represents the sum of losses and loss adjustment expenses , policy acquisition costs and general and administrative expenses as a percentage of net premiums earned . the gross and net combined ratios are key measure of underwriting performance traditionally used in the property and casualty industry . a combined ratio under 100 % generally reflects profitable underwriting results . financial results highlights for the year ended december 31 , 2018 premium in force at december 31 , 2018 was approximately $ 923.7 million with approximately 516,000 policies in-force at december 31 , 2018 gross premiums written of $ 923.3 million and total revenue of $ 480.2 million net premiums earned of $ 454.2 million operating income of $ 69.5 million combined ratio of 90.4 % on a net basis cash , cash equivalents and investments of $ 776.2 million , with total assets of $ 1.8 billion 39 consolidated results of operations the following table summarizes our results of operations for the periods indicated ( in thousands , except per share amounts ) : replace_table_token_5_th results of operations – year ended december 31 , 2018 compared to year ended december 31 , 2017 revenue gross premiums written gross premiums written increased to $ 923.3 million for the year ended december 31 , 2018 as compared to $ 625.6 million for the year ended december 31 , 2017. the increase relates to inclusion of a full year of operations of ( nbic which was acquired on november 30 , 2017. gross premiums earned gross premiums earned increased to $ 926.3 million for the year ended december 31 , 2018 as compared to $ 643.3 million for the year ended december 31 , 2017. a reduction of gross earned premium by heritage property & casualty insurance ( “ heritage p & c ” ) and zephyr was offset by increases for a full year of premium earned by nbic and a full year of earned premium on the sawgrass polices transitioned to heritage p & c on september 1 , 2017. ceded premiums ceded premiums increased to $ 472.1 million for the year ended december 31 , 2018 as compared to $ 263.7 million for the year ended december 31 , 2017. the increase is due to inclusion of a full year of reinsurance for nbic , reduced somewhat by a decrease in the cost of reinsurance for heritage p & c , as described in note 10 – reinsurance to our audited consolidated financial statements included elsewhere in this annual report on form 10-k. nbic 's reinsurance program includes extensive quota share reinsurance designed to mitigate the adverse impact of winter storms , in addition to its catastrophe excess of loss reinsurance program . inclusion of the quota share program serves to increase the cost of reinsurance while mitigating non-catastrophe losses . the cost reduction for heritage p & c was due to a combination of a shift in exposure management , including a change in the product mix between personal and commercial lines , as well as synergies associated with improved diversification associated with the nbic acquisition . the 40 decrease in the cost for catastrophe excess of loss reinsurance program also relates to timing of the catastrophe reinsurance program . reinsurance costs are amortized over a twelve-month period , reflecting the term of the coverage . the excess of loss reinsurance coverage and gross quota share treaties incept june 1. the nbic net quota share treaty incepts december 31. as such , for a significant amount of our program we incur the cost of the previous year 's catastrophe program from january through may of each year and the current year program from june through december . we also have reinsurance costs associated with our larger risks , which could vary monthly depending upon the business written . net premiums earned net premiums earned increased to $ 454.2 million for the year ended december 31 , 2018 as compared to $ 379.6 million for the year ended december 31 , 2017. the increase in net premiums earned is primarily attributable to the additional net premium earned associated with the nbic acquisition as described above . net investment income net investment income , inclusive of realized investment gains , decreased to $ 10.8 million for the year ended december 31 , 2018 as compared to $ 11.9 million for the year ended december 31 , 2017. the decrease is caused by unrealized losses in 2018 compared to realized gains in 2017 partially offset by a full year of investment income for nbic . the unrealized losses relate primarily to new accounting for equity securities in which unrealized losses are no longer classified as other comprehensive income but instead are classified in operating income . other revenue other revenue remained relatively flat year over year as the consolidated nbic operations do not generate significant other revenue . total revenue total revenue increased to $ 480.2 million for the year ended december 31 , 2018 as compared to $ 406.7 million for the year ended december 31 , 2017. the increase in total revenue was due to the nbic acquisition . expenses losses and loss adjustment expenses losses and lae increased to $ 237.4 million for the year ended december 31 , 2018 as compared to $ 201.5 million for the year ended december 31 , 2017. the increase is due largely to inclusion of a full year of nbic losses , reduced by a decline in consolidated losses for the legacy heritage entities . the company 's retained hurricane losses for hurricanes lane , florence and michael were $ 32.9 million for the year ended december 31 , 2018 and additional retention was recorded in 2018 for hurricane irma in the amount of $ 1.7 million . the company 's vertical integration of the claims handling process benefitted 2018 results , with hurricane mitigation revenue stemming both from 2017 and 2018 hurricanes . story_separator_special_tag the company 's losses incurred for the years ended december 31 , 2018 includes of $ 13.3 million of prior year development reflecting management 's best estimate of the actuarial loss and lae reserves with consideration given to company specific historical loss experience . the development was primarily due to losses associated with florida litigated claims , one-way attorney fees and aob abuse in its florida personal residential book of business . loss reserves for personal lines business in florida were strengthened during the year . the company 's losses incurred during the year ended december 31 , 2017 reflects a prior year development of $ 12.6 million , associated with management 's best estimate of the actuarial loss and lae reserves with consideration given to company specific historical loss experience . 41 policy acquisition costs policy acquisition costs increased slightly to $ 84.7 million for the year ended december 31 , 2018 as compared to $ 83.9 million for the year ended december 31 , 2017. the increase relates to costs associated with a full year of nbic , reduced by allocable ceding commission income and a reduction in policy acquisition costs for the legacy heritage companies . our accounting policy is to allocate ceding commission between policy acquisition costs and general and administrative expenses for financial reporting purposes . ceding commission is allocated between policy acquisition costs and general and administrative expenses based upon the proportion these costs bear to production of new business . for the year ended december 31 , 2018 , nbic earned ceding commission income of $ 72.5 million of which $ 55.0 million was allocable to policy acquisition costs compared to ceding commission income earned of $ 8.6 million for the month and year ended december 31 , 2017 after the nbic transaction . general and administrative expenses general and administrative expenses increased to $ 88.5 million for the year ended december 31 , 2018 as compared to $ 71.7 million for the year ended december 31 , 2017. the increase relates primarily to non-recurring business acquisition related costs , the inclusion of a full year of nbic expenses , and an increase in costs associated with infrastructure growth . the increase in expenses was reduced by $ 18.1 million of nbic ceding commission income allocable to general and administrative expenses . our accounting policy is to allocate ceding commission between policy acquisition costs and general and administrative expenses for financial reporting purposes . ceding commission is allocated between policy acquisition costs and general and administrative expenses based upon the proportion these costs bear to production of new business . interest expense and amortization of debt issuance costs as described in note 12 – long-term debt to our audited consolidated financial statements appearing elsewhere in this form 10-k , heritage issued $ 79.5 million in secured notes due 2023 on december 15 , 2016 and issued $ 136.8 million in convertible notes in the third quarter of 2017 , resulting in interest expense and amortization of debt issuance costs of $ 20.0 million for the year ended december 31 , 2018 compared to $ 13.2 million for year ended december 31 , 2017. the increase in interest and debt issuance amortization related to inclusion of a full year of interest on the convertible notes in 2018 coupled with a higher interest rate on the senior notes . the impact of a full year of interest expense on the convertible notes was diluted somewhat by the repurchase of $ 90.1 million in convertible notes as described in note 12 to our consolidated financial statements appearing elsewhere in this form 10-k. other non-operating expense , net for the year ended december 31 , 2018 , the company incurred non-operating costs of $ 10.5 million , of which $ 9.8 million was associated with the refinancing of its debt , which is described in note 12 – long-term debt to our audited consolidated financial statements appearing elsewhere in this form 10-k. these non-recurring costs include a pre-payment penalty and a write off of unamortized costs associated with the senior notes , fees associated with the debt refinancing , and a loss on early debt extinguishment . additionally , we recorded a permanent decline in the value of real estate during the year . for the year ended december 31 , 2017 , the fair value of the conversion option liability coupled with the net loss on debt extinguishment on the purchase of convertible notes amounted to approximately $ 42.2 million and is presented on the statement of operations as a charge to non-operating expense . provision for income taxes for the years ended december 31 , 2018 and 2017 , we reported a provision for income taxes of $ 11.8 million and an income tax benefit of $ 4.8 million , respectively . our effective tax rate for the years ended december 31 , 2018 and 2017 was 30.4 % and 81.0 % , respectively . the 2018 effective tax rate was affected by various permanent tax differences , predominately disallowed executive compensation deductions which were further limited in 2018 and future years upon the enactment of h.r.1 , commonly referred to as the tax cuts and jobs act ( “ tax act ” ) . the 2017 effective tax rate was affected by the valuation change for the conversion option liability , which is permanently non-deductible , creating a significant adverse impact to the rate . this item was offset by a favorable impact on the effective tax rate associated with enactment of the tax act . the effective tax rate can fluctuate throughout the year as estimates used in the tax provision for each quarter are updated as more information becomes available throughout the year . 42 net ( loss ) income our results for the year ended december 31 , 2018 reflect net income of $ 27.2 million compared to a net loss of $ 1.1 million for the year ended december 31 , 2017. operating income was relatively flat as discussed above .
| subsidiary demotech rating kbra rating kbra investment rating heritage p & c a bbb+ n/a zephyr a ' bbb+ n/a nbic a a- n/a heritage insurance n/a n/a bbb- the discussion of our financial condition and results of operations that follows provides information that will assist the reader in understanding our consolidated financial statements , the changes in certain key items in those financial statements from year to year , and the primary factors that accounted for those changes , as well as how certain accounting principles , policies and estimates affect our consolidated financial statements . this discussion should be read in conjunction with our consolidated financial statements and the related notes that appear elsewhere in this document . information about geography our primary products are personal and commercial residential property insurance , which at december 31 , 2018 was offered in alabama , connecticut , florida , georgia , hawaii , massachusetts , new york , new jersey , north carolina , rhode island and south carolina . our florida domiciled insurance company , heritage p & c , is authorized by each of the respective state insurance departments in alabama , georgia , florida , mississippi , north carolina and south carolina . our hawaii domiciled insurance company , zephyr , writes business only in hawaii and is authorized by the hawaii insurance division . our rhode island domiciled insurance company , nbic , is authorized by each of the respective state insurance departments in connecticut , maryland , massachusetts , new jersey , new york , pennsylvania , rhode island , and virginia . acquisitions and financings on march 21 , 2016 , we acquired 100 % of the outstanding stock of zephyr acquisition corporation and its wholly-owned subsidiary , zephyr insurance company , a specialty property insurance company that offers property and casualty insurance to residential customers in hawaii , in exchange for approximately $ 110.3 million , net of cash acquired . this acquisition furthered our strategic push to diversify business operations and achieve potential reinsurance synergies while expanding growth opportunities outside of florida . on december 16 , 2016 , we closed a private placement of $ 79.5 million
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our hcp division is a patient- and physician-focused integrated healthcare delivery and management company with over two decades of providing coordinated , outcomes-based medical care in a cost-effective manner . our overall financial performance was once again strong for 2015 , excluding certain non-gaap items , and was characterized by solid treatment volume growth , primarily from non-acquired growth at existing and new dialysis centers , cost control initiatives , and productivity and payor mix improvements in our dialysis business , and solid growth in hcp 's adjusted operating income . however , hcp continued to experience a reduction in medicare advantage reimbursement rates in 2015 , which negatively impacted its operations . in addition , our dialysis segment experienced a large increase in our pharmaceutical costs . some of our major accomplishments and financial operating performance indicators in 2015 and year over year were as follows : · improved clinical outcomes in our u.s. dialysis operations , including second year in a row as leader of the cms five star rating system ; · consolidated net revenue growth of approximately 7.7 % ; · a 5.2 % net revenue growth related to our u.s. dialysis segment operations related to an increase of $ 6 per treatment ; · an increase in hcp 's net revenue of approximately 9.6 % related to an increase of its ffs business and senior capitated revenue ; · an increase in other ancillary services and strategic initiatives net revenue of 21.3 % ; · continued growth in u.s. dialysis treatments related to an increase of approximately 4.1 % in the overall number of u.s. dialysis related treatments ; · normalized non-acquired u.s. dialysis treatment growth of 3.9 % ; · added a net total of 72 u.s. dialysis centers and added a net total of 27 international dialysis centers ; and · strong operating cash flows of $ 1.557 billion , which have been reduced by approximately $ 304 million of after-tax payments made in connection with the settlement of the vainer private civil suit . however , we face uncertainty and various challenges in 2016 as we undertake initiatives to mitigate increases in clinical costs that we expect to experience due to inflation and other factors without any corresponding increase in our dialysis medicare reimbursement rates . in addition , congress could still make significant changes to medicare and medicaid under the healthcare reform legislation that was enacted in the u.s. and there is uncertainty around the potential negative impact of healthcare insurance exchanges . we could also experience delays in state certification and other regulatory issues . hcp also faces uncertainty in medicare advantage reimbursement rates as the government continues to modify adjustments to the rates . additionally , there is the potential for non-renewal of payor contracts for hcp , which could cause significant patient and employer disruption . physician practices of prescribing pharmaceuticals and pharmaceutical costs could also have a significant impact on our operating results . we also remain committed to our international expansion plans that will continue to require investment . in addition , if the percentage of our dialysis patients with commercial payors deteriorates or if we experience a decrease in our overall commercial rates , our operating results could be adversely affected . 62 following is a summary of consolidated operating results for reference in the discussion that follows . replace_table_token_8_th the following table summarizes consolidated net revenues : replace_table_token_9_th 63 the following table summarizes consolidated operating income and adjusted consolidated operating income : replace_table_token_10_th ( 1 ) for the year ended december 31 , 2015 , we have excluded estimated non-cash goodwill and other intangible asset impairment charges of $ 210 million primarily related to certain hcp reporting units , an estimated accrual of $ 22 million for damages and liabilities associated with our pharmacy business , which is included in general and administrative expenses , and $ 495 million related to a settlement charge in connection with the vainer private civil suit . in addition , for the years ended december 31 , 2014 and 2013 , we have excluded $ 17 million and $ 397 million , respectively , related to loss contingency accruals for the settlement of the 2010 and 2011 u.s. attorney physician relationship investigations . in 2013 , we have also excluded $ 57 million related to a decrease in hcp 's 2013 contingent earn-out obligation and an adjustment of $ 8 million to reduce a tax asset associated with the hcp acquisition escrow provisions . these are non-gaap measures and are not intended as substitutes for the gaap equivalent measures . we have presented these adjusted amounts because management believes that these presentations enhance a user 's understanding of our normal consolidated operating income by excluding certain unusual items which we do not believe are indicative of our ordinary results of operations . as a result , adjusting for these amounts allows for comparison to our normal prior period results . consolidated net revenues consolidated net revenues for 2015 increased by approximately $ 987 million , or 7.7 % , from 2014. this increase in consolidated net revenues was due to an increase in dialysis and related lab services net revenues of approximately $ 431 million , principally due to solid volume growth from additional treatments from non-acquired growth and from an increase of $ 6 in the average dialysis revenue per treatment , primarily from an increase in our average commercial payment rates and improvement in our commercial payor mix . consolidated net revenues also increased by $ 335 million as a result of hcp 's growth from acquisitions and timing of the recognition of additional medicaid risk sharing revenue , as described below . in addition , revenue increased by approximately $ 243 million in our ancillary services and strategic initiatives driven primarily from growth in our pharmacy services and our disease management services , as well as expansion in our international operations . these increases were partially offset by an increase in reserves for refunds of prior period pharmacy reimbursements . story_separator_special_tag 64 conso lidated net revenues for 2014 increased by approximately $ 1.031 billion , or 8.8 % , from 2013. this increase in consolidated net revenues was due to an increase in dialysis and related lab services net revenues of approximately $ 447 million , principally due to strong volume growth from additional treatments from non-acquired growth and dialysis center acquisitions and from an increase of $ 2 in the average dialysis revenue per treatment , primarily from the recognition of certain california medicaid revenue tha t was previously reserved and an increase in some of our commercial payment rates , partially offset by changes in our commercial payor mix . consolidated net revenues also increased by $ 306 million as a result of an increase in hcp 's senior capitated member s and growth from acquisitions . in addition , revenue increased by approximately $ 287 million in our ancillary services and strategic initiatives driven primarily from growth in our pharmacy services , our international operations and our disease management services . consolidated operating income consolidated operating income of $ 1.171 billion for 2015 decreased by approximately $ 644 million from 2014 , which includes estimated goodwill and other intangible asset impairment charges of approximately $ 210 million , an estimated pharmacy accrual of $ 22 million and a private litigation settlement charge of $ 495 million in 2015 and a $ 17 million loss contingency accrual in 2014. excluding these items from their respective periods , adjusted consolidated operating income for 2015 would have increased by $ 66 million , or 3.6 % . adjusted consolidated operating income increased primarily as a result of strong volume growth from additional treatments from non-acquired growth in the dialysis and related lab services business , as well as an increase in our average dialysis revenue per treatment of approximately $ 6 , as discussed above . adjusted consolidated operating income also increased due to improved results at hcp , excluding the impairment charges , due to growth from acquisitions and an increase in medicaid risk sharing revenue . these increases were negatively impacted by an increase in the amount of losses in our ancillary services and strategic initiatives and increased losses in our international operations , as discussed below . in addition , we experienced higher pharmaceutical unit costs , an increase in long-term incentive compensation , an increase in hcp 's medical claims expenses from higher utilization , and an increase in our dialysis provision for uncollectible accounts of approximately $ 53 million . consolidated operating income of $ 1.815 billion for 2014 increased by approximately $ 265 million , or 17.1 % from 2013 , which includes the estimated loss contingency reserve of $ 17 million and $ 397 million in 2014 and 2013 , respectively . in addition , 2013 includes a contingent earn-out obligation adjustment of $ 57 million and an adjustment to reduce a tax asset associated with the hcp acquisition escrow provisions of $ 8 million . excluding these items from their respective periods , adjusted consolidated operating income would have decreased by $ 66 million , or 3.5 % , primarily as a result of a decrease in hcp 's operating income of approximately $ 170 million , principally driven by a decline in medicare advantage rates . adjusted consolidated operating income for 2014 also decreased as a result of higher pharmaceutical unit costs , an increase in long-term incentive compensation , an increase in hcp 's medical claims expenses from higher utilization and an increase in our dialysis provision for uncollectible accounts of approximately $ 72 million . adjusted consolidated operating income was positively impacted by an increase in the dialysis and related lab services net revenues as a result of strong volume growth from additional treatments due to non-acquired growth and acquisitions . in addition , our average dialysis revenue per treatment increased by approximately $ 2. adjusted consolidated income also benefited from improved productivity , lower losses associated with our ancillary services and strategic initiatives and growth in hcp 's senior capitated members . u.s. dialysis and related lab services business our u.s. dialysis and related lab services business is a leading provider of kidney dialysis services through a network of 2,251 outpatient dialysis centers in 46 states and the district of columbia , serving a total of approximately 180,000 patients . we also provide acute inpatient dialysis services in approximately 900 hospitals . we estimate that we have approximately a 36 % market share in the u.s. based upon the number of patients that we serve . in 2015 , our overall network of u.s. outpatient dialysis centers net increased by 72 dialysis centers primarily as a result of the opening new dialysis centers and from acquisitions of dialysis centers . in addition , the overall number of patients that we serve in the u.s. increased by approximately 4.1 % in 2015 as compared to 2014. all references in this document to dialysis and related lab services refer only to our u.s. dialysis and related lab services business . our dialysis and related lab services stated mission is to be the provider , partner and employer of choice . we believe our attention to these three stakeholders—our patients , our business partners , and our teammates—represents the major driver of our long-term performance , although we are subject to the impact of several external factors such as government policy , physician practice patterns , commercial payor payment rates and the mix of commercial and government patients . two principal non-financial metrics we track are quality clinical outcomes and teammate turnover . we have developed our own composite index for measuring improvements in our clinical outcomes , which we refer to as the davita quality index ( dqi ) . our clinical outcomes as measured by dqi have improved over each of the past several years which we believe directly decreases patient mortalities .
| 74 during the year ended december 31 , 2014 , hcp members and member months increased by approximately 72,800 and 792,800 , respectively . the increases in members and member months were primarily attributable to an increase in senior members resulting from non-acquired growth , new acquisitions and an increase in medicaid members due to medicaid expansion , partially offset by a decline in commercial members . revenues the following table provides a breakdown of hcp 's revenue by source : replace_table_token_14_th net revenues hcp 's net revenue for 2015 increased $ 335 million , or 9.6 % , primarily driven by an increase in ffs revenue from acquisitions , an increase in senior capitated revenue due to an increase in the number of senior capitated members during the year that is attributable to non-acquired growth and acquisitions , an increase in medicaid memberships due to medicaid expansion , recognition of additional medicaid risk-share revenue due to decreased costs related to lower claims , as well as higher commercial negotiated rates for commercial members . these increases in net revenues are partially offset by a decrease in senior capitated revenues due to the planned non-renewal of some plans due to unfavorable economics in certain markets . hcp 's net revenue for 2014 increased $ 306 million , or 9.6 % , primarily driven by an increase in the number of senior capitated members during the year due to organic growth and acquisitions , an increase in medicaid memberships due to medicaid expansion and recognition of additional hcp revenue related to the maintenance of existing physician networks , partially offset by a decline in medicare advantage reimbursement rates , and a decline in the number of commercial members to whom hcp provides healthcare services . on april 6 , 2015 , cms issued final guidance for 2016 medicare advantage rates , which incorporated a modification to the risk adjustment model calculation that cms utilizes to determine the risk acuity scores of medicare advantage patients . we estimate that the final cumulative impact of the 2016 rate structure will represent a decrease
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however , we believe that organizations in both the enterprise and security markets want and need actionable intelligence solutions to help achieve their customer engagement , enhanced security , and risk mitigation goals . evolving technologies and market potential . our success depends in part on our ability to keep pace with technological changes , customer challenges , and evolving industry standards in our product offerings , successfully developing , launching , and driving demand for new , innovative , high-quality products and services that meet or exceed customer needs , and identifying , entering , and prioritizing areas of growing market potential , while migrating away from areas of commoditization . for example , in our cyber intelligence business , stronger and more frequent use of encryption has created significantly greater challenges for our customers and for our solutions to address . in our customer engagement business , we see increased interest in cloud-based solutions , as well as pricing pressure on legacy products . in the enterprise market , we believe that today 's customer-centric organizations are increasingly seeking customer engagement optimization solutions that allow them to collect and analyze intelligence across different service channels to gain a better understanding of the performance of their workforce , the effectiveness of their service processes , the quality of their interactions , and changing customer behaviors , as well as to anticipate and prevent information security breaches , effectively authenticate customers , protect personal information , mitigate risk , prevent fraud , and help ensure compliance with evolving legal , regulatory , and internal requirements . in the security market , we believe that terrorism , criminal activities , cyber-attacks , and other security threats , combined with new and more complex security challenges , including increasingly frequent and sophisticated cyber-attacks and increasingly complex and secure communication networks , are driving demand for actionable intelligence solutions to help anticipate , prepare , and respond to these threats . information technology and government spending . our growth and results depend in part on general economic conditions and the pace of information technology spending by both commercial and governmental customers . beginning in the year ended january 31 , 2016 , we began experiencing extended sales cycles , particularly for large projects , a reduction in deal sizes , and pressure in certain areas of our legacy business . we have made adjustments in response to these market trends and believe that improvements in the economic environment and growing demand for our solutions will drive growth in both of our segments in the year ending january 31 , 2018. in our customer engagement segment , we have aligned our sales strategy to engage more closely with our customers on their long-term customer engagement optimization strategy and to focus on their near-term priorities and budget constraints , including by emphasizing the flexible and modular nature of our solution portfolio , in which a customer can make an initial purchase anywhere in our portfolio and then expand into other areas over time , or can make a larger , more transformational suite purchase all at once . we have also continued to increase the flexibility of our deployment model , affording our customers the choice of deploying our solutions on-premises or in the cloud , or a hybrid of both , and we also offer a menu of managed services . in our cyber intelligence segment , we believe that our solutions have proven to be very effective in fighting terrorism and crime , which continues to be a high priority around the world . as a result , we have continued to expand our solutions portfolio to address emerging threats and have designed our solutions to address specific customer needs . we have also provided additional focus on smaller transactions , achieving a better mix of transaction sizes , for both our leading edge and legacy solutions , and have continued to expand our security domain expertise . we believe that global economic spending has stabilized , and with our ongoing investments in our markets , we believe we are well positioned to resume growth . see item 1 , `` business '' , of this report for more information on key trends that we believe are driving demand for our solutions and `` risk factors '' under item 1a of this report for a more complete description of risks that may impact future revenue and profitability . critical accounting policies and estimates an appreciation of our critical accounting policies is necessary to understand our financial results . the accounting policies outlined below are considered to be critical because they can materially affect our operating results and financial condition , as these policies may require us to make difficult and subjective judgments regarding uncertainties . the accuracy of these estimates and the likelihood of future changes depend on a range of possible outcomes and a number of underlying variables , many of which are beyond our control , and there can be no assurance that our estimates are accurate . revenue recognition 37 our revenue recognition policy is a critical component of determining our operating results and is based on a complex set of accounting rules that require us to make significant judgments and estimates . we derive and report our revenue in two categories : ( a ) product revenue , including sale of hardware products ( which include software that works together with the hardware to deliver the product 's essential functionality ) and licensing of software products , and ( b ) service and support revenue , including revenue from installation services , post-contract customer support ( `` pcs '' ) , project management , hosting services , saas , application managed services , product warranties , business advisory consulting and training services . we follow the appropriate revenue recognition rules for each of these revenue streams . for additional information , see note 1 , `` summary of significant accounting policies '' to our consolidated financial statements included under item 8 of this report . story_separator_special_tag revenue recognition for a particular arrangement is dependent upon such factors as the level of customization within the solution and the contractual delivery , acceptance , payment , and support terms with the customer . significant judgment is required to conclude on each of these factors , and if we were to change any of these assumptions or judgments , it could cause a material increase or decrease in the amount of revenue that we report in a particular period . we generally consider a purchase order or executed sales quote , when combined with a master license agreement , to constitute evidence of an arrangement . delivery occurs when the product is shipped or transmitted and title and risk of loss have transferred to the customers . our typical customer arrangements do not include substantive product acceptance provisions ; however , if such provisions are provided , delivery is deemed to occur upon acceptance . we consider the fee to be fixed or determinable unless the fee is subject to refund or adjustment or is not payable within our standard payment terms . if the fee due from a customer is not fixed or determinable due to extended payment terms , revenue is recognized when payment becomes due or upon cash receipt , whichever is earlier . for multiple-element arrangements comprised only of tangible products containing software components and non-software components and related services , we allocate revenue to each element in an arrangement based on a selling price hierarchy . the selling price for a deliverable is based on its vendor-specific objective evidence ( “ vsoe ” ) , if available , third-party evidence ( “ tpe ” ) , if vsoe is not available , or estimated selling price ( “ esp ” ) , if neither vsoe nor tpe is available . the total transaction revenue is allocated to the multiple elements based on each element 's relative selling price compared to the total selling price . we account for multiple-element arrangements that contain only software and software-related elements by allocating a portion of the total purchase price to the undelivered elements , primarily installation services , pcs , consulting , and training , using vsoe of fair value of the undelivered elements . the remaining portion of the total transaction value is allocated to the delivered software , referred to as the residual method . if we are unable to establish vsoe for the undelivered elements of the arrangement , revenue recognition is deferred for the entire arrangement until all elements of the arrangement are delivered , unless the only undelivered element is pcs , in which case we recognize the arrangement fee ratably over the pcs period . for multiple-element arrangements that are comprised of a combination of software and non-software deliverables , the total transaction value is bifurcated between the software deliverables and non-software deliverables based on the relative selling prices of the software and non-software deliverables as a group . revenue is then recognized for the software and software-related services following the residual method or ratably over the pcs period if vsoe for pcs does not exist , and for the non-software deliverables following the revenue recognition methodology outlined above for multiple-element arrangements that contain tangible products and other non-software related services . our policy for establishing vsoe for installation , business advisory consulting , and training is based upon an analysis of separate sales of services . we utilize either the substantive renewal rate approach or the bell-shaped curve approach to establish vsoe for our pcs offerings , depending upon the business segment , geographical region , or product line . the timing of revenue recognition on software licenses and other revenue could be significantly impacted if we are unable to maintain vsoe on one or more undelivered elements during any quarterly period . loss of vsoe could result in ( i ) the complete deferral of all revenue or ( ii ) ratable recognition of all revenue under a customer arrangement until such time as vsoe is re-established . if we are unable to re-establish vsoe on one or more undelivered elements for an extended period of time it would impact our ability to accurately forecast the timing of quarterly revenue , which could have a material adverse effect on our business , financial position , results of operations or cash flows . if we are unable to determine the selling price because vsoe or tpe does not exist , we determine esp for the purposes of allocating the arrangement by considering several external and internal factors including , but not limited to , pricing practices , similar product offerings , margin objectives , geographies in which we offer our products and services , internal costs , competition , and product lifecycle . the determination of esp is made through consultation with and approval by our management , taking into consideration our go-to-market strategies . we have established processes to update esp for each element , when appropriate , to ensure that it reflects recent pricing experience . 38 pcs revenue is derived from providing technical software support services and unspecified software updates and upgrades to customers on a when-and-if-available basis . pcs revenue is recognized ratably over the term of the maintenance period which , in most cases , is one year . when pcs is included within a multiple-element arrangement , we utilize either the substantive renewal rate approach or the bell-shaped curve approach to establish vsoe of the pcs , depending upon the business operating segment , geographical region , or product line . under the substantive renewal rate approach , we believe it is necessary to evaluate whether both the support renewal rate and term are substantive , and whether the renewal rate is being consistently applied to subsequent renewals for a particular customer . we establish vsoe under this approach through analyzing the renewal rate stated in the customer agreement and determining whether that rate is above the minimum substantive vsoe renewal rate established for that particular pcs offering .
| operating income was $ 17.4 million in the year ended january 31 , 2017 compared to $ 67.9 million in the year ended january 31 , 2016 . this decrease in operating income was primarily due to a $ 61.9 million decrease in gross profit primarily due to decreased gross profit in our cyber intelligence segment , partially offset by an $ 11.4 million decrease in operating expenses , which primarily consisted of a $ 6.6 million decrease in net research and development expenses and a $ 5.7 million decrease in selling , general and administrative expenses . further details of changes in operating income are provided below . net loss attributable to verint systems inc. was $ 29.4 million , and diluted net loss per common share was $ 0.47 in the year ended january 31 , 2017 , compared to net income attributable to verint systems inc. of $ 17.6 million , and diluted net income per common share of $ 0.28 , in the year ended january 31 , 2016 . the decrease in net income attributable to verint systems inc. and diluted net income per common share in the year ended january 31 , 2017 was primarily due to decreased operating income , as described above , a $ 1.5 million decrease net income attributable to our noncontrolling interest , a $ 1.1 million increase in 43 interest expense , and a $ 1.8 million increase in our provision for income taxes . these increases were partially offset by a $ 5.3 million decrease in net foreign currency losses . a portion of our business is conducted in currencies other than the u.s. dollar , and therefore our revenue and operating expenses are affected by fluctuations in applicable foreign currency exchange rates . when comparing average exchange rates for the year ended january 31 , 2017 to average exchange rates for the year ended january 31 , 2016 , the u.s. dollar strengthened relative to the
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se customers include similar csps , nems , government organizations , large corporate customers , and storage-segment customers that are served by our ne segment . optical security and performance products our osp segment leverages its core optical coating technologies and volume manufacturing capability to design , manufacture , and sell products targeting anti-counterfeiting , consumer and industrial , government , healthcare and other markets . our security offerings for the currency market include ovp® , ovmp® and banknote thread substrates . ovp® enables a color-shifting effect used by banknote issuers and security printers worldwide for anti-counterfeiting applications on banknotes and other high-value documents . our technologies are deployed on the banknotes of more than 100 countries today . osp also develops and delivers overt and covert anti-counterfeiting products that utilize its proprietary printing platform and are targeted primarily at the pharmaceutical and consumer-electronics markets . leveraging our expertise in spectral management and our unique high-precision coating capabilities , osp provides a range of products and technologies for the consumer and industrial market , including , for example , 3d sensing optical filters . osp value-added solutions meet the stringent requirements of commercial and government customers . our products are used in a variety of aerospace and defense applications , including optics for guidance systems , laser eye protection and night vision systems . these products , including coatings and optical filters , are optimized for each specific application . osp serves customers such as flir systems , kingston digital , l-3 communications , lockheed martin and sicpa . recently issued accounting pronouncements refer to “ note 2. recently issued accounting pronouncements ” regarding the effect of certain recent accounting pronouncements on our consolidated financial statements . critical accounting policies and estimates the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the united states requires us to make estimates and judgments that affect the reported amounts of assets and liabilities , net revenue and expenses , and the related disclosures . we base our estimates on historical experience , our knowledge of economic and market factors and various other assumptions that we believe to be reasonable under the circumstances . estimates and judgments used in the preparation of our financial statements are , by their nature , uncertain and unpredictable , and depend upon , among other things , many factors outside of our control , such as demand for our products and economic conditions . accordingly , our estimates and judgments may prove to be incorrect and actual results may differ from these estimates under different assumptions or conditions . 26 we believe the following critical accounting policies are affected by significant estimates , assumptions and judgments used in the preparation of our consolidated financial statements : revenue recognition we recognize revenue when it is realized or realizable and earned . we consider revenue realized or realizable and earned when there is persuasive evidence of an arrangement , delivery has occurred , the sales price is fixed or determinable , and collectability is reasonably assured . delivery does not occur until products have been shipped or services have been provided , risk of loss has transferred and in cases where formal acceptance is required , customer acceptance has been obtained or customer acceptance provisions have lapsed . in situations where a formal acceptance is required but the acceptance only relates to whether the product meets its published specifications , revenue is recognized upon delivery provided all other revenue recognition criteria are met . the sales price is not considered to be fixed or determinable until all contingencies related to the sale have been resolved . we reduce revenue for rebates and other similar allowances . revenue is recognized only if these estimates can be reliably determined . our estimates are based on historical results taking into consideration the type of customer , the type of transaction and the specifics of each arrangement . in addition to the aforementioned general policies , the following are the specific revenue recognition policies for multiple-element arrangements and for each major category of revenue . multiple-element arrangements when a sales arrangement contains multiple deliverables , such as sales of products that include services , the multiple deliverables are evaluated to determine whether there are one or more units of accounting . where there is more than one unit of accounting , then the entire fee from the arrangement is allocated to each unit of accounting based on the relative selling price . under this approach , the selling price of a unit of accounting is determined by using a selling price hierarchy which requires the use of vendor-specific objective evidence ( “ vsoe ” ) of fair value if available , third-party evidence ( “ tpe ” ) if vsoe is not available , or management 's best estimate of selling price ( “ besp ” ) if neither vsoe nor tpe is available . revenue is recognized when the revenue recognition criteria for each unit of accounting are met . we establish vsoe of selling price using the price charged for a deliverable when sold separately . tpe of selling price is established by evaluating similar and interchangeable competitor goods or services in sales to similarly situated customers . when vsoe or tpe are not available then we use besp . generally , we are not able to determine tpe because our product strategy differs from that of others in our markets , and the extent of customization varies among comparable products or services from our peers . we establish besp using historical selling price trends and considering multiple factors including , but not limited to geographies , market conditions , competitive landscape , internal costs , gross margin objectives , and pricing practices . when determining besp , we apply significant judgment in establishing pricing strategies and evaluating market conditions and product lifecycles . the determination of besp is made through consultation with and approval by the segment management . segment management may modify or develop new pricing practices and strategies in the future . story_separator_special_tag as these pricing strategies evolve , we may modify our pricing practices in the future , which may result in changes in besp . the aforementioned factors may result in a different allocation of revenue to the deliverables in multiple element arrangements from the current fiscal year , which may change the pattern and timing of revenue recognition for these elements but will not change the total revenue recognized for the arrangement . to the extent a deliverable ( s ) in a multiple-element arrangement is subject to specific guidance ( for example , software that is subject to the authoritative guidance on software revenue recognition ) , we allocate the fair value of the units of accounting using relative selling price and that unit of accounting is accounted for in accordance with the specific guidance . some of our product offerings include hardware that are integrated with or sold with software that delivers the functionality of the equipment . we believe this equipment is not considered software-related and would therefore be excluded from the scope of the authoritative guidance on software revenue recognition . hardware revenue from hardware sales is typically recognized when the product meet delivery criteria . services revenue from services and system maintenance is recognized on a straight-line basis over the term of the contract . revenue from professional service engagements is recognized once its delivery obligation is fulfilled . revenue related to extended warranty and product maintenance contracts is deferred and recognized on a straight-line basis over the delivery period . we also generate service revenue from hardware repairs and calibration which is recognized as revenue upon completion of the service . 27 software our software arrangements generally consist of a perpetual license fee and post-contract support ( “ pcs ” ) . where we have established vsoe of fair value for pcs contracts , it is based on the renewal rate or the bell curve methodology . revenue from maintenance , unspecified upgrades and technical support is recognized over the period such items are delivered . in multiple-element revenue arrangements that include software , software-related and non-software-related elements are accounted for in accordance with the following policies . non-software and software-related products are bifurcated based on a relative selling price software-related products are separated into units of accounting if all of the following criteria are met : ◦ the functionality of the delivered element ( s ) is not dependent on the undelivered element ( s ) . ◦ there is vsoe of fair value of the undelivered element ( s ) . ◦ delivery of the delivered element ( s ) represents the culmination of the earnings process for that element ( s ) . if these criteria are not met , the software revenue is deferred until the earlier of when such criteria are met or when the last undelivered element is delivered . if there is vsoe of the undelivered item ( s ) but no such evidence for the delivered item ( s ) , the residual method is used to allocate the arrangement consideration . under the residual method , the amount of consideration allocated to the delivered item ( s ) equals the total arrangement consideration less the aggregate vsoe of the undelivered elements . generally vsoe has not been established for pcs , and in those cases we have recognized revenue ratably over the pcs period after all software elements have been delivered and the only undelivered item is pcs . allowances for doubtful accounts we perform credit evaluations of our customers ' financial condition . we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . we record our bad debt expenses as sg & a expense . when we become aware that a specific customer is unable to meet its financial obligations to us , for example , as a result of bankruptcy or deterioration in the customer 's operating results or financial position , we record a specific allowance to reflect the level of credit risk in the customer 's outstanding receivable balance . in addition , we record additional allowances based on certain percentages of our aged receivable balances . these percentages are determined by a variety of factors including , but not limited to , current economic trends , historical payment and bad debt write-off experience . we are not able to predict changes in the financial condition of our customers , and if circumstances related to our customers deteriorate , our estimates of the recoverability of our trade receivables could be materially affected and we may be required to record additional allowances . alternatively , if we provide more allowances than we need , we may reverse a portion of such provisions in future periods based on our actual collection experience . investments our investments in debt securities and marketable equity securities are primarily classified as available-for-sale investments or trading securities and are recorded at fair value . the cost of securities sold is based on the specific identification method . unrealized gains and losses on available-for-sale investments , net of tax , are reported as a separate component within our consolidated statements of stockholders ' equity . unrealized gains or losses on trading securities resulting from changes in fair value are recognized in current earnings . our short-term investments , which are classified as current assets , include certain securities with stated maturities of longer than twelve months as they are highly liquid and available to support current operations . we periodically review our investments for impairment .
| the impact of foreign currency fluctuations on net revenue was not indicative of the impact on net income due to the offsetting foreign currency impact on operating costs and expenses . if currency exchange rates had been constant in fiscal 2016 and fiscal 2015 , our consolidated operating expenses in “ constant dollars ” would have increased by approximately $ 16 million , or 1.8 % of net revenue . fiscal 2015 and 2014 during the second half of fiscal 2015 , the significant strengthening of the u.s. dollar relative to certain other foreign currencies ( namely the euro , japanese yen and canadian dollar ) had an unfavorable impact on our reported international net revenues but a favorable impact on our reported international operating expenses because these amounts were translated at lower rates in fiscal 2015 than in fiscal 2014. if currency exchange rates had been constant in fiscal 2015 and fiscal 2014 , our consolidated net revenue in “ constant dollars ” would have increased by approximately $ 15 million , or 1.7 % of net revenue , which primarily impacted our ne and se segments . the impact of foreign currency fluctuations on net revenue was not indicative of the impact on net income due to the offsetting foreign currency impact on operating costs and expenses . if currency exchange rates had been constant in fiscal 2015 and fiscal 2014 , our consolidated operating expenses in “ constant dollars ” would have increased by approximately $ 11 million , or 1.3 % of net revenue . the results of operations are presented in accordance with u.s. gaap and not using constant dollars . refer to item 7a . qualitative and quantitative disclosures about market risk of this annual report on form 10-k for further details on foreign currency instruments and our related risk management strategies . net revenue following the separation , revenue from our service offerings exceeds 10 % of our total consolidated net revenue and is presented separately in our consolidated statements of operations . service revenue primarily consists of maintenance and support , extended warranty , professional services and
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we incurred $ 50.7 million of special charges as follows : · franchise royalty reductions of approximately $ 15.4 million for all north america franchisees , · reimaging costs at nearly all domestic restaurants and replacement or write off of certain branded assets totaling $ 5.8 million , · contribution of $ 10.0 million to the papa john 's national marketing fund ( “ pjmf ” ) , and · legal and professional fees , which amounted to $ 19.5 million , for various matters relating to the review of a wide range of strategic opportunities for the company that culminated in the recent strategic investment in the company by affiliates of starboard value lp , as well as a previously announced external culture audit and other activities overseen by the special committee . 36 the franchise royalty reductions reduce the amount of north america franchise royalties and fees revenues within our consolidated statements of operations . all other costs associated with these events are included in general and administrative expenses within the consolidated statements of operations . the company could continue to experience a decline in sales resulting from the aforementioned negative consumer sentiment and incur additional charges in 2019 as a result of the recent events . the company estimates that these costs will amount to between $ 30 million and $ 50 million for 2019. in september 2018 , the company began a process to evaluate a wide range of strategic options with the goal of improving sales , maximizing value for all shareholders and serving the best interest of the company 's stakeholders . as part of this strategic review , the special committee also engaged legal and financial advisors . after extensive discussions with a wide group of strategic and financial investors , the special committee concluded that an investment agreement with funds affiliated with starboard value lp ( together with its affiliates , “ starboard ” ) was in the best interest of shareholders . on february 3 , 2019 , the company entered into a securities purchase agreement ( the “ securities purchase agreement ” ) with starboard pursuant to which starboard made a $ 200 million strategic investment in the company 's newly designated series b convertible preferred stock , par value $ 0.01 per share ( the “ series b preferred stock ” ) with the option to make an additional $ 50 million investment in the series b preferred stock through march 29 , 2019. in addition , the company has the right to offer up to 10,000 shares of series b preferred stock to papa john 's franchisees , on the same terms as to starboard , provided such franchisees satisfy accredited investor and other requirements of the offering under securities laws . the company will use approximately half of the proceeds from the sale of the series b preferred stock to reduce the outstanding principal amount under the company 's unsecured revolving credit facility . the remaining proceeds are expected to be used to make investments in the business and for general corporate purposes . in connection with starboard 's investment , the company expanded its board of directors to include two new independent directors , jeffrey c. smith , chief executive officer of starboard , who was appointed chairman of the board , and anthony m. sanfilippo , former chairman and chief executive officer of pinnacle entertainment , inc. the board of directors believes mr. smith 's business expertise and new perspectives will help support the company 's strategy to capitalize on its differentiated “ better ingredients . better pizza. ” market position and build a better pizza company for the benefit of its shareholders , team members , franchisees and customers . in addition , the company 's president and chief executive officer steve ritchie has been appointed to the board . with the addition of the new directors , the board currently is comprised of nine directors , seven of whom are independent . critical accounting policies and estimates the results of operations are based on our consolidated financial statements , which were prepared in conformity with accounting principles generally accepted in the united states ( “ gaap ” ) . the preparation of consolidated financial statements requires management to select accounting policies for critical accounting areas as well as estimates and assumptions that affect the amounts reported in the consolidated financial statements . the company 's significant accounting policies , including recently issued accounting pronouncements , are more fully described in “ note 2 ” of “ notes to consolidated financial statements. ” significant changes in assumptions and or conditions in our critical accounting policies could materially impact the operating results . we have identified the following accounting policies and related judgments as critical to understanding the results of our operations : revenue recognition and statement of operations presentation in may 2014 , the financial accounting standards board ( “ fasb ” ) issued accounting standards update ( “ asu ” ) 2014-09 , “ revenue from contracts with customers ” ( “ asu 2014-09 ” ) , which supersedes nearly all existing revenue recognition guidance under gaap , including industry-specific requirements , and provides companies with a single revenue recognition framework for recognizing revenue from contracts with customers . in march and april 2016 , the fasb issued the following amendments to clarify the implementation guidance : asu 2016-08 , “ revenue from contracts with customers ( topic 606 ) : principal versus agent considerations ( reporting revenue gross versus net ) ” and asu 2016- 37 10 , “ revenue from contracts with customers ( topic 606 ) : identifying performance obligations and licensing ” . this update and subsequently issued amendments ( collectively “ topic 606 ” ) requires companies to recognize revenue at amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services at the time of transfer . topic 606 requires that we assess contracts to determine each separate and distinct performance obligation . story_separator_special_tag if a contract has multiple performance obligations , we allocate the transaction price using our best estimate of the standalone selling price to each distinct good or service in the contract . we adopted topic 606 using the modified retrospective transition method effective january 1 , 2018. results for reporting periods beginning after january 1 , 2018 are presented under topic 606 , while prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting under topic 605 , “ revenue recognition. ” the cumulative effect adjustment of $ 21.5 million was recorded as a reduction to retained earnings as of january 1 , 2018 to reflect the impact of adopting topic 606. the impact of applying topic 606 for 2018 included the following ( dollars in thousands , except for per share amounts ) : year ended december 30 , 2018 total revenue impact ( a ) $ 4,010 pre-tax income impact ( b ) ( 3,362 ) diluted eps ( 0.08 ) ( a ) the revenue increase of $ 4.0 million is primarily due to the requirement to present revenues and expenses related to marketing funds we control on a “ gross ” basis . this increase was partially offset by lower company-owned restaurant revenues attributable to the revised method of accounting for the loyalty program and required reporting of franchise new store equipment incentives as a reduction of revenue . the marketing fund gross up is reported in the new financial statement line items , other revenues and other expenses , as discussed further below . ( b ) the $ 3.4 million decrease in pre-tax income in 2018 is primarily due to the revised method of accounting for the loyalty program and franchise fees . while not required as part of the adoption of topic 606 , our statement of operations includes newly created other revenues and other expenses line items . other revenues and other expenses include the topic 606 “ gross up ” of respective revenues and expenses derived from certain domestic and international marketing fund co-ops we control , as previously discussed . additionally , other revenues and other expenses include various reclassifications from north america commissary and other , international and general and administrative expenses to better reflect and aggregate various domestic and international services provided by the company for the benefit of franchisees . related 2017 amounts have also been reclassified to conform to the new 2018 presentation . these reclassifications had no impact on total revenues or total costs and expenses reported . see “ note 24 ” of “ notes to consolidated financial statements ” for additional information . allowance for doubtful accounts and notes receivable we establish reserves for uncollectible accounts and notes receivable based on overall receivable aging levels and a specific evaluation of accounts and notes for franchisees and other customers with known financial difficulties . balances are charged off against the allowance after recovery efforts have ceased . noncontrolling interests at december 30 , 2018 , the company has three joint ventures consisting of 183 restaurants , which have noncontrolling interests . during 2018 , the company refranchised 62 restaurants that were previously held in two additional joint ventures . consolidated net income is required to be reported separately at amounts attributable to both the parent and the noncontrolling interests . additionally , disclosures are required to clearly identify and distinguish between the interests of 38 the parent company and the interests of the noncontrolling owners , including a disclosure on the face of the consolidated statements of operations of income attributable to the noncontrolling interest holder . the following summarizes the redemption feature , location and related accounting within the consolidated balance sheets for these three remaining joint venture arrangements : type of joint venture arrangement location within the balance sheets recorded value joint venture with no redemption feature permanent equity carrying value option to require the company to purchase the noncontrolling interest - not currently redeemable temporary equity carrying value see “ note 8 ” and “ note 9 ” of “ notes to consolidated financial statements ” for additional information . intangible assets — goodwill we evaluate goodwill annually in the fourth quarter or whenever we identify certain triggering events or circumstances that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount . such tests are completed separately with respect to the goodwill of each of our reporting units , which includes our domestic company-owned restaurants , united kingdom ( “ pjuk ” ) , china , and preferred marketing solutions operations . we may perform a qualitative assessment or move directly to the quantitative assessment for any reporting unit in any period if we believe that it is more efficient or if impairment indicators exist . we elected to perform a quantitative assessment for our domestic company owned restaurants , united kingdom ( “ pjuk ” ) , china , and preferred marketing solutions operations in the fourth quarter of 2018. we considered both an income approach and a market approach for our reporting units . the income approach used projected net cash flows adjusted for the appropriate time value of money factors . the selected discount rate considered the risk and nature of each reporting unit 's cash flow and the rates of return market participants would require to invest their capital in the reporting unit . in determining the fair value from a market approach , we considered earnings before interest , taxes , depreciation and amortization ( “ ebitda ” ) and sales multiples that a potential buyer would pay based on third-party transactions in similar markets . as a result of our quantitative analyses , we determined that it was more-likely-than-not that the fair values of our reporting units substantially exceeded their carrying amounts . subsequent to completing our goodwill impairment tests , no indicators of impairment were identified . see “ note 10 ” of “ notes to consolidated financial statements ” for additional information .
| north america commissary sales decreased $ 63.8 million , or 9.5 % in 2018. excluding the benefit of the 53 rd week of operations of $ 10.8 million in 2017 , the decrease was $ 53.0 million , or 8.0 % primarily due to lower sales volumes attributable to lower restaurant sales . in addition , north america commissary revenues were reduced approximately $ 2.6 million due to required reporting of franchise new store equipment incentives as a reduction of revenue under topic 606. these incentives were previously recorded as general and administrative expenses . international revenues decreased approximately $ 3.7 million , or 3.2 % in 2018. excluding the benefit of the 53 rd week of operations of $ 2.2 million in 2017 , the decrease was $ 1.5 million , or 1.3 % . these decreases are net of the favorable impact of foreign currency rates of approximately $ 2.7 million . the decrease was primarily due to the refranchising of the company-owned restaurants and quality control center in china of approximately $ 8.1 million in 2018 , lower franchise fees , development fees and lower revenues due to required reporting of franchise new store equipment incentives as a reduction of revenue after adoption of topic 606 , partially offset by higher royalties due to an increase in equivalent units . 45 “ equivalent units ” represents the number of restaurants open at the beginning of a given period , adjusted for restaurants opened , closed , acquired or sold during the period on a weighted average basis . international franchise restaurant systemwide sales increased 14.6 % to $ 832.3 million in 2018 , excluding the impact of foreign currency , due to the increase in equivalent units . international franchise restaurant sales are not included in company revenues ; however , our international royalty revenue is derived from these sales . other revenues increased $ 9.2 million , or 12.8 % in 2018 primarily due to the required 2018 reporting of franchise marketing fund
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in response to the short-term outlook , the company has taken aggressive actions to conserve cash , right-size its operations and cost structure , and will continue to do so based on its forecast . these actions included adjustments to workforce , reduced purchases of raw materials and reductions in selling , general , and administrative expenses . the company continues to review its internal processes to identify inefficiencies and cost reduction opportunities . the company will continue to scrutinize its relationships with external suppliers to ensure it is achieving the highest quality materials and services at the most competitive cost . story_separator_special_tag assumptions the company believes the following discussion addresses it 's most critical accounting policies , which are those that are most important to the portrayal of the company 's financial condition and results of operations and require management 's most difficult , subjective , or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . accounting policies , in addition to the critical accounting policies referenced below , are presented in note 1 to the consolidated financial statements , accounting policies. estimates and assumptions in preparing the consolidated financial statements , the company uses certain estimates and assumptions that may affect reported amounts and disclosures . estimates and assumptions are used , among other places , when accounting for certain revenue ( e.g . contract accounting ) , expense , and asset and liability valuations . the company believes that the estimates and assumptions made in preparing the consolidated financial statements are reasonable , but are inherently uncertain . assumptions may be incomplete or inaccurate and unanticipated events may occur . the company is subject to risks and uncertainties that may cause actual results to differ from estimated results . revenues & expenses revenues from contracts for the design , manufacture and sale of asphalt plants are recognized under the percentage-of-completion method . the percentage-of-completion method of accounting for these contracts recognizes revenue , net of any promotional discounts , and costs in proportion to actual labor costs incurred as compared with total estimated labor costs expected to be incurred during the entire contract . pre-contract costs are expensed as incurred . changes to total estimated contract costs or losses , if any , are recognized in the period in which they are determined . revenue recognized in excess of amounts billed is classified as current assets under costs and estimated earnings in excess of billings. the company anticipates that all incurred costs associated with these contracts at september 30 , 2014 , will be billed and collected within one year . revenues from all other contracts for the design and manufacture of custom equipment , for service and for parts sales , net of any discounts and return allowances , are recorded when the following four revenue recognition criteria are met : product is delivered/ownership is transferred or service is performed , persuasive evidence of an arrangement exists , the selling price is fixed or determinable , and collectability is reasonably assured . returns and allowances , which reduce product revenue , are estimated using historical experience . provisions for estimated returns and allowances and other adjustments are provided for in the same period the related sales are recorded . product warranty costs are estimated using historical experience and known issues and are charged to production costs as revenue is recognized . all product engineering and development costs , and selling , general and administrative expenses are charged to operations as incurred . provision is made for any anticipated contract losses in the period that the loss becomes evident . the allowance for doubtful accounts is determined by performing a specific review of all account balances greater than 90 days past due and other higher risk amounts to determine collectability and also adjusting for any known customer payment issues with account balances in the less-than-90-day past due aging buckets . account balances are charged off against the allowance for doubtful accounts when they are determined to be uncollectable . any recoveries of account balances previously considered in the allowance for doubtful accounts reduce future additions to the allowance for doubtful accounts . 18 inventories inventories are valued at the lower of cost or market , with cost being determined principally by using the last-in , first-out ( lifo ) method and market defined as replacement cost for raw materials and net realizable value for work in process and finished goods ( see note 2 to consolidated financial statements ) . appropriate consideration is given to obsolescence , excessive levels , deterioration , possible alternative uses and other factors in determining net realizable value . the cost of work in process and finished goods includes materials , direct labor , variable costs and overhead . the company evaluates the need to record inventory adjustments on all inventories , including raw material , work in process , finished goods , spare parts and used equipment . used equipment acquired by the company on trade-in from customers is carried at estimated net realizable value . unless specific circumstances warrant different treatment regarding inventory obsolescence , the cost basis of inventories three to four years old are reduced by 50 % , while the cost basis of inventories four to five years old are reduced by 75 % , and the cost basis of inventories greater than five years old are reduced to zero . inventory is typically reviewed for obsolescence on an annual basis computed as of september 30 th , the company 's fiscal year end . if significant known changes in trends , technology or other specific circumstances that warrant consideration occur during the year , then the impact on obsolescence is considered at that time . investments marketable debt and equity securities are categorized as trading securities and are thus marked to market and stated at fair value . fair value is determined story_separator_special_tag in response to the short-term outlook , the company has taken aggressive actions to conserve cash , right-size its operations and cost structure , and will continue to do so based on its forecast . these actions included adjustments to workforce , reduced purchases of raw materials and reductions in selling , general , and administrative expenses . the company continues to review its internal processes to identify inefficiencies and cost reduction opportunities . the company will continue to scrutinize its relationships with external suppliers to ensure it is achieving the highest quality materials and services at the most competitive cost . story_separator_special_tag assumptions the company believes the following discussion addresses it 's most critical accounting policies , which are those that are most important to the portrayal of the company 's financial condition and results of operations and require management 's most difficult , subjective , or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . accounting policies , in addition to the critical accounting policies referenced below , are presented in note 1 to the consolidated financial statements , accounting policies. estimates and assumptions in preparing the consolidated financial statements , the company uses certain estimates and assumptions that may affect reported amounts and disclosures . estimates and assumptions are used , among other places , when accounting for certain revenue ( e.g . contract accounting ) , expense , and asset and liability valuations . the company believes that the estimates and assumptions made in preparing the consolidated financial statements are reasonable , but are inherently uncertain . assumptions may be incomplete or inaccurate and unanticipated events may occur . the company is subject to risks and uncertainties that may cause actual results to differ from estimated results . revenues & expenses revenues from contracts for the design , manufacture and sale of asphalt plants are recognized under the percentage-of-completion method . the percentage-of-completion method of accounting for these contracts recognizes revenue , net of any promotional discounts , and costs in proportion to actual labor costs incurred as compared with total estimated labor costs expected to be incurred during the entire contract . pre-contract costs are expensed as incurred . changes to total estimated contract costs or losses , if any , are recognized in the period in which they are determined . revenue recognized in excess of amounts billed is classified as current assets under costs and estimated earnings in excess of billings. the company anticipates that all incurred costs associated with these contracts at september 30 , 2014 , will be billed and collected within one year . revenues from all other contracts for the design and manufacture of custom equipment , for service and for parts sales , net of any discounts and return allowances , are recorded when the following four revenue recognition criteria are met : product is delivered/ownership is transferred or service is performed , persuasive evidence of an arrangement exists , the selling price is fixed or determinable , and collectability is reasonably assured . returns and allowances , which reduce product revenue , are estimated using historical experience . provisions for estimated returns and allowances and other adjustments are provided for in the same period the related sales are recorded . product warranty costs are estimated using historical experience and known issues and are charged to production costs as revenue is recognized . all product engineering and development costs , and selling , general and administrative expenses are charged to operations as incurred . provision is made for any anticipated contract losses in the period that the loss becomes evident . the allowance for doubtful accounts is determined by performing a specific review of all account balances greater than 90 days past due and other higher risk amounts to determine collectability and also adjusting for any known customer payment issues with account balances in the less-than-90-day past due aging buckets . account balances are charged off against the allowance for doubtful accounts when they are determined to be uncollectable . any recoveries of account balances previously considered in the allowance for doubtful accounts reduce future additions to the allowance for doubtful accounts . 18 inventories inventories are valued at the lower of cost or market , with cost being determined principally by using the last-in , first-out ( lifo ) method and market defined as replacement cost for raw materials and net realizable value for work in process and finished goods ( see note 2 to consolidated financial statements ) . appropriate consideration is given to obsolescence , excessive levels , deterioration , possible alternative uses and other factors in determining net realizable value . the cost of work in process and finished goods includes materials , direct labor , variable costs and overhead . the company evaluates the need to record inventory adjustments on all inventories , including raw material , work in process , finished goods , spare parts and used equipment . used equipment acquired by the company on trade-in from customers is carried at estimated net realizable value . unless specific circumstances warrant different treatment regarding inventory obsolescence , the cost basis of inventories three to four years old are reduced by 50 % , while the cost basis of inventories four to five years old are reduced by 75 % , and the cost basis of inventories greater than five years old are reduced to zero . inventory is typically reviewed for obsolescence on an annual basis computed as of september 30 th , the company 's fiscal year end . if significant known changes in trends , technology or other specific circumstances that warrant consideration occur during the year , then the impact on obsolescence is considered at that time . investments marketable debt and equity securities are categorized as trading securities and are thus marked to market and stated at fair value . fair value is determined
| as of september 30 , 2014 and 2013 , the cost basis of the investment portfolio was $ 85.0 million and $ 81.2 million , respectively . $ 2.0 million in cash was transferred from the investment portfolio back into operating cash in fiscal 2013. for the years ended september 30 , 2014 and 2013 , net investment interest and dividend income ( investment income ) was $ 1.8 million and $ 2.3 million , respectively . the net realized and unrealized gains on marketable securities were $ 2.2 million in 2014 versus $ 1.5 million in 2013. total cash and investment balance at september 30 , 2014 was $ 94.3 million compared to the september 30 , 2013 cash and investment balance of $ 92.7 million . during the year ended september 30 , 2014 , the company recognized in other income a gain of $ 442,000 on the disposal property in the united kingdom which was previously used as an operating facility . 16 the effective income tax rate for fiscal 2014 was 21.3 % versus a benefit of ( 6.2 % ) in fiscal 2013. the company received favorable irs rulings on its research and development tax credits ( r & d credits ) on amended returns filed for tax years 2006 through 2010 ( fiscal years 2007 through 2011 ) . in total , the company received tax refunds of $ 827,000 related to r & d credits for tax years 2006 through 2008 and recorded additional r & d credits of $ 1,302,000 related to tax years 2009 through 2012 ( fiscal years 2010 through 2013 ) . r & d credits of $ 2,129,000 are included in the company 's income tax benefit of $ 392,000 in the consolidated statement of operations for the year ended september 30 , 2013. of the $ 1,302,000 in r & d credits , $ 497,000 reduced the company 's current federal income taxes payable for the year ended september 30 , 2013 and $
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16 new accounting standards issued but not yet adopted see note b , new accounting pronouncements , to the company 's consolidated financial statements for information regarding recently issued accounting pronouncements . critical accounting policies and estimates in preparing the consolidated financial statements in conformity with u.s. generally accepted accounting principles ( gaap ) , management must make a variety of decisions which impact the reported amounts and the related disclosures . such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates . in reaching such decisions , management applies judgment based on its understanding and analysis of the relevant facts and circumstances . certain of the company 's accounting policies are critical , as these policies are most important to the presentation of the company 's consolidated results of operations and financial condition . they require the greatest use of judgments and estimates by management based on the company 's historical experience and management 's knowledge and understanding of current facts and circumstances . management periodically re-evaluates and adjusts the estimates that are used as circumstances change . following are the accounting policies management considers critical to the company 's consolidated results of operations and financial condition : revenue recognition the company 's revenue recognition accounting policy is critical because it can significantly impact the company 's consolidated results of operations and financial condition . the company 's basic criteria necessary for revenue recognition are : 1 ) evidence of a sales arrangement exists , 2 ) delivery of goods has occurred , 3 ) the sales price to the buyer is fixed or determinable , and 4 ) collectability is reasonably assured . the company recognizes revenue when these criteria have been met and when title and risk of loss transfers to the customer . the company generally has no post-delivery obligations to its independent dealers other than standard warranties . revenues and gross profits on intercompany sales are eliminated in consolidation . revenues from the sale of the company 's products are recognized based on the delivery terms in the sales contract . if an arrangement involves multiple deliverables , revenues from the arrangement are allocated to the separate units of accounting based on their relative selling price . the company offers a subscription-based service for wireless management and recognizes subscription revenue on a straight-line basis over the contract term . the company leases certain infrastructure property held for lease to customers such as moveable concrete barriers and road zipper systems tm . revenues for the lease of infrastructure property held for lease are recognized on a straight-line basis over the lease term . the costs related to revenues are recognized in the same period in which the specific revenues are recorded . shipping and handling fees billed to customers are reported in revenue . shipping and handling costs incurred by the company are included in cost of sales . customer rebates , cash discounts and other sales incentives are recorded as a reduction of revenues at the time of the original sale . estimates used in the recognition of operating revenues and cost of operating revenues include , but are not limited to , estimates for product warranties , product rebates , cash discounts and fair value of separate units of accounting on multiple deliverables . inventories the company 's accounting policy on inventories is critical because the valuation and costing of inventory is essential to the presentation of the company 's consolidated results of operations and financial condition . inventories are stated at the lower of cost or market . cost is determined by the last-in , first-out ( lifo ) method for the company 's lindsay , nebraska inventory and three warehouses in idaho , georgia and texas . cost is determined by the first-in , first-out ( fifo ) method for inventory at operating locations in nebraska , california , wisconsin , china and australia . cost is determined by the weighted average cost method for inventory at the company 's other operating locations in washington , brazil , france , italy and south africa . at all locations , the company reserves for obsolete , slow moving , and excess inventory by estimating the net realizable value based on the potential future use of such inventory . 17 environmental remediation liabilities the company 's accounting policy on environmental remediation is critical because it requires significant judgments and estimates by management , involves changing regulations and approaches to remediation plans , and any revisions could be material to the operating results of any fiscal quarter or fiscal year . the company is subject to an array of environmental laws and regulations relating to the protection of the environment . in particular , the company committed to remediate environmental contamination of the groundwater at and land adjacent to its lindsay , nebraska facility ( the site ) with the epa . the company and its environmental consultants have developed a remedial action work plan , under which the company continues to work with the epa to define and implement steps to better contain and remediate the remaining contamination . environmental remediation liabilities include costs directly associated with site investigation and clean up , such as materials , external contractor costs and incremental internal costs directly related to the remedy . estimates used to record environmental remediation liabilities are based on the company 's best estimate of probable future costs based on site-specific facts and circumstances . estimates of the cost for the likely remedy are developed using internal resources or by third-party environmental engineers or other service providers . the company records the undiscounted environmental remediation liabilities that represent the points in the range of estimates that are most probable or the minimum amount when no amount within the range is a better estimate than any other amount . in fiscal 2013 , the company and the epa conducted a periodic five-year review of the status of the remediation of the contamination of the site . story_separator_special_tag the company intends to complete additional investigation of the soil and groundwater on the site during the second half of calendar 2014. based on this investigation , the company will then assess revisions to its remediation plan and expects to meet with the epa in the first half of fiscal 2015 to determine how to proceed . any revisions could be material to the operating results of any fiscal quarter or fiscal year . the company does not expect such additional expenses would have a material adverse effect on its liquidity or financial condition . the company accrues the anticipated cost of environmental remediation when the obligation is probable and can be reasonably estimated . although the company has accrued all reasonably estimable costs associated with remediation of the site , it is expected that additional testing and environmental monitoring and remediation could be required in the future as part of the company 's ongoing discussions with the epa regarding the development and implementation of the remedial action plans . in addition , the current investigation has not yet been completed and does not include all potentially affected areas on the site . due to the current stage of discussions with the epa and the uncertainty of the remediation actions that may be required with respect to these affected areas , the company believes that meaningful estimates of costs or range of costs can not currently be made and accordingly have not been accrued . trade receivables and allowances trade receivables are reported on the balance sheet net of any doubtful accounts . losses are recognized when it is probable that an asset has been impaired and the amount of the loss can be reasonably estimated . in estimating probable losses , the company reviews specific accounts that are significant and past due , in bankruptcy or otherwise identified at risk for potential credit loss . collectability of these specific accounts are assessed based on facts and circumstances of that customer , and an allowance for credit losses is established based on the probability of default . in assessing the likelihood of collection of receivable , the company considers , for example , the company 's history of collections , the current status of discussions and repayment plans , collateral received , and other evidence and information regarding collection or default risk that is available in the market place . the allowance for credit losses attributable to the remaining accounts is established using probabilities of default and an estimate of associated losses based upon the aging of receivable balances , collection experience , economic condition and credit risk quality . 18 as the company 's international business has grown , the exposure to potential losses in international markets has also increased . these exposures can be difficult to estimate , particularly in areas of political instability or with governments with which the company has limited experience or where there is a lack of transparency as to the current credit condition of governmental units . as of august 31 , 2014 the company had $ 8.0 million in delinquent accounts receivable with chinese governmental entities , and $ 2.5 million of accounts receivable and $ 1.9 million in performance bonds related to its contract in iraq . the company 's allowance for all doubtful accounts related to both current and long-term receivables increased to $ 4.8 million at august 31 , 2014 from $ 2.9 million at august 31 , 2013. receivables that are not reasonably expected to be realized in cash within the next twelve months are classified as long-term receivables within noncurrent assets . the company 's evaluation of the adequacy of the allowance for credit losses is based on facts and circumstances available to the company at the date of the consolidated financial statements and considers any significant changes in circumstances occurring through the date that the financial statements are issued . valuation of goodwill and identifiable intangible assets the company 's accounting policy on valuation of goodwill and identifiable intangible assets is critical because it requires significant judgments and estimates by management and can significantly affect the company 's consolidated results of operations and financial condition . goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination . acquired intangible assets are recognized separately from goodwill . goodwill and intangible assets with indefinite useful lives are tested for impairment at least annually at august 31 and whenever triggering events or changes in circumstances indicate its carrying value may not be recoverable . assessment of the potential impairment of goodwill and identifiable intangible assets is an integral part of the company 's normal ongoing review of operations . testing for potential impairment of these assets is significantly dependent on numerous assumptions and reflects management 's best estimates at a particular point in time . the dynamic economic environments in which the company 's businesses operate and key economic and business assumptions related to projected selling prices , market growth , inflation rates and operating expense ratios , can significantly affect the outcome of impairment tests . estimates based on these assumptions may differ significantly from actual results . changes in factors and assumptions used in assessing potential impairments can have a significant impact on the existence and magnitude of impairments , as well as the time in which such impairments are recognized . in testing goodwill for impairment , the company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not ( more than 50 percent ) that the estimated fair value of a reporting unit is less than its carrying amount . a significant amount of judgment is involved in determining if an indicator of impairment has occurred .
| international irrigation revenues in fiscal 2014 of $ 208.4 million decreased $ 31.9 million or 13 percent from $ 240.3 million in fiscal 2013. the decrease in international irrigation revenues is primarily due to a decline in the number of irrigation systems sold as compared to the prior year . operating revenues decreased most significantly in the middle east due to the near completion of the iraq contract in fiscal 2013. revenues from the iraq contract during fiscal 2014 were $ 2.4 million compared to $ 33.4 million during fiscal 2013. in other international markets , revenue declined in russia/ukraine , canada and china partially offset by increases in australia and water filtration system export sales of $ 7.2 million from the lakos ® business . infrastructure products segment revenues in fiscal 2014 of $ 78.0 million increased by $ 13.1 million or 20 percent from $ 64.9 million in fiscal 2013. the increase in sales is primarily due to increases in road safety products and railroad signals and structures . gross margin gross profit was $ 171.0 million for fiscal 2014 , a decrease of $ 23.8 million compared to fiscal 2013. the decrease in gross profit was primarily due to the decline in sales and a decrease in gross margin to 27.7 percent for fiscal 2014 from 28.2 percent for fiscal 2013. gross margins in irrigation declined by less than one percentage point due primarily to fixed cost deleverage on lower sales volume . infrastructure gross margins improved by approximately two percentage points primarily due to a combination of mix shift to higher margin products and fixed cost leverage on higher sales volume . operating expenses the company 's operating expenses of $ 92.6 million for fiscal 2014 increased $ 4.9 million compared to fiscal 2013 operating expenses of $ 87.8 million . excluding the acquired lakos ® business , operating expenses decreased
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compression services in pennsylvania , with rmp . prior to december 22 , 2014 , with certain limited exceptions , our midstream segment did not charge fees for providing such services to our exploration and production segment . from december 22 , 2014 through october 31 , 2015 , the midstream segment charged for water services fees according to the water services agreements entered into in connection with the rmp ipo . in connection with the closing of the acquisition of the water assets by rmp on november 4 , 2015 , we entered the water services agreements with pa and oh water , respectively , whereby pa water and oh water , as applicable , have agreed to provide certain fluid handling services to us , including the exclusive right to provide fresh water for well completions operations in the marcellus and utica shales and to collect and recycle or dispose of flowback , produced water and other fluids for us within areas of dedication in defined service areas in pennsylvania and ohio . in consideration for the acquisition of the water assets , 52 rmp paid us $ 200.0 million in cash plus an additional amount , if certain of the conveyed systems ' capacities increase by 5.0 mmgal/d on or prior to december 31 , 2017 , equal to $ 25.0 million less the capital expenditures expended by rmp to achieve such increase , in accordance with the terms of the purchase agreement . the initial term of the water services agreements is until december 22 , 2029 and from month to month thereafter . under the agreements , we will pay ( i ) a variable fee , based on volumes of water supplied , for freshwater deliveries by pipeline directly to the well site , subject to annual cpi adjustments and ( ii ) a produced water hauling fee of actual out-of-pocket cost incurred by pa water and oh water , plus a 2 % margin . beginning on november 1 , 2015 , rmp charges water services fees according to the water services agreements . these fees eliminate in consolidation . sources of revenues we derive a substantial majority of our revenues from the sale of natural gas and do not include the effects of derivatives . our revenues may vary significantly from period to period as a result of changes in volumes of production sold or changes in realized prices . our gathering , compression and water services revenues are primarily derived from our gathering and compression contracts in addition to fees charged to outside working interest owners . the following table provides detail of our operating revenues from the consolidated statements of operations for the years ended december 31 , 2015 , 2014 and 2013 . replace_table_token_17_th nymex henry hub prompt month contract prices are widely-used benchmarks in the pricing of natural gas . the following table provides the high and low prices for nymex henry hub prompt month contract prices and our differential to the average of those benchmark prices for the periods indicated . replace_table_token_18_th ( 1 ) differential is calculated by comparing the average nymex henry hub price to our volume weighted average realized price per mmbtu before hedges , including 50 % of the volumes sold by our marcellus joint venture for the period from january 1 , 2014 through january 28 , 2014 , contained within the year ended december 31 , 2014. the remainder of the year ended december 31 , 2014 reflects 100 % of the volumes sold by our marcellus joint venture . we sell a substantial majority of our production to three natural gas marketers , sequent , bp and nextera . for the year ended december 31 , 2015 , sales to sequent , bp and nextera represented 35 % , 21 % and 14 % of our total sales , respectively . if our natural gas marketers decided to stop purchasing natural gas from us , our revenues could decline and our operating results and financial condition could be harmed . although a substantial portion of production is purchased by these customers , we do not believe the loss of these customers would have a material adverse effect on our business , as other customers or markets would be accessible to us . for the year ended december 31 , 2015 , our exploration and production segment accounted for 90 % of our operating revenues . while we anticipate that our midstream segment will represent an increasing portion of our operating revenues in future 53 periods , we expect that a substantial majority of our operating revenues will remain attributable to our exploration and production segment . principal components of our cost structure lease operating expense . these are the day to day operating costs incurred to maintain production of our natural gas producing wells . such costs include produced water disposal , maintenance and repairs . cost levels for these expenses can vary based on supply and demand for oilfield services . gathering , compression and transportation . these are costs incurred to bring natural gas to the market . such costs include fees paid to third parties who operate low- and high-pressure gathering systems that transport our natural gas . we often enter into firm transportation contracts that secure takeaway capacity that includes minimum volume commitments , the cost for which is included in these expenses . midstream operation and maintenance . these are costs incurred to operate and maintain our low- and high-pressure natural gas gathering and compression systems and our water services assets used to support well completion activities and to collect and recycle or dispose of flowback and produced water . incentive unit expense . these costs represent non-cash compensation expense for incentive units awarded to certain of our employees by ngp holdings and rice holdings . story_separator_special_tag in connection with our ipo and related corporate reorganization , the holders of incentive units in rice energy appalachia llc ( “ rice appalachia ” ) contributed a portion of their incentive units to rice holdings and ngp holdings in return for substantially similar incentive units in such entities . this resulted in the incentive units being deemed to have been modified , and the performance conditions were considered to be probable of occurring . therefore , their fair values were measured and compensation expense from the date of initial grant through december 31 , 2015 has been recognized in the year ended december 31 , 2015 . the payment obligation as it relates to the incentive units resides with ngp holdings and rice holdings and has not been , and will not be borne by us . general and administrative expense . these costs include overhead , including payroll and benefits for our corporate staff , costs of maintaining our headquarters , costs of managing our exploration and production operations , midstream operations , franchise taxes , audit and other professional fees and legal compliance expenses . depreciation , depletion and amortization . depreciation , depletion and amortization ( “ dd & a ” ) includes the systematic expensing of the capitalized costs incurred to acquire , explore and develop natural gas . as a “ successful efforts ” company , we capitalize all costs associated with our acquisition and development efforts and all successful exploration efforts and allocate these costs to each unit of production using the units of production method . interest expense . we have financed a portion of our working capital requirements and property acquisitions with borrowings under our revolving credit facilities and our notes . as a result , we incur interest expense that is affected by the level of drilling , completion and acquisition activities , as well as fluctuations in interest rates and our financing decisions . we will likely continue to incur significant interest expense as we continue to grow . to date , we have not entered into any interest rate hedging arrangements to mitigate the effects of interest rate changes . additionally , we capitalized $ 0.2 million , $ 0.9 million and $ 8.0 million of interest expense for the years ended december 31 , 2015 , 2014 and 2013 , respectively . gain on derivative instruments . we utilize commodity derivative contracts to reduce our exposure to fluctuations in the price of natural gas . we recognize gains and losses associated with our open commodity derivative contracts as commodity prices and the associated fair value of our commodity derivative contracts change . the commodity derivative contracts we have in place are not designated as hedges for accounting purposes . consequently , these commodity derivative contracts are recorded at fair value at each balance sheet date with changes in fair value recognized as a gain or loss in our results of operations . cash flow is only impacted to the extent the actual settlements under the contracts result in making a payment to or receiving a payment from the counterparty . income tax expense . we are a corporation under the internal revenue code , subject to federal income taxes at a statutory rate of 35 % of pretax earnings . the reorganization of our business in connection with the closing of our ipo , such that it is now held by a corporation subject to federal income tax , required the recognition of a deferred tax asset or liability for the initial temporary differences at the time of our ipo . the resulting deferred tax liability of approximately $ 162.3 million was recorded in equity at the date of our ipo . based on our deductions primarily related to intangible drilling costs ( “ idcs ” ) that are expected to exceed 2016 earnings , we expect to generate significant net operating loss assets and deferred tax liabilities . we may report and pay state income or franchise taxes in periods where our idc deductions do not exceed our taxable income or where state income or franchise taxes are determined on another basis . how we evaluate our operations in evaluating our financial results , we focus on production , revenues , per unit cash production costs and general and administrative ( “ g & a ” ) expenses . we also evaluate our rates of return on invested capital in our wells , and we measure the expected return of our wells based on eur and the related costs of acquisition , development and production . we believe the quality of our assets combined with our technical and managerial expertise can generate attractive rates of return as we develop our core acreage position in the marcellus and utica shales . additionally , by focusing on concentrated acreage positions , we can build and own centralized midstream infrastructure , including low- and high-pressure gathering lines , compression facilities and water pipeline systems , which enable us to reduce reliance on third-party operators , minimize costs and increase our returns . story_separator_special_tag style= '' text-align : center ; '' > 57 gain on derivative instruments . the $ 273.7 million gain on derivative contracts in 2015 was due to net cash receipts of $ 193.9 million on the settlement of maturing contracts and a $ 79.8 million unrealized gain . the $ 186.5 million gain on derivative contracts in 2014 was due to net cash payments of $ 18.8 million and a $ 205.3 million unrealized gain . equity in income ( loss ) of joint ventures . the $ 2.7 million decrease in equity income of joint ventures is the result of our acquisition of the remaining 50 % interest in our marcellus joint venture in january 2014 , as we consolidate the operations of our marcellus joint venture subsequent to the acquisition . income tax expense . the $ 79.5 million decrease in income tax expense year-over-year was attributable to a decrease in taxable income and a lower estimated annual effective tax rate . noncontrolling interest .
| our realized price in 2015 was $ 2.21 per mcf compared to $ 3.65 per mcf in 2014 , in each case before the effect of hedges . additionally , operating revenues were positively impacted by a $ 43.7 million increase in gathering , compression and water service revenues year-over-year . this increase primarily relates to increased third-party volumes and revenues on new gathering contracts . the increase in operating revenues for 2015 were offset by a $ 22.8 million decrease year-over-year in firm transportation sales , net , from the sale of unutilized capacity as we further utilize our existing contracts for our own operated production . lease operating expenses . the $ 19.4 million increase in lease operating expenses is attributable to an increase in the number of producing wells in 2015 as compared to the prior year . however , lease operating expenses per unit of production decreased year-over-year due to improved efficiencies , primarily relating to production water recycling . gathering , compression and transportation . gathering , compression and transportation expense for 2015 of $ 84.7 million is mainly comprised of $ 68.2 million of transportation contracts with third parties , $ 8.3 million of gathering charges from third parties and $ 4.2 million of charges from our working interest partners on our non-operated wells . the $ 49.1 million increase in expense was primarily attributable to increased firm transportation contracts in 2015 compared to 2014 , which is consistent with increased production . midstream operation and maintenance . the $ 12.4 million increase in midstream operation and maintenance expense in 2015 compared to the prior year was primarily due to additional contract labor costs , additional leases and on compression equipment and utility costs incurred as a result of our continued midstream build-out . incentive unit expense . incentive unit expense decreased $ 69.9 million in 2015 compared to 2014. in 2014 , the $ 106.0 million expense primarily consisted of $ 44.5 million and
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54 story_separator_special_tag style= '' line-height:120 % ; text-indent:48px ; font-size:10pt ; '' > other income decreased by $ 10.5 million for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 primarily driven by decreased afudc - equity of $ 14.3 million associated with the ovc project placed in-service in the fourth quarter of 2016 and distributions from ees of $ 8.3 million which were recorded as other income in 2016 prior to the conversion to a note receivable , partly offset by higher equity income related to eqm 's portion of the mvp joint venture 's afudc on the mvp . other income increased by $ 29.2 million for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 primarily driven by increased afudc - equity of $ 13.1 million mainly attributable to increased spending on the ovc project , distributions from ees of $ 8.3 million that were recorded as other income in 2016 and higher equity income related to eqm 's portion of the mvp joint venture 's afudc on the mvp . net interest expense increased by $ 19.4 million for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 primarily driven by higher interest incurred on eqm 's long-term debt issued in november 2016 of $ 17.4 million , lower capitalized interest and afudc - debt of $ 5.3 million associated with decreased spending on capital projects and increased interest on eqm 's credit facility borrowings , partly offset by increased interest income recorded on distributions from ees of $ 5.1 million . net interest expense decreased by $ 4.6 million for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 primarily driven by higher capitalized interest and afudc - debt of $ 3.8 million associated with increased spending primarily on the ovc , decreased interest expense of $ 2.8 million on lower credit facility borrowings and interest income subsequent to the preferred interest conversion to a note receivable . the items which decreased net interest expense were partly offset by interest incurred on the long-term debt issued in november 2016 . 57 see note 11 to the consolidated financial statements included in item 8 of this annual report on form 10-k for discussion of income tax expense . see `` investing activities '' and `` eqm capital requirements '' in the `` capital resources and liquidity '' section below for a discussion of capital expenditures . eqm 's non-gaap financial measures adjusted ebitda and distributable cash flow are non-gaap supplemental financial measures that management and external users of eqm 's consolidated financial statements , such as industry analysts , investors , lenders and rating agencies , use to assess : eqm 's operating performance as compared to other publicly traded partnerships in the midstream energy industry without regard to historical cost basis or , in the case of adjusted ebitda , financing methods ; the ability of eqm 's assets to generate sufficient cash flow to make distributions to eqm 's unitholders ; eqm 's ability to incur and service debt and fund capital expenditures ; and the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities . eqm believes that adjusted ebitda and distributable cash flow provide useful information to investors in assessing its financial condition and results of operations . adjusted ebitda and distributable cash flow should not be considered as alternatives to net income , operating income , net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with gaap . adjusted ebitda and distributable cash flow have important limitations as analytical tools because they exclude some , but not all , items that affect net income and net cash provided by operating activities . additionally , because adjusted ebitda and distributable cash flow may be defined differently by other companies in its industry , eqm 's adjusted ebitda and distributable cash flow may not be comparable to similarly titled measures of other companies , thereby diminishing the utility of the measures . distributable cash flow should not be viewed as indicative of the actual amount of cash that eqm has available for distributions from operating surplus or that it plans to distribute . 58 reconciliation of eqm non-gaap financial measures the following table presents a reconciliation of eqm 's non-gaap financial measures of adjusted ebitda and distributable cash flow with the most directly comparable eqm gaap financial measures of net income and net cash provided by operating activities as reported in eqm 's annual report on form 10-k for the year ended december 31 , 2017 . replace_table_token_8_th ( a ) in conjunction with the october 2016 acquisition , the operating agreement of ees was amended and the accounting for eqm 's preferred interest in ees converted from a cost method investment to a note receivable effective october 1 , 2016. there were no changes in the cash payments ; however , distributions from ees subsequent to this amendment were recorded partly as a reduction in the note receivable and partly as interest income , which is included in net interest expense in the accompanying statements of consolidated operations . distributions received from ees prior to this amendment in 2016 were included in other income in the accompanying statements of consolidated operations . ( b ) reflects capital lease payments due under the lease . these lease payments were generally made monthly on a one month lag prior to the october 2016 acquisition . 59 ( c ) adjusted ebitda attributable to nwv gathering prior to acquisition for the periods presented was excluded from eqm 's adjusted ebitda calculations as these amounts were generated by nwv gathering prior to acquisition by eqm ; therefore , the amounts could not have been distributed to eqm 's unitholders . story_separator_special_tag adjusted ebitda attributable to nwv gathering prior to acquisition for the year ended december 31 , 2015 was calculated as net income of $ 11.1 million plus depreciation and amortization expense of $ 2.0 million plus income tax expense of $ 6.7 million . ( d ) adjusted ebitda attributable to the october 2016 acquisition prior to acquisition for the periods presented was excluded from eqm 's adjusted ebitda calculations as these amounts were generated by avc , rager and the gathering assets prior to acquisition by eqm ; therefore , the amounts could not have been distributed to eqm 's unitholders . adjusted ebitda attributable to the october 2016 acquisition prior to acquisition for the years ended december 31 , 2016 and 2015 was calculated as net income of $ 1.3 million and $ 34.2 million , respectively , plus depreciation and amortization expense of $ 2.1 million and $ 2.5 million , respectively , plus income tax expense ( benefit ) of $ 10.1 million and $ ( 23.4 million ) , respectively , less interest income of $ 0.5 million and $ 1.1 million , respectively , less afudc - equity of $ 1.6 million and $ 0.7 million , respectively . adjusted ebitda attributable to avc , excluding income tax expense and afudc - equity , was previously included in eqm 's results as a result of the capital lease and was eliminated from adjusted ebitda by subtracting the capital lease payment ; therefore , there is no adjustment for avc 's adjusted ebitda prior to acquisition other than the capital lease payments , income tax expense and afudc - equity . net income for avc including decreased depreciation expense related to the 40 year useful life of the pipeline was $ 20.6 million and $ 27.5 million for the years ended december 31 , 2016 and 2015 , respectively ( see note 2 to the consolidated financial statements included in item 8 of this annual report on form 10-k ) . ( e ) as a result of increased significance of capitalized interest and afudc - debt in 2016 , this line item was added as an adjustment to the calculation of distributable cash flow for the year ended december 31 , 2016. had distributable cash flow been calculated on a consistent basis , it would have been $ 5.6 million lower for the year ended december 31 , 2015 than the amount presented herein . ( f ) ongoing maintenance capital expenditures are expenditures ( including expenditures for the construction or development of new capital assets or the replacement , improvement or expansion of existing capital assets ) made to maintain , over the long term , eqm 's operating capacity or operating income . eqt has reimbursement obligations to eqm for certain maintenance capital expenditures under the terms of the eqm omnibus agreement . for further explanation of these reimbursable maintenance capital expenditures , see `` eqm capital requirements . '' for the years ended december 31 , 2016 and 2015 , ongoing maintenance capital expenditures net of reimbursements excludes ongoing maintenance of $ 6.5 million and $ 9.8 million , respectively , attributable to avc , rager , the gathering assets and nwv gathering prior to acquisition . see `` executive overview '' for a discussion of eqm 's net income , the gaap financial measure most directly comparable to adjusted ebitda . adjusted ebitda increased by $ 116.9 million for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 and $ 123.6 million for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 , in each case , primarily as a result of higher operating income on increased revenues driven by production development in the marcellus shale and the acquisitions for each period , which resulted in ebitda subsequent to the transaction being reflected in adjusted ebitda , including the elimination of the avc lease payment . for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 , distributions from ees also contributed to the increase . eqm 's net cash provided by operating activities , the gaap financial measure most directly comparable to distributable cash flow , increased by $ 112.6 million for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 and $ 48.2 million for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 . the drivers for these changes are substantively the same as those for the changes in eqgp 's net cash provided by operating activities as discussed in `` capital resources and liquidity . '' distributable cash flow increased by $ 91.5 million for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 and $ 116.8 million for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 , in each case , mainly attributable to the increase in adjusted ebitda . for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , the increase in adjusted ebitda was partly offset by increased net interest expense excluding interest income on the preferred interest and ongoing maintenance capital expenditures net of reimbursements . 60 outlook eqgp 's principal business objective is to increase the quarterly cash distribution it pays to its unitholders over time through its ownership interests in eqm . eqm 's principal business objective is to increase the quarterly cash distributions that it pays to its unitholders over time while ensuring the ongoing growth of its business . eqm believes that it is well positioned to achieve growth based on its strategically located assets , which cover portions of the marcellus , upper devonian and utica shales that lack substantial natural gas pipeline infrastructure .
| year ended december 31 , 2016 compared to year ended december 31 , 2015 gathering revenues increased by $ 62.4 million primarily as a result of higher affiliate and third party volumes gathered in 2016 compared to 2015 , driven by production development in the marcellus shale . eqm increased firm reservation fee 55 revenues in 2016 compared to 2015 as a result of affiliates and third parties contracting for additional capacity under firm contracts , which resulted in increased firm gathering capacity of approximately 300 mmcf per day following the completion of the nwv gathering and jupiter expansion projects in the fourth quarter of 2015. the decrease in usage fees under interruptible contracts was primarily due to these additional contracts for firm capacity . operating expenses increased by $ 16.6 million for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 . selling , general and administrative expenses increased as a result of higher allocations and personnel costs from eqt . the increase in depreciation and amortization expense resulted from additional assets placed in-service , including those associated with the nwv gathering and jupiter expansion projects . transmission results of operations replace_table_token_7_th ( a ) includes commodity charges and fees on all volumes transported under firm contracts as well as transmission fees on volumes in excess of firm contracted capacity . ( b ) includes volumes transported under interruptible contracts and volumes transported in excess of firm contracted capacity . year ended december 31 , 2017 compared to year ended december 31 , 2016 total operating revenues increased by $ 41.4 million . firm reservation fee revenues increased due to affiliates and third parties contracting for additional firm capacity , primarily on the ovc , as well as higher contractual rates on existing contracts in the current year . the firm capacity on the ovc resulted in lower affiliate usage fees under firm contracts . the increase in 56 usage fees under interruptible contracts includes increased storage and parking revenue , which does not have pipeline throughput associated with it , partly offset by reduced throughput on interruptible contracts .
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our employees , suppliers , customers , and communities have faced significant challenges , and we can not predict how the covid-19 environment will continue to evolve or the full impact it will have . for further information on the potential impact of covid-19 events to the company , see item 1a “ risk factors ” . u.s. government contracts - long-term uncertainty exists with respect to overall levels of defense spending across the future years ' defense plan , and it is likely that u.s. government discretionary spending levels will continue to be subject to significant pressure . the fiscal year 2021 budget cycle ultimately concluded with the passage and enactment of defense authorization and defense appropriations measures . both pieces of legislation broadly supported shipbuilding programs , including funding and authority for an additional virginia class submarine , the bundled purchase of lha 9 ( unnamed ) with lpd 32 ( unnamed ) and lpd 33 ( unnamed ) , and long-lead material for an additional arleigh burke class ( ddg 51 ) destroyer . the final bills also continued support of the dual purchase of enterprise ( cvn 80 ) and doris miller ( cvn 81 ) , as well as the refueling and complex overhaul of uss john c. stennis ( cvn 74 ) . long-term funding for certain programs in which we participate may be reduced , delayed , or canceled . in addition , spending cuts and or reprioritization of defense investment could adversely affect the viability of our suppliers , subcontractors , and employee base . our contracts or subcontracts under programs in which we participate may be terminated or adjusted by the u.s. government or the prime contractor as a result of lack of government funding or reductions or delays in government funding . significant reductions in the number of ships procured by the u.s. navy or significant delays in funding our ship programs would have a material effect on our financial position , results of operations , or cash flows . the budget environment remains a significant long-term risk . considerable uncertainty exists regarding how future budget and program decisions will develop and what challenges budget changes will present for the defense industry . we believe continued budget pressures will have serious implications for defense discretionary spending , the defense industrial base , including us , and the customers , employees , suppliers , subcontractors , investors , and communities that rely on companies in the defense industrial base . although it is difficult to determine specific impacts , we expect that over the longer term , the budget environment may result in fewer contract awards and lower revenues , profits , and cash flows from our u.s. government contracts . it is likely budget and program decisions made in this environment will have long-term impacts on us and the entire defense industry . defense industry overview the united states faces a complex , uncertain , and rapidly changing national security environment . the 2018 national defense strategy acknowledges an increasingly complex global security environment , characterized by overt challenges to the free and open international order and the re-emergence of long-term , strategic competition 29 between nations . america also faces an ever more lethal and disruptive battlefield , combined across domains , and conducted at increasing speed and reach . the security environment is also affected by rapid technological advancements and the changing character of war . the drive to develop new capabilities and enhance lethality is relentless , expanding to address emerging threats from peer-competitors as well as actors with lower barriers of entry , and moving at accelerating speed . new capabilities and lethality enhancements include unmanned and autonomous systems and platforms ; hypersonics ; directed energy ; resilient networks ; command , control , communications , computers , cyber , intelligence , surveillance and reconnaissance , and targeting ( `` c5isr & t '' ) requirements ; and fleet design . we expect that execution of the dod strategy will require an affordable balance between investments in enhancing the readiness of the current force with investments in new capabilities , force constructs , technologies , and capacity to meet future challenges . the dod also faces the additional challenges of recapitalizing aging infrastructure , including the naval shipyards , and transforming manpower , personnel , training , and education to recruit and retain an empowered force . other budget priorities could have a significant impact on future spending plans for defense and non-defense discretionary programs . decreases in the proposed funding levels for our programs could negatively impact our financial position , results of operations , or cash flows , including revenues , goodwill , and long-lived assets . we also anticipate that the u.s. navy 's warfighting strategy will continue to emphasize sea control and sea denial that enables power projection against adversaries with long-range weapons and full-spectrum joint domain capabilities . additionally , the navy will likely continue to employ the evolving concept of distributed maritime operations ( `` dmo '' ) , which features multiple sensors and shooters that are widely dispersed across a broad range of manned and unmanned platforms and linked through resilient networks . for the united states marine corps ( `` usmc '' ) , the commandant 's guidance returns the corps to its maritime roots by evolving from a force requirement of 38 large amphibious warships in support of “ 2.0 ” marine expeditionary brigades to a force trained and equipped as a naval expeditionary force-in-readiness and prepared to operate inside actively contested maritime spaces in support of fleet operations . in addition to employment of assets such as lhas , lpds , and dock landing ships ( `` lsd '' ) , the usmc 's anticipated force may also feature an expanded assortment of smaller platforms , landing craft , and connectors that are manned , minimally-manned , and unmanned and exploit autonomy and artificial intelligence . in december 2019 , the chief of naval operations released `` fragmentary order 01/2019 : a design for maintaining maritime superiority '' . story_separator_special_tag the order was written to simplify , prioritize , and build upon the foundation of “ design 2.0 , ” released in 2018 , and focus the u.s. navy 's efforts on `` warfighting , warfighters , and the future navy '' . the end-state for the “ warfighting ” tenet is a u.s. navy that is ready to win across the full range of military operations in competition , crisis , and contingency by persistently operating forward with agility and flexibility in an all-domain battlespace . the end-state for the “ warfighters ” tenet is a world-class naval force through recruitment , education , training , and retention of talented americans – a force that empowers u.s. navy families . the end-state for the “ future navy ” tenet envisions a fleet designed to ensure the wholeness of combat capability and lethal forces maximizing the benefits of dmo , expeditionary advanced base operations , and littoral operations in a contested environment . manned and unmanned technology will be used to expand reach , lethality , and warfighter awareness . while the force objective of 355 ships has been memorialized as national policy by the 2018 ships act , both the congressional research service and congressional budget office have estimated that additional ships would need to be added to the u.s. navy 's 30-year plan to achieve an objective of 355 ships or greater unless the navy extends the service lives of existing ships and reactivates recently retired ships . in december 2020 , the outgoing administration released its vision for the navy 's future force structure in a fiscal year 2022 30-year navy shipbuilding plan . the plan envisions achievement of the navy 's force-level goal through a distributed fleet architecture , including 382 to 446 manned ships and 143 to 242 large unmanned vehicles by 2045. the incoming administration can choose to adopt , revise , or set aside this plan , and is required by law to submit a fiscal year 2022 30-year ( fiscal year 2022-fiscal year 2051 ) navy shipbuilding plan in conjunction with its proposed fiscal year 2022 defense budget . although the executive branch is required by law to submit a 30-year shipbuilding plan each year in conjunction with its annual budget submission , previous administrations have sometimes chosen not to submit a 30-year shipbuilding plans during their first year in office in order to spend that year reviewing and revising the defense strategy , plans , and programs upon which future 30-year shipbuilding plans will be based . in january 2021 , the chief of naval operations released his 2021 navigation plan , which echoes the themes of the fiscal year 2022 shipbuilding plan and details how the navy will focus on improving its readiness , capability , and capacity in the next decade to maintain its advantage at sea . in particular , the plan calls for the u.s. to modernize 30 the fleet and take advantage of emerging technologies . the plan also states the navy needs to improve planning maintenance availabilities , improve operational level maintenance practices , and provide predictable requirements to industry . additionally , the plan anticipates that the navy will have to divest from some programs to build naval power in other areas . this includes planned divestment of some legacy platforms and transfer of non-core missions to other military services . the shipbuilding defense industry , as characterized by its competitors , customers , suppliers , potential entrants , and substitutes , is unique in many ways . it is heavily capital and skilled labor intensive . the u.s. navy , a large single customer with many needs and requirements , dominates the industry 's customer base and is served by an increasingly fragile supplier base that has trended toward exclusive providers . smaller shipyards , however , have entered the market to build the u.s. navy 's littoral combat ship and the market for the future frigate program . the dod continues to adjust its procurement practices and streamline acquisition organizations and processes in an ongoing effort to reduce costs , gain efficiencies , and enhance program management and control . additionally , the u.s. navy must compete with other national priorities , including other defense activities , non-defense discretionary spending , supplemental spending for covid-19 relief , and entitlement programs , for a share of federal budget funding . while the impact to our business resulting from these developments remains uncertain , they could have a material impact on current programs , as well as new business opportunities with the dod . see risk factors in item 1a . program descriptions for convenience , a brief description of certain programs discussed in this annual report on form 10-k is included in the glossary of programs . contracts we generate most of our revenues from long-term u.s. government contracts for design , production , and support activities . government contracts typically include the following cost elements : direct material , labor and subcontracting costs , and certain indirect costs , including allowable general and administrative expenses . unless otherwise specified in a contract , costs billed to contracts with the u.s. government are treated as allowable and allocable costs under the far and cas regulations . examples of costs incurred by us that are not allowable under the far and cas regulations include certain legal costs , lobbying costs , charitable donations , interest expense , and advertising costs . we monitor our policies and procedures with respect to our contracts on a regular basis to ensure consistent application under similar terms and conditions , as well as compliance with all applicable government regulations . in addition , the dcaa routinely audits the costs we incur that are allocated to contracts with the u.s. government . our contracts typically fall into one of four categories : firm fixed-price , fixed-price incentive , cost-type , and time and materials .
| ingalls replace_table_token_10_th sales and service revenues 2020 - ingalls revenues , including intersegment sales , increased $ 123 million , or 5 % , in 2020 compared to 2019 , primarily driven by higher revenues in surface combatants and amphibious assault ships , partially offset by lower revenues in the legend class nsc program . surface combatant revenues increased due to higher volumes on ted stevens ( ddg 128 ) , jeremiah denton ( ddg 129 ) , uss delbert d. black ( ddg 119 ) , sam nunn ( ddg 133 ) , george m. neal ( ddg 131 ) , and thad cochran ( ddg 135 ) , partially offset by lower volumes on uss fitzgerald ( ddg 62 ) restoration and modernization , uss paul ignatius ( ddg 117 ) , frank e. petersen jr. ( ddg 121 ) , and jack h. lucas ( ddg 125 ) . amphibious assault ship revenues increased as a result of higher volumes on harrisburg ( lpd 30 ) , pittsburgh ( lpd 31 ) , lha 9 ( unnamed ) , fort lauderdale ( lpd 28 ) , and richard m. mccool jr. ( lpd 29 ) , partially offset by lower volumes on uss tripoli ( lha 7 ) , lpd life cycle services , and bougainville ( lha 8 ) . revenues on the legend class nsc program decreased due to lower volumes on midgett ( nsc 8 ) and friedman ( nsc 11 ) , partially offset by higher volume on calhoun ( nsc 10 ) . 2019 - ingalls revenues , including intersegment sales , decreased $ 52 million , or 2 % , in 2019 compared to 2018 , primarily driven by lower revenues in the legend class nsc program , surface combatants , and amphibious assault ships . revenues on the legend class nsc program decreased due to lower volumes on kimball ( nsc 7 ) , midgett ( nsc 8 ) , and stone ( nsc 9 ) , partially offset by higher volumes on nsc 11 ( unnamed ) and calhoun ( nsc 10 ) . surface combatant revenues decreased as a result of lower volumes on uss delbert d. black ( ddg 119 ) , uss paul ignatius ( ddg 117 ) , frank e. petersen jr. ( ddg 121 ) , and lenah h. sutcliffe higbee ( ddg 123 ) , partially offset by higher volumes on ted stevens
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the majority of the segment 's operations are in canada , and therefore the impacts of us to canadian dollar foreign currency translation also significantly impacts the segment 's results . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 32 kleen performance products replace_table_token_8_th kleen performance products direct revenues represent third party revenues , which are earned on sales to external customers , reduced by intersegment revenues consisting of amounts paid to the sk environmental services segment for used oil collections , which are then further processed in manufacturing base and blended oil products sold by this segment . direct revenues attributable to the kleen performance products segment decreased 7.5 % , or $ 24.9 million , from the comparable period in 2014 . decreases in base and blended oil volumes and decreases in pricing of oil products both had negative impacts on direct revenues in the year ended december 31 , 2015 . lower volumes accounted for $ 20.4 million from the comparable period in 2014 , with lower pricing accounting for $ 134.1 million from the comparable period of 2014 . these negative impacts to revenues were partially offset by the lower levels of intersegment revenue related to lower reimbursement to the sk environmental segment for used oil . as compared to the comparable period in 2014 , intersegment revenues were reduced by $ 121.9 million during the year ended december 31 , 2015 . inclusive in the year over year changes within this segment were also the negative impacts of foreign currency translation on our canadian operations of approximately $ 13.2 million as a result of the weakening canadian dollar in the year ended december 31 , 2015 from the comparable period in 2014 . direct revenues for the year ended december 31 , 2014 decreased 1.2 % , or $ 3.9 million , from the comparable period in 2013 . decreases in base and blended oil pricing , as well as an increase in intersegment revenue primarily related to higher reimbursement to the sk environmental segment for used oil , both had negative impacts on direct revenues in the year ended december 31 , 2014 . as compared to the comparable period in 2013 , lower pricing accounted for $ 18.8 million and intersegment revenue accounted for $ 8.9 million of the reduced revenue during the year ended december 31 , 2014 . these negative impacts to revenues were offset by increased overall volumes primarily resulting from a full years operation of the refinery acquired in our acquisition of evergreen on september 13 , 2013. the increased volumes accounted for $ 27.3 million of additional revenue in 2014 . inclusive in the year over year changes within this segment were also the negative impacts of foreign currency translation on our canadian operations of approximately $ 4.0 million as a result of the weakening canadian dollar in the year ended december 31 , 2014 from the comparable period in 2013 . sk environmental services replace_table_token_9_th sk environmental services direct revenues include intersegment revenues earned from the sale of used oil collections to the kleen performance products segment . sk environmental services direct revenues for the year ended december 31 , 2015 decreased 15.1 % , or $ 112.9 million , from the comparable period in 2014 . this decrease was the result of expected reductions in intersegment revenues related to the sale of used oil to the kleen performance products segment in the amount of approximately $ 153.1 million due to successful management in our pay-for-oil program . this decrease in intersegment amounts impacting direct revenues were offset in the year ended december 31 , 2015 by additional revenues from the tfi acquisition of $ 34.4 million and increases of other services primarily related to containerized waste , allied products and parts washers for the year ended december 31 , 2015 from the comparable period in 2014 . direct revenues for the year ended december 31 , 2014 decreased 3.2 % , or $ 24.4 million , from the comparable period in 2013 . this decrease was primarily due to system integration changes which occurred in may of 2013 and changed the manner by which waste is tracked across our disposal network . 33 lodging services replace_table_token_10_th lodging services direct revenues for the year ended december 31 , 2015 decreased 47.5 % , or $ 83.0 million , from the comparable period in 2014 primarily due to decreases in the occupancy rates at our lodges resulting from overall lower activity in oil related industries in western canada . occupancy rates at our primary fixed lodges for the year ended december 31 , 2015 were 33 % , compared to 61 % in the comparable period in 2014 . the decrease in demand also negatively impacted pricing consistent with overall market conditions which combined resulted in decreases in direct revenue of $ 57.8 million for the year ended december 31 , 2015 from the comparable period in 2014 . direct revenues derived from our camps and catering services also decreased $ 15.0 million in the year ended december 31 , 2015 from the comparable period in 2014 . manufacturing revenues decreased during the year ended december 31 , 2015 by $ 9.4 million from the comparable period in 2014 due to a large project which occurred in 2014 . inclusive in the year over year changes within this segment were also the negative impacts of foreign currency translation on our canadian operations of approximately $ 14.2 million as a result of the weakening canadian dollar in the year ended december 31 , 2015 from the comparable period in 2014 . direct revenues for the year ended december 31 , 2014 decreased 17.7 % , or $ 37.7 million , from the comparable period in 2013 primarily due to a slow down in overall market activity in the oil sands region and other areas of western canada where the majority of this segment operates and therefore decreased demand for our lodging services . story_separator_special_tag the decrease in overall market demand also negatively impacted pricing , which combined with the decrease in demand , resulted in decreases in direct revenue of $ 16.2 million for the year ended december 31 , 2014 from the comparable period in 2013 . direct revenues derived from our camps and catering services also decreased $ 12.2 million in the year ended december 31 , 2014 from the comparable period in 2013 . manufacturing revenues decreased during the year ended december 31 , 2014 by $ 10.0 million from the comparable period in 2013 . inclusive in the year over year changes within this segment were also the negative impacts of foreign currency translation on our canadian operations of approximately $ 9.1 million as a result of the weakening canadian dollar in the year ended december 31 , 2014 from the comparable period in 2013 . oil and gas field services replace_table_token_11_th oil and gas field services direct revenues for the year ended december 31 , 2015 decreased 41.0 % , or $ 126.5 million , from the comparable period in 2014 primarily due to lower levels of activity and rig counts serviced by the businesses which negatively impacted the utilization and overall pricing of our rental equipment and productions services assets . rig count serviced by the oil and gas field services segment decreased approximately 32 % in the year ended december 31 , 2015 from the comparable period in 2014 . project cancellations and lower exploration budgets of our customers decreased overall activity levels in the marketplace , which also negatively impacted results in 2015 . inclusive in the year over year changes within this segment were also the negative impacts of foreign currency translation on our canadian operations of approximately $ 19.6 million as a result of the weakening canadian dollar in the year ended december 31 , 2015 from the comparable period in 2014 . direct revenues for the year ended december 31 , 2014 decreased 21.1 % , or $ 82.2 million , from the comparable period in 2013 primarily due to lower levels of activity and project delays in our exploration and production services of approximately $ 80.1 million related to event and project related work which occurred in 2013 and did not reoccur in 2014 . the lower levels of overall activity in the oil and gas exploration markets which existed during 2014 were attributed to the volatility and resulting uncertainties experienced in oil pricing which , led to reductions in our customers ' and the industries ' operating budgets . inclusive in the year over year changes within this segment were also the negative impacts of foreign currency translation on our canadian operations of approximately $ 11.7 million as a result of the weakening canadian dollar in the year ended december 31 , 2014 from the comparable period in 2013 . 34 cost of revenues we believe that our ability to manage operating costs is important to our ability to remain price competitive . we continue to upgrade the quality and efficiency of our services through the development of new technology and continued modifications at our facilities , and implementation of strategic sourcing and other cost reduction initiatives in an effort to improve our operating margins . technical services replace_table_token_12_th technical services cost of revenues for the year ended december 31 , 2015 decreased 2.8 % , or $ 22.2 million , from the comparable period in 2014 due to decreases in fuel expense of $ 13.2 million and transportation of $ 9.3 million . as a percentage of revenues , our costs increased 1.9 % for the year ended december 31 , 2015 as compared to 2014 , primarily due to lower revenue levels associated with higher margin businesses such as landfills in 2015 . cost of revenues for the year ended december 31 , 2014 increased 1.6 % , or $ 12.4 million , from the comparable period in 2013 due to increased costs of materials and supplies of approximately $ 5.7 million , outside transportation costs of approximately $ 4.9 million and utilities costs of approximately $ 1.8 million . these increases primarily resulted from the incremental revenue generated during the period . as a percentage of revenues , costs decreased 2.2 % basis points from operating efficiencies realized at our incinerators and further integration of safety-kleen into our waste network . industrial and field services replace_table_token_13_th industrial and field services cost of revenues for the year ended december 31 , 2015 increased 41.4 % , or $ 206.7 million , from the comparable period in 2014 primarily due to increased labor costs of $ 200.0 million and material costs of $ 13.3 million , partially offset by decreased fuel expense of $ 9.3 million . increases in labor and materials in the year ended december 31 , 2015 from the comparable period in 2014 were primarily due to the incremental revenue generated during that period from emergency response service projects . costs of revenues as a percentage of direct revenue decreased 1.6 % for the year ended december 31 , 2015 from the comparable period in 2014 primarily due to the increased overall revenue levels experienced during 2015 , which outpaced increases in cost structure as well as improved margin on emergency response and unplanned turnaround projects in our industrial and field services business . cost of revenues for the year ended december 31 , 2014 decreased 2.7 % , or $ 14.1 million , from the comparable period in 2013 primarily due to approximately $ 14.5 million in decreased labor expense as a result of decreased activity in the markets in which the business operates . kleen performance products replace_table_token_14_th kleen performance products cost of revenues for the year ended december 31 , 2015 decreased 2.2 % , or $ 5.8 million , from the comparable period in 2014 .
| the following table sets forth certain operating data associated with our results of operations for the years ended december 31 , 2015 , 2014 and 2013 . replace_table_token_5_th _ ( 1 ) third party revenue is revenue billed to outside customers by a particular segment . direct revenue is revenue allocated to the segment performing the provided service . ( 2 ) corporate items revenues and costs of revenues for the year ended december 31 , 2013 includes purchase price measurement period adjustments . ( 3 ) cost of revenue is shown exclusive of items presented separately on the statements of income , which consist of ( i ) accretion of environmental liabilities and ( ii ) depreciation and amortization . 31 direct revenues there are many factors which have impacted , and continue to impact , our revenues . these factors include , but are not limited to : foreign currency translation , acquisitions , general conditions of the oil and gas related industries , competitive industry pricing , the effects of fuel prices on our fuel recovery fees , and the level of emergency response projects . technical services replace_table_token_6_th technical services direct revenues for the year ended december 31 , 2015 decreased 5.5 % , or $ 66.3 million , from the comparable period in 2014 primarily due to decreased revenues associated with our waste disposal services whereby waste is disposed of through our incinerator and landfill facilities network . this direct revenue decrease was impacted by lower waste volumes disposed of in our landfills , which decreased 28.6 % primarily due to lower oil and gas production waste streams and project delays . pricing attributable to our recycled products and fuel recovery revenues were also negatively impacted from overall lower market rates . the utilization rate at our incinerators was 90.9 % for year ended december 31 , 2015 , respectively , compared with 91.2 % in the comparable period of 2014 . direct revenues for the year ended december 31 , 2014 increased 5.0 % or $ 57.6 million , from the comparable period in 2013 primarily
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the discussions of results , causes and trends should not be construed to imply any conclusion that these results or trends will necessarily continue into the future . our audited financial statements are stated in united states dollars and are prepared in accordance with united states generally accepted accounting principles . we will require additional funds to fund our budgeted expenses over the next 12 months . these funds may be raised through , equity financing , debt financing , or other sources , which may result in further dilution in the equity ownership of our shares . we anticipate that our expenses over the next 12 months will be approximately $ 200,000as described in the table below . these estimates may change significantly depending on the nature of our business activities and our ability to raise capital from our shareholders or other sources . description estimated expenses ( $ ) legal and accounting fees $ 100,000 product acquisition , testing and servicing costs nil marketing and advertising nil investor relations and capital raising nil management and operating costs nil salaries and consulting fees 55,000 story_separator_special_tag $ 165,522. as of december 31 , 2012 , total liabilities were $ 76,935 , consisting of accounts payable of $ 31,103 , accrued expenses of $ 45,832. the increase in amounts due to officers and shareholders for the twelve months ending december 31 , 2013 compared to december 31 , 2012 resulted primarily from advances from officers and shareholders to support the operation expenses of our company . cash and cash equivalents as of december 31 , 2013 decreased by $ 11,014 as compared to december 31 , 2012 . 16 cash flows replace_table_token_4_th the net cash used in operating activities in the year ending december 31 , 2013 was $ 184,969 compared to net cash used in operating activities of $ 226,039 in the year ended december 31 , 2012. this decrease in cash used was due primarily to reduction in costs of operation which effectively lowered our use of cash . net cash used in investing activities in the year ended december 31 , 2013 was $ nil , compared to $ 24,972 used in investing activities in the year ended december 31 , 2012. the net decrease in cash from investing activities in 2013 resulted primarily from discontinued operations for the year ended december 31 , 2012. net cash provided by financing activities in the year ended december 31 , 2013 was $ 173,973 , compared to $ 108,442 used in financing activities in the year ended december 31 , 2012. the increase in cash provided by financing activities in 2013 resulted primarily from advances by officers and shareholder as working capital to support the operations of our company . in july 2010 , two of our stockholders , david chen-te yen and yuan-hao chang , loaned us $ 300,000 and $ 200,000 , respectively . david chen-te yen , our former president and the chairman of our board of directors , owns approximately 42.1 % of our common stock . these loans were evidenced by demand promissory notes bearing interest at the rate of 8 % per annum , compounded daily . the $ 300,000 loan from david chen-te yen was repaid in december 2010 ; accrued interest of $ 8,482 remains unpaid at december 31 , 2013. the $ 200,000 loan from yuan-hao chang was repaid on november 1 , 2011. the related accrued interest of $ 27,317 was repaid in march 2012. in october and november 2010 we completed an “ offshore ” private placement of 50,000,000 shares of our common stock at a price of $ 0.02 per share , which generated gross proceeds of approximately $ 1,000,000. in order for us to successfully engage in this or any business , we may need to raise additional capital . there can be no assurance that we will be able to raise additional capital , on terms favorable to us or at all . at december 31 , 2013 , our company had an outstanding payable of $ 10,119 to yuan-hao chang ( shareholder and consultant to our company ) which our company has advanced to mr. chang for expenses to be incurred on behalf of our company . mr. chang also provides various consulting and professional services to our company for which he is compensated . consulting and professional expenses for mr. chang were $ 31,000 and $ 0 for years ended december 31 , 2013 and 2012 , respectively . at december 31 , 2013 , the outstanding consulting fee payable to mr. chang was $ 28,000. at december 31 , 2013 , our company has an outstanding payable of $ 2,924 to parashar patel ( shareholder and chief executive officer , secretary and a director of our company ) for expenses paid on behalf of our company by mr. patel as well as for certain unpaid consulting expenses compensation . at december 31 , 2013 , our company has an outstanding payable of $ 9,978 to chung-hua yang ( former chief financial officer of our company ) which mr. yang has advanced to our company as working capital . at december 31 , 2013 , our company has an outstanding payable of $ 114,500 to chih-hung cheng ( a director and chairman of our company ) which mr. cheng has advanced to our company as working capital . 17 at december 31 , 2013 , our company , through our discontinued taiwan branch and subsidiary , has an outstanding receivable of $ 19,398 from uan power corp , an affiliated company which the shareholders and the directors of our company have certain ownership . the above related parties ' amounts are due upon demand and non-interest bearing . story_separator_special_tag critical accounting policies the discussion and analysis of our financial condition and results of operations is based upon the accompanying consolidated financial statements , which have been prepared in accordance with the accounting principles generally accepted in the united states of america and are expressed in united states dollars . preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue , and expenses . these estimates and assumptions are affected by management 's application of accounting policies . we believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financial statements . basis of presentation our company has prepared the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the united states of america . all significant intercompany accounts and transactions between our company and its subsidiaries have been eliminated in consolidation . reclassification certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation . these reclassifications had no effect on reported losses . discontinued operations on december 1 , 2012 , our company ceased its taiwan 's business operations . the consolidated financial statements have been recast to present the taiwan 's business operation as discontinued operations as described in “ note 5 - discontinued operations. ” unless noted otherwise , discussion in the notes to consolidated financial statements pertain to continuing operations . use of estimates the preparation of financial statements in accordance with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period . actual results could differ from those estimates . cash and cash equivalents cash and cash equivalents are deposits in financial institutions as well as short-term money market instruments with maturities of three months or less when purchased . concentration of credit risk financial instruments that potentially subject our company to a significant concentration of credit risk consist primarily of cash and cash equivalents . our company maintains deposits in federally insured financial institutions in excess of federally insured limits . however , management believes our company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held . 18 comprehensive income our company adopted financial accounting standards board ( “ fasb ” ) accounting standards codification 220 , “ comprehensive income , ” which establishes standards for reporting and presentation of comprehensive income ( loss ) and its components in a full set of general-purpose financial statements . our company has chosen to report comprehensive income ( loss ) in the statements of income and comprehensive income . comprehensive income ( loss ) is comprised of net income and all changes to stockholders ' equity except those due to investments by owners and distributions to owners . earnings ( loss ) per share basic earnings ( loss ) per share is computed by dividing income ( loss ) available to common stockholders by the weighted average common shares outstanding for the period and class b common stock outstanding prior to its redemption . diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity . the average market price of the common shares is below the exercise price of the outstanding warrants therefore not included in the calculation for dilutive share . the computation of basic and diluted earnings ( loss ) per share for the years ended december 31 , 2013 and 2012 is as follows : for the years ended december 31 , 2013 december 31 , 2012 numerator : net income/ ( loss ) from continuing operation $ ( 176,040 ) $ ( 226,916 ) net income/ ( loss ) from discontinued operation $ nil $ ( 781,111 ) denominator weighted average common shares outstanding – basic 53,672,708 53,672,708 dilution associated with w and z warrants nil nil weighted average common share outstanding – diluted 53,672,708 53,672,708 basic earnings ( loss ) per share continuing operations $ ( 0.003 ) $ ( 0.004 ) discontinuing operations $ nil $ ( 0.015 ) diluted earnings ( loss ) per share continuing operations $ ( 0.003 ) $ ( 0.004 ) discontinuing operations $ nil $ ( 0.015 ) fair value of financial instruments fasb asc topic 820 , “ fair value measurement and disclosures ” , an accounting standard update . in september 2009 , the fasb issued this update to amendments to subtopic 820-10 , “ fair value measurements and disclosures ” . overall , for the fair value measurement of investments in certain entities that calculates net asset value per share ( or its equivalent ) . the amendments in this update permit , as a practical expedient , a reporting entity to measure the fair value of an investment that is within the scope of the amendments in this update on the basis of the net asset value per share of the investment ( or its equivalent ) if the net asset value of the investment ( or its equivalent ) is calculated in a manner consistent with the measurement principles of topic 946 as of the reporting entity 's measurement date , including measurement of all or substantially all of the underlying investments of the investee in accordance with topic 820. the amendments in this update
| however , we do not have any financing arranged and we can not provide any assurance that we will be able to raise sufficient funds from the sale of our common stock to finance our future operations . in the absence of such financing , we may be forced to abandon our business plan . results of operations for the years ended december 31 , 2013 and december 31 , 2012 our net loss for the year ended december 31 , 2013 , for the year ended december 31 , 2012 are summarized as follows : replace_table_token_2_th revenues we have had no revenue for the years ended december 31 , 2013 and 2012. selling , general and administrative expenses selling , general and administrative expenses for the years ended december 31 , 2013 and 2012 were $ 176,062 and $ 219,754 , respectively , a decrease of $ 43,692 or approximately 19.88 % . our operating expenses for the year ended december 31 , 2013 consisted of rent in the amount of $ 2,600 , professional fees in the amount of $ 70,347 , consulting expenses in the amount of $ 61,500 , and other general and administration expenses of $ 41,615 , compared to professional fees in the amount of $ 112,090 , consulting expenses in the amount of $ 59,219 , and other general and administration expenses of $ 48,445 for the year ended december 31 , 2012 . 15 other income ( expenses ) other income for the year ended december 31 , 2013 amounted to $ 22 , as compared to other expenses of $ 7,162 for the year ended december 31 , 2012. these expenses consist of interest on related party loans . provision for income tax income tax provision for the year ended december 31 , 2013 was $ nil , compared to $ nil for the year ended december 31 , 2012. net income ( loss ) we had a net loss from operations of $ 176,040 for the year ended december , 31 , 2013 , compared to a net loss of $ 226,916 incurred in the year ended december 31 ,
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we intend to leverage our experience in muscle contractility in order to expand our current pipeline , and expect to identify additional potential drug candidates that may be suitable for clinical development . as we mark our 20th anniversary , our research continues to drive innovation and leadership in muscle biology , evidenced by three novel mechanistic compounds that have recently advanced in development : a next-generation cardiac muscle activator under our collaboration with amgen , a next-generation skeletal muscle activator under our collaboration with astellas , and an unpartnered cardiac sarcomere-directed compound . we and astellas have recently agreed to extend our joint research program through 2019 while our scientists continue independent research activities directed to our other muscle biology programs . critical accounting polices and significant estimates our discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and expenses and related disclosure of contingent assets and liabilities . we review our estimates on an ongoing basis . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in the 46 notes to our financial statements included in this annual report on form 10-k , we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements . revenue recognition we recognize revenue when the following criteria have been met : persuasive evidence of an arrangement exists ; delivery has occurred or services have been rendered ; the fee is fixed or determinable ; and collectability is reasonably assured . determination of whether persuasive evidence of an arrangement exists and whether delivery has occurred or services have been rendered are based on management 's judgments regarding the fixed nature of the fee charged for research performed and milestones met , and the collectability of those fees . should changes in conditions cause management to determine these criteria are not met for certain future transactions , revenue recognized for any reporting period could be adversely affected . revenue under our license and collaboration arrangements is recognized based on the performance requirements of the contract . research and development revenues , which are earned under agreements with third parties for agreed research and development activities , may include non-refundable license fees , research and development funding , cost reimbursements and contingent milestones and royalties . our license and collaboration arrangements with multiple elements were evaluated to determine whether the delivered elements under these arrangements have value to our collaboration partner on a stand-alone basis and whether objective and reliable evidence of fair value of the undelivered item exists . if we determine that multiple deliverables exist , the consideration is allocated to one or more units of accounting based upon the best estimate of the selling price of each deliverable . the selling price used for each deliverable will be based on vendor-specific objective evidence , if available , third-party evidence if vendor-specific objective evidence is not available , or estimated selling price if neither vendor-specific or third-party evidence is available . a delivered item or items that do not qualify as a separate unit of accounting within the arrangement shall be combined with the other applicable undelivered items within the arrangement . the allocation of arrangement consideration and the recognition of revenue then shall be determined for those combined deliverables as a single unit of accounting . a delivered item or items that do not have stand-alone value to our collaboration partner shall be combined with the other applicable undelivered items within the arrangement . the allocation of arrangement consideration and the recognition of revenue then shall be determined for those combined deliverables as a single unit of accounting . for a combined unit of accounting , non-refundable upfront fees and milestones are recognized in a manner consistent with the final deliverable , which has generally been ratably over the period of the research and development obligation . for certain arrangements , the period of time over which certain deliverables will be provided is not contractually defined . accordingly , management is required to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes . upfront , non-refundable licensing payments are assessed to determine whether or not the licensee is able to obtain stand-alone value from the license . where the license does not have stand-alone value , non-refundable license fees are recognized as revenue as we perform under the applicable agreement . where the level of effort is relatively consistent over the performance period , we recognize total fixed or determined revenue on a straight-line basis over the estimated period of expected performance . where the license has stand-alone value , we recognize total license revenue at the time all revenue recognition criteria have been met . we account for milestone payments under the provisions of asc 605-28. we consider an event to be a milestone if there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved , if the event can only be achieved with our performance , and if the achievement of the event results in payment to us . if we determine a milestone is substantive , we recognize revenue when payment is earned and becomes payable . for a milestone to be considered substantive , it must be achieved with our performance , be reasonable relative to the terms of the arrangement and be commensurate with our effort to achieve the milestone or commensurate with the enhanced value of the delivered item ( s ) as a result of the milestone achievement . story_separator_special_tag if we determine a milestone is not substantive , we defer the payment and recognize revenue over the estimated period of performance as we complete our performance obligations , if any . research and development revenues and cost reimbursements are based upon negotiated rates for our ftes and actual out-of-pocket costs . fte rates are negotiated rates that are based upon our costs , and which we believe approximate fair value . any amounts received in advance of performance are recorded as deferred revenue . none of the revenues recognized to date are refundable if the relevant research effort is not successful . in revenue arrangements in which both parties make payments to each other , we evaluate the payments to determine whether payments made by us will be recognized as a reduction of revenue or as expense . revenue we recognize may be reduced by payments made to the other party under the arrangement unless we receive a separate and identifiable benefit in exchange for the payments and we can reasonably estimate the fair value of the benefit received . in arrangements in which we are the primary obligor , we record expense reimbursements from the other party as research and development revenue . if we are not the primary obligor , we record payments as a reduction of revenue . funds received from third parties under grant arrangements are recorded as revenue if we are deemed to be the principal participant in the grant arrangement as the activities under the grant are part of our development programs . if we are not the principal participant , the grant funds are recorded as a reduction to research and development expense . grant funds received are not refundable and are 47 recognized when the related qualified research and development costs are incurred and when there is reasonable assurance that the funds will be received . funds received in advance are recorded as deferred revenue . preclinical study and clinical trial accruals we use third-party contract research organizations ( “ cros ” ) and other vendors to conduct a substantial portion of our preclinical studies and all of our clinical trials . for preclinical studies , the significant factors used in estimating accruals include the percentage of work completed to date and contract milestones achieved . for clinical trial expenses , the significant factors used in estimating accruals include the number of patients enrolled , duration of enrollment and percentage of work completed to date . we monitor patient enrollment levels and related activities to the extent possible through internal reviews , correspondence and status meetings with cros and review of contractual terms . our estimates are dependent on the timeliness and accuracy of data provided by our cros and other vendors . if we have incomplete or inaccurate data , we may under- or overestimate activity levels associated with various studies or clinical trials at a given point in time . in this event , we could record adjustments to research and development expenses in future periods when the actual activity levels become known . stock-based compensation we account for share-based awards made to employees and directors , including employee stock options and employee stock awards . we measure stock-based compensation cost at the grant date based on the calculated fair value of the award , and recognize this compensation as a non-cash expense on a straight-line basis over the requisite service period , generally the vesting period of the award . we measure the fair value of share-based awards to non-employees each period until the award is fully vested . we measure compensation for restricted stock awards that contain performance conditions on the grant date fair value of the award and recognize this compensation as non-cash expense over the implicit or explicit requisite service period based on our best estimate as to whether it is probable that the award is expected to vest . we review our valuation assumptions at each grant date and the valuation assumptions we use to value share based awards granted in future periods may differ from those used for grants made in prior periods . the assumptions used in calculating stock-based compensation are based on management estimates and judgment and involve inherent uncertainties . for example , we estimate an expected forfeiture rate for stock options and restricted stock awards and recognize expense only for those shares we expect to vest . if we use different assumptions in a future period , future stock-based compensation expense could be materially different that the expense we have recognized to date . non-cash interest expense on liability related to sale of future royalties we account for the liability related to sale of future royalties as a debt financing . we have a significant continuing involvement in the generation of related royalty streams . we accrete this liability and recognize non-cash interest expense using the effective interest rate method over the life of the related royalty stream , based on our current estimates of future royalty payments . these estimates include projections we make and projections from outside the company and involve significant judgement and involve inherent uncertainties . we periodically re-assess the projections and , to the extent our future estimates of future royalty payments are greater or less than its previous estimates or the estimated timing of such payments is materially different than its previous estimates , we will adjust the liability related to sale of future royalties and prospectively recognize related non-cash interest expense . income taxes we account for income taxes under the asset and liability method and determine deferred tax assets and liabilities based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates for the year in which the differences are expected to be realized .
| revenues from amgen in 2016 included $ 26.7 million in milestone revenues . license revenues come from our strategic alliances with astellas and amgen . license revenues from astellas were $ 8.8 million , $ 62.2 million , and $ 13.9 million for the years ended december 31 , 2017 , 2016 , and 2015 , respectively . license revenue from astellas in 2016 consisted of the recognition of the $ 50.0 million upfront license fee received from astellas under the 2016 astellas amendment , and the recognition of a portion of the $ 30.0 million upfront license fee received from astellas in january 2015. license revenue from astellas in 2015 consisted of the recognition of a portion of the $ 30.0 million upfront license fee received from astellas in january 2015 and the recognition of a portion of the $ 16.0 million upfront license fee received from astellas in july 2013. the upfront license fees were recognized using the proportional performance model and continued to be recognized through december 31 , 2017. prior to april 1 , 2017 , we considered astellas and amgen to be a related party , due in part to their equity ownership percentage , and reported revenue under the astellas agreement and the amgen agreement to be revenues from a related party . effective april 1 , 2017 , in part due to a decrease in each of astellas ' and amgen 's equity ownership percentage , the company no longer considers either astellas or amgen to be a related party . research and development expenses we incur research and development expenses associated with both partnered and our own research activities . research and development expenses related to any development we elect to fund consist primarily of employee compensation , supplies and materials , costs for consultants and contract research and manufacturing , facilities costs and depreciation of equipment . replace_table_token_6_th 49 the increase in research and development expenses in 2017 as compar ed to 2016 was primarily due
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million in fiscal 2018 , despite $ 2.0 million of unfavorable foreign exchange impact on our sales during the fiscal year . in constant currency , our sales in fiscal 2019 grew eight percent compared with the prior year . increased sales , combined with continued strong gross margins and controlled operating expense growth , produced significant improvements in our operating results and cash flows during fiscal 2019 when compared with the prior year . for fiscal 2019 , our subscription and subscription-related revenue grew 23 percent compared with fiscal 2018. at august 31 , 2019 , we had $ 65.8 million of deferred revenue compared with $ 52.9 million at august 31 , 2018. total deferred revenue reported above at august 31 , 2019 and august 31 , 2018 includes $ 3.6 million and $ 1.0 million , respectively , of deferred revenue that was reclassified to other long-term liabilities based on expected recognition . at august 31 , 2019 , our unbilled deferred revenue grew 22 percent to $ 29.9 million compared with $ 24.5 million at the end of fiscal 2018. unbilled deferred revenue represents business that is contracted , but unbilled and therefore excluded from our balance sheet . 25 the following table sets forth our consolidated net sales by division and by reportable segment for the fiscal years indicated ( in thousands ) : replace_table_token_2_th gross profit consists of net sales less the cost of services provided or the cost of goods sold . our cost of sales includes the direct costs of delivering content onsite at client locations , including presenter costs , materials used in the production of training products and related assessments , assembly , manufacturing labor costs , and freight . gross profit may be affected by , among other things , the mix of services sold to clients , prices of materials , labor rates , changes in product discount levels , and freight costs . consolidated cost of sales in fiscal 2019 totaled $ 66.0 million compared with $ 61.5 million in fiscal 2018. our gross profit for the fiscal year ended august 31 , 2019 increased to $ 159.3 million , compared with $ 148.3 million in fiscal 2018. the increase in gross profit was primarily due to increased sales as described above . our gross margin , which is gross profit as a percent of sales , remained strong and was consistent with the prior year at 70.7 percent . for the fiscal year ended august 31 , 2019 , our operating expenses increased $ 5.0 million compared with the prior year . the increase was primarily due to a $ 4.2 million increase in selling , general , and administrative ( sg & a ) expenses , and a $ 1.2 million increase in depreciation expense primarily related to capital spending on our aap portal and new erp system in prior years . these increases were partially offset by a $ 0.4 million decrease in amortization expense . increased sg & a expenses during fiscal 2019 were primarily due to associate costs resulting from increased commissions and bonuses on higher sales , new sales and sales related personnel , a $ 1.9 million increase in non-cash stock-based compensation , and the addition of gsa personnel , who were formerly employed by a licensee . although sg & a expenses increased compared with the prior year , as a percent of revenues , sg & a expenses decreased to 64.5 percent compared with 67.3 percent in fiscal 2018. our results of operations in fiscal 2019 improved $ 6.0 million to $ 2.7 million of income compared with a loss from operations in fiscal 2018 of $ ( 3.4 ) million . fiscal 2019 pre-tax income increased $ 6.1 million to $ 0.6 million compared with a pre-tax loss of $ ( 5.5 ) million in fiscal 2018. our effective income tax rate for fiscal 2019 was approximately 273 percent compared with an effective tax rate of approximately 7 percent in fiscal 2018. the increased effective tax rate in fiscal 2019 was primarily due to the relatively small amount of our 2019 pre-tax income , which greatly amplified the effect of non-temporary items on our effective tax rate . our effective tax rate was also increased by tax expense from global intangible low-taxed income ( gilti ) , nondeductible expenses , and effective foreign tax rates which were significantly higher than the u.s. federal statutory rate , offset by a much smaller increase in our valuation allowance against deferred income tax assets during fiscal 2019 than the increase recorded during fiscal 2018. in addition , we recorded a one-time benefit during fiscal 2018 resulting from the 2017 tax act 's reduction of the u.s. federal income tax rate . this income tax benefit did not repeat in fiscal 2019. net loss for the year ended august 31 , 2019 was $ ( 1.0 ) million , or $ ( .07 ) per share , compared with a loss of $ ( 5.9 ) million , or $ ( .43 ) per share , in fiscal 2018. further details regarding these items can be found in the comparative analysis of fiscal 2019 with fiscal 2018 as discussed within this management 's discussion and analysis . our liquidity position remained strong during fiscal 2019 and we had $ 27.7 million of cash at august 31 , 2019 , with no borrowings on our $ 15.0 million revolving credit facility , compared with $ 10.2 million of cash at august 31 , 2018. during august 2019 , we obtained a new credit agreement with our existing lender , which included a new $ 20.0 million term loan . for further information regarding our liquidity and cash flows refer to the liquidity and capital resources discussion found later in this management 's discussion and analysis . 26 key growth objectives we believe that our best-in-class offerings , combined with flexible delivery modalities and worldwide sales and distribution capabilities are the foundation for future growth at franklin covey . story_separator_special_tag building on this foundation , we have identified the following key drivers of growth in fiscal 2020 and beyond : new subscription service sales and the renewal of existing client contracts – we are striving to fully integrate the subscription model throughout our enterprise and education division operations . we believe the subscription-based business model creates strategic and structural durability with our clients while providing significant visibility and predictability into future revenue and earnings . these factors contribute to higher margins , high recurring revenue , and predictable cash flow-through of sales to earnings . accordingly , we are focused on sales of multi-year subscription contracts and have restructured our sales force and sales support functions to more effectively sell and support subscription services . aggressive expansion of the client partner model – we are focused on consistently increasing the number of new client partners to increase our sales force and market penetration . we believe our client partner model is a key driver of future growth as new client partners on average break even during their first year and make significant contributions to sales growth thereafter . at august 31 , 2019 , we had 245 client partners compared with 214 at the end of fiscal 2018. content expansion – we believe that our offerings are based on best-in-class content driven by best-selling books and world-class thought leadership . our content is focused on performance improvement through behavior-changing outcome oriented training . the company 's vision is to profoundly impact the way billions of people throughout the world live , work , and achieve their own great purposes . we believe ongoing investment in our existing and new content will allow us to achieve this vision . continued emphasis on client loyalty – another of our underlying strategic objectives is to consistently deliver quality results to our clients . this concept is focused on ensuring that our content and offerings are best-in-class , and that they have a measurable , lasting impact on our clients ' results . we believe that measurable improvement in our clients ' organizations is key to retaining current clients and to obtaining new sales opportunities . other key factors that influence our operating results include : the number and productivity of our international licensee operations ; the number of organizations that are active customers ; the number of people trained within those organizations ; the continuation or renewal of existing services contracts , especially subscription renewals ; the availability of budgeted training spending at our clients and prospective clients , which , in certain content categories , can be significantly influenced by general economic conditions ; and our ability to manage operating costs necessary to develop and provide meaningful training and related services and products to our clients . 27 results of operations the following table sets forth , for the fiscal years indicated , the percentage of total sales represented by the line items through income or loss before income taxes in our consolidated statements of operations . this table should be read in conjunction with the accompanying discussion and analysis , the consolidated financial statements , and the related notes to the consolidated financial statements ( amounts in percentages ) . replace_table_token_3_th fiscal 2019 compared fiscal 2018 results of operations enterprise division direct offices segment the direct office segment includes our sales personnel that serve clients in the united states and canada ; our directly owned international offices in japan , china , the united kingdom , australia , and our new offices in germany , switzerland , and austria ; plus other groups such as our government services office . the following comparative information is for our direct offices segment for the periods indicated ( in thousands ) : replace_table_token_4_th sales . during fiscal 2019 , sales grew at nearly all of our direct office segment delivery channels compared with the prior year . our u.s./canada sales grew $ 8.4 million , international direct office sales grew $ 2.6 million , government services sales increased $ 1.4 million , and coaching sales increased $ 0.5 million compared with the prior year . increased direct office sales were primarily attributable to the growth of the all access pass and recognition of previously deferred subscription revenues , as well as new contracts obtained during the fiscal year . during fiscal 2019 , sales increased at each of our international direct offices , except japan ( which was essentially flat compared with the prior year ) despite the impact of unfavorable foreign exchange rates . for the fiscal year ended august 31 , 2019 , foreign exchange rates had a $ 1.5 million unfavorable impact on direct office segment sales and a $ 0.5 million unfavorable impact on direct office operating results . the adoption of accounting standards update ( asu ) no . 2014-09 , revenue from contracts with customers ( topic 606 ) did not have a significant impact on our direct office sales . gross profit . gross profit increased due to increased sales in fiscal 2019 as previously described . gross margin remained strong and was consistent with fiscal 2018. sg & a expenses . direct office operating expenses increased primarily due to increased commissions on higher sales , new sales and sales related personnel , and new gsa direct office expenses , which totaled $ 1.3 million . these increases were partially offset by reductions and cost savings initiatives in various other areas of our direct office operations . 28 international licensees segment in countries or foreign locations where we do not have a directly owned office , our training and consulting services are delivered through independent licensees . the following comparative information is for our international licensee operations for the periods indicated ( in thousands ) : replace_table_token_5_th sales . international licensee revenues are primarily comprised of royalty revenues received from our international licensees .
| we routinely repatriate cash from our foreign subsidiaries and consider cash generated from foreign activities a key component of our overall liquidity position . our primary sources of liquidity are cash flows from the sale of services in the normal course of business and available proceeds from our credit facility . our primary uses of liquidity include payments for operating activities , capital expenditures ( including curriculum development ) , debt payments , contingent payments from the prior acquisition of businesses , working capital expansion , and purchases of our common stock . 34 the following table summarizes our cash flows from operating , investing , and financing activities for the past three years ( in thousands ) : replace_table_token_11_th 2019 credit agreement on august 7 , 2019 , we entered into a new credit agreement ( the 2019 credit agreement ) with our existing lender , which replaced the amended and restated credit agreement , dated march 2011 ( the original credit agreement ) . the 2019 credit agreement provides up to $ 25.0 million in term loans and a $ 15.0 million revolving line of credit which expires in august 2024. upon entering into the 2019 credit agreement , we borrowed $ 20.0 million through a term loan and used the proceeds to repay all indebtedness under the original credit agreement . the proceeds from the 2019 credit agreement may be used for general corporate purposes as well as for other transactions , unless specifically prohibited by the terms of the agreement . surplus proceeds from the $ 20.0 million term note were classified as cash and cash equivalents on our consolidated balance sheet at august 31 , 2019. within one year of the date of the 2019 credit agreement , we may request an additional $ 5.0 million term loan . interest on all borrowings under the 2019 credit agreement is equal to libor plus 1.85 percent , which pricing matches the original credit agreement . the 2019 credit agreement
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the company elected story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto included in part iv , item 15 ( a ) , the risk factors included in part i , item 1a , and the “ forward-looking statements ” and other risks described herein and elsewhere in this annual report . the adi merger the completion of the adi merger under the adi merger agreement is subject to customary closing conditions , including , among others , the approval of maxim integrated 's stockholders , the approval of analog devices ' shareholders and the receipt of various regulatory approvals . subject to the satisfaction or ( to the extent permissible ) waiver of such conditions , the adi merger is expected to close in the summer of 2021. for additional information on the adi merger agreement and the adi merger , please refer to the company 's current report on form 8-k , filed with the sec on july 13 , 2020. the company can not guarantee that the adi merger will be completed on a timely basis or at all or that , if completed , it will be completed on the terms set forth in the adi merger agreement . overview we are a global company with manufacturing facilities in the united states , the philippines and thailand , and sales offices and design centers throughout the world . we design , develop , manufacture and market linear and mixed-signal integrated circuits , commonly referred to as analog circuits , for a large number of customers in diverse geographical locations . the analog market is fragmented and characterized by diverse applications , a great number of product variations and , with respect to many circuit types , relatively long product life cycles . the major end-markets in which we sell our products are the automotive , communications and data center , consumer , and industrial markets . we are incorporated in the state of delaware . critical accounting policies the methods , estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our financial statements . the securities and exchange commission ( “ sec ” ) has defined the most critical accounting policies as the ones that are most important to the presentation of our financial condition and results of operations , and that require us to make our most difficult and subjective accounting judgments , often as a result of the need to make estimates of matters that are inherently uncertain . based on this definition , our most critical accounting policies include valuation of inventories , accounting for income taxes , and assessment of litigation and contingencies . these policies and the estimates and judgments involved are discussed further below . we have other significant accounting policies that either do not generally require estimates and judgments that are as difficult or subjective , or it is less likely that such accounting policies would have a material impact on our reported results of operations for a given period . our significant accounting policies are described in note 2 to the consolidated financial statements included in this annual report . inventories inventories are stated at the lower of ( i ) standard cost , which approximates actual cost on a first-in-first-out basis , or ( ii ) net realizable value . our standard cost revision policy is to monitor manufacturing variances and revise standard costs on a periodic basis . at each reporting period , we assess our ending inventories for excess quantities and obsolescence based on our projected sales outlook . this assessment includes analysis of projections of future demand . because of the cyclical nature of the market , inventory levels , obsolescence of technology , and product life cycles , we generally write-down inventories to net realizable value based on this forecasted product demand analysis . actual demand and market conditions may be lower than those projected by us . this difference could have a material adverse effect on our gross margin should inventory write-downs beyond those initially recorded become necessary . alternatively , should actual demand and market conditions be more favorable than those estimated by us , gross margin could be favorably impacted as we release these reserves upon the ultimate product shipment . during fiscal years 2020 and 2019 , we had net inventory write-downs of $ 16.5 million and $ 36.1 million , respectively . accounting for income taxes we must make certain estimates and judgments in the calculation of income tax expense , determination of uncertain tax positions , and in the determination of whether deferred tax assets are more likely than not to be realized . the calculation of our income tax expense and income tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations . 26 asc no . 740-10 , income taxes ( “ asc 740-10 ” ) , prescribes a recognition threshold and measurement framework for financial statement reporting and disclosure of tax positions taken or expected to be taken on a tax return . under asc 740-10 , a tax position is recognized in the financial statements when it is more likely than not , based on the technical merits , that the position will be sustained upon examination , including resolution of any related appeals or litigation processes . a tax position that meets the recognition threshold is then measured to determine the largest amount of the benefit that has a greater than 50 % likelihood of being realized upon settlement . story_separator_special_tag although we believe that our computation of tax benefits to be recognized and realized are reasonable , no assurance can be given that the final outcome will not be different from what was reflected in our income tax provisions and accruals . such differences could have a material impact on our net income and operating results in the period in which such determination is made . see note 17 : `` income taxes '' in the notes to consolidated financial statements included in part iv , item 15 ( a ) of this annual report for further information related to asc 740-10. we evaluate our deferred tax asset balance and record a valuation allowance to reduce the net deferred tax assets to the amount that is more likely than not to be realized . in the event it is determined that the deferred tax assets to be realized in the future would be in excess of the net recorded amount , an adjustment to the deferred tax asset valuation allowance would be recorded . this adjustment would increase income in the period such determination was made . likewise , should it be determined that all or part of the net deferred tax asset would not be realized in the future , an adjustment to increase the deferred tax asset valuation allowance would be charged to income in the period such determination is made . in assessing the need for a valuation allowance , historical levels of income , expectations and risks associated with estimates of future taxable income and ongoing prudent and practicable tax planning strategies are considered . realization of our deferred tax asset is dependent primarily upon future taxable income in the u.s. and certain foreign jurisdictions . our judgments regarding future profitability may change due to future market conditions , changes in u.s. or international tax laws and other factors . these changes , if any , may require material adjustments to the net deferred tax asset and an accompanying reduction or increase in net income in the period in which such determinations are made . litigation and contingencies from time to time , we receive notices that our products or manufacturing processes may be infringing the patent or other intellectual property rights of others , notices of stockholder litigation or other lawsuits or claims against us . we periodically assess each matter in order to determine if a contingent liability in accordance with asc no . 450 , contingencies ( “ asc 450 ” ) , should be recorded . in making this determination , management may , depending on the nature of the matter , consult with internal and external legal counsel and technical experts . we expense legal fees associated with consultations and defense of lawsuits as incurred . based on the information obtained , combined with management 's judgment regarding all of the facts and circumstances of each matter , we determine whether a contingent loss is probable and whether the amount of such loss can be estimated . should a loss be probable and estimable , we record a contingent loss . in determining the amount of a contingent loss , we take into consideration advice received from experts in the specific matter , the current status of legal proceedings , settlement negotiations which may be ongoing , prior case history and other factors . should the judgments and estimates made by management be incorrect , we may need to record additional contingent losses that could materially adversely impact our results of operations . alternatively , if the judgments and estimates made by management are incorrect and a particular contingent loss does not occur , the contingent loss recorded would be reversed , thereby favorably impacting our results of operations . impact of covid-19 on our business the ongoing covid-19 pandemic has impacted and will continue to impact the company 's operations , employees , customers , and suppliers , due to shelter-in-place orders , mandated quarantines , reduced facility operations , and travel bans and restrictions . while the operating results for the first quarter of fiscal year 2021 and thereafter may be impacted by covid-19 , the extent and form of such impact to our business is uncertain and can not be estimated with any degree of certainty . employee health and safety during the third and fourth quarters of fiscal year 2020 , the company 's facilities and offices were either operating at reduced capacity or temporarily closed for non-essential operations . in an effort to protect the health and safety of our employees , we implemented safety measures such as work-from-home practices , travel restrictions , extensive cleaning protocols , and social distancing when engaging in essential activities . focus on customers we continue to work with our sales , supplier , and customer design and engineering teams to meet current demand . teams meet remotely , through telephonic or video conferences and by leveraging available technology , to continue the design and engineering process that would normally take place at physical customer locations . manufacturing and operations 27 we will continue to actively monitor this evolving situation and implement changes to protect employee health . in addition to our actions , we will continue to implement government-placed orders in all our locations . while covid-19 related disruptions have impacted our manufacturing operations , we continue to leverage our manufacturing flexibility to reduce the negative effects of such disruptions . for a further discussion of the uncertainties and business risks associated with the covid-19 pandemic , see part i , item 1a - risk factors of this annual report . story_separator_special_tag provisions and a $ 6.5 million transition tax charge .
| the impact of changes in foreign exchange rates on net revenues and our results of operations for fiscal years 2020 and 2019 were immaterial . gross margin our gross margin as a percentage of net revenue was 65.4 % in fiscal year 2020 compared to 64.8 % in fiscal year 2019 . despite the decrease in net revenue in fiscal year 2020 compared to fiscal year 2019 , gross margins as a percentage of net revenue was higher due to lower inventory reserves and lower amortization expenses recognized in cost of goods sold in fiscal year 2020 compared to fiscal year 2019. research and development research and development expenses were $ 440.2 million and $ 435.2 million for fiscal years 2020 and 2019 , respectively , which represented 20.1 % and 18.8 % of net revenues , respectively . the $ 4.9 million increase in research and development expenses was due to higher salaries and other personnel related costs . the level of research and development expenditures as a percentage of net revenues will vary from period to period depending , in part , on the level of net revenues and on our success in recruiting the technical personnel needed for our new product introductions and process development . we view research and development expenditures as critical to maintaining a high level of new product introductions , which in turn are critical to our plans for future growth . selling , general and administrative selling , general and administrative expenses were $ 296.7 million and $ 308.6 million in fiscal years 2020 and 2019 , respectively , which represented 13.5 % and 13.3 % of net revenues , respectively . the $ 11.9 million decrease in selling , general and administrative expenses was due to lower depreciation and travel expenses . the level of selling , general and administrative expenditures as a percentage of net revenues will vary from period to period , depending on the level of
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45 operating expenses replace_table_token_2_th the company 's total operating expenses for the year ended december 31 , 2018 decreased 13 % , to $ 16.1 million from $ 18.5 million , when compared to the same period in 2017. this decrease is primarily attributable to : costs of products sold : expenses for the year ended december 31 , 2018 decreased approximately 24 % when compared to the same period in 2017. the change in costs of products sold is primarily attributable to a reduction in the sale of our rapid pathogen id testing products ; costs of services : expenses for the year ended december 31 , 2018 increased approximately 20 % when compared to the same period in 2017. the change in costs of services is primarily attributable to increased costs of services associated with our cdc contract ; research and development : expenses for the year ended december 31 , 2018 decreased approximately 18 % when compared to the same period in 2017 , primarily due to a decrease in costs related to the automated rapid pathogen identification project that was suspended in 2017 , offset by increased costs related to clinical studies ; general and administrative : expenses for the year ended december 31 , 2018 increased approximately 6 % when compared to the same period in 2017 , primarily due to increased payroll and consultant costs ; and sales and marketing : expenses for the year ended december 31 , 2018 decreased approximately 45 % when compared to the same period in 2017 , primarily due to the reductions in the size of our commercial organization in 2017 . other income ( expense ) replace_table_token_3_th other expense for the year ended december 31 , 2018 increased to a net expense of $ 187,856 from a net expense of $ 153,517 in the same period of 2017. the increase was primarily a result of decreased gains due to the change in fair value of warrant liabilities offset by the expense of the unamortized discount on the outstanding bridge financing notes at repayment in the prior year . liquidity and capital resources at december 31 , 2018 , the company had cash and cash equivalents of $ 4.6 million , compared to $ 1.8 million at december 31 , 2017. the company has funded its operations primarily through external investor financing arrangements and has raised significant funds in 2018 and 2017 , including : on october 22 , 2018 , the company closed its october 2018 public offering of 2,220,000 shares of its common stock at a public offering price of $ 1.45 per share . the offering raised gross proceeds of approximately $ 3.2 million and net proceeds of approximately $ 2.8 million . 46 on june 11 , 2018 , the company executed an allonge to its second amended and restated senior secured promissory note , dated june 28 , 2017 , with a principal amount of $ 1,000,000 issued to mghif the allonge prov ided that accrued and unpaid interest of $ 285,512 due as of july 14 , 2018 , the original maturity date , will be paid through the issuance of shares of opgen 's common stock in a private placement transaction . in addition , the allonge revised and extended the maturity date for payment of the note to six semi-annual payments of $ 166,667 plus accrued and unpaid interest beginning on january 2 , 2019 and ending on july 1 , 2021. on july 30 , 2018 , the company issued 144,238 shares of common stock to mghif in a priva te placement transaction for $ 285,512 of accrued and unpaid interest due as of july 14 , 2018 under the mghif note . on february 6 , 2018 , the company closed its february 2018 public offering of 2,841,152 units at $ 3.25 per unit , and 851,155 pre-funded units at $ 3.24 per pre-funded unit , raising gross proceeds of approximately $ 12 million and net proceeds of approximately $ 10.7 million . each unit included one share of common stock and one common warrant to purchase 0.5 share of common stock at an exercise price of $ 3.25 per share . each pre-funded unit included one pre-funded warrant to purchase one share of common stock for an exercise price of $ 0.01 per share , and one common warrant to purchase 0.5 share of common stock at an exercise price of $ 3.25 per share . the common warrants are exercisable immediately and have a five-year term from the date of issuance . during the year ended december 31 , 2018 , the company sold 318,236 shares of its common stock under its at the market offering resulting in aggregate net proceeds to the company of approximately $ 0.6 million , and gross proceeds of $ 0.6 million . during the year ended december 31 , 2017 , the company sold 227,216 shares of its common stock under its at the market offering resulting in aggregate net proceeds to the company of approximately $ 3.8 million , and gross proceeds of $ 4.0 million . in connection with the october 2018 public offering , the company terminated the at the market offering . on july 18 , 2017 , the company closed its july 2017 public offering of 18,164,195 units at $ 0.40 per unit , and 6,835,805 pre‑funded units at $ 0.39 per pre-funded unit , raising gross proceeds of approximately $ 10 million and net proceeds of approximately $ 8.8 million . jven capital , an affiliate of evan jones , the company 's chairman of the board and chief executive officer , and three employees of the company participated in the july 2017 public offering . each unit included one share of common stock and one common warrant to purchase one share of common stock at an exercise price of $ 0.425 per share . story_separator_special_tag each pre-funded unit included one pre-funded warrant to purchase one share of common stock for an exercise price of $ 0.01 per share , and one common warrant to purchase one share of common stock at an exercise price of $ 0.425 per share . the common warrants are exercisable immediately and have a five-year term from the date of issuance . approximately $ 1 million of the gross proceeds was used to repay the outstanding bridge financing notes to jven capital in july 2017. on may 31 , 2017 , the company entered into a note purchase agreement with jven capital , under which jven capital agreed to provide bridge financing in an aggregate principal amount of up to $ 1,500,000 to the company in up to three separate tranches of bridge financing notes . the interest rate on each bridge financing note was ten percent ( 10 % ) per annum ( subject to increase upon an event of default ) . in connection with the bridge financing notes , the company issued jven capital stock purchase warrants to acquire 5,634 shares with an exercise price of $ 19.50 per share , and stock purchase warrants to acquire 6,350 shares at an exercise price of $ 17.25 per share . on june 14 , 2017 , the company drew down on the first of three bridge financing notes , with $ 1 million remaining capacity available . the company drew down on the second bridge financing note on july 5 , 2017 and the third bridge financing note was never issued . the outstanding bridge financing notes were repaid in full upon the closing of the july 2017 public offering . on june 6 , 2017 , as amended on june 28 , 2017 , the company issued the amended and restated mghif note to mghif , which extended the maturity date of the mghif note from july 14 , 2017 to july 14 , 2018. in return for mghif 's consent to such extension , the company increased the interest rate of the mghif note to 10 % per annum and issued warrants to purchase shares of common stock to mghif equal to 20 % of the principal balance of the mghif note , plus interest accrued thereon , as of june 28 , 2017. in early june 2017 , the company commenced a restructuring of its operations to improve efficiency and reduce its cost structure . under the restructuring plan , the company is consolidating its operations for fda-cleared and ce marked quickfish and pna fish products and research and development activities for the acuitas amr gene panel in gaithersburg , maryland , and reducing the size of its commercial organization while the company works to complete the development of its acuitas amr gene panel and acuitas lighthouse knowledgebase products and services in development . as part of this restructuring , the company decommissioned its clia laboratory operations in the third quarter of 2018 to provide incremental resources in support of efforts to gain fda clearance for the company 's acuitas amr gene panel products in development . 47 there were approximately $ 121,000 of one-time termination benefits that were recognized during the year ended december 31 , 2017 related to the restructuring . the company incurred total ret ention expense of approximately $ 68,000 during the year ended december 31 , 2017. the future minimum lease payments for the woburn facility were approximately $ 1 . 4 million as of december 31 , 2018. a liability for costs that will continue to be incurred un der a contract for its remaining term without economic benefit to the entity shall be recognized at the cease-use date . if the contract is an operating lease , the fair value of the liability at the cease-use date shall be determined based on the remaining lease rentals , adjusted for the effects of any prepaid or deferred items recognized under the lease , and reduced by estimated sublease rentals that could be reasonably obtained for the property . the company expects the cease use date for the woburn facil ity to be in the next three months . we have not estimated the contract termination costs associated with this lease given that we have not yet reached the cease use date . we do not believe there will be significant additional costs related to restructurin g outside of what is described herein . sources and uses of cash the following table summarizes the net cash and cash equivalents provided by ( used in ) operating activities , investing activities and financing activities for the periods indicated : replace_table_token_4_th net cash used in operating activities net cash used in operating activities in 2018 consists primarily of our net loss of $ 13.4 million , reduced by certain non-cash items , including depreciation and amortization expense of $ 0.7 million , share-based compensation of $ 0.9 million , and the net change in operating assets and liabilities of $ 0.6 million . net cash used in operating activities for 2017 consists primarily of our net loss of $ 15.4 million , reduced by certain non-cash items , including depreciation and amortization expense of $ 0.7 million , share-based compensation expense of $ 0.9 million , partially offset by the net change in operating assets and liabilities of $ 0.6 million . net cash used in investing activities net cash used in investing activities in 2018 and 2017 consisted solely of the purchase of property and equipment o ffset by proceeds from the sale of equipment . net cash provided by financing activities net cash provided by financing activities in 2018 of $ 13.8 million consisted primarily of net proceeds from the october 2018 public offering , february 2018 public offering and the at the market offering . net cash provided by financing activities in 2017 of $ 12.3 million consisted primarily of net proceeds from the july 2017 public offering , the at the market offering and from the issuance of bridge financing notes .
| the company 's molecular diagnostics and informatics products , product candidates and services combine its acuitas molecular diagnostics and acuitas lighthouse informatics platform for use with its proprietary , curated mdro knowledgebase . the company is working to deliver products and services , some in development , to a global network of customers and partners . the acuitas molecular diagnostic tests provide rapid microbial identification and antibiotic resistance gene information . these products include its acuitas antimicrobial resistance , or amr , gene panel ( urine ) test in development for complicated urinary tract infections , or cutis , and its acuitas amr gene panel ( isolates ) test in development for testing bacterial isolates , and its quickfish and pna fish fda-cleared and ce-marked diagnostics used to rapidly detect pathogens in positive blood cultures . each of the acuitas amr gene panel tests is available for sale for research use only , or ruo . the company 's acuitas lighthouse informatics systems are cloud-based hipaa compliant informatics offerings that combine clinical lab test results with patient and hospital information to provide analytics and actionable insights to help manage mdros in the hospital and patient care environment . components of the informatics systems include the acuitas lighthouse knowledgebase and the acuitas lighthouse software . the acuitas lighthouse knowledgebase is a relational database management system and a proprietary data warehouse of genomic data matched with antibiotic susceptibility information for bacterial pathogens . the acuitas lighthouse software system includes the acuitas lighthouse portal , a suite of web applications and dashboards , the acuitas lighthouse prediction engine , which is a data analysis software , and other supporting software components . the acuitas lighthouse software can be customized and made specific to a healthcare facility or collaborator , such as a pharmaceutical company . the company 's operations are subject to certain risks and uncertainties . the risks include the risk that the company will not receive 510 ( k ) clearance for its acuitas amr gene panel tests and acuitas lighthouse software on a timely
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we have the following reportable segments which provide services associated with the design , integration , installation , start-up , operation and maintenance of various systems : ( a ) united states electrical construction and facilities services ( involving systems for electrical power transmission and distribution ; premises electrical and lighting systems ; low-voltage systems , such as fire alarm , security and process control ; voice and data communication ; roadway and transit lighting ; and fiber optic lines ) ; ( b ) united states mechanical construction and facilities services ( involving systems for heating , ventilation , air conditioning , refrigeration and clean-room process ventilation ; fire protection ; plumbing , process and high-purity piping ; controls and filtration ; water and wastewater treatment ; central plant heating and cooling ; cranes and rigging ; millwrighting ; and steel fabrication , erection and welding ) ; ( c ) united states building services ; ( d ) united states industrial services ; and ( e ) united kingdom construction and building services . the segment “ united states building services ” principally consists of those operations which provide a portfolio of services needed to support the operation and maintenance of customers ' facilities ( commercial and government site-based operations and maintenance ; facility maintenance and services ; outage services to utilities and industrial plants ; military base operations support services ; mobile maintenance and services ; floor care and janitorial services ; landscaping , lot sweeping and snow removal ; facilities management ; vendor management ; call center services ; installation and support for building systems ; program development , management and maintenance for energy systems ; technical consulting and diagnostic services ; infrastructure and building projects for federal , state and local governmental agencies and bodies ; small modification and retrofit projects ; and retrofit projects to comply with clean air laws ) , which services are not generally related to customers ' construction programs . the segment `` united states industrial services '' principally consists of those operations which provide industrial maintenance and services , mainly for refineries and petrochemical plants , including on-site repairs , maintenance and service of heat exchangers , towers , vessels and piping ; design , manufacturing , repair and hydro blast cleaning of shell and tube heat exchangers and related equipment ; refinery turnaround planning and engineering services ; specialty welding services ; overhaul and maintenance of critical process units in refineries and petrochemical plants ; and specialty technical services for refineries and petrochemical plants . the united kingdom construction and building services segment performs electrical construction , mechanical construction and building services . in august 2011 , we sold our canadian subsidiary , which represented our canada construction segment and which performed electrical construction and mechanical construction . 21 story_separator_special_tag against customers for which we have determined we have a legal basis under existing contractual arrangements and as to which we consider collection to be probable . claim amounts recorded were immaterial for all periods presented . our backlog does not include anticipated revenues from unconsolidated joint ventures or variable interest entities and anticipated revenues from pass-through costs on contracts for which we are acting in the capacity of an agent and which are reported on the net basis . we believe our backlog is firm , although many contracts are subject to cancellation at the election of our customers . historically , cancellations have not had a material adverse effect on us . cost of sales and gross profit the following table presents cost of sales , gross profit ( revenues less cost of sales ) , and gross profit margin ( gross profit as a percentage of revenues ) for the years ended december 31 , 2013 and 2012 ( in thousands , except for percentages ) : replace_table_token_10_th our gross profit for the year ended december 31 , 2013 was $ 813.1 million , a $ 6.7 million increase compared to the gross profit of $ 806.4 million for the year ended december 31 , 2012. the increase in gross profit was primarily attributable to : ( a ) increases in gross profit from our united states building services segment and our united states industrial services segment , excluding the 23 gross profit from a company acquired in 2013 , ( b ) companies acquired in 2013 reported within our united states industrial services segment and our united states mechanical construction and facilities services segment , which contributed approximately $ 23.0 million to gross profit , and ( c ) the receipt of an insurance recovery of approximately $ 2.6 million during the first quarter of 2013 associated with a previously disposed of operation , which is classified as a component of `` cost of sales '' on the consolidated statements of operations . gross profit was negatively impacted by a decrease in gross profit from : ( a ) our united states mechanical construction and facilities services segment , as a consequence of aggregate losses of approximately $ 24.5 million from one of our subsidiaries at two projects located in the southeastern united states and ( b ) our united kingdom construction and building services segment . our gross profit margin was 12.7 % for both 2013 and 2012. gross profit margin for the year ended december 31 , 2013 increased in our united states building services segment and our united states industrial services segment primarily due to improved project execution and the termination of certain unprofitable contracts . gross profit margin decreased in all our other reportable segments . gross profit margin declined in our united states mechanical construction and facilities services segment and our united kingdom construction and building services segment due to construction contract losses , resulting in a 0.8 % impact on consolidated gross profit margin . gross profit margin in 2013 in our united states electrical construction and facilities services segment declined as 2012 gross profit margin had benefited from the resolution of construction claims , resulting in approximately $ 9.5 million of gross profit . story_separator_special_tag selling , general and administrative expenses the following table presents selling , general and administrative expenses , and selling , general and administrative expenses as a percentage of revenues , for the years ended december 31 , 2013 and 2012 ( in thousands , except for percentages ) : replace_table_token_11_th our selling , general and administrative expenses for the year ended december 31 , 2013 were $ 591.1 million , a $ 34.8 million increase compared to selling , general and administrative expenses of $ 556.2 million for the year ended december 31 , 2012. selling , general and administrative expenses as a percentage of revenues were 9.2 % and 8.8 % for the years ended december 31 , 2013 and 2012 , respectively . this increase in selling , general and administrative expenses primarily resulted from : ( a ) $ 21.0 million of expenses directly related to companies acquired in 2013 , including amortization expense attributable to identifiable intangible assets of $ 5.8 million , ( b ) $ 6.1 million of transaction costs associated with the acquisition of rsi and ( c ) higher legal and other professional fees . in addition , we recognized for the years ended december 31 , 2013 and 2012 , respectively , $ 6.8 million and $ 6.4 million of income attributable to the reversal of contingent consideration accruals relating to acquisitions made prior to 2013. restructuring expenses restructuring expenses , primarily relating to employee severance obligations and or the termination of leased facilities , were $ 11.7 million and $ 0.1 million for 2013 and 2012 , respectively . the 2013 restructuring expenses were primarily related to employee severance obligations and the termination of leased facilities in the construction operations of our united kingdom construction and building services segment . the 2012 restructuring expenses were primarily attributable to employee severance obligations and the termination of leased facilities incurred in our united states building services segment . as of december 31 , 2013 and 2012 , the balance of restructuring related obligations yet to be paid was $ 4.9 million and $ 0.1 million , respectively . the majority of obligations outstanding as of december 31 , 2012 were paid during 2013. the majority of obligations outstanding as of december 31 , 2013 will be paid during 2014. we expect to incur an additional $ 1.4 million of expenses in connection with the restructuring of our united kingdom operations in 2014. impairment loss on goodwill and identifiable intangible assets based upon our annual impairment testing as of october 1 , 2013 and 2012 , no impairment of our goodwill or our identifiable intangible assets was recognized for the years ended december 31 , 2013 and 2012 , respectively . 24 operating income ( loss ) the following table presents by segment our operating income ( loss ) ( gross profit less selling , general and administrative expenses and restructuring expenses ) , and each segment 's operating income ( loss ) as a percentage of such segment 's revenues from unrelated entities , for the years ended december 31 , 2013 and 2012 ( in thousands , except for percentages ) : replace_table_token_12_th as described in more detail below , we had operating income of $ 210.3 million for 2013 compared to operating income of $ 250.0 million for 2012. operating income of our united states electrical construction and facilities services segment for the year ended december 31 , 2013 was $ 98.1 million compared to operating income of $ 100.7 million for the year ended december 31 , 2012. the decrease in operating income for the year ended december 31 , 2013 was primarily the result of a reduction in gross profit from water and wastewater construction projects , partially offset by an increase in gross profit attributable to commercial , institutional and manufacturing construction projects . operating income in 2012 also benefited from the resolution of construction claims on a water and wastewater project and a healthcare project , resulting in approximately $ 9.5 million of gross profit . selling , general and administrative expenses slightly increased for the year ended december 31 , 2013 compared to 2012. the decrease in operating margin for the year ended december 31 , 2013 was primarily the result of a decrease in gross profit margin . our united states mechanical construction and facilities services segment operating income for the year ended december 31 , 2013 was $ 93.8 million , a $ 31.5 million decrease compared to operating income of $ 125.3 million for the year ended december 31 , 2012. the results included aggregate losses of approximately $ 24.5 million from one of our subsidiaries at two projects located in the southeastern united states , resulting in a 1.1 % impact on this segment 's operating margin . one of these projects was in progress at the time of acquisition of the subsidiary and will be completed in 2014. the other project , which was contracted for post-acquisition , has incurred losses principally due to poor performance by one of our subcontractors on the project which we have replaced and is substantially complete . in addition to the effect of these two projects , operating income in 2012 was favorably impacted by gross profit of $ 24.1 million recognized on a large manufacturing project . companies acquired in 2013 generated operating losses of approximately $ 1.0 million , including amortization expense of $ 0.1 million attributable to identifiable intangible assets for the year ended december 31 , 2013. the decrease in operating income for the year ended december 31 , 2013 was partially offset by higher gross profit from commercial construction projects and a decrease in selling , general and administrative expenses primarily due to lower incentive compensation expense .
| our united states mechanical construction and facilities services segment revenues for the year ended december 31 , 2013 were $ 2,329.8 million , a $ 56.7 million decrease compared to revenues of $ 2,386.5 million for the year ended december 31 , 2012. this decrease in revenues was primarily attributable to declines in revenues from institutional , healthcare and water and wastewater construction projects . in addition , this segment 's results for 2012 included approximately $ 224.0 million of revenues attributable to a large manufacturing project compared to $ 23.1 million of revenues recognized on the same project in 2013. these decreases were partially offset by an increase in revenues from other manufacturing construction projects and incremental revenues of approximately $ 9.7 million generated by companies acquired in 2013. revenues of our united states building services segment were $ 1,795.0 million and $ 1,807.9 million in 2013 and 2012 , respectively . this decrease in revenues was primarily attributable to a reduction in revenues from our government site-based services and our commercial site-based services , partially offset by an increase in revenues from our energy services and our mobile mechanical services . the decrease in revenues from our government site-based services was primarily due to a reduction in discretionary government project spending and the loss in 2012 of certain maintenance contracts , and the decrease in our commercial site-based services was primarily due to the termination of certain unprofitable contracts . the increase in revenues from our energy services was due to large project work , and the increase in revenues from our mobile mechanical services was due to higher project and services revenues . revenues of our united states industrial services segment for the year ended december 31 , 2013 increased by $ 117.6 million compared to the year ended december 31 , 2012. this increase in revenues was primarily due to the $ 123.6 million of incremental revenues generated by rsi . excluding the results of this acquisition , revenues decreased from turnaround and maintenance services work performed compared to revenues in 2012. the results in 2012 benefited from the favorable impact of three large
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the decrease in snowmobile sales was primarily due to poor economic conditions in russia . sales in other foreign countries , primarily in europe , increased 16 percent for 2014 compared to 2013 . the increase was primarily driven by increased sales of side-by-side vehicles and motorcycles , as well as the acquisition of aixam in april 2013. this increase was partially offset by currency rate movements , which had an unfavorable two percent impact on sales for 2014 compared to 2013. cost of sales : the following table reflects our cost of sales in dollars and as a percentage of sales : replace_table_token_8_th for 2015 , cost of sales increased seven percent to $ 3,380.2 million compared to $ 3,160.5 million in 2014 . the increase in cost of sales in 2015 resulted primarily from the effect of a three percent increase in sales volume on purchased materials and services and labor and benefits . additionally , depreciation and amortization increased due to higher capital expenditures to increase production capacity and capabilities . for 2014 , cost of sales increased 19 percent to $ 3,160.5 million compared to $ 2,656.2 million in 2013. the increase in cost of sales in 2014 resulted primarily from the effect of a 14 percent increase in sales volume on purchased materials and services and labor and benefits . additionally , depreciation and amortization increased due to higher capital expenditures to increase production capacity and capabilities . 29 gross profit : the following table reflects our gross profit in dollars and as a percentage of sales : replace_table_token_9_th consolidated . consolidated gross profit , as a percentage of sales , was 28.4 percent for 2015 , a decrease of 108 basis points from 2014 . gross profit dollars increased two percent to $ 1,339.0 million in 2015 compared to 2014 . the increase in gross profit dollars resulted from higher selling prices , lower commodity costs and product cost reduction efforts , partially offset by the negative impact of currency movements and higher promotions . foreign currencies had a negative impact to gross profit of approximately $ 70.0 million for 2015 , when compared to the prior year period . the decrease in gross profit percentage resulted primarily from unfavorable foreign currency fluctuations , new plant start-up costs , higher promotional expenses and higher depreciation and amortization , partially offset by lower commodity costs , product cost reduction and higher selling prices . consolidated gross profit , as a percentage of sales , was 29.4 percent for 2014 , a decrease of 23 basis points from 2013. gross profit dollars increased 18 percent to $ 1,319.2 million in 2014 compared to 2013. the increase in gross profit dollars resulted from higher selling prices , mix and product cost reduction efforts , partially offset by the negative impact of currency movements . the decrease in gross profit percentage resulted primarily from unfavorable foreign currency fluctuations , new plant start-up costs and higher depreciation and amortization , partially offset by product cost reduction and higher selling prices . orv/snowmobiles . gross profit dollars decreased one percent from 2014 to 2015 , primarily due to the negative impact of currency movements , decreased volumes and higher promotions , partially offset by product cost reduction efforts . gross profit dollars increased 15 percent from 2013 to 2014 , primarily due to higher selling prices , mix and product cost reduction efforts , partially offset by the negative impact of currency movements . motorcycles . gross profit dollars increased 79 percent from 2014 to 2015 , primarily due to increased sales volumes of indian and slingshot , partially offset by additional manufacturing costs and inefficiencies associated with our efforts to scale-up production and add capacity to the paint system at our spirit lake , iowa motorcycle facility . gross profit dollars increased 13 percent from 2013 to 2014 , primarily due to increased sales volumes of indian . global adjacent markets . gross profit dollars decreased five percent from 2014 to 2015 , primarily due to the negative impact of currency movements . gross profit dollars increased 39 percent from 2013 to 2014 , primarily due to increased sales volumes of aixam/mega vehicles and government/military vehicles , partially offset by negative impacts of currency movements . operating expenses : the following table reflects our operating expenses in dollars and as a percentage of sales : replace_table_token_10_th 30 operating expenses for 2015 increased four percent to $ 692.2 million , compared to $ 666.2 million in 2014 . operating expenses as a percentage of sales decreased 20 basis points in 2015 to 14.7 percent compared to 14.9 percent in 2014 . operating expenses in absolute dollars increased in 2015 primarily due to higher research and development expenses , as well as increased general and administrative expenses , which includes infrastructure investments being made to support global growth initiatives . operating expenses as a percent of sales declined primarily due to operating cost control measures and a reduction in incentive compensation plan expenses . foreign currencies had a favorable impact to operating expenses of approximately $ 15.0 million for 2015 , when compared to the prior year period . operating expenses for 2014 increased 13 percent to $ 666.2 million , compared to $ 588.9 million in 2013. operating expenses as a percentage of sales decreased 72 basis points in 2014 to 14.9 percent compared to 15.6 percent in 2013. operating expenses in absolute dollars increased in 2014 primarily due to higher selling , marketing and advertising expenses related to the launch of new model year 2015 products , including slingshot , and the continued roll-out of indian motorcycles , as well as increased general and administrative expenses , which includes infrastructure investments being made to support global growth initiatives . operating expenses as a percent of sales declined primarily due to lower long-term incentive compensation expenses , partially offset by higher marketing and advertising expenses related to the launch of various new model year 2015 products . story_separator_special_tag income from financial services : the following table reflects our income from financial services : replace_table_token_11_th income from financial services increased 12 percent to $ 69.3 million in 2015 compared to $ 61.7 million in 2014 . the increase in 2015 is primarily due to a 15 percent increase in retail credit contract volume and increased profitability generated from the retail credit portfolios with sheffield financial , synchrony bank , capital one , chrome capital and freedomroad , and slightly higher income from dealer inventory financing through polaris acceptance , due primarily to a 14 percent increase in financed receivables as of december 31 , 2015 . income from financial services increased 34 percent to $ 61.7 million in 2014 compared to $ 45.9 million in 2013. the increase in 2014 is primarily due to a 16 percent increase in retail credit contract volume and increased profitability generated from the retail credit portfolios with sheffield financial , synchrony bank , capital one and freedomroad , and higher income from dealer inventory financing through polaris acceptance , due primarily to a 23 percent increase in financed receivables as of december 31 , 2014 . 31 remainder of the income statement : replace_table_token_12_th interest expense . the increase in 2015 compared to 2014 is primarily due to increased debt levels through borrowings on our existing revolving credit facility . the increase in 2014 compared to 2013 is primarily due to increased debt levels through borrowings on our existing revolving credit facility and the additional borrowing of $ 100.0 million through our amended master note purchase agreement in december 2013. equity in loss of other affiliates . increased losses at eicher-polaris private limited ( eppl ) were the result of an increase in the joint venture 's pre-production and operating activities . during 2015 , eppl began production of the new , jointly-developed multix personal vehicle , which is specifically designed to satisfy the varied transportation needs of consumers in india . we have recorded our proportionate 50 percent share of eppl losses . other expense ( income ) , net . the change primarily relates to foreign currency exchange rate movements and the corresponding effects on foreign currency transactions and balance sheet positions related to our foreign subsidiaries from period to period . provision for income taxes . the lower income tax rate for 2015 was primarily due to tax benefits recorded related to research and development credits from the filing of our 2014 federal income tax return and other amended returns . the favorable impact , net of related tax reserves , totaled approximately $ 10.0 million . for 2015 , 2014 and 2013 , the income tax provision was positively impacted by the united states congress extending the research and development income tax credit . however , in 2013 the research and development credit extension was retroactive to 2012 , resulting in two years of benefit in 2013. in addition , we also had a favorable impact in 2013 from the release of certain income tax reserves due to favorable conclusions of federal income tax audits . the favorable impact from these items totaled $ 8.2 million and was recorded as a reduction to income tax expense in the first quarter of 2013. net income . the 2013 loss from discontinued operations is a result of a 2013 unfavorable jury verdict in a previously disclosed lawsuit involving a collision between a 2001 polaris virage personal watercraft and a boat . the jury awarded approximately $ 21.0 million in damages of which our liability was $ 10.0 million . we reported a loss from discontinued operations , net of tax , of $ 3.8 million in 2013 for an additional provision for our portion of the jury award and legal fees . the liability was fully paid by the end of 2013. there was no income or loss from discontinued operations in 2015 or 2014. in september 2004 , we announced our decision to cease manufacturing marine products . since then , any material financial results of that division have been recorded in discontinued operations . no additional charges are expected from this lawsuit . weighted average shares outstanding . the change in the weighted average diluted shares outstanding from 2014 to 2015 is primarily due to share repurchases under our stock repurchase program . the decrease from 2013 to 2014 in the weighted average diluted shares outstanding is primarily due to the company 's november 2013 purchase of 3.96 million shares of polaris stock previously held by fhi heavy industries ltd ( `` fuji '' ) under a share repurchase agreement with 32 fuji . this buyback more than offset the issuance of shares under employee compensation plans and resulted in a decrease to the 2014 , and to a lesser extent due to the timing of the transaction , the 2013 weighted average diluted shares outstanding . critical accounting policies the significant accounting policies that management believes are the most critical to aid in fully understanding and evaluating our reported financial results include the following : revenue recognition , sales promotions and incentives , dealer holdback programs , share-based employee compensation , product warranties and product liability . revenue recognition . revenues are recognized at the time of shipment to the dealer , distributor or other customers . historically , product returns , whether in the normal course of business or resulting from repurchases made under the floorplan financing program , have not been material . however , we have agreed to repurchase products repossessed by the finance companies up to certain limits . our financial exposure is limited to the difference between the amount paid to the finance companies and the amount received on the resale of the repossessed product . no material losses have been incurred under these agreements . we have not historically recorded any significant sales return allowances because we have not been required to repurchase a significant number of units . however , an adverse change in retail sales could cause this situation to change .
| despite the external challenges , we continued north american market share gains for both atvs and side-by-side vehicles driven by strong consumer enthusiasm for our orv offerings , including an expanded line-up of innovative new models . polaris ' north american orv unit retail sales to consumers increased low-single digits percent for 2015 compared to 2014 , with both atv and side-by-side vehicles unit retail sales growing low-single digits percent over the prior year . north american dealer inventories of orvs decreased mid-single digits percent from 2014 . orv sales outside of north america decreased approximately 10 percent in 2015 compared to 2014 , primarily due to decreased atv sales and negative currencies . for 2015 , the average orv per unit sales price was approximately flat compared to 2014 's per unit sales price . orv sales , inclusive of pg & a sales , of $ 3,322.9 million in 2014 , which include core atv , ranger and rzr side-by-side vehicles , and the company 's new polaris ace ® category , increased 16 percent from 2013 . this increase reflects continued market share gains for both atvs and side-by-side vehicles driven by strong consumer enthusiasm for our orv offerings , including an expanded line-up of innovative new models and the introduction of the new ace category . polaris ' north american orv unit retail sales to consumers increased low-double digits percent for 2014 compared to 2013 , with atv unit retail sales growing mid-single digits percent and side-by-side vehicle unit retail sales increasing double-digits percent over the prior year . the company 's ace category , introduced early in 2014 , accelerated its retail sales sequentially throughout 2014. north american dealer inventories of orvs increased high-teens percent from 2013 , in support of dealer stocking levels for premium and value segments for atv rfm and new ace categories . orv sales outside of north america increased mid-teens percent in 2014 compared to 2013 resulting from market share
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we believe that democratizing access to 3d printers will accelerate adoption and empowers today 's users with tomorrow 's design and manufacturing skills . we are working to accomplish our growth initiatives organically and , as opportunities arise , through selective acquisitions , including those we have already completed . we expect to be able to support organic growth by leveraging our comprehensive technology and solutions , core competencies and experienced management team to scale our business model . as with any growth strategy , there can be no assurance that we will succeed in accomplishing our strategic initiatives . story_separator_special_tag none # d9d9d9 ; border-bottom:1pt none # d9d9d9 ; font-size:10pt ; ; '' > · our unrestricted cash and cash equivalents decreased by $ 21.4 million to $ 284.9 million at december 31 , 201 4 from $ 306.3 million at december 31 , 20 13 . our cash included $ 299.7 million of net proceeds from the issuance of common stock , offset by $ 345.4 million of cash paid for acquisitions . cash at december 31 , 2013 included $ 272.1 million of net proceeds from a public equity offering , partially offset by $ 162.3 million of cash paid for acquisitions . see “ liquidity and capital resources ” below . · during 201 4 , we used $ 345.4 million of cash to acquire ten businesses to augment our quickparts , healthcare , metal , materials , and consumer products and services . see “ liquidity and capital resources – cash flow from investing activities . ” below . · o ur working capital increased by $ 15.8 million from $ 416.4 million at december 31 , 20 13 to $ 432.2 million at december 31 , 201 4 . see “ liquidity and capital resources – working capital ” below . · among major components of working capital , accounts receivab le , net of allowances , increased by $ 56.0 million from december 31 , 20 13 to december 31 , 201 4 , primarily reflecting higher revenue from an increased portion of revenue categories sold on credit terms . inventory at december 31 , 20 14 , net of reserves , was $ 30.8 million higher than its december 31 , 20 13 level , primarily reflecting timing of orders and delivery of finished goods print materials and raw materials , which are ordered in large quantities . accounts payable increased by $ 23 . 5 million primarily reflecting timing of orders and payments to vendors associated with inventory and printer assembly . results of operations for 2014 , 2013 and 2012 table 1 below sets forth revenue and percentage of revenue by class of product and service . table 1 replace_table_token_4_th consolidated revenue on a consolidated basis , revenue for the year ended 2014 increased by $ 140.3 million , or 27.3 % , compared to 2013 , led by increased sales of products and aided by increased sales of materials and services as discussed in more detail below . 32 at december 31 , 2014 our backlog was approximately $ 46.5 million , compared to $ 28.6 million at december 31 , 2013 and $ 11.4 million at december 31 , 2012. production and delivery of our printers is generally not characterized by long lead times , backlog is more dependent on timing of customers ' requested delivery . in addition , quickparts services lead time and backlog depends on whether orders are for rapid prototyping or longer-range production runs . the december 31 , 2014 backlog included a portion from each of our revenue categories , including $ 16.1 million of printer sales driven by demand for our design and manufacturing printers . the december 31 , 2013 backlog included a portion from each of our revenue categories , but primarily consisted of $ 17.2 million of printer sales driven by de mand for advanced manufacturing . the december 31 , 2012 backlog included a portion from each of our revenue categories , including printer sales of $ 3.2 million . the backlog at december 31 , 201 4 includ es $ 13.4 million of quickparts orders , compared to $ 8.4 million at december 31 , 2013 and $ 5.9 million at december 31 , 2012 . revenue by class of product and service 2014 compared to 2013 table 2 sets forth the change in revenue by class of product and service for 20 14 compared to 20 13. table 2 replace_table_token_5_th we earn revenues from the sale of products , materials and services . the $ 55.7 million increase in revenue from products compared to 2013 is driven by increased demand for design and manufacturing printers and added healthcare products . certain resellers may purchase stock inventory in the ordinary course of business . for the years ended 2014 and 2013 , we estimate that revenue related to reseller inven tory amounted to approximately 2 % of total revenue , which was impacted by timing of sales , expansion of our reseller channel and the recent shift from a partially direct sales model to the reseller channel selling a majority of our products , which expanded the volume of transactions through the channel . in addition to printers , the products category includes software products , perceptual and haptic devices , vidar digitizers and simbionix simulators . s oftware revenue contributed $ 20.1 million and $ 20.6 million of products revenue in 2014 and 2013 , respectively . due to the relatively high price of certain professional printers and a corresponding lengthy selling cycle and relatively low unit volume of the higher priced professional printer sales in any particular period , a shift in the timing and concentration of orders and shipments from one period to another can affect reported revenue in any given period . revenue reported in any particular period is also affected by timing of revenue recognition under rules prescribed by generally accepted accounting principles . story_separator_special_tag the $ 30.5 million increase in revenue from materials was aided by the improvement in sales of 3d printers and the increased utilization of printers installed over past periods . sales of integ rated materials increased 28.5 % and represented 73.3 % of total materials revenue for the year ended 2014 , compared to 70.6 % for 2013 . the $ 54.1 million increase in service revenue primarily reflects the addition of medical modeling and simbionix , coupled with growing quickparts , consumer and software services . service revenu e from quickparts increased 21.1 % to $ 122.4 million , or 57.9 % of total service revenue , for 2014 , compared to $ 101.1 million , or 64.2 % , of total service revenue in the 2013 period . software services contribu ted $ 15.2 million of revenue in 2014 compared to $ 8.2 milli on in 2013 . 33 in addition to changes in sales volumes , including the impact of revenue from acquisitions , there are two other primary drivers of changes in revenue from one period to another : the combined effect of changes in product mix and average selling prices , sometimes referred to as price and mix effects , and the impact of fluctuations in foreign currencies . as used in this management 's discussion and analysis , the price and mix effects relate to changes in revenue that are not able to be specifically rela ted to changes in unit volume . among these changes are changes in the product mix of our materials and our printers as the trend toward smaller , lower-priced printers has continued and the influence of new printers and materials on our operating results has grown . 2013 compared to 2012 table 3 sets forth the change in revenue by class of product and service for 20 13 compared to 20 12. table 3 replace_table_token_6_th on a consolidated basis , revenue for the year ended 2013 increased by $ 159.8 million , or 45.2 % , compared to 2012 , primarily due to increased sales of printers , coupled with acquired software revenue . the $ 100.8 million increase in revenue from products compared to the year ended 2012 is primarily due to increased printer unit sale s volume for the year ended 2013 , driven by increased demand for consumer and professional printers . in addition to printers , the products category includes software products , perceptual and haptic devices and vidar digitizers . s oftware products contributed revenue of $ 20.6 million and $ 4.6 million in 2013 and 2012 , respectively . the $ 25.2 million increase in revenue from materials was aide d by the improvement in sales of 3d printers and the increased utilization of print ers installed over past periods . sales of integrated materials increased 40.2 % and represented 70.6 % of total materials revenue for the year ended 2013 , compared to 62.6 % for 2012. the increase in service revenue p rimarily reflects revenue from quickparts , coupled with the addition of software revenue . service revenue from quickparts was $ 101.1 million , or 64.2 % of total service revenue , for the year ended 2013 , compared to $ 79.2 million , or 64.1 % of total service revenue for 2012. the addition of software services in 2013 contri buted $ 8.2 million of revenue for the year . for the fourth quarter of 2013 , revenue from quickparts was $ 28.4 million , compared to $ 21.0 millio n in the fourth quarter of 2012. revenue by geographic region 20 14 compared to 20 13 all geographic region s experienced higher level s of revenue in 20 14 compared to 20 13 . table 4 sets forth the change in revenue by geographic area for 20 14 compared to 20 13 : 34 table 4 replace_table_token_7_th revenue from operations in the americas for the year ended 2014 increased by $ 49.1 million , or 17.3 % , to $ 333.9 million from $ 284.8 million in 20 13 . this in crease was due primarily to higher volume , partially offset by the un favorable combined effect of price and mix . revenue from operations outside the americas for the year ended 2014 increased by $ 91.1 million , or 39.8 % , to $ 319.7 million from $ 228.6 million in 20 13 and comprised 48.9 % of consolidated revenue in 20 14 compared to 44.5 % in 20 13. the increase in revenue from operations outside the u.s. , excluding the impact of foreign currency translation , was 41.5 % for the year ended 2014 compared to 46.4 % in 20 13 . revenue from emea operations increased by $ 62.3 million , or 46.6 % , to $ 196.1 million in 20 14 from $ 133.8 million in 20 13 . this increase was due primarily to higher volume and favorable co mbined effect of price and mix and favorable impact of foreign currency translation . revenue from asia pacific operations increased by $ 28.7 million , or 30.4 % , to $ 123.6 million in 20 14 from $ 94.9 million in 20 13 . this in crease was due primarily to higher volume , partially offset by the un favorable combined effect of price and mix and the unfavorable impact of foreign currency translation . 20 13 compared to 20 12 all geographic regions experienced higher levels of revenue in 2013 compared to 2012. table 5 sets forth the change in revenue by geographic area for 20 13 compared to 20 12. table 5 replace_table_token_8_th as shown in table 5 : revenue from operations in the americas for the year ended 2013 increased by $ 88.4 million , or 45.0 % , to $ 284.8 million from $ 196.4 million in 2012. this increase was due primarily to higher volume , partially offset by the unfavorable combined effect of price and mix .
| consumer revenue includes sales of our cube ® series 3d printers and their related print materials , sense 3d scanners and other products and services related to consumer products and retail channels . for the fourth quarter of 2014 , consumer revenue was $ 15.0 million , or 8.0 % of our total revenue , compared to $ 8.9 million or 5.8 % of revenue , in the fourth quarter of 2013. for the year ended 2014 , consumer revenue was $ 43.8 million , or 6.7 % of our total revenue , compared to $ 34.8 million or 6.8 % of revenue , in 2013. our gross profit for the year ended 201 4 increased by 18.6 % , to $ 317.4 million , from $ 267.6 million in 20 13 , after increasing from $ 181.2 million in 2012 . our higher gross profit for the year ended 201 4 arose primarily due to our higher level of revenue from increases across pr oducts , materials , and services . our gross profit margin perc entage decreased to 48.6 % in 2014 from 52.1 % in 2013 and 51.2 % in 2012 , reflecting current sales mix and timing of sales , manufacturing ramp -up and transitions to new products and new product start - up costs . 31 our total operating expenses for the year ended 2014 increased by 55.9 % , to $ 291.1 million , from $ 186.7 million in 20 13 , reflecting a $ 72.5 million , or 50.6 % , increase in selling , general and administrative expenses , primarily due to increased sales and marketing expenses , higher staffing due to our expanding portfolio and growing business and increased amortization expense . the increase also reflected a $ 31.9 million , or 73.4 % , increase in research and development expenses related to our portfolio expansion , new products developments , and the addition of the engineering team in wilsonville , oregon . our operating income decreased by $ 54.6 million to $ 26.3 million in 2014 , compared to operating income of $ 80.9 million in 20 13 and $ 60.6 million
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in some cases , this may slightly reduce our aggregate billed revenue payment rate but result in an overall increase in collected revenue , as shown by a reduction in bad debt expense . so we are focused on collected revenue more so than billed revenue . in the midst of changes in the healthcare arena , we believe that focusing on internal operational efficiencies , increasing our product and services offerings , enhancing our technology offerings to the patients and providers of care , improving liquidity , investigating synergistic acquisitions , and strengthening the balance sheet by right-sizing debt levels compared to our operations will support the our overall business strategy . for additional information pertaining to cms , refer to item 1 business significant customers and also recent events in our business . 25 infusystem holdings , inc. results of operations for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 revenues net revenues revenue for the fiscal year ended december 31 , 2014 were $ 66.5 million , which represents a 7 % increase over the prior year 's $ 62.3 million , primarily due to continued growth in rentals and strong growth in sales , as further discussed below . rentals increased $ 2.8 million , or 5 % , compared to the prior year , primarily related to the addition of larger customers and increased penetration into our existing customer accounts offset by a higher mix of medicaid and patient payors in our rental business , which generally have lower net revenue rates than commercial payors . while billings increased 9 % , mix of in and out of network billings versus patient pay and pay or mix hampered the increase in revenue dollars . such shifts have occurred , we believe , due to the aca . we view our payor environment as changing . management is intent on extending its considerable breadth of payor contracts as patients move into different insurance coverages , including medicaid and insurance marketplace products . in some cases , this may slightly reduce our aggregate billed revenue payment rate but result in an overall increase in collected revenue , as shown by a reduction in bad debt expense . consequently , we are increasingly focused on collected revenue . product sales increased $ 1.5 million , or 23 % , compared to the prior year , largely attributable to an opportunistic sale during the first quarter of 2014 of a particular pump at a low gross margin , which resulted in additional revenue of approximately $ 0.9 million . in 2014 , we experienced a different trend in sales as our business experienced sales activity throughout the year in comparison to prior years where such activity was concentrated in the fourth quarter . gross profit increased $ 3.7 million , or 8 % , compared to the prior year , largely attributable to the increase in rental and product sales revenue during the year . offsetting these additional revenues was the aforementioned low margin , opportunistic pump sale made during the first quarter of 2014. the increase in gross profit from 70 % to 71 % of revenues for the year is mainly due to decreases in costs mainly in depreciation due to the change in depreciable lives for pumps from five to seven years offset by the pricing pressure noted above . during the first quarter of 2014 , we reassessed the estimated useful life of certain property and equipment . as a result , the estimated useful life of our medical equipment was extended from five to seven years due to the determination that we were using these assets longer than originally anticipated . a major factor in this change was the servicing of such equipment by our kansas facility , which was acquired in 2010. as a result , disposal of such equipment has decreased significantly over the years . the change in the estimated useful life of our pump equipment was accounted for as a change in accounting estimate , on a prospective basis , effective january 1 , 2014. the change in estimated useful lives resulted in $ 1.9 million less depreciation expense due to this change in estimated useful life . as a result , cost of revenues in the current year was also $ 1.9 million less than the same prior year . provision for doubtful accounts decreased $ 0.8 million compared to the prior year from 10 % of revenues to 9 % of revenues . this provision primarily relates to rental revenues . in 2013 and early 2014 , a large percentage of the our provision for doubtful accounts is attributable to a major group of third party payors that revised their claim processing guidelines at the end of 2012 that continues to affect all durable medical equipment ( dme ) providers . prior to the change , dme providers submitted claims to their home plan and the claims were processed in-network . since the change in guidelines , dme providers are now required to submit their claims to the payor in the state where services were initiated . if the dme provider is not a participating provider with that specific payor , the claim is treated as out-of-network and the patient will incur higher costs . therefore , we must collect a higher portion of reimbursement directly from 26 patients , which creates an increased collection risk . this major payor 's association selected us as a preferred provider , which has helped us in securing contracts in areas currently out-of-network , which has significantly increased . couple this change with the impact of the aca , we view our payor environment as changing . story_separator_special_tag management is intent on extending its considerable breadth of payor contracts as patients move into different insurance coverages , including medicaid and insurance marketplace products . in some cases , this may slightly reduce our aggregate billed revenue payment rate but result in an overall increase in collected revenue , as shown by a reduction in bad debt expense . consequently , we are increasingly focused on collected revenue . this effect and the success of the collection efforts and additional headcount put in place at the beginning of the year for patient receivables has contributed to the decrease in bad debts , especially in the last quarter of 2014. revenue less the provision for doubtful accounts or net collected revenue was $ 60.7 million for 2014 compared to $ 55.7 million for 2013 , representing an increase of 9 % . amortization of intangible assets decreased $ 0.1 million compared to prior year . this slight decrease was largely attributable to the lack of completion of several information technology ( it ) , in turn postponing the related amortization . selling and marketing expenses for the years ended december 31 , 2014 and 2013 , our selling and marketing expenses remained consistent at $ 9.7 million but had a slight drop as a percentage of revenue from 16 % to 15 % . selling and marketing expenses during these years consisted of sales personnel salaries , commissions and associated fringe benefit and payroll-related items , marketing , share-based compensation , travel and entertainment and other miscellaneous expenses . story_separator_special_tag our credit facility is collateralized by substantially all of the our assets and requires that we comply with covenants , including but not limited to , financial covenants relating to the satisfaction , on a quarterly and annual basis for the duration of the credit facility , of a total leverage ratio , a fixed charge coverage ratio and an annual limit on capital expenditures , including capital leases . as of december 31 , 2014 , we were in compliance with all such covenants and expect to be in compliance for the next 12 months . our availability in the future will be impacted , both negatively and positively at different times , as we deal with transitioning approximately 2,000 pumps that are nearing end of life in may 2015 with a certain manufacturer . for the year ended december 31 , 2014 , this has resulted in additional capital purchases of $ 1.5 million . not all of these pumps will need to be replaced as we are focused on , and have already improved upon , increasing field utilization . as we take advantage of rebate programs offered by many manufacturers for this certain pump , additional purchases will occur , but at a discounted price . at this time , we do not believe that this transition will negatively impact our results of operations , as current rebates exceed the net book value of these pumps . in connection with the credit facility , we have the following covenant obligations for the duration of the facility : a ) the fixed charge coverage ratio is calculated in accordance with the agreement governing the credit facility . this covenant was first required to be reported as of march 31 , 2013 and has a minimum ratio at that time of 1.25:1. the required ratio varies quarterly for the remainder of the facility duration , from 1.25:1 to 2.00:1. the required ratio as of december 31 , 2014 was 1.50:1. b ) the leverage ratio is calculated in accordance with the agreement governing the credit facility . this covenant was first required to be reported as of march 31 , 2013 and had a maximum ratio at that time of 2.50:1. the required ratio varies quarterly for the remainder of the facility duration , from 2.50:1 to 1.00:1. the required ratio as of december 31 , 2014 was 1.75:1. c ) the credit facility includes an annual limitation on capital expenditures , as defined in and in accordance with the credit agreement , which was $ 1.25 million for the month ended december 31 , 2012 and $ 5.5 million for each year ending december 31 , 2013 through 2016. we occasionally enter into capital leases to finance the purchase of ambulatory infusion pumps . the pumps are capitalized into medical equipment in rental service at their fair market value , which equals the value of the future minimum lease payments and are depreciated over the useful life of the pumps . the weighted average interest rate under capital leases was 7.6 % as of december 31 , 2014 . 29 contractual obligations infusystem holdings , inc. is a smaller reporting company as defined by rule 12b-2 of the exchange act and is not required to provide this information . contingent liabilities we do not have any contingent liabilities . off-balance sheet arrangements we do not have any material off-balance sheet arrangements . critical accounting policies and estimates the preparation of financial statements in conformity with gaap requires management to make estimates , assumptions and judgments that affect the amounts reported in the financial statements , including the notes thereto . we consider critical accounting policies to be those that require more significant judgments and estimates in the preparation of our consolidated financial statements , including the following : revenue recognition , which includes contractual allowances ; accounts receivable and allowance for doubtful accounts ; income taxes ; and intangible asset valuation . management relies on historical experience and other assumptions believed to be reasonable in making its judgment and estimates . actual results could differ materially from those estimates . management believes its application of accounting policies , and the estimates inherently required therein , are reasonable .
| 27 other income and expenses during the year ended december 31 , 2014 , we recorded interest expense of $ 3.1 million , compared to $ 3.5 million for the year ended december 31 , 2013. this decrease was mainly attributed to lower interest rates , associated with a refinancing in the second quarter of 2014 , and overall lower debt balances in 2014. in addition , during the first quarter of 2013 , we received other income of $ 0.3 million in proceeds when a mutual insurance company with which we maintained a policy was acquired and cash payments were disbursed to eligible members . provision for income taxes during the year ended december 31 , 2014 , we recorded income tax expense of $ 2.9 million compared to $ 1.0 million for the year ended december 31 , 2013. the effective tax rate for the year ended december 31 , 2014 was 45.9 % , compared to 38.2 % for the year ended december 31 , 2013. the increase in effective tax rate is primarily due to the prior year adjustments to our foreign ( canadian ) and state income tax liability . refer to the discussion under summary of significant accounting policies income taxes included in note 2 and income taxes included in note 7 to our consolidated financial statements included in this annual report on form 10-k. inflation management believes that there has been no material effect on our operations or financial condition as a result of inflation or changing prices of our ambulatory infusion pumps during the period from january 1 , 2013 through december 31 , 2014. liquidity and capital resources as of december 31 , 2014 , we had cash and cash equivalents of $ 0.5 million and $ 6.6 million of availability on our revolving line-of-credit compared to $ 1.1 million of cash and cash equivalents and $ 5.9 million of availability on our revolving line-of-credit at december 31 , 2013. cash provided by operating activities for the year ended december 31 , 2014 was $ 7.3 million compared to $ 7.5 million for the year ended december 31 , 2013. the decrease was primarily attributable to the cash flow effects of the change in accounts payable and other liabilities . cash used in
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return privileges generally allow distributors to return inventory based on a percent of purchases made within a specific period of time . we recognize revenue on sales to distributors that have contractual return rights when the products have been sold by the distributors , unless there is sufficient customer specific sales and sales returns history to support revenue recognition upon shipment . in those instances when revenue is recognized upon shipment to distributors , we use historical rates of return from the distributors to provide for estimated product returns . we accrue for warranty costs , sales returns and other allowances at the time of shipment based on historical experience and expected future costs . we derive revenue primarily from stand-alone sales of our products . in certain cases , our products are sold along with services , which include education , training , installation , and or extended warranty services . as such , some of our sales have multiple deliverables . our products and services qualify as separate units of accounting and are deemed to be non-contingent deliverables as our arrangements typically do not have any significant performance , cancellation , termination and refund type provisions . products are typically considered delivered upon shipment . revenue from services is recognized ratably over the period during which the services are to be performed . for multiple deliverable revenue arrangements , we allocate revenue to products and services using the relative selling price method to recognize revenue when the revenue recognition criteria for each deliverable are met . the selling price of a deliverable is based on a hierarchy and if we are unable to establish vendor-specific objective evidence of selling price ( vsoe ) we look to third-party evidence of selling price ( tpe ) and if no such data is available , we use a best estimated selling price ( bsp ) . in most instances , particularly as it relates to products , we are not able to establish vsoe for all deliverables in an arrangement with multiple elements . this may be due to infrequently selling each element separately , not pricing products within a narrow range , or only having a limited sales history . when vsoe can not be established , we attempt to establish the selling price of each element based on tpe . generally , our marketing strategy differs from that of our peers and our offerings contain a significant level of customization and differentiation such that the comparable pricing of products with similar functionality can not be obtained . furthermore , we are unable to reliably determine what similar competitor products ' selling prices are on a stand-alone basis . therefore , we are typically not able to determine tpe for our products . when we are unable to establish selling price using vsoe or tpe , we use bsp . the objective of bsp is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis . the bsp of each deliverable is determined using average discounts from list price from historical sales transactions or cost plus margin approaches based on the factors , including but not limited to our gross margin objectives and pricing practices plus customer and market specific considerations . we have established tpe for our training , education and installation services . these service arrangements are typically short term in nature and are largely completed shortly after delivery of the product . tpe is determined based on competitor prices for similar deliverables when sold separately . training and education services are based on a daily rate per person and vary according to the type of class offered . installation services are based on daily rate per person and vary according to the complexity of the products being installed . extended warranty services are priced based on the type of product and are sold in one to five year durations . extended warranty services include the right to warranty coverage beyond the standard warranty period . in substantially all of the arrangements with multiple deliverables pertaining to arrangements with these services , we have used and intend to continue using vsoe to determine the selling price for the services . we determine vsoe based on our normal pricing practices for these specific services when sold separately . 26 allowances for sales returns and doubtful accounts we record an allowance for sales returns for estimated future product returns related to current period product revenue . the allowance for sales returns is recorded as a reduction of revenue and an allowance against our accounts receivable . we base our allowance for sales returns on periodic assessments of historical trends in product return rates and current approved returned products . if the actual future returns were to deviate from the historical data on which the reserve had been established , our future revenue could be adversely affected . we record an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make payments for amounts owed to us . the allowance for doubtful accounts is recorded as a charge to general and administrative expenses . we base our allowance on periodic assessments of our customers ' liquidity and financial condition through analysis of information obtained from credit rating agencies , financial statement reviews and historical collection trends . additional allowances may be required in the future if the liquidity or financial condition of our customers deteriorates , resulting in impairment in their ability to make payments . inventories inventories are stated at the lower of cost or market , with cost being determined using the first-in , first-out ( fifo ) method . in assessing the net realizable value of inventories , we are required to make judgments as to future demand requirements and compare these with the current or committed inventory levels . once inventory has been written down to its estimated net realizable value , its carrying value can not be increased due to subsequent changes in demand forecasts . story_separator_special_tag to the extent that a severe decline in forecasted demand occurs , or we experience a higher incidence of inventory obsolescence due to rapidly changing technology and customer requirements , we may incur significant charges for excess inventory . 27 story_separator_special_tag 2014 , respectively . no material provision or benefit for income taxes was recorded in 2015 and 2014 , due to our recurring operating losses and the significant uncertainty regarding the realization of our net deferred tax assets , against which we have continued to record a full valuation allowance . 2014 compared with 2013 net revenue information about our net revenue for products and services for 2014 and 2013 is summarized below ( in millions ) : replace_table_token_7_th information about our net revenue for north america and international markets for 2014 and 2013 is summarized below ( in millions ) : replace_table_token_8_th net revenue decreased 1 % or $ 1.6 million to $ 120.6 million for 2014 compared to $ 122.2 million for 2013. the decrease in net revenue was attributable to the decrease in service revenue . product revenue for 2014 remained flat . service revenue decreased 20 % or $ 1.6 million in 2014. service revenue represents revenue from maintenance and other services associated with product shipments . the decrease in service revenue was primarily due to decreased sales of installation services . international net revenue increased 1 % or $ 0.9 million to $ 81.5 million in 2014 and represented 68 % of total net revenue compared with 66 % in 2013. the increase in international net revenue was primarily due to increased sales in europe and the middle east as a result of recent growth in demand for our products in these regions , which was partially offset by 30 lower revenue from latin america and asia . net revenue from north america decreased 6 % or $ 2.5 million to $ 39.1 million in 2014 compared to $ 41.6 million in 2013. the decrease was primarily due to fewer broadband development projects in connection with federal stimulus funding . for the years ended december 31 , 2014 and 2013 , three customers represented 31 % and 33 % of net revenue , respectively . cost of revenue and gross profit total cost of revenue , including stock-based compensation , increased $ 2.6 million or 4 % to $ 78.7 million for 2014 , compared to $ 76.1 million for 2013. the increase in cost of revenue for 2014 was primarily due to changes in product mix and higher personnel-related expenses . total cost of revenue was 65 % of net revenue for 2014 , compared to 62 % of net revenue for 2013 , which resulted in a decrease in gross profit percentage from 38 % in 2013 to 35 % in 2014. the year-over-year decrease in gross margin was primarily due to greater sales of products with lower gross margin , such as znid products , and decreased service revenue . research and product development expenses research and product development expenses increased 13 % or $ 2.0 million to $ 17.3 million for 2014 compared to $ 15.3 million for 2013. the increase was primarily due to higher personnel-related expenses of $ 0.7 million resulting from a higher average headcount in 2014 as compared with 2013. the increase was also due to higher expensed inventory costs and tooling expenses of $ 0.5 million as well as higher consultant fees of $ 0.4 million and an increase of $ 0.1 million in allocated facilities costs . sales and marketing expenses sales and marketing expenses decreased 5 % or $ 1.1 million to $ 19.1 million for 2014 compared to $ 20.2 million for 2013. the decrease in sales expenses was primarily attributable to decreased consulting costs of $ 0.9 million and commissions of $ 0.2 million . general and administrative expenses general and administrative expenses increased 52 % or $ 3.2 million to $ 9.4 million for 2014 compared to $ 6.2 million for 2013. the increase was mainly attributable to restructuring costs of $ 1.7 million in connection with the chief executive officer transition , offset by a decrease in bonus expense of $ 0.3 million . in addition , the year-over-year increase in general and administrative expenses was also due to higher personnel-related expenses of $ 0.6 million resulting from a higher headcount in 2014 as compared with 2013 , increased accounting and legal costs of $ 0.5 million , higher stock-based compensation expenses of $ 0.3 million , and higher bad debt expenses of $ 0.1 million . impairment of fixed assets impairment of fixed assets was zero for both 2014 and 2013. interest expense , net interest expense , net for 2014 and 2013 remained flat at $ 0.1 million . our outstanding debt balances remained constant and interest rates remained low during 2014 and 2013. other income ( expense ) other income ( expense ) for 2014 and 2013 remained flat and was immaterial . income tax provision we recorded an income tax provision of $ 0.07 million and $ 0.04 million related to foreign and state taxes for the years ended december 31 , 2014 and 2013 , respectively . no material provision or benefit for income taxes was recorded in 2014 and 2013 , due to our recurring operating losses and the significant uncertainty regarding the realization of our net deferred tax assets , against which we have continued to record a full valuation allowance . 31 other performance measures in managing our business and assessing our financial performance , we supplement the information provided by our gaap results with adjusted earnings before stock-based compensation , interest , taxes , and depreciation , or adjusted ebitda , a non-gaap financial measure .
| the decrease was primarily due to fewer broadband development projects in connection with federal stimulus funding . for the years ended december 31 , 2015 , 2014 and 2013 , three customers represented 26 % , 31 % and 33 % of net revenue , respectively . we anticipate that our results of operations in any given period may depend to a large extent on sales to a small number of large accounts . as a result , our revenue for any quarter may be subject to significant volatility based upon changes in orders from one or a small number of key customers . cost of revenue and gross profit total cost of revenue , including stock-based compensation , decreased $ 16.7 million or 21 % to $ 62.0 million for 2015 , compared to $ 78.7 million for 2014 . the decrease in cost of revenue for 2015 was primarily due to changes in product mix and lower personnel-related expenses . total cost of revenue was 62 % of net revenue for 2015 , compared to 65 % of net revenue for 2014 , which resulted in an increase in gross profit percentage from 35 % in 2014 to 38 % in 2015 . the year-over-year increase in gross margin was primarily due to stronger margins in north america , stronger enterprise margins , increased service revenue and continued manufacturing efficiencies . we expect that in the future , our cost of revenue as a percentage of net revenue will vary depending on the mix and average selling prices of products sold in the future . in addition , continued competitive and economic pressures could cause us to reduce our prices , adjust the carrying values of our inventory , or record inventory charges relating to discontinued products and excess or obsolete inventory . research and product development expenses research and product development expenses decreased 11 % or $ 1.9 million to $ 15.4 million for 2015 compared to $ 17.3 million for 2014 . the decrease was
| 15,842 |
during the year ended december 31 , 2020 , certain limited partners of holdings exchanged 4,128,600 common units ( along with a corresponding number of shares of class b or class c common stock of apam , as applicable ) for 4,128,600 shares of class a common stock . in connection with the exchanges , apam received 4,128,600 gp units of holdings . apam 's equity ownership interest in holdings increased from 73 % at december 31 , 2019 to 80 % at december 31 , 2020 , as a result of these transactions and other equity transactions during the period . financial overview economic environment global equity and debt market conditions materially affect our financial performance . the following table presents the total returns of relevant market indices for the years ended december 31 , 2020 , 2019 and 2018 : replace_table_token_11_th 32 tabl e of co ntents key performance indicators when we review our business and financial performance we consider , among other things , the following : for the years ended december 31 , 2020 2019 2018 ( unaudited ; dollars in millions ) assets under management at period end $ 157,776 $ 121,016 $ 96,224 average assets under management ( 1 ) $ 124,901 $ 111,023 $ 113,769 net client cash flows ( 2 ) $ 7,154 $ ( 2,658 ) $ ( 6,497 ) total revenues $ 900 $ 799 $ 829 weighted average fee ( 3 ) 70.9 bps 71.6 bps 72.6 bps operating margin 39.8 % 35.5 % 36.8 % ( 1 ) we compute average assets under management by averaging day-end assets under management for the applicable period . ( 2 ) net client cash flows excludes artisan funds ' income and capital gain distributions that were not reinvested . prior period net client cash flows have been recast to exclude artisan funds ' distributions . ( 3 ) we compute our weighted average management fee by dividing annualized investment management fees ( which excludes performance fees ) by average assets under management for the applicable period . the weighted average management fee for prior periods have been recast to exclude performance fee revenue . investment advisory fees and assets under management within our consolidated investment products are excluded from the weighted average fee calculations and from total revenues , since any such revenues are eliminated upon consolidation . assets under management within artisan private funds are included in the reported firmwide , separate account , and institutional assets under management figures reported below . assets under management and investment performance changes to our operating results from one period to another are primarily caused by changes in the amount of our assets under management . changes in the relative composition of our assets under management among our investment strategies and vehicles and the effective fee rates on our products also impact our operating results . the amount and composition of our assets under management are , and will continue to be , influenced by a variety of factors including , among others : investment performance , including fluctuations in both the financial markets and foreign currency exchange rates and the quality of our investment decisions ; flows of client assets into and out of our various strategies and investment vehicles ; our decision to close strategies or limit the growth of assets in a strategy or a vehicle when we believe it is in the best interest of our clients ; as well as our decision to re-open strategies , in part or entirely ; our ability to attract and retain qualified investment , management , and marketing and client service professionals ; industry trends towards products , strategies , vehicles or services that we do not offer ; competitive conditions in the investment management and broader financial services sectors ; and investor sentiment and confidence . 33 tabl e of co ntents the table below sets forth changes in our total assets under management : for the years ended december 31 , 2020 2019 2018 ( unaudited ; dollars in millions ) beginning assets under management $ 121,016 $ 96,224 $ 115,494 gross client cash inflows 36,338 17,594 18,693 gross client cash outflows ( 29,184 ) ( 20,252 ) ( 25,190 ) net client cash flows ( 1 ) 7,154 ( 2,658 ) ( 6,497 ) artisan funds ' distributions not reinvested ( 2 ) ( 690 ) ( 630 ) ( 922 ) investment returns and other ( 3 ) 30,296 28,080 ( 11,851 ) ending assets under management $ 157,776 $ 121,016 $ 96,224 average assets under management $ 124,901 $ 111,023 $ 113,769 ( 1 ) net client cash flows excludes artisan funds ' income and capital gain distributions that were not reinvested . prior period net client cash flows have been recast to exclude artisan funds ' distributions . ( 2 ) artisan funds ' distributions not reinvested represents the amount of income and capital gain distributions that were not reinvested in the artisan funds , including in the artisan high income fund . ( 3 ) includes the impact of translating the value of assets under management denominated in non-usd currencies into us dollars . the impact was immaterial for the periods presented . during 2020 our aum increased by $ 36.8 billion due to $ 30.3 billion of investment returns and $ 7.2 billion of net client cash inflows , partially offset by $ 0.7 billion of artisan funds ' distributions that were not reinvested . sixteen of our 19 investment strategies had net inflows , totaling $ 11.8 billion . our nine strategies with inception dates beginning in 2014 or later had $ 9.5 billion in net inflows , representing an organic growth rate of 78 % . we expect those strategies as a group to continue to experience net inflows . the net inflows across most of our business were offset by $ 4.7 billion of net outflows across the remaining three of our 19 strategies , including the non-us growth , global opportunities , and us mid-cap value strategies , where we generally expect net outflows as a group to continue in the near term . story_separator_special_tag over the long-term , we expect to generate the majority of our aum growth through investment returns , which has been our historical experience . we monitor the availability of attractive investment opportunities relative to the amount of assets we manage in each of our investment strategies . when appropriate , we will close a strategy to new investors or otherwise take action to slow or restrict its growth , even though our aggregate assets under management may be negatively impacted in the short term . we may also re-open a strategy , widely or selectively , to fill available capacity or manage the diversification of our client base in that strategy . we believe that management of our investment capacity protects our ability to manage assets successfully , which protects the interests of our clients and , in the long term , protects our ability to retain client assets and maintain our profit margins . as of the date of this filing , all of our strategies are open to new investors and client relationships . our us small-cap growth and global opportunities strategies have limited availability to most new client relationships . when we close or otherwise restrict the growth of a strategy , we typically continue to allow additional investments in the strategy by existing clients and certain related entities . we may also permit new investments by other eligible investors in our discretion . as a result , during a given period we may have net client cash inflows in a closed strategy . however , when a strategy is closed or its growth is restricted we expect there to be periods of net client cash outflows . the table on the following page sets forth the average annual total returns for each composite ( gross of fees ) and its respective broad-based benchmark ( and style benchmark , if applicable ) over a multi-horizon time period as of december 31 , 2020. returns for periods less than one year are not annualized . 34 tabl e of co ntents replace_table_token_12_th 35 tabl e of co ntents antero peak hedge strategy ( 2 ) 11/1/2017 903 22.97 % 20.32 % -- - -- - 20.37 % 551 s & p 500 index 18.40 % 14.17 % -- - -- - 14.86 % total assets under management $ 157,776 ( 1 ) value-added is the amount in basis points by which the average annual gross composite return of each of our strategies has outperformed or underperformed the benchmark most commonly used by our separate account clients to compare the performance of the relevant strategy . the benchmark most commonly used by clients in the us mid-cap growth , us small-cap growth , value equity and us mid-cap value strategies is the style benchmark and for all other strategies is the broad market benchmark . reporting on this metric prior to september 30 , 2020 , compared all composite performance to the broad benchmark . value-added for periods less than one year is not annualized . the artisan high income and credit opportunities strategies hold loans and other security types that may not be included in the ice bofa u.s. high yield master ii total return index . at times , this causes material differences in relative performance . the antero peak and antero peak hedge strategies ' investments in initial public offerings ( ipos ) made a material contribution to performance . ipo investments may contribute significantly to a small portfolio 's return , an effect that will generally decrease as assets grow . ipo investments may be unavailable in the future . ( 2 ) prior to this report , assets under management in the international small cap value , credit opportunities , and antero peak hedge strategies were aggregated and reported as “ other assets under management ” and performance information was intentionally omitted . ( 3 ) effective october 1 , 2020 , the thematic investment team was renamed antero peak group . the team 's investment strategies and investment products were also renamed in 2020 . 36 tabl e of co ntents the tables below set forth changes in our assets under management by investment team : by investment team year ended growth global equity us value international value global value sustainable emerging markets credit developing world antero peak group ( 1 ) total december 31 , 2020 ( unaudited ; in millions ) beginning assets under management $ 34,793 $ 27,860 $ 7,402 $ 22,000 $ 19,707 $ 234 $ 3,850 $ 3,374 $ 1,796 $ 121,016 gross client cash inflows 9,532 6,479 786 6,165 4,681 349 3,438 3,527 1,381 36,338 gross client cash outflows ( 8,616 ) ( 5,885 ) ( 1,687 ) ( 6,101 ) ( 3,535 ) ( 25 ) ( 1,415 ) ( 1,487 ) ( 433 ) ( 29,184 ) net client cash flows ( 2 ) 916 594 ( 901 ) 64 1,146 324 2,023 2,040 948 7,154 artisan funds ' distributions not reinvested ( 3 ) ( 222 ) ( 115 ) ( 12 ) ( 46 ) — — ( 130 ) ( 142 ) ( 23 ) ( 690 ) investment returns and other 17,198 3,717 660 2,105 1,564 121 595 3,581 755 30,296 ending assets under management $ 52,685 $ 32,056 $ 7,149 $ 24,123 $ 22,417 $ 679 $ 6,338 $ 8,853 $ 3,476 $ 157,776 average assets under management $ 40,806 $ 26,991 $ 6,266 $ 20,045 $ 17,780 $ 476 $ 4,493 $ 5,465 $ 2,579 $ 124,901 december 31 , 2019 beginning assets under management $ 26,251 $ 22,967 $ 6,577 $ 17,681 $ 17,113 $ 179 $ 2,860 $ 1,993 $ 603 $ 96,224 gross client cash inflows 4,207 3,557 644 3,607 1,412 29 1,791 1,305 1,042 17,594 gross client cash outflows ( 5,251 ) ( 5,214 ) ( 1,435 ) ( 3,474 ) ( 2,806 ) ( 14 ) ( 1,138 ) ( 780 ) ( 140 ) ( 20,252 ) net client cash flows ( 2 ) ( 1,044 ) ( 1,657 ) ( 791 ) 133 ( 1,394 ) 15 653 525 902 ( 2,658 ) artisan funds '
| 45 tabl e of co ntents operating expenses the increase in total operating expenses of $ 25.8 million , or 5 % , for the year ended december 31 , 2020 , compared to the year ended december 31 , 2019 , was primarily a result of higher incentive compensation expense related to increased revenues and higher salary and benefits expenses on an increased number of employees . the increases were partially offset by lower equity-based compensation expense and a decrease in travel expenses in response to the covid-19 pandemic . compensation and benefits replace_table_token_16_th the increase in salaries , incentive compensation and benefits was driven primarily by a $ 34.1 million increase in incentive compensation paid to our investment and marketing professionals as a result of the increase in revenue and higher salary and benefits expenses on an increased number of employees . restricted share-based award compensation expense decreased $ 5.6 million as the awards that became fully amortized during 2019 and 2020 had a higher value than the awards granted in 2019 and 2020. total compensation and benefits was 48 % and 50 % of our revenues for the years ended december 31 , 2020 and 2019 , respectively . other operating expenses other operating expenses decreased $ 9.5 million for the year ended december 31 , 2020 , compared to the year ended december 31 , 2019 , primarily due to an $ 8.4 million decrease in travel expenses in response to the covid-19 pandemic . non-operating income ( expense ) non-operating income ( expense ) consisted of the following : replace_table_token_17_th non-operating income ( expense ) for the year ended december 31 , 2020 includes a $ 4.7 million loss relating to a change in estimate of the payment obligation under the tax receivable agreements , compared to a $ 19.6 million loss for the year ended december 31 , 2019. the effect of changes in that estimate after the date of an exchange or sale is included in net income . the changes in estimate in 2020 and 2019 were due to the remeasurement of deferred tax assets relating to an increase in estimated state income tax rates . provision for income taxes apam 's effective income tax rate for the years ended december 31 , 2020 and 2019 was 16.5 % and 10.3 % , respectively . the increase in effective tax
| 15,843 |
diluted eps was $ 2.22 , compared to $ 1.72 in the prior year , which included a $ 0.22 per share positive impact from an energy-efficient tax credit . excluding this tax credit , fiscal 2016 diluted eps increased 48 percent over the prior year . consolidated backlog was $ 508.0 million at february 27 , 2016 , up 4 percent over fiscal 2015 . story_separator_special_tag net sales improved 9.0 percent over the prior year , or 12.2 percent on a constant currency basis , primarily due to improved pricing , mix and volume growth in the u.s. as a result of the strong u.s. construction market , partially offset by declines in volume and mix in our brazilian operation and lower export sales . operating margin improved 470 basis points , doubling the fiscal 2015 operating margin , with improvement driven by pricing and mix , as well as strong operational performance and volume leverage in the u.s. , partially offset by the impact of ongoing challenging brazilian economic conditions . fiscal 2015 compared to fiscal 2014. fiscal 2015 net sales improved 17.9 percent over fiscal 2014 primarily due to increased volume as a result of commercial construction market strength and some improvement in pricing . currency fluctuation did not have a significant impact on our results in fiscal 2015 . 16 operating margin improved 340 basis points due to operating leverage on volume growth and improved pricing . the segment also demonstrated positive manufacturing productivity that was partially offset by inefficiencies experienced as the segment expanded its workforce to meet demand and also by costs incurred to restart the utah facility . architectural services replace_table_token_8_th fiscal 2016 compared to fiscal 2015. net sales improved 6.6 percent over the prior year , driven by volume growth due to increased commercial construction activity in the u.s. operating margin improved 160 basis points over the prior year , as a result of continued focus on project selection , driving improved project margins , and good execution . fiscal 2015 compared to fiscal 2014. net sales improved 13.4 percent over fiscal 2014 due to volume from project timing and a general increase in project activity on stronger end markets . operating margin improved 100 basis points as a result of operating leverage on the increased volume and increasing project margins due to our focus on project selection . architectural framing systems replace_table_token_9_th fiscal 2016 compared to fiscal 2015. net sales improved 3.4 percent over fiscal 2015 , or 6.0 percent on a constant currency basis , on volume growth from strong u.s. construction markets , and improved pricing and mix in our u.s. businesses , partially offset by volume weakness in our canadian business . operating margin improved 300 basis points over fiscal 2015 , driven by improved pricing and mix , lower raw material costs and volume leverage in the u.s. , partially offset by the volume weakness in our canadian business . fiscal 2015 compared to fiscal 2014. fiscal 2015 net sales increased 38.1 percent over fiscal 2014. approximately two-thirds of this growth was attributable to double-digit volume increases at our u.s. businesses , with the remainder coming from the inclusion of our canadian storefront business acquired late in fiscal 2014. currency fluctuation did not have a significant impact on our results in fiscal 2015. fiscal 2015 operating margin improved 40 basis points due to volume leverage and good execution in our u.s. businesses , slightly offset by the negative effect of higher aluminum costs and the impact of soft canadian markets on our canadian storefront business in the first half of the year . large-scale optical technologies ( lso ) replace_table_token_10_th fiscal 2016 compared to fiscal 2015. net sales in our lso segment increased 1.0 percent over the prior year as a result of an improved mix of value-added products and stable demand . operating margin improved 90 basis points over the prior year as a result of improved product mix and strong operational performance . fiscal 2015 compared to fiscal 2014. fiscal 2015 net sales were up 8.1 percent compared to fiscal 2014 due to a positive mix of higher value-added products on relatively flat volumes . operating margin declined 120 basis points as the impact of the strong mix of value-added products was offset by increased incentive compensation and investments in new product development . 17 consolidated backlog backlog represents the dollar amount of revenues we expect to recognize in the near-term from firm contracts or orders . we use backlog as one of the metrics to evaluate near-term sales trends in our business . backlog is not a term defined under generally accepted accounting principles and is not a measure of contract profitability . backlog should not be used as the sole indicator of our future revenue and earnings . we include a project within our backlog at the time a signed contract or a firm purchase order is received , generally as a result of a competitive bidding process . backlog by reporting segment was as follows : replace_table_token_11_th in our architectural glass segment , additional capacity and improved productivity have driven shorter lead times for customers , resulting in lower backlog . we have seen , and expect to continue to see , an increased portion of our revenues from shorter lead-time work that we book and ship within the same period . these book-and-ship sales are not included in our backlog within the period . we expect approximately $ 407 million , or 80 percent , of our february 27 , 2016 backlog to be recognized in fiscal 2017 , with the balance to be recognized in fiscal 2018. liquidity and capital resources replace_table_token_12_th operating activities . story_separator_special_tag cash provided by operating activities was $ 124.0 million in fiscal 2016 , an increase of $ 55.4 million over fiscal 2015. in all years presented , operating cash flows were positively impacted by increased income as compared to the respective prior-year period . in fiscal 2016 , we also experienced improved cash from operating activities compared to fiscal 2015 as a result of continued focus on working capital management . non-cash working capital ( current assets , excluding cash and short-term securities , less current liabilities , excluding current portion of long-term debt ) was $ 68.8 million at february 27 , 2016 , compared to $ 97.5 million at february 28 , 2015 , and $ 82.0 million at march 1 , 2014 . the decline in fiscal 2016 is a result of our continued efforts regarding working capital management , and timing of activity . the increase in fiscal 2015 , compared to fiscal 2014 , was due to our investment in working capital necessary to support sales growth . investing activities . net cash used in investing activities was $ 77.9 million in fiscal 2016 , $ 24.5 million in fiscal 2015 and $ 44.0 million in fiscal 2014. in the current year , we invested excess cash in short-term marketable securities , and made capital expenditures focused primarily on improving manufacturing productivity and on increasing capacity , including adding anodize finishing capacity within our architectural framing segment . 18 in fiscal 2015 , capital investments were made mainly to increase productivity and capacity and improve product capabilities . in fiscal 2014 , we made capital investments for productivity and product capabilities , including a new state-of-the-art coater in our architectural glass segment . we reduced our restricted investments by $ 23.9 million and our investments in marketable securities by $ 26.5 million to fund acquisitions as part of our strategy to grow through new products and new geographies . to that end , we made acquisitions in fiscal 2014 of the assets of a window fabrication business and of the outstanding shares of alumicor limited in canada . both acquisitions are included within the architectural framing systems segment . we estimate fiscal 2017 capital expenditures to be $ 50 to $ 60 million , which we expect will be focused on increasing product capabilities , in particular on expanding capabilities in the architectural glass segment to fabricate oversized glass . capital expenditures will also be made to continue to increase manufacturing productivity and capacity . we continue to review our portfolio of businesses and their assets in comparison to our internal strategic and performance objectives . as part of this review , we may acquire other businesses , pursue geographic expansion , take actions to manage capacity and further invest in , fully divest and or sell parts of our current businesses . financing activities . we paid dividends totaling $ 13.2 million in fiscal 2016. additionally , we repurchased 575,000 shares under our authorized share repurchase program during fiscal 2016 , for a total cost of $ 24.9 million and we repurchased 203,509 shares under the program during fiscal 2015 , for a total cost of $ 6.9 million . we have repurchased a total of 3,057,632 shares , at a total cost of $ 61.5 million , since the inception of this program . we have remaining authority to repurchase 1,192,368 shares under this program , which has no expiration date . we maintain a $ 125.0 million committed revolving credit facility as described in note 7 of the notes to consolidated financial statements . no borrowings were outstanding under this credit facility as of february 27 , 2016 or february 28 , 2015 . at february 27 , 2016 , the company was in compliance with the financial covenants of the credit facility . our debt-to-total-capital ratio was 5.0 percent at february 27 , 2016 and 5.1 percent at february 28 , 2015 . other financing activities . the following summarizes our significant contractual obligations that impact our liquidity as of february 27 , 2016 : replace_table_token_13_th from time to time , we acquire the use of certain assets through operating leases , such as warehouses , vehicles , forklifts , office equipment , hardware , software and some manufacturing equipment . many of these operating leases have termination penalties . however , because the assets are used in the conduct of our business operations , it is unlikely that any significant portion of these operating leases would be terminated prior to the normal expiration of their lease terms . therefore , we consider the risk related to termination penalties to be minimal . we have purchase obligations for raw material commitments and capital expenditures . we expect to make contributions of $ 1.0 million to our defined-benefit pension plans in fiscal 2017 , which will equal or exceed our minimum funding requirements . as of february 27 , 2016 , we had reserves of $ 4.4 million and $ 1.6 million for long-term unrecognized tax benefits and environmental liabilities , respectively . we expect approximately $ 0.9 million of the unrecognized tax benefits to lapse during the next 12 months . we are unable to reasonably estimate in which future periods the remaining unrecognized tax benefits and environmental liabilities will ultimately be settled . at february 27 , 2016 , we had ongoing letters of credit related to industrial revenue bonds and construction contracts that reduce availability of funds under our committed credit facility . the letters of credit by expiration period are as follows : 19 replace_table_token_14_th in addition to the above standby letters of credit , we are required , in the ordinary course of business , to provide surety or performance bonds that commit payments to our customers for any non-performance by us . at february 27 , 2016 , $ 134.5
| currency fluctuation did not have a significant impact on our sales in fiscal 2015. performance the relationship between various components of operations , as a percentage of net sales , is illustrated below for the past three fiscal years . 15 replace_table_token_6_th fiscal 2016 compared to fiscal 2015 gross profit was 24.8 percent in fiscal 2016 , an improvement of 250 basis points from fiscal 2015 , primarily due to improved pricing and mix , as well as productivity and volume leverage across all architectural-based segments . selling , general and administrative ( sg & a ) expense for fiscal 2016 was 14.9 percent , a decrease of 60 basis points despite an increase of $ 1.2 million from fiscal 2015 , as a result of expense discipline relative to sales growth across our segments . the effective tax rate for fiscal 2016 was 32.9 percent , compared to 22.3 percent in fiscal 2015. after excluding the 990 basis point benefit due to an energy-efficient tax credit earned in fiscal 2015 , however , the increase in our tax rate was 70 basis points over the prior year due to changes in state income tax laws combined with a higher percentage of earnings in the u.s. , where the tax rate is higher than in foreign jurisdictions . fiscal 2015 compared to fiscal 2014 gross profit improved 90 basis points , due to the impact of operating leverage on increased volume and improved pricing within our architectural glass and architectural framing systems segments . this was partially offset by manufacturing cost overruns in the architectural services segment , increased aluminum costs impacting the architectural framing systems segment , and costs to restart the utah facility in the architectural glass segment , all of which occurred in fiscal 2015. sg & a expense increased $ 20 million , but declined by 70 basis points from fiscal 2014. the main contributor to the increased sg & a spend in fiscal 2015 was the addition of our canadian acquisition . in addition , we had increased incentive
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we also use ffo , adjusted ffo and hotel ebitda as measures of our operating performance . see “ non-gaap financial measures ” . story_separator_special_tag ended december 31 , 2015 was substantially related to our acquired property in atlanta , georgia , accounting for approximately $ 1.5 million of the increase and from the recently acquired property in hollywood beach , florida , accounting for an increase of approximately $ 0.9 million for the period , offset by decreases in food and beverage expenses mainly from reduced occupancy and decreases in expenses at our property impacted by renovation activities in houston , texas . indirect expenses at our properties for the year ended december 31 , 2015 increased approximately $ 6.2 million , or 13.8 % , to approximately $ 51.3 million compared to indirect expenses of approximately $ 45.1 million for the year ended december 31 , 2014. sales and marketing costs , franchise fees , utilities , repairs and maintenance , insurance , management fees , real and personal property taxes as well as general and administrative costs at the property level are included in indirect expenses . most of the increase in indirect 40 expenses related to expenses that increase proportionally with increases in occupancy and or revenue , including management fees and franchi se fees . specifically , increases in indirect expenses were substantially related to our recently acquired property in atlanta , georgia , accounting for approximately $ 2.1 million of the increase and from the recently acquired property in hollywood beach , f lorida , accounting for an increase of approximately $ 2.8 million for the period , compared to the year ended december 31 , 2014. depreciation and amortization . depreciation and amortization for the year ended december 31 , 2015 increased approximately $ 1.6 million , or 13.6 % , to approximately $ 13.6 million compared to depreciation and amortization expense of approximately $ 12.0 million for the year ended december 31 , 2014. the increase was mostly attributable to depreciation and amortization related to our recently acquired property in atlanta , georgia and depreciation and amortization related to our capital assets acquired in the fourth quarter of 2014 and the year of 2015 , offset by reductions of intangible asset amortization during the year ended december 31 , 2015 compared to the year ended december 31 , 2014. impairment of investment in hotel properties , net . the impairment of investment in hotel properties , net for the years ended december 31 , 2015 and 2014 was approximately $ 0.5 million and $ 3.2 million , respectively . our review of possible impairment at one of our hotel properties revealed an excess of current carrying cost over the estimated undiscounted future cash flows , which was triggered by a combination of a change in anticipated use and future branding of the property ; and a re-evaluation of future revenues based on anticipated market conditions , market penetration and costs necessary to achieve such market penetration , resulting in an impairment to fair market value of $ 0.5 million , as of december 31 , 2015. gain on disposal of assets . during the year ended december 31 , 2015 , we recorded a gain on disposal of assets of $ 41,435 , compared to no gain or loss on disposal of assets for the year ended december 31 , 2014. corporate general and administrative . corporate general and administrative expenses for the year ended december 31 , 2015 increased approximately $ 2.2 million , or 42.9 % , to approximately $ 7.3 million compared to corporate general and administrative expenses of approximately $ 5.1 million for the year ended december 31 , 2014. the increase in corporate general and administrative expenses was mainly due to an increase in acquisition costs of approximately $ 0.5 million , a one-time tax penalty of $ 0.4 million , additional staffing and related salary increase of approximately $ 0.3 million , increased professional fees of approximately $ 0.5 million , loan costs of $ 0.2 million on the loan modifications of the crowne plaza hollywood beach resort mortgage and the doubletree by hilton laurel mortgage , and increased audit fees of approximately $ 0.1 million partially offset by a reduction in legal fees of approximately $ 0.1 million . interest expense . interest expense for the year ended december 31 , 2015 increased approximately $ 1.9 million , or 12.8 % , to approximately $ 16.5 million compared to approximately $ 14.6 million of interest expense for the year ended december 31 , 2014. the increase in interest expense for the year ended december 31 , 2015 , was substantially related to the additional mortgage on our acquired property in atlanta , georgia of $ 0.7 million , the assumed mortgage loan for the recently acquired property in hollywood beach , florida , accounting for an increase in interest expense of approximately $ 1.4 million , the issuance of the 7 % notes due in 2019 , accounting for an increase of approximately $ 1.6 million . these increases were offset by a decrease in interest from the reduction of the bridge loan during the year ending december 31 , 2015 of $ 1.3 million . equity income ( loss ) in joint venture . equity in the income of the joint venture increased approximately $ 0.2 million , or 54.7 % , to approximately $ 0.5 million for the year ended december 31 , 2015 compared to equity in the income of the joint venture of approximately $ 0.3 million for the year ended december 31 , 2014 and represents our 25.0 % share of the net income of the crowne plaza hollywood beach resort through july 31 , 2015. for the year ended december 31 , 2015 , the crowne plaza hollywood beach resort reported occupancy of 83.1 % , adr of $ 174.35 and revpar of $ 144.86. this compares with results reported by the hotel for the year ended december 31 , 2014 of occupancy of 83.1 % , adr of $ 163.13 and revpar story_separator_special_tag of $ 135.55. loss on early debt extinguishment . the loss on early debt extinguishment for the year ended december 31 , 2015 decreased approximately $ 0.1 million , or 7.0 % , to approximately $ 0.7 million compared to a loss on debt extinguishment of approximately $ 0.8 million for the year ended december 31 , 2014. during the year ended december 31 , 2015 , we refinanced a variable rate mortgage loan we had with the bank of the ozarks on the georgian terrace , with a new fixed rate loan from bank of america . the amount of accumulated un-amortized loan costs of $ 697,582 was written off during 2015. in addition , we refinanced a variable rate mortgage loan we had with fifth third bank on the doubletree by hilton jacksonville riverfront , with a new variable rate loan from bank of the ozarks . the amount of accumulated un-amortized loan costs of $ 75,324 was written off during 2015. gain on involuntary conversion of asset . gain on involuntary conversion of asset for the year ended december 31 , 2015 , decreased approximately $ 0.2 million , or 100.0 % , to $ 0 compared to approximately $ 0.2 million of gain on involuntary conversion of asset for the year ended december 31 , 2014. during 2014 , we had a one-time involuntary conversion of equipment at our hilton wilmington riverside property for replacement of a water chiller in the amount of approximately $ 0.2 million . 41 unrealized loss on hedging activities . during the year ended december 31 , 2015 we refinanced a variable rate mortgage loan we had with fifth third bank on the doubletree by hilton jacksonville riverfront , with a new variable rate loan from bank of the ozarks . during august 2015 we purchased an interest rate cap for $ 179,800. as of december 31 , 2015 the fair market value of the interest rate cap is $ 70,981 . the unrealized loss on hedging activities during the year ended december 31 , 2015 and 2014 , was $ 0.1 million and $ 0 , respectively . gain on change in control . on july 31 , 2015 , we acquired from carlyle the remaining 75.0 % interest in the entities that own and lease the crowne plaza hollywood beach resort . due to the increased fair market value of the property for our original 25.0 % interest we recognized a discounted gain on change in control . the gain on change in control during the year ended december 31 , 2015 , was approximately $ 6.6 million while no such gain was recorded in 2014. income tax benefit . the income tax benefit for the year ended december 31 , 2015 decreased approximately $ 0.4 million , or 22.7 % , to approximately $ 1.3 million compared to an income tax provision of approximately $ 1.7 million for the year ended december 31 , 2014. the income tax benefit was primarily derived from the operations of our trs lessees . our trs lessees realized lower operating loss for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. net income ( loss ) . net income for the year ended december 31 , 2015 increased approximately $ 7.1 million , or 966.3 % , to approximately $ 6.4 million compared to net loss of approximately $ 0.7 million for the year ended december 31 , 2014 as a result of the operating results discussed above . comparison of year ended december 31 , 2014 to year ended december 31 , 2013 the following table illustrates the key operating metrics for the years ended december 31 , 2014 and 2013 for our wholly-owned properties during each respective reporting period ( “ actual ” properties ) as well as the key operating metrics for the nine wholly-owned properties that were under our control during all of 2013 ( “ same-store ” properties ) . accordingly , the same-store data does not reflect the performance of the crowne plaza houston downtown , which was acquired in november 2013 , or the georgian terrace , which was acquired in march 2014. each table excludes performance data for the crowne plaza hollywood beach resort , which was acquired through a joint venture and in which we had a 25.0 % indirect interest . replace_table_token_11_th revenue . total revenue for the year ended december 31 , 2014 was approximately $ 122.9 million , an increase of approximately $ 33.6 million , or 37.6 % , from total revenue for the year ended december 31 , 2013 of approximately $ 89.4 million . approximately $ 31.0 million of the increase is attributable to our acquisitions of the crowne plaza houston downtown and the georgian terrace . within the remainder of the portfolio , revenue increases were strongest at our hilton savannah desoto , the doubletree by hilton raleigh brownstone – university , the doubletree by hilton jacksonville riverfront , the crowne plaza tampa westshore and the sheraton louisville riverside properties . these increases offset revenue decreases at our properties in wilmington , north carolina and philadelphia , pennsylvania . room revenues at our properties for the year ended december 31 , 2014 increased approximately $ 21.8 million , or 34.7 % , to approximately $ 84.6 million compared to room revenues for the year ended december 31 , 2013 of approximately $ 62.8 million . approximately $ 19.7 million of the increase is attributable to our acquisitions of the crowne plaza houston downtown and the georgian terrace . within the remainder of the portfolio , room revenue increases were strongest at our hilton savannah desoto , the doubletree by hilton raleigh brownstone – university , the crowne plaza jacksonville riverfront , the crowne plaza tampa westshore and the sheraton louisville riverside properties . these increases offset revenue decreases at our properties in wilmington , north carolina and philadelphia , pennsylvania .
| or 14.4 % , to approximately $ 96.8 million compared to room revenues for the year ended december 31 , 2014 of approximately $ 84.6 million . the increase in room revenue for the year ended december 31 , 2015 resulted mainly from the acquired property in atlanta , georgia , accounting for an increase of approximately $ 3.3 million for the period and from the recently acquired property in hollywood beach , florida , accounting for an increase of approximately $ 2.4 million for the period . our properties in wilmington , north carolina ; savannah , georgia ; raleigh , north carolina ; philadelphia , pennsylvania ; jacksonville , florida ; tampa , florida ; and hampton , virginia and atlanta , georgia , experienced a significant increase in room revenue , offset by decreases at our properties impacted by renovation activities in laurel , maryland and houston , texas . we continue to expect occupancy and adr to increase in 2016 as a result of continuing strong demand and the completion in 2015 and in 2016 of renovations at our properties in laurel , maryland , jacksonville , florida ; houston , texas and atlanta , georgia . food and beverage revenues at our properties for the year ended december 31 , 2015 increased approximately $ 1.8 million , or 5.8 % , to approximately $ 33.3 million compared to food and beverage revenue of approximately $ 31.4 million for the year ended december 31 , 2014. the increase in food and beverage revenues for the year ended december 31 , 2015 resulted principally from our acquired property in atlanta , georgia , accounting for an increase of approximately $ 2.1 million for the period , and from the recently acquired property in hollywood beach , florida , accounting for an increase of approximately $ 1.2 million for the period . additional increases in food and beverage revenue at our properties in wilmington , north carolina ; raleigh , north carolina and jeffersonville , indiana of approximately $ 0.3 million , were offset by decreases of approximately $
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as further described under recent developments , since december 31 , 2017 we have received proceeds of approximately $ 3.2 million dollars from the sale of 1,402,442 shares of our common stock and warrants to purchase the same number of shares of common stock exercisable at $ 2.724 per share . we also entered into an agreement with an investor for a commitment to fund up to $ 1.8 million of clinical trial expenses in exchange for 792,952 shares of our common stock and warrants to purchase the same number of shares of common stock exercisable at $ 2.724 per share . we will use these committed funds for our phase 2a clinical trial of pcs-499 in patients with nl . payment under this commitment will be made directly to the cro based on their invoicing and not to us . finally , on may 25 , 2018 , we converted approximately $ 2.35 million of our 8.0 % convertible notes into 1,206,245 shares of our common stock and 1,206,245 warrants to purchase common stock . we are looking at ways to add an additional revenue stream to offset some of our expenses . we are planning on raising additional funds in the first half of 2019. in addition , we are seeking alternative options to add additional cash . however , no assurance can be given that we will be successful in securing adequate funds that may be required . if we are unable to raise additional capital when required or on acceptable terms , we may have to significantly delay , scale back or discontinue the development or commercialization of one or more of our product candidates , restrict our operations or obtain funds by entering into agreements on unattractive terms , which would likely have a material adverse effect on our business , stock price , and our relationships with third parties with whom we have business relationships , at least until additional funding is obtained . 43 as a result , substantial doubt existed about our ability to continue as a going concern as of the date of the filing of our annual report on form 10-k for the year ended december 31 , 2018. the accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of recorded assets , or the amounts and classification of liabilities that might be different should the company be unable to continue as a going concern based on the outcome of these uncertainties described above . recent developments phase 2a study and orphan drug designation . on june 22 , 2018 , the fda granted orphan-drug designation to our leading clinical compound pcs-499 for the treatment of nl . on september 28 , 2018 , the fda cleared our ind for pcs-499 in nl such that we could move forward with the phase 2 study . our first patient in this dose tolerance phase 2a study received their first dose of pcs-499 on january 29 , 2019. as of march 15 , 2019 , four additional patients have been enrolled in the study and have received at least one dose of pcs-499 . all these patients have tolerated pcs-499 to date and are continuing in the study . our trial is taking place at two sites : the university of pennsylvania and university of pittsburgh medical center ( upmc ) . our hope is that all 12 patients planned for this study will be enrolled by june 2019 , which we believe is on track to occur . concert license agreement . on october 4 , 2017 , promet entered into an option and license agreement ( the “ concert agreement ” ) with concert pharmaceuticals , inc. ( “ concert ” ) , which was thereafter transferred , contributed , and assigned to processa . on march 19 , 2018 , we , promet , and concert entered into an agreement ( the “ march amendment ” ) that , among other things , completed the assignment of the concert agreement from promet to us allowing us to exercise the exclusive commercial license option for the pcs-499 compound from concert . our agreement with concert , along with raising additional financing , was contemplated as part of the reverse acquisition of heatwurx by promet . the march amendment also amended the concert agreement to provide : ( i ) for the immediate transfer and release of $ 8.0 million of our common stock that was held for the benefit of concert by promet ( 2,090,301 shares ) to concert and ( ii ) that if we sublicense any of the intellectual property licensed to us by concert to a third party prior to the earliest date that ( a ) we raise gross proceeds of at least $ 8.0 million in one or more equity offerings and ( b ) concert can sell the shares of common stock released to it by promet without restriction under rule 144 ( b ) ( 1 ) , then we must pay concert 15 % of such revenue . all other terms of the concert agreement , including the royalty amounts that would be due to concert on the sale of products remain unchanged . as a result , we recognized an intangible asset of approximately $ 11.0 million , additional paid-in capital of $ 8.0 million resulting from promet releasing the earmarked shares to concert in satisfaction of our obligation to concert , along with a $ 3.0 million deferred tax liability related to the acquired temporary difference for an asset purchased that is not a business combination and has a nominal tax basis . pipe transactions . on may 15 , 2018 , and june 29 , 2018 , we entered into subscription and purchase agreements with certain accredited investors and conducted closings pursuant to which we sold 1,402,442 shares of common stock at a purchase price of $ 2.27 per share . story_separator_special_tag in addition , each investor received a warrant to purchase one share of common stock for each share of common stock purchased by such investor at an exercise price equal to $ 2.724 , subject to adjustment thereunder . we received total gross proceeds of approximately $ 3.2 million prior to deducting placement agent fees and estimated expenses payable by us . we currently intend to use the proceeds of the transaction to fund research and development of our lead product candidate , pcs-499 , including clinical trial activities , and for general corporate purposes . our placement agent received $ 167,526 and a warrant to purchase up to 84,146 shares of common stock at an exercise price equal to $ 2.724. we also incurred costs totaling $ 141,304 related to this transaction and our contractual obligations to file a resale registration statement related to the pipe transaction with the sec . clinical trial funding . on may 25 , 2018 , we entered into an agreement with an accredited investor to whom we sold 792,952 shares of common stock at a purchase price of $ 2.27 per share for a clinical funding commitment of $ 1.8 million . we will use these committed funds for our phase 2a clinical trial of pcs-499 in patients with nl . the investor will typically make payments not to us , but rather directly to the cro conducting our phase 2 necrobiosis lipoidica trial based on their invoicing . the investor also received warrants to purchase one share of common stock for each share of common stock purchased at an exercise price equal to $ 2.724 per share . as of december 31 , 2018 , we have made payments totaling approximately $ 239,000 to our cro . subsequent to december 31 , 2018 , our clinical trial funding investor has made payments to our cro totaling $ 115,000 for amounts being currently invoiced . we expect the investor to repay us within the next year , as well as continue to make payments to our cro for outstanding and future invoices related to our phase 2a trial . our placement agent received $ 108,000 and a warrant to purchase up to 47,578 shares of common stock at an exercise price equal to $ 2.724. we also incurred costs totaling $ 60,457 related to this transaction and our contractual obligations to file a resale registration statement related to the clinical trial funding commitment transaction with the sec . 44 we accounted for payments we made to our cro in 2018 as either a prepaid expense or a research and development expense depending on whether the related service has been provided . since the amount of the clinical trial funding commitment has not changed , we continue to show the full amount of that commitment , $ 1.8 million , as a subscription receivable . we will reduce the subscription receivable in the period the investor makes payment to our cro or us . note conversion . on may 25 , 2018 , we converted approximately $ 2.35 million of our mandatory convertible 8.0 % senior notes and accrued interest of $ 109,472 into 1,206,245 shares of common stock , at a price of $ 2.043 per share . the noteholders also received warrants to purchase one share of common stock for each share of common stock purchased at an exercise price equal to $ 2.452. our placement agent received a warrant to purchase 72,375 shares of common stock at an exercise price of $ 2.452. we also incurred costs totaling $ 82,502 related to this transaction and our contractual obligations to file a resale registration statement related to transaction with the sec . the common stock , but not the warrants , issued in the pipe transactions , the clinical trial funding and the note conversion have , subject to certain customary exceptions , full ratchet anti-dilution protection . until we have issued equity securities or securities convertible into equity securities for a total of an additional $ 20.0 million in cash or assets , including the proceeds from the exercise of the warrants issued above , in the event we issue additional equity securities or securities convertible into equity securities at a purchase price less than $ 2.27 per share of common stock , the above purchase prices shall be adjusted and new shares of common stock issued as if the purchase price was such lower amount ( or , if such additional securities are issued without consideration , to a price equal to $ 0.01 per share ) . story_separator_special_tag increase in our general and administrative expense was due to additional administrative costs such as insurance , office expenses , continuing education , and travel . reimbursements from corlyst of $ 107,402 for rent and other costs during the year ended december 31 , 2018 were approximately $ 4,000 less than reimbursements for the same period in 2017 . 47 we expect the general and administrative expenses to continue to increase as we add staff to support our growing research and development activities and the administration required to operate as a public company . interest expense . interest expense was $ 161,205 and $ 59,063 for the years ended december 31 , 2018 and 2017 , respectively related to our $ 2.58 million of 8 % senior notes sold in 2017. in march 2018 , $ 2.35 million of these senior convertible notes were converted into shares of our common stock and stock purchase warrants . included in interest expense is the amortization of debt issuance costs totaling $ 67,069 and $ 23,370 for the years ended december 31 , 2018 and 2017 , respectively . interest income . interest income was $ 18,297 and $ 5,181 for the years ended december 31 , 2018 and 2017 , respectively . interest income represents interest earned on money market funds and certificates of deposit . income tax benefit .
| replace_table_token_3_th during the year ended december 31 , 2018 , our research and development costs increased by $ 2,121,153 to $ 3,085,317 from $ 964,164 for year ended december 31 , 2017. as we noted above , 2018 was a year of significant events related to our continued development of pcs-499 , including : ● in march 2018 , exercising the concert license and option agreement for pcs-499 ; ● in june 2018 , the fda granting us orphan-drug designation to our leading clinical compound pcs-499 for the treatment in nl ; ● in august 2018 , completing a healthy human volunteer study demonstrating that pcs-499 was well tolerated and had the potential to be more beneficial in nl than existing drugs used off-label ; ● in december 2018 , began recruiting and screening patients for our 12-patient phase 2 study “ a study to evaluate the safety and tolerability of pcs-499 for the treatment of necrobiosis lipoidica ” ; and ● in january 2019 , we began dosing our patients with pcs-499 . as a result of exercising the concert license and option agreement for pcs-499 in march 2018 , and the purchase of a software license , we recognized $ 621,647 of amortization expense during the year ended december 31 , 2018. we had no similar expense in 2017. during 2018 , we completed a phase 1 study to evaluate the safety and pharmacokinetics of single and optional multiple dosing regimens of modified release formulations of pcs-499 compared to trental® ( pentoxifylline ) administered to healthy subjects . we also incurred costs to establish a new site to contract manufacture the tablets of pcs-499 needed for our clinical trial since the original concert tablet manufacturing site could no longer be used . our research and development salaries and benefits increased by $ 129,968 for the year ended december 31 , 2018 when compared to the same period in 2017 related to an increase in full-time equivalent staff and related staff costs . we recognized higher research and development expenses for preclinical , clinical trial and other costs of $ 1,369,538 during the year ended december 31 , 2018 when compared to the same period in 2017 due to the completion of our phase 1 pharmacokinetics study described above , the scaling up of the manufacture of clinical trial material we will
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upon recommendations from the contract committee , our board approved a community solar program , a partial requirements structure , including a buy-down payment methodology , and a “ make-whole ” methodology for a contract termination payment . each of these items recommended by the contract committee representing our utility members were filed with ferc for approval in 2020. ferc accepted each of these items , subject to refund , and referred them to ferc 's hearing and settlement judge procedures . see “ business – members – contract committee. ” in may 2020 , united power filed a complaint for declaratory judgement and damages against us alleging , among other things , that the april 2019 bylaws amendment that allows our board to establish one or more classes of membership in addition to the then existing all-requirements class of membership is void and that we have breached the wholesale electric service contract with united power . in november 2020 , united power filed a complaint for declaratory relief against us seeking for the court to declare that our addition of the non-utility members violated colorado law . in december 2020 , united power sought to amend its may 2020 compliant to add lpea as an additional plaintiff and to add the claims from its november 2020 complaint into its amended complaint and to dismiss the november 2020 complaint against us . see note 15 to the consolidated financial statements in item 8 for further information . responsible energy plan in january 2020 , we announced our responsible energy plan , which will advance our clean energy transition . some of the highlights of the responsible energy plan include : eliminating all emissions from our coal-fired generating facilities in colorado and new mexico by 2030. by 2024 , 50 percent of the electricity our utility members use is expected to come from clean energy . more local renewables for utility members through contract flexibility . promoting participation in a regional transmission organization . expanding electric vehicle infrastructure and beneficial electrification . see “ business – members – responsible energy plan. ” early retirements of generating facilities as part of our responsible energy plan , in january 2020 , our board approved the early retirement of escalante station by the end of 2020 and craig station units 2 and 3 and the colowyo mine by 2030. the early retirement of craig station unit 1 by december 31 , 2025 remains unchanged . in august 2020 , electricity production ended at escalante station in new mexico , and we no longer produce power from coal in new mexico . during 2020 , in accordance with accounting requirements , we recognized an impairment loss and other closure costs of $ 283.0 million associated with the early retirement of escalante station . our board approved the deferral of such impairment loss as a regulatory asset . this loss will be amortized to depreciation , amortization and depletion expense beginning in 2021 through the end of 2045 , which was the depreciable life of escalante station , and is expected to be recovered from our utility members through rates . such deferral and recovery was approved by ferc during the third quarter of 2020. craig station units 2 and 3 continue to be depreciated over the last rate study end lives of 2039 and 2044. once it becomes probable that ferc will approve the impairment and recovery of unrecovered depreciation associated with the closure of craig station units 2 and 3 , then the expected unrecovered depreciation at the time of the closure will be impaired and recovered from our utility members through rates . the net book value of craig station units 2 and 3 was $ 417.0 million as of december 31 , 2020. the shortened life of colowyo mine increases annual depreciation , amortization and depletion expense in the amount of approximately $ 12.7 million . in connection with such early retirements , our board continues to evaluate the creation of regulatory assets and use of regulatory liabilities to ensure our utility member rates remain stable , if not lower , during this transition . a creation of regulatory asset to defer expenses associated with these early retirements or the utilization of regulatory liabilities would require ferc approval . 39 covid‑19 impacts the covid‑19 pandemic has adversely impacted economic activity and conditions worldwide , including workforces , liquidity , capital markets , consumer behavior , supply chains , and macroeconomic conditions . we are intensely focused on safely delivering power to our utility members and ensuring the reliability of the regional power grid , protecting our employees ' health , and supporting state and national directives to stem the spread of covid‑19 in our communities . we have activated established programs and procedures to mitigate the impacts of pandemics and protect our employees from communicable diseases . our crisis management team , representing all functions of our operations , continues to assess potential impacts to our operations and is taking actions that mitigate those impacts . these actions include : ensuring our critical generation , transmission and operations teams are staffed and have the resources needed to safely operate our power system ; implementing best practices to protect employees from the spread of covid‑19 , including achieving social distancing for employees through work from home programs ; and holding our board meetings and membership meetings virtually . we have also supported covid‑19 pandemic relief and recover funds in each of the four states of our utility members , including donations totaling $ 200,000. in each of our utility members states , the governor of such state or officials of certain counties and communities have implemented various and different measures related to covid‑19 in 2020 , including stay-at-home orders , safer-at-home orders , mandating the closure of certain businesses , and phased re-opening of certain businesses . the various governmental measures are constantly changing . story_separator_special_tag the economic impacts of the covid‑19 pandemic and the various government measures related to covid‑19 have caused a significant slowdown in certain sectors of the economy , including oil and gas , and a corresponding increase in unemployment . we have experienced changes in the load patterns of our utility members and decreased sales to our utility members and utility member revenue due to disruptions of operations from our utility members ' commercial customers . we continue to monitor the impacts of covid‑19 . the extent to which the covid‑19 pandemic may continue to impact our results of operations , including the long-term nature of the impacts , depends on numerous evolving factors , which are highly uncertain and difficult to predict , including the availability and adoption rate of the covid-19 vaccines , the scope and timing of actions to further contain the virus or treat its impact , and to what extent normal economic and operating conditions can resume , among others . we currently believe that we have sufficient liquidity to meet our anticipated capital and operating requirements , and we completed two long-term debt transactions in june 2020 with proceeds totaling $ 225 million . critical accounting policies the preparation of our financial statements in conformity with gaap requires that our management make estimates and assumptions that affect the amounts reported in our consolidated financial statements . we base these estimates and assumptions on information available as of the date of the financial statements and they are not necessarily indicative of the results to be expected for the year . we consider the following accounting policies to be critical accounting policies due to the estimation involved or due to the particular significance they have on our consolidated financial statements . accounting for rate regulation . we are a rate-regulated entity and , as a result , are subject to the accounting requirements of accounting for regulated operations . in accordance with these accounting requirements , some revenues and expenses have been deferred at the discretion of our board if it is probable that these amounts will be refunded or recovered through future rates . regulatory assets are costs we expect to recover from utility members based on rates approved by the applicable authority . regulatory liabilities represent probable future reductions in rates associated with amounts that are expected to be refunded to utility members based on rates approved by the applicable authority . on september 3 , 2019 , we became a ferc-jurisdictional public utility and our board 's rate setting authority , including the use of regulatory assets and liabilities , is now subject to ferc approval . estimates of recovering deferred costs and returning deferred credits are based on specific ratemaking decisions by ferc or precedent for each item . we recognize regulatory assets as expenses and regulatory liabilities as operating revenue , other income , or a reduction in expenses concurrent with their recovery in rates . leases . prior to the adoption of accounting standards update 2016-02 , leases ( topic 842 ) , the determination of whether a lease should be classified as a capital lease , and thereby recorded on the balance sheet , required management to make various assumptions , including the discount rate , the fair market value of the leased assets and the estimated useful life . we were the lessor under a power sales arrangement that was required to be accounted for as an operating lease because it conveyed the right to use our power generating equipment for a stated period of time . the lease revenue from this arrangement is included in other operating revenue on our consolidated statements of operations . we were the lessee under a power purchase arrangement that was required to be accounted for as an operating lease because it conveyed to us the right to use power generating equipment for a stated period of time . it is included in lease expense on our consolidated statements of operations . 40 asset retirement and environmental reclamation obligations . we account for current obligations associated with the future retirement of tangible long‑lived assets and environmental reclamation in accordance with the accounting guidance relating to asset retirement and environmental obligations . this guidance requires that legal obligations associated with the retirement of long‑lived assets be recognized at fair value at the time the liability is incurred and capitalized as part of the related long‑lived asset . over time , the liability is adjusted to its present value by recognizing accretion expense and the capitalized cost of the long‑lived asset is depreciated in a manner consistent with the depreciation of the underlying physical asset . in the absence of quoted market prices , we determine fair value by using present value techniques in which estimates of future cash flows associated with retirement activities are discounted using a credit adjusted risk‑free rate and market risk premium . upon settlement of an asset retirement obligation , we will apply payment against the estimated liability and incur a gain or loss if the actual retirement costs differ from the estimated recorded liability . environmental reclamation costs are accrued based on management 's best estimate at the end of each period of the costs expected to be incurred . such cost estimates may include ongoing care , maintenance and monitoring costs . changes in reclamation estimates are reflected in earnings in the period an estimate is revised . estimates of future expenditures for environmental reclamation obligations are not discounted . factors affecting results master indenture our master indenture requires us to establish , subject to any necessary regulatory approvals , rates annually that are reasonably expected to achieve a dsr of at least 1.10 on an annual basis and permits us to incur additional secured obligations as long as after giving effect to the additional secured obligation , we will continue to meet the dsr requirement on both a historic and pro forma basis .
| the following is a comparison of our operating revenues and energy sales in mwh by type of purchaser for 2020 and 2019 ( dollars in thousands ) : 43 replace_table_token_9_th utility member electric sales decreased , in terms of mwhs sold , primarily due to the withdrawal of dmea and a slowdown in certain sectors of the economy from the impacts of covid-19 , in particular , from our utility members ' commercial members . the withdrawal of dmea in june 2020 resulted in approximately 261,923 mwhs decrease in 2020 compared to 2019 , without taking into account the impact of covid-19 . non-member electric sales revenue increased primarily due to rate stabilization measures and more favorable pricing for term sales during the year . in accordance with our board policy for financial goals and capital credits , we recognized $ 12.1 million of previously deferred revenue during the twelve months ended december 31 , 2020 compared to $ 6.2 million during the same period in 2019. excluding the effect of these rate stabilization measures , non-member electric sales revenue increased $ 4.1 million , or 4.6 percent , to $ 93.3 million in 2020 compared to $ 89.2 million in 2019. although non-member sales ( in mwhs ) decreased , the average non-member rate increased 10.6 percent during the twelve months ended december 31 , 2020 compared to the same period in 2019. operating expenses our operating expenses are primarily comprised of the costs that we incur to supply and transmit our utility members ' electric power requirements through a portfolio of resources , including generation and transmission facilities , long-term purchase contracts and short-term energy purchases and the costs associated with any sales of power to non-members . the following is a summary of the components of our operating expenses for 2020 and 2019 ( dollars in thousands ) : replace_table_token_10_th fuel expense includes coal , natural gas , and other fuel consumed at the generating stations . fuel expense decreased primarily due to lower generation from our generating facilities , fluctuations in
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in fiscal 2020 , we continued to focus on enhancing the value to clients , including new offerings and enhancements to paychex flex as follows : · paychex integrations enabling users to connect paychex flex with some of the world 's leading hr , accounting , point-of-sale , and productivity applications on the market ; · smartwatch solution , which enables users to track time worked via their smartwatch ; · pay-on-demand , which provides participating customer employees the option to request access to a portion of earned pay before the scheduled pay date ; · real-time payments , which provides employers an efficient way to instantly pay their employees for time worked ; · help center , which provides users access to training resources and how-to tutorials in written , video , and tour-like deliverables ; · enhancements to flex assistant , that provides a user with an in-app learning journey that aligns with their preferences as a verbal , visual , or physical learner and offers written how-to documents , tutorial-style video vignettes , or a guided interactive tour from in-app step-by-step messaging ; · document management was enhanced to add electronic signature capabilities and the ability for customers to run on-demand reports that show the entire process , from initial log-in through signature event ; · hr conversations , a new tool that enables managers , employees , and hr staff to collaborate and capture day-to-day interactions ; and · other enhancements including , grid entry view capabilities and the ability for employees and administrative users to create a custom dashboard . 20 we continue to strengthen our position in the industry by serving as a source of education and information to clients , businesses of all sizes , and other interested parties . we provide free webinars , white papers , and other information on our website to aid existing and prospective clients with the impact of regulatory changes . the paychex insurance agency , inc. website , www.paychex.com/group-health-insurance , helps small-business owners navigate the area of insurance coverage . both this website and www.paychex.com/worx have sections dedicated to the topic of health care reform . covid-19 response in march 2020 , the world health organization declared the outbreak of covid-19 as a pandemic . the covid-19 pandemic began affecting our operations and employees , our customers ' businesses , and the markets we serve in the three months ended may 31 , 2020 ( the “ fourth quarter ” ) . the health and safety of our employees remains our top priority . we were expedient with the implementation of our business continuity plan , which included moving 95 % of our workforce to work remotely and restricting unnecessary travel . results of operations for the fourth quarter were adversely impacted by the covid-19 pandemic as businesses suspended operations . management solutions revenue was impacted by a decline in check volumes , partially offset by increased penetration of retirement services and time and attendance services . the decline in check volumes was due to a reduction in the number of clients processing payrolls as well as the number of employees paid due to state and regional shutdowns . peo and insurance solutions revenue was impacted by a decline in the number of worksite employees serviced by our existing clients . insurance solutions revenue was impacted by a decrease in the number of health and benefit applicants and a decline in workers ' compensation premiums . since the end of april , we have seen sequential improvement in our key business metrics across our lines of business . as our clients continue to manage through the covid-19 pandemic , our priority remains helping them keep their businesses open and return to more normal operations . our blend of technology and service provides valuable tools and resources to assist our clients and their employees during this critical time . the technology investments we made to our paychex flex payroll and human resources suite of products positioned us to service our clients and support them in managing a remote workforce . we created a covid-19 help center on our website to assist our clients and provide them with the support and resources they need , including : webinars and white papers with information on the coronavirus aid , relief , and economic security act , including the historic ppp , and families first coronavirus response act ; guidance on the small business administration ( “ sba ” ) loan and debt relief process , interactive ppp loan estimation tool for businesses who are considering or have received funding through the sba program ; and state-by-state resources to help our clients understand specific directives that may impact their business . the covid-19 help center also provides resources to our key business partners , including accountants , financial institutions , financial advisors , and national associations . the covid-19 help center has been translated into spanish to serve our spanish-speaking clients . our strong balance sheet and operational flexibility allowed us to successfully manage through the initial impact of covid-19 while protecting our cash flow and liquidity . we will continue to evaluate the nature and extent of future changes to market and economic conditions related to covid-19 and will assess the potential impact to our business and financial position . we expect to take a cautious approach to modifying our office and travel restrictions and will wait until we have a clearer vision on how the pandemic unfolds and utilizing guidance provided by the federal , state , and local governments . for further information on the risks posed to our business from the covid-19 pandemic , refer to item 1a of this form 10-k. 21 story_separator_special_tag 0 ; text-align : justify ; '' > compensation-related expenses increased 6 % for fiscal 2020 and 13 % for fiscal 2019. for fiscal 2020 , the increases in compensation-related expenses were driven by the acquisition of oasis , increased headcount , and higher wages , offset by a decrease in performance-based pay . story_separator_special_tag for fiscal 2019 , the increases in compensation-related expenses were driven by the acquisition of oasis , increased headcount , higher wages , and an increase in performance-based pay . as of may 31 , 2020 , we had approximately 15,800 employees compared with 15,600 employees as of may 31 , 2019. depreciation expense is primarily related to buildings , furniture and fixtures , data processing equipment , and both purchased and internally developed software . amortization of intangible assets is primarily related to client list acquisitions . the growth in depreciation and amortization for both fiscal 2020 and fiscal 2019 , were primarily driven by the amortization of acquired oasis intangible assets . 23 peo insurance costs include workers ' compensation , minimum premium medical insurance plan arrangements , and self-insured dental and vision plans where we retain risk . the acquisition of oasis , along with the growth in our peo business , contributed to the increase in peo insurance costs for both fiscal 2020 and fiscal 2019. in addition , the acquisition of hr outsourcing holdings , inc. ( “ hroi ” ) contributed to the increase in peo insurance costs for fiscal 2019. other expenses include items such as non-capital equipment , delivery , forms and supplies , communications , travel and entertainment , professional services , and other costs incurred to support our business . other expense growth for fiscal 2020 was impacted by the acquisition of oasis and by continued investment in product development and supporting technology , tempered by the impact of covid-19 in the fourth quarter which drove decreases in other selling , general and administrative expenses , including travel and entertainment . the increase in other expenses for fiscal 2019 was impacted by the acquisitions of oasis and hroi and continued investment in product development and supporting technology . other expenses for fiscal 2018 included a one-time expense of $ 32.6 million related to the termination of certain license agreements . operating income : operating income increased 7 % to $ 1.5 billion for fiscal 2020 and 6 % to $ 1.4 billion for fiscal 2019. operating margin ( operating income , as a percentage of total revenue ) , was 36.1 % , 36.3 % , and 38.2 % for fiscal years 2020 , 2019 , and 2018 , respectively . adjusted operating income ( 1 ) increased 7 % to $ 1.5 billion for fiscal 2020 and 4 % to $ 1.4 billion for fiscal 2019. earnings before interest , taxes , depreciation , and amortization ( “ ebitda ” ) ( 1 ) increased 8 % to $ 1.7 billion for fiscal 2020 and 9 % to $ 1.6 billion for fiscal 2019. ebitda margin ( 1 ) was 41.4 % , 41.2 % , and 42.3 % for fiscal years 2020 , 2019 , and 2018 , respectively . ( 1 ) adjusted operating income , ebitda and ebitda margin are not u.s. gaap measures . refer to the “ non-gaap financial measures ” section within the “ results of operations ” section of this item 7 for a discussion of these non-gaap measures and a reconciliation to the most comparable u.s. gaap measures of operating income and net income . other ( expense ) /income , net : other ( expense ) /income , net , primarily represents interest expense incurred on our debt instruments , netted against earnings from our corporate cash and cash equivalents and investments in available-for-sale securities . we recognized $ 23.4 million and $ 3.3 million of other expense , net in fiscal 2020 and fiscal 2019 , respectively , which was driven by interest expense related to our long-term borrowings . other expense , net included $ 33.3 million and $ 13.7 million of interest expense related to our long-term borrowings in fiscal 2020 and fiscal 2019 , respectively . income taxes : our effective income tax rate was 23.6 % for fiscal 2020 , 24.4 % for fiscal 2019 , and 23.5 % for fiscal 2018. the effective income tax rates in all periods were impacted by recognition of net discrete tax benefits related to employee stock-based compensation payments . in fiscal 2019 , the effective income tax rate included discrete tax expense for changes in tax reserves and the revaluation of deferred tax balances for legislative updates . in fiscal 2018 , as a result of the tax act , we recorded a non-recurring net tax benefit for the revaluation of our net deferred tax liabilities . this amount impacted diluted earnings per share by approximately $ 0.23 per diluted share for fiscal 2018. additional discrete tax items recognized during each respective period are insignificant . refer to note l of the notes to consolidated financial statements contained in item 8 of this form 10-k for additional disclosures on income taxes . net income and diluted earnings per share : net income increased 6 % to $ 1.1 billion for fiscal 2020 and 4 % to $ 1.0 billion for fiscal 2019. diluted earnings per share increased 6 % to $ 3.04 per diluted share for fiscal 2020 and 4 % to $ 2.86 per diluted share for fiscal 2019. adjusted net income increased 5 % to $ 1.1 billion for fiscal 2020 and increased 11 % to $ 1.0 billion for fiscal 2019. adjusted diluted earnings per share was $ 3.00 per diluted share for fiscal 2020 and $ 2.84 per diluted share for fiscal 2019 , reflecting increases of 6 % and 11 % , respectively . refer to the “ non-gaap financial measures ” section that follows for a discussion of these non-gaap measures . 24 non-gaap financial measures : a djusted operating income , adjusted net income , adjusted diluted earnings per share and ebitda are summarized as follows : replace_table_token_10_th ( 1 ) additional expense and corresponding tax benefit recognized as a result of the termination of certain license agreements . this event is not expected to recur . ( 2 ) net tax windfall benefits related to employee stock-based compensation payments recognized in income taxes .
| peo and insurance solutions revenue : peo and insurance solutions revenue was $ 990.6 million for fiscal 2020 and $ 814.2 million for fiscal 2019 , reflecting growth of 22 % and 46 % , respectively , compared to the prior fiscal year periods . in addition to the acquisition of oasis , peo and insurance solutions revenue growth in fiscal 2020 and fiscal 2019 was driven by growth in clients across our peo business . in addition , for fiscal 2019 , peo and insurance solutions revenue growth was driven by growth in client worksite employees across our peo business . insurance solutions revenue for both fiscal 2020 and fiscal 2019 benefited from an increase in the number of health and benefit clients , offset by declining rates in the workers ' compensation market . in addition , for fiscal 2019 , insurance solutions revenue was impacted by an increase in the number of health and benefit applicants . interest on funds held for clients : interest on funds held for clients increased 8 % for fiscal 2020 and 27 % for fiscal 2019 to $ 86.9 million and $ 80.6 million , respectively . for fiscal 2020 the increase was due to higher realized gains , offset by lower average investment balances and average interest rates . the realized gains primarily resulted from the strategic repositioning of our client fund portfolio to enhance liquidity in response to the uncertainty caused by covid-19 . for fiscal 2019 , the increase was primarily due to higher average interest rates earned . average investment balances for funds held for clients decreased approximately 1 % and 2 % for fiscal 2020 and fiscal 2019 , respectively . for fiscal 2020 , funds held for clients average investment balances were impacted by lower client fund collections due to covid-19 and changes in client base mix , offset by wage inflation and timing of collections and remittances . for fiscal 2019 , the decrease in average investment balances for funds held for clients was primarily driven by the impact of lower client withholdings as a result of the tax cuts
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partially offsetting the decrease were expenses related to the inaugural three day firefly music festival which was held on our property in july 2012. general and administrative expenses were $ 7,560,000 in 2012 as compared to $ 8,329,000 in 2011. the decrease was primarily related to the fact that we promoted no events in nashville in 2012 and from lower employee related expenses at our dover facility . depreciation expense decreased to $ 3,314,000 in 2012 as compared to $ 4,588,000 in 2011. the decrease was primarily related to cessation of depreciation after the impairment of all depreciable assets of our nashville facility during the third quarter of 2011. net interest expense was $ 1,396,000 in 2012 as compared to $ 2,245,000 in 2011. the decrease was due primarily to lower average borrowings as well as a lower average interest rate pursuant to our new credit facility entered into on april 12 , 2011. additionally , the 2011 interest expense reflects the reversal of $ 122,000 of previously recorded interest expense on uncertain income tax positions which were no longer subject to examination . our effective income tax rates for 2012 and 2011 were 43.3 % and 31.0 % , respectively . the lower effective income tax rate in the prior year was primarily due to the state tax losses at our midwest facilities which have no state income tax benefits as a result of recording valuation allowances on the state net operating loss carry-forwards . 15 earnings ( loss ) before income taxes was $ 8,062,000 in 2012 as compared to ( $ 13,207,000 ) in 2011. excluding the non-cash pre-tax impairment charges and ( benefit ) provision for contingent obligation , net , our adjusted earnings before income taxes was $ 7,746,000 in 2012 as compared to $ 4,730,000 in 2011. replace_table_token_3_th net earnings ( loss ) was $ 4,571,000 in 2012 as compared to ( $ 9,114,000 ) in 2011. excluding the non-cash impairment charges , net of income taxes and ( benefit ) provision for contingent obligation , net of income taxes , our adjusted net earnings was $ 4,384,000 in 2012 as compared to $ 2,419,000 in 2011. replace_table_token_4_th the above financial information is presented using other than generally accepted accounting principles ( non-gaap ) and is reconciled to comparable information presented using gaap . non-gaap adjusted earnings from continuing operations before income taxes and non-gaap adjusted earnings from continuing operations is derived by adjusting amounts determined in accordance with gaap for the non-cash impairment charges and ( benefit ) provision for contingent obligation . we believe such non-gaap information is useful and meaningful to investors , and is used by investors and us to assess core operations . this non-gaap financial information may not be comparable to similarly titled measures used by other entities and should not be considered as an alternative to earnings ( loss ) from continuing operations before income taxes and earnings ( loss ) from continuing operations which is determined in accordance with gaap . liquidity and capital resources our operations and cash flows from operating activities are seasonal in nature with a majority of our motorsports events occurring during the second and third quarters this year . net cash provided by operating activities was $ 8,143,000 in 2013 as compared to $ 10,945,000 in 2012. the decrease was primarily due to higher income tax payments in 2013 and lower receipts from advance ticket sales primarily as a result of a delay in the timing of our 2014 ticket renewal process . net cash used in investing activities was $ 189,000 in 2013 as compared to net cash provided by investing activities of $ 17,000 in 2012. capital expenditures of $ 315,000 in 2013 related to facility improvements and equipment purchases . capital expenditures were $ 468,000 in 2012 and related primarily to facility improvements . we sold portable grandstand seating that we no longer used in 2013 that resulted in proceeds and a gain of $ 138,000. we completed the sale of several parcels of land at our gateway facility in september 2012 which resulted in net proceeds of $ 585,000. net cash used in financing activities was $ 7,965,000 in 2013 as compared to $ 10,962,000 in 2012. we had net repayments on our outstanding line of credit of $ 4,880,000 in 2013 as compared to $ 9,460,000 in 2012. we paid $ 1,831,000 and $ 1,475,000 in cash dividends during 2013 and 2012 , respectively . during 2013 , we purchased and retired 442,526 shares of our outstanding common stock in the open market at an average purchase price of $ 2.36 per share , not including nominal brokerage commissions . no purchases of our equity securities from the open market were made during 2012. as a result of modifying our credit agreement in 2013 , we paid $ 125,000 in bank fees . 16 on april 29 , 2013 , dover motorsports , inc. and its wholly owned subsidiaries dover international speedway , inc. and nashville speedway , usa , inc. , as co-borrowers , modified our secured credit agreement with our bank group . the credit facility was modified to : extend the maturity date to july 31 , 2017 ; reduce the maximum borrowing limit to $ 50,000,000 as of april 29 , 2013 , to $ 42,500,000 as of december 31 , 2013 and to $ 35,000,000 as of december 31 , 2014 and through the date of maturity ; modify the maximum funded debt to earnings before interest , taxes , depreciation and amortization ( leverage ratio ) ; replace the interest expense coverage ratio with a fixed charge coverage ratio ; remove any restrictions on the amount of stock repurchases and dividend payments ; and provide that we may elect to enter into a negative pledge with the bank group in exchange for the release of the security interest in the collateral securing the agreement . material adverse changes in our results of operations could impact our ability to maintain financial ratios necessary to satisfy these requirements . story_separator_special_tag in addition , the credit agreement includes a material adverse change clause and provides the lenders with a first lien on all of our assets . the credit facility also provides that if we default under any other loan agreement , that would be a default under this facility . at december 31 , 2013 , there was $ 14,820,000 outstanding under the credit facility at an interest rate of 1.67 % . the credit facility provides for seasonal funding needs , capital improvements , letter of credit requirements and other general corporate purposes . interest is based upon libor plus a margin that varies between 125 and 175 basis points depending on the leverage ratio ( 150 basis points at december 31 , 2013 ) . in the event we elect to enter into the negative pledge , interest will be based upon libor plus a margin that varies between 150 and 200 basis points depending on the leverage ratio . at december 31 , 2013 , we were in compliance with the terms of the credit facility . after consideration of stand-by letters of credit outstanding , the remaining maximum borrowings available pursuant to the credit facility were $ 8,565,000 at december 31 , 2013. we expect to be in compliance with the financial covenants , and all other covenants , for all measurement periods during the next twelve months . nashville superspeedway no longer promotes nascar events and did not seek sanction agreements from nascar for 2012 , 2013 or 2014. we currently use the track for motorsports race team testing and continue to evaluate all of our options for the facility . in 2011 we recorded a $ 2,250,000 provision for contingent obligation reflecting the present value of the estimated portion of the wilson county bonds debt service that may not be covered by the projected sales and incremental property taxes from the facility ( see note 13 commitments and contingencies of the consolidated financial statements included elsewhere in this document for further discussion ) . due to changing interest rates , the provision for contingent obligation decreased by $ 91,000 and $ 316,000 , net , in 2013 and 2012 , respectively , and is $ 1,843,000 at december 31 , 2013. we promoted six racing events in 2013 and 2012 , and are scheduled to promote six events in 2014 , all of which were sanctioned by nascar and held at our dover international speedway facility . broadcasting revenues continue to be a significant long-term revenue source for our business . management believes this long-term contracted revenue helps stabilize our financial strength , earnings and cash flows . also , nascar ratings can impact attendance at our events and sponsorship opportunities . a substantial portion of our profits in recent years has resulted from television revenues received from nascar contracts with various television networks , which is expected to continue for the foreseeable future . the current eight-year television broadcasting agreement with various television networks was negotiated and contracted by nascar ( as were the new contracts discussed below ) . our share of these television broadcast revenues are contracted , and purse and sanction fees are negotiated , with nascar on an annual basis for each nascar-sanctioned racing event scheduled to be held by us in the upcoming year . under these annual agreements , we are obligated to conduct events in the manner stipulated under the terms and conditions of the respective sanctioning agreements . nascar announced it has reached a ten-year , multi-platform agreement with fox sports media group ( fox ) for the broadcasting and digital rights to 16 nascar sprint cup series races , 14 nationwide series races and the entire camping world truck series ( along with practice and qualifying ) beginning in 2015 through 2024. for the first time , the new agreement includes tv everywhere rights that allow live-streaming of all fox races , before and after race coverage , in-progress and finished race highlights , and replays of fox-televised races to a fox sports-affiliated website which began in 2013. the new agreement also allows re-telecast of races on a fox network and via video-on-demand for 24 hours and other ancillary programming , including a nightly nascar news and information show and weekend at-track shows . nascar and fox deportes , the number one us latino sports network , have teamed up to provide our sport 's most expansive spanish-language broadcast offering ever with coverage of 15 nascar sprint cup series races which started in 2013 . 17 on july 23 , 2013 , nascar announced it has reached a ten-year comprehensive agreement with nbc sports group granting nbcuniversal ( nbc ) exclusive rights to the final 20 nascar sprint cup series races , final 19 nascar nationwide series events , select nascar regional & touring series events and other live content beginning in 2015. further , nbc has been granted spanish-language rights , certain video-on-demand rights and exclusive tv everywhere ' rights for its nascar sprint cup series and nascar nationwide series events . we expect that our net cash flows from operating activities and funds available from our credit facility will be sufficient to provide for our working capital needs , capital spending requirements , stock repurchases , as well as any cash dividends our board of directors may declare at least through the next twelve months and also provide for our long-term liquidity . based on current business conditions , we expect to spend approximately $ 2,000,000 on capital expenditures during 2014. additionally , we expect to contribute approximately $ 50,000 to our pension plans during 2014. contractual obligations at december 31 , 2013 , we had the following contractual obligations and other commercial commitments : replace_table_token_5_th ( a ) the future interest payments on our revolving credit agreement were estimated using the current outstanding principal as of december 31 , 2013 and current interest rates .
| based on the results of this analysis , we recorded a $ 4,329,000 non-cash pre-tax impairment charge in the fourth quarter of 2013 to write-down the carrying value of long-lived assets at our nashville facility to fair value . general and administrative expenses decreased to $ 7,252,000 in 2013 as compared to $ 7,560,000 in 2012. the $ 308,000 decrease was primarily related to lower employee wages and benefit costs . depreciation expense remained consistent at $ 3,291,000 in 2013 as compared to $ 3,314,000 in 2012. net interest expense was $ 959,000 in 2013 as compared to $ 1,396,000 in 2012. the decrease was due to lower average borrowings and a lower average interest rate . our effective income tax rates for 2013 and 2012 were 48.7 % and 43.3 % , respectively . the increase in our effective income tax rate was primarily due to changes in the mix of taxable income and losses within our subsidiaries . one subsidiary had state taxable income which resulted in state income tax expense ; however , another subsidiary with state tax losses has no state income tax benefits based upon the valuation allowances that we have recorded in connection with state net operating loss carry-forwards . earnings before income taxes was $ 3,949,000 in 2013 as compared to $ 8,062,000 in 2012. excluding the non-cash pre-tax impairment charge and benefit for contingent obligation , net , our adjusted earnings before income taxes was $ 8,187,000 in 2013 as compared to $ 7,746,000 in 2012. replace_table_token_1_th net earnings was $ 2,024,000 in 2013 as compared to $ 4,571,000 in 2012. excluding the non-cash impairment charge and benefit for contingent obligation , net of income taxes , our adjusted net earnings was $ 4,784,000 in 2013 as compared to $ 4,384,000 in 2012. replace_table_token_2_th 14 the above financial information is presented using other than generally accepted accounting principles ( non-gaap ) and is reconciled to comparable information presented
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2009 highlights : we announced the frankfurt , germany airport ( fraport ) supervisory board approved the acceleration of the 2009 and 2010 payments of 200 million and 140 million , respectively , required by the settlement agreement signed in june 2007. on february 5 , 2009 , we received a discounted amount of approximately 322 million ( $ 412 million ) , excluding value-added tax of 59 million ( $ 75 million ) . we shut down our vinyl acetate monomer ( vam ) production unit in cangrejera , mexico , and ceased vam production at the site during the first quarter of 2009. standard and poor 's affirmed our ratings and revised our outlook from positive to stable in february 2009. we received the american chemistry council 's ( acc ) responsible care ® sustained excellence award for mid-size companies . the annual award , the most prestigious award given under acc 's responsible care ® initiative , recognizes companies for outstanding leadership under acc 's environmental health and safety performance criteria . we completed the sale of our polyvinyl alcohol ( pvoh ) business to sekisui chemical co. , ltd. for the net cash purchase price of $ 168 million . we agreed to a project of closure for our acetic acid and vam production operations at our pardies , france facility . we ceased the production of acetic acid and vam at our facility in pardies , france on december 1 , 2009. as a result of the pardies , france project of closure , we have incurred $ 89 million of exit costs in 2009. we may incur an additional $ 17 million in contingent employee termination benefits relates to the pardies , france project of closure . 38 we announced that celanese us had amended its $ 650 million revolving credit facility . the amendment lowered the total revolver commitment to $ 600 million and increased the first lien senior secured leverage ratio for a period of six quarters , beginning june 30 , 2009 and ending december 31 , 2010. we announced the creation of our new and proprietary aoplus ® 2 acetic acid technology , which allows for expansion up to 1.5 million tons per reactor annually . we successfully started up our expansion of our acetic acid unit in nanjing , china which doubled the unit 's capacity from 600,000 tons to 1.2 million tons annually . we announced the expansion of our vinyl acetate ethylene emulsions ( vae ) manufacturing facility at our nanjing , china integrated chemical complex to support continued growth plans throughout asia . the expanded facility will double our vae capacity in the region and is expected to be operational in the first half of 2011. we launched a new , innovative polyacetal ( pom ) technology that is expected to create significant additional growth opportunities for our advanced engineered materials segment . we signed a memorandum of understanding with our acetate joint venture partner , the china national tobacco corporation , to expand the flake and tow capacities at our joint venture facility in nantong , china . we reached a long-term agreement to supply vam to jiangxi jiangwei high-tech stock co. , ltd ( jiangwei ) . jiangwei will cease production of its calcium carbide-based alternative for economic and environmental reasons and source our vam . we acquired the long fiber reinforced thermoplastics ( lft ) business of fact gmbh ( future advanced composites technology ) of germany , supporting our advanced engineered materials segment . we announced the redemption of our convertible perpetual preferred stock for our series a common stock to be completed february 22 , 2010 . 2010 outlook in 2010 we expect to see an increase in overall demand versus 2009 as the global economy begins a gradual recovery . we would also expect growth in asia to outpace growth in other regions of the world . raw materials and energy costs are expected to be modestly higher in 2010 than in the prior year . additionally , we expect to realize an incremental $ 100 million of fixed spending reductions , driven by structural streamlining of our manufacturing and administrative functions . 39 story_separator_special_tag 'times new roman ' , times ; color : # 000000 ; background : # ffffff '' > summary of consolidated results year ended december 31 , 2008 compared with year ended december 31 , 2007 the challenging economic environment in the united states and europe during the first half of 2008 resulted in higher raw material and energy costs which enabled price increase initiatives across all business segments . during the second half of 2008 , the us credit crisis accelerated the economic slowdown and its spread to other regions of the world . despite the halt in demand , we were able to maintain the majority of our enacted price increases through the remainder of 2008. as a result , increased prices improved net sales by 8 % . favorable foreign currency impacts also had a positive impact on net sales of 3 % . net sales declined 5 % due to decreased volumes . lower volumes were primarily a result of decreased demand stemming from the global economic downturn . as demand declined , particularly during the fourth quarter of 2008 , our customers began destocking to reduce their inventory levels . in response , we aggressively managed our global production capacity to align with the current environment . decreased volumes in our acetate flake and tow businesses were not significantly impacted by the economic downturn . rather , decreased flake volumes were the result of our strategic decision to shift our flake production to our china ventures , which we account for as cost investments . gross profit declined as higher raw material , energy and freight costs more than offset increases in net sales during the period . the uncertain economic environment resulted in higher natural gas , ethylene , methanol and other commodity prices during the first nine months of the year . story_separator_special_tag our freight costs also increased , primarily due to increased rates driven by higher energy prices . late in 2008 , raw material and energy prices declined . other ( charges ) gains , net increased $ 50 million during 2008 as compared to 2007 : replace_table_token_12_th other charges increased in 2008 compared to 2007 and includes a long-lived asset impairment loss of $ 92 million in connection with the 2009 closure of our acetic acid and vam production facility in pardies , france , our vam production unit in cangrejera , mexico and the potential closure of certain other facilities . this capacity reduction was necessitated by the significant change in the global economic environment and anticipated lower customer demand . following the initial assessment of this capacity reduction , we shut down the cangrejera vam production unit in february 2009. in addition , we recognized $ 23 million of long-lived asset impairment losses and $ 13 million of employee termination benefits in 2008 related to the shutdown of our pampa , texas facility . during 2007 , we fully impaired $ 6 million of goodwill related to our pvoh business . selling , general and administrative expenses increased $ 24 million during 2008 primarily due to business optimization and finance improvement initiatives . 42 operating profit decreased due to lower gross profit and higher other charges and selling , general and administrative costs . the absence of a $ 34 million gain on the sale of our edmonton , alberta , canada facility during 2007 also contributed to lower operating profit in 2008 as compared to 2007. equity in net earnings of affiliates decreased $ 28 million during 2008 , primarily due to reduced earnings from our advanced engineered materials ' affiliates resulting from higher raw material and energy costs and decreased demand . our effective income tax rate for 2008 was 15 % compared to 25 % in 2007. the effective income tax rate decreased in 2008 due to : 1 ) a decrease in the valuation allowance , 2 ) tax credits generated on foreign jurisdictions and 3 ) the us tax impact of foreign operations . the loss from discontinued operations of $ 90 million during 2008 primarily relates to a legal settlement agreement we entered into during 2008. under the settlement agreement , we agreed to pay $ 107 million to resolve certain legacy items . because the legal proceeding related to sales by the polyester staple fibers business which hoechst ag sold to kosa , inc. in 1998 , the impact of the settlement is reflected within discontinued operations in the current period . see the polyester staple antitrust litigation section in note 24 of the consolidated financial statements . 43 selected data by business segment 2009 compared with 2008 and 2008 compared with 2007 replace_table_token_13_th 44 factors affecting business segment net sales the table below sets forth the percentage increase ( decrease ) in net sales for the years ended december 31 attributable to each of the factors indicated for the following business segments . replace_table_token_14_th ( 1 ) includes the effects of the captive insurance companies . ( 2 ) includes loss of sales related to the sale of the pvoh business on july 1 , 2009 . ( 3 ) includes net sales from the acetate products limited ( apl ) acquisition . ( 4 ) includes loss of sales related to the sale of the eva performance polymers ' ( f/k/a at plastics ) films business . summary by business segment year ended december 31 , 2009 compared with year ended december 31 , 2008 advanced engineered materials replace_table_token_15_th our advanced engineered materials segment develops , produces and supplies a broad portfolio of high performance technical polymers for application in automotive and electronics products , as well as other consumer and industrial applications . together with our strategic affiliates , we are a leading participant in the global technical polymers industry . the primary products of advanced engineered materials are polyacetal products ( pom ) , polyphenylene sulfide ( pps ) , long fiber reinforced thermoplastics ( lfrt ) , polybutylene terephthalate ( pbt ) , polyethylene terephthalate ( pet ) , gur ® and liquid crystal polymers ( lcp ) . pom , pps , lfrt , pbt and pet are used in a broad range of products including automotive components , electronics , appliances and industrial applications . gur ® is used in battery separators , conveyor belts , filtration equipment , coatings and medical devices . primary end markets for lcp are electrical and electronics . net sales decreased during 2009 compared to 2008 primarily as a result of lower sales volumes . significant weakness in the global economy experienced during the first half of the year resulted in a dramatic decline in demand for 45 automotive , electrical and electronic products as well as for other industrial products . as a result , sales volumes dropped significantly across all product lines . during the second half of 2009 , we experienced a continued increase in demand compared with the first half of the year as a result of programs like cash for clunkers in the united states during the third quarter of 2009 and a gradual recovery in the global economy during the fourth quarter of 2009. demand for the first quarter of 2010 is expected to see continued improvement due to seasonality , with production being reduced in many areas in december due to the holidays , and continued improvement in the global economy . operating profit increased in 2009 as compared to 2008. lower raw material and energy costs and decreased overall spending more than offset the decline in net sales . decreased overall spending was the result of our fixed spending reduction efforts . non-capital spending incurred on the relocation of our ticona kelsterbach plant was flat compared to 2008. for more information regarding the ticona kelsterbach plant relocation , see note 29 to the consolidated financial statements .
| as a result of the shutdown of the vinyl acetate monomer ( vam ) production unit in cangrejera , mexico , we recognized employee termination benefits of $ 1 million and long-lived asset impairment losses of $ 1 million during the year ended december 31 , 2009. the vam production unit in cangrejera , mexico is included in our acetyl intermediates segment . as a result of the project of closure at our pardies , france facility , other charges included exit costs of $ 89 million during the year ended december 31 , 2009 , which consisted of $ 60 million in employee termination benefits , $ 17 million of contract termination costs and $ 12 million of long-lived asset impairment losses . the pardies , france facility is included in the acetyl intermediates segment . due to continued declines in demand in automotive and electronic sectors , we announced plans to reduce capacity by ceasing polyester polymer production at our ticona manufacturing plant in shelby , north carolina . other charges for the year ended december 31 , 2009 included employee termination benefits of $ 2 million and long-lived asset impairment losses of $ 1 million related to this event . the shelby , north carolina facility is included in the advanced engineered materials segment . other charges for the year ended december 31 , 2009 was partially offset by $ 6 million of insurance recoveries in satisfaction of claims we made related to the unplanned outage of our clear lake , texas acetic acid facility during 2007 , a $ 9 million decrease in legal reserves for plumbing claims due to the company 's ongoing assessment of the likely outcome of the plumbing actions and the expiration of the statute of limitation . selling , general and administrative expenses decreased during 2009 primarily due to business optimization and finance improvement initiatives . operating profit decreased due to lower gross profit and higher other charges partially offset by lower selling , general and administrative costs . equity in net earnings of affiliates decreased slightly during 2009 ,
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the company 's strategy is to create , build , and manage several brands of plant and cannabinoid-based products and therapies , such as hyalolex , serosapse , natrinol , and holi hemp , among others . as part of this strategy , the company expects to secure the quantity , availability , and effective cost of its supply chain by setting up and controlling facilities that grow and extract the active ingredients for our products . in addition , we are also exploring acquisitions , investments , or the creation of joint ventures with competitive and complementary businesses , products and technologies . as market demand for hemp grows , as predicted by some analysts , we expect to sell these and other products on a retail and wholesale basis . as previously announced , our product mix is expected to include hemp/cbd-infused drinks including an energy drink ; tinctures ; full spectrum oil ; hemp distillate ; and hemp isolate , among others . further information on the company highlights in fiscal 2019 can be found in item 1 , “ fiscal 2019 highlights ” . story_separator_special_tag serif ; font-size:10pt ; margin:0pt ; text-align : left ; text-indent : infinity % ; '' > investments – investments decreased approximately by $ 5 thousand to $ 794 thousand for fiscal 2019 compared to $ 799 thousand for fiscal 2018. the decrease of approximately 1 % is attributable to sale of small portion of investment by our subsidiary to its director . impact of the sale is not material . we also impaired the value of all non-operating subsidiaries to zero in the holding company in fiscal 2019. it has no impact on the consolidated financial statement presented in the report . there was no impairment in fiscal 2018. total liabilit ies – total liabilities decreased by $ 1.9 million , or 68 % , to $ 893 thousand for fiscal 2019 compared to $ 2.79 million for fiscal 2018. the decrease was attributable to the repayment of loans of $ 1.9 million . 33 liquidity and capital resources this liquidity and capital resources discussion compares the consolidated company results for fiscal 2019 and fiscal 2018. the following table represents this ( in thousands ) . replace_table_token_2_th cash and cash equivalents cash and cash equivalents increased by almost $ 24 million to $ 25.61 million in fiscal 2019 from $ 1.66 million in fiscal 2018 , an increase of approximately 1,445 % . the increase is from funds raised in fiscal 2019 through the sale of company 's common stock in public offerings and a private placement . o perating activities net cash used for operating activities for fiscal 2019 was $ 3.3 million . cash was consumed from continuing operations , with the net loss of $ 4.1 million , non-cash items totaling $ 387 thousand , consisting of a depreciation charge of $ 59 thousand and stock-based expenses totaling $ 610 thousand . this is offset by a gain of $ 300 on the settlement of a note payable . changes in working capital accounts had a positive impact of $ 380 thousand on cash . net cash used in operating activities was $ 1.9 million for fiscal 2018. cash was consumed from continuing operations by the loss of $ 1.8 million less non-cash items totaling $ 609 thousand , consisting principally of stock-based compensation totaling $ 576 thousand and depreciation charge of $ 19 thousand . changes in working capital accounts had a negative impact of $ 754 thousand on cash . investing activities net cash used in investing activities during fiscal 2019 was $ 260 thousand which is comprised of approximately $ 45 thousand for the acquisition of the patent from the university of south florida , purchase of property , plant and equipment of $ 15 thousand and a loan for the procurement of equipment in the amount of $ 200 thousand at an interest rate of 3 percent per annum . net cash used by investing activities during fiscal 2018 was $ 657 thousand comprised of a de-consolidation adjustment of $ 456 thousand and the purchase of a patent for $ 65 thousand . financing activities net cash provided by financing activities was $ 27.6 million during fiscal 2019 , consisting of $ 29.5 million received net from the sale of common shares through the company 's public offering and private placement program , offsetting the payment of $ 1.9 million of payment of outstanding loans . net cash provided by financing activities was $ 3.7 million during fiscal 2018 , consisting of approximately $ 3.5 million received net from the sale of common shares through the company 's public offering and private placement program . 34 critical accounting policies and estimates the preparation of financial statements and related disclosures in conformity with u.s. gaap and the company 's discussion and analysis of its financial condition and operating results require the company 's management to make judgments , assumptions , and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes . we base our estimates on historical experience , as appropriate , and on various other assumptions that we believe to be reasonable under the circumstances . actual results may differ from these estimates , and such differences may be material . management believes that the following accounting policies are the most critical to understanding and evaluating our consolidated financial condition and results of operations . revenue recognition the company recognizes revenue under asc 606 , revenue from contracts with customers ( asc 606 ) . the core principle of this standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services . story_separator_special_tag asc 606 prescribes a 5-step process to achieve its core principle . the company recognizes revenue from trading , rental , or product sales as follows : i. identify the contract with the customer ii . identify the contractual performance obligations iii . determine the amount of consideration/price for the transaction iv . allocate the determined amount of consideration/price to the performance obligations v. recognize revenue when or as the performing party satisfies performance obligations . the consideration/price for the transaction ( performance obligation ( s ) ) is determined as per the agreement or invoice ( contract ) for the services and products in the infrastructure business and plant and cannabinoid business . revenue in the infrastructure business is recognized for the renting and contracting business once the obligation as per the agreement has been completed by the company . the revenue from the purchase and resale of physical infrastructure commodities is recognized once the bill of lading along with the invoice have been transferred to the customer . in the plant and cannabinoid business , the revenue from the cannabinoid-based products is recognized in holi hemp once goods have been sold to the customer and the performance obligation has been completed . while in igcare , we license our products to processors . the revenue from the cannabinoid-based products and therapies is recognized once goods have been sold to the customer by the outlets and the performance obligation is completed as per the agreement . net sales disaggregated by significant products and services for fiscal 2019 and fiscal 2018 were as follows ( in thousands ) : replace_table_token_3_th ( 1 ) rental income consists of income from rental of heavy construction equipment . ( 2 ) relates to the income from execution of construction contracts . ( 3 ) relates to the income from purchase and resale of physical commodities used in infrastructure , like steel , marble and tiles . ( 4 ) relates to revenue from plant and cannabinoid-based products and therapies such as hemp crude extract , hemp isolate , and hemp distillate . there was no revenue from hyalolex in fiscal 2019 . 35 impairment of investment the company regularly reviews its investment portfolio to determine if any security is other-than-temporarily impaired , which would require the company to record an impairment charge in the period any such determination is made . in making this determination , the company evaluates , among other things , the duration and extent to which the fair value of a security is less than its cost ; the financial condition of the issuer and any changes thereto ; and the company 's intent to sell , or whether it will more likely than not be required to sell , the security before recovery of its amortized cost basis . the company 's assessment of whether a security is other-than-temporarily impaired could change in the future due to new developments or changes in assumptions related to any particular security , which would have an adverse impact on the company 's financial condition and operating results . the estimated amount of liability is based on the information available with us with respect of bank debt and other borrowings . stock-based compensation stock-based compensation expense is measured at the grant date , based on the estimated fair value of the award . the cost is recognized as expense ratably over the employee 's requisite service period or vesting period , which is generally up to one or two years , on a straight-line basis . we account for forfeitures when they occur . equity awards issued to non-employees are recorded at their fair value on the grant date as they are immediately exercisable and not forfeitable at the date of grant . the adoption of asu 2018-07 had approximately $ 30 thousand impact on our consolidated financial statements . income taxes the company accounts for income taxes under the asset and liability method , which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements . under this method , deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized . the company has incurred net operating loss for financial-reporting and tax-reporting purposes . accordingly , for federal and state income tax purposes , the benefit for income taxes has been offset entirely by a valuation allowance against the related federal , state and foreign deferred tax assets . foreign currency translation igc operates in india , u.s. , and hong kong and a substantial portion of the company 's revenues are denominated in the indian rupee ( inr ) or the hong kong dollar ( hkd ) . as a result , changes in the relative values of the u.s. dollar ( usd ) , the inr or the hkd affect revenues and expenses . the accompanying financial statements are reported in usd . the inr and hkd are the functional currencies for certain subsidiaries of the company . the translation of the functional currencies into u.s. dollars is performed for assets and liabilities using the exchange rates in effect at the balance sheet date and for revenues and expenses using average exchange rates prevailing during the reporting periods . adjustments resulting from the translation of functional currency financial statements to reporting currency are accumulated and reported as other comprehensive income/ ( loss ) , a separate component of shareholders ' equity . transactions in currencies other than the functional currency during the year are converted into the functional currency at the applicable rates of exchange prevailing when the transactions occurred . transaction gains and losses are
| general and administrative expenses increased by approximately $ 1.8 million or 103 % to $ 3.5 million for fiscal 2019 from $ 1.7 million for the year ended march 31 , 2018. the increase in general and administrative expenses is primarily attributable to increased legal & professional fees of $ 1.1 million attributable to among others , the nyse delisting proceedings , and various lawsuits filed against the company during fiscal 2019 . 32 research and development expenses - r & d expenses which are attributed to our plant and cannabinoid business , increased approximately $ 1.1 million or 817 % , to $ 1.3 million for fiscal 2019 , compared to $ 137 thousand for fiscal 2018. these expenses relate to reformulating hyalolex , formulations for serosapse and natrinol , the preparation of fda filings , and preparation for medical trials . it also includes inventory that was shown as work in progress in fiscal 2018. other income , net – other income increased by approximately $ 545 thousand or 18,167 % during fiscal 2019. the total other income for fiscal 2019 and fiscal 2018 is approximately $ 548 thousand and $ 3 thousand , respectively . in fiscal 2019 , such amounts include income received from interest , miscellaneous rental income , and a non-recurring gain of $ 300 thousand earned by repayment of $ 1.5 million for the settlement against a $ 1.8 million note payable with bricoleur partners l.p. in fiscal 2018 , other income ( net ) consisted of $ 31 thousand interest paid for loans , $ 5 thousand interest received from cash deposits , and $ 29 thousand from other income like rent and others balance sheet ( in thousands ) accounts receivable – our accounts receivable for fiscal 2019 and fiscal 2018 amounted to $ 84 thousand and $ 558 thousand , respectively , a decrease of $ 474 thousand , approximately 85 % compared to fiscal 2018. the primary component of our accounts receivable in fiscal 2019 is the receivable from rental of heavy construction equipment . the decrease in account receivable is attributable to reclassification of one receivable to non-current assets from current assets . further information on the reclassification can be referred to in note 8 of part ii , item 8. inventory – inventory in fiscal 2019
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accordingly , we anticipate that we will need to raise additional capital prior to the commercialization of mydicar , our companion diagnostic , our small molecule program , or any of our other product candidates . until such time that we can generate meaningful revenue from product sales , if ever , we expect to finance our operating activities through public or private equity or debt financings , government or other third-party funding , marketing and distribution arrangements and other collaborations , strategic alliances and licensing arrangements or a combination of these approaches . in any event , we will require additional capital to obtain regulatory approval for , and to commercialize , our product candidates and companion diagnostic . if we are unable to obtain funding on a timely basis , we may be required to significantly curtail , delay or discontinue one or more of our research or development programs or the commercialization of any approved products or be unable to expand our operations or otherwise capitalize on our business opportunities , as desired , which could materially adversely affect our business , financial condition and results of operations . financial overview research and development expenses to date , we have devoted substantially all of our resources to research and development efforts relating to our product candidates , including conducting clinical trials , developing manufacturing capabilities , in-licensing related intellectual property , providing general and administrative support for these operations and protecting our intellectual property . we recognize research and development expenses as they are incurred . our research and development expenses consist primarily of : salaries and related overhead expenses , which include stock-based compensation and benefits for personnel in research and development functions ; fees paid to contract manufacturers for commercial scale-up activities ; fees paid to consultants and contract research organizations , or cros , including in connection with our preclinical studies and clinical trials and other related clinical trial fees , such as for investigator grants , patient screening , laboratory work , clinical trial material management and statistical compilation and analysis ; costs related to acquiring and manufacturing clinical trial materials , including continued testing such as process validation and stability of drug product ; 105 costs related to compliance with regulatory requirements ; and payments related to licensed products and technologies . from our inception through december 31 , 2014 , we have incurred approximately $ 114.7 million in research and development expenses , of which we estimate $ 108.7 million relates to our development of mydicar . we plan to increase our research and development expenses for the foreseeable future as we continue to develop mydicar for the treatment of hfref and our companion diagnostic , as well as , subject to the availability of additional funding , further advance the development of our other product candidates and mydicar for additional indications . our direct research and development expenses consist principally of external costs , such as fees paid to investigators , consultants , central laboratories and cros , in connection with our clinical trials , developing manufacturing capabilities and costs related to acquiring and manufacturing clinical trial materials . we typically use our employee and infrastructure resources across multiple research and development programs . the successful development of our clinical and preclinical product candidates and companion diagnostic is highly uncertain . at this time , we can not reasonably estimate the nature , timing or costs of the efforts that will be necessary to complete the remainder of the development of any of our clinical or preclinical product candidates or companion diagnostic or the period , if any , in which material net cash inflows from these product candidates may commence . this is due to the numerous risks and uncertainties associated with the development of our product candidates and companion diagnostic , including : the uncertainty of the scope , rate of progress and expense of our ongoing , as well as additional , clinical trials and other research and development activities ; the potential benefits of our product candidates over other therapies ; our ability to market , commercialize and achieve market acceptance for any product candidate or companion diagnostic that we are developing or may develop in the future ; ongoing and future clinical trial results ; the timing and receipt of any regulatory approvals of mydicar for hfref , and approval to initiate a clinical trial to evaluate mydicar for the treatment of avf maturation failure , an aav1 nab positive trial and a viral shedding trial ; and the filing , prosecuting , defending and enforcing of patent claims and other intellectual property rights , and the expense of doing so . a change in the outcome of any of these variables with respect to the development of a product candidate or companion diagnostic could mean a significant change in the costs and timing associated with the development of that product candidate or companion diagnostic . for example , if the fda , the ema or other foreign regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate or companion diagnostic , or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time with respect to the development of that product candidate or companion diagnostic . mydicar the majority of our research and development resources are currently focused on our ongoing cupid 2 trial , commercialization and manufacturing preparations , clinical trials and other work needed to submit mydicar for regulatory approval in the united states and europe . story_separator_special_tag we have incurred , and expect to continue to incur , significant expense in connection with these efforts , including expenses related to : the development of manufacturing capabilities for the commercial production of mydicar ; 106 conduct of our cupid 2 trial of mydicar and the enrollment and conduct of an avf trial , aav nab positive trial , viral shedding trial for patients with hfref , exploring the feasibility of plasma exchange in removing aav1 nabs in advanced heart failure patients prior to treatment with mydicar , and research and , pending outcome of cupid2 data , clinical development of mydicar for the treatment of hfpef ; and commercial scale-up , validation and automation activities related to our companion diagnostic . small molecule program our research and development expenses for our small molecule program relate primarily to identification and pre-clinical testing of small molecule serca2 enzyme modulators . stem cell factor program our research and development expenses for our stem cell factor program relate primarily to the identification of potential gene therapy applications of the membrane-bound form of the stem cell factor gene ( mscf ) . general and administrative expenses general and administrative expenses consist primarily of salaries and related costs for employees in executive , legal , finance and administration , corporate development and administrative support functions , including stock-based compensation expenses and benefits . other significant general and administrative expenses include accounting and legal services , expenses associated with obtaining and maintaining patents , the cost of various consultants , occupancy costs and information systems costs . other income ( expense ) other expense consists primarily of the accretion of debt discount and interest charges on our current and prior debt agreements and the change in the fair value of our outstanding warrant liability prior to its reclassification to stockholders ' equity in february 2014 in connection with the closing of our initial public offering . other income consists primarily of interest income earned on our cash , cash equivalents and investments . critical accounting policies and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which we have prepared in accordance with generally accepted accounting principles in the united states , or gaap . the preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our consolidated financial statements , as well as the reported expenses during the reported periods . we evaluate these estimates and judgments on an ongoing basis . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 1 to our consolidated financial statements appearing elsewhere in this annual report , we believe that the following accounting policies related to clinical trial expenses and valuation of stock-based compensation are the most critical for fully understanding and evaluating our financial condition and results of operations . 107 clinical trial accruals as part of the process of preparing our consolidated financial statements , we are required to estimate our expenses resulting from our obligations under contracts with vendors and consultants and clinical site agreements in connection with conducting clinical trials . the financial terms of these contracts are subject to negotiations which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts . our clinical trial accrual is dependent upon the timely and accurate reporting of cros and other third-party vendors . our objective is to reflect the appropriate clinical trial expenses in our consolidated financial statements by matching those expenses with the period in which services and efforts are expended . we account for these expenses according to the progress of the trial as measured by patient progression and the timing of various aspects of the trial . we determine accrual estimates through discussion with applicable personnel and outside service providers as to the progress or state of completion of clinical trials , or the services completed . during the course of a clinical trial , we adjust the rate of clinical trial expense recognition if actual results differ from the estimates . we make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known at that time . although we do not expect that our estimates will be materially different from amounts actually incurred , our understanding of status and timing of services performed relative to the actual status and timing of services performed may vary and may result in our reporting amounts that are too high or too low for any particular period . through december 31 , 2014 , there had been no material adjustments to our prior period estimates of accrued expenses for clinical trials . however , due to the nature of estimates , we can not assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical trials . stock-based compensation compensation expense for stock-based payment awards made to our employees and directors , including employee stock options and employee stock purchases related to the employee stock purchase plan ( espp ) , represents the grant date fair value of the awards recognized over the requisite service period ( usually the vesting period ) on a straight-line basis , net of estimated forfeitures .
| we expect that our general and administrative expenses will increase as we continue to operate as a public company , including costs to comply with corporate governance and internal controls , and as we add personnel to support product commercialization efforts . other expense . other expense was $ 0.8 million and $ 0.1 million for the years ended december 31 , 2014 and 2013 , respectively . the other expense for the year ended december 31 , 2014 consisted primarily of $ 0.7 million of expense related to the accretion of debt discount and interest charges on our term loan , $ 0.2 million increase in fair value of the warrant liability prior to reclassification to equity upon our initial public offering and $ 29,000 foreign currency exchange loss offset by $ 0.1 million in interest income on our investments . the other expense for the year ended december 31 , 2013 consisted primarily of $ 0.2 million of other expense related to an increase in the fair value of the outstanding warrant liability and $ 45,000 of interest expense related to the amortization of debt discount on the outstanding convertible debt , offset by $ 0.1 million of interest income on our investments and $ 25,000 foreign currency exchange gain . comparison of the years ended december 31 , 2013 and 2012 the following table summarizes our results of operations for the years ended december 31 , 2013 and 2012 ( in thousands ) : replace_table_token_6_th 110 research and development expenses . research and development expenses were $ 16.9 million and $ 13.3 million for the years ended december 31 , 2013 and 2012 , respectively . the increase of approximately $ 3.6 million was due primarily to an increase of $ 4.5 million in expenses during 2013 associated with the increase in enrollment of patients in our cupid 2 clinical trial , $ 0.8 million associated with the transfer of our manufacturing process to lonza and $ 1.5 million in compensation related to an increase in headcount and stock-based compensation , offset by a charge of $ 3.2 million which
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we develop “ customer intimacy ” by utilizing the standex growth disciplines to partner with our customers in order to develop and deliver custom solutions or engineered components . by partnering with our customers during long-term product development cycles , we become an extension of their development teams . through this partner , solve , deliver® methodology , we are able to secure our position as a preferred long-term solution provider for our products and components . this strategy results in increased sales and operating margins that enhance shareholder returns . standex operational excellence drives continuous improvement in the efficiency of our businesses , both on the shop floor and in the office environment . we recognize that our businesses are competing in a global economy that requires us to improve our competitive position . we have deployed a number of management competencies to drive improvements in the cost structure of our business units including operational excellence through lean enterprise , the use of low cost manufacturing facilities , the consolidation of manufacturing facilities to achieve economies of scale and leveraging of fixed infrastructure costs , alternate sourcing to achieve procurement cost reductions , and capital improvements to increase productivity . the company 's strong historical cash flow has been a cornerstone for funding our capital allocation strategy . we use cash flow generated from operations to fund the strategic growth programs described above , including acquisitions and investments for organic growth , investments in capital assets to improve productivity and lower costs and to return cash to our shareholders through payment of dividends and stock buybacks . restructuring expenses reflect costs associated with the company 's efforts of continuously improving operational efficiency and expanding globally in order to remain competitive in the end-user markets we serve . we incur costs for actions to size our businesses to a level appropriate for current economic conditions , improve our cost structure , enhance our competitive position and increase operating margins . such expenses include costs for moving facilities to locations that allow for lower fixed and variable costs , external consultants who provide additional expertise , starting up plants after relocation , downsizing operations because of changing economic conditions , and other costs resulting from asset redeployment decisions . shutdown costs include severance , benefits , stay bonuses , lease and contract terminations , asset write-downs , costs of moving fixed assets , and moving and relocation costs . vacant facility costs include maintenance , utilities , property taxes and other costs . 19 because of the diversity of the company 's businesses , end user markets and geographic locations , management does not use specific external indices to predict the future performance of the company , other than general information about broad macroeconomic trends . each of our individual business units serves niche markets and attempts to identify trends other than general business and economic conditions which are specific to its business and which could impact their performance . those units report pertinent information to senior management , which uses it to the extent relevant to assess the future performance of the company . a description of any such material trends is described below in the applicable segment analysis . we monitor a number of key performance indicators ( “ kpis ” ) including net sales , income from operations , backlog , effective income tax rate , gross profit margin , and operating cash flow . a discussion of these kpis is included below . we may also supplement the discussion of these kpis by identifying the impact of foreign exchange rates , acquisitions , and other significant items when they have a material impact on a specific kpi . we believe the discussion of these items provides enhanced information to investors by disclosing their impact on the overall trend which provides a clearer comparative view of the kpi , as applicable . for discussion of the impact of foreign exchange rates on kpis , the company calculates the impact as the difference between the current period kpi calculated at the current period exchange rate as compared to the kpi calculated at the historical exchange rate for the prior period . for discussion of the impact of acquisitions , we isolate the effect on the kpi amount that would have existed regardless of our acquisition . sales resulting from synergies between the acquisition and existing operations of the company are considered organic growth for the purposes of our discussion . unless otherwise noted , references to years are to fiscal years . consolidated results from continuing operations ( in thousands ) : replace_table_token_5_th net sales for the fiscal year 2018 increased by $ 113.1 million , or 15.0 % , when compared to the prior year . incremental sales increases from our recent acquisitions accounted for $ 59.9 million or 7.9 % , while increased organic sales accounted for $ 38.9 million or 5.1 % . we also recognized sales growth of $ 14.4 million or 1.9 % related to favorable foreign exchange impacts . the organic sales increases occurred in all of our segments except engineering technologies . net sales for the fiscal year 2017 increased by $ 3.7 million , or 0.5 % , when compared to the prior year . incremental sales increases of $ 38.5 million from acquisitions were partially offset by organic sales declines of $ 11.2 million , or 1.5 % , the impact of $ 17.4 million , or 2.3 % , from the divestiture of the rpm business , and an unfavorable impact of $ 6.2 million , or 0.8 % , due to the effect of exchanges rates . the organic sales decrease was primarily driven by lower sales in the refrigeration and cooking solutions business units within the food service equipment segment . gross profit margin during 2018 , gross margin increased to 34.8 % as compared to 33.5 % in 2017. gross margin increases during fiscal year 2018 were primarily driven by the leverage on our 5.1 % organic sales increase . story_separator_special_tag the effects of purchase accounting reduced our gross margins by 40 basis points in the prior year . 20 during 2017 , gross margin remained essentially flat at 33.5 % as compared to 33.6 % in 2016. excluding the effects of purchase accounting in both years , our gross margins increased 29 basis points compared to prior year . during fiscal year 2017 , we incurred $ 3.1 million of purchase accounting charges related to the standex electronics japan and horizon scientific acquisitions as compared to charges of $ 0.4 million in the prior year for the northlake acquisition . restructuring charges and acquisition related expenses during fiscal year 2018 , we incurred restructuring expenses of $ 7.6 million primarily related to restructuring efforts that are intended to improve profitability , streamline production and enhance capacity to support future growth . these efforts include ( i ) approximately $ 4.1 million related to headcount reduction and plant realignment regarding the standard products businesses within food service equipment ; ( ii ) approximately $ 1.2 million in relation to the exit of an unprofitable engraving business in brazil ; and ( iii ) approximately $ 1.1 million due to footprint optimization in the engineering technologies segment . acquisition related expenses in fiscal year 2018 were $ 3.8 million . these expenses were comprised primarily of $ 2.8 million for deferred compensation earned by the horizon scientific seller during the year . since these payments are contingent on the seller remaining an employee of the company , they are treated as compensation expense . other acquisition related expenses related to standex electronics japan and piazza rosa . acquisition related expenses were approximately $ 4.0 million more in fiscal year 2017 due to the timing of the standex electronics japan acquisition . selling , general , and administrative expenses selling , general , and administrative expenses , ( “ sg & a ” ) for the fiscal year 2018 were $ 206.4 million , or 23.8 % of sales compared to $ 174.1 million , or 23.0 % of sales during the prior year . sg & a expenses were impacted by : ( i ) on-going sg & a expenses related to our recent acquisitions of $ 7.8 million , ( ii ) an increase in distribution and selling expenses of $ 9.4 million , ( iii ) an increase in administrative expenses related to investments to support our recent acquisitions and growth laneways and ( iv ) a $ 3.1 million increase in administrative compensation costs due to improved performance . selling , general , and administrative expenses , ( “ sg & a ” ) for the fiscal year 2017 were $ 174.1 million , or 23.0 % , of sales compared to $ 170.2 million , or 22.6 % , of sales during the prior year . the increase in sg & a was primarily due to $ 5.6 million and $ 2.6 million related to the horizon scientific and standex electronics japan businesses , respectively , which were not in prior year . these increases were partially offset by declines of $ 2.5 million from the divestiture of the rpm business , lower administrative compensation costs of $ 2.0 million , and lower variable expenses including commission and distribution costs . income from operations income from operations for the fiscal year 2018 was $ 84.0 million , compared to $ 65.0 million during the prior year . the $ 19.0 million dollar increase , or 29.2 % , is primarily due to increased sales volume , including 5.1 % organic sales growth and 7.9 % growth attributed to our recent acquisitions . the increase in operating income is also partially due to the reduction in acquisition related expenses of $ 4.1 million as compared to the prior year . income from operations for the fiscal year 2017 was $ 65.0 million , compared to $ 70.3 million during the prior year . the decrease of $ 5.5 million was primarily due to acquisition related costs of $ 7.8 million , an increase in restructuring costs of $ 1.6 million , and overall organic sales volume declines . these decreases were partially offset by the positive performance of our horizon scientific and standex electronic japan acquisitions . discussion of the performance of each of our reportable segments is fully explained in the segment analysis that follows . interest expense interest expense for fiscal year 2018 was $ 8.0 million , an increase from $ 4.0 million in fiscal year 2017. the increase is due to higher borrowings associated with the recent acquisitions , in addition to working capital increases to support increased sales activity . our effective interest rate of 3.29 % as of june 30 , 2018 , increased 150 basis points as compared to 2.24 % as of june 30 , 2017. in addition , we incurred $ 0.9 million of charges associated with derivative activity related to the standex electronics japan acquisition . interest expense for the fiscal year 2017 was $ 4.0 million , an increase of $ 1.2 million as compared to the prior year . interest expense increases were due to higher borrowing costs and an increase in outstanding borrowings , primarily to fund acquisition activity . 21 story_separator_special_tag impact on margins in fiscal year 2018. our focus in fiscal year 2019 is to continue to grow our differentiated products businesses and realize the savings from the operational improvements implemented this year in the standard products businesses . income from operations for fiscal year 2017 decreased $ 6.7 million , or 16.7 % , when compared to the prior year , and operating income margin decreased from 10.5 % to 8.8 % . fiscal year results were primarily impacted by sales declines in the refrigeration solutions group due to the factors discussed above . 23 engraving replace_table_token_8_th net sales for fiscal year 2018 increased by $ 30.3 million or 28.6 % , compared to the prior year with an organic growth rate of 10.2 % . the piazza rosa group acquisition contributed $ 13.2 million or 12.5 % .
| we recorded a $ 7.8 million tax provision related to the anticipated foreign withholding taxes and state taxes on future cash repatriation during the fourth quarter of 2018. the company 's income tax provision from continuing operations for the fiscal year ended june 30 , 2018 was $ 40.6 million , or an effective rate of 52.6 % compared to $ 15.4 million , or an effective rate of 24.8 % for the year ended june 30 , 2017 , and $ 16.3 million , or an effective rate of 23.8 % for the year ended june 30 , 2016. changes in the effective tax rates from period to period may be significant as they depend on many factors including , but not limited to , the amount of the company 's income or loss , the mix of income earned in the us versus outside the us , the effective tax rate in each of the countries in which we earn income , and any one-time tax issues which occur during the period . capital expenditures during 2018 , capital expenditures increased to $ 26.5 million or 3.1 % of net sales , as compared to $ 26.4 million , or 3.5 % , of net sales in the prior year . capital spending is focused on growth initiatives , cost reduction , and upgrades to extend the capabilities of our capital assets . in general , we anticipate our capital expenditures over the long term will be approximately 3 % to 4 % of net sales . we expect 2019 capital spending to be approximately $ 36.0 million which includes $ 5.0 million allocated for a new standex electronics facility in cincinnati , which replaces a legacy facility sold for $ 1.4 million in the third quarter of fiscal year 2018. backlog backlog includes all active or open orders for goods and services . backlog also includes any future deliveries based on executed customer contracts , so long as such deliveries are based on agreed upon delivery schedules . backlog is not generally a significant factor in the company 's businesses because of our relatively short delivery periods and rapid inventory turnover with the exception of engineering technologies . backlog orders are not necessarily an indicator of future sales levels because of variations in lead times and customer production demand pull systems . customers may delay delivery of products or cancel orders prior to shipment , subject to possible cancellation penalties . due to
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in january 2020 , we received fda fast track designation for the acclaim-1 patient population . acclaim-2 is a phase 1/2 clinical trial using a combination of reqorsa with merck & co. 's keytruda® in late-stage nsclc patients who are low expressors ( 1 % to 49 % ) of the pd-l1 . in diabetes , we are developing a gene therapy that is exclusively licensed from the university of pittsburgh of the commonwealth system of higher education ( `` university of pittsburgh '' ) for the treatment of type 1 and type 2 diabetes . this potential treatment is designed to work by transforming alpha cells in the pancreas into functional beta-like cells , which can produce insulin but are distinct enough from beta cells to evade the body 's immune system . our diabetes product candidate is currently being evaluated in preclinical studies . oncology platform utilizing our non-viral oncoprex nanoparticle delivery system , we are developing cancer treatments that are designed to administer cancer fighting genes . we encapsulate the gene-expressing plasmids using oncoprex lipid nanoparticles , and administer them intravenously , where they are then taken up by tumor cells and express proteins that are missing or found in low quantities in the tumor cells . with our lead drug candidate , reqorsa , there is a multimodal mechanism of action whereby reqorsa interrupts cell signaling pathways that cause replication and proliferation of cancer cells , re-establishes pathways for apoptosis , or programmed cell death , in cancer cells , and modulates the immune response against cancer cells . reqorsa has also been shown to block mechanisms that create drug resistance . we believe that our oncoprex nanoparticle delivery system could allow delivery of a number of cancer-fighting genes , alone or in combination with other cancer therapies , to combat multiple types of cancer . we believe that reqorsa 's combination of pan-kinase inhibition , direct induction of apoptosis , anti-cancer immune modulation and complementary action with targeted drugs and immunotherapies is unique , and positions reqorsa to provide treatment for patients with nsclc and possibly other cancers , who are not benefitting from current therapies . 88 diabetes gene therapy our diabetes gene therapy , also referred to as gpx-002 , was developed by lead researcher dr. george gittes , at the rangos research center at the upmc children 's hospital . this potential treatment is designed to work by transforming alpha cells in the pancreas into functional beta-like cells , which can produce insulin but are distinct enough from beta cells to evade the body 's immune system . the therapy utilizes a procedure in which an adeno-associated virus vector delivers pdx1 and mafa genes to the pancreas . jobs act on april 5 , 2012 , the jobs act was enacted . section 107 of the jobs act provides that an “ emerging growth company ” can take advantage of the extended transition period provided in section 7 ( a ) ( 2 ) ( b ) of the securities act for complying with new or revised accounting standards . in other words , an “ emerging growth company ” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . although we are an emerging growth company , we have irrevocably elected not to avail ourselves of this extended transition period and , as a result , we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies . we have implemented all new accounting pronouncements that are in effect and may affect our financial statements , and we do not believe that there are any other new accounting pronouncements that have been issued that would have a material impact on our financial position or results of operations . notwithstanding the foregoing , subject to certain conditions set forth in the jobs act , as an “ emerging growth company , ” we intend to rely on certain exemptions , including , without limitation , the exemption from the requirements ( i ) to provide an auditor 's attestation report on our system of internal controls over financial reporting pursuant to section 404 ( b ) of the sarbanes-oxley act , and ( ii ) to comply with any requirement that may be adopted by the public company accounting oversight board regarding mandatory audit firm rotation or a supplement to the auditor 's report providing additional information about the audit and the financial statements , known as the auditor discussion and analysis . we will remain an “ emerging growth company ” until the earliest of ( i ) the last day of the fiscal year in which we have total annual gross revenues of $ 1.07 billion or more ; ( ii ) the last day of our fiscal year following the fifth anniversary of the date of our initial public offering ; ( iii ) the date on which we have issued more than $ 1.0 billion in nonconvertible debt during the previous three years ; or ( iv ) the date on which we are deemed to be a large accelerated filer under the rules of the sec . recently issued accounting pronouncements a description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in note 2 to our financial statements appearing in this annual report on form 10-k. 89 critical accounting policies and significant judgments and estimates our financial statements have been prepared in accordance with generally accepted accounting principles in the united states ( `` gaap '' ) . story_separator_special_tag the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported expenses incurred during the reporting periods . our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results , and they require our most difficult , subjective or complex judgments , resulting from the need to make estimates about the effect of matters that are inherently uncertain . research and development costs we record accrued expenses for costs invoiced from research and development activities conducted on our behalf by third-party service providers , which include the conduct of preclinical studies and clinical trials and use of contract research and manufacturing activities . we record the costs of research and development activities based upon the amount of services provided , and we include these costs in accrued liabilities in the balance sheets and within research and development expense in the statements of operations . these costs are a significant component of our research and development expenses . purchased materials to be used in future research are capitalized and included in research and development supplies . we estimate the amount of work completed through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services . we make significant judgments and estimates in determining the accrued balance in each reporting period . as actual costs become known , we adjust our accrued estimates . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed , the number of patients enrolled and the rate of patient enrollment in any of our clinical trials may vary from our estimates and could result in our reporting amounts that are too high or too low in any particular period . our accrued expenses are dependent , in part , upon the receipt of timely and accurate reporting from cros and other third-party service providers . to date , there have been no material differences from our accrued expenses to actual expenses . income taxes deferred tax assets or liabilities are recorded for temporary differences between financial statement and tax basis of assets and liabilities , using applicable rates in effect for the year in which the differences are expected to reverse . a valuation allowance is recorded if it is more likely than not that a deferred tax asset will not be realized . we have provided a full valuation allowance on our deferred tax assets , which primarily consist of cumulative net operating losses from april 1 , 2009 ( inception ) to december 31 , 2020 . due to our history of operating losses since inception and losses expected to be incurred in the foreseeable future , a full valuation allowance was considered necessary . impairment of long-lived assets management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be realizable or at a minimum annually during the fourth quarter of the year . if an evaluation is required , the estimated future undiscounted cash flows associated with the asset are compared to the asset 's carrying value to determine if an impairment of such asset is necessary . the effect of any impairment would be to expense the difference between the fair value of such asset and its carrying value . off-balance sheet arrangements as of december 31 , 2020 and 2019 , we did not have any off-balance sheet arrangements as defined in item 303 ( a ) ( 4 ) ( ii ) of regulation s-k or any commitments or contractual obligations . 90 components of our results of operations and financial condition operating expenses we classify our operating expenses into three categories : research and development , general and administrative , and depreciation . research and development . research and development expenses consist primarily of : costs incurred to conduct research , such as the discovery and development of our current and potential product candidates ; costs related to production and storage of clinical supplies , including fees paid to contract manufacturers , manufacturing consultants , and cold-storage facilities ; fees paid to clinical consultants , clinical trial sites and vendors , including cros in conjunction with implementing and monitoring our clinical trials and acquiring and evaluating clinical trial data , including all related fees , such as patient screening fees , laboratory work , and statistical compilation and analysis ; costs related to compliance with drug development regulatory requirements ; costs related to staffing and personnel associated with research and development activities , including wages , taxes , benefits , leases , overheads , supplies , and share-based compensation . we recognize all research and development costs as they are incurred . clinical trial costs , contract manufacturing and other development costs incurred by third parties are expensed as the contracted work is performed . we expect our research and development expenses to increase in the future as we advance our current and potential product candidates into and through clinical trials , as we pursue regulatory approval of our current and potential product candidates in the united states and europe , and as we expand our research programs to include new therapies and new therapy combinations . the process of
| notwithstanding these expenses , some g & a expenses decreased for the year ended december 31 , 2020 due to reclassification of expenses associated with r & d personnel to more accurately reflect expenses associated with their job function as well as reduced travel and office expenses as the result of travel restrictions and social distancing guidelines put in place as a result of the covid-19 pandemic . interest income . interest income was $ 18,811 and $ 27,905 for the years ended december 31 , 2020 and 2019 , respectively . this decrease of $ 9,094 , or 33 % % , was due to changes in balances and a significant drop in interest rates of our money market instruments for the year ended december 31 , 2020 as opposed to the prior year . interest expense . there was no interest expense for the years ended december 31 , 2020 and 2019 because we satisfied all debt obligations and repaid all short-term loans prior to 2019. as of december 31 , 2020 , we had no outstanding debt . depreciation expense . depreciation expense was $ 22,777 and $ 13,070 for the years ended december 31 , 2020 and 2019 , respectively . the increase of $ 9,707 , or 74 % , in depreciation was driven by increased purchase of equipment for use by employees and manufacturing partners for research activities in the year ended in december 31 , 2020 . 92 liquidity and capital resources from inception through december 31 , 2020 , we have never generated revenue from product sales and have incurred net losses in each year . as of december 31 , 2020 , we had an accumulated deficit of $ 58,422,229 . we have funded our operations primarily through the sale and issuance of capital stock . during 2019 , we sold 3,167,986 shares of common stock and warrants to purchase 3,167,986 shares of common stock for total net proceeds of $ 1,178,491 pursuant to a registered direct offering . for the year ended december 31 , 2020 , we sold an aggregate of 16,697,884 shares of common stock for total net proceeds of $ 34,493,423 pursuant to
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perhaps most significantly , prior to 2008 , the massachusetts commissioner of insurance fixed and established the premium rates and the rating plan to be used by all insurance companies doing business in the private passenger automobile insurance market and the massachusetts private passenger automobile insurance residual market mechanism featured a reinsurance program run by car in which companies were assigned producers . in 2008 , the commissioner issued a series of decisions to introduce what she termed `` managed competition '' to massachusetts automobile insurance premium rates and in doing so replaced the fixed and established regime with a prior approval rate review process , governed by regulations that set certain terms and conditions that insurers must comply with in establishing their rates . the commissioner also replaced the former reinsurance program with an assigned risk plan . these decisions removed many of the factors that had historically distinguished the massachusetts private passenger automobile insurance market from the market in other states . however , certain of the historically unique factors have not been eliminated , including compulsory insurance , affinity group marketing , and the prominence of independent agents . car runs a reinsurance pool for commercial automobile policies and , beginning january 1 , 2006 , car implemented a limited servicing carrier program ( `` lsc '' ) for ceded commercial automobile policies . car approved safety insurance and five other servicing carriers through a request for proposal to process ceded commercial automobile business , which was spread equitably among the six servicing carriers . in 2010 car reduced the number of servicing carriers to four , and car has approved safety insurance and three other servicing carriers effective july 1 , 2011 to continue the program . subject to the commissioner 's review , car sets the premium rates for commercial automobile policies reinsured through car and this reinsurance pool can generate an underwriting result that is a profit or deficit based upon car 's rate level . this underwriting result is allocated among every massachusetts commercial automobile insurance company , including us , based on a company 's commercial automobile voluntary market share . car also runs a reinsurance pool for taxi , limousine and car service risks ( the `` taxi/limo program '' ) . on april 25 , 2007 , safety insurance submitted through a request for proposal a bid to process a portion of the taxi/limo program . car approved safety insurance as one of the two servicing carriers for this program beginning january 1 , 2008 , and car has again approved safety insurance beginning january 1 , 2011 as one of the two servicing carriers . during 2011 , we increased our rates approximately 3.7 % , and on march 1 , 2012 , we began using 17 rating tiers which resulted in a rate increase of 0.7 % . our rates include a 13.0 % commission rate for agents . our direct automobile written premiums increased by 5.5 % in 2011 with increased exposures and average written premium per exposure in our private passenger and commercial automobile lines of business . statutory accounting principles our results are reported in accordance with gaap , which differ from amounts reported in accordance with statutory accounting principles ( `` sap '' ) as prescribed by insurance regulatory authorities , which in general reflect a liquidating , rather than going concern concept of accounting . specifically , under gaap : policy acquisition costs such as commissions , premium taxes and other variable costs incurred in connection with writing new and renewal business are capitalized and amortized on a pro rata basis over the period in which the related premiums are earned , rather than expensed as incurred , as required by sap . certain assets are included in the consolidated balance sheets whereas , under sap , such assets are designated as `` nonadmitted assets , '' and charged directly against statutory surplus . these 40 assets consist primarily of premium receivables that are outstanding over ninety days , federal deferred tax assets in excess of statutory limitations , furniture , equipment , leasehold improvements and prepaid expenses . amounts related to ceded reinsurance are shown gross of ceded unearned premiums and reinsurance recoverables , rather than netted against unearned premium reserves and loss and loss adjustment expense reserves , respectively , as required by sap . fixed maturities securities , which are classified as available-for-sale , are reported at current fair values , rather than at amortized cost , or the lower of amortized cost or market , depending on the specific type of security , as required by sap . the differing treatment of income and expense items results in a corresponding difference in federal income tax expense . changes in deferred income taxes are reflected as an item of income tax benefit or expense , rather than recorded directly to surplus as regards policyholders , as required by sap . admittance testing may result in a charge to unassigned surplus for non-admitted portions of deferred tax assets . under gaap reporting , a valuation allowance may be recorded against the deferred tax asset and reflected as an expense . insurance ratios the property and casualty insurance industry uses the combined ratio as a measure of underwriting profitability . the combined ratio is the sum of the loss ratio ( losses and loss adjustment expenses incurred as a percent of net earned premiums ) plus the expense ratio ( underwriting and other expenses as a percent of net earned premiums , calculated on a gaap basis ) . the combined ratio reflects only underwriting results and does not include income from investments or finance and other service income . underwriting profitability is subject to significant fluctuations due to competition , catastrophic events , weather , economic and social conditions , and other factors . our gaap insurance ratios are presented in the following table for the periods indicated . story_separator_special_tag replace_table_token_17_th stock-based compensation on june 25 , 2002 , the board of directors of the company ( the `` board '' ) adopted the 2002 management omnibus incentive plan ( the `` incentive plan '' ) . the incentive plan provides for a variety of awards , including nonqualified stock options ( `` nqsos '' ) , stock appreciation rights and restricted stock ( `` rs '' ) awards . on march 10 , 2006 , the board approved amendments to the incentive plan , subject to shareholder approval , to ( i ) increase the number of shares of common stock available for issuance by 1,250,000 shares , ( ii ) remove obsolete provisions , and ( iii ) make other non-material changes . a total of 1,250,000 shares of common stock had previously been authorized for issuance under the incentive plan . the incentive plan , as amended , was approved by the shareholders at the 2006 annual meeting of shareholders which was held on may 19 , 2006. under the incentive plan , as amended , the maximum number of shares of common stock with respect to which awards may be granted is 2,500,000. as of december 31 , 2011 , there were 718,859 shares available for future grant . the board and the compensation committee intend to issue more awards under the incentive plan in the future . grants 41 outstanding under the incentive plan as of december 31 , 2011 , were comprised of 254,117 restricted shares and 125,700 nonqualified stock options . grants made under the incentive plan during the years 2007 through 2011 are as follows : replace_table_token_18_th ( 1 ) the fair value per share of the restricted stock grant is equal to the closing price of the company 's common stock on the grant date . ( 2 ) the shares can not be sold , assigned , pledged , or otherwise transferred , encumbered or disposed of until the recipient is no longer a member of the board of directors . reinsurance we reinsure with other insurance companies a portion of our potential liability under the policies we have underwritten , thereby protecting us against an unexpectedly large loss or a catastrophic occurrence that could produce large losses , primarily in our homeowners line of business . we use various software products to measure our exposure to catastrophe losses and the probable maximum loss to us for catastrophe losses such as hurricanes . the models include estimates for our share of the catastrophe losses generated in the residual market for property insurance by the massachusetts property insurance underwriting association ( `` fair plan '' ) . the reinsurance market has seen from the various software modelers , increases in the estimate of damage from hurricanes in the southern and northeast portions of the united states due to revised estimations of increased hurricane activity and increases in the estimation of demand surge in the periods following a significant event . we continue to manage and model our exposure and adjust our reinsurance programs as a result of the changes to the models . as of january 1 , 2012 , we have purchased four layers of excess catastrophe reinsurance providing $ 485,000 of coverage for property losses in excess of $ 50,000 up to a maximum of $ 535,000. our reinsurers co-participation is 50.0 % of $ 30,000 for the 1st layer , 80.0 % of $ 90,000 for the 2nd layer , 80.0 % of $ 200,000 for the 3rd layer , and 80.0 % of $ 165,000 for the 4th layer . as a result of the changes to the models , and our revised reinsurance program , our catastrophe reinsurance in 2012 protects us in the event of a `` 140-year storm '' ( that is , a storm of a severity expected to occur once in a 140-year period ) . swiss re , our primary reinsurer , maintains an a.m. best rating of `` a '' ( excellent ) . most of our other reinsurers have an a.m. best rating of `` a '' ( excellent ) however in no case is a reinsurer rated below `` a- '' ( excellent ) . our losses from the individual catastrophe events of 2011 were less than our reinsurance retention . 42 we are a participant in car , a state-established body that runs the residual market reinsurance programs for both private passenger and commercial automobile insurance in massachusetts under which premiums , expenses , losses and loss adjustment expenses on ceded business are shared by all insurers writing automobile insurance in massachusetts . we also participate in the fair plan in which premiums , expenses , losses and loss adjustment expenses on homeowners business that can not be placed in the voluntary market are shared by all insurers writing homeowners insurance in massachusetts . the fair plan has grown dramatically over the past few years as insurance carriers have reduced their exposure to coastal property . the fair plan 's exposure to catastrophe losses increased and as a result , the fair plan decided to buy reinsurance to reduce their exposure to catastrophe losses . on july 1 , 2011 , the fair plan purchased $ 1,000,000 of catastrophe reinsurance for property losses in excess of $ 200,000. at december 31 , 2011 , we had no material amounts recoverable from any reinsurer , excluding $ 44,850 recoverable from car . on march 10 , 2005 , our board of directors adopted a resolution that prohibits safety from purchasing finite reinsurance ( reinsurance that transfers only a finite or limited amount of risk to the reinsurer ) without approval by the board . to date , the company has never purchased a finite reinsurance contract . effects of inflation we do not believe that inflation has had a material effect on our consolidated results of operations , except insofar as inflation may affect interest rates .
| net investment income for the year ended december 31 , 2011 decreased by $ 2,335 , or 5.6 % to $ 39,060 from $ 41,395 for the comparable 2010 period . the 2011 decrease primarily resulted from lower short-term interest rates and ongoing maintenance of short duration to protect the portfolio from rising interest rates . net effective annual yield on the investment portfolio decreased to 3.6 % for the year ended december 31 , 2011 from 3.9 % for the comparable 2010 period . our duration was 3.7 years at december 31 , 2011 , up from 3.4 years at december 31 , 2010. net realized gains on investments . net realized gains on investments were $ 4,360 for the year ended december 31 , 2011 compared to $ 863 for the comparable 2010 period . 44 the gross unrealized gains and losses on investments in fixed maturity securities , equity securities , including interests in mutual funds , and other invested assets were as follows : replace_table_token_21_th ( 1 ) residential mortgage-backed securities consists of obligations of u.s. government agencies including collateralized mortgage obligations issued , guaranteed and or insured by the following issuers : government national mortgage association ( gnma ) , federal home loan mortgage corporation ( fhlmc ) , federal national mortgage association ( fnma ) and the federal home loan bank ( fhlb ) . ( 2 ) other asset-backed securities includes obligations of the u.s. small business administration which totaled $ 6,054 at amortized cost and $ 6,584 at estimated fair value at december 31 , 2011 . ( 3 ) equity securities includes interests in mutual funds of $ 12,937 at cost and $ 12,564 at fair value as of december 31 , 2011 held to fund the company 's executive deferred compensation plan . ( 4 ) our investment portfolio included 55 securities in an unrealized loss position at december 31 , 2011 . ( 5 ) amounts in this column represent other-than-temporary impairment ( `` otti '' ) recognized in accumulated other comprehensive income . the composition of our fixed income security portfolio by moody 's rating was as follows : replace_table_token_22_th 45 as of december 31 , 2011 , our
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we were incorporated and commenced operations in 2014. since our incorporation , we have devoted substantially all of our resources to developing our clinical and preclinical candidates , building our intellectual property portfolio and process development and manufacturing function , business planning , raising capital and providing general and administrative support for these operations . to date , we have financed our operations primarily with proceeds from sales of common and convertible preferred stock to our equity investors and borrowings under a loan and security agreement , as amended , with a financial institution . through december 31 , 2018 , we received gross proceeds of $ 172.0 million from sales of convertible preferred stock and borrowings under our loan and security agreement . on may 11 , 2018 , we completed our initial public offering , or the ipo , of 5,312,500 shares of our common stock at a public offering price of $ 16.00 per share . the shares began trading on the nasdaq global select market on may 9 , 2018 under the symbol `` evlo . '' the gross proceeds from the ipo were $ 85.0 million and the net proceeds were approximately $ 75.8 million , after deducting underwriting discounts and commissions and other estimated offering expenses payable by us . upon the closing of the ipo all of the company 's outstanding shares of convertible preferred stock automatically converted into 22,386,677 shares of common stock at the applicable conversion rate then in effect . on april 27 , 2018 , we effected a 1-for-4.079 reverse stock split of our common stock . stockholders entitled to fractional shares as a result of the reverse stock split received a cash payment in lieu of receiving fractional shares . these cash payments were not material . all share and per share amounts in the consolidated financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to this reverse stock split . the financial statements have also been retroactively adjusted to reflect adjustments to the conversion ratio for each series of convertible preferred stock effected in connection with the reverse stock split . we are a development stage company and have not generated any revenue . all of our product candidates are in early clinical or preclinical development . our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates . since our inception , we have incurred significant operating losses and we continue to incur significant research and development and other expenses related to our ongoing operations . for the years ended december 31 , 2018 , 2017 and 2016 , our net loss was $ 56.9 million , $ 28.0 million and $ 13.3 million , respectively . as of december 31 , 2018 , we had an accumulated deficit of $ 113.4 million . we do not expect to generate revenue from sales of any products for the foreseeable future , if at all . we expect that our expenses will increase substantially in connection with our ongoing activities , particularly as we : continue the ongoing proof of concept trials for edp1066 , edp1815 and edp1503 ; potentially initiate additional clinical trials for edp1066 , edp1815 and edp1503 ; initiate or advance the clinical development of any additional monoclonal microbial product candidates ; conduct research and continue preclinical development of potential product candidates ; make strategic investments in manufacturing capabilities , including potentially planning and building our own manufacturing facility ; maintain our current intellectual property portfolio and opportunistically acquire complementary intellectual property ; increase research and development employees and employee-related expenses including salaries , benefits , travel and stock-based compensation expense ; and seek to obtain regulatory approvals for our product candidates . in addition , if we obtain marketing approval for any of our product candidates , we expect to incur significant commercialization expenses related to product manufacturing , marketing , sales and distribution . as a result , we will need additional financing to support our continuing operations . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through a combination of public or private equity or debt financings or other sources , which may include collaborations with third parties . adequate additional financing may not be available to us on acceptable terms , or at all . our inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy . we will need to generate significant revenue to achieve profitability , and we may never do so . 76 because of the numerous risks and uncertainties associated with drug development , we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability . even if we are able to generate revenue from product sales , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations . as of december 31 , 2018 , our principal source of liquidity is cash , cash equivalents and short-term investments , which totaled approximately $ 147.9 million . we expect that our existing cash , cash equivalents and short-term investments will enable us to fund our planned operating expenses and capital expenditure requirements into the second half of 2020. we have based these estimates on assumptions that may prove to be wrong , and we may use our available capital resources sooner than we currently expect . see “ liquidity and capital resources. story_separator_special_tag ” financial operations overview revenue we have not generated any revenue since our inception and do not expect to generate any revenue from the sale of products in the near future if at all . if our development efforts for our current product candidates or additional product candidates that we may develop in the future are successful and result in marketing approval or if we enter into collaboration or license agreements with third parties , we may generate revenue in the future from a combination of product sales or payments from such collaboration or license agreements . operating expenses our operating expenses since inception have consisted primarily of research and development activities and general and administrative costs . research and development expenses research and development expenses consist primarily of costs incurred for our research activities , including our discovery efforts , and the development of our product candidates , which include : expenses incurred under agreements with third parties , including investigative sites , external laboratories and contract research organizations , or cros , that conduct research , preclinical activities and clinical trials on our behalf manufacturing process-development costs as well as technology transfer and other expenses incurred with contract manufacturing organizations , or cmos , that manufacture drug substance and drug product for use in our preclinical activities and any current or future clinical trials ; salaries , benefits and other related costs , including stock-based compensation expense , for personnel in our research and development functions ; expenses to acquire technologies to be used in research and development ; costs of outside consultants , including their fees , stock-based compensation and related travel expenses ; the cost of laboratory supplies and acquiring , developing and manufacturing preclinical and clinical trial materials ; costs related to compliance with regulatory requirements ; and facility-related expenses , which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs . we expense research and development costs as incurred . we recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors and our clinical investigative sites . payments for these activities are based on the terms of the individual agreements , which may differ from the pattern of costs incurred , and are reflected in our consolidated financial statements as prepaid or accrued research and development expenses . nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized , even when there is no alternative future use for the research and development . the capitalized amounts are expensed as the related goods are delivered or the services are performed . our primary focus of research and development since inception has been building a platform to enable us to develop medicines based on an understanding of the gut-body network and to show potential clinical utility . our platform and program expenses consist principally of costs , such as preclinical research , clinical and preclinical manufacturing activity costs , clinical development costs , licensing expense as well as an allocation of certain indirect costs , facility costs and depreciation expense . we do not allocate personnel costs , which include salaries , discretionary bonus and stock-based compensation costs , as such costs are separately classified as research and development personnel costs . 77 research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect that our research and development expenses will continue to increase in the foreseeable future as we continue our ongoing clinical trials for our product candidates , including edp1066 , edp1815 and edp1503 , initiate additional clinical trials , continue to discover and develop additional product candidates , hire additional research and development personnel , build manufacturing capabilities and expand into additional therapeutic areas . at this time , we can not reasonably estimate or know the nature , timing and estimated costs of the efforts that will be necessary to complete the development of , and obtain regulatory approval for , any of our product candidates . we are also unable to predict when , if ever , material net cash inflows will commence from sales or licensing of our product candidates . this is due to the numerous risks and uncertainties associated with drug development , including the uncertainty of : our ability to add and retain key research and development personnel ; our ability to successfully develop , obtain regulatory approval for , and then successfully commercialize , our product candidates ; our successful enrollment in and completion of clinical trials ; the costs associated with the development of our current product candidates and or any additional product candidates we identify in-house or acquire through collaborations ; our ability to discover , develop and utilize biomarkers to demonstrate target engagement , pathway engagement and the impact on disease progression of our product candidates ; our ability to establish an appropriate safety profile with investigational new drug-enabling toxicology studies ; our ability to establish and maintain agreements with third-party manufacturers and other entities for clinical trial supply and future commercial supply , if our product candidates are approved ; the terms and timing of any collaboration , license or other arrangement , including the terms and timing of any milestone payments thereunder ; our ability to obtain and maintain patent , trade secret and other intellectual property protection and regulatory exclusivity for our product candidates if and when approved ; our receipt of marketing approvals from applicable regulatory authorities ; our ability to commercialize products , if and when approved , whether alone or in collaboration with others ; and the continued acceptable safety profiles of the product candidates following approval .
| personnel costs increased by $ 5.6 million due primarily to increases in general and administrative headcount and compensation , including an increase of $ 2.9 million in stock-based compensation expense . facility and other costs increased $ 2.4 million primarily due to the expansion of our leased space to support the growth of the company . professional fees increased $ 2.6 million , reflecting increase in legal , patent and other professional consulting fees . we expect general and administrative expenses to continue to increase due to higher personnel and related costs , professional fees and consulting expenses in support of the continued growth of the company . other income ( expense ) , net other income ( expense ) , net for the year ended december 31 , 2018 was income of $ 1.2 million compared to an expense of $ 0.5 million for the year ended december 31 , 2017 . this increase was primarily driven by a $ 2.2 million increase in interest earned on higher average cash and investments balances in 2018 partially offset by an increase of $ 0.4 million in interest expense related to higher average 2018 borrowings under our loan and security agreement . comparison of years ended december 31 , 2017 and 2016 the following table summarizes our results of operations for the years ended december 31 , 2017 and 2016 ( in thousands ) : replace_table_token_6_th research and development expenses ( in thousands ) : replace_table_token_7_th 80 research and development expenses were $ 20.0 million for the year ended december 31 , 2017 , compared to $ 9.1 million for the year ended december 31 , 2016 . the increase of $ 10.8 million was due primarily to an increase of $ 4.3 million in costs for our inflammation programs , including the external preclinical research , preclinical manufacturing activity costs and licensing expense , an increase of $ 1.7 million in platform expense due to the overall growth of the
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microbot 's product candidates are being designed to bring greater functionality to conventional medical devices and to reduce the known risks associated with such devices . microbot is currently aiming to complete pre-clinical studies required for regulatory submission for both product candidates within the next 24 months . microbot has no products approved for commercial sale and has not generated any revenues from product sales since its inception in 2010. from inception to december 31 , 2016 , microbot has raised cash proceeds of approximately $ 6,300,000 to fund operations , primarily from government grants , loans , and private placement offerings of debt and equity securities . microbot has never been profitable and has incurred significant operating losses in each year since inception . net losses for the years ended december 31 , 2016 and 2015 were approximately $ 9,663,000 and $ 921,000 , respectively . substantially all of microbot 's operating losses resulted from expenses incurred in connection with its research and development programs and from general and administrative costs associated with its operations . as of december 31 , 2016 , microbot had a net working capital of approximately $ 2,532,000 , consisting primarily of cash and cash equivalents . microbot expects to continue to incur significant expenses and increasing operating losses for at least the next several years as it continues the clinical development of , and seeks regulatory approval for its product candidates . accordingly , microbot will continue to require substantial additional capital to continue its clinical development and potential commercialization activities , however , at this time it believes that its net cash will be sufficient to fund its operations for at least 12 months and fund operations necessary to continue development activities of the scs and tipcat . the amount and timing of microbot 's future funding requirements will depend on many factors , including the timing and results of its clinical development efforts . 29 estimated completion dates and costs for microbot 's clinical development and research programs can vary significantly for each current and future product candidate and are difficult to predict . as a result , microbot can not estimate with any degree of certainty the costs it will incur in connection with development of its product candidates at this point in time . microbot anticipates it will make determinations as to which programs and product candidates to pursue and how much funding to direct to each program and product candidate on an ongoing basis in response to the scientific success of early research programs , results of ongoing and future clinical trials , its ability to enter into collaborative agreements with respect to programs or potential product candidates , as well as ongoing assessments as to each current or future product candidate 's commercial potential . financial operations overview research and development expenses research and development expenses consist primarily of salaries and related expenses and overhead for microbot 's research , development and engineering personnel , prototype materials and research studies , obtaining and maintaining microbot 's patent portfolio . microbot expenses its research and development costs as incurred . general and administrative expenses general and administrative expenses consist primarily of the costs associated with management costs , professional fees for accounting , auditing , consulting and legal services , and allocated overhead expenses . microbot expects that its general and administrative expenses may increase in the future as it expands its operating activities , maintains and expands its patent portfolio and incurs additional costs associated with the merger , the preparation of becoming a public company and maintaining compliance with exchange listing and sec requirements . microbot expects these potential increases will likely include management costs , legal fees , accounting fees , directors ' and officers ' liability insurance premiums and expenses associated with investor relations . income taxes microbot has incurred net losses and has not recorded any income tax benefits for the losses . it is still in its development stage and has not yet generated revenues , therefore , it is more likely than not that sufficient taxable income will not be available for the tax losses to be utilized in the future . critical accounting policies and significant judgments and estimates microbot 's management 's discussion and analysis of its financial condition and results of operations are based on its financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles , or gaap . the preparation of these financial statements requires microbot to make estimates and judgments that affect the reported amounts of assets , liabilities , and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements . on an ongoing basis , microbot evaluates its estimates and judgments , including those related to accrued research and development expenses . microbot bases its estimates on historical experience , known trends and events , and various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ materially from these estimates under different assumptions or conditions . while microbot 's significant accounting policies are described in more detail in the notes to its financial statements , microbot believes the following accounting policies are the most critical for fully understanding and evaluating its financial condition and results of operations . foreign currency translation microbot 's functional currency is the u.s. dollars , and its reporting currency is the u.s. dollar . government grant and input tax credit recoveries microbot from time to time has received , and may in the future continue to receive , grants from the israeli innovation authority to cover eligible company expenditures . these are presented as other income in the statement of operations and comprehensive loss as the grant funds are used for or applied story_separator_special_tag microbot 's product candidates are being designed to bring greater functionality to conventional medical devices and to reduce the known risks associated with such devices . microbot is currently aiming to complete pre-clinical studies required for regulatory submission for both product candidates within the next 24 months . microbot has no products approved for commercial sale and has not generated any revenues from product sales since its inception in 2010. from inception to december 31 , 2016 , microbot has raised cash proceeds of approximately $ 6,300,000 to fund operations , primarily from government grants , loans , and private placement offerings of debt and equity securities . microbot has never been profitable and has incurred significant operating losses in each year since inception . net losses for the years ended december 31 , 2016 and 2015 were approximately $ 9,663,000 and $ 921,000 , respectively . substantially all of microbot 's operating losses resulted from expenses incurred in connection with its research and development programs and from general and administrative costs associated with its operations . as of december 31 , 2016 , microbot had a net working capital of approximately $ 2,532,000 , consisting primarily of cash and cash equivalents . microbot expects to continue to incur significant expenses and increasing operating losses for at least the next several years as it continues the clinical development of , and seeks regulatory approval for its product candidates . accordingly , microbot will continue to require substantial additional capital to continue its clinical development and potential commercialization activities , however , at this time it believes that its net cash will be sufficient to fund its operations for at least 12 months and fund operations necessary to continue development activities of the scs and tipcat . the amount and timing of microbot 's future funding requirements will depend on many factors , including the timing and results of its clinical development efforts . 29 estimated completion dates and costs for microbot 's clinical development and research programs can vary significantly for each current and future product candidate and are difficult to predict . as a result , microbot can not estimate with any degree of certainty the costs it will incur in connection with development of its product candidates at this point in time . microbot anticipates it will make determinations as to which programs and product candidates to pursue and how much funding to direct to each program and product candidate on an ongoing basis in response to the scientific success of early research programs , results of ongoing and future clinical trials , its ability to enter into collaborative agreements with respect to programs or potential product candidates , as well as ongoing assessments as to each current or future product candidate 's commercial potential . financial operations overview research and development expenses research and development expenses consist primarily of salaries and related expenses and overhead for microbot 's research , development and engineering personnel , prototype materials and research studies , obtaining and maintaining microbot 's patent portfolio . microbot expenses its research and development costs as incurred . general and administrative expenses general and administrative expenses consist primarily of the costs associated with management costs , professional fees for accounting , auditing , consulting and legal services , and allocated overhead expenses . microbot expects that its general and administrative expenses may increase in the future as it expands its operating activities , maintains and expands its patent portfolio and incurs additional costs associated with the merger , the preparation of becoming a public company and maintaining compliance with exchange listing and sec requirements . microbot expects these potential increases will likely include management costs , legal fees , accounting fees , directors ' and officers ' liability insurance premiums and expenses associated with investor relations . income taxes microbot has incurred net losses and has not recorded any income tax benefits for the losses . it is still in its development stage and has not yet generated revenues , therefore , it is more likely than not that sufficient taxable income will not be available for the tax losses to be utilized in the future . critical accounting policies and significant judgments and estimates microbot 's management 's discussion and analysis of its financial condition and results of operations are based on its financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles , or gaap . the preparation of these financial statements requires microbot to make estimates and judgments that affect the reported amounts of assets , liabilities , and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements . on an ongoing basis , microbot evaluates its estimates and judgments , including those related to accrued research and development expenses . microbot bases its estimates on historical experience , known trends and events , and various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ materially from these estimates under different assumptions or conditions . while microbot 's significant accounting policies are described in more detail in the notes to its financial statements , microbot believes the following accounting policies are the most critical for fully understanding and evaluating its financial condition and results of operations . foreign currency translation microbot 's functional currency is the u.s. dollars , and its reporting currency is the u.s. dollar . government grant and input tax credit recoveries microbot from time to time has received , and may in the future continue to receive , grants from the israeli innovation authority to cover eligible company expenditures . these are presented as other income in the statement of operations and comprehensive loss as the grant funds are used for or applied
| liquidity and capital resources microbot has incurred losses since inception and negative cash flows from operating activities for the years ended december 31 , 2016 and 2015. as of december 31 , 2016 , microbot had a net working capital of approximately $ 2,495,000 , consisting primarily of cash and cash equivalents . microbot anticipates that it will continue to incur net losses for the foreseeable future as it continues research and development efforts of its product candidates , hires additional staff , including clinical , scientific , operational , financial and management personnel , and incurs additional costs associated with being a public company . microbot has funded its operations through the issuance of capital stock , grants from the israeli innovation authority , and convertible debt . as of december 31 , 2016 , microbot raised total cash proceeds of approximately $ 6,300,000 , had a shareholders ' deficit of approximately $ 9,663,000 and incurred a total cumulative loss of approximately $ 13,035,000 from inception ( november 2010 ) to december 31 , 2016. as a result of the sale of certain of the assets of stemcells , on november 29 , 2016 , microbot raised approximately $ 2.8 million in cash , after taking into account the payment of $ 495,000 to certain stemcells employees but excluding $ 400,000 held in escrow to satisfy any indemnification claims of the buyer of the assets . additionally , subsequent to december 31 , 2016 , we sold an aggregate of 700,000 shares of our common stock for net proceeds , after deducting placement agent fees and expenses , of approximately $ 3.25 million . as a result of such cash , microbot believes that its net cash will be sufficient to fund its operations for at least 12 months and fund operations necessary to continue development activities of the scs and tipcat . 31 microbot plans to continue to fund its research and development and other operating expenses , other development activities
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as events are rapidly changing , we are unable to accurately predict the impact that covid-19 will have on our results of operations due to uncertainties including , but not limited to , the duration of the closing of our stores , the duration of quarantines , shelter-in-place and other travel restrictions within the u.s. and other affected countries , the severity of the virus , the duration of the outbreak , and the public 's response to the outbreak and its eventual aftermath . basis of presentation the company has one reportable segment , which includes retail stores , salon services , and e-commerce . we recognize merchandise revenue at the point of sale in our retail stores . e-commerce merchandise sales are recognized based upon shipment of merchandise to the guest based on meeting the transfer of control criteria . retail store and e-commerce sales are recorded net of estimated returns . shipping and handling are treated as costs to fulfill the contract and not a separate performance obligation . accordingly , we recognize revenue for our single performance obligation related to online sales at the time control of the merchandise passes to the customer , which is at the time of shipment . we provide refunds for merchandise returns within 60 days from the original purchase date . state sales taxes are presented on a net basis as we consider our self a pass-through conduit for collecting and remitting state sales tax . salon service revenue is recognized at the time the service is provided to the guest . gift card sales revenue is deferred until the guest redeems the gift card . company coupons and other incentives are recorded as a reduction of net sales . other revenue sources include the private label and co-branded credit card programs , as well as deferred revenue related to the loyalty program and gift card breakage . 30 comparable sales reflect sales for stores beginning on the first day of the 14 th month of operation . therefore , a store is included in our comparable store base on the first day of the period after one year of operations plus the initial one-month grand opening period . non-comparable store sales include sales from new stores that have not yet completed their 13 th month of operation and stores that were closed for part or all of the period in either year as a result of remodel activity . remodeled stores are included in comparable sales unless the store was closed for a portion of the current or prior period . comparable sales include retail sales , salon services , and e-commerce . there may be variations in the way in which some of our competitors and other retailers calculate comparable or same store sales . measuring comparable sales allows us to evaluate the performance of our store base as well as several other aspects of our overall strategy . several factors could positively or negatively impact our comparable sales results : ● the general national , regional , and local economic conditions and corresponding impact on customer spending levels ; ● the introduction of new products or brands ; ● the location of new stores in existing store markets ; ● competition ; ● our ability to respond on a timely basis to changes in consumer preferences ; ● the effectiveness of our various merchandising and marketing activities ; and ● the number of new stores opened and the impact on the average age of all of our comparable stores . cost of sales includes : ● the cost of merchandise sold , including substantially all vendor allowances , which are treated as a reduction of merchandise costs ; ● distribution costs including labor and related benefits , freight , rent , depreciation and amortization , real estate taxes , utilities , and insurance ; ● shipping and handling costs ; ● retail stores occupancy costs including rent , depreciation and amortization , real estate taxes , utilities , repairs and maintenance , insurance , licenses , and cleaning expenses ; ● salon services payroll and benefits ; and ● shrink and inventory valuation reserves . our cost of sales may be negatively impacted as we open an increasing number of stores . changes in our merchandise mix may also have an impact on cost of sales . this presentation of items included in cost of sales may not be comparable to the way in which our competitors or other retailers compute their cost of sales . selling , general and administrative expenses include : ● payroll , bonus , and benefit costs for retail stores and corporate employees ; ● advertising and marketing costs ; ● occupancy costs related to our corporate office facilities ; ● stock-based compensation expense ; ● depreciation and amortization for all assets , except those related to our retail stores and distribution operations , which are included in cost of sales ; and ● legal , finance , information systems , and other corporate overhead costs . this presentation of items in selling , general and administrative expenses may not be comparable to the way in which our competitors or other retailers compute their selling , general and administrative expenses . pre-opening expenses include non-capital expenditures during the period prior to store opening for new , remodeled , and relocated stores including rent during the construction period for new and relocated stores , store set-up labor , management and employee training , and grand opening advertising . 31 interest income , net includes both interest income and expense . interest income represents interest from cash equivalents and short-term investments with maturities of twelve months or less from the date of purchase . interest expense includes interest costs and facility fees associated with our credit facility , which is structured as an asset-based lending instrument . our credit facility interest is based on a variable interest rate structure which can result in increased cost in periods of rising interest rates . story_separator_special_tag income tax expense reflects the federal statutory tax rate and the weighted average state statutory tax rate for the states in which we operate stores . story_separator_special_tag net income increased $ 103.3 million , or 18.6 % , to $ 658.6 million in fiscal 2018 compared to $ 555.2 million in fiscal 2017. the increase in net income was primarily due to a $ 312.5 million increase in gross profit and a $ 31.0 million decrease in income tax expense , which was partially offset by a $ 248.2 million increase in sg & a expenses . liquidity and capital resources our primary cash needs are for rent , capital expenditures for new , remodeled , relocated , and refreshed stores ( prestige boutiques and related in-store merchandising upgrades ) , increased merchandise inventories related to store expansion and new brand additions , in-store boutiques ( sets of custom-designed fixtures configured to prominently display certain prestige brands within our stores ) , supply chain improvements , share repurchases , and continued improvement in our information technology systems . our primary sources of liquidity are cash and cash equivalents , short-term investments , cash flows from operations , including changes in working capital , and borrowings under our credit facility . the most significant component of our working capital is merchandise inventories and cash and cash equivalents reduced by related accounts payable and accrued expenses . our working capital needs are greatest from august through november each year as a result of our inventory build-up during this period for the approaching holiday season . this is also the time of year when we are at maximum investment levels in our new store class and may not have collected all of the landlord allowances due to us as part of our lease agreements . based on past performance and current expectations , we believe that cash and cash equivalents , short-term investments , cash generated from operations , and borrowings under the credit facility will satisfy the company 's working capital needs , capital expenditure needs , commitments , and other liquidity requirements through at least the next twelve months . the following table presents a summary of our cash flows for fiscal years 2019 , 2018 , and 2017 : replace_table_token_10_th operating activities operating activities consist of net income adjusted for certain non-cash items , including depreciation and amortization , non-cash lease expense , deferred income taxes , stock-based compensation , realized gains or losses on disposal of property and equipment , and the effect of working capital changes . the fiscal 2019 increase over fiscal 2018 is mainly due to the increase in net income , merchandise inventories , other assets and liabilities , and the timing of prepaid expenses and other assets , partially offset by the timing of accounts payable . the increase in net income was due to an increase in gross profit due to sales increases and improvements in merchandise margins , partially offset by increased sg & a expenses due to investments in future growth . changes in other assets and liabilities was primarily due to increased participation in our deferred compensation plan . merchandise inventories , net were $ 1,293.7 million at february 1 , 2020 , compared to $ 1,214.3 million at february 2 , 2019 , representing an increase of $ 79.4 million or 6.5 % . 35 average inventory per store ( defined as merchandise inventory divided by number of stores open ) was flat compared to prior year . the increase in inventory is primarily due to the addition on 80 net new stores opened since february 2 , 2019. investing activities we have historically used cash primarily for new , remodeled , relocated , and refreshed stores , supply chain investments , short-term investments , and investments in information technology systems . investment activities for capital expenditures were $ 298.5 million in fiscal 2019 compared to $ 319.4 million and $ 440.7 million in fiscal 2018 and 2017 , respectively . capital expenditures decreased in fiscal 2019 compared to fiscal 2018 primarily from lower merchandising fixtures due to less spend on store refreshes and a decrease in the number of store openings , offset by increases in store maintenance and other due to corporate office renovations . purchases of short-term investments were $ 110.0 million during fiscal 2019 and consist of certificates of deposit with maturities of three to twelve months from the date of purchase . the following table presents a summary of our store activities in fiscal years 2019 , 2018 , and 2017 : replace_table_token_11_th during fiscal 2019 , the average investment required to open a new ulta beauty store was approximately $ 1.3 million , which includes capital investment net of landlord contributions , pre-opening expenses , and initial inventory net of payables . the average investment required to remodel an ulta beauty store was approximately $ 0.9 million in fiscal 2019. the average investment required to refresh an ulta beauty store was approximately $ 0.1 million in fiscal 2019. capital expenditures for fiscal 2019 , 2018 , and 2017 by major category are as follows : replace_table_token_12_th our future investments will depend primarily on the number of new , remodeled , and relocated stores , information technology systems , and supply chain investments that we undertake and the timing of these expenditures . based on past performance and current expectations , we believe our sources of liquidity will be sufficient to fund future capital expenditures . financing activities financing activities in fiscal 2019 , 2018 , and 2017 consist principally of share repurchases and capital stock transactions . purchases of treasury shares represent the fair value of common shares repurchased from plan participants in connection with shares withheld to satisfy minimum statutory tax obligations upon the vesting of restricted stock .
| selling , general and administrative expenses selling , general and administrative ( sg & a ) expenses increased $ 225.3 million , or 14.7 % , to $ 1,760.7 million in fiscal 2019 compared to $ 1,535.5 million in fiscal 2018. as a percentage of net sales , sg & a expenses increased 90 basis points to 23.8 % in fiscal 2019 compared to 22.9 % in fiscal 2018. the deleverage in sg & a expenses was primarily due to : ● 80 basis points of deleverage primarily due to strategic investments in future growth opportunities and infrastructure to support our efg initiatives ; ● 50 basis points of deleverage related to higher payroll and benefit-related expenses , partially offset by ; ● 30 basis points of leverage in lower variable compensation expense ; and ● 10 basis points of leverage in marketing expense attributed to strong sales growth . pre-opening expenses pre-opening expenses decreased $ 0.5 million , or 2.6 % , to $ 19.3 million in fiscal 2019 compared to $ 19.8 million in fiscal 2018. during fiscal 2019 , we opened 86 new stores , remodeled 12 stores , and relocated eight stores . during fiscal 2018 , we opened 107 new stores , remodeled 13 stores , and relocated two stores . interest income , net interest income , net was $ 5.1 million in fiscal 2019 and fiscal 2018. interest income results from cash equivalents and short-term investments with maturities of twelve months or less from the date of purchase . interest expense represents interest on borrowings and fees related to the credit facility . we did not have any outstanding borrowings on our credit facility as of february 1 , 2020 and february 2 , 2019. income tax expense income tax expense of $ 200.2 million in fiscal 2019 represents an effective tax rate of 22.1 % , compared to fiscal 2018 income tax expense of $ 200.6 million and an effective tax rate of 23.3 % . the lower tax rate is primarily due to income tax
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investment in a limited partnership when the investor is the sole general partner and the limited partners have certain rights ( “ eitf 04-5 ” ) . vies are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders as a group lack adequate decision making ability , the obligation to absorb expected losses or residual returns of the entity , or have voting rights that are not proportional to their economic interests . the primary beneficiary generally is the entity that provides financial support and bears a majority of the financial risks , authorizes certain capital transactions , or makes operating decisions that materially affect the entity 's financial results . all significant intercompany balances and transactions have been eliminated in consolidation . in determining whether we are the primary beneficiary of a vie , we consider qualitative and quantitative factors , including , but not limited to : the amount and characteristics of our investment ; the obligation or likelihood for us or other investors to provide financial support ; our and the other investors ' ability to control or significantly influence key decisions for the vie ; and the similarity with and significance to the business activities of us and the other investors . significant judgments related to these determinations include estimates about the current future fair values and performance of real estate held by these vies and general market conditions . as of december 31 , 2016 , iot is not the primary beneficiary of a vie . the company does not have any entities in which we have less than a controlling financial interest or entities where it is not deemed to be the primary beneficiary . real estate upon acquisitions of real estate , we assess the fair value of acquired tangible and intangible assets , including land , buildings , tenant improvements , “ above-market ” and “ below-market ” leases , origination costs , acquired in-place leases , other identified intangible assets and assumed liabilities in accordance with asc 805 “ business combinations ” , and allocate the purchase price to the acquired assets and assumed liabilities , including land at appraised value and buildings at replacement cost . we assess and consider fair value based on estimated cash flow projections that utilize appropriate discount and or capitalization rates , as well as available market information . estimates of future cash flows are based on a number of factors including the historical operating results , known and anticipated trends , and market and economic conditions . the fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant . we also consider an allocation of purchase price of other acquired intangibles , including acquired in-place leases that may have a customer relationship intangible value , including ( but not limited to ) the nature and extent of the existing relationship with the tenants , the tenants ' credit quality and expectations of lease renewals . based on our acquisitions to date , our allocation to customer relationship intangible assets has been immaterial . we record acquired “ above-market ” and “ below-market ” leases at their fair values ( using a discount rate which reflects the risks associated with the leases acquired ) equal to the difference between ( 1 ) the contractual amounts to be paid pursuant to each in-place lease and ( 2 ) management 's estimate of fair market lease rates for each corresponding in-place lease , measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases . other intangible assets acquired include amounts for in-place lease values that are based on our evaluation of the specific characteristics of each tenant 's lease . factors to be considered include estimates of carrying costs during hypothetical expected lease-up periods considering current market conditions , and costs to execute similar leases . in estimating carrying costs , we include real estate taxes , insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods , depending on local market conditions . in estimating costs to execute similar leases , we consider leasing commissions , legal and other related expenses . transfers to or from tci or other related parties reflect a sales price equal to the cost basis in the asset at the time of the sale . 10 depreciation and impairment real estate is stated at depreciated cost . the cost of buildings and improvements includes the purchase price of property , legal fees and other acquisition costs . costs directly related to the development of properties are capitalized . capitalized development costs include interest , property taxes , insurance , and other project costs incurred during the period of development . management reviews its long-lived assets used in operations for impairment when there is an event or change in circumstances that indicates impairment in value . an impairment loss is recognized if the carrying amount of its assets is not recoverable and exceeds its fair value . if such impairment is present , an impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value . the evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy , rental rates and capital requirements that could differ materially from actual results in future periods . if we determine that impairment has occurred , the affected assets must be reduced to their face value . story_separator_special_tag asc 360 “ property , plant and equipment ” requires that qualifying assets and liabilities and the results of operations that have been sold , or otherwise qualify as “ held for sale , ” be presented as discontinued operations in all periods presented if the property operations are expected to be eliminated and the company will not have significant continuing involvement following the sale . the components of the property 's net income that is reflected as discontinued operations include the net gain ( or loss ) upon the disposition of the property held for sale , operating results , depreciation and interest expense ( if the property is subject to a secured loan ) . we generally consider assets to be “ held for sale ” when the transaction has been approved by the company 's board of directors , or its executive committee thereof , and there are no known significant contingencies relating to the sale , such that the property sale within one year is considered probable . following the classification of a property as “ held for sale , ” no further depreciation is recorded on the assets . a variety of costs are incurred in the acquisition , development and leasing of properties . after determination is made to capitalize a cost , it is allocated to the specific component of a project that is benefited . determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment . our capitalization policy on development properties is guided by asc 835-20 “ interest - capitalization of interest ” and asc 970 “ real estate—general ” . the costs of land and buildings under development include specifically identifiable costs . the capitalized costs include pre-construction costs essential to the development of the property , development costs , construction costs , interest costs , real estate taxes , salaries and related costs and other costs incurred during the period of development . we consider a construction project as substantially completed and held available for occupancy upon the receipt of certificates of occupancy , but no later than one year from cessation of major construction activity . we cease capitalization on the portion ( 1 ) substantially completed and ( 2 ) occupied or held available for occupancy , and we capitalize only those costs associated with the portion under construction . recognition of revenue our revenues are composed largely of interest income on notes receivable . revenue recognition on the sale of real estate sales and the associated gains or losses of real estate assets are recognized in accordance with the provisions of asc 360-20 , “ property , plant and equipment – real estate sale ” . the specific timing of a sale is measured against various criteria in asc 360-20 related to the terms of the transaction and any continuing involvement in the form of management or financial assistance associated with the properties . if the sales criteria for the full accrual method are not met , we defer some or all of the revenue or gain recognition and account for the continued operations of the property by applying the finance , leasing , deposit , installment or cost recovery methods , as appropriate , until the full revenue recognition sales criteria are met . non-performing notes receivable the company considers a note receivable to be non-performing when the maturity date has passed without principal repayment and the borrower is not making interest payments in accordance with the terms of the agreement . interest recognition on notes receivable we record interest income as earned in accordance with the terms of the related loan agreements . allowance for estimated losses we assess the collectability of notes receivable on a periodic basis , of which the assessment consists primarily of an evaluation of cash flow projections of the borrower to determine whether estimated cash flows are sufficient to repay principal and interest in accordance with the contractual terms of the note . we recognize impairments on notes receivable when it is probable that principal and interest will not be received in accordance with the contractual terms of the loan . the amount of the impairment to be recognized generally is based on the fair value of the partnership 's real estate that represents the primary source of loan repayment . ( see note 3 , below , notes and interest receivable from related parties , for details on our notes receivable . ) fair value measurement the company applies the guidance in asc 820 , fair value measurements and disclosures , to the valuation of real estate assets . these provisions define fair value as the price that would be received to sell an asset or paid to transfer a liability in a transaction between market participants at the measurement date , establish a hierarchy that prioritizes the information used in developing fair value estimates and require disclosure of fair value measurements by level within the fair value hierarchy . the hierarchy gives the highest priority to quoted prices in active markets ( level 1 measurements ) and the lowest priority to unobservable data ( level 3 measurements ) , such as the reporting entity 's own data . 11 the valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date and includes three levels defined as follows : level 1—unadjusted quoted prices for identical and unrestricted assets or liabilities in active markets . level 2—quoted prices for similar assets and liabilities in active markets , and inputs that are observable for the asset or liability , either directly or indirectly , for substantially the full term of the financial instrument .
| there was no income generated from this segment for the years ended december 31 , 2016 and december 31 , 2015. expenses the company incurred no property operating expenses for the year ended december 31 , 2016 compared to property operating expenses of $ 61,000 for the year ended december 31 , 2015. this decrease was primarily due to a decrease in real estate taxes and professional services . general and administrative expenses were $ 396,000 for the year ended december 31 , 2016. this represents a decrease of $ 70,000 compared to general and administrative expenses of $ 466,000 for the year ended december 31 , 2015. this decrease was primarily due to a decrease in legal expenses . net income fee to related party was $ 257,000 for the year ended december 31 , 2016. this represents an increase of $ 70,000 , as compared to the net income fee of $ 187,000 for the year ended december 31 , 2015. the net income fee paid is calculated at the rate of 7.5 % of net income . advisory fees were $ 639,000 for the year ended december 31 , 2016. this represents a decrease of $ 65,000 compared to advisory fees of $ 704,000 for the year ended december 31 , 2015. advisory fees are computed based on a gross asset fee of 0.0625 % per month ( 0.75 % per annum ) of the average of the gross asset value . other income ( expense ) interest income was $ 4.5 million for the year ended december 31 , 2016. this represents an increase of $ 0.1 million , compared to interest income of $ 4.4 million for the year ended december 31 , 2015. this increase was primarily due to an increase in amount receivable owed from our advisor . the company incurred no mortgage and loan interest for the year ended december 31 , 2016 compared to $ 652,000 for the year ended december 31 , 2015. this decrease was due to the payoff of the mortgages for mercer crossing and propel during 2015. we have no outstanding debt as of december 31 , 2016. income tax expense was $ 1.1 million for the year ended december 31 , 2016. this represents an increase of $ 0.3 million as compared
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please see `` special note regarding forward-looking statements '' in part i above . we do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this annual report on form 10-k. introduction this management 's discussion and analysis of our financial condition and results of operations are based on our financial statements , which management has prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported revenues and expenses during the reporting periods . on an ongoing basis , we evaluate such estimates and judgments , including those described in greater detail below . we base estimates on historical experience and on various other factors that management believes are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . business overview we are a research and clinical-stage biomaterials and biotechnology company with a focus on treatment of spinal cord injuries . our proprietary technologies incorporate intellectual property licensed under an exclusive , world-wide license from boston children 's hospital ( `` bch '' ) and the massachusetts institute of technology ( `` mit '' ) , and intellectual property that has been developed internally , including in collaboration with our advisors and partners . we intend to leverage our platform technology to develop our novel neuro-spinal scaffold , an investigational bioresorbable polymer scaffold that is designed for implantation at the site of injury within a spinal cord contusion and is intended to treat acute sci . we believe our neuro-spinal scaffold will be the foundation of effective therapy for both acute and chronic sci , and we are continually evaluating other technologies and therapeutics that may be complementary and that offer the potential to bring us closer to our goal of redefining the life of the sci patient . overall , we expect our r & d expenses to be substantial and to increase for the foreseeable future as we continue the development and clinical investigation of our current and future products . however , expenditures on r & d programs are subject to many uncertainties , including whether we develop our products with a partner or independently or acquire products . at this time , due to the uncertainties and inherent risks involved in our business , we can not estimate in a meaningful way the duration of , or the costs to complete , our r & d programs or whether , when or to what extent we will generate revenues or cash inflows from the commercialization and sale of any of our products . while we are currently focused on advancing our neuro-spinal scaffold , our future r & d expenses will depend on the determinations we make as to the scientific and clinical prospects of each product candidate , as well as our ongoing assessment of the regulatory requirements and each product 's commercial potential . in addition , we may make acquisitions of businesses , technologies or intellectual property rights that we believe would be necessary , useful or complementary to our current business . any investment made in a potential acquisition could affect our results of operations and reduce our limited 35 capital resources , and any issuance of equity securities in connection with a potential acquisition could be substantially dilutive to our stockholders . there can be no assurance that we will be able to successfully develop or acquire any product , or that we will be able to recover our development or acquisition costs , whether upon commercialization of a developed product or otherwise . we can not provide assurance that any of our programs under development or any acquired technologies or products will result in products that can be marketed or marketed profitably . if our development-stage programs or any acquired products or technologies do not result in commercially viable products , our results of operations could be materially adversely affected . we were incorporated on april 2 , 2003 , under the name of design source , inc. on october 26 , 2010 , we acquired the business of invivo therapeutics corporation , which was founded in 2005 , and continued the existing business operations of invivo therapeutics corporation as our wholly-owned subsidiary . as a result of the merger and related transactions , invivo therapeutics corporation was considered the accounting acquirer and therefore the historical financial results of invivo therapeutics corporation are considered the financial results of the company on a historical and going-forward basis . critical accounting policies and estimates our consolidated financial statements , which appear in item 8 of this annual report on form 10-k , have been prepared in accordance with accounting principles generally accepted in the united states , which require that the management make certain assumptions and estimates and , in connection therewith , adopt certain accounting policies . our significant accounting policies are set forth in note 2 in the notes to consolidated financial statements . of those policies , we believe that the policies discussed below may involve a higher degree of judgment and may be more critical to an accurate reflection of our financial condition and results of operations . share-based compensation stock options are granted with an exercise price at fair market value at the date of the grant . story_separator_special_tag the stock options generally expire ten years from the date of grant . stock option awards vest upon terms determined by our board of directors . we recognize compensation costs resulting from the issuance of stock-based awards to employees , non-employees and directors as an expense in the statement of operations over the service period based on a measurement of fair value for each stock-based award . the fair value of each option grant was estimated as of the date of grant using the black-scholes option-pricing model . the fair value is amortized as compensation cost on a straight-line basis over the requisite service period of the awards , which is generally the vesting period . due to our limited operating history and limited number of sales of our common stock , we estimated our volatility in consideration of a number of factors including the volatility of our stock as well as that of comparable public companies . we use historical data , as well as subsequent events occurring prior to the issuance of the consolidated financial statements , to estimate option exercise and employee departure within the valuation model . the expected term of options granted under our stock plans is based on the average of the contractual term ( generally , 10 years ) and the vesting period ( generally , 48 months ) . the risk-free rate is based on the yield of a u.s. treasury security with a term consistent with the option . see note 13 , `` stock options , '' in the notes to consolidated financial statements in item 8 of this annual report on form 10-k for more information about the assumptions underlying these estimates . 36 derivative instruments certain of our issued and outstanding warrants to purchase common stock contain anti-dilution provisions . these warrants do not meet the requirements for classification as equity and are recorded as derivative warrant liabilities . we used valuation methods and assumptions that consider among other factors the fair value of the underlying stock , risk-free interest rate , volatility , expected life and dividend rates consistent with those discussed in note 12 , `` derivative instruments '' in the notes to consolidated financial statements in item 8 of this annual report on form 10-k in estimating the fair value for these warrants . such derivative warrant liabilities are initially recorded at fair value with subsequent changes in fair value charged ( credited ) to operations in each reporting period . the fair value of the derivative warrant liability is most sensitive to changes in the fair value of the underlying common stock and the estimated volatility of our common stock . research and development and general and administrative expenses research and development expenses consist primarily of payroll and payments to contract research and development companies and payroll . general and administrative expenses consist primarily of payroll , rent and professional services . recent accounting pronouncements in june 2014 , the financial accounting standards board ( the `` fasb '' ) issued accounting standards update ( `` asu '' ) 2014-10 , `` development stage entities '' , topic 915. the objective of the asu is to improve financial reporting by reducing the cost and complexity associated with the incremental reporting requirements for development stage entities . the asu removes topic 915 , development stage entities in its entirety from fasb accounting standards codification ( `` asc '' ) . the asu removes all incremental financial reporting requirements from u.s. gaap for development stage entities , including the inception-to-date information and certain other disclosures . it also eliminates the guidance in asc 810 on how to assess whether a development stage entity has sufficient equity at risk in the evaluation of whether the development stage entity is a variable interest entity . additionally , the asu clarifies that all entities , including entities that have not begun operations , should provide the risk and uncertainty disclosures required in asc 275. we have elected to early adopt as permitted by asu 2014-10 and , therefore , have omitted the incremental development stage reporting requirements . story_separator_special_tag technologies and intellectual property rights , for preclinical and clinical testing of our anticipated products , pursuit of regulatory approvals , acquisition of capital equipment , laboratory and office facilities , establishment of production capabilities , for selling , general and administrative expenses and other working capital requirements . we also expect that we will need additional capital to fund our operations , which we may raise through a combination of equity offerings , debt financings , other third party funding , marketing and distribution arrangements and other collaborations , strategic alliances and licensing arrangements since our inception , we have historically financed our operations primarily through the sale of equity-related securities . at december 31 , 2014 , our consolidated cash balance was $ 13,459. in january 2015 , we closed a registered direct offering of an aggregate of 8 million shares of our common stock , resulting in net proceeds of approximately $ 11 million . we believe our current cash and cash equivalents are adequate to fund our operations into the fourth quarter of 2016. net cash used in operating activities for the year ended december 31 , 2014 was $ 15,284 , and the most significant drivers of which were our net loss of $ 18,346 and offsetting non-cash stock share based compensation of $ 2,730. net cash used in investing activities for the year ended december 31 , 2014 totaled $ 2 for purchases and disposals of capital equipment . net cash provided by financing activities for the year ended december 31 , 2014 was $ 14,765 , due mainly to proceeds from the issuance of common stock and warrants of $ 14,618. the source , timing and availability of any future financing will depend principally upon market conditions , interest rates and , more specifically , on our progress in our exploratory , preclinical
| , 2013. the increase in interest expense is due to an increase in borrowing under the loans payable . derivatives gain ( loss ) derivative losses decreased by $ 18,495 to a loss of $ 376 for the year ended december 31 , 2014 from a loss of $ 18,871 for the year ended december 31 , 2013. the 2014 loss of $ 376 reflects the increase in the fair value of derivative warrant liability which is due primarily to the increase in the fair value of the underlying common stock . the 2013 loss of $ 18,871 was related to the redemption of the investor warrants from offerings prior to 2013. loss from modification of warrants the loss from modification of warrants was $ 765 for the year ended december 31 , 2013. no such modification occurred in the year ended december 31 , 2014. comparison of the years ended december 31 , 2013 and 2012 ( in thousands , except share and per share amounts ) research and development expenses research and development expenses increased by $ 4,157 to $ 10,533 for the year ended december 31 , 2013 from $ 6,376 for the year ended december 31 , 2012. the increase for 2013 is primarily attributable to increased research and development activities , which resulted in increased compensation costs of $ 1,447 due to additional staffing and salary increases , an increase in stock option expense of $ 1,693 , an increase in rent and facility costs of $ 605 , and higher pre-clinical testing costs of $ 880 and other various expenses of $ 632. the 2013 research and development expenses were favorably impacted by insurance payments related to business interruption claims of $ 1,100. general and administrative expenses general and administrative expenses increased by $ 2,069 to $ 8,472 for the year ended december 31 , 2013 from $ 6,403 for the year ended december 31 ,
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mi may also be written in a pool policy , where a group of loans ( or pool ) are insured under one contract . pool insurance may have a stated aggregate loss limit for a pool of loans and may also have a deductible under which no losses are paid by the insurer until losses on the pool of loans exceed the deductible . we set premiums at the time a policy is issued based on our expectations regarding likely performance over the term of coverage . we offer bpmi and lpmi options . premium rates are based on the risk characteristics of each insured loan and the capital required to support particular products . capital charges are governed by the updated pmiers and for lpmi policies , will increase in 2016. see `` - gse oversight , '' below . we offer monthly , annual and single premium payment plans . policies written on a single premium basis are paid through a single , upfront payment , the majority of which is initially deferred as unearned premium and earned over the policy term . for monthly policies , premiums are earned and collected each month as coverage is provided . the table below shows primary and pool iif , niw and premiums written and earned . single niw and iif includes policies written on an aggregated and flow basis . replace_table_token_4_th replace_table_token_5_th primary niw in 2015 increased 260 % from the prior year as a result of an increase in customers with approved master policies as well as an increase in our primary flow business for the year ended december 31 , 2015 . single niw in 2015 increased 216 % over the prior year due to greater lender demand for our single premium lpmi products . single premiums written on an aggregated basis were 20 % of total niw in 2015 , down from 46 % in the prior year . monthly niw in 2015 increased 323 % over the prior year as a result of new account activation and continued penetration of existing customer accounts . for the year ended december 31 , 2015 , we had net premiums written of $ 114.2 million and premiums earned of $ 45.5 million , compared to net premiums written of $ 34.0 million and premiums earned of $ 13.4 million for the year ended december 31 , 2014 . for the year ended december 31 , 2013 , we had net premiums written of $ 3.5 million and premiums earned of $ 2.1 million . premiums written and earned in a year are generally influenced by : 50 niw , which is the new iif ( aggregate principal amount of the mortgages ) that are insured during a period . many factors affect niw , including , among others , the volume of low down payment home mortgage originations ( which tend to be generated to a greater extent in purchase financings as compared to refinancings ) and the competition to provide credit enhancement on those mortgages , which includes primarily competition from the fha and other private mortgage insurers ; the product mix of our book of business , which includes recurring monthly premiums earned for monthly policies and the recognition of premiums earned from the amortization of our single premiums over the policies ' lives . we expect our product mix and the average premium rate we charge to be comparable with the industry in general as our business matures ; cancellations , which reduce iif . upon cancellation of a policy , all premium that is non-refundable is immediately earned , and any refundable premium is returned to the policyholder . cancellations due to refinancings are affected by the level of current mortgage interest rates compared to the mortgage rates on our iif . refinancings are also affected by current home values compared to values when the loans became insured and the terms on which mortgage credit is available . to a lesser extent , cancellations also result from claim payments , as we return any premium received from the servicer after the date the insured mortgage defaults . finally , cancellations are affected by home price appreciation , which may give homeowners the right to cancel the mi on their loans . based on current market conditions , we expect our mi policies to have a persistency rate of between 80 % and 85 % ; premium rates , which are based on the risk characteristics of the loans insured , the percentage of coverage on the loans , competition from other mortgage insurers and general industry conditions ; and premiums ceded under reinsurance agreements . the only reinsurance agreements we currently have in place are between nmic and re one , and they are for the sole purpose of allowing nmic to comply with certain statutory requirements regarding the amount of risk an mi company may retain on any single mi policy . in our industry , a `` book '' is a group of loans that an mi company insures in a particular period , normally a calendar year . in general , the majority of any underwriting profit ( i.e . , the earned premium revenue minus claims and expenses , excluding investment income ) that a book generates occurs in the early years of the book , with the largest portion of the underwriting profit for that book realized in the first year . this pattern generally occurs because relatively few of the claims that a book will ultimately experience typically occur in the first few years of the book , when premium revenue is highest , while subsequent years are affected by declining premium revenues , as the number of insured loans decreases ( primarily due to loan prepayments ) , and by increasing losses . the earnings we record and the cash flow we receive vary based on the type of mi product and premium plan our customers select . story_separator_special_tag in recent years , the level of competition within the private mi industry has been intense and is not expected to diminish . lenders have requested discounts from mortgage insurers with greater frequency , particularly with respect to lpmi single premium policies . a significant percentage of our total business to date has consisted of single premium policies , some of which has been written at a discounted rate , which may impact our premium yields in the near term . in the fourth quarter of 2015 , we implemented new lpmi and bpmi rates , which we expect will improve premium yields on our future niw and have the effect of increasing the amount of monthly niw as a percentage of our total mix over time . 51 portfolio statistics the table below shows primary niw , iif , rif , policies in force , the weighted average coverage and loans in default , by quarter , for the last five quarters . replace_table_token_6_th ( 1 ) reported as of the end of the period . ( 2 ) end of period rif divided by iif . we utilize certain risk principles that form the basis of how we underwrite and originate primary niw . we manage our portfolio credit risk by using several loan eligibility matrices which prescribe the maximum ltv , minimum borrower credit score , maximum loan size , property type and occupancy status of loans that we will insure . our loan eligibility matrices , as well as all of our detailed underwriting guidelines , are contained in our underwriting guideline manual that is publicly available on our website . our eligibility criteria and underwriting guidelines are designed to mitigate the layered risk inherent in a single insurance policy . `` layered risk '' refers to the accumulation of borrower , loan and property risk . for example , we have higher credit score and lower maximum allowed ltv requirements for riskier property types , such as investor properties , compared to owner-occupied properties . we monitor the concentrations of various risk attributes in our insurance portfolio . generally , insuring loans made to borrowers with higher credit scores tends to result in a lower frequency of claims than with loans made to borrowers with lower credit scores . as of december 31 , 2015 , our primary iif and rif were made up of approximately 64.3 % and 64.1 % , respectively , of loans to borrowers who had credit scores at or above 740. our primary weighted average fico for niw in the year ended december 31 , 2015 was 752 . additionally , as of december 31 , 2015 , all loans in our insurance portfolio were full documentation loans , and approximately 4 % of our rif was on loans above 95 % ltv . our primary weighted average ltv for niw in the year ended december 31 , 2015 was 91 % . the table below reflects a summary of the change in total primary iif for the years ended december 31 , 2015 and 2014 . replace_table_token_7_th our persistency rate is the percentage of policies in force that remains on our books after any twelve-month period . because our insurance premiums are earned over the life of a policy , changes in persistency rates can have a significant impact on our earnings . the persistency rate on our portfolio was 84.1 % at december 31 , 2015 . in recent quarters , we have experienced high volumes of single premium policy cancellations driven by refinance activity , which has contributed to lower persistency than generally expected . we believe single premium policy cancellations will decrease if interest rates rise . 52 the table below reflects a summary of our primary iif and rif by book year . replace_table_token_8_th the tables below reflect our total primary iif , rif and average loan size , by fico . replace_table_token_9_th replace_table_token_10_th the table below reflects the percentage of our primary rif by loan type . replace_table_token_11_th as of december 31 , 2015 and 2014 , 100 % of our pool rif was comprised of insurance on fixed rate mortgages . 53 the following table reflects the percentage and policy count of our rif by ltv . we calculate the ltv of a loan as a percentage of the original loan amount to the original value of the property securing the loan . in general , the lower the ltv the lower the likelihood of a default , and for loans that default , a lower ltv generally results in lower severity for a resulting claim , as the borrower has more equity in the property . replace_table_token_12_th geographic dispersion we intend to build a geographically diverse portfolio without significant geographic concentrations that might expose us to undue risk . we manage geographic concentration risk by establishing targets and limits for new origination mix and or portfolio limits . if warranted , we would also establish restrictions in certain geographic markets ; although , we currently do not have any geographic market restrictions in place . we expect that our insurance origination mix by region will be consistent with the overall distribution of mortgage originations in the u.s. that require mortgage insurance . on an ongoing and recurring basis , we evaluate changing market conditions to determine if it is appropriate to establish , tighten , loosen or eliminate lending restrictions established by geographic area . the evaluation is expected to include factors such as historical performance and the historical performance of other market participants , forward-looking projections for key risk drivers , estimated impact on loss performance and existing portfolio concentrations . consistent with our governance processes , the geographic concentrations will be monitored on an ongoing basis and changes to market restrictions will be reviewed and approved . the following tables show the distribution by state of our iif and rif , for both primary and pool insurance .
| for the quarter ended december 31 , 2015 , we had net monthly premiums written and earned of $ 9.6 million compared to $ 7.3 million for the third quarter of 2015 . we had net single premiums written and earned of $ 34.8 million and $ 6.1 million , respectively , for the fourth quarter of 2015 , compared to net single premiums written and earned of $ 26.9 million and $ 4.4 million , respectively , for the third quarter of 2015 . net single premiums earned increased as a result of an increase in single premiums written during the quarter ended december 31 , 2015 , as well as from cancellations on lpmi singles , which are non-refundable and fully earned upon cancellation . net pool premiums written and earned of $ 1.2 million for both during the quarter ended december 31 , 2015 was down slightly quarter over quarter due to the pay off of approximately 341 loans in the pool from september 30 , 2015 . we have not written significant annual premiums through december 31 , 2015 . 60 we began investing our cash during the first quarter of 2013 and continued to invest and re-balance our portfolio in the second and third quarters of 2013. as a result , our net investment income was lower for the year ended december 31 , 2013 compared to the years ended december 31 , 2015 and 2014. additionally , net investment income was higher for the year ended december 31 , 2015 as a result of an increase in our consolidated securities portfolio , from $ 336.5 million at december 31 , 2014 to $ 559.2 million at december 31 , 2015 . net realized investment gains also increased for the year ended december 31 , 2015 as a result of the re-balancing of our portfolio among a mix of investment categories . expenses our expenses have historically been related to business development activities . although we expect
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protect against cybersecurity threats , such as breaches of our network security ; our ability to comply with privacy laws and properly safeguard personal , confidential or proprietary information ; risks associated with data processing system failures and errors ; potential risk of environmental liability related to owning or foreclosing on real property ; the institution and outcome of litigation and other legal proceeding against us or to which we become subject ; our ability to maintain adequate liquidity and to raise necessary capital to fund our acquisition strategy and operations or to meet increased minimum regulatory capital levels ; our ability to comply with various governmental and regulatory requirements applicable to financial institutions ; the impact of recent and future legislative and regulatory changes , including changes in banking , securities and tax laws and regulations and their application by our regulators ; governmental monetary and fiscal policies , including the policies of the federal reserve ; our ability to comply with supervisory actions by federal and state banking agencies ; changes in the scope and cost of fdic insurance and other coverage ; systemic risks associated with the soundness of other financial institutions ; the effects of war or other conflicts , acts of terrorism ( including cyberattacks ) or other catastrophic events , including pandemics , storms , droughts , tornadoes and flooding , that may affect general economic conditions ; and other risks and uncertainties listed from time to time in our reports and documents filed with the sec . further , these forward-looking statements speak only as of the date on which they were made and we undertake no obligation to update or revise any forward-looking statements to reflect events or circumstances after the date on which these statements are made or to reflect the occurrence of unanticipated events , unless required to do so under the federal securities laws . other factors not identified above , including those described under the heading item 1a . “ risk factors ” and elsewhere in this item 7 . “ management 's discussion and analysis of financial condition and results of operations , ” may also cause actual results to differ materially from those described in our forward looking statements . most of these factors are difficult to anticipate and are generally beyond our control . you should consider these factors in connection with considering any forward-looking statements that may be made by us . overview the following discussion and analysis presents the more significant factors that affected our financial condition as of december 31 , 2019 and 2018 and results of operations for each of the years then ended . refer to management 's discussion and analysis of financial condition and results of operations included in our annual report on form 10-k filed with the sec on march 11 , 2019 ( the “ 2018 form 10-k ” ) for a discussion and analysis of the more significant factors that affected periods prior to 2018. we generate most of our income from interest income on loans , service charges on customer accounts and interest income from investments in securities . we incur interest expense on deposits and other borrowed funds and noninterest expenses such as salaries and employee benefits and occupancy expenses . net interest income is the difference between interest income on earning assets such as loans and securities and interest expense on liabilities such as deposits and borrowings that are used to fund those assets . net interest income is our largest source of revenue . to evaluate net interest income , we measure and monitor ( 1 ) yields on our loans and other interest-earning assets , ( 2 ) the interest expenses of our deposits and other funding sources , ( 3 ) our net interest spread and ( 4 ) our 38 net interest margin . net interest spread is the difference between rates earned on interest- earning assets and rates paid on interest-bearing liabilities . net interest margin is calculated as net interest income divided by average interest-earning assets . because noninterest-bearing sources of funds , such as noninterest-bearing deposits and share holders ' equity , also fund interest-earning assets , net interest margin includes the benefit of these noninterest-bearing sources . our net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities , referred to as a “ volume change. ” periodic changes in the volume and types of loans in our loan portfolio are affected by , among other factors , economic and competitive conditions in texas and specifically in the houston region , as well as developments affecting the real estate , technology , financial services , insurance , transportation , manufacturing and energy sectors within our target market and throughout the state of texas . our net interest income is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and borrowed funds , referred to as a “ rate change. ” fluctuations in market interest rates are driven by many factors , including governmental monetary policies , inflation , deflation , macroeconomic developments , changes in unemployment , the money supply , political and international conditions and conditions in domestic and foreign financial markets . on october 1 , 2018 , we completed the acquisition of post oak bancshares , inc. and its wholly-owned subsidiary bank , post oak bank , n.a . ( collectively , “ post oak ” ) . because the acquisition closed on october 1 , 2018 , our results of operations included post oak for only a portion of 2018. our historical financial condition and results of operations as of and for periods ended before december 31 , 2018 contained in this annual report on form 10-k do not reflect the financial condition and results of operations of post oak . in connection with the acquisition of post oak , we issued 8.4 million shares of company common stock . story_separator_special_tag we completed an initial public offering of 2,990,000 shares of allegiance 's common stock at $ 21.00 per share on october 7 , 2015 , generating net proceeds of $ 57.1 million . allegiance 's common stock began trading on the nasdaq global market on october 8 , 2015 under the ticker symbol “ abtx. ” critical accounting policies certain of our accounting estimates are important to the portrayal of our financial condition , since they require management to make difficult , complex or subjective judgments , some of which may relate to matters that are inherently uncertain . estimates are susceptible to material changes as a result of changes in facts and circumstances . facts and circumstances that could affect these judgments include , but are not limited to , changes in interest rates , changes in the performance of the economy and changes in the financial condition of borrowers . management believes that determining the allowance for loan losses is its most critical accounting estimate . our accounting policies are discussed in detail in note 1 – nature of operations and summary of significant accounting and reporting policies in the accompanying notes to the consolidated financial statements included elsewhere in this annual report on form 10-k. allowance for loan losses the allowance for loan losses is a valuation allowance that is established through charges to earnings in the form of a provision for loan losses . the amount of the allowance for loan losses is affected by the following : ( 1 ) charge-offs of loans that decrease the allowance , ( 2 ) subsequent recoveries on loans previously charged off that increase the allowance and ( 3 ) provisions for loan losses charged to income that increase the allowance . management considers the policies related to the allowance for loan losses as the most critical to the financial statement presentation . the total allowance for loan losses includes activity related to allowances calculated in accordance with accounting standards codification ( “ asc ” ) 310 , receivables , and asc 450 , contingencies . throughout the year , management estimates the probable incurred losses in the loan portfolio to determine if the allowance for loan losses is adequate to absorb such losses . the allowance for loan losses consists of specific and general components . the specific component relates to loans that are individually classified as impaired . we follow a loan review program to evaluate the credit risk in the loan portfolio . loans that have been identified as impaired are reviewed on a quarterly basis in order to determine whether a specific reserve is required . the general component covers non-impaired loans and is based on industry and our specific historical loan loss experience , volume , growth and composition of the loan portfolio , the evaluation of our loan portfolio through our internal loan review process , general current economic conditions both internal and external to us that may affect the borrower 's ability to pay , value of collateral and other qualitative relevant risk factors . based on a review of these estimates , we adjust the allowance for loan losses to a level determined by management to be adequate . estimates of loan losses are inherently subjective as they involve an exercise of judgment . loans acquired in business combinations are initially recorded at fair value , which includes an estimate of loan losses expected to be realized over the remaining lives of the loans . therefore , no corresponding allowance for loan losses is recorded for these loans at acquisition . methods utilized to estimate any subsequently required allowance for loan losses for acquired loans not deemed credit-impaired at acquisition are similar to originated loans . however , the estimate of loss is based on the unpaid principal balance and then 39 compared to any remaining unaccreted purchase discount . to the extent that the calculated loss is greater than the remaining unaccreted purchase discount , an allowance is recorded for such difference . recently issued accounting pronouncements in june 2016 , the fasb issued asu 2016-13 , “ financial instruments – credit losses ( topic 326 ) : measurement of credit losses on financial instruments ” ( “ asu 2016-13 ” ) . asu 2016-13 makes significant changes to the accounting for credit losses on financial instruments presented on an amortized cost basis and related disclosures . the new current expected credit loss ( cecl ) impairment model will require an estimate of expected credit losses , measured over the contractual life of an instrument , which considers reasonable and supportable forecasts of future economic conditions in addition to information about past events and current conditions . the standard provides significant flexibility and requires a high degree of judgment with regards to pooling financial assets with similar risk characteristics and adjusting the relevant historical loss information in order to develop an estimate of expected lifetime losses . in addition , asu 2016-13 amends the accounting for credit losses on purchased financial assets with credit deterioration . effective january 1 , 2020 , we will adopt asu 2016-13 as discussed more fully under `` part ii - item 8. financial statements and supplementary data - note 1. nature of operations and summary of significant accounting and reporting policies '' of this report along with other recent accounting pronouncements that have been or will be adopted by the company or that will require enhanced disclosures in the company 's financial statements in future periods . emerging growth company pursuant to the jobs act , an emerging growth company can elect to opt in to any new or revised accounting standards that may be issued by the fasb or the sec otherwise applicable to non-emerging growth companies . we have elected to opt in to such standards , which election is irrevocable .
| the effective federal funds rate increased 75 basis points ( 25 basis points in each of march , june and december ) to end 2017 at 1.50 % . during 2018 , the effective federal funds rate increased 100 basis points ( 25 basis points in each of march , june , september and december ) to end the period at 2.50 % . during 2019 , the effective federal funds rate decreased 75 basis points ( 25 basis points in each of july , september and october ) to end the period at 1.75 % . similarly , the prime rate increased 75 basis points ( 25 basis points in each of march , june and december ) during 2017 to end the year at 4.50 % . during 2018 , the prime rate increased another 100 basis points ( 25 basis points in each of march , june , september and december ) to end the year at 5.50 % . during 2019 , the prime rate decreased 75 basis points ( 25 basis points in each of august , september and october ) to end the year at 4.75 % . 40 net interes t income before the provision for loan losses for the year ended december 31 , 2019 was $ 179.5 million compared with $ 128.6 million for the year ended december 31 , 2018 , an increase of $ 51.0 million , or 39.6 % . the increase in net interest income from the pr evious year was primarily due to increased average interest-earning asset balances primarily from the acquisition of post oak , as well as organic growth for the year . average interest-earning assets increased $ 1.22 billion , or 40.2 % , for the year ended de cember 31 , 2019 compared with the year ended december 31 , 2018. interest income was $ 232.9 million for the year ended december 31 , 2019 , an increase of $ 74.7 million , or 47.2 % , compared with the year ended december 31 , 2018 primarily due to an increase
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some changes that could have an adverse impact on our business include the implementation of future spending reductions ( including sequestration ) , government shutdowns , and issues related to required increases to the nation 's debt ceiling ( under current law , the debt ceiling will be reached in march 2019 ) . the u.s. government has increasingly relied on contracts that are subject to a competitive bidding process ( including indefinite delivery , indefinite quantity ( idiq ) , u.s. general services administration ( gsa ) schedules and other multi-award contracts ) which has resulted in greater competition and increased pricing pressure . we expect that a majority of the business that we seek in the foreseeable future will be awarded through a competitive bidding process . despite the budget and competitive pressures impacting the industry , we believe we are well positioned to protect and expand existing customer relationships and benefit from opportunities that we have not previously pursued . our scale , size and prime contractor leadership position are expected to help differentiate us from our competitors , especially on large contracts . we believe our long-term , trusted customer relationships and deep technical expertise provide us with the sophistication to handle highly complex mission-critical contracts . saic 's value proposition is found in the proven ability to serve as a trusted adviser to our customers . in doing so , we leverage our expertise and scale to help them execute their mission . we succeed as a business based on the solutions we deliver , our past performance and our ability to compete on price . our solutions , inspired through innovation , are based on best practices and technology transfer . our past performance was achieved by employee dedication and customer focus . our current cost structure , as well as our ongoing efforts to reduce costs by strategic sourcing and developing repeatable offerings , is expected to allow us to compete effectively on price in an evolving environment . our ability to be competitive in the future will continue to be driven by our reputation of successful program execution , competitive cost structure and efficiencies in assigning the right people , at the right time , in support of our contracts . on january 14 , 2019 , we completed the acquisition of engility holdings , inc. ( collectively with its consolidated subsidiaries , `` engility '' ) . the acquisition of engility accelerates the execution of our long term strategy to be the premier technology integrator in the government services market and deliver sustained profitable growth . the acquisition of engility strengthens the execution of our long term strategy by : ( 1 ) combining two leading government service providers with highly complementary capabilities , customers , and cultures ( 2 ) accelerating both companies long term strategies , creating sub-segment scale in strategic business areas of national interest and ( 3 ) enhance shareholder value through improved cash flow and margin profile driven by cost synergies and increased growth from greater customer access with more competitive and differentiated solutions . see “ risk factors ” in part i of this report for additional discussion of our industry and regulatory environment . 22 science applications international corporation restructuring during fiscal 2018 , the company initiated restructuring activities ( the `` restructuring '' ) intended to improve operational efficiency , reduce costs , and better position the company to drive future growth . management 's restructuring activities included involuntary and voluntary terminations and the consolidation of existing leased facilities . the company completed the restructuring in fiscal 2018 with total restructuring costs of approximately $ 13 million , comprised of $ 6 million for employee severance and $ 7 million of lease exit costs . refer to `` results of operations '' below , and `` restructuring '' in note 1 of the notes to the consolidated financial statements for further details . management of operating performance and reporting we manage our business to achieve our long-term financial targets , which we expect to accomplish on average and over time . these financial targets include : low single digit annual revenue growth percentage , excluding impacts from acquisitions , adjusted ebitda margin expansion of 10 to 20 basis points annually , and return of capital in excess of operating needs . adjusted ebitda is a non-gaap financial measure described in more detail in “ non-gaap measures ” below . our business and program management process is directed by professional managers focused on satisfying our customers by providing high quality services in achieving contract requirements . these managers carefully monitor contract margin performance by constantly evaluating contract risks and opportunities . through each contract 's life cycle , program managers review performance and update contract performance estimates to reflect their understanding of the best information available . for performance obligations satisfied over time , updates to estimates are recognized on inception-to-date activity , during the period of adjustment , resulting in either a favorable or unfavorable impact to operating income . we evaluate our results of operations by considering the drivers causing changes in revenues , operating income and operating cash flows . given that revenues fluctuate on our contract portfolio over time due to contract awards and completions , changes in customer requirements , and increases or decreases in ordering volume of materials , we evaluate significant trends and fluctuations in these terms . whether performed by our employees or by our subcontractors , we primarily provide services and , as a result , our cost of revenues are predominantly variable . we also analyze our cost mix ( labor , subcontractor or materials ) in order to understand operating margin because contracts performed with a higher proportion of saic labor are generally more profitable . changes in costs of revenues as a percentage of revenue other than from revenue volume or cost mix are normally driven by fluctuations in shared or corporate costs , or cumulative revenue adjustments due to changes in contract estimates . story_separator_special_tag changes in operating cash flows are described with regard to changes in cash generated through the delivery of services , significant drivers of fluctuations in assets or liabilities and the impacts of changes in timing of cash receipts or disbursements . 23 science applications international corporation story_separator_special_tag style= '' line-height:120 % ; text-align : left ; font-size:9pt ; '' > science applications international corporation ebitda and adjusted ebitda . the performance measure ebitda is calculated by taking net income and excluding interest expense , interest income , provision for income taxes , and depreciation and amortization . adjusted ebitda is calculated by taking ebitda and excluding restructuring costs , and acquisition and integration costs . integration costs excluded are costs to integrate acquired companies and include the costs of strategic consulting services , facility consolidation and employee severance . the acquisition and integration costs relate to the company 's significant acquisitions of engility and scitor . we began excluding restructuring costs in the third quarter of fiscal 2018 as a result of the restructuring described above . adjusted ebitda is a performance measure that excludes costs that we do not consider to be indicative of our ongoing operating performance . we believe that ebitda and adjusted ebitda provide management and investors with useful information in assessing trends in our ongoing operating performance and may provide greater visibility in understanding the long-term financial performance of the company . ebitda and adjusted ebitda is calculated as follows : replace_table_token_5_th adjusted ebitda as a percentage of revenues increased to 7.6 % for fiscal 2019 , compared to 7.0 % for fiscal 2018 , driven by improved performance across our portfolio and higher net favorable changes in estimates related to performance obligations satisfied over time and realization of cost efficiencies , partially offset by an increase in our inventory and deferred contract cost provisions . adjusted ebitda as a percentage of revenues decreased to 7.0 % for fiscal 2018 , compared to 7.2 % for fiscal 2017 , due to lower net favorable changes in estimates on contracts related to performance obligations satisfied over time . these drivers were partially offset by lower sg & a costs in the current year as we continue to drive efficiencies across our operating structure . other key performance measures in addition to the financial measures described above , we believe that bookings and backlog are useful measures for management and investors to evaluate our potential future revenues . we also consider measures such as contract types and cost of revenues mix to be useful for management and investors to evaluate our operating income and performance . net bookings and backlog . net bookings represent the estimated amount of revenues to be earned in the future from funded and negotiated unfunded contract awards that were received during the period , net of adjustments to estimates on previously awarded contracts . we calculate net bookings as the period 's ending backlog plus the period 's revenues less the prior period 's ending backlog and initial backlog obtained through acquisitions . 26 science applications international corporation backlog represents the estimated amount of future revenues to be recognized under negotiated contracts as work is performed . we do not include in backlog estimates of revenues to be derived from idiq contracts , but rather record backlog and bookings when task orders are awarded on these contracts . given that much of our revenue is derived from idiq contract task orders that renew annually , bookings on these contracts tend to refresh annually as the task orders are renewed . additionally , we do not include in backlog contract awards that are under protest until the protest is resolved in our favor . we segregate our backlog into two categories as follows : funded backlog . funded backlog for contracts with government agencies primarily represents estimated amounts of revenue to be earned in the future from contracts for which funding is appropriated less revenues previously recognized on these contracts . it does not include the unfunded portion of contracts in which funding is incrementally appropriated or authorized on a quarterly or annual basis by the u.s. government and other customers even though the contract may call for performance over a number of years . funded backlog for contracts with non-government customers represents the estimated value on contracts , which may cover multiple future years , under which we are obligated to perform , less revenues previously recognized on these contracts . negotiated unfunded backlog . negotiated unfunded backlog represents estimated amounts of revenue to be earned in the future from negotiated contracts for which funding has not been appropriated or otherwise authorized and from unexercised priced contract options . negotiated unfunded backlog does not include any estimate of future potential task orders expected to be awarded under idiq , gsa schedules or other master agreement contract vehicles . we expect to recognize revenue from a substantial portion of our funded backlog within the next twelve months . however , the u.s. government can adjust the scope of services of or cancel contracts at any time . similarly , certain contracts with commercial customers include provisions that allow the customer to cancel prior to contract completion . most of our contracts have cancellation terms that would permit us to recover all or a portion of our incurred costs and fees ( contract profit ) for work performed . the estimated value of our total backlog as of the dates presented was : replace_table_token_6_th we had net bookings worth an estimated $ 4.6 billion and $ 6.7 billion during fiscal 2019 and fiscal 2018 , respectively . fiscal 2019 total backlog has increased from the prior year primarily due to the acquisition of engility in the fourth quarter ; $ 3.6 billion of acquired backlog from engility was recorded as an increase to backlog as of the acquisition date . contract types . our earnings and profitability may vary materially depending on changes in the proportionate amount of revenues derived from each type of contract .
| cost of revenues as a percentage of revenues decreased from 90.8 % in fiscal 2018 to 90.0 % in fiscal 2019 , driven by improved performance across our portfolio ( $ 45 million ) , inclusive of newly awarded contracts , higher net favorable changes in estimates related to performance obligations satisfied over time ( $ 20 million ) and realization of cost efficiencies related to our restructuring activities in fiscal 2018. these improvements were partially offset by an increase in our provisions for inventory and deferred contract costs ( $ 36 million ) . cost of revenues increased $ 40 million from fiscal 2017 to fiscal 2018 and as a percentage of revenues increased from 90.1 % in fiscal 2017 to 90.8 % in fiscal 2018 , primarily due to lower net favorable changes in estimates on contracts related to performance obligations satisfied over time ( $ 25 million ) , and lower profit from a higher material cost mix and higher volume of cost reimbursable contracts ( $ 8 million ) . lower net favorable changes in estimates were largely driven by increased costs on platform integration programs supporting the u.s. marine corps combined with prior year write-ups on certain programs supporting federal civilian agencies . additionally , we incurred higher severance costs related to our restructuring in fiscal 2018 ( $ 5 million ) . cost of revenues also decreased in fiscal 2018 and fiscal 2019 due to an annual update to our disclosure statements that we prepare in accordance with u.s. government cost accounting standards . we classify indirect costs as cost of revenues or selling , general and administrative expenses ( sg & a ) in the same manner as such costs are defined in our disclosure statements . the update resulted in certain types of costs that had previously 24 science applications international corporation been included in cost of revenues to be included in sg & a ( $ 2 million and $ 9 million for fiscal 2019 and fiscal 2018 , respectively ) ; however , total operating costs were not affected by this change . selling , general and administrative expenses . sg & a increased $ 3 million from fiscal 2018 to fiscal 2019 primarily
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worldwide pump sales accounted for 63 % , 68 % , and 67 % of our total sales , respectively , for the years ended december 31 , 2020 , 2019 and 2018 , while pump-related supplies and accessories accounted for the remainder in each year . our accumulated deficit as of december 31 , 2020 and 2019 was $ 659.2 million and $ 624.8 million , respectively . these amounts included $ 292.1 million and $ 216.6 million of non-cash stock-based compensation charges and non-cash changes in the fair value of common stock warrants as of december 31 , 2020 and 2019 , respectively . in support of our digital health strategy , we continue to offer and improve t : connect and the tandem device updater , and also develop and launch other complementary offerings . in the first quarter of 2020 , we began a limited launch in the united states of our first-generation t : connect mobile application , followed by general availability in july 2020. this mobile app wirelessly uploads pump data to our t : connect diabetes management application , receives notification of pump alerts and alarms , and provides a discrete , secondary display of glucose and insulin data . the availability of this mobile app is intended to reduce patient burden and increase healthcare provider office efficiency by reducing the manual and more time-consuming steps historically required for data extraction . in addition , in the second quarter of 2020 , we acquired sugarmate , the developer of a popular app designed to help people visualize diabetes therapy data in innovative ways that also connects with many other popular , consumer-friendly devices . we intend to support the sugarmate app in addition to our t : connect mobile app to provide a wide variety of features intended to benefit a broad community of people with diabetes . in the united states , we have rapidly increased sales since the commercial launch of our first product by expanding our sales , clinical and marketing organization , by developing , commercializing and marketing multiple differentiated products that utilize our proprietary technology platform and consumer-focused approach , and by providing strong customer support . our sales have further increased following our scaled product launches in geographies outside the united states . we believe that by demonstrating our product benefits and the shortcomings of existing insulin therapies , more people will choose our insulin pumps for their therapy needs , allowing us to further penetrate and expand the market worldwide . in addition , we believe publications , such as the results from studies using control-iq technology that were published in the new england journal of medicine in october 2019 and august 2020 , and post-market real-world data will be valuable in demonstrating the clinical outcome benefits derived from our system to healthcare providers and payors . we also believe we are positioned well to address consumers ' needs and preferences with our current products and products under development and by offering customers access to our future innovations through the tandem device updater , as they are approved by the local regulating bodies . at the same time , by innovating and offering new product features and benefits using our t : slim x2 platform , we are able to leverage a shared global manufacturing and supply chain infrastructure . in the united states , we are able to leverage a single sales , marketing , and clinical organization , as well as our customer support services . in canada , we have a separate sales organization and our customer support infrastructure benefits from close collaboration with our united states organization . in other international geographies , we have contracted with experienced distribution partners to commercialize and support our t : slim x2 platform . covid-19 global pandemic impact and considerations we are deemed an essential healthcare business under applicable governmental orders based on the critical nature of the products we offer and the communities we serve . we experienced a modest impact from the covid-19 global pandemic during the first quarter of 2020 , which became more pronounced beginning in the second quarter and continuing through the end of the year . we originally anticipated that our sales outside the united states would experience a greater proportional impact due to differences in the sales process in domestic versus international markets . initially , the impact on our business was relatively consistent worldwide but we have since seen varying degrees of impact in international markets based on local conditions . we anticipate that our sales and operating results will continue to be adversely impacted and subject to unpredictable variability for the duration of the pandemic . for example , we have experienced delays in certain programs of up to three or six months from when they were originally planned , such as human factors studies associated with our product development efforts . in addition , regulatory timelines may be difficult to predict as the fda has stated that its review process may take longer than normal due to the impact of the covid-19 global pandemic . the full extent of the impact of the covid-19 global pandemic on our future business and operations is difficult to estimate and will depend on a number of factors including the scope and duration of the covid-19 global pandemic and the relative impact of covid-19 on the business operations of our contract manufacturers , suppliers and competitors . 65 we have taken steps to prioritize the health and safety of our employees and customers during the covid-19 global pandemic , while working to maintain a continuous supply of products , training and customer support . to that end , we have increased the frequency of our communications to employees , suppliers , customers , and healthcare providers . since march 2020 , we have restricted non-essential employee travel , banned visitors from all of our facilities , and transitioned those employees able to perform their job function outside of our facilities to a remote work environment . story_separator_special_tag for our field-based sales and clinical employees , we initially discontinued all in-person activities and began utilizing technology to remotely engage healthcare providers and customers . we continue to work closely with our healthcare providers and customers , remaining flexible in our method of interaction . to help ensure the safety and health of our employees in manufacturing and warehousing positions involved in production and fulfillment operations , we have implemented preventative measures to comply with social distancing requirements and require temperature checks of our employees before each shift . in response to developments surrounding the covid-19 global pandemic , we initiated discussions with our key suppliers in early 2020 regarding their abilities to fulfill existing orders , and we have continued to regularly assess their capacity . during the first six months of 2020 , we experienced certain challenges managing our inventory , primarily due to the impacts of the covid-19 global pandemic . for example , in the first quarter of 2020 , we observed customers purchasing cartridges and infusion sets at a higher rate than anticipated . in addition , during the second quarter of 2020 , our infusion set manufacturer experienced certain inventory constraints which resulted in us asking some customers to accept substitutions of similar products to prevent delays in order fulfillment . at this time , we believe many of our suppliers are deemed essential businesses under applicable governmental orders , and we have not experienced , and do not anticipate experiencing , disruption in our ability to manufacture insulin pumps and cartridges due to component procurement limitations . additionally , our third-party cartridge manufacturer completed validation and commenced commercial-scale manufacturing near the end of the first quarter to supplement our existing cartridge manufacturing capacity , which we believe will assist us in meeting product demand in future periods . our finished goods and raw material inventory , as well as available manufacturing capacity , position us well to respond to unforeseen disruptions in the near term . commercially , we have been communicating with our customers and healthcare providers through social media , direct email outreach and our website , in addition to regular communications sent by our sales and clinical employees . we are also leveraging our technology platforms , such as our t : connect diabetes management application , to support healthcare providers , as many of them are increasingly utilizing telehealth capabilities in their practices . by the end of the first quarter of 2020 , we expanded our remote new pump training offering to all customers who purchased a t : slim x2 insulin pump , and in the third quarter , we resumed offering in-person trainings under specific conditions . we are prudently managing our use of cash and completed a convertible debt financing in may 2020 to further strengthen our balance sheet . we believe that our total cash and investments on hand are sufficient to sustain our existing operations for at least the next 12 months from the date of this filing . in the meantime , we are focused on making necessary investments in the organization as originally planned to continue to progress against our long-term sales and profitability initiatives , including recruitment of key employees , advancement of our r & d pipeline , and implementation of technology solutions . we will continue to evaluate our business operations and strategy based on new information as it becomes available and will make changes that we consider necessary in light of this information . products under development our products under development support our strategy of focusing on both consumer and clinical needs , and include a connected ( mobile ) health offering , a next-generation hardware platform , which we refer to as the t : sport insulin delivery system ( t : sport ) , aid system enhancements , and additional cgm integrations with our current and future products . we intend to leverage our consumer-focused approach and proprietary technology platform to continue to develop products that have the features and functionality that will allow us to meet the needs of people in differentiated segments of the insulin-dependent diabetes market , including the following : 66 connected ( mobile ) health offerings – in july of 2020 , we began offering the first version of our t : connect mobile application that wirelessly uploads pump data to our cloud-based t : connect diabetes management application , receives notification of pump alerts and alarms , and provides a discrete , secondary display of glucose and insulin data . future updates of our mobile application are planned to include mobile bolus delivery , additional pump control features , integrate other health-related information from third-party sources and support future capabilities for our products under development . we plan to transition our mobile health offerings to a single , global digital platform , which is intended to provide all users , including pump users , caregivers and healthcare providers , with a simplified and tailored user experience . the platform is being designed to enhance the user experience , streamline the pump and supplies purchasing process , and provide internal efficiencies . in the future , data from our centralized system may be used for new product development , continuous product improvement , and for the generation of health economic outcomes data , and may ultimately support other advanced technology and patient monitoring services . t : sport insulin delivery system – approximately half the size of our t : slim x2 pump , the t : sport pump is being designed for people who seek even greater discretion and flexibility with the use of their insulin pump . we anticipate that t : sport will feature a 200-unit cartridge , an on-pump bolus button , a rechargeable battery , an aid algorithm , and a bluetooth radio . t : sport is being designed for use with leading u-100 insulins , and we are evaluating the use of insulin concentrates to provide to people with greater insulin needs .
| our percentage of sales to distributors versus individual customers is principally determined by the mix of customers ordering our products within the period and whether or not we have a contractual arrangement with their underlying third-party insurance payor . international sales by product were as follows ( in thousands ) : replace_table_token_10_th international pump sales were $ 44.9 million for the year ended december 31 , 2020 , compared to $ 42.1 million in the year ended december 31 , 2019. the first half of 2019 was positively impacted by the transition of former animas customers to our products and the fulfillment of certain international pump demand from backlog that existed at the end of 2018 due to supply constraints in prior periods . sales of pump-related supplies benefited from an 83 % increase in our estimated international installed base of customers . the ordering patterns of our international distributors for pumps and supplies is highly variable from period to period . this variability was compounded by the varying levels of impact of the global pandemic across the international markets in which we operate . sales to distributors accounted for 94 % and 92 % of our total international sales for the years ended december 31 , 2020 and 2019 , respectively . cost of sales and gross profit . our cost of sales for the year ended december 31 , 2020 was $ 238.3 million , resulting in gross profit of $ 260.5 million , compared to cost of sales of $ 168.1 million for the year ended december 31 , 2019 , resulting in gross profit of $ 194.2 million . the gross margin for 2020 was 52 % , compared to 54 % in 2019. the increase in our gross profit for the year ended december 31 , 2020 , was primarily the result of the $ 136.5 million increase in total sales . gross profit and gross margin in 2020 were negatively impacted by royalty costs , for which there was no comparable expense in 2019. during the year ended december 31 , 2020 , we recognized $ 6.7 million of product royalty costs , or approximately one percent of sales , associated with
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in the u.s. , the incidence rate is approximately 2.5 million infections per year , and rsv is increasingly recognized as a significant cause of morbidity and mortality in the population of 64 million older adults . 11,12 based on our analysis of published literature applied to 2014 u.s. population estimates , the disease causes 207,000 hospitalizations and 16,000 deaths among adults older than 65 . 13,14 annually , we estimate that there are approximately 900,000 medical interventions directly caused by rsv disease across all populations . 15,16 11 falsey , a.r . et al . ( 2005 ) nejm . 352:1749–59 extrapolated to 2015 census population 12 falsey , a.r . et al . ( 1995 ) jid . 172:389-94 13 falsey , a.r . et al . ( 2005 ) nejm . 352:1749–59 extrapolated to 2015 census population 14 w.w. thompson et al . mortality associated with influenza and respiratory syncytial virus in the united states . jama 2003 ; 289 ( 2 ) : 179-186 15 k. widmer et al . rates of hospitalizations for respiratory syncytial virus , human metapneumovirus , and influenza virus in older adults . j infect dis . 2012 ; 206 : 56-62 16 k. widmer et al . respiratory syncytial virus & human metapneumovirus-associated emergency department and hospital burden in adults . influenza and other respiratory viruses . 2014 ; 8 ( 3 ) : 347-352 . 41 clinical trial updates and analyses phase 2 ( e-205 ) safety and immunogenicity clinical trial ( completed ) in july 2017 , we announced positive top-line data from our phase 2 clinical trial of our rsv f vaccine in older adults known as e-205 . the objective of the e-205 trial was to assess safety and immunogenicity to one and two dose regimens of the rsv f vaccine , with and without aluminum phosphate or our proprietary matrix-m adjuvant , in older adults . the trial was a randomized , observer-blinded , placebo-controlled trial which enrolled 300 older adults in the southern hemisphere . participants were enrolled and vaccinated outside of the rsv season to best assess immunogenicity . immunogenicity results indicated both aluminum phosphate and matrix-m adjuvants increased the magnitude , duration and quality of the immune response relative to rsv f antigen alone . all formulations and regimens were safe and well-tolerated . the data support the inclusion of adjuvanted formulations of our rsv f vaccine in future older adult trials , although we do not currently expect to initiate such trials in 2018 without additional funding . further analyses of prior clinical trials following the september 2016 announcement of top-line results of resolve , our phase 3 clinical trial of our rsv f vaccine in older adults conducted during the 2015-16 rsv season in the u.s. , we conducted multiple analyses on the clinical data from the resolve trial , as well as the other completed phase 2 clinical trials conducted in older adults . our analyses of these clinical trials sought to better understand their results . more detailed descriptions of each of these rsv older adult clinical trials are found under “ clinical trial updates and analyses ” below ; the trials are named and briefly described in the following table : replace_table_token_6_th we have found that seasonal variation in attack rate , meaning the incidence of infectious disease in an at-risk population , may have a large impact on demonstrating vaccine efficacy in a particular year . lower attack rates may mean that either the virus is less common in a given season , or alternatively , that the population being studied has increased intrinsic resistance in that season due to a variety of potential factors such as recent prior exposure . in our e-201 trial , we witnessed a high attack rate and showed a clear demonstration of efficacy . in our resolve trial the following year , we observed a primary endpoint attack rate of only one-fourth that of the previous season . this scenario represents a conundrum that influenza vaccine developers have experienced for decades : “ low attack rate ” influenza seasons make it very difficult to demonstrate vaccine efficacy . additional further analyses of the resolve trial data indicate that our rsv f vaccine was associated with a 61 % reduction in hospitalizations due to copd exacerbations , and the same analysis of the e-201 trial showed a similar signal , supporting this finding . we believe that such higher-risk patients represent an unmet medical need with a significant healthcare cost burden that could potentially be addressed by such a vaccine . 42 resolve ( e-301 ) phase 3 trial ( completed ) in september 2016 , we announced top-line data from our resolve trial . resolve was a randomized , observer-blinded , placebo-controlled trial that began in november 2015 , and was fully enrolled with 11,856 older adults at 60 sites in the u.s. by december 2015. the trial did not meet its pre-specified primary or secondary efficacy objectives and did not demonstrate vaccine efficacy . the primary objective of the resolve trial was to demonstrate efficacy in the prevention of moderate-severe rsv ( “ mslrtd ” ) , as defined by the presence of multiple lower respiratory tract symptoms . the secondary objective of the trial was to demonstrate efficacy of the rsv f vaccine in reducing the incidence of all symptomatic respiratory disease due to rsv ard . the trial also evaluated the safety of an unadjuvanted , 135 microgram dose of the rsv f vaccine compared to placebo . consistent with our previous clinical experience , the vaccine was well-tolerated . phase 2 ( e-202 ) rollover trial ( completed ) in september 2016 , we announced positive top-line data from our e-202 rollover trial of our rsv f vaccine in older adults . the trial was a randomized , observer-blinded , placebo-controlled rollover trial , which enrolled 1,329 older adults from our prior e-201 trial , conducted at the same 10 sites in the u.s. as the e-201 trial . story_separator_special_tag the primary objectives of the trial were to evaluate safety and serum anti-f igg antibody concentrations in response to immunization with the rsv f vaccine . the exploratory objectives of the trial evaluated the efficacy of a second annual dose of the rsv f vaccine in the prevention of rsv ard and rsv mslrtd . participants previously randomized to receive 135 microgram rsv f vaccine or placebo were re-enrolled and re-randomized to receive either 135 microgram rsv f vaccine or placebo . this trial design resulted in four separate trial arms : a ) participants receiving a placebo in both the first trial and second trial ( “ placebo-placebo ” ) ; b ) participants receiving rsv f vaccine in the first trial and placebo in the second trial ( “ vaccine-placebo ” ) ; c ) participants receiving placebo in the first trial and rsv f vaccine in the second trial ( “ placebo-vaccine ” ) ; and d ) participants receiving rsv f vaccine in both the first trial and second trial ( “ vaccine-vaccine ” ) . the e-202 rollover trial demonstrated immunogenicity in all active vaccine recipients , with a 6-fold increase in anti-f igg in the placebo-vaccine arm , consistent with the e-201 trial . there was higher anti-f igg at baseline in the vaccine-vaccine arm compared to the placebo-vaccine arm and the vaccine-vaccine arm showed a greater than 2-fold increase in anti-f igg from the higher baseline . phase 2 ( e-201 ) trial in older adults ( completed ) in august 2015 , we announced positive top-line data from our e-201 trial of our rsv f vaccine in 1,600 older adults . the e-201 trial was designed to prospectively examine the incidence of all symptomatic respiratory illnesses associated with rsv infection , in community-living older adults who were treated with placebo . the trial also evaluated safety and immunogenicity of our rsv f vaccine compared to placebo . finally , the trial estimated the efficacy of our rsv f vaccine in reducing the incidence of respiratory illness due to rsv . the trial was the first to demonstrate efficacy of an active rsv immunization in any clinical trial population . in the per protocol population , the clinical trial showed statistically significant vaccine efficacy in prevention of all symptomatic rsv disease ( 41 % ) and , in an ad hoc analysis , showed a decrease in rsv disease with any symptoms of lower respiratory tract infection ( 45 % ) in older adults . the clinical trial established an attack rate for symptomatic rsv disease of 4.9 % in older adults , 95 % of which included lower respiratory track symptoms . efficacy against more severe rsv illness , defined by the presence of multiple lower respiratory tract symptoms or signs associated with difficulty breathing , was 64 % in ad hoc analyses . 43 rsv pediatrics program burden of disease there are currently approximately 18 million children in the u.s. between six months and five years of age . 17 by the age of five , essentially all children will have been exposed to rsv and will likely have developed natural immunity against the virus , thus decreasing the rate of severe disease in these children . in the u.s. , rsv is responsible for approximately 57,000 hospitalizations of children under five years of age annually , the vast majority of which occur in infants less than one year old , and especially those under six months of age . 18,19,20,21,22 clinical trial update in september 2015 , we announced positive top-line data from our phase 1 clinical trial of our rsv f vaccine in healthy children between two and six years of age . this clinical trial evaluated the safety and immunogenicity of our rsv f vaccine , with one or two doses , with or without aluminum phosphate adjuvant . trial enrollment was concluded with a smaller than planned cohort so that dosing could be completed ahead of the 2014-15 rsv season . the vaccine was well-tolerated and serum samples collected from a subset of 18 immunized children in the per-protocol population , demonstrated that the rsv f vaccine was highly immunogenic at all formulations and regimens . there were greater than 10-fold increases in both anti-f igg and pca antibody titers in the adjuvanted group and greater than 6-fold increases in anti-f igg and pca antibody titers in the unadjuvanted group . development of our rsv f vaccine for pediatrics would likely follow successful development of our rsv f vaccine for maternal immunization . influenza burden of disease influenza is a world-wide infectious disease that causes illness in humans ranging from mild to life-threatening symptoms or even death . serious illness occurs not only in susceptible populations such as pediatrics and older adults , but also in the general population largely because of infection by unique strains of influenza for which most humans have not developed protective antibodies . current estimates for seasonal influenza vaccine growth in the top seven markets ( u.s. , japan , france , germany , italy , spain and uk ) , show a potential increase from approximately $ 3.2 billion in the 2012-13 season to $ 5.3 billion by the 2021-22 season . 23 the advisory committee for immunization practices of the center for disease control and prevention ( “ cdc ” ) recommends that all persons aged six months and older be vaccinated annually against seasonal influenza . influenza is a major burden on public health worldwide : an estimated one million deaths each year are attributed to influenza . 24 it is further estimated that , each year , influenza attacks between 5 % and 10 % of adults and 20 % to 30 % of children , causing significant levels of illness , hospitalization and death . 25 one important advantage of recombinant seasonal influenza vaccines , like the candidate we are developing , is that once licensed for commercial sale , large quantities of such vaccine could potentially be manufactured quickly and in a cost-effective manner , without the use of either live influenza virus or eggs .
| program current development stage respiratory syncytial virus ( “ rsv ” ) · infants via maternal immunization * phase 3 · older adults phase 2 · pediatrics phase 1 nanoparticle influenza ( “ nanoflu ” ) phase 1/2 combination influenza/rsv preclinical emerging viruses · ebola virus ( “ ebov ” ) phase 1 · zika virus ( “ zikv ” ) preclinical * supported by the $ 89.1 million grant from bmgf a current summary of our significant research and development programs and status of the related product candidates in development follows : respiratory syncytial virus we have identified three susceptible target populations that could benefit from the development of our respiratory syncytial virus fusion ( f ) protein nanoparticle vaccine candidate ( “ rsv f vaccine ” ) in different formulations : infants via maternal immunization , older adults ( 60 years of age and older ) and children six months to five years of age ( “ pediatrics ” ) . we believe our rsv f vaccine represents a multi-billion dollar revenue opportunity , worldwide . currently , there is no approved rsv vaccine available . 39 repeat infection and lifelong susceptibility to rsv are common and we currently estimate the global cost burden of rsv to be in excess of $ 88 billion . 1 despite decades of effort to develop an rsv vaccine , there are currently no licensed vaccines . we made a breakthrough in developing a vaccine that targets the fusion protein , or f-protein , of the virus . the f-protein has highly conserved amino acid sequences , called antigenic sites , which we believe are ideal vaccine targets . we genetically engineered a novel f-protein antigen resulting in enhanced immunogenicity by exposing a number of these antigenic sites . the novavax rsv f vaccine assembles into a recombinant protein nanoparticle optimized for f-protein antigen presentation . we are seeking to bring the first rsv vaccine to market to combat the 64 million rsv infections that occur globally each year . 2,3 rsv infants via maternal immunization program burden of disease rsv is the most common cause of lower respiratory tract infections and the leading viral cause of severe lower respiratory tract disease in infants and young children worldwide . 4,5 in the u.s. , rsv is the leading cause of hospitalization of infants , and globally , is second only to malaria as a cause of death in children under one year of age . 6,7 despite the induction of post-infection immunity , repeat infection and lifelong susceptibility to rsv is common . 8,9 clinical trial update prepare phase 3 trial ( ongoing ) we initiated prepare , a global pivotal phase 3 clinical trial of our rsv f vaccine , using aluminum phosphate as
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our sales of wind blades to our wind turbine customers have grown rapidly over the last several years in response to these trends . in that time , we have entered into long-term supply agreements with customers in the united states , china , mexico and turkey with terms extending to 2020 , 2019 , 2020 and 2023 , respectively . during the last several years , wind turbine oems have increasingly outsourced the production of wind blades and other key components to specialized manufacturers to meet this increasing global demand for wind energy in a cost-effective manner in new and growing markets . that shift , together with the overall expansion of the wind power generation industry , has increased our addressable market . as a result , we have hired more than 4,500 additional new employees since the beginning of 2014 and have expanded our customer base from one oem customer to four oem customers over the last two years in response to the growth and expansion of the wind energy generation industry generally as well as the specific trend of wind turbine oems increasing the outsourcing of the manufacturing of wind blades . we expect that a substantial portion of our future revenue growth will be derived from our international operations . we have expanded our manufacturing facilities internationally over the last several years , including opening facilities in china , mexico and turkey , to meet the needs of our customers . we recently entered into lease agreements with third parties to lease new manufacturing facilities in mexico and turkey , and commenced operations at these new facilities in the third quarter of 2016. we have also entered into a new lease with a third party for a third manufacturing facility in juárez , mexico , and we commenced operations at this facility in january 2017. the portion of our net sales that were derived from our international operations increased to 75 % for the year ended december 31 , 2016 from 74 % for the year ended december 31 , 2015 , 55 % for the year ended december 31 , 2014 and 25 % for the year ended december 31 , 2013. we believe we will continue to derive a substantial portion of our future net sales growth from our international operations . our long-term supply agreements with our customers generally encourage our customers to maximize the volume of wind blades they purchase from us , since purchasing less than a specified amount triggers higher pricing , as well as provide downside protection for us through minimum annual volume commitments . some of our long-term supply agreements also provide for annual sales price reductions reflecting assumptions regarding increases in our manufacturing productivity . we work to continue to drive down the cost of materials and production through innovation and global sourcing , a portion of the benefit of which we share with our customers contractually , further strengthening our deep customer relationships . wind blade pricing is based on annual commitments of volume as established in the customer 's contract , with orders less than committed volume resulting in additional costs per wind blade to customers . orders in excess of annual commitments may but generally do not result in discounts to customers from the contracted price for the committed volume . customers may utilize early payment discounts , which are reported as a reduction of revenue at the time the discount is taken . 48 the long-term supply agreements we sign with our customers provide us with significant visibility of future production demands due in part to the annual minimum purchase commitments of our customers contained in those agreements . these annual minimum purchase commitments generally require our customers to purchase a negotiated percentage of the manufacturing capacity that we have agreed to dedicate to them . generally , this percentage beg ins at 100 % of the manufacturing capacity that we have dedicated to a particular customer for the first few years of the supply agreement , and the percentage declines over time in subsequent years according to the terms of the agreement , but generally rema ins above 50 % . it is our experience that our customers will generally order wind blades from us in a volume that exceeds ( sometimes substantially ) the annual minimum purchase commitments contained in our supply agreements , particularly in the later years o f a supply agreement when the annual minimum purchase commitment per centage declines . as of february 28 , 2017 , our long-term supply agreements provide for estimated minimum aggregate purchase commitments from our customers of $ 2 . 6 billion and encourage our customers to purchase additional volume up to , in the aggregate , an estimated total contract value of up to $ 3 . 9 billion through the end of 202 3 . as noted elsewhere in this annual report on form 10-k , some of our long-term supply agreements , including som e of those with our largest customer , are subject to termination by our customers on short notice or , in one instance , no advance notice . we caution investors that the annual minimum purchase commitments in our long-term supply agreements can understate th e actual net sales that we are likely to generate in a given period or periods if all of our long-term supply agreements remain in place and pricing remains materially unchanged , and they could potentially overstate the actual net sales that we are likely to generate in a given period or periods if one or more of our agreements were to be terminated by our customers for any reason . see “ business—wind blade long-term supply agreements ” included in part 1 , item 1a of this annual report on form 10-k for additi onal information . we expect our new manufacturing facilities to generate operating losses in their first 12 to 24 months of operations due to startup costs and expenses as they initially operate far below capacity during the pre-production and production ramp up periods . story_separator_special_tag as a result , this generally has a negative impact on our results of operations during these ramp-up periods . these losses include initial operating losses and pre-production expenses such as the selection of the plant site , infrastructure investment , build-out cost , customer qualification and associated legal , regulatory and personnel costs . in addition , construction of new facilities and expansion of existing facilities , including the fabrication of precision molding and assembly systems to outfit those facilities , is complex and involves inherent risks . for planning purposes , we generally estimate that the startup of a new six-line manufacturing facility requires cash for net operating expenses and working capital of between $ 15 million to $ 25 million . we also estimate that additional capital expenditures primarily related to machinery and equipment for new facilities or facility expansions of between $ 15 million and $ 25 million will be required . we recently commenced operations at new manufacturing facilities in turkey and mexico and for the reasons described in the preceding bullet , we believe that over the first 12 to 24 months of operations these facilities are likely to generate operating losses during pre-production and production ramp-up periods , which are likely to have a negative overall effect on our consolidated net income ( loss ) and adjusted ebitda . however , over the longer term , and once these new manufacturing facilities and new manufacturing lines are operating at capacity , we expect this expansion in lines , facilities and purchase commitments to have a positive overall effect on our consolidated net income ( loss ) and adjusted ebitda in future periods . changing customer demands , including shifts to bigger wind turbines with larger wind blades , have driven some of our customers to require us to transition to new wind blade models one or two times during the term of a long-term supply agreement . although we do receive transition payments to compensate us for the costs of the impact of reduced volumes during these transitions , these payments may not always fully cover the transition costs and lost margin . as a result , these transitions have and may continue to have a short-term , negative impact on our consolidated operating results and cash flows . however , our precision molding and assembly manufacturing business increases as we transition to larger wind blade models and larger wind blades generally have a higher average selling price , so that the transition to larger wind blades may increase our net sales over time . as we transition to new wind blade models , we also often extend our existing supply agreements . 49 as a public company , we incur significant legal , accounting and other expenses that we did not incur as a private co mpany . in addition , the sarbanes-oxley act , as well as rules subsequently implemented by the sec and nasdaq , impose various requirements on public companies , including requiring establishment and maintenance of effective disclosure controls and internal co ntrol over financial reporting and changes in corporate governance practices . we estimate that we will incur approximately $ 2.5 million to $ 3.0 million in expenses annually in response to these requirements . components of results of operations net sales net sales reflect sales of our products , including wind blades , precision molding and assembly systems and transportation products , as well as transition revenue received . several factors affect net sales in any period , including customer demand , wind blade model transitions , general economic conditions and weather conditions . we currently derive an immaterial amount of net sales from our transportation business . under gaap , we do not recognize revenue on our wind blade sales until the wind blades have been delivered to our customers . under our long-term supply agreements with our customers , we invoice our customers for wind blades once the blades pass certain acceptance procedures and title passes to our customers . our customers generally pay us for the wind blades between 15 to 65 days after receipt of the invoice based on negotiated payment terms . however , in many cases , our customers request that we store their wind blades until they are ready to assemble wind turbines at a particular wind farm project . we have no control over when our customers decide to ship wind blades from our storage sites , and in some cases , our customers have stored large numbers of their wind blades at our sites for six months or more . even if the customer has paid us for the wind blades and title has passed to the customer , we do not recognize revenue for these wind blades until the wind blades are delivered . instead , these transactions are recorded as deferred revenue in our consolidated financial statements . cost of goods sold cost of goods sold includes the costs associated with products invoiced during the period as well as unallocated manufacturing overhead costs associated with startup and transition costs . cost of sales includes all costs incurred at our production facilities to make products saleable , such as raw materials , direct labor and indirect labor and facilities costs , including purchasing and receiving costs , plant management , inspection costs , product engineering and internal transfer costs . in addition , all depreciation associated with assets used to produce composite products and make them saleable is included in cost of sales . direct labor costs consist of salaries , benefits , share-based compensation and other personnel related costs for employees engaged in the manufacture of our products . startup costs represent the unallocated overhead related to both new manufacturing facilities as well as new lines in existing manufacturing facilities . transition costs represent the unallocated overhead related to the transition of wind blade models at the request of our customers .
| total billings for the year ended december 31 , 2016 increased by $ 164.3 million or 27.4 % to $ 764.4 million compared to $ 600.1 million in the same period in 2015. the impact of the strengthening of the u.s. dollar against the euro at our turkey operations and the chinese renminbi at our china operations on consolidated net sales and total billings were reductions of 1.1 % and 1.0 % , respectively , for the year ended december 31 , 2016 , with reductions of 4.8 % and 4.1 % , respectively , in the same period in 2015. similar to the impact to net sales above , the impact of the strengthening of the u.s. dollar against the euro , turkish lira , mexican peso and chinese renminbi reduced consolidated cost of goods sold by 3.5 % for year ended december 31 , 2016 , compared to 4.7 % in the same period in 2015. total cost of goods sold for the year ended december 31 , 2016 was $ 677.9 million and included aggregate costs of $ 18.1 million related to startup costs in our new plants in mexico and turkey . this compares to total cost of goods sold for the year ended december 31 , 2015 of $ 544.1 million which included aggregate costs of $ 15.9 million related to startup costs in our mexico and dafeng , china plants as well as the transition of wind blade models across 56 all of our plants . cost of goods sold as a percentage of net sales of wind blades decreased by 4.3 % in the year end ed december 31 , 2016 as compared to the same period in 2015 driven by improved operating efficiency in china and the u . s . , which was partially offset by higher operating costs in our turkey and mexico plants due to the startup costs incurred with the openi ng of new plants in both those segments . cost of goods sold as a percentage of net sales from the manufacturing of precision molding and assembly systems increased slightly during the year ended december 31 , 2016 as compared to the same period
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as a result , our auto insurance carrier customers reduced marketing spend and cost per sale targets the following year , ultimately impacting our revenue growth in the auto insurance vertical in 2017. shift from indirect to direct distribution channels we have shifted the majority of our revenue from our indirect channel , consisting of aggregators and media networks , to our direct channel , consisting of carriers and agents . this shift has been an important part of our maturity and evolution . the benefits of direct distribution include improved consumer experience , higher pricing per referral , improved pricing stability , greater revenue predictability , richer data feedback , better performance and stronger relationships with providers and consumers . in 2018 , direct distribution accounted for 90 % of total revenue . in 2019 , direct distribution accounted for 94 % of total revenue . expanding consumer traffic our success depends in part on the growth of our consumer traffic , as measured by quote requests . we have historically increased consumer traffic to our marketplace by expanding existing advertising channels and 55 adding new channels . we plan to continue to increase consumer traffic by leveraging the features and growing data assets of our platform . while we plan to increase consumer traffic over the long term , we also have the ability to decrease advertising , which would likely result in a decrease in quote requests from consumers targeted by such advertising , if we believe the revenue associated with such consumer traffic does not result in incremental profit to our business . increasing the number of insurance providers and their respective spend in our marketplace our success also depends on our ability to retain and grow our insurance provider network . we have expanded both the number of insurance providers and the spend per provider on our platform . while not a factor in our historical increases in revenue per quote request , we believe we have an opportunity to increase the number of referrals per quote request while increasing the bind rate per quote request , which would allow us to increase our revenue at low incremental cost . revenue per quote request we seek to increase our revenue per quote request by attaining higher insurance provider bids and by increasing the number of referrals per quote request . insurance provider bids are influenced by competition in our marketplace auctions , the performance of our consumer referrals for insurance providers relative to other consumer acquisition channels , as well as by market conditions , insurance provider budgets and insurance providers ' new customer acquisition targets . increases in revenue per quote request allow us to increase advertising and consumer traffic to our marketplace while maintaining or increasing profitability . we believe revenue per quote request will increase in the long term , but decrease in the near term . cost per quote request we seek to efficiently acquire consumers by increasing the effectiveness of our consumer advertising and insurance marketplace . cost per quote request is influenced by the cost of advertising and the conversion rate of marketplace visitors who request an insurance quote . while we expect to minimize cost per quote request over the long term , we may incur increased cost per quote request in order to achieve profitability at relative volumes of quote requests and revenue per quote request . key business metrics we regularly review a number of metrics , including united states generally accepted accounting principles , or gaap , operating results and the key metrics listed below , to evaluate our business , measure our performance , identify trends affecting our business , formulate financial projections , and make operating and strategic decisions . some of these metrics are non-financial metrics or are financial metrics that are not defined by gaap . quote requests quote requests are consumer-submitted website forms that contain the data required to provide an insurance quote , quote requests we receive through offline channels such as telephone calls and quote requests submitted directly to third-party partners . as we attract more consumers to our platform and they complete quote requests , we are able to refer them to our insurance provider customers , selling more referrals while also collecting data , which we use to improve user experience , conversion rates and , we believe , consumer satisfaction . variable marketing margin beginning in the first quarter of 2019 , we revised our definition of variable marketing margin , or vmm , as revenue , as reported in our statements of operations and comprehensive income ( loss ) , less advertising costs ( a 56 component of sales and marketing expense , as reported in our statements of operations and comprehensive income ( loss ) ) . we use vmm to measure the efficiency of individual advertising and consumer acquisition sources and to make trade-off decisions to manage our return on advertising . we do not use vmm as a measure of profitability . our vmm was $ 73.3 million and $ 46.1 million for the years ended december 31 , 2019 and 2018 , respectively . under our previous definition of vmm , our vmm for the year ended december 31 , 2018 was $ 48.0 million , as advertising costs used in our previously defined vmm calculation excluded advertising costs related to our everdrive app and advertising costs not related to obtaining quote requests . under our previous definition of vmm , vmm was a non-gaap financial measure that we reconciled to revenue less advertising costs . as our new definition of vmm is revenue less advertising costs , vmm is no longer a non-gaap measure . adjusted ebitda we define adjusted ebitda as net income ( loss ) , adjusted to exclude : stock-based compensation expense , depreciation and amortization expense , legal settlement expense , interest income and expense and the provision for ( benefit from ) income taxes . story_separator_special_tag adjusted ebitda is a non-gaap financial measure that we present in this annual report on form 10-k to supplement the financial information we present on a gaap basis . we monitor and present adjusted ebitda because it is a key measure used by our management and board of directors to understand and evaluate our operating performance , to establish budgets and to develop operational goals for managing our business . adjusted ebitda should not be considered in isolation from , or as an alternative to , measures prepared in accordance with gaap . adjusted ebitda should be considered together with other operating and financial performance measures presented in accordance with gaap . also , adjusted ebitda may not necessarily be comparable to similarly titled measures presented by other companies . for further explanation of the uses and limitations of this measure and a reconciliation of adjusted ebitda to the most directly comparable gaap measure , net income ( loss ) , please see non gaap financial measure . key components of our results of operations revenue we generate our revenue by selling consumer referrals to insurance provider customers , consisting of carriers and agents , as well as to indirect distributors . to simplify the quoting process for the consumer and improve performance for the provider , we are able to provide consumer-submitted quote request data along with each referral . we support three secure consumer referral formats : clicks : an online-to-online referral , with a handoff of the consumer to the provider 's website . data : an online-to-offline referral , with quote request data transmitted to the provider for follow-up . calls : an online-to-offline referral for outbound calls and an offline-to-offline referral for inbound calls , with the consumer and provider connected by phone . we recognize revenue from consumer referrals at the time of delivery . our revenue is comprised of consumer referral fees from the automotive and other insurance verticals , which includes home and renters , life , health and commercial insurance verticals , as follows : replace_table_token_1_th 57 cost and operating expenses our cost and operating expenses consist of cost of revenue , sales and marketing , research and development , and general and administrative expenses . we allocate certain overhead expenses , such as rent , utilities , office supplies and depreciation and amortization of general office assets to cost of revenue and operating expense categories based on headcount . as a result , an overhead expense allocation is reflected in cost of revenue and each operating expense category . personnel-related costs included in cost of revenue and each operating expense category include wages , fringe benefit costs and stock-based compensation expense . cost of revenue cost of revenue is comprised primarily of the costs of operating our marketplace and delivering consumer referrals to our customers . these costs consist primarily of technology service costs including hosting , software , data services , and third-party call center costs . in addition , cost of revenue includes depreciation and amortization of our platform technology assets and personnel-related costs . sales and marketing sales and marketing expense consists primarily of advertising and marketing expenditures as well as personnel-related costs for employees engaged in sales , marketing , data analytics and consumer acquisition functions . advertising expenditures consist of variable costs that are related to attracting consumers to our marketplace , generating consumer quote requests , promoting our marketplace to carriers and agents , and increasing downloads of our social safe-driving mobile app everdrive . in november 2019 , we announced that we would no longer support everdrive . advertising costs are expensed as incurred . marketing costs consist primarily of content and creative development , public relations , memberships , and event costs . in order to continue to grow our business and brand awareness , we expect that we will continue to commit substantial resources to our sales and marketing efforts . we expect our sales and marketing expense will increase in the near term , both as a percentage of revenue and in absolute dollars , but decrease in the longer term as a percentage of revenue due to efficiencies of scale and improvements in our marketplace technology . research and development research and development expenses consist primarily of personnel-related costs for software development and product management . we have focused our research and development efforts on improving ease of use and functionality of our existing marketplace platform and developing new offerings and internal tools . we primarily expense research and development costs . direct development costs related to software enhancements that add functionality are capitalized and amortized as a component of cost of revenue . we expect that research and development expenses will increase as we continue to enhance and expand our platform technology . general and administrative general and administrative expenses consist of personnel-related costs and related expenses for executive , finance , legal , human resources , technical support and administrative personnel as well as the costs associated with professional fees for external legal , accounting and other consulting services , insurance premiums and payment processing and billing costs . we expect general and administrative expenses to increase as we incur the costs of compliance associated with being a publicly traded company , including legal , audit , insurance and consulting fees . other income ( expense ) other income ( expense ) consists of interest income and expense and other income . interest income consists of interest earned on invested cash balances . interest expense consists of interest expense associated with 58 outstanding borrowings under our loan and security agreements and the amortization of deferred financing costs and debt discount associated with such arrangements . see liquidity and capital resources. other income consists of miscellaneous income unrelated to our core operations .
| cost of revenue replace_table_token_6_th cost of revenue increased by $ 4.2 million from $ 11.7 million for the year ended december 31 , 2018 to $ 15.9 million for the year ended december 31 , 2019. cost of revenue increased due primarily to increased third-party call center costs of $ 2.3 million which were primarily related to increased volume of call referrals , to increased hosting costs of $ 1.1 million due to increased marketplace activity and to increased amortization of capitalized software costs of $ 0.9 million . sales and marketing replace_table_token_7_th sales and marketing expenses increased by $ 61.9 million from $ 140.7 million for the year ended december 31 , 2018 to $ 202.7 million for the year ended december 31 , 2019. the increase in sales and marketing expense was primarily due to an increase in advertising expenditures of $ 58.2 million and an increase in personnel-related costs of $ 3.1 million . personnel-related costs for the years ended december 31 , 2019 and 2018 included stock-based compensation expense of $ 3.8 million and $ 2.0 million , respectively . research and development replace_table_token_8_th research and development expenses increased by $ 6.0 million from $ 14.2 million for the year ended december 31 , 2018 to $ 20.2 million for the year ended december 31 , 2019. the increase in research and development expense was primarily due to an increase in personnel-related costs of $ 5.1 million as a result of our 62 continued hiring of research and development employees and a shift towards hiring more senior personnel , to further develop and enhance our marketplace websites and technology . personnel-related costs for the years ended december 31 , 2019 and 2018 included stock-based compensation expense of $ 4.0 million and $ 2.0 million , respectively . office and occupancy costs also increased by $ 0.3 million as a result of the increase in headcount . general and administrative replace_table_token_9_th general and administrative expenses increased by $ 6.2 million from $ 10.7 million for the year ended december 31 , 2018 to $ 16.8 million for the year ended december 31 , 2019. the increase in general and administrative expenses in both dollars and as a percentage of revenue was primarily due to an increase in personnel-related costs of $ 2.5 million , an increase in professional and consultant fees of $ 2.3 million and an increase in insurance and other costs of
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we have engaged a marketing consultant to develop a marketing and sales plan for both the spring traffic cone and our automatic traffic cone dispenser . we have engaged and are currently under agreement with a globally recognized manufacturer 's representation firm , the johander company of minneapolis , to help guide us into retail markets , build a manufacturer 's representative network , and drive retail sales of our spring cone and safe-d-ploy product accessories . johander was founded in 1987 by bill johander and remains a family business operated by his daughter jennifer who joined the company after a successful career at target stores . we will pursue under a ‘ pay for success ' commission structure the following existing johander retail relationships including ; target and target.com , bluestem brands ( fingerhut ) , meijer , menard 's , home depot , lowe 's , advance auto , sam 's club and gander mountain , walmart , costco , dick 's sporting goods , sports authority , academy amazon , napa , auto zone , o'reillys , pep boys , ac delco , uline , grainger , gempler 's , toys r us , and streicher 's . through this relationship we expect to have a new manufacture in place by the end of the year at no additional costs until such time as manufacturing begins . we are in the developmental stage of our business . since our incorporation september 2013 , we have been engaged in securing both exclusive and non-exclusive license agreements for our key products , designing a marketing plan , and lining up suppliers and manufacturers for production . plan of operations we did not have any revenues and did not recognize any income as of december 31 , 2015. we have negative capital and only our intangible assets , which consist of our business plan , relationships , contracts , and sublicense agreements to manufacture and market the kone general and the spring cone . we are illiquid and need cash infusions from investors or shareholders to provide capital , or loans from any sources , none of which have been arranged nor assured . our plan of operations is as follows : our goals for the next year are as follows : future milestones · generate additional capital to allow us to fund customer field trials . · fully implement direct and online sales marketing strategy . 27 1st quarter 2016 as of april 9 , 2015 , the company had a cash balance of approximately $ 15,000. at a current monthly cash burn rate of $ 12,500 , it is estimated that we will run out of cash before the end of february 2016. our milestones in this time period will be to receive additional financing through a private placement , have a design for two kone general prototypes , refinance or pay off the note payable to superior traffic controls , inc. , and enter into a manufacturing agreement to build the two prototypes . we will need to raise additional debt or equity capital for funding of operations beyond the second quarter . if no additional capital is obtained and the company is not able to refinance or pay off the note to superior traffic controls , inc. , it is highly probable that safe lane systems , inc. will cease operations . company 's operations during this quarter entirely depend on successfully obtaining additional capital . we intend to complete production of two kone general prototypes before the end of april 2016. it will take approximately $ 40,000 to build these prototypes . once the two prototypes are built , we intend to spend approximately $ 50,000 on field testing and necessary procedures to obtain regulatory approval . the company will incur approximately $ 75,000 on general and administrative expenses during this quarter , which may be partially used to compensate for expenses associated with field testing and regulatory approval . we will identify the most promising sales channels to utilize after the product receives regulatory approval . during this quarter , primary milestones will be to build and obtain regulatory approval for two kone general prototypes . 3 rd quarter 2016 company 's operations , during this time period , rely on successfully obtaining sufficient financing as well as completing production and obtaining regulatory approval for two kone general prototypes . the primary focus during this quarter will be on marketing and sales assuming that the manufacturing relationship has been proven and we achieved desired results with the product . it will be important to achieve limited manufacturing with a firm delivery date . the company plans to allocate $ 80,000 to cover marketing and sales expenses . the budget for sales and marketing will be partially utilized to hire at least two sales representatives , who will be responsible to establish a sales channel through a network of manufacturer 's representatives and or approach dots ( department of transportation ) in various states . the milestones during this quarter will be to achieve market acceptance for the kone general and to sell sample units . if we are unable to achieve either or both of such milestones , we will have to extend into the following quarter . if we have orders , we will try to partially finance manufacturing production with some type of accounts receivable financing or issue additional stock , which is not yet arranged and of which there can be no assurance . 4 th quarter 2016 assuming any success in the prior quarter with sales and deliveries , our emphasis in this quarter will again be to increase sales and manufacturing output . we estimate using approximately $ 250,000 on marketing and general and administrative expenses . we will increase sales staff in an expanded nationwide marketing efforts , with resulting expense increases . story_separator_special_tag however , we may have to allocate marketing funds to support manufacturing of ordered units . the company will have to secure either accounts receivable financing or obtain additional capital to support the sales cycle . 1 st quarter 2017 assuming success in the prior quarter with sales and deliveries , our emphasis in this quarter will again be to increase sales and manufacturing output . we estimate we will continue to invest approximately $ 250,000 on marketing and general and administrative expenses . we will increase sales staff in expanded nationwide marketing efforts , with resulting expense increases . as in previous quarter , the company will have to secure either accounts receivable financing or obtain additional capital to support the sales cycle . our dominant milestone is the achievement of significant sales increase over the prior quarter . we intend to focus on continuing to build sales and having sustainable manufacturing . we will need to seek private placements of debt or equity capital in order to fund operations beyond twelve months of operations to support growth in sales and manufacturing . 28 our budget for operations through the first quarter of 2017 is as follows : application of funds ( 1 ) working capital $ 250,000 general & administrative $ 250,000 marketing & pr $ 355,000 total $ 855,000 ( 1 ) these items are variable and no commitment has been obtained from any source . the company may change any or all of the budget categories in the execution of its business model . none of the line items are to be considered fixed or unchangeable . the company may need substantial additional capital to support its budget . we intend to conduct a private offering raise up to one million , two hundred fifty dollars ( $ 1,250,000 ) in the next twelve months with a structure not yet determined as debt or equity . as of april 9 , 2016 , the company had sold no shares . we can not give any assurances that we will be able to raise the full $ 1,250,000 to fund the budget . further , we will need to raise additional funds to support not only our expected budget , but our continued operations . we can not make any assurances that we will be able to raise such funds or whether we would be able to raise such funds with terms that are favorable to us . after the twelve month period , we will need to secure an additional $ 1,000,000 in financing to sustain ongoing operations and support the manufacturing and sales cycle . if we are unable to secure required funding , it may not be possible to continue operations . no commitments , excluding the $ 250,000 note payable , have been made to provide additional by our management or other stockholders . accordingly , there can be no assurance that any additional funds will be available to us to allow it to cover our expenses as they may be incurred . our independent registered public accounting firm 's report on our financial statements as of december 31 , 2015 and 2014 , includes a “ going concern ” explanatory paragraph that describes substantial doubt about our ability to continue as a going concern . off balance sheet arrangements we do not have any off-balance sheet arrangements . our budget for operations in next year is as follows : working capital $ 250,000 marketing and pr 355,000 story_separator_special_tag new roman , times , serif ; margin : 0pt 0 ; text-align : justify '' > critical accounting policies cash and cash equivalents the company considers all highly liquid investments with an original maturity of three months or less as cash equivalents . 30 impairment of long-life assets in accordance with asc topic 360 , the company reviews its long-lived assets , including property , plant and equipment , for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable . if the total of the expected undiscounted future net cash flows is less than the carrying amount of the asset , a loss is recognized for the difference between the fair value and carrying amount of the asset . intangible assets , patents the company accounts for its patent sub-license in accordance with asc 350-30-30 “ intangibles – goodwill and other ” and 805-50-30 and 805-50-15 related to “ business combinations ” by recognizing the fair value to the amount paid by the company for the asset at the time of purchase . since safe lane systems has a limited operating history management determined to use par value as the value recognized for the transaction . since the patent has a predetermined , finite life span , the cost of the asset will be recognized on a straight line basis over the remaining life of the patent . in addition each period the company will evaluate the intangible asset for impairment . use of estimates the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates . income tax the company accounts for income taxes under statement of financial accounting standards no . 109 ( “ sfas 109 ” ) . under sfas 109 deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carry-forwards and deferred tax liabilities are recognized for taxable temporary differences . temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases . deferred tax assets are reduced by a valuation allowance when , in the opinion of management ,
| liquidity and capital resources during the year ended december 31 , 2015 the company received $ 185,000 from the issuance of notes payable as compared to $ 160,000 received in the year ended december 31 , 2014. during the twelve months ending december 31 , 2016 the company estimates it will need a minimum of approximately $ 1,250,000 to implement its business plan . other than the foregoing , the company does not know of any trends , events or uncertainties that have had , or are reasonably expected to have , a material impact on sales , revenues or income from continuing operations , or liquidity and capital resources . short term on a short-term basis , we do not generate any revenue or revenues sufficient to cover operations . based on prior history , we will continue to have insufficient revenue to satisfy current and recurring liabilities as it seeks explore . no commitments to provide additional funds have been made by our management or other stockholders . accordingly , there can be no assurance that any additional funds will be available to us to allow it to cover our expenses as they may be incurred . capital resources we have only common stock and notes payable as our capital resource . need for additional financing we do not have capital sufficient to meet our cash needs . we will have to seek loans or equity placements to cover such cash needs . once full business operations commences , our needs for additional financing is likely to increase substantially . within the next twelve months we will need to secure an additional $ 1,250,000 in financing to implement our plan of operations . after the twelve month period we will need to secure an additional $ 1,500,000 in financing to fully implement our plan of operations . if we are unable to secure required funding , it may be unable to continue operations . no commitments , excluding the $ 250,000 note payable , have been made to provide additional by our
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under the terms of our second amended certificate of designation , at any time after july 24 , 2019 , each holder of series b-1 and b-2 preferred stock may require the company to redeem , out of legally available funds , the shares of series b-1 and b-2 preferred stock held by such holder at the redemption price equal to the greater of ( i ) 150 % of the sum of the original price per share of the series b-1 and b-2 preferred stock plus all accrued and unpaid dividends or ( ii ) the sum of the tangible book value of the company per share of voting common stock plus all accrued and unpaid dividends , as of the date of redemption . based on the initial preferred investment amount , the redemption price would presently be approximately $ 39.6 million . subsequent to december 31 , 2018 , we entered into an agreement with the holders of the series b-1 and b-2 preferred stock to extend the redemption period for one additional year , or until july 24 , 2020 , to allow the company additional time to restructure the terms of the existing securities and or to generate the liquidity necessary for such repayment . in exchange for this extension , the company agreed to increase redemption price described above from 150 % of the sum of the original price per share of the series b-1 and b-2 preferred stock to 160 % of the sum of the original price per share of the series b-1 and b-2 preferred stock plus all accrued and unpaid dividends . factors affecting our financial results general economic conditions affecting the real estate industry we have held certain reo assets for several years with the expectation that we would realize more significant appreciation in the values of those assets over time . while we have seen a stabilization of values and sporadic increased values of our reo assets , the increase in value has been less than anticipated . moreover , due to our lack of available cash flow , our investment opportunities have been limited . we continue to examine all material aspects of our business for areas of improvement and recovery on our assets including recoveries against guarantors . the lodging industry is seasonal in nature and depends upon location , type of property and competitive mix within the specific location . based on our current hotel asset holdings , revenues are typically highest in the second and third quarters , with modest reductions during the fourth quarter , and lowest in the first quarter of the year . while we have been successful in securing debt and equity financing in recent years to provide adequate funding for working capital purposes and have generated cash through asset sales and mortgage receivable collections , our ability to reinvest such proceeds in income-producing assets has been limited . we need to secure additional and affordable capital in order realize our income objectives . based on ( 1 ) our cash and cash equivalents of $ 25.5 million at the end of 2018 , ( 2 ) revenues we expect from our hotel management activities and loan assets , and ( 3 ) expected proceeds from the continued sale of our legacy real estate assets , we believe have sufficient liquidity to fund current operations for a period of at least one year from the date of this annual report . revenues given the limited number and amount of mortgage investments we have made to date , we received only a small amount of income from our mortgage investment activities during 2018 and 2017. as a result of the february 2017 sale of our sedona hotel operations , and the june 2017 sale of our golf course operation , our operating property revenues substantially decreased in 2017 from prior periods . our operating revenue in 2018 was generated almost exclusively as a result our october 2017 acquisition of macarthur place , although such revenues were hampered by the renovation project that was underway for a majority of 2018. we expect 2019 operating revenues to increase upon completion of the renovation project and implementation of our revenue growth strategy . we also expect to continue originating or acquiring mortgage investments in 2019. for the near future , we expect to derive a substantial percentage of our cash flows from reo dispositions rather than from interest and fee income from loans originated or 39 acquired by us . as our liquidity position improves , we intend to continue to execute our investment strategy and expect that interest and fee income from our commercial real estate lending activities will increase . expenses we incur various expenses related to the direct operations of our operating and non-operating properties ; professional fees for consulting , valuation , legal and other expenses related to our loan and guarantor enforcement activities ; general and administrative expenses such as compensation and benefits for non-operating property employees , rent , insurance , utilities and related costs ; and interest and related costs relative to our financing and refinancing initiatives . as described elsewhere , the company has commenced discussions with jia to provide certain asset management services and to assume certain fixed and variable expenses of the company including , but not limited to , select personnel , rent , insurance , and professional consultants . however , the terms of any such arrangement have not yet been finalized as of the date of this filing . impairment of real estate owned . our estimate of impairment charges on reo assets largely depends on whether the particular reo asset is held for development or held for sale . this classification depends on various factors , including our intent to sell the property immediately or further develop and sell the property over time , and whether a formal plan of disposition has been adopted , among other factors . story_separator_special_tag real estate held for sale is carried at the lower of carrying amount or fair value , less estimated selling costs , which is primarily based on supporting data from third-party valuation firms , market participant sources , and valid offers from third parties . reductions in the fair value of assets held for sale are recorded as impairment charges . real estate held for development is carried at the transferred value upon foreclosure , less cumulative impairment charges . impairment charges on real estate owned consist of charges to reo assets in cases where the estimated future undiscounted cash flows of the property is below current carrying value and the reduction in asset value is deemed to be other than temporary . generally , asset values have stabilized in many of the areas where we hold real estate , however , our assets are reviewed for impairment individually . we have sold and intend to actively market and sell substantially all of our reo assets , individually or in bulk , over the next 12 months as a means of raising additional capital to pursue our investment objectives and fund core operations . key operational aspects as a result of the issuance of the series b-3 preferred stock and series a preferred stock , the company 's total assets increased to $ 143.6 million as of december 31 , 2018 compared to $ 114.5 million as of december 31 , 2017 . the company 's net loss for the year ended december 31 , 2018 was $ 12.2 million compared to net loss of $ 1.6 million for the year ended december 31 , 2017 . the company 's total revenue from continuing operations totaled $ 9.7 million for the year ended december 31 , 2018 compared to $ 5.9 million for the corresponding period in 2017 . the company 's basic and diluted net loss from continuing operations per common share for the year ended december 31 , 2018 and 2017 was $ ( 1.23 ) and $ ( 0.54 ) , respectively . 40 story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; font-size:10pt ; '' > ( recovery of ) provision for investment and credit losses . for the year ended december 31 , 2018 , we recorded recoveries of investment and credit losses of $ 2.0 million primarily resulting from the cash , and other assets recovered from guarantors on certain legacy loans . we recorded recoveries of $ 6.5 million from the consolidation of various equity interests , and from cash , receivables , and other assets recovered from guarantors on certain legacy loans and insurance recoveries during the year ended december 31 , 2017 . impairment of real estate owned . for the years ended december 31 , 2018 and 2017 , we recorded impairment of real estate owned of $ 0.6 million and $ 0.7 million , respectively , based on the fair value analysis of our reo portfolio . equity loss of unconsolidated subsidiaries . subsequent to the year ended december 31 , 2018 , the company no longer owns assets classified as unconsolidated subsidiary . for the year ended december 31 , 2017 , we recorded net losses of unconsolidated subsidiaries of and $ 0.2 million which resulted from our portion of allocated operating expenses combined with a lack of revenue from such unconsolidated subsidiaries . unrealized loss on derivatives . during the year ended december 31 , 2018 , the company recorded an unrealized loss of $ 0.2 million on an interest rate cap we acquired to mitigate the risk of rising interest rates based on a fair value analysis of this derivative instrument . 42 operating segments our operating segments reflect the distinct business activities from which revenues are earned and expenses incurred that is evaluated regularly by our executive management team in assessing performance and in deciding how to allocate resources . as of and for the years ended december 31 , 2018 and 2017 , the company 's reportable segments consisted of the following : hospitality and entertainment operations — consists of revenues less direct operating expenses , depreciation and amortization relating to our hotel , golf , spa , and food & beverage operations . this segment also reflects the carrying value of such assets and the related financing and operating obligations . as described elsewhere in this form 10-k , we sold our sedona hotels on february 28 , 2017 and , in accordance with gaap , have presented the results of operations for such assets in net income ( loss ) from discontinued operations for the years ended december 31 , 2018 and 2017 . while the sedona hotels have been presented as discontinued operations in the accompanying consolidated financial statements , the company intends to continue its active engagement in the hospitality and entertainment operations segment through our hotel management group . moreover , the company acquired macarthur place in the fourth quarter of 2017 and is actively pursuing other hospitality assets . mortgage and reo – legacy portfolio and other operations — consists of the collection , workout and sale of new and legacy mortgage loan investments and reo assets , including financing of such asset sales . this segment also encompasses the carrying value and costs of such assets and related financing and operating expenses . this segment has also historically included rental revenue , less direct property operating expenses ( maintenance and repairs , real estate taxes , management fees , and other operating expenses ) , depreciation and amortization from commercial and residential real estate leasing operations , and the carrying value of such assets and the related financing and operating obligations . corporate and other — consists of our centralized general and administrative and corporate treasury activities . this segment also includes reclassifications and eliminations between the reportable operating segments and reflects the carrying value of corporate fixed assets and the related financing and operating obligations .
| for the year ended december 31 , 2018 , management fees , investment and other income was $ 0.4 million , a decrease of $ 0.8 million , or 65.9 % , from the year ended december 31 , 2017 . the year-over-year decrease is primarily attributable to loss of the management fees we received for managing the sedona hotels following the sale . costs and expenses replace_table_token_3_th operating property direct expenses ( exclusive of interest and depreciation ) . for the year ended december 31 , 2018 , operating property direct expenses were $ 9.0 million , an increase of $ 4.7 million , or 109.4 % , from $ 4.3 million for the year ended december 31 , 2017 . amounts for the year ended december 31 , 2018 are related to the direct operating costs of macarthur place hotel . amounts for the year ended december 31 , 2017 are primarily related to the operating expenses attributable to our operating golf course which was sold in 2017. expenses related to the sedona hotels , which were sold in the first quarter of 2017 , are classified within discontinued operations in our consolidated statement of operations for the year ended december 31 , 2017 . the year-over- 41 year increase in operating property direct expenses is primarily attributed to the acquisition and operating costs associated with the macarthur place hotel . expenses for non-operating real estate owned . for the year ended december 31 , 2018 , expenses for non-operating real estate owned assets were $ 0.6 million , a decrease of $ 0.2 million or 27.1 % , from $ 0.8 million for the year ended december 31 , 2017 . the year-over-year decrease is primarily attributable to decreases in real estate taxes and asset repair and maintenance costs associated with certain consolidated partnerships . professional fees . for the years ended december 31 , 2018 and 2017 , professional fees were $ 4.2 million and $ 5.2 million , respectively , a decrease of $ 1.0 million or 19.6 % . the decrease in professional fees is
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the monthly payment plan offers bachelor students ( except nursing ) the opportunity to pay $ 250/month for 72 months ( $ 18,000 ) , nursing bachelor students ( rn to bsn ) $ 250/month for 39 months ( $ 9,750 ) , master students $ 325/month for 36 months ( $ 11,700 ) and doctoral students $ 375 per month for 72 months ( $ 27,000 ) , interest free , thereby giving students the ability to earn a degree debt free . student population aspen 's full-time degree-seeking student body increased year-over-year by 33 % during the year ended april 30 , 2015 , from 2,485 to 3,309 students . our most popular school is our school of nursing . aspen 's school of nursing has grown from 33 % of our full-time , degree-seeking student body at april 30 , 2014 , to 42 % of our full-time , degree-seeking student body at april 30 , 2015. aspen 's school of nursing grew from 828 to 1,374 student 's year-over-year , which represented 66 % of aspen 's full-time degree-seeking student body growth . at april 30 , 2015 , aspen 's school of nursing included 285 students in the rn to bsn program and 1,089 students in the rn to msn bridge program or msn program . new student enrollment overview since the launch of the bsn marketing campaign in mid-november , 2014 , aspen 's growth rate of new student enrollments has accelerated significantly . typically , it takes 60-90 days for a new student lead to convert into an enrollment . however , aspen began seeing bsn leads convert to new student enrollments at the beginning of january 2015 , only six weeks following the marketing campaign launch . aspen has updated its definition of a new student enrollment to only report those new students that complete their first seven day assignment of their first course in their degree program . based on that definition , below is a quarterly analysis of new student enrollments for the past five quarters , including the recent quarter ending april 30 , 2015. note that in the recent quarter ending april 30 , 2015 , new student enrollments were up 89 % year-over-year , from 235 to 444. new student enrollments replace_table_token_3_th 37 aspen 's estimated average revenue per new student enrollment is approximately $ 6,000 , earned over 3 years . aspen delivered 1,008 new student enrollments in calendar year 2014 , which equates to revenues for those 1,008 new student enrollments of approximately $ 6 million , earned over three years . however , should the pace of enrollments continue to rise by 89 % year-over-year throughout calendar year 2015 , that would equate to 1,905 new student enrollments with a revenue value for those 1,905 new student enrollments of approximately $ 11.4 million , earned over three years . aspen can not provide any assurance that the pace of enrollment will remain constant ( or will not fall ) or that students that enroll will remain all three years . story_separator_special_tag margin:0px '' > we have included a reconciliation of our non-gaap financial measures to the most comparable financial measure calculated in accordance with gaap . we believe that providing the non-gaap financial measures , together with the reconciliation to gaap , helps investors make comparisons between aspen group and other companies . in making any comparisons to other companies , investors need to be aware that companies use different non-gaap measures to evaluate their financial performance . investors should pay close attention to the specific definition being used and to the reconciliation between such measure and the corresponding gaap measure provided by each company under applicable sec rules . the following table presents a reconciliation of adjusted ebitda to net loss allocable to common shareholders , a gaap financial measure : replace_table_token_5_th the following table presents a reconciliation of gross profit ( exclusive of amortization ) , a non-gaap financial measure , to gross profit calculated in accordance with gaap : replace_table_token_6_th 40 liquidity and capital resources a summary of our cash flows is as follows : replace_table_token_7_th net cash used in operating activities net cash used in operating activities during the 2015 period totaled ( $ 2,741,466 ) and resulted primarily from a net loss from continuing operations of ( $ 4,268,288 ) offset by non-cash items of $ 2,133,143 , comprised of $ 416,587 from the non-cash portion of the loss on extinguishment of debt , $ 166,241 of amortization of debt discount , $ 528,496 in depreciation and amortization , $ 75,458 of amortization of debt discount , $ 456,871 of stock compensation expense , $ 333,323 of warrant conversion exercise expense and $ 156,165 of bad debt expense , and a net change in operating assets and liabilities of $ ( 606,321 ) , of which the $ ( 275,674 ) decrease in accounts payable was the most significant . net cash used in operating activities during the 2014 period totaled ( $ 3,664,964 ) and resulted primarily from a net loss from continuing operations of $ ( 5,350,348 ) offset by non-cash items of $ 2,229,893 and a net change in operating assets and liabilities of $ ( 459,847 ) . net cash used in investing activities net cash used in investing activities during the 2015 period totaled ( $ 777,432 ) and resulted primarily from capitalized technology expenditures and the increase in restricted cash . net cash used in investing activities during the 2014 period totaled ( $ 995,652 ) , resulting primarily from an increase in restricted cash as well as capitalized technology expenditures . story_separator_special_tag net cash provided by financing activities net cash provided by financing activities during the 2015 period totaled $ 5,425,731 which resulted primarily from proceeds from the private placements of $ 5,547,825 and $ 2,268,670 from the exercise of warrants , offset by debt repayments of $ 2,240,000. net cash provided by financing activities during the 2014 period totaled $ 4,114,283 which resulted primarily from the receipt of a $ 1,000,000 long-term loan from the ceo , the proceeds of $ 1,639,298 from issuance of convertible debt , $ 750,000 from the issuance of common stock and $ 804,049 from the exercise of warrants . historical financings historically , our primary sources of liquidity are cash receipts from tuition and the issuances of debt and equity securities . the primary uses of cash are payroll related expenses , professional expenses and instructional and marketing expenses . on july 1 , 2013 , mr. michael mathews , our chief executive officer , loaned aspen group $ 1 million and was issued a $ 1 million promissory note . the promissory note bears 10 % interest per annum , payable monthly in arrears . mr. mathews also holds two $ 300,000 convertible notes , one of which is convertible at $ 0.35 per share and the other at $ 1.00 per share . these notes held by mr. mathews were recently extended to july 31 , 2016. in september 2013 , the company sold a $ 2,240,000 original issue discount secured convertible debenture ( the debenture ) and 6,736,842 five-year warrants ( exercisable at $ 0.3325 ) in a private placement offering to an institutional investor . the company received net proceeds of approximately $ 1.7 million from this offering . 41 on january 15 , 2014 , a warrant exercise offering was completed whereby 4,231,840 warrants were exercised at an exercise price of $ 0.19 per warrant . the total proceeds received were $ 804,049. related to this , additional 5,178,947 new warrants were issued at $ 0.19 per warrant as part of a price protection agreement with two investors . on march 10 , 2014 , several members of the board of directors invested $ 600,000 in exchange for 3,157,895 shares of common stock and 3,157,895 warrants at $ 0.19 per share . on july 29 , 2014 , in the first part of a two part private placement offering , seven accredited investors , including the company 's chief financial officer , paid a total of $ 1,631,500 in exchange for 10,525,809 shares of common stock and 5,262,907 five-year warrants exercisable at $ 0.19 per share . aspen reimbursed expenses in total of $ 75,000 related to this offering . as a result of this private placement , on july 31 , 2014 , aspen issued 3,473,259 shares of common stock to prior investors who had price protection on their investments , issued 2,662,139 warrants to a prior investor who had price protection on their investment and reduced the exercise and conversion price on 14,451,613 outstanding warrants and its outstanding debenture to $ 0.155. on september 4 , 2014 , aspen raised $ 3,766,325 from the sale of 24,298,877 shares of common stock and 12,149,439 five-year warrants exercisable at $ 0.19 per share in the second part of a two part private placement offering to 15 accredited investors . the net proceeds to aspen were approximately $ 3.7 million . with the proceeds from this offering , we pre-paid the full principal owed and interest due under the debenture ( described above ) . in april 2015 , aspen raised $ 2,268,670 closed on its offering to warrant holders whereby it issued 14,636,584 shares of common stock to the holders in exchange for their early exercise of warrants at the reduced exercise price of $ 0.155. the company received gross proceeds of $ 2,268,670 , which included warrants exercised by the company 's chief financial officer . liquidity and capital resource considerations at april 30 , 2015 , the company had a cash balance of approximately $ 3.3 million which includes $ 1.1 million of restricted cash . in april 2015 , the company offered a warrant conversion , through which the company issued 15,236,484 shares , raising $ 2,268,670. in september 2014 , the company completed the second closing of its equity financing of $ 3,766,325. with the additional cash raised in these financings , the growth in the company revenues and improving operating margins , the company believes that it has sufficient cash to allow the company to implement its long-term business plan . our cash balances are kept liquid to support our growing infrastructure needs . the majority of our cash is concentrated in large financial institutions . critical accounting policies and estimates in response to financial reporting release fr-60 , cautionary advice regarding disclosure about critical accounting policies , from the sec , we have selected our more subjective accounting estimation processes for purposes of explaining the methodology used in calculating the estimate , in addition to the inherent uncertainties pertaining to the estimate and the possible effects on the our financial condition . the accounting estimates are discussed below and involve certain assumptions that , if incorrect , could have a material adverse impact on our results of operations and financial condition . revenue recognition and deferred revenue revenue consisting primarily of tuition and fees derived from courses taught by aspen online as well as from related educational resources that aspen provides to its students , such as access to our online materials and learning management system . tuition revenue is recognized pro-rata over the applicable period of instruction .
| gross profit ( exclusive of amortization ) , a non-gaap financial measure , rose to 58 % of revenues or $ 3,049,431 for the 2015 period from 53 % of revenues or $ 2,121,958 for the 2014 period , a year-over-year increase of $ 927,473 or 44 % . costs and expenses general and administrative general and administrative costs for the 2015 period were $ 5,924,263 compared to $ 6,300,229 during the 2014 period , a decrease of $ 375,966 or 6 % . the decrease reflects $ 475,000 decrease in consulting and professional services and a $ 150,000 decrease in stock compensation expense , offset by a $ 176,000 increase in warrant exercise expense , a $ 36,000 increase in travel expenses and a $ 35,000 increase in investor relation expenses . the net decrease also reflects a $ 30,000 decrease in biennial graduation expenses , as there was no graduation in the 2015 period , as well as a reduction of regulatory expenses related to aspen 's now completed reaccreditation review . depreciation and amortization depreciation and amortization costs for the 2015 period rose to $ 528,496 from $ 474,752 for the 2014 period , an increase of $ 53,744 or 11 % . the increase is primarily attributable to higher levels of capitalized technology costs as aspen launched a new academic learning system , desire2learn , in the 2015 period . 38 other income ( expense ) other income for the 2015 period increased to $ 9,196 from $ 1,656 in the 2014 period , an increase of $ 7,540 or 455 % . a significant portion of this increase is due to the sale of excess textbooks . interest expense decreased from $ 659,997 to $ 421,653 , a decrease of $ 238,344 or 36 % . interest was higher each month year over year until the extinguishment in september 2014. before the extinguishment , the monthly increase year over year was due to the monthly interest expense of $ 13,333 , the amortization of the original issue discount and the amortization of debt issuance costs , all associated with the issuance of debentures . in addition , there is the
| 15,870 |
over 50 % of ad patients did not have any culturable gram-negative flora . our extensive preclinical and mechanism of action data demonstrate that fb-401 improves ad disease parameters by driving tissue repair and anti-inflammation as well as potentially suppressing harmful bacteria like s. aureus . specifically , forte believes that fb-401 : drives immune pathways that are defective ; potentially suppresses s. aureus growth ; and improves skin barrier function . to date , a phase 1/2a study has been completed with pediatric and adult patients , demonstrating significant reduction in ad disease and pruritus ( severe itch ) , as well as control of s. aureus while tapering or eliminating steroid use . in september 2020 , forte initiated a multi-center , placebo-controlled and double-blinded clinical trial of fb-401 which is expected to enroll adolescent and adult ad subjects aged 2 years of age and older . for additional information about the trial , see clinicaltrials.gov using the identifier nct04504279 . in october 2020 , the u.s. food and drug administration ( “ fda ” ) granted fast track designation to fb-401 for the treatment of ad . 63 intellectual property on june 18 , 2020 , we announced the issuance of our seventh u.s. patent ( 10,682,379 ) , broadening protection to include methods for culturing gram-negative bacteria from the skin . together with the six u.s. patents previously issued , we now have extensive patent protection covering the composition and method of use of our technology which is focused on inflammatory skin conditions . in december 2017 , forte entered into an exclusive license agreement with the department of health and human services ( “ dhhs ” ) , as amended in may 2020. under the agreement , the dhhs granted forte an exclusive , sublicensable and worldwide license to certain patent rights under which we may develop and commercialize pharmaceutical and biological compositions comprising gram-negative bacteria for the topical treatment of dermatological diseases and conditions . components of operating results revenue we have no products approved for commercial sale and have not generated any revenue from product sales . in the future , we may generate revenue from product sales , royalties on product sales , license fees , milestones , or other upfront payments if we enter into any collaborations or license agreements . we expect that our future revenue will fluctuate from quarter to quarter for many reasons , including the uncertain timing and amount of any such payments and sales . research and development expenses research and development costs are expensed as incurred . research and development costs consist primarily of salaries and benefits of research and development personnel , costs related to research activities , preclinical studies , clinical trials and drug manufacturing . non-refundable advance payments for goods or services that will be used in future research and development activities are deferred and capitalized and are only expensed when the goods have been received or when the service has been performed rather than when the payment is made . drug manufacturing and clinical trial costs are a component of research and development expenses . the company expenses costs for its drug manufacturing activities performed by contract manufacturing organizations ( “ cmos ” ) , costs for its preclinical and clinical trial activities performed by contract research organizations ( “ cros ” ) and other service providers , as they are incurred , based upon estimates of the work completed over the life of the individual study in accordance with associated agreements . the company uses information it receives from internal personnel and outside service providers to estimate the percentage of completion and therefore the expense to be incurred . we expect our research and development expenses to increase for the foreseeable future as we continue to conduct our ongoing regulatory and development activities , initiate new clinical trials and build our pipeline . the process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming . we may never succeed in achieving marketing approval for any of our product candidates . due to the numerous risks and uncertainties associated with product development , we can not determine with certainty the duration , costs and timing of our clinical trials , and as a result , the actual costs to complete our planned clinical trials may exceed the expected costs . general and administrative expenses general and administrative expenses consist primarily of professional fees for legal , auditing , tax and business consulting services , personnel expenses and travel costs . we expect that general and administrative expenses will increase in the future as we expand our operating activities . in addition , we expect to incur significant additional costs associated with being a sec registrant . these increases will likely include legal fees , costs associated with sarbanes-oxley compliance , accounting fees , directors ' and officers ' liability insurance premiums , and other expenses . acquired in-process research and development expense the company acquired in-process research and development assets in connection with its merger with tocagen . as the acquired in-process research and development assets were deemed to have no current or alternative future use , an expense of $ 32.1 million was recognized in the consolidated statements of operations for the year ended december 31 , 2020 . 64 other expenses , net other expenses , net consists of foreign exchange gains or losses and franchise taxes , partially offset by interest earned on our cash balances . critical accounting policies , significant judgments and use of estimates our consolidated financial statements have been prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) . story_separator_special_tag the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements , as well as the reported expenses incurred during the reporting periods . our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe that the accounting policies discussed below are critical to understanding our historical and future performance , as these policies relate to the more significant areas involving management 's judgments and estimates . while our significant accounting policies are described in note 2 of our consolidated financial statements included elsewhere in this form 10-k , w e believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results . research and development expenses as part of the process of preparing our consolidated financial statements , we are required to estimate our research and development expenses . this process involves reviewing open contracts and commitments , communicating with our personnel to identify services that have been performed for us and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost . we make estimates of our research and development expenses in our consolidated financial statements based on facts and circumstances known to us at that time . if our estimates of the status and timing of services performed differs from the actual status and timing of services performed , we may report amounts that are too high or too low in any particular period . to date , there have been no material differences from our estimates to the amounts actually incurred . stock-based compensation we account for stock-based compensation arrangements with employees , directors and non-employees in accordance with accounting standards codification ( “ asc ” ) 718 , stock compensation . stock-based awards issued by us have been primarily stock options with time-based vesting or performance-based vesting and restricted stock units . asc 718 requires the recognition of compensation expense , using a fair value-based method , for costs related to all stock-based awards . to determine the grant-date fair value of stock-based awards with time-based vesting , we utilize the black-scholes option pricing model , which is impacted by the fair value of our common stock as well as other variables including , but not limited to , the expected term that stock-based awards will remain outstanding , expected common stock price volatility over the expected term of the stock-based awards , risk-free interest rates and expected dividends . prior to the merger with tocagen , there was no public market for forte biosciences ' common stock . as such , the estimated fair values of our common stock underlying our stock-based awards were determined at each grant date by our board of directors , with input from management , based on the information known to us on the grant date , including a review of any recent events and their potential impact on the estimated per share fair value of our common stock . valuations of our common stock were prepared by a third-party valuation firm in accordance with the guidance outlined in the american institute of certified public accountants technical practice aid , valuation of privately held company equity securities issued as compensation ( the “ practice aid ” ) . for stock-based awards with time-based vesting , stock-based compensation is recognized over the period during which an awardee is required to provide services in exchange for the stock-based award , known as the requisite service period ( usually the vesting period ) , on a straight-line basis . for stock-based awards with performance-based vesting , the fair value of the award is recognized as expense when the achievement of the associated performance criteria becomes probable . for both time-based and performance-based stock-based awards , stock-based compensation expense is recognized based on the fair value determined on the date of grant . estimates of the fair value of stock-based awards as of the grant date using the black-scholes option pricing model are affected by assumptions regarding a number of complex variables . changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized . these inputs are subjective and generally require significant analysis and judgment to develop . these inputs are : 65 expected term – the expected term represents the period that our stock-based awards granted is expected to be outstanding and is determined using the simplified method which is based on the mid-point between the vesting period and the end of the contractual term . we have very limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for our stock-based awards . expected volatility – prior to the merger , we did not have any trading history for our common stock , so the expected volatility was estimated based on the average volatility for comparable publicly traded biopharmaceutical companies over a period , where available , equal to the expected term of the stock-based awards . the comparable companies were chosen based on their similar size , life cycle stage or area of specialty . risk-free interest rate – the risk-free interest rate is based on the u.s. treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of the stock-based awards .
| we expect our general and administrative expenses to increase substantially during the next few years as a result of staff expansion , costs associated with being a public company , including higher insurance premiums , legal and accounting fees and other compliance costs associated with operating a public company . in-process research and development assets acquired in connection with the merger , we recognized a charge of $ 32.1 million of acquired in-process research and development expenses for assets with no alternative use for the year ended december 31 , 2020. other expenses , net the increase in other expenses , net of approximately $ 0.2 million was primarily due to foreign currency transaction losses related to contracts denominated in currencies other than the u.s. dollar as a result of differences between the exchange rates on the billing dates and the payment dates . liquidity and capital resources we have no products approved for commercial sale and have not generated any revenue from product sales or out-licenses . we have never been profitable and have incurred operating losses in each year since inception . our net losses were approximately $ 46.5 million for the year ended december 31 , 2020 , which includes a $ 32.1 million charge for in-process research and development expenses . as of december 31 , 2020 , we had an accumulated deficit of approximately $ 51.5 million . we expect to incur significant expenses and increasing operating losses for the foreseeable future as we continue the clinical development of fb-401 . in addition , operating as a sec registrant may involve the hiring of additional financial and other personnel , upgrading financial information systems , and incurring costs associated with operating as a public company . we expect that our operating losses will fluctuate significantly from quarter-to-quarter and year-to-year due to the timing of clinical development programs . prior to the closing of the merger , we had raised net cash proceeds of approximately $ 9.9 million in a series a financing round from private placements of preferred stock . in connection
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capitalized costs include lease acquisition , geological and geophysical work , delay rentals , costs of drilling , completing and equipping successful and unsuccessful oil and gas wells and related internal costs that can be directly identified with acquisition , exploration and development activities , but does not include any cost related to production , general corporate overhead or similar activities . gain or loss on the sale or other disposition of oil and gas properties is not recognized unless significant amounts of oil and gas reserves are involved . no corporate overhead has been capitalized as of december 31 , 2016. the capitalized costs of oil and gas properties , plus estimated future development costs relating to proved reserves , are amortized on a units-of-production method over the estimated productive life of the reserves . unevaluated oil and gas properties are excluded from this calculation . the capitalized oil and gas property costs , less accumulated amortization , are limited to an amount ( the ceiling limitation ) equal to the sum of : ( a ) the present value of estimated future net revenues from the projected production of proved oil and gas reserves , calculated using the average oil and natural gas sales price received by the company as of the first trading day of each month over the preceding twelve months ( such prices are held constant throughout the life of the properties ) and a discount factor of 10 % ; ( b ) the cost of unproved and unevaluated properties excluded from the costs being amortized ; ( c ) the lower of cost or estimated fair value of unproved properties included in the costs being amortized ; and ( d ) related income tax effects . costs in excess of this ceiling are charged to proved properties impairment expense . unevaluated oil and gas properties . unevaluated oil and gas properties consist principally of our cost of acquiring and evaluating undeveloped leases , net of an allowance for impairment and transfers to depletable oil and gas properties . when leases are developed , expire or are abandoned , the related costs are transferred from unevaluated oil and gas properties to oil and gas properties subject to amortization . additionally , we review the carrying costs of unevaluated oil and gas properties for the purpose of determining probable future lease expirations and abandonments , and prospective discounted future economic benefit attributable to the leases . unevaluated oil and gas properties not subject to amortization include the following at december 31 , 2016 and 2015 : replace_table_token_8_th the carrying value of unevaluated oil and gas prospects includes $ 2,284,187 and $ 79,511 expended for properties in south america at december 31 , 2016 and 2015 , respectively . we are maintaining our interest in these properties . stock-based compensation . we use the black-scholes option-pricing model , which requires the input of highly subjective assumptions . these assumptions include estimating the volatility of our common stock price over the expected life of the options , dividend yield , an appropriate risk-free interest rate and the number of options that will ultimately not complete their vesting requirements . changes in the subjective assumptions can materially affect the estimated fair value of stock-based compensation and consequently , the related amount recognized on the statements of operations . 28 story_separator_special_tag left '' > our current financial resources are not sufficient to pay the balance of our planned 2017 capital expenditure budget . accordingly , we expect to seek additional financing during 2017 to support our capital spending plans . we do not presently have any commitments to provide financing needed to fund our capital spending budget and there can be no assurance that such financing will be available on satisfactory terms or at all . if , for any reason , we are unable to fully fund our drilling commitments and operations , we may be subject to penalties or to the possible loss of some or all of our rights and interests in our reeves county properties or other prospects with respect to which we fail to satisfy funding commitments . outlook continued low oil and natural gas prices during 2015 and 2016 and recurring delays in drilling of our serrania prospect in colombia had a significant adverse impact on our business . our financial statements include a “ going concern ” qualification reflecting substantial doubt as to our ability to continue as a going concern . while we have no debt and have reduced our overhead , we continue to operate at a loss in the current low price environment . we have budgeted $ 3.4 million for drilling of two wells on our reeves county , texas property during 2017 and presently lack the financial resources to satisfy our share of budgeted drilling costs . given those financial commitments and continuing negative cash flow from operations , we will be required to seek additional financing to support such commitment . depending upon our ability to secure such financing and the timing and ultimate drilling results on our reeves county , texas property , we may be required to seek additional financing to support day-to-day operations or may be required divest certain assets in order to support operations until such point , if ever , as our revenues increase sufficiently , either through price increases or the addition of production , to cover our operating costs and overhead . we can provide no assurance that our efforts will be sufficient to reverse the trend of operating losses or to provide adequate financial resources to support our share of drilling costs associated with the reeves county , texas property or to sustain operations and retention of our assets pending attainment of profitable operations . contractual obligations . at december 31 , 2016 , our only material contractual obligation requiring determinable future payments on our part was our lease relating to our executive offices . the following table story_separator_special_tag capitalized costs include lease acquisition , geological and geophysical work , delay rentals , costs of drilling , completing and equipping successful and unsuccessful oil and gas wells and related internal costs that can be directly identified with acquisition , exploration and development activities , but does not include any cost related to production , general corporate overhead or similar activities . gain or loss on the sale or other disposition of oil and gas properties is not recognized unless significant amounts of oil and gas reserves are involved . no corporate overhead has been capitalized as of december 31 , 2016. the capitalized costs of oil and gas properties , plus estimated future development costs relating to proved reserves , are amortized on a units-of-production method over the estimated productive life of the reserves . unevaluated oil and gas properties are excluded from this calculation . the capitalized oil and gas property costs , less accumulated amortization , are limited to an amount ( the ceiling limitation ) equal to the sum of : ( a ) the present value of estimated future net revenues from the projected production of proved oil and gas reserves , calculated using the average oil and natural gas sales price received by the company as of the first trading day of each month over the preceding twelve months ( such prices are held constant throughout the life of the properties ) and a discount factor of 10 % ; ( b ) the cost of unproved and unevaluated properties excluded from the costs being amortized ; ( c ) the lower of cost or estimated fair value of unproved properties included in the costs being amortized ; and ( d ) related income tax effects . costs in excess of this ceiling are charged to proved properties impairment expense . unevaluated oil and gas properties . unevaluated oil and gas properties consist principally of our cost of acquiring and evaluating undeveloped leases , net of an allowance for impairment and transfers to depletable oil and gas properties . when leases are developed , expire or are abandoned , the related costs are transferred from unevaluated oil and gas properties to oil and gas properties subject to amortization . additionally , we review the carrying costs of unevaluated oil and gas properties for the purpose of determining probable future lease expirations and abandonments , and prospective discounted future economic benefit attributable to the leases . unevaluated oil and gas properties not subject to amortization include the following at december 31 , 2016 and 2015 : replace_table_token_8_th the carrying value of unevaluated oil and gas prospects includes $ 2,284,187 and $ 79,511 expended for properties in south america at december 31 , 2016 and 2015 , respectively . we are maintaining our interest in these properties . stock-based compensation . we use the black-scholes option-pricing model , which requires the input of highly subjective assumptions . these assumptions include estimating the volatility of our common stock price over the expected life of the options , dividend yield , an appropriate risk-free interest rate and the number of options that will ultimately not complete their vesting requirements . changes in the subjective assumptions can materially affect the estimated fair value of stock-based compensation and consequently , the related amount recognized on the statements of operations . 28 story_separator_special_tag left '' > our current financial resources are not sufficient to pay the balance of our planned 2017 capital expenditure budget . accordingly , we expect to seek additional financing during 2017 to support our capital spending plans . we do not presently have any commitments to provide financing needed to fund our capital spending budget and there can be no assurance that such financing will be available on satisfactory terms or at all . if , for any reason , we are unable to fully fund our drilling commitments and operations , we may be subject to penalties or to the possible loss of some or all of our rights and interests in our reeves county properties or other prospects with respect to which we fail to satisfy funding commitments . outlook continued low oil and natural gas prices during 2015 and 2016 and recurring delays in drilling of our serrania prospect in colombia had a significant adverse impact on our business . our financial statements include a “ going concern ” qualification reflecting substantial doubt as to our ability to continue as a going concern . while we have no debt and have reduced our overhead , we continue to operate at a loss in the current low price environment . we have budgeted $ 3.4 million for drilling of two wells on our reeves county , texas property during 2017 and presently lack the financial resources to satisfy our share of budgeted drilling costs . given those financial commitments and continuing negative cash flow from operations , we will be required to seek additional financing to support such commitment . depending upon our ability to secure such financing and the timing and ultimate drilling results on our reeves county , texas property , we may be required to seek additional financing to support day-to-day operations or may be required divest certain assets in order to support operations until such point , if ever , as our revenues increase sufficiently , either through price increases or the addition of production , to cover our operating costs and overhead . we can provide no assurance that our efforts will be sufficient to reverse the trend of operating losses or to provide adequate financial resources to support our share of drilling costs associated with the reeves county , texas property or to sustain operations and retention of our assets pending attainment of profitable operations . contractual obligations . at december 31 , 2016 , our only material contractual obligation requiring determinable future payments on our part was our lease relating to our executive offices . the following table
| with the planned drilling of our permian basin prospect , assuming a successful well is drilled , lease operating expenses in the u.s. and overall , are expected to increase in 2017. depreciation and depletion expense . depreciation and depletion expense decreased by 60 % to $ 302,782 in 2016 from $ 756,757 in 2015. the decrease in depreciation and depletion was due to decreased production during 2016 and a lower capital costs being completed as a result of impairment charges in 2015. impairment of oil and gas properties . we reported an impairment charge of $ 584,086 during 2016 and $ 1,718,088 during 2015. the charge resulted from the effects of steeply lower commodity prices when applying the ceiling test under the full cost method of accounting . 29 general and administrative expenses . general and administrative expense increased by 19 % to $ 1,830,670 in 2016 from $ 1,541,294 in 2015. the change in general and administrative expense reflects a combination of ( 1 ) a $ 114,445 increase in directors and officers insurance cost attributable to our claims history , ( 2 ) a write-off of $ 262,016 related to the company 's escrow receivable , ( 3 ) $ 47,286 increase in share-based compensation expense attributable to one time option grants in 2016 and ( 4 ) costs associated with strategic initiatives undertaken during 2016 , which resulted in higher legal fees and consulting fees , among others , which increases were partially offset by a decrease in salaries of $ 124,490 due to salary reductions . other income ( expense ) . other income ( expense ) consisted of interest earned on cash balances net of other bank fees and currency losses relating to funds held for operations in colombia . net other income ( expense ) totaled $ 7,206 in 2016 as compared to $ ( 76,570 ) in 2015. the change was attributable to a currency loss of $ 97,103 during 2015. income tax expense . we reported no income tax expense in 2016 as compared to income tax expense of $ 18,865 in 2015. financial condition liquidity and capital resources . at december 31 ,
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we present these supplemental measures because we believe that these measures provide investors and securities analysts with important supplemental information with which to evaluate our performance , long term earnings potential , or liquidity , as applicable , and to enable them to assess our performance on the same basis as management . these supplemental performance measurements may vary from and may not be 42 comparable to similarly titled measures by other companies in our industry . adjusted operating income , adjusted ebitda , adjusted net income , adjusted diluted eps , and free cash flow are not recognized measurements under accounting principles generally accepted in the united states , or gaap , and when analyzing our performance or liquidity , as applicable , investors should ( i ) evaluate each adjustment in our reconciliation of operating and net income to adjusted operating income , adjusted ebitda and adjusted net income , and net cash provided by operating activities to free cash flows , and the explanatory footnotes regarding those adjustments , each as defined under gaap , ( ii ) use adjusted operating income , adjusted ebitda , adjusted net income , and adjusted diluted eps in addition to , and not as an alternative to , operating income , net income or diluted eps , as measures of operating results , and ( iii ) use free cash flows in addition to , and not as an alternative to , net cash provided by operating activities as a measure of liquidity , each as defined under gaap . we have defined the aforementioned non-gaap measures as follows : `` adjusted operating income '' represents operating income before ( i ) certain stock option-based and other equity-based compensation expenses , ( ii ) adjustments related to the amortization of intangible assets , and ( iii ) transaction costs , fees , losses , and expenses , including fees associated with debt prepayments . we prepare adjusted operating income to eliminate the impact of items we do not consider indicative of ongoing operating performance due to their inherent unusual , extraordinary , or non-recurring nature or because they result from an event of a similar nature . `` adjusted ebitda '' represents net income before income taxes , net interest and other expense , and depreciation and amortization and before certain other items , including : ( i ) certain stock option-based and other equity-based compensation expenses , and ( ii ) transaction costs , fees , losses , and expenses , including fees associated with debt prepayments . we prepare adjusted ebitda to eliminate the impact of items we do not consider indicative of ongoing operating performance due to their inherent unusual , extraordinary , or non-recurring nature or because they result from an event of a similar nature . `` adjusted net income '' represents net income before : ( i ) certain stock option-based and other equity-based compensation expenses , ( ii ) transaction costs , fees , losses , and expenses , including fees associated with debt prepayments , ( iii ) adjustments related to the amortization of intangible assets , ( iv ) amortization or write-off of debt issuance costs and write-off of original issue discount , and ( v ) any extraordinary , unusual , or non-recurring items , in each case net of the tax effect calculated using an assumed effective tax rate . we prepare adjusted net income to eliminate the impact of items , net of tax , we do not consider indicative of ongoing operating performance due to their inherent unusual , extraordinary , or non-recurring nature or because they result from an event of a similar nature . `` adjusted diluted eps '' represents diluted eps calculated using adjusted net income as opposed to net income . additionally , adjusted diluted eps does not contemplate any adjustments to net income as required under the two-class method as disclosed in the footnotes to the financial statements . `` free cash flow '' represents the net cash generated from operating activities less the impact of purchases of property and equipment . 43 below is a reconciliation of adjusted operating income , adjusted ebitda , adjusted net income , adjusted diluted eps , and free cash flow to the most directly comparable financial measure calculated and presented in accordance with gaap . replace_table_token_12_th ( a ) reflects stock-based compensation expense for options for class a common stock and restricted shares , in each case , issued in connection with the acquisition of our company by the carlyle group ( the `` acquisition '' ) under the officers ' rollover stock plan . also reflects stock-based compensation expense for equity incentive plan class a common stock options issued in connection with the acquisition under the equity incentive plan . ( b ) reflects amortization of intangible assets resulting from the acquisition . ( c ) fiscal 2015 reflects debt refinancing costs incurred in connection with the refinancing transaction consummated on may 7 , 2014. fiscal 2013 reflects debt refinancing costs incurred in connection with the recapitalization transaction consummated on july 31 , 2012 . ( d ) reflects tax effect of adjustments at an assumed marginal tax rate of 40 % . ( e ) excludes an adjustment of approximately $ 3.4 million , $ 3.1 million , and $ 9.1 million of net earnings for fiscal 2015 , 2014 , and 2013 , respectively , associated with the application of the two-class method for computing diluted earnings per share . 44 factors and trends affecting our results of operations our results of operations have been , and we expect them to continue to be , affected by the following factors , which may cause our future results of operations to differ from our historical results of operations discussed under “ — results of operations. story_separator_special_tag ” business environment and key trends in our markets we believe that the following trends and developments in the u.s. government services industry and our markets may influence our future results of operations : budget deficits and the growing u.s. national debt increasing pressure on the u.s. government to reduce federal spending across all federal agencies together with associated uncertainty about the size and timing of those reductions ; changes in the relative mix of overall u.s. government spending and areas of spending growth , with lower spending on homeland security , intelligence and defense-related programs as overseas operations end , and continued increased spending on cyber-security , advanced analytics , technology integration and healthcare ; c ost cutting and efficiency initiatives , current and future budget reductions , continued implementation of congressionally mandated automatic spending cuts , and other efforts to reduce u.s. government spending , which could cause clients to reduce or delay funding for orders for services or invest appropriated funds on a less consistent or rapid basis or not at all , particularly when considering long-term initiatives and in light of uncertainty around congressional efforts to craft a long-term agreement on the u.s. government 's ability to incur indebtedness in excess of its current limits and generally in the current political environment , not issue task orders in sufficient volume to reach current contract ceilings , alter historical patterns of contract awards , including the typical increase in the award of task orders or completion of other contract actions by the u.s. government in the period before the end of the u.s. government 's fiscal year on september 30 , delay requests for new proposals and contract awards , rely on short-term extensions and funding of current contracts , or reduce staffing levels and hours of operation ; current and continued uncertainty around the timing , extent , nature and effect of congressional and other u.s. government action to address budgetary constraints , the outcome of congressional efforts to craft a long-term agreement on the u.s. government 's ability to incur indebtedness in excess of its current limits and the u.s. deficit , including , the required reductions under the budget control act of 2011 ( as amended by the american taxpayer relief act of 2012 and the consolidated appropriations act , 2014 ) , which provides for automatic spending cuts totaling approximately $ 1.2 trillion between 2013 and 2021 , and the impact of the expiration of the temporary debt limit extension act on march 15 , 2015 , and the means by which the u.s. government addresses such expiration ; delays in the completion of the u.s. government 's budget processes , which have in the past and could in the future delay procurement of the products , services , and solutions we provide ; increased audit , review , investigation and general scrutiny by u.s. government agencies of government contractors ' performance under u.s. government contracts and compliance with the terms of those contracts and applicable laws ; the implementation by u.s. government agencies of approximately $ 90 billion in mandated 2015 sequestration spending cuts , including an estimated $ 45 billion in cuts to the department of defense , as well as further reductions in overseas contingency operations ( `` oco '' ) funding , such as the future reductions from current levels of oco funding in president obama 's proposed fiscal 2016 budget ; the federal focus on refining the definition of “ inherently governmental ” work , including proposals to limit contractor access to sensitive or classified information and work assignments , which will continue to drive pockets of insourcing in various agencies , particularly in the intelligence market ; negative publicity and increased scrutiny of government contractors in general , including us , relating to u.s. government expenditures for contractor services and incidents involving the mishandling of sensitive or classified information ; cost cutting and efficiency and effectiveness efforts by u.s. civilian agencies with a focus on increased use of performance measurement , “ program integrity ” efforts to reduce waste , fraud and abuse in entitlement 45 programs , and renewed focus on improving procurement practices for and interagency use of it services , including through the use of cloud based options and data center consolidation ; u.s. government agencies awarding contracts on a technically acceptable/lowest cost basis , which could have a negative impact on our ability to win certain contracts ; as a result of the u.s. government 's efforts to reduce outlays for contractor costs , we may see a continuing shift toward placement of our consulting staff at client site locations instead of our facilities , which generally results in lower billing rates and could have a negative impact on our revenue ; restrictions by the u.s. government on the ability of federal agencies to use lead system integrators , in response to cost , schedule and performance problems with large defense acquisition programs where contractors were performing the lead system integrator role ; increasingly complex requirements of the department of defense and the u.s. intelligence community , including cyber-security , managing federal health care cost growth and focus on reforming existing government regulation of various sectors of the economy , such as financial regulation and healthcare ; increased competition from other government contractors and market entrants seeking to take advantage of the trends identified above ; legislative and regulatory changes to limitations on the amount of allowable executive compensation permitted under flexibly priced contracts following implementation of interim rules adopted by federal agencies pursuant to the bipartisan budget act of 2013 published on june 24 , 2014 , which substantially further reduce the amount of allowable executive compensation under these contracts and extend these limitations to a larger segment of our executives and our entire contract base ; and efforts by the u.s. government to address organizational conflicts of interest and related issues and the impact of those efforts on us and our competitors .
| the decrease in salaries and salary-related benefits was primarily due to reduced headcount in direct consulting staff throughout fiscal 2015. the decrease in employer retirement plan contributions was due to a decrease in the company 's expected discretionary employer contribution percentage due to a change to the matching program effective april 1 , 2014 , as well as the reduced headcount noted above . cost of revenue as a percentage of revenue was 49.2 % and 49.6 % in fiscal 2015 and fiscal 2014 , respectively . billable expenses 53 billable expenses decreased to $ 1,406.5 million from $ 1,487.1 million , or a 5.4 % decrease . the overall decrease was primarily due to decreases in subcontractor-related expenses and other direct expenses of $ 91.4 million incurred to perform on contracts . direct subcontractor related expenses decreased due to lower demand . billable expenses as a percentage of revenue was 26.7 % and 27.1 % in fiscal 2015 and fiscal 2014 , respectively . general and administrative expenses general and administrative expenses increased to $ 752.9 million from $ 742.5 million , or a 1.4 % increase . this increase was primarily due to an increase in incentive and stock-based compensation of $ 3.5 million and an increase in professional fees and other business expenses of $ 12.0 million . this was partially offset by decreases in employer retirement plan contributions of $ 2.9 million . the decrease in employer retirement plan contributions was due to a decrease in the company 's expected discretionary employer contribution percentage due to a change to a matching program effective april 1 , 2014 , as well as reduced headcount . general and administrative expenses as a percentage of revenue were 14.3 % and 13.6 % for fiscal 2015 and fiscal 2014 , respectively . depreciation and amortization depreciation and amortization decreased to $ 62.7 million from $ 72.3 million , or a 13.4 % decrease , primarily due to a reduction in amortization of intangible assets , as well as a decrease in depreciation expense resulting from the effect of
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however , these maximums will only be considered if the total 15 percent is reached . although currently , the area under foreign ownership in mendoza is approximately 8.6 percent , this law may apply to the company in the future , and could affect the company 's ability to acquire additional real property in argentina . currently , the company owns argentine rural land through two legal entities , including one entity that owns 780 hectares ( 1,880 acres ) and another that owns 54 hectares ( 130 acres ) , all of which is considered land held for cultivation of fruit or vines . because the maximum area for this type of land allowed per non-national is 25,000 hectares , the company is compliant with the law 's limit , were it to apply today . costs of compliance with the law may be significant in the future . currently awld is developing lots for sale to third party builders and is not engaged in any construction activity . twenty-one lots have been sold , and the company expects to close on the sale of these lots and record the deeds during 2017. to date , no deeds have been issued . as of december 31 , 2016 , the company has $ 1,652,180 of lot deposits for pending sales . as reflected in our consolidated financial statements we have generated significant losses from operations ( continuing ) of $ 6,560,871 and $ 6,109,812 for the years ended december 31 , 2016 and 2015 , respectively , consisting primarily of general and administrative expenses , raising substantial doubt that we will be able to continue operations as a going concern . our independent registered public accounting firm included an explanatory paragraph in their report for these years stating that we have not achieved a sufficient level of revenues to support our business and have suffered recurring losses from operations . our ability to execute our business plan is dependent upon our generating cash flow and obtaining additional debt or equity capital sufficient to fund operations . our business strategy may not be successful in addressing these issues and there can be no assurance that we will be able to obtain any additional capital . if we can not execute our business plan ( including acquiring additional capital ) , our stockholders may lose their entire investment in us . if we are able to obtain additional debt or equity capital ( of which there can be no assurance ) , we hope to acquire additional management as well as increase marketing our products and continue the development of our real estate holdings . financings in 2016 and 2015 , we raised , net of repayments , approximately $ 7,056,000 and $ 6,181,000 , respectively of new capital through the issuance of debt and equity . we used the net proceeds from the closings of these private placement offerings for general working capital and capital expenditures . initiatives we have implemented a number of initiatives designed to expand revenues and control costs . revenue enhancement initiatives include expanding marketing , investment in additional winery capacity and developing new real estate development revenue sources . cost reduction initiatives include investment in equipment that will decrease our reliance on subcontractors , plus outsourcing and restructuring of certain functions . our goal is to become more self-sufficient and less dependent on outside financing . quotation on otc bulletin board on january 20 , 2016 finra cleared the request to submit quotations on the otc bulletin board and in otc link by glendale securities , inc. of sherman oaks , california . in addition , the company submitted its application for quotation on the otcqb marketplace and was approved on march 7 , 2016. the first trade on the over-the-counter market occurred on september 23 , 2016 . 27 story_separator_special_tag china , the middle east and europe . general and administrative expenses general and administrative expenses were approximately $ 6,107,000 and $ 5,306,000 from continuing operations for the years ended december 31 , 2016 and 2015 , respectively , representing an increase of approximately $ 801,000 or 15 % . the increase in general and administrative expenses is primarily related to $ 872,615 increase in stock-based compensation related to stock and warrants granted to consultants in exchange for services , and $ 304,000 increase in commission expenses , partially offset by decreases in compensation expense resulting from headcount reductions and the impact of the decline in the value of the argentine peso vis-à-vis the u.s. dollar for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 . 29 depreciation and amortization expense depreciation and amortization expense was approximately $ 65,000 and $ 225,000 during the years ended december 31 , 2016 and 2015 , respectively , a decrease of approximately $ 160,000 or 71 % . it should be noted that approximately an additional $ 103,000 and $ 169,000 of depreciation and amortization expense was capitalized to inventory during the years ended december 31 , 2016 and 2015 , respectively . most of our property and equipment is located in argentina and the gross cost being depreciated declined year-over-year due to the devaluation of the argentine peso relative to the united states dollar . interest expense , net interest expense was approximately $ 208,000 and $ 320,000 during the years ended december 31 , 2016 and 2015 , respectively , representing a decrease of approximately $ 112,000 , or 35 % . the decrease is primarily due to a decrease in amounts due under payment plans for argentine taxes , as well as decreases in convertible debt interest during the period , as well as decreases resulting from to the devaluation of the argentine peso relative to the united states dollar . story_separator_special_tag discontinued operations on november 29 , 2016 , our board of directors determined that it was in the company 's best interest to close down dpec capital and we ceased our broker-dealer operations december 31 , 2016. on february 21 , 2017 , our request to finra for broker-dealer withdrawal ( “ bdw ” ) became effective . awld also owned approximately 96.5 % of mercari communications group , ltd. ( “ mercari ” ) , a public shell corporation current in its sec reporting obligations . on december 20 , 2016 , we entered into a stock purchase agreement with a purchaser , whereby the purchaser agreed to purchase all of our shares or mercari for $ 260,000. the sale of mercari stock was completed on january 20 , 2017 and we received net proceeds after expenses of $ 199,250. liquidity and capital resources we measure our liquidity in variety of ways , including the following : for the years ended december 31 , 2016 2015 cash $ 131,190 $ 110,645 working capital deficiency $ ( 1,643,034 ) $ ( 1,477,183 ) based upon our working capital situation as of december 31 , 2016 , we require additional equity and or debt financing in order to sustain operations . these conditions raise substantial doubt about our ability to continue as a going concern . during the years ended december 31 , 2016 and 2015 , we have relied primarily on private placement equity offerings to third party independent , accredited investors to sustain operations . these offerings were conducted by our wholly-owned subsidiary dpec capital , inc. which was discontinued at year end . during the year ended december 31 , 2016 , we issued 3,146,875 shares of common stock at prices from $ 2.00 to $ 2.50 per share for cash proceeds of $ 7,097,862. during the year ended december 31 , 2015 , we issued 2,821,942 shares of common stock at $ 2.00 per share for cash proceeds of $ 5,643,884 and issued 274,860 shares of common stock at $ 2.50 per share for cash proceeds of $ 687,150. on june 1 , 2016 , the company issued an additional 470,771 common shares for no consideration , to investors who had purchased shares between december 2015 and may 2016 at a price of $ 2.50 per share , in order to effectively reduce the per share price to $ 2.00 per share . all shares were issued to accredited investors in private placement transactions . 30 the proceeds from these financing activities were used to fund our existing operating deficits , expenditures associated with our real estate development projects , enhanced marketing efforts to increase revenues and the general working capital needs of the business . we will need to raise additional capital in order to meet our future liquidity needs for operating expenses , capital expenditures for the winery expansion and to further invest in our real estate development . if we are unable to obtain adequate funds on reasonable terms , we may be required to significantly curtail or discontinue operations . sources and uses of cash for the years ended december 31 , 2016 and 2015 net cash used in operating activities net cash used in operating activities for the years ended december 31 , 2016 and 2015 , amounted to approximately $ 6,470,000 and $ 6,538,000 , respectively . during the year ended december 31 , 2016 the net cash used in operating activities was primarily attributable to the net loss of approximately $ 10,042,000 , adjusted for approximately $ 3,821,000 of non-cash expenses and $ 248,000 cash provided by changes in the levels of operating assets and liabilities . during the year ended december 31 , 2015 the net cash used in operating activities was primarily attributable to the net loss of approximately $ 8,279,000 , adjusted for approximately $ 1,674,000 of non-cash expenses and $ 67,000 cash provided by changes in the levels of operating assets and liabilities . net cash used in investing activities net cash used in investing activities for the years ended december 31 , 2016 and 2015 amounted to approximately $ 549,000 and $ 470,000 , respectively , and was related to the purchase of property and equipment . net cash provided by financing activities net cash provided by financing activities for the years ended december 31 , 2016 and 2015 amounted to approximately $ 7,056,000 and $ 6,181,000 , respectively . for the year ended december 31 , 2016 , the net cash provided by financing activities resulted primarily from the issuance of equity securities for net proceeds of approximately $ 7,098,000 and proceeds from loans payable of approximately $ 68,000 , partially offset by net repayments of debt of approximately $ 110,000. for the year ended december 31 , 2015 , the net cash provided by financing activities resulted primarily from the issuance of equity securities for net proceeds of approximately $ 6,331,000 , partially offset by net repayments of debt of approximately $ 150,000. going concern and management 's liquidity plans the accompanying financial statements have been prepared assuming that we will continue as a going concern , which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business . as discussed in note 2 to the accompanying consolidated financial statements , we have not achieved a sufficient level of revenues to support our business and development activities and have suffered substantial recurring losses from operations since our inception , which conditions raise substantial doubt that we will be able to continue operations as a going concern . the accompanying consolidated financial statements do not include any adjustments that might be necessary if we were unable to continue as a going concern . 31 based on current cash on hand and subsequent activity as described herein , our cash-on-hand only allows us to operate our business operations on a month-to-month basis . because of our limited cash availability , we have scaled back our operations to the extent possible .
| or 55 % . hotel room and event revenues were approximately ars $ 12.5 million and ars $ 7.9 million during both years ended december 31 , 2016 and 2015 , representing an increase of approximately ars $ 4.6 million , or 58.6 % due to higher occupancy and average room rates . restaurant revenues were approximately ars $ 4.7 million and 4.8 million during the years ended december 31 , 2016 and 2015. argentine winemaking revenues were approximately ars $ 7.7 million and 3.3 million during the years ended december 31 , 2016 and 2015 , respectively , representing an increase of approximately ars $ 4.4 million or 131.8 % , resulting from an expansion of distribution channels and additional investments in marketing and sales staff . other revenues , including golf , tennis and agricultural revenues , were ars $ 1.7 million and ars $ 1.1 million during the years ended december 31 , 2016 and 2015 , respectively . the increase of ars $ 0.6 million is primarily due to an increase in agricultural revenues . gross loss we generated a gross loss of approximately $ 234,000 from continuing operations for the year ended december 31 , 2016 as compared to a gross loss of approximately $ 359,000 from continuing operations for the year ended december 31 , 2015 , representing a decrease of $ 125,000 or 35 % . the variance results primarily from the impact of the decline in the value of the argentine peso vis-à-vis the u.s. dollar for the year ended december 31 , 2016 compared to the year ended december 31 , 2016. cost of sales , which consists of raw materials , direct labor and indirect labor associated with our business activities , decreased by $ 465,000 from $ 2,226,000 for the year ended december 31 , 2015 to $ 1,761,000 for the year ended december 31 , 2016. the $ 603,000 increase in wine and hotel costs was offset by a $
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selling , general and administrative the following table details our selling , general and administrative ( “ sg & a ” ) expense by operating segment for the years ended september 30 , 2012 and 2011 : replace_table_token_10_th the increase in sg & a expense in the systems segment was was due in part to approximately $ 0.7 million in higher incentive compensation expense resulting from the higher revenues , gross profit and operating results for the year ended september 30 , 2012 , versus the prior year and a decrease in the cash surrender value of officer life insurance policies of approximately $ 1.0 million , related to a policy on our former chief executive , who became deceased in fiscal 2012. the increase in the service & system integration segment was due to an increase in incentive compensation expense from the more favorable revenue , gross profit and overall operating results for the year ended september 30 , 2012 versus the comparable period in the prior year . proceeds from officer life insurance settlement we recognized approximately $ 2.1 million for the settlement from a life insurance policy for our former chief executive officer , who died during fiscal 2012. we received the cash proceeds from this settlement subsequent to year end , in october 2012 . 22 other income/expenses the following table details our other income/expenses for the years ended september 30 , 2012 and 2011 : replace_table_token_11_th other income ( expense ) , net , for the years ended september 30 , 2012 and 2011was not significant nor was the change from the prior year period to that of the current year . income taxes the company recorded an income tax benefit of approximately $ 1.7 million , which reflected an effective tax benefit rate of ( 36 ) % for the year ended september 30 , 2012 , compared to income tax expense of approximately $ 0.3 million for the year ended september 30 , 2011 , which reflected an effective tax rate of 48 % . we realized a tax benefit for the year ended september 30 , 2012 , despite the fact that we had positive earnings before taxes for the year . this was because we reduced the valuation allowance on our deferred tax assets , which had been accumulated over the past several years . the recording and ultimate reversal of valuation allowances for our deferred tax asset requires significant judgment associated with past and projected performance . in assessing the realizability of deferred tax assets , we consider our taxable future earnings and the expected timing of the reversal of temporary differences . in prior years , we recorded a valuation allowance which reduced the gross deferred tax asset to an amount that we believed was more likely than not to be realized because our inability to project future profitability beyond fiscal year 2012 in the u.s. and cumulative losses incurred in recent years in the united kingdom represented sufficient negative evidence to record a valuation allowance against certain deferred tax assets . as of september 30 , 2012 , management assessed the positive and negative evidence in the u.s operations , and estimated we will have sufficient future taxable income to utilize the existing deferred tax assets . significant objective positive evidence included the cumulative profits that we realized over the most recent years . this evidence enhances our ability to consider other subjective evidence such as our projections for future growth . other factors we considered are the likelihood for continued royalty income in future years , and our expectation that the service and systems integration segment will continue to be profitable in future years . on the basis of this evaluation , as of september 30 , 2012 , we have concluded that our us deferred tax asset is more likely than not to be realized . therefore , we reversed the u.s. valuation allowance of $ 3.0 million , resulting in an overall tax benefit for the year ended september 30 , 2012. it should be noted however , that the amount of the deferred tax asset realized could be adjusted in future years , if estimates of taxable income during the carryforward periods are reduced , or if objective negative evidence in the form of cumulative losses is present . we continue to maintain a full valuation allowance against our united kingdom deferred tax assets as we have experienced cumulative losses and do not have any indication that the operation will be profitable in the future to an extent that will allow us to utilize much of our net operating loss carryforwards . to the extent that actual experience deviates from our assumptions , our projections would be affected and hence our assessment of realizability of our deferred tax assets may change . liquidity and capital resources our primary source of liquidity is our cash and cash equivalents , which increased by approximately $ 4.6 million to $ 20.5 million as of september 30 , 2012 from $ 15.9 million as of september 30 , 2011. at september 30 , 2012 , cash equivalents consisted of money market funds which totaled $ 3.5 million . 23 significant sources of cash for the year ended september 30 , 2012 included net income of approximately $ 6.6 million , an increase in a/p and accrued expenses of approximately $ 1.6 million , an increase in deferred revenue of approximately $ 0.8 million , a decrease in inventories of approximately $ 0.5 million , a decrease in accounts receivable of approximately $ 0.8 million , a decrease in cash surrender value of officers ' life insurance of approximately $ 0.9 million and depreciation and amortization of approximately $ 0.4 million . story_separator_special_tag offsetting these sources of cash , significant uses of cash were an increase in officer life insurance settlement receivable of approximately $ 2.2 million , a decrease in deferred tax assets of approximately $ 2.9 million , an increase in other assets of approximately $ 0.7 million , purchases of property and equipment of $ 0.6 million and payment of dividends of approximately $ 0.8 million . cash held by our foreign subsidiaries located in germany and the united kingdom totaled approximately $ 9.8 million as of september 30 , 2012 and $ 5.6 million as of september 30 , 2011. this cash is included in our total cash and cash equivalents reported above . we consider this cash to be permanently reinvested into these foreign locations because repatriating it would result in unfavorable tax consequences . consequently , it is not available for activities that would require it to be repatriated to the u.s. if cash generated from operations is insufficient to satisfy working capital requirements , we may need to access funds through bank loans or other means . there is no assurance that we will be able to raise any such capital on terms acceptable to us , on a timely basis or at all . if we are unable to secure additional financing , we may not be able to complete development or enhancement of products , take advantage of future opportunities , respond to competition or continue to effectively operate our business . based on our current plans and business conditions , management believes that the company 's available cash and cash equivalents , the cash generated from operations and availability on our lines of credit will be sufficient to provide for the company 's working capital and capital expenditure requirements for the foreseeable future . 24 critical accounting policies our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . on an on-going basis , we evaluate our estimates , including those related to uncollectible receivables , inventory valuation , goodwill and intangibles , income taxes , deferred compensation , revenue recognition , retirement plans , restructuring costs and contingencies . we base our estimates on historical performance and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements : revenue recognition ; valuation allowances , specifically the allowance for doubtful accounts and net deferred tax asset valuation allowance ; inventory valuation ; intangibles ; and pension and retirement plans . revenue recognition the company recognizes product revenue from customers at the time of transfer of title and risk of loss which is generally at the time of shipment , provided that persuasive evidence of an arrangement exists , the price is fixed or determinable and collectability of sales proceeds is reasonably assured . we include freight billed to our customers as sales and the related freight costs as cost of sales . the company reduces revenue for estimated customer returns . the company recognizes revenue from software licenses when persuasive evidence of an arrangement exists , delivery of the product has occurred and the fee is fixed or determinable and collectability is probable . when delivery of services accompany software sales , and vendor specific objective evidence does not exist , and the only undelivered element is services that do not involve significant modification , or customization , of software , then the entire fee is recognized as the services are performed . if no pattern of performance is discernible , the fee is recognized straight line over the service period . the company also offers training , maintenance agreements and support services . the company has established fair value on its training , maintenance and support services based on prices charged in separate sales to customers at prices established and published in its standard price lists . these prices are not discounted . revenue from these service obligations under maintenance contracts is deferred and recognized on a straight-line basis over the contractual period , which is typically three to twelve months , if all other revenue recognition criteria have been met . support services provided on a time and material basis are recognized as provided if all of the revenue recognition criteria have been met for that element and the support services have been provided . training revenue is recognized when performed . in certain multiple-element revenue arrangements , the company is obligated to deliver to its customers multiple products and or services ( “ multiple elements ” ) . in these transactions , the company allocates the total revenue to be earned under the arrangement among the various elements based on the company 's best estimate of the standalone selling price . the allocation is based on vendor specific objective evidence , third party evidence or estimated selling price when that element is sold separately . the company recognizes revenue related to the delivered products or services only if the above revenue recognition criteria are met and the delivered element has standalone value . in october 2009 , the fasb issued accounting standards update ( “ asu ” ) 2009-13 - “ multiple-deliverable revenue arrangements-a consensus of the fasb emerging issues task force ” ( “ asu 2009-13 ” ) and asu 2009-14 - “ certain revenue arrangements that contain software elements. ” ( “ asu 2009-14 ” ) .
| revenues in the systems segment increased from $ 7.8 million for fiscal 2011 to $ 11.1 million for fiscal 2012 for an increase of approximately $ 3.3 million , while , in our service and system integration segment revenues increased by approximately $ 7.8 million from $ 65.8 million the year ended september 30 , 2011 to $ 73.7 million for the year ended september 30 , 2012. the revenue increase in the systems segment was largely driven by higher royalty revenues which were $ 6.4 million for fiscal 2012 versus $ 1.7 million in fiscal 2011. royalty revenues are particularly significant because there is no cost of sales associated with royalty revenues , hence the profit margin is 100 % on this revenue . this $ 4.7 million increase in royalty revenue was partially offset by lower product revenue in fiscal 2012 versus fiscal 2011 which decreased product revenue by $ 1.4 million . in the service and system integration segment we experienced significant growth in both product and service revenues . product revenues for the segment increased by $ 6.3 million which was a 13 % increase from $ 49.1 million in fiscal 2011 to $ 55.4 million in fiscal 2012. service revenue in the segment increased by $ 1.6 million which was a 9 % increase from $ 16.7 million in fiscal 2011 to $ 18.3 million in fiscal 2012. the product revenue increase was derived in large part from our german operation , where product sales increased by $ 4.1 million . this increase was due substantially to a significant contract with a large european telecommunications customer , pursuant to which we were engaged as a significant supplier for their global it security infrastructure build out . the increase in services revenue in the segment was derived entirely from our german operation and was also as a result of this telecommunications customer . in assessing the outlook for fiscal 2013 , anticipating that we will not realize significant royalty revenue , we must assume a less optimistic view for the systems segment for next
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we have completed public offerings of common stock and pre-funded warrants in which we have raised an aggregate $ 266.5 million , including our initial public offering in july 2015. in april 2020 , we entered into a revenue interest financing agreement , or the 86 revenue interest financing agreement , with healthcare royalty partners iv , l.p. , or hcr , for up to $ 75.0 million . as of december 31 , 2020 , our consolidated cash , cash equivalents and marketable securities were $ 135.4 million , of which $ 0.7 million was held by chiasma ( israel ) ltd. , our wholly owned israeli subsidiary . in april 2020 , we entered into an open market sales agreement , or atm agreement , for “ at the market offerings ” under which we may offer and sell from time to time shares of our common stock having an aggregate offering price of up to $ 60.0 million through jefferies , acting as our sales agent or principal . to date , we have not sold any common stock under the atm agreement . we have incurred significant operating losses since our inception . our net loss was $ 74.8 million and $ 36.3 million for the years ended december 31 , 2020 and 2019 , respectively . as of december 31 , 2020 , we had an accumulated deficit of $ 347.7 million . we expect to incur significant operating losses over the next several years . these losses , combined with prior losses will continue to have an adverse effect on our cash resources , stockholders ' equity and working capital . we plan to invest in our u.s. commercial launch and the manufacturing of octreotide capsules for market consumption including manufacturing scale-up activities , and transitioning the open label extension portions of both our international phase 3 chiasma optimal clinical trial of octreotide capsules in acromegaly and our international phase 3 mpowered clinical trial of octreotide capsules in acromegaly for patients outside of the united states to an expanded access program , where applicable , and macro registry . in addition , we plan to prepare and submit an maa to the ema , seeking potential regulatory approval or oral octreotide as a treatment for acromegaly in the european union in mid-2021 . due of the numerous risks and uncertainties facing our company and associated with developing and commercializing pharmaceutical products generally , we are unable to predict the extent of any future losses or when we will become profitable , if at all . we plan to continue to fund our losses from operations and capital funding needs from existing balances of cash , cash equivalents and marketable securities and potentially through equity financings . we may also opportunistically consider license and collaboration agreements with potential partners or convertible debt financing to the extent such sources are identified and available . if our anticipated u.s. revenues are insufficient to fund our operations to attaining and sustaining profitability , additional financing may be required . such financing , if required , may not be available on a timely basis on terms acceptable to us , or at all . if we are not able to secure adequate additional funding when required , we may be forced to make reductions in spending , extend payment terms with suppliers , suspend or curtail our development opportunities , or it may negatively impact our ability to adequately fund or delay our potential commercial preparations or launch readiness outside the united states if mycapssa is approved by the ema . any of these actions could materially harm our business , results of operations and future prospects . failure to successfully commercialize mycapssa in acromegaly will prevent us from achieving profitability and positive cash flows , which could raise significant concerns about our continued viability as a business . covid-19 update in march 2020 , the world health organization declared the novel strain of coronavirus , or covid-19 , a global pandemic and recommended containment and mitigation measures worldwide . the covid-19 pandemic has and will continue to affect economies and businesses around the world . we continue to closely monitor the impact of covid-19 on our business and have implemented steps to ensure the well-being of our employees as well as the patients and health care professionals involved in the disease state registry for acromegaly that we have sponsored . we have not observed any significant disruptions to our manufacturing supply chain to date due to the pandemic . however , the pandemic has caused us to modify our business practices , including taking steps to protect our employees and the broader community , such as curtailing or modifying employee travel , reducing access to our offices , moving employees to remote work where appropriate , and cancelling in-person participation in meetings . in addition , the intensification of the pandemic throughout the united states beginning in the fourth quarter of 2020 has impacted physician outreach efforts across the biopharmaceutical industry . as with other commercial companies , we are experiencing the effects in our business , as the pandemic continues to force office closures , reduce in-person physician and patient interactions as well as in-person sales call opportunities . additionally , prescriptions received for mycapssa take longer than anticipated to convert to commercial patients on therapy due to physician office shutdowns and their staffs ' remote working conditions . we are monitoring developments carefully and leveraging available technologies at our disposal to adjust to the pandemic challenges that we currently face , including increasing our digital promotion and engagement efforts and equipping and training our salesforce to conduct remote interactions . commercial manufacturing supply we began implementing launch readiness plans in 2019 in preparation for a commercial launch of mycapssa capsules in the united states , pending the fda 's approval of our nda . story_separator_special_tag following fda approval of our nda and to secure commercial supply of mycapssa , we submitted our “ changes being effected in 30 days ” supplement , cbe-30 supplement , to our nda in june 2020 to provide for the approval of our primary commercial manufacturer of generic active pharmaceutical ingredient , or api , octreotide acetate and one of its large-scale manufacturing sites . following the fda 's acceptance of our cbe-30 supplement for review , in september 2020 , we began to distribute commercial product as part of our u.s. commercial launch while the fda 's review of the 87 supplement was pending . the fda approved the cbe-30 supplement in december 2020. at this time , we expect to continue to have sufficient commercial supply of mycapssa to support our commercial launch . in order to secure an additional commercial source of api , we submitted a prior approval supplement to include in our nda another commercial manufacturer of api and one of its large-scale manufacturing sites . this manufacturing supplement was accepted for review by the fda in january 2021 and the fda set a pdufa target date in the second quarter of 2021 for the completion of its review . financial overview product revenue , net we began to recognize product revenues net of discounts , fees and other incentives from the sale of mycapssa in the united states in september 2020. cost of goods sold cost of goods sold includes direct and indirect costs related to the manufacturing and distribution of mycapssa , including active pharmaceutical ingredient , or api , and other raw materials , third party manufacturing costs and other overhead costs , associated with mycapssa . selling , general and administrative selling , general and administrative expenses consist primarily of salaries and related benefits , including stock-based compensation , related to our executive , finance , information technology , legal , marketing , patient services , sales , medical affairs and support functions . other selling , general and administrative expenses include facility-related costs not otherwise allocated to research and development expenses , travel expenses for our selling , general and administrative personnel and professional fees for auditing , tax , and corporate , litigation , and intellectual property-related legal services . prior to the release of our positive top-line chiasma optimal phase 3 data in july 2019 , our marketing expenses were immaterial . following the positive top-line data , we incurred pre-commercial marketing related expenses prior to fda approval . following the fda approval in june 2020 , we incurred increased commercial expenses as we began to commercialize mycapssa in the united states . we anticipate future increases in selling expenses , as we continue with our commercialization of octreotide capsules and grow our operations . research and development research and development expenses consist of expenses incurred in performing research and development activities , including compensation and benefits for full-time research and development employees , an allocation of facilities expenses , overhead expenses , nonclinical pharmacology studies , manufacturing process-development and scale-up activities , clinical trial and related clinical and pre-approval manufacturing expenses , fees paid to contract research organizations , or cros , investigative sites , and other external expenses . in the early phases of development , our research and development costs included expanding our technology platform as well as early development of specific product candidates . the majority of our research and development expenses has been spent on the development of octreotide capsules , including pre-approval manufacturing expenses , manufacturing of clinical trial material , manufacturing process development and validation , regulatory and clinical activities , and our tpe platform . now that mycapssa has been approved by the fda , manufacturing costs related to the production of commercial supplies of mycapssa are no longer captured in research and development expense but are capitalized to inventory . we expense research and development costs as incurred . we have limited research and discovery functions and are currently not materially investing in those areas . we have focused our resources on the clinical development of octreotide capsules , including our two international phase 3 trials , chiasma optimal and mpowered . product candidates in late stages of development generally have higher development costs than those in earlier stages of development , primarily due to the increased size and duration of late-stage clinical trials . we plan to transition the open label extension portions of both our international phase 3 chiasma optimal clinical trial of octreotide capsules in acromegaly and our international phase 3 mpowered clinical trial of octreotide capsules in acromegaly for patients outside of the united states to an expanded access program , where applicable , as well as continue the macro registry . 88 interest and other income , net interest and other income , net consists of changes in the fair value of the embedded derivative liabilities related to our revenue interest financing agreement , in addition to interest income earned on our investments . interest expense interest expense consists primarily of interest expense associated with our revenue interest financing agreement . provision ( benefit ) for income taxes we are subject to federal and state income taxes for earnings generated in the united states , and foreign taxes on earnings of our wholly-owned israeli subsidiary . our consolidated tax expense is primarily affected by the mix of our foreign subsidiary permanent items , discrete items , and unrecognized tax benefits and to a lesser extent our taxable income ( loss ) in the united states . story_separator_special_tag % change ( $ in thousands ) cost of goods sold $ 61 $ — $ 61 * * not a meaningful percentage all product costs incurred prior to fda approval of mycapssa in june 2020 were expensed as research and development expenses . as a result , our cost of goods sold primarily consist of our costs associated with final packaging and manufacturing overhead .
| results of operations comparison for the years ended december 31 , 2020 and 2019 the following tables set forth , for the periods indicated , our results of operations and the change between the specified periods expressed as a percent increase or decrease : product revenue , net 2020 2019 $ change % change ( $ in thousands ) product revenue , net $ 1,106 $ — $ 1,106 * * not a meaningful percentage product revenues , net represent u.s. sales from mycapssa , which was approved by the fda in june 2020 which we began selling in september 2020. cost of goods sold 2020 2019 $ change
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on august 8 , 2014 , we entered into a new commercial lease agreement with the legacy group inc. , to lease office space in seattle , washington in conjunction with expiration of the current office space lease with fred hutchinson research center on november 29 , 2014. the lease provided for monthly rent payments of $ 16,695 from december 1 , 2014 through june 30 , 2015 , $ 17,172 from july 1 , 2015 through june 30 , 2016 and $ 17,649 from july 1 , 2016 through june 30 , 2017. on october 2015 , we terminated the lease with the legacy group and entered into another commercial lease with the same landlord for similar office space which terminated at the end of 2016. for the year ended december 31 , 2016 , we incurred $ 301,666 of rent expense for the lease . on august 3 , 2016 , we entered into a one year commercial lease agreement with ww 107 spring street llc to lease office space at 107 spring street , seattle , washington for $ 2,465 per month . critical accounting policies and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states , or gaap . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and expenses . on an ongoing basis , we evaluate these estimates and judgments , including those described below . we base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances . these estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results and experiences may differ materially from these estimates . while our significant accounting policies are more fully described in note 3 to our financial statements , we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we use in the preparation of our financial statements . revenue recognition the company is not currently recognizing any revenue and all the revenue earned from testing services were generated by nrlbh . as a result of our sale of 81 % of the outstanding stock in the nrlbh on december 16 , 2015 all of the revenue generated by the nrlbh is included in discontinued operations for the year ended december 31 , 2015 . 44 fair value measurements the company records recurring and non-recurring financial assets and liabilities as well as all non-financial assets and liabilities subject to fair value measurement at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants . these fair value principles prioritize valuation inputs across three broad levels . level 1 inputs are quoted prices ( unadjusted ) in active markets for identical assets or liabilities . level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability , either directly or indirectly through market corroboration , for substantially the full term of the financial instrument . level 3 inputs are unobservable inputs based on the company 's assumptions used to measure assets and liabilities at fair value . an asset or liability 's classification within the various levels is determined based on the lowest level input that is significant to the fair value measurement . intangible assets intangible assets consist of intellectual property and software acquired . intangibles are reviewed at least annually for impairment or whenever events or changes in circumstances indicate that the carrying value of the assets might not be recoverable . an impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount . estimating future cash flows related to an intangible asset involves significant estimates and assumptions . if our assumptions are not correct , there could be an impairment loss or , in the case of a change in the estimated useful life of the asset , a change in amortization expense . we have evaluated our research and development pipeline , and as a result , have changed our plans to develop and invest further in the acueity patents and technologies . because of these changed business plans related to the acueity assets , we have re-evaluated the assets for potential impairment . we have concluded that these assets are partially impaired and have recorded asset impairment charges of $ 718,970 for the year ended december 31 , 2016 to adjust the carrying value of these intangible assets to their estimated fair values as of december 31 , 2016. we determined the fair values of the acueity intangibles using an income approach ( level 3 of the fair value hierarchy ) . for purposes of the income approach , fair value was determined based on the present value of estimated future cash flows that a market participant could be expected to generate from the development of products using the patented technology we acquired in the acueity transaction , discounted at an appropriate risk-adjusted rate reflecting the weighted average cost of capital for a potential market participant . the discount rate used in valuation for these intangible assets was approximately 18 % . the estimated future cash flows , including an estimate of long-term future growth rates , reflect our own assumptions of what market participants would utilize to price the assets pursuant to asc 820 , fair value measurements . story_separator_special_tag share-based payments we follow the provisions of the financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) topic 718 , compensation – stock compensation ( “ asc 718 ” ) , which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees , non-employee directors , and consultants , including employee stock options . stock compensation expense based on the grant date 's fair value was estimated in accordance with the provisions of asc 718 and is recognized as an expense over the requisite service period . the fair value of each option grant is estimated using the black-scholes option-pricing model , which requires assumptions regarding the expected volatility of our stock options , the expected life of the options , an expectation regarding future dividends on our common stock , and estimation of an appropriate risk-free interest rate . our expected common stock price volatility assumption is based upon the volatility of our stock price . the expected life assumption for stock option grants was based upon the simplified method provided for under asc 718-10 , which averages the contractual term of the options of ten years with the average vesting term of four years . the dividend yield assumption of zero is based upon the fact that we have never paid cash dividends and presently have no intention of paying cash dividends in the future . the risk-free interest rate used for each grant was based upon prevailing short-term interest rates over the expected life of the options . 45 we have estimated an annualized forfeiture rate of 10.0 % for options granted . we will record additional expense if the actual forfeitures are lower than estimated and will record a recovery of prior expense if the actual forfeiture rates are higher than estimated . story_separator_special_tag style= '' font : 10pt times new roman , times , serif ; margin : 0pt 0 ; text-indent : 0.5in '' > we have a history of operating losses as we have focused our efforts on raising capital and building our products and services in our pipeline . our consolidated financial statements are prepared using generally accepted accounting principles in the united states of america applicable to a going concern , which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business . we have incurred net losses and negative operating cash flows since inception . for the year ended december 31 , 2016 , we recorded a net loss of approximately $ 6.4 million and used approximately $ 5.4 million of cash in operating activities . as of december 31 , 2016 , we had approximately $ 3.0 million in cash and cash equivalents and working capital of approximately $ 2.2 million . we have not yet established an ongoing source of revenue sufficient to cover our operating costs and allow us to continue as a going concern . our ability to continue as a going concern is dependent our obtaining adequate capital to fund operating losses until we become profitable . we can give no assurances that any additional capital that we can obtain , if any , will be sufficient to meet our needs , or that any such financing will be obtainable on acceptable terms . if we are unable to obtain adequate capital , we could be forced to cease operations or substantially curtail our commercial activities . these conditions raise substantial doubt as to our ability to continue as a going concern . the accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities should we be unable to continue as a going concern . during the first quarter of 2015 , we sold a total of 176,879 shares of common stock to aspire capital under the stock purchase agreement dated november 8 , 2013 with aggregate gross proceeds to us of $ 4,292,349. no shares remain available for sale to aspire under the terms of the november 8 , 2013 agreement with them and the agreement was subsequently terminated . on may 26 , 2015 , we entered into a new common stock purchase agreement with aspire capital fund , llc , which provides that , upon the terms and subject to the conditions and limitations set forth therein , aspire capital is committed to purchase up to an aggregate of $ 25.0 million of shares of our common stock over the 30-month term of the purchase agreement . concurrently with entering into the purchase agreement , we also entered into a registration rights agreement with aspire capital , in which we agreed to file one or more registration statements , as permissible and necessary to register under the securities act of 1933 , registering the sale of the shares of our common stock that have been and may be issued to aspire capital under the purchase agreement . on november 11 , 2015 , we terminated the may 26 , 2015 agreement with aspire and entered into a new common stock purchase agreement which provides that , upon the terms and subject to the conditions and limitations set forth therein , aspire capital is committed to purchase up to an aggregate of $ 25.0 million of our shares of common stock over the approximately 30-month term of the purchase agreement . concurrently with entering into the purchase agreement , we also entered into a registration rights agreement with aspire capital in which we agreed to register 405,747 shares of our common stock . 47 in june 2015 , we sold 96,933 shares of common stock at the purchase price of $ 17.25 per share and pre-funded warrants to purchase 240,733 shares of common stock at a purchase price of $ 17.10 per share for total gross proceeds of $ 5.8 million . as of december 31 , 2015 , all of the pre-funded warrants have been exercised .
| operating expenses : as a result of the sale of nrlbh , operating expenses related to the nrlbh are included in discontinued operations for the year ended december 31 , 2015. total operating expenses from continuing operations were $ 7,968,590 for the year ended december 31 , 2016 , which is a decrease of $ 4,659,375 or 37 % , from the year ended december 31 , 2015. operating expenses from continuing operations for 2016 consisted of general and administrative ( g & a ) expenses of $ 6,479,193 , r & d expenses of $ 770,427 , and impairment of our acueity intangible assets of $ 718,970. total operating expenses from continuing operations were $ 12,627,965 for the year ended december 31 , 2015 , consisting of g & a expenses of $ 8,846,963 , r & d expenses of $ 2,359,593 , and selling expenses of $ 1,421,409. operating expenses from discontinued operations were $ 5,051,999 , including $ 399,394 in exit costs . selling expenses : we had no selling expenses for the year ended december 31 , 2016 , compared to total selling expense from continuing operations for the year ended december 31 , 2015 of $ 1,421,409. selling expenses from discontinued operations were $ 1,303,425 for the year ended december 31 , 2015.the total decrease in selling expenses from continuing and discontinued operations is due to the sale of the nrlbh in december 2015 , which resulted in the discontinuation of our revenue producing activities at the end of 2015. general and administrative expenses : g & a expenses from continuing operations were $ 6,479,193 for the year ended december 31 , 2016 , a decrease of $ 2,363,770 , or 27 % from the total g & a expenses from continuing operations for the year ended december 31 , 2015 of $ 8,846,963. g & a expenses from discontinued operations were $ 1,665,840 for the year ended december 31 , 2015. g & a expenses consist primarily of personnel and related benefit costs , facilities , professional services , insurance , and public company related expenses . the 2016 decrease in g & a expense from continuing operations and discontinued operations was primarily attributable to the sale of the nrlbh in december 2015 , which resulted in a reduction of g & a expenses related to the operations of the nrlbh , and from the shift in our business strategy at the beginning of 2016 away from commercialization of medical devices towards
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accordingly , we are in the early stages of planning a significant expansion of our aerogel capacity prior to the end of 2023. the expected elements of the completed expansion plan will include the size of the required capacity expansion , the selection of an optimal manufacturing site for the expansion , the appropriate financing structure to fund the project fully and a detailed timeline for the construction and operation of the facility . we had previously completed the design and engineering for a second manufacturing facility to be located in statesboro , georgia . during 2016 , we elected to delay construction of the facility due to our assessment of future demand . in december 2018 , we determined that we will not use the existing design and engineering to construct a second facility in any location . accordingly , we determined that the design and engineering costs were not recoverable and recorded an impairment charge of $ 7.4 million on construction in progress assets during 2018. on september 17 , 2020 , we entered into a contract with a major u.s. automotive original equipment manufacturer to supply fabricated , multi-part thermal barriers for use in the battery system of its next-generation electric vehicles . pursuant to the contract , we are obligated to supply the barriers at fixed annual prices and at volumes to be specified by the customer up to a daily maximum quantity through the term of the agreement , which expires on september 1 , 2026. while the customer has agreed to purchase its requirement for the barriers at locations to be designated from time to time from us , it has no obligation to purchase any minimum quantity of barriers under the contract . in addition , the customer may terminate the contract any time and for any or no reason . all other terms of the contract are generally consistent with the customer 's standard purchase terms , including customary quality and warranty provisions . we are engaged in a strategic partnership with basf to develop and commercialize products for the building materials and other markets . the strategic partnership includes a supply agreement governing the exclusive sale of specified products to basf and a joint development agreement targeting innovative products and technologies . basf has no obligation to purchase any products under the supply agreement . pursuant to the supply agreement , basf may , in its sole discretion , make prepayments to us in the aggregate amount of up to $ 22.0 million during the term of the agreement . we may repay the prepayments to basf at any time in whole or in part for any reason . basf made a prepayment to us of $ 5.0 million during 2018. as of january 1 , 2019 , 25.3 % of any amounts that we invoice for spaceloft a2 sold to basf will be credited against the outstanding balance of the 2018 prepayment . if any amount of the 2018 prepayment remains uncredited at december 31 , 2021 , basf may require that we repay the uncredited amount following a six-week notice period . in january 2019 , basf made an additional prepayment to us of $ 5.0 million . as of january 1 , 2020 , 50 % of any amounts that we invoice for a newly developed product sold to basf will be credited against the outstanding balance of the 2019 prepayment . after december 31 , 2022 , basf may require that we credit 24.7 % of any amounts we invoice for spaceloft a2 sold to basf against the outstanding balance of the 2019 prepayment or may require that we repay the uncredited amount to basf following a six-week notice period . on february 18 , 2020 , we completed an underwritten public offering of 1,955,000 shares of our common stock at an offering price of $ 8.25 per share . we received net proceeds of $ 14.8 million after deducting underwriting discounts and commissions of $ 1.1 million and offering expenses of approximately $ 0.3 million . on november 5 , 2020 , we entered into a sales agreement with b. riley securities , inc. ( “ b . riley securities ” ) with respect to an at-the-market ( “ atm ” ) offering program under which we may offer and sell , from time to time in our sole discretion , shares of our common stock , through b. riley securities as our sales agent . during november and december 2020 , we completed the sale of 714,357 shares at an average price of $ 13.96 per share through our at-the-market offering and received net proceeds of $ 9.5 million after deducting commissions of $ 0.3 million and offering expenses of approximately $ 0.2 million . on march 3 , 2020 , we amended our revolving credit facility with silicon valley bank to extend the maturity date of the facility to april 28 , 2021 and establish certain minimum levels for the minimum adjusted ebitda financial covenant for the extended term . 59 w e further amended our revolving credit facility with silicon valley bank to revise the minimum adjusted ebitda financial covenant on september 25 2020 and to secure a preemptive waiver of the adjusted ebitda financial covenant on december 24 , 2020 , among other things . on march 12 , 2021 , we amended and restated our revolving credit facility with silicon valley bank to extend the maturity date of the revolving credit facility to april 28 , 2022 and to establish certain minimum adjusted ebitda levels with respect to the minimum adjusted ebitda and minimum adjusted quick ratio covenants , as defined . under our revolving credit facility , we are permitted to borrow a maximum of $ 20.0 million , subject to continued covenant compliance and borrowing base requirements . the interest rate applicable to borrowings under the revolving credit facility is based on the prime rate , subject to a minimum rate of 4.00 % per annum . story_separator_special_tag prime rate-based rates vary from prime rate plus 0.75 % per annum to prime rate plus 2.00 % per annum . in addition , we are required to pay a monthly unused revolving line of credit facility fee of 0.50 % per annum of the average unused portion of the revolving credit facility . we intend to extend or replace the facility prior to its maturity . on may 1 , 2020 , our wholly-owned subsidiary , aspen aerogels rhode island , llc ( borrower ) , executed a note for an unsecured loan of $ 3.7 million pursuant to the paycheck protection program ( ppp loan ) under the coronavirus aid , relief , and economic security act ( cares act ) , as amended , and administered by the u.s. small business administration ( sba ) . the borrower conferred with representatives of the sba prior to finalizing the ppp loan . the loan is unsecured , contains customary events of default , carries an interest rate of 1 % per year , and matures on may 1 , 2022. the borrower may repay the loan at any time without penalty . in addition , the borrower is permitted at any time to submit an application to extend the maturity of loan to may 1 , 2025. the borrower may also choose to apply to have the ppp loan forgiven in whole or in part subject to sba guidelines . the potential amount of forgiveness is based on the borrower 's use of loan proceeds for payroll costs , mortgage interest payments , rent and utility costs over either an eight-week or 24-week period following receipt of the loan proceeds . the sba may disapprove of the loan forgiveness application if the agency determines that the borrower was ineligible for the ppp loan . as of december 31 , 2020 , the borrower had not applied for forgiveness . upon application , the borrower may receive loan forgiveness in whole or in part . in addition , the amount of potential loan forgiveness will be reduced if the borrower failed to maintain employee and salary levels during the applicable eight-week or 24-week period following receipt of the loan proceeds . if the borrower applies for forgiveness , and the ppp loan is not forgiven in whole or in part , the borrower will be required to begin to make payments of the principal and accrued interest of the post-forgiveness balance outstanding in equal monthly installments over the remaining term of the loan . if the borrower does not apply for forgiveness by august 19 , 2021 , the borrower will be required to make payments of principal and accrued interest in equal monthly installments over the remaining term of the loan . the borrower used the proceeds of the ppp loan to support ongoing operations and to sustain staffing levels in the east providence , rhode island manufacturing facility despite the unfavorable impact the covid-19 pandemic and volatile energy markets had on its business . in response to the covid-19 pandemic , we have implemented and are following safe practices recommended by public health authorities and other government entities . we continue to focus on the safety and health of our employees , customers and vendors . in addition , we have implemented various precautionary measures , including remote work arrangements , restricted business travel and procedures for social distancing , face coverings and safe hygiene . we continue to monitor public health guidance as it evolves and plan to adapt our practices as appropriate . refer to the section below entitled “ item 1a . risk factors ” for more information concerning risks to our business associated with covid-19 . at present , we are not certain of the extent of the impact that the covid-19 pandemic and global oil market volatility may have on our business . our manufacturing facility remains operational and we have not encountered any significant disruption to our supply chain or our ability to deliver to our customers . however , the demand for our products has been negatively impacted , particularly due to access restrictions on contractors in energy infrastructure facilities , resulting in a significant year-over-year decrease in our total revenue and increase in our net loss . in response to this general uncertainty in the market for our products , we implemented a number of actions in 2020 to reduce expenses , including wage reductions , temporary suspension of board fees and selected reductions to discretionary expenses . in addition , as permitted by the cares act , we elected to defer certain payments of the employer share of social security tax that would otherwise be required to be paid during the period beginning on march 27 , 2020 and ending december 31 , 2020. we also remain prepared to temporarily curtail operations in our east providence , rhode island manufacturing facility as necessary to ensure the safety of our employees or to align capacity with the expected lower demand . our revenue for the year ended december 31 , 2020 was $ 100.3 million , which represented a decrease of $ 39.1 million , or 28 % , from the year ended december 31 , 2019. net loss for the year ended december 31 , 2020 was $ 21.8 million and net loss per share was $ 0.83. net loss for the year ended december 31 , 2019 was $ 14.6 million and net loss per share was $ 0.60 . 60 key metrics and non-gaap financial measures we regularly review a number of metrics , including the following key metrics , to evaluate our business , measure our performance , identify trends affecting our business , formulate financial projections and make strategic decisions . square foot operating metric we price our product and measure our product shipments in square feet .
| the average selling price per square foot of our products increased by $ 0.13 , or 4 % , to $ 3.49 per square foot for the year ended december 31 , 2020 from $ 3.36 per square foot for the year ended december 31 , 2019 . the increase in average selling price principally reflected the impact of price increases enacted in 2020. this increase in average selling price had the effect of increasing product revenue by approximately $ 3.6 million for the year ended december 31 , 2020 . in volume terms , product shipments decreased by 12.1 million square feet , or 30 % , to 28.6 million square feet of aerogel products for the year ended december 31 , 2020 , as compared to 40.7 million square feet in the year ended december 31 , 2019. the decrease in product volume had the effect of decreasing product revenue by approximately $ 40.7 million for the year ended december 31 , 2020. research services revenue decreased by $ 2.0 million , or 82 % , to $ 0.4 million in 2020 from $ 2.4 million in 2019. the decrease was primarily due to our decision to wind down our contract research activities to focus our research and development resources on improving the profitability of our existing business and developing new products and next-generation technology with application in new , high value markets . product revenue as a percentage of total revenue was greater than 99 % of total revenue in 2020 and 98 % of total revenue in 2019. research services revenue was less than 1 % of total revenue in 2020 and 2 % of total revenue in 2019. we expect that product revenue will compose virtually all of our total revenue in the long-term . during 2021 , we expect that the covid-19 pandemic will continue to constrain our revenue to 2020 levels with some potential for additional project-related revenue . when the effects of the covid-19 pandemic recede , we anticipate that our revenue will increase with the elimination of contractor access restrictions in energy infrastructure facilities and as our distribution channel restocks . cost of revenue replace_table_token_10_th total cost of revenue decreased $ 27.4 million ,
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absent this increase , sales to the aerospace and defense market declined approximately 6 % due primarily to cuts in government spending . the decline in sales to the automotive market was primarily due to the phase-out of an interior trim program coupled with soft demand for parts for a specific model of car that had weak demand from consumers . 19 gross profit gross profit as a percentage of sales ( gross margin ) declined to 26.5 % for the year ended december 31 , 2014 , from 29.5 % in 2013. as a percentage of sales , material and direct labor costs collectively increased approximately 1.5 % and overhead as a percentage of sales increased approximately 1.5 % or approximately $ 2.0 million in 2014. the increase in material and direct labor costs was primarily the result of manufacturing inefficiencies incurred as a result of plant moves in the midwest , california and texas as well as an increase in sales for a low-margin contract manufacturing military program . the increase in overhead was primarily due to increased employee health care costs of approximately $ 600,000 due to a higher than typical frequency of large claims , increased compensation and benefits of approximately $ 450,000 due to normal inflationary increases as well as higher overtime incurred as a result of the plant moves , increased plant and equipment maintenance costs of approximately $ 290,000 due to the various plant moves and higher depreciation of approximately $ 220,000 due largely to new molded fiber equipment . selling , general and administrative expenses selling , general , and administrative expenses ( sg & a ) increased 1.0 % to $ 23.8 million for the year ended december 31 , 2014 from $ 23.6 million in 2013. the increase in sg & a for the year ended december 31 , 2014 , is primarily due to higher depreciation costs of $ 160,000 , largely associated with the company 's new erp software system , increased bad debt expense of approximately $ 140,000 due largely to a one-time write-off and increased employee health care costs of approximately $ 184,000 due largely to a higher than typical frequency of large claims , partially offset by lower sales commissions of approximately $ 100,000 due to soft sales compared to the company 's budgeted sales , lower advertising costs incurred of approximately $ 70,000 and lower intangibles amortization of approximately $ 85,000. restructuring costs on january 7 , 2014 , the company committed to move forward with a plan to cease operations at its glendale heights , illinois plant and consolidate operations into its grand rapids , michigan , facility . the company 's decision was in response to a pending significant increase in lease cost , declining sales at the illinois facility , and significant anticipated savings as a result of the consolidation . the consolidation into the michigan facility is complete and the actual costs incurred are included in the table below . on july 16 , 2014 , the company committed to move forward with a plan to cease operations at its costa mesa , california , plant and consolidate operations into its rancho dominguez , california , facility and other ufp facilities . the company 's decision was in response to the december 31 , 2014 , expiration of the lease on the costa mesa facility as well as the close proximity of the two properties . this consolidation is complete and the actual costs incurred through december 31 , 2014 are included in the table below . the company recorded the following restructuring costs associated with the plant consolidations discussed above for the year ended december 31 , 2014 ( in thousands ) : replace_table_token_6_th these costs were reclassified in the 2014 consolidated statement of operations as restructuring costs as follows : $ 1,385,000 from cost of sales , $ 82,000 from selling , general and administrative expenses and $ 89,000 from gain on sales of property , plant and equipment . the company also incurred approximately $ 373,000 and $ 38,000 , in related capital improvements at its michigan and california facilities , respectively , for the year ended december 31 , 2014 . 20 interest expense interest expense net of interest income decreased to approximately $ 108,000 for the year ended december 31 , 2014 from net interest expense of approximately $ 205,000 in 2013. the decrease in interest expense is primarily due to a lower average debt balance as a result of the company 's repayment of term loans in conjunction with the execution of a new revolving credit facility in the fourth quarter of 2013. income taxes the company recorded income tax expense as a percentage of income before income tax expense , of 35.8 % and 34.4 % for the years ended december 31 , 2014 and 2013 , respectively . the increase in the effective tax rate for the year ended december 31 , 2014 is primarily attributable to permanent differences measured against lower pre-tax income as well as additional reserves of approximately $ 150,000 for uncertain tax positions . the company has deferred tax assets on its books associated with net operating losses generated in previous years . the company has considered both positive and negative available evidence in its determination that the deferred tax assets are more likely than not to be realized , and has not recorded a tax valuation allowance at december 31 , 2014. the company will continue to assess whether the deferred tax assets will be realizable and , when appropriate , will record a valuation allowance against these assets . the amount of the net deferred tax asset considered realizable , however , could be reduced in the near term if estimates of future taxable income during the carry-forward period are reduced . story_separator_special_tag liquidity and capital resources the company generally funds its operating expenses , capital requirements , and growth plan through internally generated cash and bank credit facilities . cash flows net cash provided by operations for the year ended december 31 , 2015 was approximately $ 13.1 million and was primarily a result of net income generated of approximately $ 7.6 million , depreciation and amortization of approximately $ 4.9 million , share-based compensation of approximately $ 1.1 million and a decrease in refundable income taxes of approximately $ 2.4 million . these cash inflows and adjustments to income were partially offset by an increase in accounts receivable of approximately $ 1.0 million due to the timing of customer payments in the ordinary course of business , an increase in inventory of approximately $ 1.3 million due to the timing of raw materials purchases and customer shipments and a decrease in accounts payable and accrued expenses of approximately $ 600,000 due to the timing of vendor payments in the ordinary course of business . net cash used in investing activities during the year ended december 31 , 2015 , was approximately $ 16.3 million of which approximately $ 11.5 million was the result of the purchase and renovation of our new corporate headquarters and manufacturing facility in newburyport , ma and approximately $ 4.8 million was the result of other additions of technology , manufacturing machinery and equipment across the company . net cash used in financing activities was approximately $ 1.1 million for the year ended december 31 , 2015 , representing cash used to service term debt of approximately $ 1.0 million , to repurchase shares of common stock of approximately $ 600,000 and to pay statutory withholding for stock options exercised and restricted stock units vested of approximately $ 200,000 , partially offset by excess tax benefits on share-based compensation of approximately $ 350,000 , and net proceeds received upon stock option exercises of approximately $ 350,000. outstanding and available debt the company maintains an unsecured $ 40 million revolving credit facility with bank of america , n.a . the credit facility calls for interest of libor plus a margin that ranges from 1.0 % to 1.5 % or , at the discretion of the company , the bank 's prime rate less a margin that ranges from 0.25 % to zero . in both cases the applicable margin is dependent upon company performance . under the credit facility , the company is subject to a minimum fixed-charge coverage financial covenant as well as a maximum total funded debt to ebitda financial covenant . the company 's $ 40 million credit facility matures on november 30 , 2018 . 21 as of december 31 , 2015 , the company had no borrowings outstanding under the credit facility and the company was in compliance with all covenants under the credit facility . in 2012 , the company financed the purchase of two molded fiber machines through five-year term loans that mature in september 2017. the annual interest rate is fixed at 1.83 % and the loans are secured by the related molded fiber machines . as of december 31 , 2015 , the outstanding balance of the term loan facility was approximately $ 1.9 million . future liquidity the company requires cash to pay its operating expenses , purchase capital equipment , and to service its contractual obligations . the company 's principal sources of funds are its operations and its revolving credit facility . the company generated cash of approximately $ 13.1 million in operations during the year ended december 31 , 2015 , and can not guarantee that its operations will generate cash in future periods . the company 's longer-term liquidity is contingent upon future operating performance . throughout fiscal 2016 , the company plans to continue to add capacity to enhance operating efficiencies in its manufacturing plants . the company may also further expand its newburyport , massachusetts manufacturing plant . the company may consider additional acquisitions of companies , technologies , or products that are complementary to its business . the company believes that its existing resources , including its revolving credit facility , together with cash expected to be generated from operations and funds expected to be available to it through any necessary equipment financings and additional bank borrowings , will be sufficient to fund its cash flow requirements , including capital asset acquisitions , through the next twelve months . stock repurchase program the company accounts for treasury stock under the cost method , using the first-in , first out flow assumption , and includes treasury stock as a component of stockholders ' equity . on june 16 , 2015 , the company announced that its board of directors authorized the repurchase of up to $ 10.0 million of the company 's outstanding common stock . under the program , the company is authorized to repurchase shares through rule 10b5-1 plans , open market purchases , privately negotiated transactions , block purchases or otherwise in accordance with applicable federal securities laws , including rule 10b-18 of the securities exchange act of 1934. the stock repurchase program will end upon the earlier of the date on which the plan is terminated by the board or when all authorized repurchases are completed . the timing and amount of stock repurchases , if any , will be determined based upon our evaluation of market conditions and other factors . the stock repurchase program may be suspended , modified or discontinued at any time , and the company has no obligation to repurchase any amount of its common stock under the program .
| the decrease in overhead was primarily due to decreased employee health care costs of approximately $ 900,000 due to a higher than typical frequency of large claims in 2014 and decreased rent costs of approximately $ 600,000 due to recent plant consolidations , offset by higher depreciation costs of $ 450,000 due largely to a full year of depreciation for our texas building and new molded fiber equipment , as well as depreciation for our new building in newburyport . selling , general and administrative expenses selling , general , and administrative expenses ( sg & a ) increased 0.7 % to $ 24.0 million for the year ended december 31 , 2015 from $ 23.8 million in 2014. the slight increase in sg & a for the year ended december 31 , 2015 , is primarily due to higher technology-related costs of approximately $ 300,000 and higher travel costs of approximately $ 100,000 , primarily due to the company 's erp implementation , partially offset by decreased employee health care costs of approximately $ 250,000 due largely to a higher than typical frequency of large claims in 2014. restructuring costs on march 18 , 2015 , the company committed to move forward with a plan to cease operations at its raritan , new jersey , plant and consolidate operations into its newburyport , massachusetts , facility and other ufp facilities . the company 's decision was in response to a continued decline in business at the raritan facility and the recent purchase of the 137,000-square-foot facility in newburyport . the activities related to this consolidation were substantially complete at december 31 , 2015. the company also relocated all operations in its haverhill , massachusetts , and byfield , massachusetts facilities and plans to relocate certain operations in its georgetown , massachusetts facility to newburyport . the haverhill and byfield relocations were complete at december 31 , 2015 and the georgetown relocation is expected to be complete by june 30 , 2016. the company expects to incur approximately $ 2.1 million in one-time expenses in connection with the massachusetts consolidations . included in this amount are approximately $ 180,000 relating to employee severance payments and relocation costs ,
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