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in addition , acquisitions significantly broadened our product lines and services and expanded our geographic reach , end-user markets and customer base . ongoing initiatives include growing revenue by increasing our penetration of the asian , latin american and european marketplaces , pursuing new products and targeted vertical markets , and by improving our productivity . in accordance with our strategy , we have been investing in our sales and marketing activities , new product development , and “ lean ” efforts across the company . shareholder value will be enhanced through continued emphasis on market expansion , customer satisfaction , new product development , manufacturing efficiency , cost containment , and efficient capital investment . on january 31 , 2017 we completed our acquisition of stahl . stahl is a leading manufacturer of explosion-protected hoists and crane components and is well known for its custom engineering of lifting solutions and hoisting technology . stahl serves independent crane builders and engineering procurement and construction ( epc ) firms , providing products to a variety of end markets including automotive , general manufacturing , oil & gas , steel & concrete , power generation as well as process industries such as chemical and pharmaceuticals . we believe stahl is an excellent expansion of our global product offering . stahl 's strong position with wire rope and electric chain hoists in europe immediately complements our leadership of handheld hoists in that region , and their broad portfolio of atex certified explosion-protected products serving the mining , oil and gas and chemical processing industries significantly extends our global offerings in capability and capacities . our revenue base is geographically diverse with approximately 38 % derived from customers outside the u.s. for the year ended march 31 , 2017. our expansion into the european market with the acquisition of stahl will further expand our geographic diversity . we believe this will help balance the impact of changes that will occur in local economies , as well as benefit the company from growth in emerging markets . as in the past , we monitor both u.s. and eurozone industrial capacity utilization statistics as indicators of anticipated demand for our products . in addition , we continue to monitor the potential impact of other global and u.s. trends including industrial production , energy costs , steel price fluctuations , interest rates , foreign currency exchange rates , and activity of end-user markets around the globe . from a strategic perspective , we are investing in global markets and new products as we focus on our greatest opportunities for growth . we maintain a strong north american market share with significant leading market positions in hoists , lifting , and sling chain , forged attachments , actuators , and digital power and motion control systems for the material handling industry . we seek to maintain and enhance our market share by focusing our sales and marketing activities toward select north american and global market sectors including energy , automotive , heavy oem , entertainment , and construction and infrastructure . regardless of the economic climate and point in the economic cycle , we constantly explore ways to increase our revenue and operating margins as well as further improve our productivity and competitiveness . we have specific initiatives related to improved customer satisfaction , reduced defects , shortened lead times , improved inventory turns and on-time deliveries , reduced warranty costs , and improved working capital utilization . the initiatives are being driven by the continued implementation of our “ lean ” efforts which are fundamentally changing our manufacturing and business processes to be more responsive to customer demand and improving on-time delivery and productivity . in addition to “ lean , ” we are working to achieve these strategic initiatives through product simplification , the creation of centers of excellence , and improved supply chain management . we are also aggressively pursuing cost reduction opportunities to enhance future margins . we continuously monitor market prices of steel . we purchase approximately $ 30,000,000 to $ 40,000,000 of steel annually in a variety of forms including rod , wire , bar , structural , and others . generally , as we experience fluctuations in our costs , we reflect them as price increases or surcharges to our customers with the goal of being margin neutral . 28 we are also looking for opportunities for growth via strategic acquisitions or joint ventures . the focus of our acquisition strategy centers on product line expansion in alignment with our existing core product offering and opportunities for non-u.s. market penetration , such as the stahl acquisition . we operate in a highly competitive and global business environment . we face a variety of opportunities in those markets and geographies , including trends toward increasing productivity of the global labor force and the expansion of market opportunities in asia and other emerging markets . while we continue to execute our long-term growth strategy , we are supported by our solid free cash flow as well as our liquidity position and flexible debt structure . 29 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > general and administrative expenses were $ 68,811,000 and $ 54,874,000 or 11.5 % and 9.5 % of net sales in fiscal 2016 and 2015 , respectively . the fiscal 2016 increase was primarily the result of magnetek acquisition transaction costs of $ 5,746,000 and acquisition-related severance costs of $ 2,300,000. in addition , magnetek and stb added $ 5,774,000 in recurring general and administrated expenses . additional increases are the result of lower information technology salaries capitalized as part of the global erp systems project as well as general inflationary increases . foreign currency translation had a $ 2,622,000 favorable impact on general and administrative expenses . amortization of intangibles was $ 5,024,000 and $ 2,266,000 in fiscal 2016 and 2015 , respectively . the increase relates to additional amortization of intangibles related to the magnetek and stb acquisitions . interest and debt expense was $ 7,904,000 and $ 12,390,000 in fiscal 2016 and 2015 , respectively . story_separator_special_tag 32 we believe that our cash on hand , cash flows , and borrowing capacity under our new revolving credit facility will be sufficient to fund our ongoing operations and budgeted capital expenditures for at least the next twelve months . this belief is dependent upon successful execution of our current business plan and effective working capital utilization . no material restriction exists in accessing cash held by our non-u.s. subsidiaries . additionally we expect to meet our u.s. funding needs without repatriating non-u.s. cash and incurring incremental u.s. taxes . as of march 31 , 2017 , $ 72,190,000 of cash and cash equivalents were held by foreign subsidiaries . through january 31 , 2017 the company had outstanding $ 131,500,000 under a revolving credit facility ( `` replaced revolving credit facility '' ) . the replaced revolving credit facility provided availability up to a maximum of $ 225,000,000 and had an initial term ending january 23 , 2020. through january 31 , 2017 the company , columbus mckinnon dutch holdings 3 b.v. ( “ bv 3 ” ) , and columbus mckinnon emea gmbh ( “ emea gmbh ” ) as borrowers ( collectively referred to as the `` borrowers '' ) , had outstanding $ 103,125,000 principal amount of a senior secured term loan ( `` replaced term loan '' ) which was to mature on february 19 , 2020. as described in note 2 , on january 31 , 2017 the company entered into a new credit agreement ( `` new credit agreement '' ) and $ 545,000,000 of new debt facilities ( `` new facilities '' ) in connection with the stahl acquisition . the new facilities consist of a new revolving facility ( `` revolver '' ) in the amount of $ 100,000,000 and a $ 445,000,000 1st lien term loan ( `` new term loan '' ) . proceeds from the new facilities were used to fund the stahl acquisition , pay fees and expenses associated with the acquisition , and refinance the company 's replaced revolving credit facility and replaced term loan . the new term loan has a seven-year term maturing in 2024 and the revolver has a five-year term maturing in 2022. at march 31 , 2017 the company has not drawn from the revolver . the key terms of the agreement are as follows : term loan : an aggregate $ 445,000,000 1st lien term loan which requires quarterly principal amortization of 0.25 % with the remaining principal due at maturity date . in addition , if the company has excess cash flow ( `` ecf '' ) as defined in the new credit agreement , the ecf percentage of the excess cash flow for such fiscal year minus optional prepayment of the loans ( except prepayments of revolving loans that are not accompanied by a corresponding permanent reduction of revolving commitments ) pursuant to section 2.10 ( a ) of the new credit agreement other than to the extent that any such prepayment is funded with the proceeds of funded debt , shall be applied toward the prepayment of the new term loan . the ecf percentage is defined as 50 % stepping down to 25 % or 0 % based on the secured leverage ratio as of the last day of the fiscal year . revolver : an aggregate $ 100,000,000 secured revolving facility which includes sublimits for the issuance of standby letters of credit , swingline loans and multi-currency borrowings in certain specified foreign currencies . fees and interest rates : commitment fees and interest rates are determined on the basis of either a eurocurrency rate or a base rate plus an applicable margin based upon the company 's total leverage ratio ( as defined in the new credit agreement ) . prepayments : provisions permitting a borrower to voluntarily prepay either the term loan or revolver in whole or in part at any time , and provisions requiring certain mandatory prepayments of the term loan or revolver on the occurrence of certain events which will permanently reduce the commitments under the new credit agreement , each without premium or penalty , subject to reimbursement of certain costs of the lenders . a prepayment premium of 1 % of the principal amount of the first lien term loans is required if the prepayment is associated with a repricing transaction and it were to occur within the first twelve months . covenants : provisions containing covenants required of the corporation and its subsidiaries including various affirmative and negative financial and operational covenants . the key financial covenant is triggered only on any date when any extension of credit under the revolving facility is outstanding ( excluding any letters of credit ) ( the “ covenant trigger ” ) , and permits the total leverage ratio for the reference period ended on such date to not exceed ( i ) 4.50:1.00 as of any date of determination prior to december 31 , 2017 , ( ii ) 4.00:1.00 as of any date of determination on december 31 , 2017 and thereafter but prior to december 31 , 2018 , ( iii ) 3.50:1.00 as of any date of determination on december 31 , 2018 and thereafter but prior to december 31 , 2019 and ( iv ) 3.00:1.00 as of any date of determination on december 31 , 2019 and thereafter . as there is no amount drawn on the revolver as of march 31 , 2017 the covenant is not triggered . had we been required to determine the covenant ratio as of march 31 , 2017 , we would have been in compliance with the covenant provisions . 33 the new facility is secured by all u.s. inventory , receivables , equipment , real property , subsidiary stock ( limited to 65 % of non-u.s. subsidiaries ) , and intellectual property . the new credit agreement allows , but limits our ability to pay dividends . as mentioned above , on january 31 , 2017 the company borrowed $ 445,000,000 under the new term loan .
| results of operations fiscal 2017 compared to 2016 fiscal 2017 sales were $ 637,123,000 , an increase of 6.7 % , or $ 40,020,000 compared with fiscal 2016 sales of $ 597,103,000 . sales for the year were positively impacted by $ 64,993,000 due to our recent acquisitions and $ 730,000 by price increases . sales for the year were negatively impacted $ 20,638,000 due to a decrease in sales volume . unfavorable foreign currency translation reduced sales by $ 5,065,000 . our gross profit was $ 192,932,000 and $ 187,263,000 or 30.3 % and 31.4 % of net sales in fiscal 2017 and 2016 , respectively . the fiscal 2017 increase in gross profit of $ 5,669,000 or 3.0 % is the result of $ 22,553,000 from our recent acquisitions , $ 2,044,000 in increased productivity and favorable manufacturing costs , and $ 3,902,000 in fiscal 2016 acquisition purchase accounting amortization and other one-time adjustments which did not recur in fiscal 2017 , offset by $ 9,387,000 in decreased volume , $ 8,852,000 in stahl inventory amortization related to purchase accounting adjustments , $ 2,546,000 in increased product liability costs due to legal settlements , and material inflation net of price increases of $ 474,000. the translation of foreign currencies had a $ 1,571,000 unfavorable impact on gross profit for the year ended march 31 , 2017. selling expenses were $ 77,319,000 and $ 72,858,000 , or 12.1 % and 12.2 % of net sales in fiscal years 2017 and 2016 , respectively . the acquisitions of stahl and magnetek added an incremental $ 7,947,000 in selling expense for the year ended march 31 , 2017 .
| 6,500 |
our it staffing business combines technical expertise with business process experience to deliver a broad range of services within business intelligence / data warehousing ; web services ; enterprise resource planning & customer resource management ; e-business solutions ; mobile applications ; data management and analytics ; and the implementation and support for cloud-based applications . we provide our services across various industry verticals including : automotive ; consumer products ; education ; financial services ; government ; healthcare ; manufacturing ; retail ; telecommunications ; transportation and utilities . we have one operating segment . thus , no segment related disclosures are presented . we do , however , track and evaluate our revenues and gross profits by three distinct sales channels : wholesale ; retail ; and permanent placements / fees . our wholesale channel consists of system integrators and other it staffing firms with a need to supplement their abilities to attract highly-qualified temporary technical computer personnel . our retail channel focuses on clients that are end-users of it staffing services . within the retail channel are end-user clients that have retained a third party to provide vendor management services , commonly known in the industry as msps . our digital transformation services offerings are sold to clients within both the wholesale and retail sales channels . while we have the ability to deliver our digital transformation services on a managed solutions basis , the majority of our assignments to date have been delivered as staffing engagements . permanent placement / fee revenues are incidental revenues derived as by-product opportunities of conducting our core contract staffing business . economic trends and outlook generally , our business outlook is highly correlated to general u.s. economic conditions . during periods of increasing employment and economic expansion , demand for our services tends to increase . conversely , during periods of contracting employment and / or a slowing domestic economy , demand for our services tends to decline . as the economy slowed during the last half of 2007 and recessionary conditions emerged in 2008 and during much of 2009 , we experienced less demand for our staffing services . during the second half of 2009 , we began to see signs of market stabilization and a modest pick-up in activity levels within certain sales channels and technologies . during 2010 , market conditions continued to strengthen over the course of the year and activity levels within most of our sales channels progressively improved . in 2011 and 2012 , activity levels continued to trend up in most technologies and sales channels . during 2013 , 2014 and 2015 , we continued to see a steady flow of solid activity in our contract staffing business ; however , tightness in the supply side ( skilled it professionals ) in our business in 2014 and 2015 negatively impacted our new assignment successes . solid activity levels in our contract staffing business continued during 2016 , however , recruitment challenges remain due to the tightness in the supply of skilled it professionals . as we enter 2017 , we view growth in the job market and an expanding domestic economy as positive factors for our industry . however , we also see supply side pressures continuing to pose challenges for us and our industry as a whole . in addition to tracking general u.s. economic conditions , a large portion of our revenues is generated from a limited number of clients ( see item 1a , the risk factor entitled our revenues are highly concentrated and the loss of a significant client would adversely affect our business and revenues ) . accordingly , our trends and outlook are additionally impacted by the prospects and well-being of these specific clients . this account concentration factor may result in our results of operations deviating from the prevailing u.s. economic trends from time to time . 19 in recent years , a larger portion of our revenues has come from our wholesale sales channel , which consist largely of strategic relationships with systems integrators and other staffing organizations . this channel tends to carry lower gross margins , but provides higher volume opportunities . this trend in our business mix impacted overall gross margins over the past several years , while the acquisition of hudson it in june 2015 increased our retail revenues and has materially improved the mix of our business between the retail and wholesale channels . within our retail sales channel , many large users of it staffing services are employing msps to manage their contractor spending in an effort to drive down overall costs . this trend towards utilizing the msp model may pressure our gross margins in the future . recent developments on september 12 , 2016 , we announced that we changed our name to mastech digital , inc. the name change was part of our rebranding initiative that reflects our transformation into a digital technologies company . the rebranding also included a change in our logo and a refreshed corporate website . the effective date of the name change with the nyse mkt was september 15 , 2016. the ticker symbol mhh for our common stock listing remained the same following the name change . story_separator_special_tag income tax expense income tax expense for 2016 was $ 1.5 million and represented an effective tax rate on pre-tax income of 37.3 % compared to $ 1.7 million in 2015 , which represented an effective tax rate on pre-tax income of 37.8 % . a slightly lower aggregate state income tax rate was responsible for the slight improvement in 2016 . 2015 compared to 2014 revenues revenues for the year ended december 31 , 2015 totaled $ 123.5 million , compared to $ 113.5 million for the year ended december 31 , 2014. this 9 % increase in revenues was largely due to a higher average billable consultant-base employed during 2015 compared to one year earlier . story_separator_special_tag in the staffing services industry , investment in operating working capital levels ( defined as current assets excluding cash and cash equivalents minus current liabilities , excluding short-term borrowings ) is a significant use of cash . controlling our operating working capital levels by closely managing our accounts receivable balance is an important element of cash preservation . our accounts receivable days sales outstanding measurement ( dso ) was 58 days at year-end 2016 compared to 53 days at december 31 , 2015. this five-day increase in dso 's reflected the amendment of two client contracts with fortune 500 clients , which among other things , extended our payment terms . the impact on our dso measurement due to these amendments was approximately five days . both of these clients are of superior credit worthiness and accordingly , we believe that there is no negative change in the overall quality of our accounts receivable balance . cash provided by operating activities , our cash and cash equivalent balances on hand at december 31 , 2016 and current availability under our existing credit facility are expected to be adequate to fund our organic business needs over the next 12-months . below is a tabular presentation of cash flow activities for the periods discussed : replace_table_token_5_th operating activities cash provided by operating activities for the years ended december 31 , 2016 , 2015 and 2014 totaled $ 2.3 million , $ 3.0 million and $ 3.3 million , respectively . in 2016 , cash flows from operating activities included net income of $ 2.5 million and non-cash charges of $ 1.6 million , partially offset by an increase in operating working capital of $ 1.8 million . factors contributing to cash flows during the 2015 period included net income of $ 2.8 million and non-cash charges of $ 1.0 million , partially offset by an increase in operating working capital of $ 0.8 million . in 2014 , cash flows from operating activities included net income of $ 3.4 million and non-cash charges of $ 0.6 million , partially offset by an increase in operating working capital of $ 0.7 million . the increase in operating working capital in 2016 was due to a combination of amended credit terms with two major clients and investment to support our revenue expansion . in 2015 and 2014 , the increases in operating working capital were due largely to support our revenue expansion in each of those two years . the 2016 and 2015 increases in non-cash charges was largely due to the amortization of acquired intangible assets related to our june 15 , 2015 hudson it acquisition . we would expect operating working capital levels to increase should revenue growth continue in 2017. similar to prior years , such an increase would result in a reduction in cash generated from operating activities . we believe dso 's will remain at year-end 2016 levels . investing activities cash used in investing activities for the years ended december 31 , 2016 , 2015 and 2014 totaled $ 38,000 , $ 17.1 million and $ 0.7 million , respectively . in 2016 , capital expenditures of $ 105,000 were partially offset by 24 the recovery of non-current deposits ( office lease deposits ) of $ 67,000. in 2015 , the acquisition of hudson it was responsible for $ 17.0 million of cash used in investing activities , with capital expenditures accounting for the balance . in 2014 , capital expenditures were the primary uses of cash in investing activities and were reflective of the company 's move to its new moon township , pa headquarters . financing activities in 2016 , cash used in financing activities totaled $ 2.3 million and included $ 2.6 million of debt repayments , partially offset by activities related to the exercising of stock options and the vesting of restricted shares , which collectively generated cash of $ 0.3 million . in 2015 , cash generated from financing activities totaled $ 12.4 million and included net increases in bank debt of $ 12.5 million and $ 0.1 million of excess tax benefits related to the exercising of stock options and the vesting of performance/restricted shares , partially offset by $ 0.2 million of stock repurchases . in 2014 , cash used in financing activities totaled $ 0.4 million and included $ 0.8 million of share repurchases , partially offset by excess tax benefits related to the exercising of stock options and the vesting of performance/restricted shares . discontinued operations activities in 2014 , discontinued operations used cash of $ 0.1 million related to the run-out of current liabilities associated with our healthcare staffing business which was sold in august 2013. off-balance sheet arrangements we do not have any off-balance sheet arrangements . inflation we do not believe that inflation had a significant impact on our results of operations for the periods presented . on an ongoing basis , we attempt to minimize any effects of inflation on our operating results by controlling operating costs and , whenever possible , seek to ensure that billing rates reflect increases in costs due to inflation . seasonality our operations are generally not affected by seasonal fluctuations . however , our consultants ' billable hours are affected by national holidays and vacation patterns . accordingly , we typically have lower utilization rates and higher benefit costs during the fourth quarter . additionally , assignment completions tend to be higher near the end of the calendar year , which largely impacts our revenue and gross profit performance during the subsequent quarter . critical accounting policies and estimates certain accounting policies are particularly important to the portrayal of our financial position , results of operations and cash flows and require the application of significant judgment by management , and as a result , are subject to an inherent degree of uncertainty . in applying these policies , our management uses judgment to determine the appropriate assumptions to be used in the determination of certain estimates .
| results of continuing operations below is a tabular presentation of revenues and gross profit margins by sales channel for the periods discussed : revenues & gross margin by sales channel ( amounts in millions ) replace_table_token_3_th * permanent placement / fees are generated from clients within both of our sales channels . 20 below is a tabular presentation of operating expenses by sales , operations and general and administrative categories for the periods discussed : selling , general & administrative ( s , g & a ) expense details ( amounts in millions ) replace_table_token_4_th 2016 compared to 2015 revenues revenues for the year ended december 31 , 2016 totaled $ 132.0 million , compared to $ 123.5 million for the year ended december 31 , 2015. this 7 % increase in revenues was largely due to a higher average billable consultant-base employed during 2016 compared to one year earlier . additionally , our average hourly bill rate for 2016 was up approximately 1 % to $ 75.35 from $ 74.68 in 2015. the increase in our average billable consultant-base largely reflected the june 15 , 2015 acquisition of hudson it . organically , we increased our billable consultant-base by 35 consultants , or approximately 4 % , during 2016 , to a total of 881- consultants . revenues from our wholesale channel decreased by 4 % in 2016 compared to 2015. lower revenues from our integrator clients ( down 7 % ) was largely responsible for the decline , as fewer project opportunities from our integrator partners and a lower new assignment win ratio negatively impacted our revenue performance . retail channel revenues were up 29 % compared to 2015 and reflected revenues attributable to the june 2015 hudson it acquisition . permanent placement / fee revenues declined in 2016 by approximately $ 0.1 million from 2015 levels . in 2016 and 2015 , we had no clients that represented more than 10 % of total revenues .
| 6,501 |
the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements and notes thereto contained in item 8 , financial statements and supplementary data , to provide an understanding of our results of operations , financial condition and cash flows . this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . the actual results may differ from those anticipated in these forward-looking statements as a result of many factors , including but not limited to those set forth under item 1a risk factors , the cautionary statement regarding forward-looking statements at the beginning of part i and elsewhere in this form 10-k. overview we are a medical device company providing innovative solutions designed to produce superior outcomes that reduce the economic and social burden of atrial fibrillation ( afib ) . our isolator synergy ablation system is the only medical device approved by fda for the treatment of persistent and longstanding persistent forms of afib . our atriclip left atrial appendage ( laa ) exclusion device is the most widely used laa exclusion device worldwide . we have two ablation product lines . our primary ablation product line , which accounts for a majority of our revenue , is the isolator synergy system , a bipolar radio frequency ( rf ) ablation generator and associated single use devices . we also offer a cryosurgery product line , including both reusable and single use cryoablation devices . our atriclip left atrial appendage exclusion system ( atriclip system ) is the most widely implanted laa management device worldwide . we believe cardiothoracic surgeons are adopting our ablation and laam devices for the treatment of afib and prevention of stroke . cardiothoracic surgeons have adopted our rf ablation and cryosurgery systems to treat an estimated 170,000 patients since 2004 , and we believe that we are currently the market leader in the surgical treatment of afib . our products are utilized by cardiothoracic surgeons during both open-heart and minimally invasive surgical procedures , and in both concomitant and sole-therapy cases . during a concomitant open procedure , the surgeon ablates cardiac tissue and or excludes the left atrial appendage , secondary , or concomitant , to a primary cardiac procedure such as a valve replacement or coronary bypass graft . our isolator synergy system , which includes our isolator synergy clamps , an rf generator and related switchbox , is approved by fda for the treatment of patients with persistent and long-standing persistent afib during open-heart concomitant coronary artery bypass grafting and or valve replacement or repair procedures . to date , none of our other products have been approved or cleared by fda specifically for the treatment of afib . additionally , fda has not determined that our products are safe and effective for preventing stroke . we anticipate that substantially all of our revenue for the foreseeable future will relate to products we currently sell , or are in the process of developing , which surgeons generally use to ablate cardiac tissue , to exclude the left atrial appendage , or to perform mitral and aortic valve replacement and repair . we sell our products to medical centers in the u.s. through our direct sales force . atricure europe , b.v. , our wholly-owned subsidiary incorporated and based in the netherlands , markets and sells our products throughout europe and the middle east primarily through distributors , while in certain markets , such as germany , france , the united kingdom and the benelux region , we sell directly to medical centers . we also sell our products to other international distributors , primarily in asia , south america and canada . our business is primarily transacted in u.s. dollars with the exception of transactions with our european subsidiary which are substantially transacted in euros or british pounds . the december 2011 fda approval of our isolator synergy system included the requirement to implement a 350-patient post-approval study ( pas ) . the pas was designed to evaluate the long-term safety and efficacy of our isolator synergy system in the treatment of persistent and long-standing persistent afib in patients 42 undergoing open-heart procedures . we submitted a protocol for the pas to the fda in february 2012 , and it was approved in september 2012. we submitted a protocol amendment to increase enrollment by up to 40 patients to the fda in april 2014. the amendment was approved in june 2014. enrollment in the trial was completed in october 2014 with 365 patients at 40 medical centers . we expect to release preliminary data from the study in early 2016 , with a complete report expected to be published in 2017. we conducted the dual epicardial endocardial persistent atrial fibrillation ( deep af ) feasibility clinical trial to evaluate use of the isolator synergy system for the treatment of afib in a two-part procedure where a minimally invasive surgical ablation procedure is performed first , and an intracardiac catheter mapping and ablation procedure is then performed on a different day during the same hospitalization . the staged deep af feasibility trial protocol was submitted to fda in february 2012 , and fda approval to conduct the trial was received in june 2012. enrollment in the staged deep trial began during the third quarter of 2012 and was completed during the fourth quarter of 2013 , with 30 patients enrolled at six medical centers . we submitted an investigational device exemption ( ide ) application for the staged deep pivotal trial to fda in may 2014. the staged deep pivotal trial evaluates the safety and efficacy of the isolator synergy system when used in a staged approach , where a minimally invasive surgical ablation procedure is first performed and the patient undergoes the intracardiac catheter procedure is performed approximately 90-120 days later . story_separator_special_tag our loan and security agreement with silicon valley bank ( svb ) , as amended , restated , and modified ( agreement ) provides for a revolving credit facility under which we may borrow a maximum of $ 15,000. borrowing availability under the revolving credit facility is based on the lesser of $ 15,000 or a borrowing base calculation as defined by the agreement . as of december 31 , 2014 we had no borrowings under the revolving credit facility , and we had borrowing availability of $ 12,383. the applicable borrowing rate on the revolving facility is the prime rate during a period when we meet the requirements for streamline period , which are based on available cash and amounts drawn under the credit facility , and prime plus 1.25 % at all other times . the revolving credit facility expires on april 30 , 2016. the company repaid the term loan portion of the credit facility in full in march 2014 , resulting in $ 0 outstanding under the term loan as of december 31 , 2014. the agreement contains covenants that include , among others , covenants that limit our ability to dispose of assets , enter into mergers or acquisitions , incur indebtedness , incur liens , pay dividends or make distributions on our capital stock , make investments or loans , and enter into certain affiliate transactions , in each case subject to customary exceptions for a credit facility of this size and type . additional covenants apply when we have outstanding borrowings under the revolving credit facility or when we hold less than $ 20,000 in cash and investments with svb . financial covenants under the credit facility include a minimum ebitda and a minimum liquidity ratio . further , a minimum fixed charge ratio applies when we achieve specific covenant milestones . none of the covenants must be applied as of december 31 , 2014. the occurrence of an event of default could result in an increase to the applicable interest rate by 3.0 % , an acceleration of all obligations under the agreement , an obligation to repay all obligations in full and a right by svb to exercise all remedies available to it under the agreement and related agreements including the guaranty and security agreement . specified assets have been pledged as collateral . we have an outstanding letter of credit of 75 issued to our european subsidiary 's corporate credit card provider which will expire on june 30 , 2015. uses of liquidity and capital resources . our future capital requirements depend on a number of factors , including the rate of market acceptance of our current and future products , the resources we devote to developing and supporting our products , future expenses to expand and support our sales and marketing efforts , costs 47 relating to changes in regulatory policies or laws that affect our operations and costs of filing , costs associated with clinical trials and securing regulatory approval for new products , costs associated with integrating acquired businesses , costs associated with prosecuting , defending and enforcing our intellectual property rights and possible acquisitions and joint ventures . global economic turmoil may adversely impact our revenue , access to the capital markets or future demand for our products . in july 2011 we filed a shelf registration statement with the sec which allows us to sell any combination of senior or subordinated debt securities , common stock , preferred stock , warrants , depositary shares and units in one or more offerings should we choose to do so in the future . in january 2013 we sold approximately 3,996,250 shares of common stock under the shelf registration which resulted in net proceeds of approximately $ 26,872. the unissued and unsold securities remaining on this registration statement were removed and withdrawn from registration in february 2014. in january 2014 we filed a shelf registration statement with the sec which allows us to sell any combination of senior or subordinated debt securities , common stock , preferred stock , warrants , depositary shares and units in one or more offerings should we choose to do so in the future . in february 2014 we sold 3,660,525 shares of common stock under the shelf registration which resulted in net proceeds of approximately $ 65,830. we believe that our current cash , cash equivalents and investments , along with the cash we expect to generate or use for operations or access via our revolving credit facility , will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next twelve months . if our sources of cash are insufficient to satisfy our liquidity requirements , we may seek to sell additional equity or debt securities or obtain a revised or additional credit facility . the sale of additional equity or convertible debt securities could result in dilution to our stockholders . if additional funds are raised through the issuance of debt securities , these securities could have rights senior to those associated with our common stock and could contain covenants that would restrict our operations . additional financing may not be available at all , or in amounts or terms acceptable to us . finally , our credit facilities require compliance with certain financial and other covenants . if we are unable to obtain this additional financing , we may be required to reduce the scope of our planned research and development , clinical activities and selling and marketing efforts . contractual obligations and commitments the following table sets forth our approximate aggregate obligations at december 31 , 2014 for future payments under contracts and other contingent commitments : replace_table_token_6_th ( 1 ) capital leases consist of principal and interest payments related to computer equipment . ( 2 ) represents lease commitments under various operating leases .
| results of operations year ended december 31 , 2014 compared to december 31 , 2013 the following table sets forth , for the periods indicated , our results of operations expressed as dollar amounts and as percentages of total revenue : replace_table_token_4_th revenue . total revenue increased 31.2 % ( 31.4 % on a constant currency basis ) , from $ 81,889 in 2013 to $ 107,454 in 2014. constant currency basis amounts are calculated by applying previous period foreign currency exchange rates to each of the comparable periods . revenue from sales to customers in the united states increased $ 17,892 , or 28.7 % , and revenue from sales to international customers increased $ 7,673 , or 39.2 % ( 39.8 % on a constant currency basis ) . the increase in sales to customers in the united states was primarily due to increased sales of ablation-related open-heart products of $ 6,819 and increased sales of the atriclip system of $ 5,855. the increase in international revenue was primarily due to an increase in sales in europe and asia , across all product lines . revenue from both the united states and europe was positively impacted by the addition of products from the estech acquisition . cost of revenue and gross margin . cost of revenue increased $ 9,378 , from $ 22,326 in 2013 to $ 31,704 in 2014. as a percentage of revenue , cost of revenue increased from 27.3 % for the year ended december 31 , 2013 to 29.5 % for the year ended december 31 , 2014. gross margin for 2014 and 2013 was 70.5 % and 72.7 % , respectively . the decrease in gross margin was primarily due to an increased mix of international sales , which carry lower gross margins , an increase in costs related to the acquired estech products , an increase in nonrecurring expense of approximately $ 344 associated with the transition of the estech business and increased capital equipment placement .
| 6,502 |
the agreement expires on december 31 , 2016. in the event of termination without cause , the company is obligated to pay two times the then annual compensation and by continuing the then benefits coverage for a period of 2 years . the annual remuneration will increase with accomplishment of milestones . the agreement may be terminated with mutual consent or by the chief executive officer giving three weeks ' notice . effective february 1 , 2015 , the company and director agreed to reduce the monthly remuneration by 10 % to cad 12,502. this reduction continued until the completion of the next round of financing , which was completed in may 2015. effective october 1 , 2014 , sdi executed a renewal agreement with a private company in which the chief operating officer dean thrasher has an ownership interest in , for a period which expires on december 31 , 2017 for services rendered . the total consulting fees are estimated at cad $ 864,000 for the three-year period . in the event of termination without cause due to change in control brought out by sale , lease , merger or transfer , the company is obligated to pay 18 months ' fees at current rate at time of change in control . sdi paid cash and expensed $ 221,217 ( cad $ 230,892 ) during the year ended november 30 , 2015. the company may also accept common shares in lieu of cash . as of november 30 , 2015 , the company has not exercised its right to accept this compensation in shares . effective february 1 , 2015 , the company and director agreed to reduce the monthly fee by 10 % to cad $ 21,600. this reduction continued until the completion of the next round of financing , which was completed in may 2015. effective november 1 , 2013 , sdi executed an agreement with a non-related consultant to pay compensation of $ 3,750 ( cad $ 5,000 ) per month . the consultant has agreed to provide corporate market advisory services . the agreement is for a period of a minimum of three months and will continue unless otherwise terminated by either party by giving 30 days ' written notice . effective may 1 , 2015 , sdi executed an agreement with another non-related consultant to pay compensation of $ 3,750 ( cad $ 5,000 ) per month . the consultant is to assist with sales initiatives , demos and participate in trade shows . the agreement unless renewed by mutual consent expires december 31 , 2015. the consultant is also entitled to a 5 % cash commission for all completed direct sales to end users and a 2 % cash commission for all completed indirect sales . in addition , as a sales incentive , the company may grant stock options at market prices , being 25,000 stock options for every 5,000 rounds sold , to a maximum of 200,000 options . either party may terminate the consulting agreement by giving 60 days ' written notice . 10 effective april 2014 , sdi executed an agreement with a non-related consultant to set up its social media sites and optimization of search engines for the company , at a start- up fee for cad $ 3,000 ( phase 1 ) and payment of cad $ 1,500 per month and issued 100,000 stock options at $ 0.32 ( cad $ 0.35 ) when phase 2 of the project was implemented . effective august 2014 , sdi executed an agreement with a non-related consultant to pay compensation of $ 5,500 per month for the first 5 months and $ 5,000 from sixth month to end of the term . the consultant is to assist with sales initiatives , demos and participate in trade shows . the agreement unless renewed by mutual consent expires december 31 , 2015. on renewal , there will an annual increase of 4.5 % effective january 1 , 2016. the consultant is also entitled to a 5 % cash commission for all completed direct sales to end users and a 2 % cash commission for all completed indirect sales . the company granted 50,000 stock options to the consultant on july 25 , 2014 and has agreed to grant 25,000 stock options for every 5,000 rounds sold domestically to a maximum of an additional 150,000 options . either party may terminate the consulting agreement by giving 30 days ' written notice . b ) the company has commitments for leasing office premises in oakville , ontario , canada to april 30 , 2018 at a monthly rent of $ 4,800 ( cad $ 6,399 ) . 11 exclusive supply agreement the company entered into a development , supply and manufacturing agreement with the bip manufacturer on july 25 , 2012. this agreement provides the company to order and purchase only from the bip manufacturer certain 40mm assemblies and components for use by the company to produce less-lethal and training projectiles as described in the agreement . the agreement is for a term of five years with an automatic extension for an additional year if neither party has given written notice of termination prior to the end of the five-year period . the company and a division of abrams airborne manufacturing inc. ( aami ) , namely milkor usa ( musa ) , agreed to partner for a joint cross-selling / marketing initiative . this arrangement allows both companies to leverage existing and future sales channels by offering a comprehensive , full-package of milkor usa 's 40mm multi-shot grenade launchers in conjunction with sdi 's 40mm less-lethal ammunition product-line to end-users globally . story_separator_special_tag general venture company risks the common shares must be considered highly speculative due to the nature of the corporation 's business , the early stage of its deployment , its current financial position and ongoing requirements for capital . an investment in the common shares should only be considered by those persons who can afford a total loss of investment , and is not suited to those investors who may need to dispose of their investment in a timely fashion . investors should consult with their own professional advisors to assess the legal , financial and other aspects of an investment in common shares . uncertainty of revenue growth there can be no assurance that the corporation can generate substantial revenue growth , or that any revenue growth that is achieved can be sustained . revenue growth that the corporation has achieved or may achieve may not be indicative of future operating results . in addition , the corporation may increase further its operating expenses in order to fund increase its sales and marketing efforts and increase its administrative resources in anticipation of future growth . to the extent that increases in such expenses precede or are not subsequently followed by increased revenues , the corporation 's business , operating results and financial condition will be materially adversely affected . 13 dependence on management and key personnel the corporation is dependent on certain members of its management . the loss of the services of one or more of them could adversely affect the corporation . the corporation 's ability to maintain its competitive position is dependent upon its ability to attract and retain highly qualified managerial , specialized technical , manufacturing , sales and marketing personnel . there can be no assurance that the corporation will be able to continue to recruit and retain such personnel . the inability of the corporation to recruit and retain such personnel would adversely affect the corporation 's operations and product development . dependence on key suppliers the corporation may be able to purchase certain key components of its products from a limited number of suppliers . failure of a supplier to provide sufficient quantities on favorable terms or on a timely basis could result in possible lost sales . product liability the corporation may be subject to proceedings or claims that may arise in the ordinary conduct of the business , which could include product and service warranty claims , which could be substantial . if its products fail to perform as warranted and it fails to quickly resolve product quality or performance issues in a timely manner , sales may be lost and it may be forced to pay damages . any failure to meet customer requirements could materially affect its business , results of operations and financial condition . the occurrence of product defects and the inability to correct errors could result in the delay or loss of market acceptance of its products , material warranty expense , diversion of technological and other resources from its product development efforts , and the loss of credibility with customers , manufacturer 's representatives , distributors , value added resellers , systems integrators , original equipment manufacturers and end-users , any of which could have a material adverse effect on the corporation 's business , operating results and financial conditions . the corporation currently has general liability insurance that includes product liability coverage . there is no assurance this insurance policy will cover all potential claims which may have a material adverse effect on the business or financial condition of the corporation . a product recall could have a material adverse effect on the business or financial condition of the corporation . strategic alliances the corporation relies upon , and expects to rely upon , strategic alliances with original equipment manufacturers for the manufacturing and distribution of its products . there can be no assurance that such strategic alliances can be achieved or will achieve their goals . marketing and distribution capabilities in order to commercialize its technology , the corporation must either acquire or develop an internal marketing and sales force with technical expertise and with supporting distribution capabilities or arrange for third parties to perform these services . in order to market any of its products , the corporation must either acquire or develop a sales and distribution infrastructure . the acquisition or development of a sales and distribution infrastructure would require substantial resources , which may divert the attention of its management and key personnel , and defer its product development and deployment efforts . to the extent that the corporation enters into marketing and sales arrangements with other companies , its revenues will depend on the efforts of others . these efforts may not be successful . if the corporation fails to develop substantial sales , marketing and distribution channels , or to enter into arrangements with third parties for those purposes , it will experience delays in product sales and incur increased costs . rapid technological development the markets for the corporation 's products and services are characterized by rapidly changing technology and evolving industry standards , which could result in product obsolescence or short product life cycles . accordingly , the corporation 's success is dependent upon its ability to anticipate technological changes in the industries it serves and to successfully identify , obtain , develop and market new products that satisfy evolving industry requirements . there can be no assurance that the corporation will successfully develop new products or enhance and improve its existing products or that any new products and enhanced and improved existing products will achieve market acceptance . further , there can be no assurance that competitors will not market products that have perceived advantages over the corporation 's products or which render the products currently sold by the corporation obsolete or less marketable . regardless of the industry as a whole , the less lethal sector moves somewhat slower in the adaptation and
| revenues nil nil nil nil nil nil nil nil net loss ( 1,125,425 ) ( 467,538 ) ( 468,982 ) ( 488,493 ) ( 1,167,718 ) ( 444,595 ) ( 631,094 ) ( 478,437 ) loss per weighted average number of shares outstanding basic and fully diluted ( 0.02 ) ( 0.01 ) ( 0.01 ) ( 0.01 ) ( 0.03 ) ( 0.01 ) ( 0.01 ) ( 0.01 ) quarterly activities and financial performance are impacted by the company 's ability to raise capital for its activities . the loss for the three months ended november 30 , 2015 includes non-cash stock based compensation expense for $ 639,143. the loss during the three months ' period ended may 31 , 2014 , august 31 , 2014 and november 30 , 2014 include non-cash stock based compensation expense for $ 188,470 , $ 33,952 and $ 529,188 respectively . 7 vi . liquidity and capital resources the following table summarizes the company 's cash flows and cash in hand : replace_table_token_3_th as of november 30 , 2015 , the company had working capital of $ 1,852,711 as compared to working capital of $ 1,144,363 as of november 30 , 2014. working capital increased primarily as a result of capital financing activities during the year ended november 30 , 2015 for $ 2,523,770 offset in part by expenses incurred in normal course of business .
| 6,503 |
the information contained in this section has been derived from our consolidated financial statements and should be read together with our consolidated financial statements and related notes included elsewhere in this report . readers should also review and consider our disclosures under the heading `` special note regarding forward-looking 17 statements '' describing various factors that could affect our business and the disclosures under the heading `` risk factors '' in this report . note that all dollar amounts in this item 7 are in thousands of u.s. dollars , except share and per share data . overview we are an infant and juvenile products company originally founded in 1985 and have publicly traded on the nasdaq stock market since 2007 under the symbol `` sumr . '' we are a leader in product innovation in the juvenile industry , providing parents and caregivers a full range of high-quality , high-value products to care for babies and toddlers . we seek to improve the quality of life of both caregivers and babies through our product offerings , while at the same time maximizing shareholder value over the long term . we operate in one principal industry segment across geographically diverse marketplaces , selling our products globally to large , national retailers as well as independent retailers , and on our partner 's websites and our own summerinfant.com website . in north america , our customers include amazon.com , wal-mart , babies r us , target , buy buy baby , home depot , and lowe 's . our largest european-based customers are argos , amazon , toys r us , and mothercare . we also sell through international distributors , representatives , and to select international retail customers in geographic locations where we do not have a direct sales presence . while sales declined 2.3 % in 2017 , we narrowed our net loss as compared to fiscal 2016 and maintained gross margins as we streamlined operations and controlled spending . our results in 2017 were negatively impacted in part by the september 2017 bankruptcy filing of one of our largest customers , and we recorded a charge of approximately $ 1.5 million as an allowance for bad debt related to this customer 's pre-bankruptcy petition accounts receivable . in early january 2018 , we entered into a trade agreement with this customer pursuant to which we will receive payment on a portion of our pre-petition accounts receivable in the first quarter of 2018 and which designates us as a critical vendor . as a critical vendor , we will continue to do business with this customer during the pendency of its bankruptcy on substantially the same trade terms as in effect prior to the bankruptcy filing . while we are still assessing the long-term impact of the bankruptcy on our business , we currently expect that we will continue to do business with this customer in 2018 , albeit at a reduced rate compared to 2017. in december 2017 , the u.s. government enacted comprehensive tax legislation commonly referred to as the tax cuts and jobs act ( the `` tax act '' ) that significantly revised the u.s. tax code effective january 1 , 2018 by , among other things , lowering the corporate income tax rate from a top marginal rate of 35 % to a flat 21 % , limiting deductibility of interest expense and performance based incentive compensation and implementing a territorial tax system . the tax act negatively impacted our consolidated results of operations in the fourth quarter of 2017. in particular , we recorded a $ 734 tax provision for the deemed repatriation of past foreign income , $ 882 for a writedown in foreign tax credits and $ 115 for a writedown of the value of our deferred tax assets due to future lower income tax rates . these tax charges were noncash in nature as we expect to be able to utilize existing federal net operating loss carry forwards for any payment due on previously unremitted earnings of foreign subsidiaries . these amounts represent our provisional estimates and may be subject to further adjustment once finalized . primarily as a result of the $ 1.5 million charge for the allowance for bad debts and $ 1.7 million in provisional tax charges attributable to the tax act and lower sales , we ended fiscal 2017 with a net loss of $ 0.12 per share as compared to a net loss of $ 0.23 per share in fiscal 2016 . 18 in 2018 , we expect to continue our efforts to control costs while investing in research and development and improving our overall product positioning . we also expect to invest approximately $ 1 million in our west coast distribution center to more efficiently handle our merchandise . summary of critical accounting policies and estimates the following summary of our critical accounting policies is presented to assist in understanding our consolidated financial statements . the consolidated financial statements and notes are representations of our management , who are responsible for their integrity and objectivity . these accounting policies conform to accounting principles generally accepted in the united states of america and have been consistently applied in the preparation of the consolidated financial statements . additional information about our accounting policies and estimates may be found in note 1 to our consolidated financial statements included in this report . we make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses . the accounting policies described below are those we consider critical in preparing our financial statements . some of these policies include significant estimates made by management using information available at the time the estimates were made . however , these estimates could change materially if different information or assumptions were used . story_separator_special_tag for fiscal 2017 , net cash used in investing activities was approximately $ 3,103. for fiscal 2016 , net cash used in investing activities was approximately $ 2,266. the use of cash in investing activities was primarily attributable to tooling and mold expenditures related to new product introductions which increase in fiscal 2017. for fiscal 2017 , net cash provided by financing activities was approximately $ 1,321 , reflecting borrowings on our credit facility to fund investing activities . for fiscal 2016 , net cash used in financing activities was approximately $ 6,548 , reflecting repayments on our credit facility . based primarily on the above factors , net cash decreased for fiscal 2017 by $ 318 , resulting in a cash balance of approximately $ 681 at fiscal year end . the following table summarizes our significant contractual commitments at fiscal 2017 year end : replace_table_token_3_th estimated future interest payments on our revolving facility , filo facility , and term loan facility are based upon the interest rates in effect at december 30 , 2017. capital resources in addition to operating cash flow , we also rely on our existing asset-based revolving credit facility with bank of america , n.a . to meet our financing requirements , which is subject to changes in our inventory and account receivable levels . we regularly evaluate market conditions , our liquidity profile , and various financing alternatives for opportunities to enhance our capital structure . 23 if we are unable to meet our current financial forecast , do not adequately control expenses , or adjust our operations accordingly , we may not remain in compliance with the financial covenants required under our existing revolving credit facility . unforeseen circumstances , could create a situation where we can not access all of our available lines of credit due to insufficient asset availability or an inability to meet the financial covenants as required under our credit facility . there is no assurance that we will meet all of our financial or other covenants in the future , or that our lenders will grant waivers if there are covenant violations . in addition , should we seek to raise additional funds through debt or equity financings , any sale of debt or equity securities may cause dilution to existing stockholders . if sufficient funds are not available or are not available on acceptable terms , our ability to address any unexpected changes in our operations could be limited . based on past performance and current expectations , we believe that our anticipated cash flow from operations and availability under our existing credit facility are sufficient to fund our working capital , capital expenditures and debt service requirements for at least the next 12 months . credit facilities we and our wholly owned subsidiary , summer infant ( usa ) , inc. , are parties to an amended and restated loan and security agreement with bank of america , n.a. , as agent , providing for an asset-based credit facility ( as amended , the `` credit facility '' ) . the credit facility consists of a $ 60,000 asset-based revolving credit facility , with a $ 10,000 letter of credit sub-line facility ( the `` revolving facility '' ) , a $ 5,000 `` first in last out '' ( filo ) revolving credit facility ( the `` filo facility '' ) and a $ 10,000 term loan facility ( the `` term loan facility '' ) . pursuant to an accordion feature , the credit facility includes the ability to increase the revolving facility by an additional $ 15,000 upon the company 's request and the agreement of the lenders participating in the increase . the total borrowing capacity under the revolving facility is based on a borrowing base , generally defined as 85 % of the value of eligible accounts plus the lesser of ( i ) 70 % of the value of eligible inventory or ( ii ) 85 % of the net orderly liquidation value of eligible inventory , less reserves . the total borrowing capacity under the filo facility is based on a borrowing base , generally defined as a specified percentage of the value of eligible accounts that steps down over time , plus a specified percentage of the value of eligible inventory that steps down over time . for additional information on the credit facility , please see note 4 to our consolidated financial statements included in this annual report on form 10-k. as of december 30 , 2017 , the rate for base-rate loans was 5.50 % and the rate for libor-rate loans was 4.125 % . the amount outstanding on the revolving facility at december 30 , 2017 was $ 41,899. total borrowing capacity under the revolving facility at december 30 , 2017 was $ 45,098 and borrowing availability was $ 3,199. the amounts outstanding on the term loan facility and filo facility at december 30 , 2017 were $ 5,000 and $ 1,250 , respectively . we were in compliance with the financial covenants under the credit facility as of december 30 , 2017. off-balance sheet arrangements we did not have any off-balance sheet arrangements during the year ended december 30 , 2017 or the year ended december 31 , 2016. recently issued accounting pronouncements in may 2014 , the fasb issued asu 2014-09 , `` revenue from contracts with customers ( topic 606 ) '' providing new accounting guidance related to revenue recognition . this guidance was originally proposed to be effective for reporting periods beginning after december 15 , 2016 , however in 24 july 2015 , the fasb approved the delay in this guidance until reporting periods beginning after december 15 , 2017. under the standard , revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services .
| results of operations the following table presents selected condensed consolidated financial information for our company for the fiscal years ended december 30 , 2017 ( `` fiscal 2017 '' ) and december 31 , 2016 ( `` fiscal 2016 '' ) . replace_table_token_2_th fiscal 2017 compared with fiscal 2016 net sales decreased 2.3 % to $ 189,869 for fiscal 2017 from $ 194,328 for fiscal 2016. the decrease is primarily due to a $ 5,943 reduction in sales to a large customer in part as a result of its bankruptcy filing , but the customer also contributed to a $ 12,075 decrease in monitor sales due to increased competition . the decrease was partially offset by a $ 10,517 increase in safety product sales including newly introduced boosters and potties . cost of goods sold includes the cost of the finished product from suppliers , duties on certain imported items , freight-in from suppliers , and miscellaneous charges . the components of cost of goods sold remained substantially the same for fiscal 2017 as compared to fiscal 2016. gross profit declined 2.5 % to $ 60,195 for fiscal 2017 from $ 61,751 for fiscal 2016 , however , gross margin stayed relatively constant at 31.7 % for fiscal 2017 versus 31.8 % for fiscal 2016. gross profit decreased primarily due to lower sales and $ 244 of increased temporary demurrage and transport costs . gross margin declined primarily due to $ 244 of increased temporary demurrage and transport costs .
| 6,504 |
kraft foods inc. acquired cadbury on february 2 , 2010. on october 1 , 2012 , kraft foods , inc. spun-off its north american grocery business to its shareholders and changed its name to mondelēz international , inc. ( `` mondelēz '' ) . the periods presented in this section are the years ended december 31 , 2014 , 2013 and 2012 , which we refer to as `` 2014 `` , `` 2013 `` and `` 2012 `` , respectively . overview we are a leading integrated brand owner , manufacturer and distributor of non-alcoholic beverages in the u.s. , canada and mexico with a diverse portfolio of flavored csds and ncbs , including ready-to-drink teas , juices , juice drinks , water and mixers . our brand portfolio includes popular csd brands such as dr pepper , sunkist soda , 7up , a & w , canada dry , crush , squirt , peñafiel and schweppes , and ncb brands such as snapple , mott 's , hawaiian punch , clamato , rose 's and mr & mrs t mixers . our largest brand , dr pepper , is a leading flavored csd in the u.s. according to nielsen . we have some of the most recognized beverage brands in north america , with significant consumer awareness levels and long histories that evoke strong emotional connections with consumers . we operate as an integrated brand owner , manufacturer and distributor through our three segments . we believe our integrated business model strengthens our route-to-market and provides opportunities for net sales and profit growth through the alignment of the economic interests of our brand ownership and our manufacturing and distribution businesses through both our dsd system and our wd delivery system . our integrated business model enables us to be more flexible and responsive to the changing needs of our large retail customers and allows us to more fully leverage our scale and reduce costs by creating greater geographic manufacturing and distribution coverage . we operate primarily in the u.s. , mexico and canada and we also distribute our products in the caribbean . in 2014 , 88 % of our net sales were generated in the u.s. , 4 % in canada and 8 % in mexico and the caribbean . uncertainties and trends affecting our business we believe the north american lrb market is influenced by certain key trends and uncertainties . some of these items , such as increased health consciousness and changes in economic factors , have created continued category headwinds for our csds during the year ended december 31 , 2014 and have unfavorably impacted our sales volumes , excluding the impact of recent product innovations and acquisitions , compared to the prior year . the key trends and uncertainties that could affect our business include : increased health consciousness . consumers are increasingly becoming more concerned about health and wellness , focusing on caloric intake and sugar content in both regular csds and juices and the use of artificial sweeteners in diet csds . we believe the main beneficiaries of this trend include naturally sweetened , low calorie drinks , all natural and organic beverages , ready-to-drink teas and bottled waters . increased government regulation . government agencies , as a result of concerns about the public health consequences and health care costs associated with obesity , have been proposing and , in some cases , enacting new taxes or regulations on sugar-sweetened beverages . any changes of regulations or imposed taxes could reduce demand and or cause us to raise our prices . 24 changes in consumer preferences . we are impacted by shifting consumer demographics and needs . we believe marketing and product innovations that target fast growing population segments , such as the hispanic community in the u.s. , could drive market growth . additionally , as more consumers are faced with a busy and on-the-go lifestyle , sales of single-serve beverages could increase , which typically have higher margins . increased competition in the lrb market . a number of our competitors are large corporations with significant financial resources . these competitors can use their resources and scale to rapidly respond to competitive pressures and changes in consumer preferences by introducing new products , reducing prices or increasing promotional activities , which could reduce the demand for our products . product and packaging innovation . we believe brand owners and bottling companies will continue to create new products and packages , such as beverages with new ingredients and new premium flavors and innovative convenient packaging , that address changes in consumer tastes and preferences . changing retailer landscape . as retailers continue to consolidate , we believe retailers will support consumer product companies that can provide an attractive portfolio of products , a strong value proposition and efficient delivery . volatility in the costs of raw materials . the costs of a substantial portion of the raw materials used in the beverage industry are dependent on commodity prices for aluminum , corn , resin , diesel , natural gas , pulp and other commodities . we are also dependent on commodity prices for apples related to our applesauce production . commodity price volatility has , from time to time , exerted pressure on industry margins and operating results . as a result of these uncertainties and other factors , we believe net sales for the year ending december 31 , 2015 could be up approxima tely 1 % as co mpared to the year ended december 31 , 2014. commodity costs for the year ending december 31 , 2015 could be down approximate ly 1 % on a constant volume/mix basis as c ompared to the year ended december 31 , 2014. refer to item 1a , `` risk factors '' of this annual report on form 10-k for additional information about risks and uncertainties facing our company . seasonality the beverage market is subject to some seasonal variations . story_separator_special_tag in the u.s. and canada , volume was flat , and in mexico and the caribbean , volume in creased 5 % , compared with the year ago period . branded csd volume increased 1 % while branded ncb volume declined 1 % . in branded csds , peñafiel grew 21 % in our latin america beverages segment as a result of product and package innovation . our core 4 brands increased 2 % compared to the year ago period , driven by an 8 % increase in canada dry partially offset by a 1 % decline in 7up . a & w and sunkist soda were both flat for the period . schweppes grew 10 % reflecting distribution gains in our seltzer water and growth in the ginger ale category . these gains were partially offset by a 2 % decrease in dr pepper , driven primarily by declines in our diet products , and a 5 % decrease in our other csd brands in total . crush , squirt and rc cola declined 1 % , 1 % and 2 % , respectively . in branded ncbs , decreases were driven by a 7 % decrease in hawaiian punch as a result of category declines and increased competitive activity , a 1 % decline in our other ncb brands in total , and a 1 % decrease in mott 's as a result of declines in apple sauce . the decline was partially offset by a 7 % increase in clamato , driven by increased promotional activity , and 3 % growth in our water category primarily driven by new distribution arrangements for bai 5 and sparkling fruit 2 o and distribution gains in fiji and vita coco . snapple increased 1 % for the current period as growth in our higher margin snapple premium products was partially offset by our de-emphasis on our value products . 28 net sales . net sales in creased $ 124 million , or approximately 2 % , for the year ended december 31 , 2014 compared with the year ended december 31 , 2013 . the primary drivers of the in crease were favorable product and package mix , increased branded sales volume , higher pricing driven by the mexican sugar tax and an increase in contract manufacturing . these drivers were partially offset by $ 35 million in unfavorable foreign currency translation and higher discounts , driven primarily by the annual true-up of our prior year estimated customer liability . gross profit . gross profit in creased $ 132 million for the year ended december 31 , 2014 compared with the year ended december 31 , 2013 . gross margin was 59.3 % and 58.3 % for the years ended december 31 , 2014 and 2013 , respectively . the drivers of the favorable change in gross margin were lower commodity costs , net of the change in our last-in , first-out ( `` lifo '' ) inventory provision , ongoing productivity improvements and mark-to-market activity on commodity derivative contracts , which increased gross margin 1.1 % , 0.8 % and 0.4 % , respectively . these drivers were partially offset by unfavorable product , package and segment mix , the net impact of the mexican sugar tax , unfavorable foreign currency effects and an increase in other manufacturing costs , which decreased gross margin by 0.5 % , 0.4 % , 0.2 % and 0.2 % , respectively . the favorable mark-to-market activity on commodity derivative contracts for the year ended december 31 , 2014 was $ 11 million in unrealized gains versus $ 15 million in unrealized losses in the prior year . the unfavorable comparison in our lifo inventory provision was the result of a $ 3 million increase in the provision for the year ended december 31 , 2014 versus a $ 39 million decrease in the provision for the year ended december 31 , 2013 driven primarily by apple prices . selling , general and administrative expenses . selling , general and administrative ( `` sg & a '' ) expenses increased $ 62 million for the year ended december 31 , 2014 compared with the prior year . the increase was primarily driven by the following items : increased people costs , primarily driven by performance-based incentive compensation ; a $ 23 million unfavorable comparison in the mark-to-market activity on commodity derivative contracts ; higher logistics costs from our third party carriers partially driven by tighter than expected overall system capacity ; and pension settlement charges of $ 16 million , of which $ 14 million related to the purchase of annuities for certain participants receiving benefits in our u.s. defined benefit pension plans . for the year ended december 31 , 2014 , we recognized $ 24 million in unrealized losses related to the mark-to-market activity on commodity derivative contracts versus $ 1 million in unrealized losses in the year ago period . these items were partially offset by a planned reduction of $ 13 million for our marketing investments , the favorable impact of foreign currency and the favorable comparison of the $ 7 million in workforce reduction costs related to certain restructuring activities in the prior year . multi-employer pension plan withdrawal . we recognized a non-cash charge of $ 56 million related to our withdrawal from local 710 during the year ended december 31 , 2013 . refer to note 14 of the notes to our audited consolidated financial statements for further information on this charge . income from operations . income from operations in creased $ 134 million to $ 1,180 million for the year ended december 31 , 2014 , due primarily to the increase in gross profit and the favorable comparison to the non-cash charge for the multi-employer pension plan withdrawal taken in the prior year , partially offset by an increase in our sg & a expenses . interest expense .
| results of operations by segment the following tables set forth net sales and sop for our segments for the year ended december 31 , 2013 and 2012 , as well as the other amounts necessary to reconcile our total segment results to our consolidated results presented in accordance with u.s. gaap ( in millions ) : replace_table_token_12_th beverage concentrates the following table details our beverage concentrates segment 's net sales and sop for the years ended december 31 , 2013 and 2012 ( in millions ) : replace_table_token_13_th net sales . net sales increased $ 8 million for the year ended december 31 , 2013 , compared with the year ended december 31 , 2012. the increase was due to an increase in concentrate prices , favorable product mix and lower discounts , which were largely offset by a 4 % decline in concentrate case sales . sop . sop increased $ 4 million for the year ended december 31 , 2013 , compared with the year ended december 31 , 2012 , primarily due to the gross margin impact of higher net sales and lower labor and benefit costs , partially offset by a higher transfer pricing allocation and $ 5 million of higher marketing investments . 35 volume ( bcs ) . volume ( bcs ) decreased 2 % as a result of continued category headwinds for the year ended december 31 , 2013 compared with the year ended december 31 , 2012 , primarily driven by a 2 % decline in dr pepper and a 7 % decrease in crush . other drivers of the decline include a 7 % decline in rc cola , a 6 % decrease in sun drop and a 6 % decline in squirt . these declines were partially offset by a 6 % increase in schweppes reflecting distribution gains in our seltzer water and growth in the ginger ale category .
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if the transaction does not meet the criteria for the full accrual method of profit recognition based on our assessment , we account for a sale based on an appropriate deferral method determined by the nature and extent of the buyer 's investment and our continuing involvement . discontinued operations topic 360 extends the reporting of a discontinued operation to a component of an entity , and further requires that a component be classified as a discontinued operation if the operations and cash flows of the component have been or will be eliminated from the ongoing operations of the entity in the disposal transaction and the entity will not have any significant continuing involvement in the operations of the component after the disposal transaction . as defined in topic 360 , a component of an entity comprises operations and cash flows that can be clearly distinguished , operationally and for financial reporting purposes , from the rest of the entity . because each of our consolidated real estate assets is generally accounted for in a discrete subsidiary , many constitute a component of an entity under topic 360 , increasing the likelihood that the disposition of assets that story_separator_special_tag overview we are the world 's largest commercial real estate services and investment firm , based on 2013 revenue , with leading full-service operations in major metropolitan areas throughout the world . we offer a full range of services to occupiers , owners , lenders and investors in office , retail , industrial , multifamily and other types of commercial real estate . as of december 31 , 2013 , excluding independent affiliates , we operated in approximately 350 offices worldwide , with approximately 44,000 employees providing commercial real estate services under the cbre brand name , investment management services under the cbre global investors brand name and development services under the trammell crow brand name . our business is focused on several competencies , including commercial property and corporate facilities management , tenant/occupier and property/agency leasing , property sales , real estate investment management , valuation , commercial mortgage origination and servicing , capital markets ( structured finance and debt ) solutions , development services and proprietary research . we generate revenue from management fees on a contractual and per-project basis , and from commissions on transactions . in 2013 , we were the highest ranked commercial real estate services company among the fortune most admired companies , and were also named the global real estate advisor of the year by euromoney . we have been the only commercial real estate services company included in the s & p 500 since 2006 , and in the fortune 500 since 2008. additionally , the international association of outsourcing professionals has included us among the top 100 global outsourcing companies across all industries for eight consecutive years , including in 2013 when we ranked fourth overall and were the highest ranked commercial real estate services company . when you read our financial statements and the information included in this section , you should consider that we have experienced , and continue to experience , several material trends and uncertainties that have affected our financial condition and results of operations that make it challenging to predict our future performance based on our historical results . we believe that the following material trends and uncertainties are crucial to an understanding of the variability in our historical earnings and cash flows and the potential for continued variability in the future : macroeconomic conditions economic trends and government policies affect global and regional commercial real estate markets as well as our operations directly . these include : overall economic activity and employment growth , interest rate levels , the cost and availability of credit and the impact of tax and regulatory policies . periods of economic weakness or recession , significantly rising interest rates , fiscal uncertainty , declining employment levels , decreasing demand for commercial real estate , falling real estate values , disruption to the global capital or credit markets , or the public perception that any of these events may occur , may negatively affect the performance of some or all of our business lines . the severe global economic downturn and financial market crisis in 2008 and 2009 had significant adverse effects on our operations , materially lowering both our fees from property and facilities management and valuations , and our commissions from property sales , leasing and financing , as well as reducing the funds available to invest in commercial real estate and related assets . commercial real estate markets have been gradually recovering since 2010 in step with the slow improvement in global economic activity . during the economic downturn and financial market crisis , weak economic conditions also affected our compensation expense , which is structured to generally decrease in line with a fall in revenue . compensation is our largest expense and the sales and leasing professionals in our largest line of business , advisory services , generally are paid on a commission and bonus basis that correlates with their revenue production . as a result , the negative effect of difficult market conditions on our operating margins was partially mitigated by the inherent variability of our compensation cost structure . in addition , when negative economic conditions are particularly severe , as they were in 2008 and 2009 , we have moved decisively to lower operating expenses to improve financial performance . as general economic conditions and our financial performance have improved over the 35 past four years , we have restored certain expenses . notwithstanding the gradual market recovery , challenges to the macro economy remain , and a return of adverse global and regional economic trends is one of the most significant risks to the performance of our operations and our financial condition . the global capital markets disruption in late 2008 caused a significant and prolonged decline in property sales , leasing , financing and investment activity that adversely affected all our business lines . story_separator_special_tag international operations as we increase our international operations through either acquisitions or organic growth , fluctuations in the value of the u.s. dollar relative to the other currencies in which we may generate earnings could adversely affect our business , financial condition and operating results . our management team generally seeks to mitigate our exposure by balancing assets and liabilities that are denominated in the same currency and by maintaining cash positions outside the united states only at levels necessary for operating purposes . in addition , from time to time we enter into foreign currency exchange contracts to attempt to mitigate some of our exposure to exchange rate changes related to particular transactions and to hedge risks associated with the translation of foreign currencies into u.s. dollars . our global investment management business has a significant amount of euro-denominated assets under management , or aum , as well as associated revenue and earnings in europe , which has seen continuing sovereign debt issues resulting in a more pronounced movement in the value of the euro against the u.s. dollar . fluctuations in foreign currency exchange rates have resulted and may continue to result in corresponding fluctuations in our aum , revenue and earnings . due to the constantly changing currency exposures to which we are subject and the volatility of currency exchange rates , we can not predict the effect of exchange rate fluctuations upon future operating results . in addition , fluctuations in currencies relative to the u.s. dollar may make it more difficult to perform period-to-period comparisons of our reported results of operations . our international operations also are subject to , among other things , political instability and changing regulatory environments , which may adversely affect our future financial condition and results of operations . our management routinely monitors these risks and related costs and evaluates the appropriate amount of resources to allocate towards business activities in foreign countries where such risks and costs are particularly significant . 37 leverage we are leveraged and have significant debt service obligations . as of december 31 , 2013 , our total debt , excluding our notes payable on real estate ( which are generally nonrecourse to us ) and warehouse lines of credit ( which are recourse only to our wholly-owned subsidiary , cbre capital markets , inc. , or cbre capital markets , and are secured by our related warehouse receivables ) , was approximately $ 2.0 billion . our level of indebtedness and the operating and financial restrictions in our debt agreements place some constraints on the operation of our business . although our management believes that long-term indebtedness has been an important lever in the development of our business , including facilitating the reim acquisitions and the norland acquisition , the cash flow necessary to service this debt is not available for other general corporate purposes , which may limit our flexibility in planning for , or reacting to , changes in our business and in the commercial real estate services industry . our management seeks to mitigate this exposure both through the refinancing of debt when available on attractive terms and through selective repayment and retirement of indebtedness . for example , during 2013 , we completed a series of financing transactions that have meaningfully extended debt maturities , lowered annual interest expense by approximately $ 50 million when compared to annualized interest expense before these refinancing actions , and increased our financial flexibility . these transactions included the amendment and restatement of our credit agreement , which now provides for a $ 715.0 million term loan facility and an expanded $ 1.2 billion revolving credit facility ( of which $ 142.5 million was drawn at december 31 , 2013 ) , the issuance of $ 800.0 million aggregate principal amount of 5.00 % senior notes due march 15 , 2023 and the redemption of all of the 11.625 % senior subordinated notes totaling $ 450.0 million . during the year ended december 31 , 2013 , in connection with all of these financing activities , we incurred approximately $ 28.6 million of financing costs , of which $ 3.6 million was expensed . in addition , we expensed $ 17.8 million of previously-deferred financing costs as well as a $ 26.2 million early extinguishment premium and $ 8.7 million of unamortized original issue discount associated with the 11.625 % senior subordinated notes . critical accounting policies our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states , which require management to make estimates and assumptions that affect reported amounts . the estimates and assumptions are based on historical experience and on other factors that management believes to be reasonable . actual results may differ from those estimates . we believe that the following critical accounting policies represent the areas where more significant judgments and estimates are used in the preparation of our consolidated financial statements : revenue recognition in order for us to recognize revenue , there are four basic criteria that must be met : existence of persuasive evidence that an arrangement exists ; delivery has occurred or services have been rendered ; the seller 's price to the buyer is fixed and determinable ; and collectability is reasonably assured . our revenue recognition policies are consistent with these criteria . the judgments involved in revenue recognition include understanding the complex terms of agreements and determining the appropriate time to recognize revenue for each transaction based on such terms . each transaction is evaluated to determine : ( i ) at what point in time revenue is earned , ( ii ) whether contingencies exist that impact the timing of recognition of revenue and ( iii ) how and when such contingencies will be resolved . the timing of revenue recognition could vary if different judgments were made . our revenues subject to the most judgment are brokerage commission revenue and incentive-based management and development fees .
| results of operations the following table sets forth items derived from our consolidated statements of operations for the years ended december 31 , 2013 , 2012 and 2011 : replace_table_token_6_th ( 1 ) includes ebitda related to discontinued operations of $ 7.9 million , $ 5.6 million and $ 14.1 million for the years ended december 31 , 2013 , 2012 and 2011 , respectively . ebitda represents earnings before net interest expense , write-off of financing costs , income taxes , depreciation and amortization , while amounts shown for ebitda , as adjusted , remove the impact of certain cash and non-cash charges related to acquisitions and cost containment expenses , as well as certain carried interest incentive compensation expense . our management believes that both of these measures are useful in evaluating our operating performance compared to that of other companies in our industry because the calculations of ebitda and ebitda , as adjusted , generally eliminate the effects of financing and income taxes and the accounting effects of capital spending and acquisitions , which would include impairment charges of goodwill and intangibles created from acquisitions . such items may vary for different companies for reasons unrelated to 46 overall operating performance . as a result , our management uses these measures to evaluate operating performance and for other discretionary purposes , including as a significant component when measuring our operating performance under our employee incentive programs . additionally , we believe ebitda and ebitda , as adjusted , are useful to investors to assist them in getting a more complete picture of our results from operations . however , ebitda and ebitda , as adjusted , are not recognized measurements under u.s. generally accepted accounting principles , or gaap , and when analyzing our operating performance , readers should use ebitda and ebitda , as adjusted , in addition to , and not as an alternative for , net income as determined in accordance with gaap .
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among the factors considered by the company in determining the fair value of financial instruments are discounted anticipated cash flows , the cost , terms and liquidity of the instrument , the financial condition , operating results and credit story_separator_special_tag the following discussion should be read together with our consolidated financial statements and the accompanying notes contained elsewhere in this form 10-k. in addition to historical information , the following discussion contains forward-looking statements that involve risks and uncertainties . our actual results and the timing of events may differ significantly from those projected in such forward-looking statements due to a number of factors , including those discussed in item 1a risk factors and elsewhere in this form 10-k. overview jmp group inc. , together with its subsidiaries ( collectively , the company , we , or us ) is a full-service investment banking and asset management firm headquartered in san francisco , california . we have a diversified business model with a focus on small and middle-market companies and provide : investment banking , including corporate finance , mergers and acquisitions and other strategic advisory services , to corporate clients ; sales and trading , and related brokerage services to institutional investors ; proprietary equity research in our four target industries ; asset management products and services to institutional investors , high net-worth individuals and for our own account ; management of collateralized loan obligations ; and small business lending . our business , by its nature , does not produce predictable earnings . our results in any given period can be materially affected by conditions in global financial markets and economic conditions generally . for a further discussion of the factors that may affect our future operating results , see risk factors in part i , item 1a of our annual report on form 10-k. components of revenues we derive revenues primarily from fees earned from our investment banking business , net commissions on our trading activities in our sales and trading business , asset management fees and incentive fees in our asset management business and interest income on collateralized loan obligations and small business loans we manage . we also generate revenues from principal transactions , interest , dividends , and other income . investment banking we earn investment banking revenues from underwriting securities offerings , arranging private capital market placements and providing advisory services in mergers and acquisitions and other strategic advisory assignments . underwriting revenues we earn underwriting revenues from securities offerings in which we act as an underwriter , such as initial public offerings and follow-on equity offerings . underwriting revenues include management fees , underwriting fees , selling concessions and realized and unrealized net gains and losses on equity positions held in inventory for a period of time to facilitate the completion of certain underwritten transactions . we record underwriting revenues , net of related syndicate expenses , at the time the underwriting is completed . in syndicated underwritten transactions , management estimates our share of transaction-related expenses incurred by the syndicate , and we recognize revenues net of such expense . on final settlement by the lead manager , typically 90 days from the trade date of the transaction , we adjust these amounts to reflect the actual transaction-related expenses and our resulting underwriting fee . we receive a higher proportion of total fees in underwritten transactions in which we act as a lead manager . 41 strategic advisory revenues our strategic advisory revenues primarily include success fees on closed merger and acquisition transactions , as well as retainer fees , earned in connection with advising both buyers ' and sellers ' transactions . we also earn fees for related advisory work and other services such as providing fairness opinions and valuation analyses . we record strategic advisory revenues when the transactions or the services ( or , if applicable , separate components thereof ) to be performed are substantially completed , the fees are determinable and collection is reasonably assured . private capital market and other revenues we earn agency placement fees in non-underwritten transactions such as private placements of equity securities , private investments in public equity ( pipe ) transactions , rule 144a private offerings and trust preferred securities offerings . we record private placement revenues on the closing date of these transactions . since our investment banking revenues are generally recognized at the time of completion of each transaction or the services to be performed , these revenues typically vary between periods and may be considerably affected by the timing of the closing of significant transactions . brokerage revenues our brokerage revenues include commissions paid by customers from brokerage transactions in exchange-listed and over-the-counter ( otc ) equity securities . commissions are recognized on a trade date basis . brokerage revenues also include net trading gains and losses that result from market-making activities and from the commitment of capital to facilitate customer orders . our brokerage revenues may vary between periods , in part depending on commission rates , trading volumes and our ability to continue to deliver research and other value-added services to our clients . the ability to execute trades electronically , through the internet and through other alternative trading systems has increased pressure on trading commissions and spreads . we expect this trend toward alternative trading systems and pricing pressures in our brokerage business to continue . we are , to some extent , compensated through brokerage commissions for the value of research and other value added services we deliver to our clients . these soft dollar practices have been the subject of discussion among regulators , the investment banking community and our sales and trading clients . in particular , commission sharing arrangements have been adopted by some large institutional investors . in these arrangements , institutional investors concentrate their trading with fewer execution brokers and pay a fixed amount for execution with an additional amount set aside for payments to other firms for research or other brokerage services . story_separator_special_tag for clos , assets under management represent the sum of the aggregate collateral balance and restricted cash to be reinvested in collateral , upon which management fees are earned . ( 2 ) harvest consumer partners changed its name to harvest agriculture select effective february 14 , 2011 . ( 3 ) harvest technology partners ( htp ) includes managed accounts in which the company has neither equity investment nor control . these are included as they follow htp strategy and earn fees . ( 4 ) hgc and cratos clo were consolidated in the company 's statements of financial condition at december 31 , 2011 and 2010. hcc was consolidated in the company 's statements of financial condition at december 31 , 2011 . ( 5 ) the clo within other initiated liquidation proceedings in december 2011. the remaining assets will be distributed in 2012 . 44 replace_table_token_11_th ( 1 ) time-weighted rate of return ( twr ) for the hedge funds and funds of funds . twr is a measure of the compound rate of growth in a portfolio and eliminates the effect of varying cash inflows by assuming a single investment at the beginning of a period and measuring the growth or loss of market value to the end of that period . ( 2 ) harvest consumer partners changed its name to harvest agriculture select effective february 14 , 2011 . ( 3 ) harvest technology partners ( htp ) includes managed accounts in which the company has neither equity investment nor control . these are included as they follow htp strategy and earn fees . ( 4 ) revenues earned from hgc , hcc , and cratos are consolidated and then eliminated in consolidation in the company 's statements of operations , net of non-controlling interest . ( 5 ) the clo within other initiated liquidation proceedings in december 2011. the remaining assets will be distributed in 2012. replace_table_token_12_th 45 ( 1 ) twr is a measure of the compound rate of growth in a portfolio and eliminates the effect of varying cash inflows by assuming a single investment at the beginning of a period and measuring the growth or loss of market value to the end of that period . ( 2 ) revenues earned from hmop , hgc and cratos clo are consolidated and then eliminated in consolidation in the company 's statements of operations , net of non-controlling interest . hmop was liquidated on december 31 , 2010 , with all of its partners redeeming their interests as of that date . the assets of hmop were distributed to its partners in january 2011 . ( 3 ) harvest global select partners was liquidated on may 31 , 2010 and its assets were distributed to its partners . replace_table_token_13_th ( 1 ) twr is a measure of the compound rate of growth in a portfolio and eliminates the effect of varying cash inflows by assuming a single investment at the beginning of a period and measuring the growth or loss of market value to the end of that period . ( 2 ) effective may 1 , 2009 , revenues earned from hmop are consolidated and then allocated to non-controlling interest in consolidation in the company 's statements of operations . hmop was liquidated on december 31 , 2010 , with all of its partners redeeming their interests as of that date . the assets of hmop were distributed to its partners in january 2011. effective april 7 , 2009 , revenues earned from cratos clo are consolidated and then eliminated in consolidation in the company 's statements of operations , net of non-controlling interest . ( 3 ) harvest global select partners was liquidated on may 31 , 2010 and its assets were distributed to its partners . ( 4 ) jmp emerging masters fund was liquidated on december 31 , 2009 and its assets were distributed to its partners . principal transactions principal transaction revenues include realized and unrealized net gains and losses resulting from our principal investments , which include investments in equity and other securities for our own account , general partner investments in funds that we manage , warrants we may receive from certain investment banking assignments , as well as limited partner investments in private funds managed by third parties . in addition , we invest a portion of our capital in a portfolio of equity securities managed by hcs and in side-by-side investments in the funds managed by us . in certain cases , we also co-invest alongside our institutional clients in private transactions resulting from our investment banking business . principal transaction revenues also include unrealized gains and losses on the private equity securities owned by hgc , a private equity fund managed by 46 hcs which is consolidated in our financial statements , as well as unrealized gains and losses on the investments in private companies sponsored by hcs and jmp capital llc ( jmp capital ) . gain on sale and payoff of loans gain on sale and payoff of loans consists of gains from the sale and payoff of loans collateralizing asset-backed securities at jmp credit corporation ( jmp credit ) . gains are recorded when the proceeds exceed the carrying value of the loan . gain on sale and payoff of loans also consists of lower of cost or market adjustments arising from loans held for sale . losses are recorded when the carrying value exceeds fair value . gain on repurchase of asset-backed securities issued gain on repurchase of asset-backed securities issued ( abs ) primarily consists of gains from repurchases of our abs from third parties . gains are recorded when the repurchase price is less than the carrying value of the abs . gain on bargain purchase a bargain purchase gain was recognized upon the acquisition of cratos by jmp credit on april 7 , 2009. this represents the difference between the fair value of net assets acquired and the consideration given to the sellers .
| historical results of operations the following table sets forth our historical results of operations for the years ended december 31 , 2011 , 2010 and 2009 and is not necessarily indicative of the results to be expected for any future period . replace_table_token_14_th 51 replace_table_token_15_th year ended december 31 , 2011 , compared to year ended december 31 , 2010 overview total net revenues after provision for loan losses decreased $ 33.3 million , or 23.0 % , from $ 144.7 million for the year ended december 31 , 2010 to $ 111.4 million for the year ended december 31 , 2011 , resulting from a decrease in total non-interest revenues of $ 18.9 million , a decrease in net interest income of $ 13.9 million and an increase in provision for loan losses of $ 0.6 million . total non-interest revenues decreased $ 18.9 million , or 14.0 % , primarily due to a decrease in gain on sale and payoff of loans of $ 22.3 million , a decrease of brokerage revenues of $ 2.8 million , and a decrease in principal transaction revenues of $ 1.8 million , partially offset by an increase in asset management revenues of $ 7.6 million .
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additionally , we earn advertising revenue when the advertiser 's logo or website link has been included on our websites or in specified email distributions for the requisite story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included under item 8 of this annual report on form 10-k. this discussion contains forward-looking statements about our business and operations . our actual results may differ materially from those we currently anticipate as a result of many factors , including those we describe under item 1a , risk factors , and elsewhere in this annual report . see part i , forward-looking statements , for additional information . overview groupon is a global scaled two-sided marketplace that connects consumers to merchants . consumers access our marketplace through our mobile applications and our websites , primarily localized groupon.com sites in many countries . we operate in two segments : north america and international and in three categories : local , goods and travel . see item 8 , note 21 , segment information for additional information . currently , we generate product and service revenue from the following business operations . service revenue from local , travel , and goods categories : service revenue primarily represents the net commissions earned from selling goods or services on behalf of third-party merchants . service revenue is reported on a net basis as the purchase price collected from the customer less the portion of the purchase price that is payable to the third-party merchant . we also earn commissions when customers make purchases with retailers using digital coupons accessed through our websites and mobile applications . product revenue from goods category : we generate product revenue from our sales of first-party goods inventory , which are direct sales of merchandise inventory . for product revenue transactions , we are the primary party responsible for providing the good to the customer , we have inventory risk and we have discretion in establishing prices . as such , product revenue is reported on a gross basis as the purchase price received from the customer . product revenue , including associated shipping revenue , is recognized when title passes to the customer upon delivery of the product . we have transitioned to a third-party marketplace in north america as of the end of 2020 and will begin to transition to a third-party marketplace in international in the second quarter 2021. following the international transition , we expect our goods category to primarily generate revenue on a net basis within service revenue . in 2020 , the covid-19 pandemic has led to significant disruption in our business . see strategy , restructuring and cost reduction and factors affecting our performance below , and item 8 , note 3 , covid-19 pandemic , for more information about the impacts of covid-19 on our business . strategy in february 2020 , we announced a strategic plan to focus on our local experiences marketplace , which included exiting our goods category . however , due to the significant disruption in our business due to the covid-19 pandemic we continue to sell goods on our platform . in the third quarter 2020 , we announced an updated strategy and plan to prioritize expanding our local inventory and modernizing our marketplace by improving the merchant and customer experiences . while both of these are important to building a successful marketplace , we believe the most critical of these is expanding local inventory . to validate our strategic priority of expanding local inventory , early in the third quarter 2020 we launched a test in four markets in north america to determine if growing inventory would result in improved billings and units performance . to grow local supply , we focused on leveraging three types of inventory : deals with few restrictions , new , lower discount offers , and market rate supply . at the conclusion of our test in december 2020 , we determined that we reached our test goals and we intend to scale elements of our inventory strategy more broadly throughout our marketplace in 2021. we also intend to continue to make enhancements to the customer and merchant experiences in 2021 . 39 restructuring and cost reduction during the year ended december 31 , 2020 we took significant actions to improve our cash position and materially reduce our cost structure . in april 2020 , the board approved a multi-phase restructuring plan related to our previously announced strategic shift and as part of the cost cutting measures implemented in response to the impact of covid-19 on our business . the first phase of our restructuring actions included an overall reduction of approximately 1,200 positions globally and the exit or discontinuation of the use of certain leases and other assets by the end of 2020. the majority of the first phase of workforce reductions and impairments of our right-of-use and other long-lived assets occurred during the second quarter 2020. in the third quarter 2020 , we initiated the second phase of our restructuring plan , which included additional workforce reductions and the exit of our operations in new zealand and japan . we expect to incur total pre-tax charges of $ 75.0 million to $ 105.0 million in connection with our multi-phase restructuring plan through the end of 2021. once fully implemented , we expect our multi-phase restructuring plan to result in $ 225.0 million in annualized cost savings . during the year ended december 31 , 2020 , we recorded $ 64.8 million in pre-tax charges in connection with our restructuring actions . see item 8 , note 16 , restructuring and related charges , for more information . story_separator_special_tag adjusted ebitda is a non-gaap financial measure that we define as net income ( loss ) from continuing operations excluding income taxes , interest and other non-operating items , depreciation and amortization , stock-based compensation , acquisition-related expense ( benefit ) , net and other special charges and credits , including items that are unusual in nature or infrequently occurring . for further information and a reconciliation to income ( loss ) from continuing operations , refer to our discussion under non-gaap financial measures in the results of operations section . free cash flow is a non-gaap financial measure that comprises net cash provided by ( used in ) operating activities from continuing operations less purchases of property and equipment and capitalized software . for further information and a reconciliation to net cash provided by ( used in ) operating activities from continuing operations , refer to our discussion in the liquidity and capital resources section . the following table presents the above financial metrics for the years ended december 31 , 2020 , 2019 and 2018 ( in thousands ) : replace_table_token_5_th 41 operating expenses marketing expense consists primarily of online marketing costs , such as search engine marketing , advertising on social networking sites and affiliate programs , and offline marketing costs , such as television and radio advertising . additionally , compensation expense for marketing employees is classified within marketing expense . we record these costs within marketing on the consolidated statements of operations when incurred . from time to time , we have offerings from well-known national merchants for customer acquisition and activation purposes , for which the amount we owe the merchant for each voucher sold exceeds the transaction price paid by the customer . our gross billings from those transactions generate no service revenue and our net cost ( i.e. , the excess of the amount owed to the merchant over the amount paid by the customer ) is classified as marketing expense . we evaluate marketing expense as a percentage of gross profit because it gives us an indication of how well our marketing spend is driving gross profit performance . selling , general and administrative ( `` sg & a '' ) expenses include selling expenses such as sales commissions and other compensation expenses for sales representatives , as well as costs associated with supporting the sales function such as technology , telecommunications and travel . general and administrative expenses include compensation expense for employees involved in customer service , operations , technology and product development , as well as general corporate functions , such as finance , legal and human resources . additional costs included in general and administrative include depreciation and amortization , rent , professional fees , litigation costs , travel and entertainment , recruiting , office supplies , maintenance , certain technology costs and other general corporate costs . we evaluate sg & a expense as a percentage of gross profit because it gives us an indication of our operating efficiency . restructuring and related charges represent severance and benefit costs for workforce reductions , impairments and other facilities-related costs and professional advisory fees . see item 8 , note 16 , restructuring and related charges , for information about our restructuring plan . factors affecting our performance impact of covid-19 . during the covid-19 pandemic , various government restrictions and changes in consumer behavior have had a negative impact on our business , which relies on customers ' purchases of local experiences , including events and activities , beauty and wellness , travel and dining . recovery from the covid-19 pandemic could be volatile and prolonged given the unprecedented and continuously evolving nature of the situation . we continue to monitor the impact of covid-19 on our business . see item 8 , note 3 , covid-19 pandemic , for more information about the impacts of covid-19 on our business and item 1a , risk factors . attracting and retaining local merchants . as we focus on our local experiences marketplace , we depend on our ability to attract and retain merchants who are willing to offer their experiences on our platform . merchants can generally withdraw their offerings from our marketplace at any time , and their willingness to continue offering services through our marketplace depends on the effectiveness of our marketing and promotional services . since the widespread economic impacts of covid-19 began in march 2020 , we are prioritizing opportunities to help drive demand for our merchants and highlighting offers that customers can enjoy right now . as we continue to navigate through the volatility of the covid-19 recovery period , we intend to take a market-by-market approach to attracting and retaining local merchants . driving purchase frequency and re-engaging and retaining customers . in light of significant declines in consumer demand for local and travel services due to covid-19 , we must highlight offers that customers can enjoy right now in order to drive purchase frequency and retain customers . this includes surfacing the relevant local inventory in each market depending on the government restrictions currently in place and continuing to leverage our goods category in the near-term . we must also continue to improve the customer experience on our websites and mobile applications , launch innovative products that remove friction from the customer journey and drive awareness to our supply , and grow our high-quality , bookable inventory . increasing traffic to our websites and mobile applications . the traffic to our websites and mobile applications , including from consumers responding to our emails and search engine optimization ( `` seo '' ) , has declined in recent years , and we have experienced further declines in traffic due to the impacts of covid-19 . as such , we must focus on improving the effectiveness of our emails , as well as developing sources of traffic in addition to email and seo and optimizing the efficiency of our marketing spend .
| results of operations north america operating metrics north america segment gross billings , units and ttm active customers for the years ended december 31 , 2020 , 2019 and 2018 were as follows ( in thousands , except percentages ) : replace_table_token_6_th comparison of the years ended december 31 , 2020 and 2019 : for the year ended december 31 , 2020 north america gross billings declined by $ 1,360.4 million , units declined by 33.8 million and ttm active customers declined by 9.0 million . these declines were primarily due to the significant decrease in consumer demand due to changes in consumer behavior and actions taken by governments to control the spread of covid-19 , including quarantines , travel restrictions , as well as business restrictions and shutdowns . comparison of the years ended december 31 , 2019 and 2018 : for the year ended december 31 , 2019 , north america gross billings declined by $ 437.1 million , units declined by 19.3 million and active customers declined by 4.1 million . these declines were primarily due to the decline in traffic , including traffic from email and seo , as well as our efforts to improve the efficiency of our marketing spend , which led to a decrease in the number of active customers . 43 financial metrics north america segment revenue , cost of revenue and gross profit for the years ended december 31 , 2020 , 2019 and 2018 were as follows ( dollars in thousands ) : replace_table_token_7_th ( 1 ) represents the percentage of service gross billings that we retained after deducting the merchant 's share . comparison of the years ended december 31 , 2020 and 2019 : north america revenue and gross profit decreased by $ 540.3 million and $ 332.1 million , for the year ended december 31 , 2020. those declines were primarily driven by a decline in gross billings and transaction volume due to the impacts of covid-19 .
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the terms of such loans have not been determined . 6. loss per common share a reconciliation of the numerators and denominators for the basic and diluted per common share amounts is as follows : replace_table_token_7_th all shares of class f common stock are assumed to convert to shares of class a common stock on a one-for-one basis . further , shares of class a common stock subject to possible redemption have been excluded from the calculation of earnings per share for the years december 31 , 2017 and 2016 , see note 3 . 7. income taxes our income tax liability $ 448,099 is included in accounts payable and accrued liabilities . a reconciliation of the income tax expense ( benefit ) is as follows : replace_table_token_8_th 53 the company 's deferred tax assets are as follows : year ended december 31 , 2017 2016 deferred tax asset : net operating loss carryforward $ - $ 6,039 total deferred tax asset $ - $ 6,039 valuation allowance - ( 6,039 ) deferred tax asset , net of current allowance $ - $ - a reconciliation of the federal income tax rate to the company 's effective tax rate is as follows : replace_table_token_9_th 8. selected quarterly financial data ( unaudited ) quarterly financial data for 2017 and 2016 is as follows : replace_table_token_10_th replace_table_token_11_th 54 schedule ii valuation of qualifying accounts replace_table_token_12_th item 9. changes in and disagreements with accountants on accounting and financial disclosure none . item 9a . controls and procedures . evaluation of disclosure controls and procedures disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the securities exchange act of 1934 , as amended ( the `` exchange act `` ) , is recorded , processed , summarized and reported within the time periods specified in the sec 's rules and forms . disclosure controls and procedures include , without limitation , controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the exchange act is accumulated and communicated to management , including our chief executive officer and chief financial officer , to allow timely decisions regarding required disclosure . as required by rules 13a-15 and 15d-15 under the exchange act , our chief executive officer and chief financial officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of december 31 , 2017. based upon their evaluation , our chief executive officer and chief financial officer concluded that our disclosure controls and procedures ( as defined in rules 13a-15 ( e ) and 15d-15 ( e ) under the exchange act ) were effective . management 's report on internal control over financial reporting management is responsible for establishing and maintaining adequate internal control over financial reporting , as such term is defined in exchange act rules 13a-15 ( f ) and 15d-15 ( f ) . the company 's internal control over financial reporting includes those policies and procedures that ( i ) pertain to the maintenance of records that , in reasonable detail , accurately and fairly reflect the transactions and dispositions of assets of the company ; ( ii ) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles , and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company ; and ( iii ) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition , use , or disposition of the company 's assets that could have a material effect on the financial statements . internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements prepared for external purposes in accordance with generally accepted accounting principles . because of its inherent limitations , internal control over financial reporting may not prevent or detect misstatements . also , projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate . 55 our management , with the participation of our chief executive officer and story_separator_special_tag overview we are a blank check company incorporated as a delaware corporation and formed for the purpose of effecting a merger , capital stock exchange , asset acquisition , stock purchase reorganization or similar business combination with one or more businesses . we consummated our initial public offering ( “ public offering ” ) on june 1 , 2016 and are currently in the process of locating suitable targets for our business combination . we intend to use the cash proceeds from our public offering and private placement of warrants as well as additional issuances , if any , of our capital stock , debt or a combination of cash , stock and debt to complete the business combination . 36 we expect to incur significant costs in the pursuit of our acquisition plans . we can not assure you that our plans to raise capital or to complete our initial business combination will be successful . liquidity and capital resources on june 1 , 2016 we consummated a $ 250,000,000 public offering consisting of 25,000,000 units at a price of $ 10.00 per unit ( “ units ” ) . each unit consists of one share of the company 's class a common stock , $ 0.0001 par value and one redeemable warrant . simultaneously , with the closing of the public offering , we consummated a $ 7,000,000 private sale of an aggregate of 14,000,000 warrants ( “ private placement ” ) at a price of $ 0.50 per warrant , $ story_separator_special_tag the terms of such loans have not been determined . 6. loss per common share a reconciliation of the numerators and denominators for the basic and diluted per common share amounts is as follows : replace_table_token_7_th all shares of class f common stock are assumed to convert to shares of class a common stock on a one-for-one basis . further , shares of class a common stock subject to possible redemption have been excluded from the calculation of earnings per share for the years december 31 , 2017 and 2016 , see note 3 . 7. income taxes our income tax liability $ 448,099 is included in accounts payable and accrued liabilities . a reconciliation of the income tax expense ( benefit ) is as follows : replace_table_token_8_th 53 the company 's deferred tax assets are as follows : year ended december 31 , 2017 2016 deferred tax asset : net operating loss carryforward $ - $ 6,039 total deferred tax asset $ - $ 6,039 valuation allowance - ( 6,039 ) deferred tax asset , net of current allowance $ - $ - a reconciliation of the federal income tax rate to the company 's effective tax rate is as follows : replace_table_token_9_th 8. selected quarterly financial data ( unaudited ) quarterly financial data for 2017 and 2016 is as follows : replace_table_token_10_th replace_table_token_11_th 54 schedule ii valuation of qualifying accounts replace_table_token_12_th item 9. changes in and disagreements with accountants on accounting and financial disclosure none . item 9a . controls and procedures . evaluation of disclosure controls and procedures disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the securities exchange act of 1934 , as amended ( the `` exchange act `` ) , is recorded , processed , summarized and reported within the time periods specified in the sec 's rules and forms . disclosure controls and procedures include , without limitation , controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the exchange act is accumulated and communicated to management , including our chief executive officer and chief financial officer , to allow timely decisions regarding required disclosure . as required by rules 13a-15 and 15d-15 under the exchange act , our chief executive officer and chief financial officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of december 31 , 2017. based upon their evaluation , our chief executive officer and chief financial officer concluded that our disclosure controls and procedures ( as defined in rules 13a-15 ( e ) and 15d-15 ( e ) under the exchange act ) were effective . management 's report on internal control over financial reporting management is responsible for establishing and maintaining adequate internal control over financial reporting , as such term is defined in exchange act rules 13a-15 ( f ) and 15d-15 ( f ) . the company 's internal control over financial reporting includes those policies and procedures that ( i ) pertain to the maintenance of records that , in reasonable detail , accurately and fairly reflect the transactions and dispositions of assets of the company ; ( ii ) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles , and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company ; and ( iii ) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition , use , or disposition of the company 's assets that could have a material effect on the financial statements . internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements prepared for external purposes in accordance with generally accepted accounting principles . because of its inherent limitations , internal control over financial reporting may not prevent or detect misstatements . also , projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate . 55 our management , with the participation of our chief executive officer and story_separator_special_tag overview we are a blank check company incorporated as a delaware corporation and formed for the purpose of effecting a merger , capital stock exchange , asset acquisition , stock purchase reorganization or similar business combination with one or more businesses . we consummated our initial public offering ( “ public offering ” ) on june 1 , 2016 and are currently in the process of locating suitable targets for our business combination . we intend to use the cash proceeds from our public offering and private placement of warrants as well as additional issuances , if any , of our capital stock , debt or a combination of cash , stock and debt to complete the business combination . 36 we expect to incur significant costs in the pursuit of our acquisition plans . we can not assure you that our plans to raise capital or to complete our initial business combination will be successful . liquidity and capital resources on june 1 , 2016 we consummated a $ 250,000,000 public offering consisting of 25,000,000 units at a price of $ 10.00 per unit ( “ units ” ) . each unit consists of one share of the company 's class a common stock , $ 0.0001 par value and one redeemable warrant . simultaneously , with the closing of the public offering , we consummated a $ 7,000,000 private sale of an aggregate of 14,000,000 warrants ( “ private placement ” ) at a price of $ 0.50 per warrant , $
| results of operations we have neither engaged in any significant business operations nor generated any revenues to date . our activities for the year ended december 31 , 2017 relate to our ongoing business expenses and costs associated with locating a suitable business combination . we will generate non-operating income in the form of interest income on cash and cash equivalents . our expenses consist of legal , financial reporting , accounting , and auditing compliance as a result of being a public company . we may incur increased expenses as we more actively pursue a business combination . for the year ended december 31 , 2017 , we had net income of $ 869,840 related to general and administrative expense of $ 360,303 and management fees to related parties of $ 120,000 offset by interest income of $ 1,798,242 from the trust account . for the year ended december 31 , 2016 , we had a net loss of $ 4,518 related to general and administrative costs of $ 191,253 and management fees to related parties of $ 70,000 offset by interest income of $ 256,735 from the trust account . our expenses were negligible prior to completing our public offering on june 1 , 2016 , therefore 2016 represents seven months of activity as a public company . off-balance sheet arrangements we did not have any off-balance sheet arrangements as of december 31 , 2017. contractual obligations as of december 31 , 2017 , we did not have any long-term debt , capital , purchase or operating lease obligations or other long-term liabilities . we have recorded deferred underwriting commissions payable upon the completion of the business combination .
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you should not place undue reliance on these forward-looking statements , which apply only as of the date of this annual report on form 10-k. except as required by law , we assume no obligation to update these forward-looking statements publicly , or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements , even if new information becomes available in the future . you should read this annual report on form 10-k and the documents that we reference in this annual report on form 10-k completely . overview we are a biopharmaceutical company focused on discovering , developing and commercializing novel immunotherapeutic products to improve treatment options for patients with cancer . our portfolio includes biologic and small-molecule immunotherapy product candidates intended to treat a wide range of oncology indications . our lead product candidate , hyperacute pancreas cancer immunotherapy ( algenpantucel-l ) , or hyperacute pancreas , is being studied in two phase 3 clinical trials ; one in surgically-resected pancreatic cancer patients that is being performed under a special protocol assessment , or spa , with the united states food and drug administration , or fda , and one in patients with locally advanced pancreatic cancer . we initiated these trials based on encouraging phase 2 data that suggest improvement in both disease-free and overall survival . we have also received fast track and orphan drug designations from the fda for this product candidate for the adjuvant treatment of surgically-resected pancreatic cancer and orphan medicinal product designation for this product candidate from the european commission . the primary endpoint for our impress ( immunotherapy for pancreatic resectable cancer survival study ) phase 3 trial with algenpantucel-l for patients with surgically-resected pancreatic cancer is overall survival and , as determined by the spa , the first interim analysis will be conducted when 222 deaths are reported for the study . this triggering event for the first interim analysis has not yet occurred . our additional product candidates in clinical development include our hyperacute lung cancer immunotherapy ( tergenpumatucel-l ) , or hyperacute lung , our hyperacute melanoma cancer immunotherapy ( dorgenmeltucel-l ) , or hyperacute melanoma , our hyperacute prostate cancer immunotherapy , or hyperacute prostate , our hyperacute renal cancer immunotherapy , or hyperacute renal , 1-methyl-d-tryptophan ( d-imt ) , or indoximod , our lead indoleamine- ( 2.3 ) -dioxygenase , or ido pathway inhibitor product candidate , and nlg919 , our second ido pathway inhibitor , which is currently in a phase i clinical trial in patients with solid tumors . to date , our hyperacute product candidates have been dosed in more than 500 cancer patients , either as a monotherapy or in combination with other therapies , and have demonstrated a favorable safety profile . our hyperacute product candidates are based on our proprietary hyperacute immunotherapy technology , which is designed to stimulate the human immune system . our hyperacute product candidates use allogeneic ( non-patient specific ) cells from previously established human cancer cell lines rather than cells derived from the individual patient . we believe our approach enables a simpler , more consistent and scalable manufacturing process than therapies based on patient specific tissues or cells . our product candidates are designed to harness multiple components of the innate immune system to combat cancer , either as a monotherapy or in combination with current treatment regimens without incremental toxicity . we are also conducting small-molecule based research and development with an aim to produce new drugs capable of breaking the immune system 's tolerance to cancer through inhibition of the ido pathway . we are currently studying our lead ido pathway inhibitor product candidate , indoximod , in multiple phase 2 studies in breast cancer and prostate cancer . we believe that our immunotherapeutic technologies will enable us to discover , develop and commercialize multiple product candidates that can be used either alone or in combination to enhance or potentially replace current therapies to treat cancer with underserved patient populations for significant market potential . bioprotection systems corporation , or bps , was founded by us as a subsidiary in 2005 to research , develop and commercialize vaccines to control the spread of emerging lethal viruses and infectious diseases , improve the efficacy of existing vaccines and provide rapid-response prophylactic and therapeutic treatment for pathogens most likely to enter the human population through pandemics or acts of bioterrorism . bps is based on three core technologies , each of which can be leveraged into the infectious disease or biodefense fields . the first is our hyperacute immunotherapy technology , which is currently focused on enhancing vaccines for influenza . the second technology is based on a yellow fever virus . the third technology is a replication competent recombinant vesicular stomatitus vaccine , or rvsv , an advanced vaccine technology developed for the marburg and ebola viruses . 65 we are a development stage company and have incurred significant losses since our inception . as of december 31 , 2013 , we had an accumulated deficit of $ 136.0 million . we incurred a net loss of $ 31.2 million , $ 23.3 million and $ 18.1 million for the years ended december 31 , 2013 , 2012 , and 2011 , respectively . we expect our losses to increase over the next several years as we advance into late-stage clinical trials and pursue regulatory approval of our product candidates . in addition , if one or more of our product candidates are approved for marketing , we will incur significant expenses for the initiation of commercialization activities . on october 25 , 2011 , we filed a certificate of amendment of the restated certificate of incorporation with the secretary of state of delaware effecting a 2.1-for-one reverse split of our common stock . all share and per share amounts have been retroactively restated in the accompanying financial statements and notes for all periods presented . story_separator_special_tag other general and administrative expenses include facility costs not otherwise associated with research and development expenses , intellectual property prosecution and defense costs and professional fees for legal , consulting , auditing and tax services . we anticipate that our general and administrative expenses will continue to increase over the next several years for , among others , the following reasons : we expect our general and administrative expenses to increase as a result of increased payroll , expanded infrastructure and higher consulting , legal , auditing and tax services and investor relations costs , and director and officer insurance premiums associated with being a public company ; we expect to incur increased general and administrative expenses to support our research and development activities , which we expect to expand as we continue to advance the clinical development of our product candidates ; and we expect to incur increased expenses related to the planned sales and marketing of our product candidates , which may include recruiting a specialty sales force , in anticipation of commercial launch before we receive regulatory approval , if any , of a product candidate . interest income and interest expense interest income consists of interest earned on our cash and cash equivalents and certificates of deposit . the primary objective of our investment policy is capital preservation . we expect our interest income to increase as we invest the net proceeds from our offerings pending their use in our operations . interest expense consists primarily of interest , amortization of debt discount and amortization of deferred financing costs associated with our notes payable and obligations under capital leases . tax loss carryforwards the valuation allowance for deferred tax assets as of december 31 , 2013 and 2012 was $ 25.2 million and $ 23.1 million , respectively . the net change in the total valuation allowance for the years ended december 31 , 2013 and 2012 was an increase of $ 2.0 and $ 4.3 million , respectively . in assessing the realizability of deferred tax assets , management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized . the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible . management considers the scheduled reversal of deferred tax liabilities , projected taxable income , and tax planning strategies in making this assessment . valuation allowances have been established for the entire amount of the net deferred tax assets as of december 31 , 2013 and 2012 , due to the uncertainty of future recoverability . as of december 31 , 2013 and december 31 , 2012 , we had federal net operating loss carryforwards of $ 88.4 million and $ 94.5 million and federal research credit carryforwards of $ 4.3 million and $ 2.9 million , respectively , that expire at various dates from 2020 through 2032. sections 382 and 383 of the internal revenue code limit a corporation 's ability to utilize its net operating loss carryforwards and certain other tax attributes ( including research credits ) to offset any future taxable income or tax if the corporation experiences a cumulative ownership change of more than 50 % over any rolling three year period . state net operating loss carryforwards ( and certain other tax attributes ) may be similarly limited . an ownership change can therefore result in significantly greater tax liabilities than a corporation would incur in the absence of such a change and any increased liabilities could adversely affect the corporation 's business , results of operations , financial condition and cash flow . based on a preliminary analysis , we believe that , from its inception through december 31 , 2011 , we experienced section 382 ownership changes in september 2001 and march 2003 and our subsidiary experienced section 382 ownership changes in january 2006 and january 2011. these ownership changes limit our ability to utilize federal net operating loss carryforwards ( and certain other tax attributes ) that accrued prior to the respective ownership changes of us and our subsidiary . additional analysis will be required to determine whether changes in our ownership since december 31 , 2011 and or changes in our ownership that resulted from our follow-on offerings have caused or will cause another ownership change to occur . any such change could result in significant limitations on all of our net operating loss carryforwards and other tax attributes . 68 even if another ownership change has not occurred , additional ownership changes may occur in the future as a result of events over which we will have little or no control , including purchases and sales of our equity by our 5 % stockholders , the emergence of new 5 % stockholders , additional equity offerings or redemptions of our stock or certain changes in the ownership of any of our 5 % stockholders . income tax expense was $ 130,000 , $ 0 , $ 0 and $ 130,000 for the years ended december 31 , 2013 , 2012 and 2011 and from inception , respectively . income tax expense differs from the amount that would be expected after applying the statutory u.s. federal income tax rate primarily due to changes in the valuation allowance for deferred taxes . critical accounting policies and significant judgments and estimates we have prepared our financial statements in accordance with united states generally accepted accounting principles , or gaap . our preparation of these financial statements requires us to make estimates , assumptions and judgments that affect the reported amounts of assets , liabilities , expenses and related disclosures at the date of the financial statements , as well as revenues and expenses during the reporting periods . we evaluate our estimates and judgments on an ongoing basis .
| results of operations comparison of the years ended december 31 , 2013 and 2012 revenues . revenues for the year ended december 31 , 2013 were $ 1.1 million , decreasing from $ 1.7 million for the same period in 2012 . the decrease in revenue of $ 594,000 was due to a decrease in billings by bps under various dod contracts and nih grants . research and development expenses . research and development expenses for the year ended december 31 , 2013 were $ 22.7 million , increasing from $ 17.8 million for the same period in 2012 . the $ 4.9 million increase was due to a $ 2.3 million increase in outside clinical and other expenses including contract development costs for nlg919 , contract manufacturing costs for indoximod , consulting fees , and direct development expenses for our clinical trial activities , accompanied by a $ 1.6 million increase in personnel-related expenses due to increased staffing levels and compensation increases and a $ 914,000 increase in equipment , supplies and occupancy costs to support our expanding clinical trials . general and administrative expenses . general and administrative expenses for the year ended december 31 , 2013 were $ 9.5 million , increasing from $ 7.1 million for the same period in 2012 . the $ 2.4 million increase was due to a $ 1.3 million increase in other costs including legal and consulting fees , travel , dues , subscription and licensing fees , accompanied by a $ 1.1 million increase in personnel-related expenses due to increased staffing levels and compensation increases and a $ 21,000 increase in equipment , supplies and occupancy costs . income tax expense . income tax expense for the year ended december 31 , 2013 was $ 130,000 increasing from $ 0 for the same period in 2012 . the increase was due to our federal alternative minimum tax liability incurred in 2013.
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f-7 lm funding america , inc. and subsidiaries notes to consolidated financial statements specialty health insurance our subsidiary iiu inc. ( “ iiu ” ) through its wholly owned company wallach and company ( “ wallach ” ) offers health insurance , travel insurance and other travel services to : united states citizens and residents traveling abroad non united states story_separator_special_tag forward-looking statements this annual report on form 10-k contains certain forward-looking statements within the meaning of the private securities litigation reform act of 1995. all statements other than statements of historical facts included in this annual report on form 10-k , including without limitation , statements regarding our future financial position , business strategy , budgets , projected revenues , projected costs and plans and objectives of management for future operations , are forward-looking statements . forward-looking statements generally can be identified by the use of forward-looking terminology such as “ may , ” “ will , ” “ expects , ” “ intends , ” “ plans , ” “ projects , ” “ estimates , ” “ anticipates , ” “ believes ” or the negative thereof or any variation thereon or similar terminology or expressions . we have based these forward-looking statements on our current expectations and projections about future events . these forward-looking statements are not guarantees and are subject to known and unknown risks , uncertainties and assumptions about us that may cause our actual results , levels of activity , performance or achievements to be materially different from any future results , levels of activity , performance or achievements expressed or implied by such forward-looking statements . important factors which could materially affect our results and our future performance include , without limitation , our ability to purchase defaulted consumer receivables at appropriate prices , competition to acquire such receivables , our dependence upon third party law firms to service our accounts , our ability to obtain funds to purchase receivables , ability to manage growth or declines in the business , changes in government regulations that affect our ability to collect sufficient amounts on our defaulted consumer receivables , the impact of class action suits and other litigation , our ability to keep our software systems updated to operate our business , our ability to employ and retain qualified employees , our ability to establish and maintain internal accounting controls , changes in the credit or capital markets , changes in interest rates , deterioration in economic conditions , and negative press regarding the debt collection industry which may have a negative impact on a debtor 's willingness to pay the debt we acquire , as well as other factors set forth under “ risk factors ” in this report . except as required by law , we assume no duty to update or revise any forward-looking statements . overview we are a diversified business with two focuses : specialty finance company that provides funding to nonprofit community associations primarily located in the state of florida . we offer incorporated nonprofit community associations , which we refer to as “ associations , ” a variety of financial 17 products cust omized to each association 's financial needs . our original product offering consists of providing funding to associations by purchasing their rights under delinquent accounts that are selected by the associations arising from unpaid association assessments . historically , we provided funding against such delinquent accounts , which we refer to as “ accounts , ” in exchange for a portion of the proceeds collected by the associations from the account debtors on the accounts . we have started purchasing accounts on varying terms tailored to suit each association 's financial needs , including under our new neighbor guaranty program . specialty health insurance broker ( iiu , inc ) that was purchased o n january 15 , 2019 , which provides global medical insurance products for international travelers , specializing in policies covering high-risk destinations , emerging markets and foreign travelers coming to the united states . all policies are fully underwritten with no claim risk remaining with iiu inc. we provide funding to nonprofit community associations primarily located in the state of florida and , to a lesser extent , nonprofit community associations in the states of washington , colorado , and , since february 2016 , illinois . we offer incorporated nonprofit community associations , which we refer to as “ associations , ” a variety of financial products customized to each association 's financial needs . our original product offering consists of providing funding to associations by purchasing their rights under delinquent accounts that are selected by the associations arising from unpaid association assessments . we provide funding against such delinquent accounts , which we refer to as “ accounts , ” in exchange for a portion of the proceeds collected by the associations from the account debtors on the accounts . more recently , we have started to engage in the business of purchasing accounts on varying terms tailored to suit each association 's financial needs , including under our new neighbor guaranty program . because of our role as a trusted advisor to our association clients , we are exploring a potential product line which resembles a more traditional consulting model for associations desirous of this relationship . areas of our consultancy may include purchase money mortgage qualification consulting , accounts receivable management , reserve study recommendations , and property tax assessed value analysis . in the event we move forward with this new product line , we will seek to provide services and advice inside of our core competency of community association finance in an effort to drive demand for our financial products . in our original product offering , we typically purchase an association 's right to receive a portion of the proceeds collected from delinquent unit owners . once under contract , we engage law firms , typically on behalf of our association clients pursuant to a power of attorney , to perform collection work on delinquent unit accounts . story_separator_special_tag cash from operations net cash used in operations was $ 0.7 million during the year ended december 31 , 2018 compared with $ 1.8 million during the year ended december 31 , 2017. this change was primarily driven by a $ 8.2 million reduction net income which includes a $ 0.4 million reversal of a loss on litigation , and a reversal of a $ 1.4 million bad debt allowance from a related party . cash from investing activities net cash used in investing activities was $ 1.1 million during the year ended december 31 , 2018 as compared to net cash provided by investing activities of $ 0.9 million during the year ended december 31 , 2017. the difference was primarily the result of the company investing $ 1.5 million in a senior secured convertible note receivable and a reduction in proceeds from real estate assets by $ 0.4 million . for the year ended december 31 , 2018 , cash generated from our net finance receivables fell by $ 0.1 million . this was due to the company not collecting as much on accounts than what was invested for the period as compared to the prior year . our primary business relies on our ability to invest in accounts , and during the year ended december 31 , 2018 , this balance decreased compared 20 with the year ended december 31 , 2017. this balance has been in consistent decline since 2012. thi s balance is very susceptible to housing market fluctuations . cash from financing activities net cash provided by financing activities was $ 4.8 million during the year ended december 31 , 2018 as compared to net cash used in financing activities of $ 0.8 million for the year ended december 31 , 2017. during 2018 , the company generated $ 5.2 million from the issuance of shares offset in part by $ 0.3 million in debt issuance costs . during 2017 , the company repaid $ 0.6 million in principal repayments . the company is obligated to pay associations $ 109,000 over the next 12 months for those units that are managed by us . we are also committed to pay $ 249,000 to associations under the new neighbor program over the next 36 months . outstanding debt debt of the company consisted of the following : year ended december 31 , 2018 2017 financing agreement with flatiron capital that is unsecured . down payment of $ 28,125 was required upfront and equal installment payments of $ 8,701 to be made over a 10 month period . the note matures may 31 , 2019. annualized interest is 5.99 % $ 42,875 $ - financing agreement with flatiron capital that is unsecured . down payment of $ 16,500 was required upfront and equal installment payments of $ 9,610 to be made over a 10 month period . the note matures may 31 , 2018. annualized interest is 5.25 % - 39,028 $ 42,875 $ 39,028 ( 1 ) the company settled the promissory note by issuing 2,953,189 common shares for all of the outstanding principal , accrued interest and late fees during the month of december 2017. minimum required principal payments on the company 's debt as of december 31 , 2018 are as follows : replace_table_token_1_th recent capital raising transaction on april 2 , 2018 , the company entered into a securities purchase agreement ( the “ spa ” ) with a new york-based family office ( “ investor ” ) pursuant to which the company issued to investor a senior convertible promissory note ( “ note ” ) in the original principal amount of $ 500,000 in exchange for a purchase price of $ 500,000. the maturity date of the note is six months after the date of issuance ( subject to acceleration upon an event of default ) . investor may at any time on or after the maturity date convert all or any part of the outstanding and unpaid principal amount and accrued and unpaid interest of the note into fully paid and non-assessable shares of our common stock , at a conversion price equal to 85 % of the lowest daily volume weighted average price of our common stock in the 10 trading days immediately prior to conversion . the note carries a 10.5 % interest rate , with accrued but unpaid interest being payable on the note 's maturity date . investor was also issued pursuant to the spa five- year warrants exercisable at the closing per share bid price on april 2 , 2018 to purchase 400,000 shares of our common stock ( the “ warrants ” ) . also on april 2 , 2018 , the company entered into a common stock purchase agreement ( “ purchase agreement ” ) with investor relating to the purchase by investor from the company up to $ 5,000,000 of our common stock . the purchase agreement provides that , upon the terms and subject to the conditions set forth therein , investor has committed to purchase up to $ 5,000,000 worth of the our common stock ( “ purchase shares ” ) over a 2-year period beginning on the date on which a registration statement relating to the 21 resale of the purchase shares ( the “ registration statement ” ) is first declared effective by the u.s. securities and exchange comm ission ( the “ commission ” ) . the purchase agreement requires the company to issue to the investor as consideration for the investor entering into this purchase agreement such number of shares of our common stock that would have a value equivalent to $ 200,000 calculated using the average of volume weighted average price for our common stock during normal trading hours during the three business day period immediately preceding the date of issuance of such shares . on october 5 , 2018 , the company exercised its right to terminate the purchase agreement originally entered into on april 2 , 2018 with the investor .
| results of operations the year ended december 31 , 2018 compared with the year ended december 31 , 2017 revenues during the year ended december 31 , 2018 , total revenues decreased by $ 1.0 million , or 22.8 % , to $ 3.4 million from $ 4.4 million in the year ended december 31 , 2017. the decrease is due in part to a decrease in interest , administrative and late fees collected during the year . the decrease in interest , administrative and late fees was the result of a decrease in the average revenue collected per unit . the average revenue per unit was relatively flat at $ 3,415 for the year ended december 31 , 2018 compared with $ 3,438 for the year ended december 31 , 2017. however , there was a 26 % decrease in payoffs as the company recorded approximately 785 payoff occurrences for the year ended december 31 , 2018 compared with 1,063 payoff occurrences for the year ended december 31 , 2017 . “ payoffs ” consist of recovery of the entire legally collectible portion , or a settlement thereof , of our principal investment , accrued interest , and late fees owed to us from the proceeds of the accounts collected by the associations in accordance with our contracts with associations . the increase in the number of payoffs was partially offset by a decrease in revenue per unit . rental revenue for the year ended december 31 , 2018 was $ 0.7 million as compared to $ 0.7 million for the year ended december 31 , 2017. there were 17 rental units in the portfolio as december 31 , 2018 compared with 68 rental units as of december 31 , 2017. operating expenses during the year ended december 31 , 2018 , operating expenses decreased $ 4.1 million , or 51.8 % , to $ 3.8 million from $ 7.9 million for the year ended december 31 , 2017.
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in computing percentage ownership of each person , ( i ) shares of common stock subject to options held by that person that are exercisable as of january 31 , 2020 and ( ii ) shares of common stock subject to options or restricted stock units held by that person that are exercisable or vesting within 60 days of january 31 , 2020 , are all deemed to be beneficially owned . these shares , however , are not deemed outstanding for the purpose of computing the percentage ownership of each other person . the percentage of shares beneficially owned is based on 67,805,707 shares of common stock outstanding as of january 31 , 2020 . unless otherwise indicated , all amounts exclude shares issuable upon the exercise of outstanding options and vesting of restricted stock units that are not exercisable and or vested as story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto presented in this annual report . the following discussion contains “ forward-looking statements ” that reflect our future plans , estimates , beliefs , and expected performance . actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors . see “ item 1a . risk factors ” and “ cautionary statement regarding forward-looking statements. ” our predecessor financial statements include 100 % of the operations of the operating company , reflecting the historical ownership of these assets by diamondback . this annual report includes the assets , liabilities and results of operations of our predecessor for periods prior to may 28 , 2019 , the date on which we completed the ipo . our future results of operations may not be comparable to our predecessor 's historical results of operations . unless the context otherwise requires , references in this section to “ we , ” “ our , ” “ us ” or like terms , when used in a historical context prior to the completion of our ipo , refer to our predecessor and , when used in a historical context following the completion of our ipo , the present tense or future tense , these terms refer to the partnership and its subsidiaries . overview we are a growth-oriented delaware limited partnership formed by diamondback in july 2018 to own , operate , develop and acquire midstream infrastructure assets in the midland and delaware basins of the permian basin , one of the most prolific oil producing areas in the world . we have elected to be treated as a corporation for u.s. federal income tax purposes . we provide crude oil , natural gas and water-related midstream services ( including water sourcing and transportation and produced water gathering and disposal ) to diamondback under long-term , fixed-fee contracts . as of december 31 , 2019 , our midstream infrastructure assets include 867 miles of pipeline across the midland and delaware basins with approximately 236,000 bbl/d of crude oil gathering capacity , 135,000 mcf/d of natural gas compression capability , 150,000 mcf/d of natural gas gathering capacity , 3.3 mmbbl/d of produced water disposal capacity and 575,000 bbl/d of sourced water gathering capacity . in addition to our midstream infrastructure assets , we own equity interests in three long-haul crude oil pipelines , which , upon completion , will run from the permian to the texas gulf coast . in addition , we own equity interests in third-party operated gathering systems and processing facilities supported by dedications from diamondback . we are critical to diamondback 's growth plans because we provide a long-term midstream solution to its increasing crude oil , natural gas and water-related services needs through our robust infield gathering systems and produced water disposal capabilities . as of december 31 , 2019 , our general partner had a 100 % general partner interest in us , and diamondback owned no common units and all of our 107,815,152 outstanding class b units , representing approximately 71 % of our total units outstanding . diamondback also owns and controls our general partner . financial presentation our operations are conducted through , and our operating assets are owned by , the operating company . our assets and operations are reported in two operating business segments : ( i ) midstream services and ( ii ) real estate operations . as of december 31 , 2019 , we own a 29 % controlling membership interest in the operating company and diamondback owns , through its ownership of the operating company units , a 71 % economic , non-voting interest in the operating company . however , as required by gaap , we consolidate 100 % of the assets and operations of the operating company in our financial statements and reflect a non-controlling interest . as such , our results of operations will not differ materially from the results of operations of the operating company . the most noteworthy reconciling items between our consolidated financial statements and the operating company 's consolidated financial statements primarily relate to ( a ) the impact of our election to be treated as a corporation for u.s. federal income tax purposes , and ( b ) the presentation of noncontrolling interests in the operating company . the interests in the operating company that are not directly or indirectly owned by us will be reflected as being attributable to noncontrolling interests in our consolidated financial statements . story_separator_special_tag the wink to webster pipeline is expected to begin commercial operations in the first 46 half of 2021. our total capital commitment with respect to our 4 % interest in the wink to webster joint venture is currently anticipated to be approximately $ 108 million , which includes $ 34 million that we contributed in 2019 . omog joint venture on november 7 , 2019 , we and oryx midstream , or oryx , a portfolio company of stonepeak infrastructure partners , through our newly-formed omog joint venture , acquired from reliance midstream , llc and other third-party sellers 100 % of reliance gathering for $ 356 million , subject to post-closing purchase price adjustments . in accordance with our membership interests in the omog joint venture , we and oryx paid 60 % and 40 % of the purchase price , respectively . we funded our portion of the purchase price for the acquisition with cash on hand and borrowings under our credit facility . following completion of the acquisition , reliance gathering was renamed oryx midland oil gathering llc . the omog joint venture operates a crude oil gathering system with over 230 miles of gathering and regional transportation pipelines and approximately 200,000 barrels of crude oil storage in midland , martin , andrews and ector counties , texas . the system has current throughput of over 100,000 bbl/d from six oil and gas operators , including diamondback . over 160,000 gross acres in northern midland basin are dedicated to the system under long-term , fixed-fee agreements , some of which benefit from minimum volume commitments . under the omog limited liability company agreement , the omog joint venture is managed by a management committee consisting of our designees and oryx 's designees . decisions of the management committee require the consent of managers representing at least 70 % of the membership interests in omog , except for certain decisions that require the consent of managers representing 100 % of the membership interests . oryx is the operator of the gathering system under an operating and management services agreement entered into with the omog joint venture . amarillo rattler joint venture on december 20 , 2019 , we acquired a 50 % equity interest in amarillo rattler , a joint venture with amarillo midstream , llc , a portfolio company of arclight capital partners . amarillo midstream serves as construction manager and operator for this joint venture pursuant to a construction , operations and maintenance agreement entered into with the joint venture . amarillo rattler currently owns and operates the yellow rose gas gathering and processing system with estimated total processing capacity of 40,000 mcf/d and over 84 miles of gathering and regional transportation pipelines in dawson , martin and andrews counties , texas . this joint venture also intends to construct and operate a new 60,000 mcf/d cryogenic natural gas processing plant in martin county , texas , as well as incremental gas gathering and compression and regional transportation pipelines . the estimated aggregate capital outlay to the joint venture is anticipated to be approximately $ 100 million to construct the new processing plant , gas gathering and compression , and regional transportation pipelines . we will be responsible for contributing 50 % of the construction budget into the joint venture , in accordance with our 50 % interest . we anticipate that the new processing plant will commence full commercial operations in the middle of 2021. diamondback has contracted for 30,000 mcf/d of the capacity of the new processing plant pursuant to a gas gathering and processing agreement entered into with the joint venture in exchange for diamondback 's dedication of certain leasehold interests to that agreement . under the amarillo rattler limited liability company agreement , amarillo rattler is managed by a board of managers consisting of our designees and amarillo midstream 's designees . all decisions of the board require the consent of managers representing more than 50 % of the membership interests in amarillo rattler , except for certain decisions that require the consent of managers representing at least 66⅔ % of the membership interests or 100 % of the membership interests , as applicable . as of december 31 , 2019 , we have not made any capital contributions to amarillo rattler other than a contribution of approximately 40 acres of land in martin county , texas , on which the new processing plant will be built . as of december 31 , 2019 , our equity interest in amarillo rattler llc was $ 0.7 million due to legal expenses associated with the investment . 2019 highlights significant operating results the following are significant operating results for the year ended december 31 , 2019 , and such results as compared with the year ended december 31 , 2018 : average crude oil gathering volumes were 85,164 bbl/d , an increase of 80 % year over year ; average natural gas gathering volumes were 85,283 mmbtu/d , an increase of 117 % year over year ; 47 average produced water gathering and disposal volumes were 806,078 bbl/d , an increase of 186 % year over year ; and average sourced water gathering volumes were 415,939 bbl/d , an increase of 65 % year over year . pipeline infrastructure assets the following tables provide information regarding our gathering , compression and transportation system as of december 31 , 2019 and utilization for the quarter ended december 31 , 2019 : replace_table_token_9_th replace_table_token_10_th ( 1 ) does not include assets of epic , gray oak , wink to webster , amarillo rattler or omog joint ventures . throughput and crude oil volumes the amount of revenue we generate primarily depends on the volumes of crude oil , natural gas and water for which we provide midstream services . these volumes are affected primarily by changes in the supply of and demand for crude oil and natural gas in the markets served directly or indirectly by our assets .
| results of operations for the year ended december 31 , 2019 and 2018 the following table sets forth selected historical operating data for the periods indicated : replace_table_token_13_th ( 1 ) does not include volumes from the epic , gray oak , wink to webster , amarillo rattler or omog joint ventures . 54 comparison of the years ended december 31 , 2019 and 2018 revenues revenues for the years ended december 31 , 2019 and 2018 were $ 447.7 million and $ 184.5 million , respectively . the increase of $ 263.2 million for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 relates to increased volumes largely due to the contribution of certain crude oil gathering , produced water disposal wells and land and buildings that diamondback acquired pursuant to the ajax acquisition and the energen acquisition , which diamondback contributed to us effective on january 1 , 2019 , as well as the additional build out of historical systems . produced water gathering and disposal revenues increased by $ 203.5 million , sourced water gathering revenues increased by $ 38.2 million , crude oil gathering revenues increased by $ 11.2 million , natural gas gathering revenues increased by $ 7.9 million and real estate revenue increased by $ 2.4 million for year ended december 31 , 2019 . direct operating expenses direct operating expenses for the years ended december 31 , 2019 and 2018 were $ 106.3 million and $ 33.7 million , respectively .
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the unaudited adjustments give effect to the section 754 election and the tax story_separator_special_tag the following discussion should be read in conjunction with our audited consolidated financial statements and the notes thereto included elsewhere in this annual report . this discussion is designed to provide the reader with information that will assist 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 affect our consolidated financial statements . in addition , the following discussion includes certain forward-looking statements . for a discussion of important factors , including the continuing development of our business and other factors which could cause actual results to differ materially from the results referred to in the forward-looking statements , see `` item 1a risk factors '' and `` cautionary note regarding forward-looking statements '' contained in this annual report . business overview our business we are a leading healthcare performance improvement company , uniting an alliance of approximately 3,600 u.s. hospitals and 120,000 other providers to transform healthcare . we unite hospitals , health systems , physicians and other healthcare providers with the common goal of improving and innovating in the clinical , financial and operational areas of their business to meet the demands of a rapidly evolving healthcare industry . we deliver value through a comprehensive technology-enabled platform that offers critical supply chain services , clinical , financial , operational and population health saas informatics products , advisory services and performance improvement collaborative programs . as of june 30 , 2015 , we were controlled by 176 u.s. hospitals , health systems and other healthcare organizations that represent approximately 1,300 owned , leased and managed acute care facilities and other non-acute care organizations , through the holdings of class b common stock , which they received upon the consummation of the reorganization and ipo on october 1 , 2013. as of june 30 , 2015 , the class a common stock and class b common stock represented approximately 26 % and 74 % of our combined class a and class b common stock ( the `` common stock '' ) . as of june 30 , 2015 , all of our class a common stock was held by public investors , which may include member owners that have received shares of our class a common stock in connection with previous quarterly exchanges pursuant to the exchange agreement discussed in note 2 - initial public offering and reorganization to the audited consolidated financial statements . we generated net revenue of $ 1,007.0 million , $ 910.5 million and $ 869.3 million , net income of $ 234.8 million , $ 332.6 million , and $ 375.1 million and adjusted ebitda of $ 393.2 million , $ 392.3 million , and $ 419.0 million for the fiscal years ended june 30 , 2015 , 2014 , and 2013 , respectively . on a non-gaap pro forma basis , after giving effect to the reorganization and the ipo , we generated net revenue of $ 1,007.0 million , $ 869.3 million and $ 764.3 million , net income of $ 234.8 million , $ 294.6 million and $ 247.3 million , and adjusted ebitda of $ 393.2 million , $ 351.0 million , and $ 314.0 million for the fiscal years ended june 30 , 2015 , 2014 and 2013 , respectively . non-gaap pro forma adjustments for the impact of the reorganization and ipo do not impact operating results for the year ended june 30 , 2015 . 54 our business segments our business model and solutions are designed to provide our members access to scale efficiencies , spread the cost of their development , provide actionable intelligence derived from anonymized data in our data warehouse provided by our members , mitigate the risk of innovation and disseminate best practices that will help our member organizations succeed in their transformation to higher quality and more cost-effective healthcare . we deliver our integrated platform of solutions that address the areas of total cost management , quality and safety improvement and population health management through two business segments : supply chain services and performance services . our supply chain services segment includes one of the largest healthcare gpos in the united states , serving acute and alternate sites , a specialty pharmacy and our direct sourcing activities . supply chain services net revenue grew from $ 678.1 million for fiscal year 2014 to $ 738.3 million for fiscal year 2015 , representing net revenue growth of 9 % , and accounted for 73 % of our overall net revenue . supply chain services segment net revenue grew from $ 664.1 million in fiscal year 2013 to $ 678.1 million in fiscal year 2014 , representing net revenue growth of 2 % , and in fiscal year 2014 accounted for 74 % of our overall net revenue . we generate revenue in our supply chain services segment from fees received from suppliers based on the total dollar volume of supplies purchased by our members and through product sales in connection with our specialty pharmacy and direct sourcing activities . our performance services segment includes one of the largest informatics and advisory services businesses in the united states focused on healthcare providers . performance services net revenue grew from $ 232.4 million for fiscal year 2014 to $ 268.8 million for fiscal year 2015 , representing revenue growth of 16 % , and in fiscal year 2015 accounted for 27 % of our overall net revenue . performance services net revenue grew from $ 205.2 million in fiscal year 2013 to $ 232.4 million in fiscal year 2014 , representing net revenue growth of 13 % , and in fiscal year 2014 accounted for 26 % of our overall net revenue . story_separator_special_tag the success of our supply chain services revenue streams are influenced by the number of members that utilize our gpo supplier contracts and the volume of their purchases , the number of members that utilize our specialty pharmacy , as well as the impact of changes in the defined allowable reimbursement amounts determined by medicare , medicaid and other managed care plans , and the number of members that purchase products through our direct sourcing activities and the impact of competitive pricing . performance services performance services revenue consists of saas informatics products subscriptions , license fees , performance improvement collaborative and other service subscriptions , professional fees for advisory services , and insurance services management fees and commissions from endorsed commercial insurance programs . our performance services growth will depend upon the expansion of our saas informatics products , performance improvement collaboratives and advisory services to new and existing members , impact of applied research initiatives , renewal of existing subscriptions to our saas informatics products and expansion into new markets with potential future acquisitions . cost of revenue cost of service revenue includes expenses related to employees ( including compensation and benefits ) and outside consultants who directly provide services related to revenue-generating activities , including advisory services to members and implementation services related to saas informatics products . cost of service revenue also includes expenses related to hosting services , related data center capacity costs , third-party product license expenses and amortization of the cost of internal use software . 56 cost of product revenue consists of purchase and shipment costs for specialty pharmaceuticals and direct sourced medical products . our cost of product revenue will be influenced by the cost and availability of specialty pharmaceuticals and the manufacturing and transportation costs associated with direct sourced medical products . operating expenses selling , general and administrative expenses consist of expenses directly associated with selling and administrative employees and indirect costs associated with employees that primarily support revenue-generating activities ( including compensation and benefits ) and travel-related expenses , as well as occupancy and other indirect costs , insurance costs , professional fees , and other general overhead expenses . general and administrative expenses have increased as a result of being a public company , including stock-based compensation expense related to the equity incentive plan established in connection with the reorganization and ipo . research and development expenses consist of employee-related compensation and benefits expenses , and third-party consulting fees of technology professionals , incurred to develop , support and maintain our software-related products and services . amortization of purchased intangible assets includes the amortization of all identified intangible assets resulting from acquisitions . other income , net other income , net , consists primarily of equity in net income of unconsolidated affiliates that is generated from our 50 % ownership interest in innovatix . a change in the number of , and use by , members that participate in our gpo programs through innovatix could have a significant effect on the amounts earned from this investment . other income , net , also includes interest income , net , and realized gains and losses on our marketable securities as well as gains or losses on disposal of assets . income tax expense income tax expense includes the income tax expense attributable to premier , phsi and psci . for federal and state income tax purposes , income realized by premier lp is taxable to its partners . as such , the low effective tax rate is attributable to the flow through of premier lp income , which is not subject to federal and state income tax at premier . net income attributable to noncontrolling interest as of june 30 , 2015 , we owned an approximate 26 % controlling general partner interest in premier lp through premier gp . we owned a 100 % voting and economic interest in s2s global , through our 100 % interest in psci , as a result of the purchase of the remaining 40 % noncontrolling interest on february 2 , 2015. net income attributable to noncontrolling interest represents the portion of net income attributable to the limited partners of premier lp ( approximately 74 % ) and the portion of net income or loss attributable to the noncontrolling equity holders of s2s global ( 40 % ) prior to the february 2 , 2015 purchase . our noncontrolling interest attributable to limited partners of premier lp was reduced from 99 % to approximately 78 % upon the reorganization , and further reduced to approximately 74 % , as of june 30 , 2015 , as a result of completed quarterly exchanges pursuant to the exchange agreement . other key business metrics the other key business metrics we consider are ebitda , adjusted ebitda , segment adjusted ebitda , adjusted fully distributed net income , adjusted fully distributed earnings per share , and free cash flow . we define ebitda as net income before interest and investment income , net , income tax expense , depreciation and amortization and amortization of purchased intangible assets . we define adjusted ebitda as ebitda before merger and acquisition related expenses and non-recurring , non-cash or non-operating items , and including equity in net income of unconsolidated affiliates . for all non-gaap financial measures , we consider non-recurring items to be expenses and other items that have not been incurred within the prior two years and are not expected to recur within the next two years . such expenses include certain strategic and financial restructuring expenses . non-operating items include gain or loss on disposal of assets . we define segment adjusted ebitda as the segment 's net revenue less operating expenses directly attributable to the segment excluding depreciation and amortization , amortization of purchased intangible assets , merger and acquisition related expenses and non-recurring or non-cash items , and including equity in net income of unconsolidated affiliates .
| results of operations our consolidated operating results prior to october 1 , 2013 do not reflect ( i ) the reorganization , ( ii ) the ipo and the use of the proceeds from the ipo or ( iii ) additional expenses we incur as a public company . as a result , our consolidated operating results prior to the reorganization and ipo are not indicative of what our results of operations are for periods after the reorganization and ipo . in addition to presenting the historical actual results , we have presented non-gaap pro forma results reflecting the following for all applicable periods presented , to provide a more indicative comparison between current and prior periods . the non-gaap pro forma consolidated financial information is included for informational purposes only and does not purport to reflect our results of operations or financial position that would have occurred had we operated as a public company during the applicable periods presented . the non-gaap pro forma consolidated financial information should not be relied upon as being indicative of our financial condition or results of operations had the reorganization and ipo occurred on the dates assumed . the non-gaap pro forma consolidated financial information also does not project our results of operations or financial position for any future period or date . the non-gaap pro forma results reflect the following for the periods indicated : the contractual requirement under the gpo participation agreements to pay each member owner revenue share from premier lp equal to 30 % of all gross administrative fees collected by premier lp based upon purchasing by such member owner 's member facilities through premier lp 's gpo supplier contracts . historically , premier lp did not generally have a contractual requirement to pay revenue share to member owners participating in its gpo programs , but paid semi-annual distributions of partnership income . additional u.s. federal , state and local income taxes with respect to its additional allocable share of any taxable income of premier lp .
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these items had no impact on previously reported net income , the consolidated balance sheet or cash flows . note 2. newly issued accounting pronouncements in february 2013 , the fasb issued asu no . story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and notes thereto and the comparative summary of selected financial data appearing elsewhere in this report . historical results and trends which might appear should not be taken as indicative of future operations . our results of operations and financial condition , as reflected in the accompanying consolidated financial statements and related footnotes , are subject to management 's evaluation and interpretation of business conditions , retailer performance , changing capital market conditions and other factors which could affect the ongoing viability of our tenants . executive overview weingarten realty investors is a reit organized under the texas business organizations code . we , and our predecessor entity , began the ownership and development of shopping centers and other commercial real estate in 1948 . our primary business is leasing space to tenants in the shopping centers we own or lease . we also provide property management services for which we charge fees to either joint ventures where we are partners or other outside owners . we operate a portfolio of rental properties , primarily neighborhood and community shopping centers , totaling approximately 45.3 million square feet of gross leasable area , that is either owned by us or others . we have a diversified tenant base with our largest tenant comprising only 3.5 % of base minimum rental revenues during 2014 . at december 31 , 2014 , we owned or operated under long-term leases , either directly or through our interest in real estate joint ventures or partnerships , a total of 234 developed income-producing properties and three properties under development , which are located in 21 states spanning the country from coast to coast . we also owned interests in 34 parcels of land held for development that totaled approximately 25.3 million square feet at december 31 , 2014 . we had approximately 5,800 leases with 3,800 different tenants at december 31 , 2014 . leases for our properties range from less than a year for smaller spaces to over 25 years for larger tenants . rental revenues generally include minimum lease payments , which often increase over the lease term , reimbursements of property operating expenses , including real estate taxes , and additional rent payments based on a percentage of the tenants ' sales . our anchor tenants are supermarkets , value-oriented apparel/discount stores and other retailers or service providers who generally sell basic necessity-type goods and services . we believe the stability of our anchor tenants , combined with convenient locations , attractive and well-maintained properties , high quality retailers and a strong tenant mix , should ensure the long-term success of our merchants and the viability of our portfolio . our goal is to remain a leader in owning and operating top-tier neighborhood and community shopping centers in certain markets of the u.s. we have completed the transformation of our portfolio outlined in 2011 by disposing non-core properties and reinvesting in high-quality centers supported by stronger demographics . our strategic initiatives have now turned to : ( 1 ) raising net asset value and cash flow through quality acquisitions , redevelopments and new developments , ( 2 ) maintaining a strong , flexible consolidated balance sheet and a well-managed debt maturity schedule and ( 3 ) growing net operating income from our existing portfolio by increasing occupancy and rental rates . we believe these initiatives will keep our portfolio of properties among the strongest in our sector . under our capital recycling plan , we disposed of non-core operating properties , which provided capital for growth opportunities and strengthened our operating fundamentals . during 2014 , we successfully disposed of real estate assets with our share of aggregate gross sales proceeds totaling $ 387 million , which were owned by us either directly or through our interest in real estate joint ventures or partnerships . although the transformation process is complete , we will continue to recycle properties that no longer meet our ownership criteria with the magnitude of these dispositions significantly reduced when compared to activity over the past several years . we expect to complete dispositions in the range of $ 125 million to $ 175 million in 2015 , but we can give no assurances that this will actually occur . we have approximately $ 63 million of dispositions currently under contracts or letters of intent ; however , there are no assurances that these transactions will close . subsequent to year-end , we sold two properties with gross proceeds totaling $ 25 million . as we are generally selling lower-tier , non-core assets , potential buyers requiring financing for such acquisitions may find access to capital an issue , especially if long-term interest rates rise , but conditions are currently very good . we intend to continue to recycle capital according to our business plan , although a number of factors , including weaknesses in the secured lending markets or a downturn in the economy , could adversely impact our ability to execute this plan . 25 we continue to actively seek acquisitions opportunities to grow our operations . despite substantial competition for quality opportunities , we will continue to identify select acquisition properties that meet our return hurdles and to actively evaluate other opportunities as they enter the market . in 2014 , we acquired a center in arizona with a gross purchase price of $ 43.8 million . for 2015 , we expect to invest in acquisitions in the range of $ 200 million to $ 250 million , but we can give no assurances that this will actually occur . subsequent to year-end , we acquired one center in texas with a gross purchase price of $ 43.1 million . we continue to focus on identifying new development projects as another source of growth . story_separator_special_tag the availability of quality acquisition opportunities in the market remains sporadic in our targeted markets . intense competition , along with a decline in the volume of high-quality core properties on the market , has in many cases driven pricing to pre-recession highs . we remain disciplined in approaching these opportunities , pursuing only those t hat provide appropriate risk-adjusted returns . 27 dispositions dispositions are also a key component of our ongoing management process where we selectively prune properties from our portfolio that no longer meet our geographic or growth targets . dispositions provide capital , which may be recycled into properties that are high barrier-to-entry locations within high growth metropolitan markets , and thus have higher long-term growth potential . additionally , proceeds from dispositions may be used to reduce outstanding debt , further deleveraging our consolidated balance sheet . summary of critical accounting policies our discussion and analysis of financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and contingencies as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods . we evaluate our assumptions and 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 , 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 require more significant judgments and estimates used in the preparation of our consolidated financial statements . property acquisitions of properties are accounted for utilizing the acquisition method and , accordingly , the results of operations of an acquired property are included in our results of operations from the date of acquisition . estimates of fair values are based upon future cash flows and other valuation techniques in accordance with our fair value measurements accounting policy . fair values are used to record the purchase price of acquired property among land , buildings on an “ as if vacant ” basis , tenant improvements , other identifiable intangibles and any goodwill or gain on purchase . other identifiable intangible assets and liabilities include the effect of out-of-market leases , the value of having leases in place ( “ as is ” versus “ as if vacant ” and absorption costs ) , out-of-market assumed mortgages and tenant relationships . depreciation and amortization is computed using the straight-line method , generally over estimated useful lives of 40 years for buildings and over the lease term which includes bargain renewal options for other identifiable intangible assets . the impact of these estimates , including incorrect estimates in connection with acquisition values and estimated useful lives , could result in significant differences related to the purchased assets , liabilities and resulting depreciation or amortization . acquisition costs are expensed as incurred . real estate joint ventures and partnerships to determine the method of accounting for partially owned real estate joint ventures and partnerships , management evaluates the characteristics of associated entities and determines whether an entity is a variable interest entity ( “ vie ” ) and , if so , determines which party is the primary beneficiary by analyzing whether we have both the power to direct the entity 's significant economic activities and the obligation to absorb potentially significant losses or receive potentially significant benefits . significant judgments and assumptions inherent in this analysis include the design of the entity structure , the nature of the entity 's operations , future cash flow projections , the entity 's financing and capital structure , and contractual relationships and terms . we consolidate a vie when we have determined that we are the primary beneficiary . primary risks associated with our vies include the potential funding of the entities ' debt obligations or making additional contributions to fund the entities ' operations . partially owned , non-variable interest real estate joint ventures and partnerships over which we have a controlling financial interest are consolidated in our consolidated financial statements . in determining whether we have a controlling financial interest , we consider factors such as ownership interest , authority to make decisions , kick-out rights and substantive participating rights . partially owned real estate joint ventures and partnerships where we do not have a controlling financial interest , but have the ability to exercise significant influence , are accounted for using the equity method . management continually analyzes and assesses reconsideration events , including changes in the factors mentioned above , to determine if the consolidation treatment remains appropriate . decisions regarding consolidation of partially owned entities frequently require significant judgment by our management . errors in the assessment of consolidation could result in material changes to our consolidated financial statements . 28 impairment our property is reviewed for impairment if events or changes in circumstances indicate that the carrying amount of the property , including any capitalized costs and any identifiable intangible assets , may not be recoverable . if such an event occurs , a comparison is made of the current and projected operating cash flows of each such property into the foreseeable future , with consideration of applicable holding periods , on an undiscounted basis to the carrying amount of such property . if we determine the carrying amount is not recoverable , our basis in the property is reduced to its estimated fair value to reflect impairment in the value of the asset .
| results of operations comparison of the year ended december 31 , 2014 to the year ended december 31 , 2013 the following table is a summary of certain items from our consolidated statements of operations , which we believe represent items that significantly changed during 2014 as compared to the same period in 2013 : replace_table_token_13_th revenues the increase in revenues of $ 25.2 million is primarily attributable to an increase in net rental revenues from acquisitions and new development completions , which contributed $ 18.7 million , as well as increases in occupancy and rental rates , which is offset by our dispositions in the third and fourth quarters of 2014 . 29 interest expense , net net interest expense decreased $ 1.6 million or 1.6 % . the components of net interest expense were as follows ( in thousands ) : replace_table_token_14_th gross interest expense totaled $ 99.0 million in 2014 , down $ 9.4 million or 8.6 % from 2013. the decrease in gross interest expense is primarily attributable to a reduction in both the weighted average debt outstanding and interest rates as a result of the repayment of notes through the revolving credit facility , disposition proceeds and short-term investments from the october 2013 note issuance , all of which totaled $ 11.6 million . in 2014 , the weighted average debt outstanding was $ 2.08 billion at a weighted average interest rate of 4.65 % as compared to $ 2.14 billion outstanding at a weighted average interest rate of 5.06 % in 2013. offsetting this decrease is a $ 1.2 million write-off of debt costs in 2014 associated with the redemption of the 8.1 % senior unsecured notes .
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the company 's customers are principally enterprise organizations from a wide variety of business segments including , among others , the distribution , health care , finance , service and manufacturing industries , state , local and federal government entities as well as communications service providers , including incumbent local exchange carriers ( ilecs ) , competitive local exchange carriers ( clecs ) , wireless communications companies , and internet service providers ( isps ) . revenue for network , data and internet , and the majority of voice services is generally billed in advance on story_separator_special_tag you should read the following discussion and analysis in conjunction with our audited consolidated financial statements , including the notes thereto , appearing elsewhere in this report . overview we amended our restated certificate of incorporation to change our corporate name from time warner telecom inc. to tw telecom inc. in march 2008. on july 1 , 2008 , we began using tw telecom inc. as our name and tw telecom as our brand . we are a leading national provider of managed network services , specializing in ethernet and data networking , internet access , local and long distance voice , vpn , voip and network security services to enterprise organizations and communications services companies throughout the u.s. , and for ip vpn services , to their global locations . our customers include , among others , enterprise organizations in the distribution , health care , finance , service and manufacturing industries , state , local and federal government entities , system integrators , and communications service providers including ilecs , clecs , wireless communications companies and isps . through our subsidiaries , we operate in 75 u.s. metropolitan markets . as of december 31 , 2009 , our fiber networks spanned approximately 27,000 route miles connecting to over 10,000 buildings served directly by our metropolitan fiber facilities ( on-net ) excluding inactive buildings and lec local servicing offices connected with our fiber . we continue to expand our footprint within our existing markets by connecting our network into additional buildings . we have also continued to expand our ip backbone data networking capability between our markets , supporting end-to-end ethernet and vpn connections for customers , and also have selectively interconnected existing service areas within regional clusters with fiber optic facilities that we own or lease . we acquired xspedius on october 31 , 2006 , thereby expanding our markets served from 44 to 75 and increasing our network density in 12 markets that we already served . this acquisition provided us additional opportunities to serve multi-city and multi-location customers and to provide our full product portfolio in more markets . our consolidated results of operations , cash flows and financial position include these acquired operations since the acquisition date . our revenue is derived primarily from business communications services , including network , voice , data , and high-speed internet access services . our revenue by customer type for each of the past five years is as follows : replace_table_token_8_th our primary objective is to be the leading provider of high quality managed data and telecommunications services in each of our service areas , on a national basis , principally utilizing our fiber facilities and our national multipurpose ip backbone network to offer high quality and reliable voice , data , internet , and dedicated services to become the carrier of choice for business enterprises , governmental agencies , and other carriers . the key elements of our business strategy include : leveraging our extensive local and regional fiber networks and ip backbone networks to increase customer and building penetration in our existing markets ; focusing our service offerings to meet the sophisticated data needs of our customers , such as our ethernet and ip vpn services , internet-based services , managed services and converged voice and data bundled services ; 31 pursuing opportunities to expand our network reach to serve new customers and additional locations for existing customers ; delivering a proactive and comprehensive customer care strategy that differentiates us from our competitors ; and continuing our disciplined approach to capital and operating expenditures in order to increase operational efficiencies , preserve our liquidity and drive us towards greater profitability . our revenue increased by 5 % in 2009 , 7 % in 2008 , 33 % in 2007 and 15 % in 2006 , each as compared to the prior year , due to revenue growth from our enterprise customer base across all lines of business in each of those years as well as the contribution from our acquired xspedius operations beginning in the fourth quarter of 2006. although our revenue continued to grow in 2009 , our growth rates were slowed by the impact of the economic downturn . we expect the economic downturn may continue to adversely affect our revenue growth . enterprise customer revenue revenue from enterprise customers has increased for the past 30 consecutive quarters through december 31 , 2009 primarily through sales of our data and internet services such as ethernet and ip based products . revenue from our enterprise customers represented 75 % of our total revenue for the year ended december 31 , 2009 as compared to 73 % and 69 % for the years ended december 31 , 2008 and 2007 , respectively . we expect a growing percentage of our revenue may continue to come from our enterprise customer base . our expanded market footprint resulting from the acquired operations and new product capabilities has provided us with opportunities to extend our customer reach and product portfolio . story_separator_special_tag we expect that the ilecs will continue to advocate deregulation of all forms of special access services , and we can not predict the outcome of the fcc 's proceedings in this regard or the impact of that outcome on our business . we have a five-year wholesale service agreement with at & t inc. ( formerly sbc communications inc. ) under which at & t supplies us with special access and other services for end user access and transport with certain service level commitments through mid-2010 . we have agreed to maintain certain volume levels in order to receive specified discounts and other terms and conditions , and are subject to certain penalties for early termination of the contract . we are currently negotiating a new agreement with at & t to take effect in mid-2010 33 that would replace an existing agreement that expires at that time . this new agreement could result in higher prices for some of the special access services that we purchase from at & t . we have agreements for tariffed term and volume plans with the other ilecs , which in some cases do not preclude prospective price increases . however , the ability of the ilecs to increase their special access prices is also in some cases subject to regulatory constraints . other financial trends we have historically experienced and expect to continue to experience fluctuations in our revenue , margins , and cash flow in the normal course of business from customer and service disconnections , due to the timing of sales and installations , disputes and dispute resolutions , and pricing declines upon contract renewals . the current economic climate may magnify the impacts of these factors . however , we can not predict the total impact on revenue , margins , and cash flows from these items . although our business is not inherently seasonal in nature , historically our revenue and expense in the first and third quarters of the year have been impacted by some seasonal factors that may cause fluctuations from the prior quarter . first quarter installations and the associated revenue may be impacted by the slowing of our customers ' purchasing activities at the end of the fourth quarter . in addition , revenue from our usage based services such as long distance may be subject to seasonal fluctuations in the first and third quarters resulting from seasonal changes in our customers ' usage patterns . our expenses also are impacted in the first quarter by the resetting of payroll taxes and other employee related costs . we have undertaken several initiatives to increase revenue growth , margins and cash flows including revenue assurance and retention initiatives , cost reduction measures such as network grooming and cost optimization intended to reduce as a percentage of revenue the overall access costs paid to carriers , enhancing back office support systems to improve operating efficiencies , and network investment initiatives to reduce the cost of equipment to increase overall capital efficiency . we can not predict whether these initiatives will be sufficient to maintain our current financial performance . due to successful collection efforts aided by system enhancements , internal controls and our revenue recognition policies , our bad debt expense remained at less than 1 % of our total revenue for 2009 and 2008. we believe it may be difficult to maintain bad debt expense at such a low level due to the impact of continued weakness in the economic environment on our customer base . critical accounting policies and estimates we prepare our financial statements in accordance with accounting principles generally accepted in the united states , which require us to make estimates and assumptions that affect reported amounts and related disclosures . we consider an accounting estimate to be critical if : it requires assumptions to be made that were uncertain at the time the estimate was made ; and changes in the estimate or different estimates that could have been selected could have a material impact on our consolidated results of operations or financial condition . goodwill we perform impairment tests at least annually on all goodwill and indefinite-lived intangible assets as required by relevant accounting standards , which require goodwill to be assigned to a reporting unit and tested using a consistent measurement date . for purposes of testing goodwill for impairment , our goodwill has been assigned to our one consolidated reporting unit and our test is performed in the fourth quarter of each year or more frequently if impairment indicators arise . goodwill is reviewed for impairment utilizing a two-step process . the first step is to identify if a potential impairment exists by comparing the fair value of the reporting unit to its carrying amount . if the fair value of the reporting unit exceeds its carrying amount , goodwill is not considered to have a potential impairment and the 34 second step of the impairment test is not necessary . however , if a potential impairment exists , the fair value of the reporting unit is compared to the fair value of its assets and liabilities , excluding goodwill , to estimate the implied value of the reporting unit 's goodwill . if an impairment charge is deemed necessary , a charge is recognized for any excess of the carrying amount of the reporting unit 's goodwill over the implied fair value . considerable management judgment is necessary to estimate the fair value of our reporting unit and goodwill . we determine the fair value of our reporting unit based on the income approach , using a discounted projection of future cash flows which includes a five-year annual discounted cash flow ( dcf ) analysis with a terminal value to value the long-term future cash flows . this dcf analysis was used solely for the purpose of evaluating our goodwill for impairment and should not be interpreted as our prediction of future performance . the assumptions used in our dcf analysis are consistent with the assumptions we believe hypothetical marketplace participants would use .
| results of operations the following table sets forth certain data from our consolidated financial statements presented in thousands of dollars and expressed as a percentage of total revenue . this table should be read together with our audited consolidated financial statements , including the notes thereto , appearing elsewhere in this report : replace_table_token_9_th ( 1 ) effective january 1 , 2009 , we adopted the provisions of authoritative guidance issued by the fasb , which requires our convertible debentures to be separated into debt and equity components at issuance and a value to be assigned to each . this guidance changes the accounting treatment for our convertible debentures and requires retrospective application to all periods presented in the financial statements . although this guidance does not impact our actual past or future cash flows , the impact to non-cash interest expense and results of operations was to increase interest expense and decrease net income per share by $ 15.8 million , or $ 0.11 per share , and $ 14.6 million , or $ 0.10 per share , for the years ended december 31 , 2008 and 2007 , respectively . see note 4 to our consolidated financial statements for further discussion . 39 ( 2 ) includes the following non-cash stock-based employee compensation expense : replace_table_token_10_th ( 3 ) see item 6. selected financial data note 6 for a definition of modified ebitda and note 7 for reconciliations of modified ebitda to net income ( loss ) , the most comparable gaap measure for operating performance , and modified ebitda , as a measure of liquidity , to net cash provided by operating activities . ( 4 ) modified ebitda margin represents modified ebitda as a percentage of revenue . year ended december 31 , 2009 compared to year ended december 31 , 2008 revenue .
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we serve as a trusted advisor to our clients throughout the world on a collaborative , globally integrated basis from our offices in the united states , australia , canada , france , germany , hong kong , japan , singapore , spain , sweden and the united kingdom . we were established in 1996 by robert f. greenhill , the former president of morgan stanley and former chairman and chief executive officer of smith barney . since our founding , greenhill has grown significantly , by recruiting talented managing directors and other senior professionals , acquiring complementary advisory businesses and training , developing and promoting professionals internally . we have expanded beyond merger and acquisition advisory services to include financing , restructuring , and private capital advisory services , and we have expanded the breadth of our sector expertise to cover substantially all major industries . since the opening of our original office in new york , we have expanded globally to 15 offices across four continents . over our 25 years as an independent investment banking firm , we have sought to opportunistically recruit new managing directors with a range of industry and transaction specialties , as well as high-level corporate and other relationships , from major investment banks , independent financial advisory firms and other institutions . we also have sought to expand our geographic reach both through recruiting managing directors in new locations and through strategic acquisitions , such as our acquisition of caliburn partnership pty limited ( now greenhill australia ) in australia in 2010. additionally , we expanded the breadth of our advisory services through our acquisition in 2015 of cogent , which extended our services to private capital advisory related to the secondary fund placement market . more recently , we have recruited a number of managing directors focused on financing and restructuring advisory services . through our recruiting and acquisition activity , we have significantly increased our geographic reach by adding offices in the united states , united kingdom , germany , canada , japan , australia , sweden , hong kong , spain , singapore and france . we intend to continue our efforts to recruit new managing directors with industry sector experience and or geographic reach who can help expand our advisory capabilities . while we paused our recruiting efforts for most of 2020 due to the uncertainties associated with covid-19 and the inability of new hires to travel and actively engage in in-person meetings and other business development , we enter 2021 with an active pipeline of prospects with industry sector and regional capabilities . it is our objective to achieve increased productivity by increasing managing director headcount in high fee areas like m & a in the largest markets . we had 70 client facing managing directors as of december 31 , 2020. business environment and outlook /factors affecting our results impact of covid-19 and other recent developments . during 2020 , covid-19 became a global pandemic of extraordinary proportion and impact . in response , most governmental authorities issued stay-at-home orders , proclamations and or directives aimed at minimizing the spread of the pandemic . at times these directives were eased in a number of jurisdictions only to have additional directives issued in response to a resurgence of the pandemic in those same jurisdictions . globally , the response by governmental authorities has differed by jurisdiction with some jurisdictions issuing additional and more restrictive proclamations and or directives while other jurisdictions are permitting workers back to their workplaces . for us , the majority of our employees worked remotely during the period from march through june 2020. since then , some of our employees have begun a gradual return to our office locations , in compliance with local government guidelines , while in other jurisdictions our employees continued to work from home . for those employees who have been working remotely , they have successfully utilized technology to employ virtual and secure cloud-based systems to continue communicating , collaborating and conducting client business in this new environment . we continue to monitor local government mandates in determining our office re-openings , re-closures and work-related travel . as a result of the global pandemic , there was significant disruption and volatility in the domestic and international economies and financial markets from early 2020 until the third quarter . as a financial services firm , we are materially affected by conditions in the global financial markets and economic conditions throughout the world . during periods of unfavorable market or economic conditions it is expected , and we have seen , that the volume of global m & a transactions can be volatile and the timing of transaction closings may be extended or disrupted , with some announced transactions being terminated . in response to the impact that the global pandemic had on global economies both the u.s. federal government and most foreign governmental institutions undertook unprecedented fiscal and monetary stimulus which resulted in a broad recovery of all financial markets by mid year . although we were impacted beginning in the first quarter of 2020 and continuing into the third quarter by the unfavorable market conditions that covid-19 caused on our business , starting in the third quarter we have 25 seen an increase in new assignment activity for m & a as compared to the same period last year . we currently see a favorable environment for our m & a business due to high equity valuations , low borrowing costs , substantial corporate and private equity buying power and a variety of other factors . however , we can not estimate the speed at which the transactions will occur or the stability of the financial markets given the expected challenges of a recovery from the global pandemic . since the early stages of the global pandemic the activity of our financing advisory and restructuring business , which provides financing , restructuring and bankruptcy advice to companies in financial distress or their creditors or other stakeholders , has increased substantially compared to prior years . story_separator_special_tag at the same time , we lose clients each year as a result of the sale or merger of a client , bankruptcy , a change in a client 's senior management team , turnover of our senior banking professionals , competition from other investment banks and other similar reasons . for 2021 , we are aiming to enhance our focus on advising financial sponsors on a wide variety of transactions . historically we focused heavily on serving public companies , and we have enjoyed great success with that constituency . however , over time we have increased interaction with financial sponsors across our m & a , restructuring and private capital advisory businesses . we are now aiming to organize those efforts in a more systematic way designed to generate more revenue , and we have already put significant resources into this initiative . we are hopeful that it will be at least as successful as the restructuring advisory team expansion that was our primary strategic focus of the past couple years . _ ( 1 ) excludes transactions less than $ 100,000 and withdrawn/canceled deals . source : thomson financial as of january 31 , 2021. story_separator_special_tag factors , including our financial performance , and are generally paid in the first quarter in respect of the preceding year . awards of restricted stock units and deferred cash compensation are discretionary and are amortized into compensation expense ( based upon the fair value of the award at the time of grant ) during the service period over which the 28 award vests , which is generally three to five years for the majority of the awards . we estimate forfeitures as part of our amortized deferred compensation cost based on an estimated rate of forfeitures which we periodically adjust to the actual rate of forfeited awards . as we expense the restricted stock awards , the portion of the restricted stock units amortized is recorded within stockholders ' equity in the consolidated statements of changes in stockholders ' equity . the expense associated with our annual and long-term incentive compensation can have a significant impact on compensation expense and may vary from year to year . 2020 versus 2019. for the year ended december 31 , 2020 , our employee compensation and benefits expenses were $ 194.1 million , which reflected a 62 % ratio of compensation to revenues . this amount compared to $ 178.9 million for 2019 , which reflected a 59 % ratio of compensation to revenues . the increase in expense of $ 15.2 million , or 8 % , was principally attributable to higher incentive compensation . the increase in the ratio of compensation to revenues for 2020 as compared to 2019 principally resulted from an increase in the amount of accrued year-end bonuses . as our compensation expense can fluctuate materially in any particular year depending upon the changes in headcount , amount of revenues recognized , as well as other factors , the amount of compensation expense we recognize in any particular year may not be indicative of compensation expense in future years . non-compensation operating expenses our non-compensation operating expenses such as occupancy , depreciation , and information services are relatively fixed year to year although they may vary depending upon changes in headcount , geographic locations and other factors . other expenses such as travel , professional fees and other operating expenses vary dependent on the level of business development , recruitment , foreign currency movements and the amount of reimbursable client expenses , which are reported in full in both our revenues and our operating expenses . it is management 's objective to maintain consistent comparable non-compensation cost year over year for each jurisdiction in which we operate . we monitor costs based on actual costs incurred in prior periods and on headcount and seek to gain operating efficiencies when possible . in 2020 , we had minimal travel expenditures beginning in march and through year-end due to travel restrictions imposed as a result of the covid-19 pandemic . we expect that our travel spend will continue at a reduced level of travel for most of 2021. over the longer term we expect an increase in our aggregate travel spend but at a reduction from pre-covid-19 levels and with a higher rate of recovery through reimbursed client expenses . effective january 2021 , we relocated our new york headquarters ' location , which provided us with higher quality , more efficient , yet lower cost space . during the build out period in 2020 , we incurred rental expense on both our former space and our new space , which increased our aggregate occupancy costs . taking into account both the redundant rent costs and the rent expense reduction we incurred in 2020 , we expect our occupancy expense will decrease by approximately $ 7.0 million in 2021 as compared to 2020 . 2020 versus 2019. for the year ended december 31 , 2020 , our non-compensation operating expenses of $ 62.3 million compared to $ 76.2 million in 2019 , representing a decrease of $ 13.9 million , or 18 % . the decrease in non-compensation expenses charges principally resulted from lower travel costs as a result of the global pandemic , lower recruiting costs as we paused recruiting and the benefit of foreign currency gains , partially offset by the duplicate rent charge for new headquarters ' space during a portion of 2020 and a loss on the sale of our brazilian business . non-compensation operating expenses as a percentage of revenues for 2020 decreased to 20 % as compared to 25 % in 2019 as a result of spreading lower non-compensation operating costs over moderately higher revenues . non-compensation operating expenses can fluctuate as a result of a variety of factors referred to above . accordingly , the non-compensation operating expenses in any particular year may not be indicative of the non-compensation operating expenses in future years .
| results of operations the results of operations below focuses on the results of 2020 versus 2019. for a discussion of 2019 versus 2018 , refer to `` results of operations '' in our form 10-k for the year ended december 31 , 2019. revenues the following table sets forth data relating to the firm 's sources of revenues by client location . replace_table_token_1_th sources of revenues . our revenues are derived from both corporate advisory services related to m & a , financings and restructurings and private capital advisory services related to sales or capital raises pertaining to alternative assets . a majority of our revenue is contingent upon the closing of a merger , acquisition , financing , restructuring , or other advisory transaction . while fees payable upon the successful conclusion of a transaction generally represent the largest portion of our corporate advisory fees , we also earn other fees , including on-going retainer fees , substantially all of which relate to non-success-based strategic advisory , financing advisory and restructuring assignments , and fees payable upon the commencement of an engagement or upon the achievement of certain milestones ( such as the announcement of a transaction or the rendering of a fairness opinion ) . additionally , we generate private capital advisory revenues from sales of alternative assets in the secondary market and from capital raises . we do not allocate our revenue by type of advice rendered ( m & a , financing advisory and restructuring , strategic advisory , or other ) because of the complexity of the assignments for which we earn revenue and because a single transaction can encompass multiple types of advice . for example , a restructuring assignment can involve , and in some cases end successfully in , a sale of all or part of the financially distressed company .
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the company uses significant judgment to analyze and determine if the composition of its inventory is obsolete , slow-moving or unsalable and frequently reviews such determinations . the company writes-down specifically identified unusable , obsolete , slow-moving , or known unsalable inventory that has no alternative use to net 78 cerus corporation notes to consolidated financial statements ( continued ) december 31 , 2013 realizable value in the period that it is first recognized by using a number of factors including product expiration dates , open and unfulfilled orders , and sales forecasts . any write-down of its inventory to net realizable value establishes a new cost basis and will be maintained even if certain circumstances suggest that the inventory is recoverable in subsequent periods . costs associated with the write-down of inventory are recorded in cost of product revenue on the company 's consolidated statements of operations . at december 31 , 2013 , and 2012 , the company had $ 0.4 million and $ 0.3 million , respectively , reserved for potential obsolete , expiring or unsalable product . at story_separator_special_tag this discussion and analysis should be read in conjunction with our audited consolidated financial statements and the accompanying notes thereto included in this annual report on form 10-k for the year ended december 31 , 2013. operating results for the year ended december 31 , 2013 are not necessarily indicative of results that may occur in future periods . overview since our inception in 1991 , we have devoted substantially all of our efforts and resources to the research , development , clinical testing and commercialization of the intercept blood system and , from 2001 until late 2007 , immunotherapies for cancer and infectious disease . the intercept blood system is designed for three blood components . the intercept blood system for platelets , or platelet system , and our intercept blood system for plasma , or plasma system , have received ce marks and are being marketed and sold in a number of countries around the world including those in europe , the commonwealth of independent states , or cis , and the middle east . in 2012 , the united states food and drug administration , or fda , accepted our proposed modular premarket approval application , or pma , shell for our plasma system . in november 2013 , we submitted the fourth and final module under the pma for plasma and have subsequently been informed that the fda has confirmed the completeness of the filing and considers the application filed. the filed pma for the plasma system is now in the 180 day substantive review period . during this review period , we will need to satisfactorily respond to any minor or major deficiency letter we may receive before the fda can complete their review of the pma . in february 2013 , we reached agreement with the fda regarding our proposed modular pma shell for the platelet system . we have submitted two of the three modules agreed upon as part of the pma shell and expect to submit the third and final module in the second quarter of 2014 , pending our ability to successfully respond to questions posed by the fda on the first two submitted modules and completing an in vitro study currently in process that will be submitted as part of the third and final module . the ongoing regulatory efforts for both the platelet and plasma system pmas , as well as our development activities for the red blood cell system , will result in increased research and development expenses in future periods . our ability to conduct and complete additional clinical trials required by the fda to support approval in the united states is subject to our ability to generate sufficient cash flows from our operations or obtain adequate funding from external sources before we initiate any such trials or studies . we are developing the intercept blood system for red blood cells , or red blood cell system , and are currently performing in vitro and license-enabling clinical trials for ce mark approval . subject to the availability of adequate funding from partners and or the capital markets , we intend to complete development activities for the red blood cell system necessary for potential ce mark approval . we are currently conducting a phase ii recovery and lifespan study and plan to complete that study and certain other prerequisites before proposing a phase iii clinical trial protocol for the red blood cell system in support of a potential regulatory approval in the united states . these development activities will result in increased research and development expenses in future periods , and our ability to conduct and complete any clinical trials of the red blood cell system to support approval in the united states and europe is subject to our ability to generate sufficient cash flows from our operations or obtain adequate funding from external sources . in any event , we will be required to obtain additional capital in order to complete the development of and obtain any regulatory approvals for the red blood cell system . our near-term capital requirements are dependent on various factors , including operating costs and working capital investments associated with commercializing the intercept blood system , costs associated with the modular pma submission process for both the platelet and plasma systems , costs associated with pursuing potential regulatory approvals in other geographies where we do not currently sell our platelet and plasma 39 systems , costs associated with conducting in vitro studies and clinical development of our red blood cell system in europe and the united states , including our two ongoing european phase iii clinical trials for the red blood cell system , and costs related to creating , maintaining and defending our intellectual property . story_separator_special_tag as of december 31 , 2013 , our ownership in aduro was less than 3 % on a fully diluted basis . since receiving preferred stock in aduro , we have carried our investment in aduro at zero on our consolidated balance sheet . fresenius kabi we pay royalties to fresenius kabi ag , or fresenius , on intercept blood system product sales under certain agreements which arose from the sale of the transfusion therapies division of baxter international inc. , or baxter , in 2007 , to fenwal inc. , or fenwal ( fenwal was acquired by fresenius in 2012 ) , at rates that vary by product : 10 % of product sales for the platelet system , and 3 % of product sales for the plasma system . fresenius has assumed fenwal 's rights and obligations under these certain agreements , including our manufacturing and supply agreement . in this report , references to fresenius include references to its predecessors-in-interest fenwal and baxter . we also paid fresenius certain costs associated with the amended manufacturing and supply agreement we executed with fresenius in december 2008 , the original supply agreement , for the manufacture of intercept finished disposable kits for our platelet and plasma systems through december 31 , 2013. under the original supply agreement , we paid fresenius a set price per disposable kit , which was established annually , plus a fixed surcharge per disposable kit . in addition , volume driven manufacturing overhead was paid or refunded if actual manufacturing volumes were higher or lower than the annually estimated production volumes . we were also obligated under the original supply agreement to supply certain disposable kit components to fresenius , at no cost , for the manufacture of our kits . this required us to enter into manufacturing and supply arrangements with certain other manufacturers for those components , some of which contain minimum purchase commitments . in november 2013 , we amended the original supply agreement with fresenius , with the new terms effective january 1 , 2014 , the 2013 amendment . under the 2013 amendment , fresenius is obligated to sell , and we are obligated to purchase , up to a certain specified annual volume of finished disposable kits for the platelet and plasma systems from fresenius for both clinical and commercial use . once the specified annual volume of disposable kits is purchased from fresenius , we are able to purchase additional quantities of disposable kits from other third-party manufacturers . the 2013 amendment also provides for fixed pricing for finished kits with successive decreases in pricing at certain annual production volumes . in addition , the 2013 amendment requires us to purchase additional specified annual volumes of sets per annum if and when an additional fresenius manufacturing site is identified and qualified to make intercept disposable kits subject to mutual agreement on pricing for disposable kits manufactured at the additional site . fresenius is also obligated to purchase and maintain specified inventory levels of our proprietary inactivation compounds and adsorption media from us at fixed prices . the term of the 2013 amendment extends through december 31 , 2018 , subject to termination by either party upon thirty months prior written notice , in the case of fresenius , or twenty-four months prior written 41 notice , in our case . we and fresenius each have normal and customary termination rights , including termination for material breach . we do not currently have plans to terminate our agreement with fresenius and understand that fresenius currently plans to continue operating under the amended agreement . during the year ended december 31 , 2012 , we provided for and settled claims for warranty obligations of $ 0.9 million related to replacement costs for certain of our products that we identified were defective or had the potential of being defective . in connection with the warranty claims incurred by us and remediation of those claims during the year ended december 31 , 2012 , we filed a warranty claim against fresenius , which they accepted . as a result , we recorded a current asset of $ 1.8 million on our consolidated balance sheets as of december 31 , 2012 representing the full amount of the warranty claim against fresenius . we also wrote-down the value of certain unsalable inventory of $ 1.7 million related to these products as an offsetting warranty claim against fresenius . as of december 31 , 2013 the company no longer has a warranty claim against fresenius . in august 2010 , we completed an acquisition of certain assets of bioone corporation , or bioone , including the commercialization rights that both fresenius and we granted to bioone for both the platelet and plasma systems . concurrent with the acquisition , fresenius and we terminated the commercialization rights we and fresenius granted to bioone . as a consequence of the termination , and pursuant to a pre-existing agreement with fresenius , our commercialization rights to the platelet and plasma systems under our 2005 and 2006 agreements with fresenius became worldwide . as consideration for the acquired bioone assets , we relinquished all shares we held in bioone valued at approximately $ 0.3 million and issued approximately 1.2 million shares of our common stock to bioone valued at approximately $ 3.4 million , of which approximately 1.0 million shares were issued at the close of the acquisition on august 24 , 2010 and the remaining 0.2 million shares were issued on february 25 , 2011. accordingly , at the acquisition date , we recorded the fair value of the assets acquired , consisting of commercialization rights in asia of $ 2.0 million and illuminators of $ 0.4 million , with the excess of the purchase price over the fair value of the asset acquired recorded as goodwill of $ 1.3 million .
| results of operations years ended december 31 , 2013 , 2012 and 2011 revenue replace_table_token_6_th product revenue increased by $ 3.0 million during the year ended december 31 , 2013 compared to the year ended december 31 , 2012 , primarily as a result of higher unit sales volume of our disposable kits , notably our plasma system kits . the increase in sales of plasma disposable kits was due in part to first time purchases of plasma kits by certain existing platelet kit customers in 2013.also contributing to the year-over-year increase in product revenue was higher unit sales volume for our illuminator devices driven by the continued increase in our overall customer base . product revenue increased by $ 6.1 million during the year ended december 31 , 2012 compared to the year ended december 31 , 2011 primarily as a result of higher sales volume of our disposable platelet and plasma system kits sold to new customers . these sales were predominately generated by our distributors penetrating markets in europe , the cis , and the middle east not previously utilizing the intercept blood system . in addition , the increase in volume sales in 2012 as compared to 2011 is attributable to 2012 reflecting a full year of sales for existing customers who adopted throughout 2011. this increase was partially offset by a decline in the sales volume of our illuminators in 2012. we anticipate product revenue for both our platelet and plasma systems will continue to increase over the long-term in future periods as the intercept blood system gains market acceptance in geographies where commercialization efforts are underway . currently , a fairly concentrated number of distributors make up a significant portion of our product revenue . in 2013 , we experienced weaker than expected growth due to declining performance by certain of our distributors .
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upon story_separator_special_tag the following discussion contains management 's discussion and analysis of our financial condition and results of operations and should be read together with the selected financial data in item 6 and historical financial statements , the notes thereto included in item 8 “ financial statements and supplementary data ” and included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that reflect our plans , estimates and beliefs and involve numerous risks and uncertainties , including but not limited to those described in the item 1a “ risk factors ” section of this annual report on form 10-k. actual results may differ materially from those contained in any forward-looking statements . you should carefully read “ special note regarding forward-looking statements ” and item 1a “ risk factors. ” overview we are a medical aesthetics company focused on delivering advanced aesthetic procedures and treatments to physicians and consumers .. we focus on the self-pay aesthetic market and our first product candidate , prabotulinumtoxina ( dwp-450 ) , is an injectable 900 kda botulinum toxin type a complex designed to address the needs of the large and growing facial aesthetics market . we believe we will offer physicians and consumers a compelling value proposition with dwp-450 . currently , onabotulinumtoxina ( botox ) is the neurotoxin market leader and the only known approved 900 kda botulinum toxin type a complex in the united states . we believe aesthetic physicians generally prefer the performance characteristics of the complete 900 kda neurotoxin complex and are accustomed to injecting this formulation . we have completed the clinical development program for dwp-450 for the treatment of moderate to severe glabellar lines , also known as “ frown lines , ” between the eyebrows in the united states , eu and canada . the fda issued a pdufa date of may 15 , 2018 for completion of its review of our bla . we submitted a maa to the ema and it was accepted for review in july 2017 with a decision that we expect by the second half of 2018. we have also submitted a nds in canada and it was accepted for review in october 2017 with a decision that we expect by the second half of 2018. since our inception in 2012 , we have devoted substantially all our efforts to identify and recruit personnel , conduct clinical trials , and seek regulatory approval for our dwp-450 product candidate . our resources have largely been devoted to the clinical development of dwp-450 . on september 30 , 2013 , we entered into the daewoong agreement pursuant to which daewoong agreed to manufacture and supply us with dwp-450 and granted us an exclusive license to develop , distribute , market and sell the product in the united states , eu , canada , australia , russia , c.i.s. , and south africa , or the covered territories . daewoong also granted us a non-exclusive license to do the same in japan . in a series of related transactions in 2013 , sch acquired all of our outstanding equity in exchange for membership interests in sch . in 2014 , sch contributed our equity that it had acquired in 2013 to alphaeon . as a result of these transactions , we became a wholly-owned subsidiary of alphaeon . we have never been profitable and , as of december 31 , 2017 , we had an accumulated deficit of $ 75.5 million . we have never generated revenue from dwp-450 and we incurred net losses of approximately $ 4.5 million , $ 20.1 million and $ 31.1 million in the years ended december 31 , 2017 , 2016 and 2015 respectively . we generated net losses in the year ended december 31 , 2017 and did not have any cash or cash equivalents as of such date . we do not expect to receive any revenue from dwp-450 or any future product candidates that we develop unless and until we obtain regulatory approval and commercialize dwp-450 or any future product candidates , or enter into collaborative arrangements with third parties . we expect to continue to incur significant expenses and increasing net operating losses for the foreseeable future as we seek regulatory approval , prepare for and , if approved , proceed to commercialization of dwp-450 . we utilized cros to carry out our clinical development and we do not yet have a sales organization . we expect to incur significant expenses related to building our commercialization infrastructure , including marketing , sales and distribution functions , inventory build prior to commercial launch and training and deploying a specialty sales force and implementing a targeted marketing campaign . we plan to launch dwp-450 , if approved , in the united states by building a commercialization infrastructure with a specialty sales force of approximately 65 sales representatives within our first year of commercial launch and growing to 150 sales representatives over time . we also expect to incur additional costs associated with operating as a public company and in building our internal resources to become less reliant on alphaeon . based on our estimated use of proceeds , we anticipate that the net proceeds from our initial public offering will be sufficient to fund our operating plan through the launch and initial commercialization of dwp-450 , if approved by the fda . however , we may require additional funds earlier than we currently expect if , in the event that we are required to conduct additional clinical trials , we experience a delay in receiving marketing approval of dwp-450 or market acceptance of dwp-450 is slower than expected . adequate funding may not be available to us on acceptable terms , or at all , which could have a material adverse effect on our business , results of operations , and financial condition . story_separator_special_tag 74 under the amended purchase agreement , the revised payment obligations consist of ( i ) an approximately $ 9.2 million up-front payment upon obtaining fda approval for dwp-450 for the treatment of glabellar lines , ( ii ) quarterly royalty payments of a low single digit percentage of net sales of dwp-450 within the united states , ( iii ) quarterly royalty payments of a low single digit percentage of net sales of dwp-450 outside of the united states , and ( iv ) a $ 20.0 million promissory note that will mature on the 2.5 year anniversary of the first commercial sale of dwp-450 in the united states . the revised payment obligations set forth in ( iii ) and ( iv ) above will terminate for the quarter following the 10 year anniversary of the first commercial sale of dwp-450 in the united states . as these revised payment obligations are not perpetual , neither we nor alphaeon will have the right to terminate any future payments for a one-time lump sum payment . under the amended purchase agreement , the estimated value of all revised payment obligations and the promissory note owed to the evolus contributors was $ 55.7 million as of february 12 , 2018. in addition , under the amended purchase agreement , we agreed to make one-time bonuses to certain of our employees aggregating approximately $ 1.6 million pursuant to the respective terms of their offer letters , including a one-time bonus of $ 700,000 payable to rui avelar , m.d. , our chief medical officer , which was previously payable out of amounts owed to the contributors under the original stock purchase agreement . under the terms of the promissory note , alphaeon was the borrower prior to the closing of our initial public offering , and we became the borrower after the closing of our initial public offering . under the promissory note , we will pay to j. christopher marmo , ph.d. as the representative of the evolus contributors , or the holder , $ 20.0 million representing the aggregate principal amount upon maturity of the promissory note . no interest will accrue on the promissory note . we will have the right to prepay the promissory note , in whole or in part , at any time and from time to time without penalty . upon an event of default under the promissory note , all unpaid principal will become immediately due and payable at the option of the holder . an event of default will occur under the terms of the promissory note upon any of the following events : ( i ) we fail to meet the obligations to make the required payments thereunder , ( ii ) we make an assignment for the benefit of creditors , ( iii ) we commence any bankruptcy proceeding , ( iv ) we materially breach the stock purchase agreement or tax indemnity agreement , which is defined below , and such breach is not cured within 30 days , or ( v ) when alphaeon was the borrower , there occurs an event of default under the notes , which is defined below , that is not cured during the applicable cure period or waived by the noteholders , and such noteholders have exercised their rights to foreclose on the collateral securing the notes under alphaeon 's pledge of its assets , as discussed further below . no event of default was triggered or payment by alphaeon was made under the promissory note prior to the closing of our initial public offering . in addition , upon a change-of-control of our company , all unpaid principal will become immediately due and payable . under the terms of the promissory note , a change-of-control is defined as ( i ) the sale of all or substantially all of our assets , ( ii ) the exclusive license of dwp-450 or the business related to dwp-450 to a third-party ( other than a sublicense under the daewoong agreement ) , or ( iii ) any merger , consolidation , or acquisition of our company , except a merger , consolidation , or acquisition of our company in which the holders of capital stock of our company immediately prior to such merger , consolidation , or acquisition hold at least 50 % of the voting power of the capital stock of our company or the surviving entity . notwithstanding the foregoing , the promissory note expressly provides that neither our initial public offering or any merger with or acquisition by alphaeon or any of its subsidiaries or affiliates constitutes a change-of-control . further , under the amended purchase agreement , we , alphaeon and sch agreed to terminate the non-competition provision set forth in the contribution agreement , pursuant to which the evolus contributors were prohibited , subject to limited exceptions , for a period of 5 years , from engaging in any business relating to the development , license , commercialization of , or performing any services or supervisory functions for persons or entities engaged in any business related to , a neurotoxin or neuromodulator . upon completion of our initial public offering , we assumed and agreed to pay the revised payment obligations under the amended purchase agreement . at the closing of our initial public offering , the outstanding related party borrowings from alphaeon were set-off and reduced , on a dollar-for-dollar basis , taking into account the then-fair value of all payment obligations we assumed from alphaeon , the estimated value of which , as of february 12 , 2018 , was $ 55.7 million .
| results of operations comparison of the years ended december 31 , 2017 and 2016 the following table summarizes our results of operations for the periods indicated ( in thousands ) : replace_table_token_3_th research and development research and development expenses were $ 6.7 million during the year ended december 31 , 2017 compared to $ 12.6 million during the year ended december 31 , 2016 , for a decrease of approximately $ 5.9 million . the decrease was primarily attributable to a reduction in our clinical trial costs associated with the completion of our phase iii clinical trials in 2016. amounts incurred in 2017 were primarily attributable to costs related to the preparation of our regulatory filings with the fda and ema . other 2017 research and development expenses include personnel related costs such as wages , taxes and health insurance of $ 2.7 million , and research , consulting and other outside services of $ 0.4 million . 78 general and administrative general and administrative expenses were $ 4.8 million during the year ended december 31 , 2017 compared to $ 7.0 million during the year ended december 31 , 2016 , for a decrease of approximately $ 2.2 million . the decrease was largely a ttributable to a reduction in alphaeon expenses allocated to us , reflecting an overall decrease in alphaeon operations and personnel in 2017 compared with 2016 , for services provided to us by its employees , including a decrease in salaries and benefits of $ 0.9 million , third-party service costs of $ 3.0 million , and partially offset by an increase in office expense of $ 0.6 million . additionally , we incurred marketing expenses of $ 1.1 million in 2017 related to the preparation for the commercialization of dwp-450 .
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reimbursement revenue and reimbursable out-of-pocket costs the company incurs out-of-pocket costs , in excess of contract amounts , which are reimbursable by its customers . the company includes out-of-pocket costs both as reimbursement revenue and as reimbursable out-of-pocket costs in the consolidated statements of operations . as is customary in the industry , the company routinely enters into separate agreements on behalf of its clients with independent physician investigators in connection story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our “ selected financial data ” and the consolidated financial statements and the related notes included elsewhere in “ financial statements and supplementary data. ” some of the information contained in this discussion and analysis or set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business , includes forward‑looking statements that involve risks and uncertainties . you should read the “ risk factors ” section of this annual report on form 10‑k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward‑looking statements contained in the following discussion and analysis . overview we are one of the world 's leading global cros , by revenue , providing outsourced clinical development services to the biotechnology and pharmaceutical industries . we believe we are one of a select group of cros with the expertise and capability to conduct clinical trials across major therapeutic areas on a global basis . our therapeutic expertise includes areas that are among the largest in pharmaceutical development , and we focus in particular on oncology , central nervous system inflammation , respiratory , cardiometabolic and infectious diseases . we believe that we further differentiate ourselves from our competitors through our investments in medical informatics and clinical technologies designed to enhance efficiencies , improve study predictability and provide better transparency for our clients throughout their clinical development processes . our data solutions segment allows us to better serve our clients across their entire product lifecycle by ( i ) improving clinical trial design , recruitment , and execution ; ( ii ) creating real-world data solutions based on the use of medicines by actual patients in normal situations ; and ( iii ) increasing the efficiency of healthcare companies ' commercial organizations through enhanced analytics and outsourcing services . contracts define the relationships with our clients and establish the way we earn revenue . three types of relationships are most common : a fixed‑price contract , a time and materials contract and fee‑for‑service arrangements . in cases where the contracts are fixed price , we may bear the cost of overruns for the contracted scope , or we may benefit if the costs are lower than we anticipated for the contracted scope . in cases where our contracts are fee‑for‑service , the contracts contain an overall budget for contracted resources . if actual resources used are lower than anticipated , the client generally keeps the savings and we may be responsible for covering the cost of the unused resource if we are unable to redeploy the resource . for time and material contracts , we bill the client only for the actual hours we spend to complete the contracted scope based upon stated hourly rates by position . the duration of our contracts range from a few months to several years . revenue for services is recognized only after persuasive evidence of an arrangement exists , the sales price is determinable , services have been rendered , and collectability is reasonably assured . once these criteria have been met , we recognize revenue for the services provided on fixed‑fee contracts in our clinical research segment based on the proportional performance methodology , which determines the proportion of outputs or performance obligations which have been completed or delivered compared to the total contractual outputs or performance obligations . to measure performance , we compare the contract costs incurred to estimated total contract costs through completion . as part of the client proposal and contract negotiation process , we develop a detailed project budget for the direct costs based on the scope of the work , the complexity of the study , the geographical location involved and our historical experience . we then establish the individual contract pricing based on our internal pricing guidelines , discount agreements , if any , and negotiations with the client . the estimated total contract costs are reviewed and revised periodically throughout the lives of the contracts , with adjustments to revenue resulting from such revisions being recorded on a cumulative basis in the period in which the revisions are first identified . our costs consist of expenses necessary to carry out the clinical development project undertaken by us on behalf of the client . these costs primarily include the expense of obtaining appropriately qualified labor to administer the project , which we refer to as direct cost headcount . other costs we incur are attributable to the expense of operating our business generally , such as leases and maintenance of information technology and equipment . revenue from time and materials contracts is recognized as hours are incurred . revenues and the related costs of fee‑for‑service contracts are recognized in the period in which services are performed . we recognize revenue for services provided on fixed-fee contracts in our data solutions segment either ratably as earned over the contract period ( for subscription-based services ) or upon delivery ( for delivery of data solutions or reports ) . revenue from time and materials contracts is recognized as hours are incurred . revenues and the related costs of fee-for-service contracts are recognized in the period in which services are performed . how we assess the performance of our business historically , we have reported one reportable segment . in conjunction with the acquisition of symphony health on september 6 , 2017 , the company expanded its reporting segments . story_separator_special_tag as part of the client proposal and contract negotiation process , we develop a detailed project budget for the direct costs based on the scope of the work , the complexity of the study , the geographical location involved and our historical experience . we then establish the individual contract pricing based on our internal pricing guidelines , discount agreements , if any , and negotiations with the client . the estimated total contract costs are reviewed and revised periodically throughout the lives of the contracts , with adjustments to revenue resulting from such revisions being recorded on a cumulative basis in the period in which the revisions are first identified . the company recognizes revenue for services provided on fixed-fee contracts in the data solutions segment either ratably as earned over the contract period , for subscription-based services , or upon delivery , for one-time delivery of data solutions or reports . revenue from time and materials contracts is recognized as hours are incurred . billable hours typically fluctuate during the terms of individual contracts , as services we provide generally increase at the beginning of a study and decrease toward the end of a study . revenues and the related costs of fee‑for‑service contracts are recognized in the period in which services are performed . in the clinical research segment , a majority of our contracts undergo modifications over the contract period and our contracts provide for these modifications . during the modification process , we recognize revenue to the extent we incur costs , provided client acceptance and payment is deemed reasonably assured . volume discounts are offered to certain large customers based on annual volume thresholds . we record an estimate of the annual volume rebate as a reduction of revenue throughout the period based on the estimated total rebate to be earned for the period . most of our contracts in the clinical research segment can be terminated by the client either immediately or after a specified period , typically 30 to 60 days , following notice . in the case of early termination , these typically contracts require payment to us of fees earned to date , the fees , and in some cases , a termination fee or some portion of the fees or profit that we could have earned under the contract if it had not been terminated early . based on ethical , regulatory , and health considerations , this wind‑down activity may continue for several quarters or years . therefore , revenue recognized prior to cancellation generally does not require a significant adjustment upon cancellation . increases in the estimated total direct costs to complete a contract without a corresponding proportional increase to the total contract price result in a cumulative adjustment to the amount of revenue recognized in the period the change in estimate is determined . our data solutions segment enters into contracts with some of its larger data suppliers that involve non-monetary terms . we will issue purchase credits to be used toward the data supplier 's purchase of the company 's products , services or consulting . in exchange , we receive monetary discounts on the data received from the data suppliers . the fair value of the revenue earned from the customer purchases is determined based on similar product offerings to other customers . at the end of the contract year , any unused purchase credits will be forfeited or carried over to the next contract year based on the terms of the data supplier contract . for the year ended december 31 , 2017 , we recognized service in kind revenue of $ 5.8 million from these transactions , which is included in service revenue in the accompanying consolidated statements of operations . clinical research segment service revenue was $ 1,857.9 million , $ 1,580.0 million , and $ 1,375.8 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . changes in service revenue from period to period are driven primarily by changes in backlog at the beginning of a period , as well as new business awards during such period . additionally , service revenue and billable hours will generally be impacted by the mix of studies that are active during a period , as different studies have different staffing requirements , as well as the life cycles of projects that are active during a period . 40 data solutions segment service revenue was $ 90.5 million for the year ended december 31 , 2017 . refer to note 2 - significant accounting policies of our audited consolidated financial statements for further discussion of our data solutions segment 's revenue recognition policy . our service revenues are derived from a wide range of client types . during the year ended december 31 , 2017 , we derived 53 % of our service revenue from large pharmaceutical companies , 16 % of our service revenue from small‑ to mid‑sized pharmaceutical companies , 16 % of our service revenue from large biotechnology companies , 14 % of our service revenue from all other biotechnology companies and 1 % of our service revenue from non-pharmaceutical companies . for the years ended december 31 , 2017 , 2016 , and 2015 , our top five clients represented approximately 42 % , 45 % , and 41 % , respectively , of service revenue ; this revenue was derived from a combination of fixed‑fee contracts , fee‑for‑service contracts and time and materials contracts . one client accounted for 10.3 % of service revenue during the year ended december 31 , 2017 . two of our clients accounted for 11.0 % and 10.4 % of service revenue during the year ended december 31 , 2016 , respectively . one client accounted for 10.7 % of service revenue during the year ended december 31 , 2015 . no individual project accounted for 10 % or more of service revenue for the years ended december 31 , 2017 , 2016 and 2015 .
| results of operations consolidated results of operations for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 replace_table_token_4_th service revenue increased by $ 368.4 million , or 23.3 % , from $ 1,580.0 million during the year ended december 31 , 2016 to $ 1,948.4 million during the year ended december 31 , 2017 . service revenue for the year ended december 31 , 2017 benefited from an increase in billable hours and an increase in the effective rate of the hours billed on our studies , an increase of $ 90.5 million due to the acquisition of symphony health which was completed on september 6 , 2017 , and by a favorable impact of $ 7.1 million from foreign currency exchange rate fluctuations . the growth in service revenue and the increase in billable hours were due largely to the increase in our backlog as we entered the year , the type of services we are providing on our active studies , which was driven by the life cycles of projects that were active during the period , the growth in new business awards as a result of higher demand for our services across the industries we serve , and more effective sales efforts and the growth in the overall cro market . new business awards arise when a client selects us to execute its trial . the number 43 of awards can vary significantly from period to period and our studies have terms ranging from several months to several years . the increase in our effective rate of the hours billed on our studies is attributable to the contract pricing terms on our current mix of active studies and the mix of clients and the services that we provide to those clients .
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any adjustment to the incentive fee calculation proposed by the manager will be subject to the approval of a majority of the independent directors . for purposes of calculating the incentive fee , “ adjusted net income ” for the preceding four fiscal quarters means the net income calculated in accordance with gaap after all base management fees but before any acquisition expenses , expensed costs related to equity issuances , incentive fees story_separator_special_tag safe harbor statement under the private securities litigation reform act of 1995. the statements in this report that are not historical facts are forward-looking statements that involve a number of known and unknown risks , uncertainties , and other factors , all of which are difficult or impossible to predict and many of which are beyond our control , that may cause our actual results , performance , or achievements to be materially different from any future results , performance , or achievements expressed or implied by those forward-looking statements . these risks are detailed in part i , item 1a , risk factors , in this report and our other sec filings . please also see the cautionary statements included in the note regarding forward-looking statements at the beginning of this report . overview acre realty investors inc. is a commercial real estate investment and operating company focused on commercial real estate investments . on january 30 , 2015 , our company and a-iii investment partners llc ( “ a-iii ” ) closed a series of transactions that recapitalized our company and resulted in a change in control of our company . at the closing , a-iii purchased 8,450,704 shares of our company 's common stock at a purchase price of $ 1.42 per share , for an aggregate purchase price of $ 12,000,000 , and our company issued to a-iii warrants to purchase up to an additional 26,760,563 shares of our company 's common stock at an exercise price of $ 1.42 per share ( $ 38,000,000 in the aggregate ) . the purchase price per share and the exercise price of the warrants are subject to a potential post-closing adjustment upon completion of the sale of our company 's four legacy properties owned on january 30 , 2015 , which could result in the issuance of additional shares of common stock to a-iii and an increase in the number of shares of common stock issuable upon exercise of the warrants . we used a portion of the proceeds of a-iii 's investment to pay off certain of our outstanding indebtedness as discussed further below . immediately after the closing , our company 's name was changed to acre realty investors inc. , and the name of our operating partnership was changed to acre realty lp . on february 2 , 2015 , our common stock began trading under the new ticker symbol “ aiii ” ( nyse mkt : aiii ) . our principal office was moved to 399 park avenue , 6 th floor , new york , new york 10022 . 17 as a result of the transaction , a-iii is now the largest shareholder of our company , owning as of december 31 , 2015 approximately 42 % of our outstanding shares of common stock , or approximately 40 % on a diluted basis assuming conversion of the outstanding units of limited partnership interest in our operating partnership into our company 's common stock and assuming no exercise of the warrants granted to a-iii . effective as of the closing of the a-iii transaction , our company is now externally managed by a-iii manager llc ( our “ manager ” ) , which is a wholly-owned subsidiary of a-iii , pursuant to a management agreement between our company and the manager that was executed at the closing on january 30 , 2015. immediately after the closing , the manager designated , and the board appointed , the following persons as the new executive officers of our company : edward gellert is chief executive officer and president ; robert gellert is executive vice president , chief operating officer and treasurer ; gregory simon is executive vice president , general counsel and secretary ; and mark e. chertok is chief financial officer . charles s. roberts , who previously served as our company 's chairman , president and chief executive officer , was appointed as an executive vice president . mr. roberts is responsible for overseeing the sale of the legacy properties owned at january 30 , 2015. we currently own one remaining legacy property , a tract of land totaling 38 acres which is held for sale at december 31 , 2015. our current focus is on selling the remaining legacy property . we do not intend to focus on development projects as we have in the past . going forward , we expect to pursue a flexible real estate investment strategy . we may invest in multifamily , office , mixed-use office , retail , industrial , healthcare or lodging properties , as well as preferred equity or debt instruments secured by mortgages on these types of properties , mezzanine loans secured by pledges of equity interests in entities that own these types of properties or other forms of subordinate debt in connection with these types of properties . the operating partnership we conduct our business through acre realty lp which owns the remaining legacy property that is held for sale and will own , either directly or indirectly through subsidiaries or joint ventures , any future properties we acquire . we refer to acre realty lp as our operating partnership . the agreement of limited partnership of our operating partnership provides that it is not required to be dissolved until 2093. our company is the sole general partner of our operating partnership and , as of december 31 , 2015 , owned a 95.66 % interest in our operating partnership . story_separator_special_tag on october 9 , 2015 , we amended the previously announced sale contract with maple to extend the time for site plan approval . on november 19 , 2015 , we amended the previously amended sale contract with maple to extend the closing date to december 17 , 2015 , which extension was conditioned upon satisfaction of the contingency specified in the amendment to the sale contract , including the deposit in escrow of an additional $ 150,000 of earnest money . the sale of the north springs land closed on december 17 , 2015 and we recognized a gain of $ 967,450. critical accounting policies and estimates we prepare our financial statements in accordance with u.s. generally accepted accounting principles ( gaap ) . see recent accounting pronouncements below for information on recent accounting pronouncements and the expected impact on our financial statements . a critical accounting policy is one that requires significant judgment or difficult estimates , and is important to the presentation of our financial condition or results of operations . because we are in the business of owning , operating , and developing real estate , our critical accounting policies relate to cost capitalization and asset impairment evaluation . the following is a summary of our overall accounting policy in these areas . asset impairment evaluation we periodically evaluate our real estate assets , on a property-by-property basis , for impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable in accordance with fasb asc topic 360-10 , property , plant , and equipment – overall . fasb asc topic 360-10 requires impairment losses to be recorded on long-lived assets used in operations and land parcels held for use when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets ' carrying amounts . the expected future cash flows depend on estimates made by management , including ( 1 ) changes in the national , regional , and or local economic climates , ( 2 ) rental rates , ( 3 ) competition , ( 4 ) operating costs , ( 5 ) occupancy , ( 6 ) holding period , and ( 7 ) an estimated construction budget . a change in the assumptions used to determine future economic events could result in an adverse change in the value of a property and cause an impairment to be recorded in the future . due to uncertainties in the estimation process , actual results could differ from those estimates . our determination of fair value is based on a discounted future cash flow analysis , which incorporates available market information as well as other assumptions made by our management , evaluation of appraisals , and other applicable valuation techniques . because the factors we use in generating these cash flows are difficult to predict and are subject to future events that may alter our assumptions , we may not achieve the discounted or undiscounted future operating and residual cash flows we estimate in our impairment analyses or those established by appraisals , and we may be required to recognize future impairment losses on properties held for sale . income taxes in preparing our consolidated financial statements , management 's judgment is required to estimate our income taxes . our estimates are based on our interpretation of federal and state tax laws . we estimate our current tax due and assess temporary differences resulting from differing treatment of asset and liability amounts for tax and accounting purposes . the temporary differences result in deferred tax assets and liabilities , which are included in our consolidated balance sheets . we recorded a full valuation allowance against our net deferred tax assets based upon our analysis of the timing and reversal of future taxable amounts and our history and future expectations of taxable income . adjustments may be required by a change in assessment of our deferred tax assets and liabilities , changes due to audit adjustments by federal and state tax authorities , and changes in tax laws . to the extent adjustments are required in any given period , we will include the adjustments in the deferred tax assets and liabilities in our consolidated financial statements . 20 in general , a valuation allowance is recorded if based on the weight of available evidence it is more likely than not that some portion or all of the deferred tax asset will not be realized . realization of our deferred tax assets depends upon our generating sufficient taxable income in future years in the appropriate tax jurisdiction . in addition , our ability to use the net operating loss carry forwards would be severely limited upon the completion of a transaction that results in an ownership change under section 382 of the internal revenue code . the a-iii transaction caused us to experience an ownership change under section 382 of the internal revenue code . as a result , our ability to use our net operating loss carry forwards to offset future taxable income may be severely limited . recent accounting pronouncements please refer to note 3 – summary of significant accounting policies – recent accounting pronouncements , to the notes to the audited consolidated financial statements included in this annual report for a discussion of recent accounting standards and pronouncements and the expected impact on our financial statements . story_separator_special_tag serif ; margin : 0 ; text-align : justify ; text-indent : 0.5in '' > we believe our existing sources of funds will be adequate for purposes of meeting our short-term liquidity needs . our ability to meet our long-term liquidity and capital resource requirements is subject to obtaining additional debt and equity financing .
| results of operations comparison of the year ended december 31 , 2015 to 2014 the following table highlights our operating results and should be read in conjunction with the consolidated financial statements and the accompanying notes included in this form 10-k. replace_table_token_2_th our net loss decreased by $ 1,282,341 for the year ended december 31 , 2015 when compared to the year ended december 31 , 2014. the decrease was the result of an increase of $ 228,928 in expenses , a decrease of $ 359,322 in total revenues , and an increase in our gains from the sale of real estate of $ 2,370,629 , offset by the impairment on real estate of $ 500,038. we explain the major variances between the year ended december 2015 and 2014 below . 21 property , insurance and other expenses consisting of utilities , repairs and maintenance , marketing , property insurance , and other expenses increased by $ 3,469 , primarily resulting from increased insurance costs in 2015. the increase was partially offset by a decrease in operating costs related to the sales of the north springs land , which closed on december 17 , 2015 , the bradley park land , which closed on december 4 , 2015 and the northridge land , which closed on june 30 , 2015. real estate taxes decreased by $ 24,869 , primarily as a result of the sales of the north springs land , which closed on december 17 , 2015 , the bradley park land , which closed on december 4 , 2015 , the northridge land , which closed on june 30 , 2015 and the john creek commercial site , which closed on july 17 , 2014. management fees , affiliate , increased $ 389,111 , primarily resulting from the new management agreement we entered into with our manager concurrent with the closing of our transaction with a-iii on january 30 , 2015 , when we became an externally-managed company .
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forward-looking statements in this annual report on form 10-k include , without limitation : ( 1 ) projections of revenue , earnings , capital structure and other financial items , ( 2 ) statements of our plans and objectives , ( 3 ) statements regarding the capabilities and capacities of our business operations , ( 4 ) statements of expected future economic performance and ( 5 ) assumptions underlying statements regarding us or our business . 24 it is important to note that our actual results could differ materially from those included in such forward-looking statements due to a variety of factors including : ( 1 ) substantial deterioration in economic conditions , especially in the united states and europe ; ( 2 ) our customers ' diminished liquidity and credit availability ; ( 3 ) difficulties in implementing new systems , integrating acquired businesses , managing anticipated growth , and responding to technological change ; ( 4 ) our ability to negotiate extensions of our credit agreements and to obtain additional debt or equity financing when needed ; ( 5 ) the cyclical nature of the markets we operate in ; ( 6 ) increases in interest rates ; ( 7 ) government spending ; ( 8 ) fluctuations in the construction industry , and capital expenditures in the oil and gas industry ; ( 9 ) the performance of our competitors ; ( 10 ) shortages in supplies and raw materials or the increase in costs of materials ; ( 11 ) our level of indebtedness and our ability to meet financial covenants required by our debt agreements ; ( 12 ) product liability claims , intellectual property claims , and other liabilities ; ( 13 ) the volatility of our stock price ; ( 14 ) future sales of our common stock ; ( 15 ) the willingness of our stockholders and directors to approve mergers , acquisitions , and other business transactions ; ( 16 ) currency transaction ( foreign exchange ) risks and the risk related to forward currency contracts ; ( 17 ) certain provisions of the michigan business corporation act and the company 's articles of incorporation , as amended , amended and restated bylaws , and the company 's preferred stock purchase rights may discourage or prevent a change in control of the company ; and ( 18 ) a substantial portion of our revenues are attributed to a limited number of customers which may decrease or cease purchasing any time ; and ( 19 ) other risks described in the section entitled risk factors and elsewhere in our annual report on form 10-k. the risks , described in our annual report on form 10-k , are not the only risks facing our company . additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business , financial condition or operating results . we do not undertake , and expressly disclaim , any obligation to update this forward-looking information , except as required under applicable law . overview the company is a leading provider of engineered lifting solutions . the company operates in two business segments : the lifting equipment segment and the equipment distribution segment . lifting equipment segment the company is a leading provider of engineered lifting solutions . the company designs , manufactures and distributes a diverse group of products that serve different functions and are used in a variety of industries . through its manitex , inc. subsidiary it markets a comprehensive line of boom trucks , truck cranes and sign cranes . manitex 's boom trucks and crane products are primarily used for industrial projects , energy exploration and infrastructure development , including , roads , bridges and commercial construction . its badger equipment company ( badger ) subsidiary is a manufacturer of specialized rough terrain cranes and material handling products . badger primarily serves the needs of the construction , municipality , and railroad industries . manitex liftking ulc ( manitex liftking or liftking ) sells a complete line of rough terrain forklifts , a line of stand-up electric forklifts , cushioned tired forklifts with lifting capacities from 18 thousand to 40 thousand pounds , and special mission oriented vehicles , as well as other specialized carriers , heavy material handling transporters and steel mill equipment . manitex liftking 's rough terrain forklifts are used in both commercial and military applications . specialty mission oriented vehicles and specialized carriers are designed and built to meet the company 's unique customer needs and requirements . the company 's specialized lifting equipment has met the particular needs of customers in various industries that include utility , ship building and steel mill industries . manitex load king , inc. ( load king ) manufactures specialized custom trailers and hauling systems typically used for transporting heavy equipment . load king trailers serve niche markets in the commercial construction , railroad , military , and equipment rental industries through a dealer network . cvs ferrari , srl ( cvs ) located near milan , italy designs and manufactures a range of reach stackers and associated lifting equipment for the global container handling market , which are sold through a broad dealer 25 network . on november 30 , 2013 , cvs purchased the assets of valla spa . valla manufactures and markets a line of precision pick and carry cranes from 2 to 90 tons , using electric , diesel and hybrid power . its crane offer wheeled or tracked , fixed or swing boom configurations , with dozens of special applications designed specifically to meet the needs of its customers . on august 19 , 2013 , manitex sabre , inc. ( sabre ) acquired the assets of sabre manufacturing , llc , which is located in knox , indiana . sabre manufactures a comprehensive line of specialized mobile tanks for liquid and solid storage and containment solutions with capacities from 8,000 to 21,000 gallons . story_separator_special_tag on july 1 , 2011 , the company purchased the assets previously being rented and the rental agreement was terminated . beginning on july 1 , 2011 , cvs results includes amortization and depreciation related to intangible assets and manufacturing equipment that was purchased on that date . net income for the year ended december 31 , 2012 , net income was $ 8.1 million , which consists of revenue of $ 205.2 million , cost of sales of $ 164.8 million , research and development costs of $ 2.5 million , sg & a costs of $ 23.5 million , interest expense of $ 2.5 million , foreign currency transaction loss of $ 0.1 million and income tax expense of $ 3.8 million . 29 for the year ended december 31 , 2011 , net income was $ 2.8 million , which consists of revenue of $ 142.3 million , cost of sales of $ 113.0 million , research and development costs of $ 1.6 million , sg & a costs of $ 19.9 million , legal settlement of $ 1.2 million , interest expense of $ 2.5 million , other income of $ 0.1 million and income tax expense of $ 1.4 million . net revenue and gross profit for the year ended december 31 , 2012 net revenue and gross profit were $ 205.2 million and $ 40.5 million , respectively . gross profit as a percent of sales was 19.7 % for the year ended december 31 , 2012. for the year ended december 31 , 2011 , net revenue and gross profit were $ 142.3 million and $ 29.2 million , respectively . gross profit as a percent of sales was 20.6 % for the year ended december 31 , 2011. approximately seventy percent of the increase in revenues is attributed to an increase in the sale of boom trucks . the other product lines , which are not as large as our boom truck product line , account for the remaining thirty percent increase in revenues and they all contributed to the increase in revenue . their contributions varied from product line to product line ranging from two to twelve percent of the total increase in year over year revenues . the company is continuing to see a modest but sustained improvement in the overall market for construction equipment , which contributed to the year over year growth in revenues . the much more significant factor , however , is the strong demand from niche markets , particularly those related to oil and gas extraction and power line distribution . the increase in revenues reflect the company 's strategic initiatives which have emphasized the development of boom trucks with higher lifting capacities and specialized trailers that target the oil and gas and power line distribution market segments . gross profit as a percent of net revenues decreased 0.9 % to 19.7 % for the year ended december 31 , 2012 from 20.6 % for the comparable 2011 period . the decrease in gross profit of 0.9 % between years is attributed to a number of different factors , the most significant of which is a change in product mix . although part sales grew , the growth rate for part sales is not near the rate of growth for unit sales . as a result part sales as a percent of total sales decreased to 16 % from 19 % . as the gross profit percent on part sales is significantly higher than unit sales , it had the effect of reducing overall gross profit percent by approximately 1 % . the gross profit percent ( excluding the effect of part sales ) for boom trucks product line , which has the highest gross profit percent of any our product lines , showed a slight improvement between years . as the sale of boom trucks increased as a percent of total revenues , it had the effect of increasing the company 's overall gross profit percent . this favorable effect was , however , offset by an erosion of gross profit percent for the other product lines and a change in product mix . a number of different factors and circumstances had an effect on the gross profit percent for the other product lines . for example , the gross margin percent for distributed products ( equipment distribution segment ) decreased as several terex cranes purchased in 2009 which were still in our inventory were sold during 2012 at a slight loss . in 2012 , the sale of tractors , a product with a lower gross profit percent , increased and resulted in an decrease in the gross profit percent for the port handling equipment product line . research and development research and development for the year ended december 31 , 2012 was $ 2.5 million compared to $ 1.6 million for the comparable period in 2011. the increase in research and development expense reflects our continued commitment to develop and introduce new products that gives the company a competitive advantage . selling , general and administrative expense selling , general and administrative expense for the year ended december 31 , 2012 was $ 23.5 million compared to $ 19.9 million for the comparable period in 2011. selling , general and administrative expense for the year ended december 31 , 2011 includes approximately $ 0.5 million to attend the 2011 con expo trade show , which is held every three years . selling , general and administrative expenses for the year ended december 31 , 2012 was 11.5 % of revenues a decrease from the comparable period in 2011. selling general and administrative expense as a percent of revenue for year ended december 31 , 2011 was 14.0 % or 13.6 % if adjusted to eliminate the cost associated with attending con expo . the increase in selling , general and administrative expense after adjusting for the non-recurring con expo expenses is approximately $ 4.2 million .
| results of consolidated operations manitex international , inc. ( thousands of dollars , except share data ) replace_table_token_7_th year ended december 31 , 2013 compared to year ended december 31 , 2012 the above results include the results for sabre and valla from their respective dates of acquisition which are august 19 , 2013 and november 30 , 2013 , respectively . net income for the year ended december 31 , 2013 , net income was $ 10.2 million , which consists of revenue of $ 245.1 million , cost of sales of $ 198.6 million , research and development costs of $ 2.9 million , sg & a costs of $ 26.0 million , interest expense of $ 2.9 million , foreign currency transaction loss of $ 0.1 million , other expense of $ 0.1 million and income tax expense of $ 4.3 million . 27 for the year ended december 31 , 2012 , net income was $ 8.1 million , which consists of revenue of $ 205.2 million , cost of sales of $ 164.8 million , research and development costs of $ 2.5 million , sg & a costs of $ 23.5 million , interest expense of $ 2.5 million , foreign currency transaction loss of $ 0.1 million and income tax expense of $ 3.8 million . net revenue and gross profit for the year ended december 31 , 2013 , net revenue and gross profit were $ 245.1 million and $ 46.5 million , respectively . gross profit as a percent of sales was 19.0 % for the year ended december 31 , 2013. for the year ended december 31 , 2012 net revenue and gross profit were $ 205.2 million and $ 40.5 million , respectively .
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see discussion under the caption “ cautionary note regarding forward-looking statements. ” except where the context otherwise requires , all references to “ we , ” “ us , ” and “ our ” ( and similar terms ) herein mean cpg international inc. overview we are a leading supplier of premium , low maintenance building products designed to replace wood , metal and other materials in the residential , commercial and industrial markets . with a focus on manufacturing excellence , proprietary technologies and quality , we have introduced our products through distribution networks to sizable markets increasingly converting to low maintenance materials . we have developed and acquired a number of branded products including azek® trim , azek moulding , azek deck , azek porch , azek rail , comtec and hiny hiders bathroom partition systems , and tufftec locker systems . beginning in the third quarter of 2009 , we realigned our industrial business , previously included in azek building products and scranton products , into a third segment referred to as vycom to reinforce it as a single , standalone entity , providing non-fabricated branded sheet to national distributors . segment results for the years ended december 31 , 2008 and 2007 , and asset information as of december 31 , 2008 , have been updated to conform to this organizational change . we operate the following three business units : azek building products , or azek , manufactures exterior residential building products such as azek trim , azek moulding , azek deck , azek porch and azek rail for the residential and commercial building market . scranton products , or scranton , produces fabricated bathroom partition and locker systems under the comtec , santana , hiny hiders , and tufftec labels for the commercial market . vycom manufactures a comprehensive offering of pvc and olefin sheet products including celtec , seaboard® , playboard® , sanatec® , corrtec and flametec® for special applications in industrial markets . on january 31 , 2007 , we completed the acquisition of pro-cell , llc , which owned and operated procell decking systems ( “ procell ” ) for a purchase price of $ 77.3 million ( “ procell acquisition ” ) . procell is included in the azek building products operating segment . for further discussion , see “ —acquisitions ” below . on february 29 , 2008 , we completed the acquisition of compos-a-tron manufacturing inc. ( “ composatron ” ) for $ 32.4 million ( “ composatron acquisition ” ) . composatron is included in the azek building products operating segment . for further discussion , see “ —acquisitions ” below . our business with a focus on manufacturing excellence and quality over the past 26 years , we have been the first to market with a number of premium , low maintenance products that offer superior value propositions . with the first mover advantage , we have established leading brands and large distribution networks targeted towards large markets increasingly converting to low maintenance products replacing traditional materials such as wood and metal . through product development initiatives and acquisitions , we have increased our product offerings and leveraged our distribution channels to further our penetration of the residential , commercial and industrial markets that we serve . we have successfully introduced branded building products such as azek trim , deck , porch , rail and mouldings , 25 comtec bathroom partitions , and tufftec lockers . we believe many of our products are still in the early stages of their product life cycles as the material conversion opportunity expands . we have generally increased our margins through volume growth that has allowed us to self-fund investment in new technology and equipment which has enabled us to lower our manufacturing conversion costs . since the introduction of the azek brand over ten years ago , azek has gained significant market acceptance and brand loyalty as a leader within the non-wood home exterior market . azek products have accounted for a majority of our net sales in 2009 , 2008 and 2007. through our two-step , dual distribution system , we have established an extensive network of distributors and dealers throughout the united states and canada . as of december 31 , 2009 , our distributors were selling our products to approximately 1,900 local stocking dealers who frequently request our products by brand name . leveraging our extensive distribution network and brand name , we have expanded azek through the internal development of additional product offerings as well as through the procell acquisition in 2007 and the composatron acquisition in 2008. with the introduction of azek moulding and azek deck in 2007 and azek porch and azek rail in 2008 , we continued to establish ourselves as a premier provider of branded building products . our goal is to continue to expand through further geographic penetration , product extensions of our trim , moulding , railing and decking products , and the introduction of additional product lines . focused on capitalizing on the functional advantages of our synthetic products relative to competing wood , fiber and metal products , we have developed the leading brands in the plastic bathroom partition and locker markets . the scranton product offerings include comtec , capitol , hiny hiders and tufftec brands , and are used in schools , stadiums , prisons , retail locations and other high-traffic environments that value the functional advantage of plastic . through scranton 's widely established distribution network , we are able to service customers in all 50 states . we continue to focus on product enhancements and new product offerings such as our new locker products introduced in 2009. our goals for expansion include continued penetration of existing markets , product enhancements and new product offerings through our existing distribution network . a majority of our raw material costs and cost of sales are represented by dry petrochemical resins , primarily pvc , hdpe and pp . throughout the company 's history , resin prices have been subject to cyclical price fluctuations . story_separator_special_tag we base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions . revenue recognition we recognize revenue at the time product is shipped to the customer and title transfers if all of the four following conditions are satisfied : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred ; ( 3 ) the fee is fixed or determinable ; and ( 4 ) collectability is reasonably assured . we accrue for sales returns , discounts and allowance for doubtful accounts based on a current evaluation of experience based on the stated collection terms . should actual experience differ from estimates , revisions to the reserves or allowances recorded would be required . 27 allowance for doubtful accounts our allowance for doubtful accounts is based on management 's assessment of the business environment , customers ' financial condition , historical collection experience , accounts receivable aging and customer disputes . when circumstances arise or a significant event occurs that comes to the attention of management , the allowance is reviewed for adequacy and adjusted to reflect the change in the estimated amount to be received from the customer . changes in the allowance for doubtful accounts between december 31 , 2009 and december 31 , 2008 reflect management 's assessment of the factors noted above , including past due accounts , disputed balances with customers , and the financial condition of customers . the allowance for doubtful accounts is decreased when uncollectible accounts receivable balances are actually written off . inventories inventories ( mainly , petrochemical resin ) , are valued at the lower of cost or market , determined on a first-in , first-out basis ( “ fifo ” ) and reduced for slow-moving and obsolete inventory . inventory obsolescence write-downs are recorded for damaged , obsolete , excess and slow-moving inventory . at the end of each quarter , management within each business segment performs a detailed review of its inventory on an item by item basis and identifies which products are believed to be obsolete or slow-moving . management assesses the need for , and the amount of , obsolescence write-down based on customer demand of the item , the quantity of the item on hand and the length of time the item has been in inventory . vendor rebates certain vendor rebates and incentives are earned by us only when a specified level of annual purchases is achieved . these vendor rebates are recognized on a systematic and rational allocation of the cash consideration offered to each of the underlying transactions provided the amounts are probable and reasonably estimable . we record the incentives as a reduction to the cost of inventory . upon sale of inventory , the incentive is recognized as a reduction to cost of sales . we record such incentives during interim periods based on actual results achieved on a year-to-date basis and our expectation that purchase levels will be obtained to earn the rebate . product warranties we provide warranty guarantees against breakage , corrosion and delamination . prior to june 1 , 2009 , we provided a 15-year limited warranty on our scranton products commercial building products . beginning june 1 , 2009 , the warranty on scranton products commercial building products was extended to 25 years for purchases after that date . we also provide a 25-year limited warranty on azek trim and moulding products , and a lifetime limited warranty on azek deck and azek porch products sold for residential use . the warranty period for all other uses of azek deck and azek porch , including commercial use , is 25 years . azek rail products have a 20-year limited warranty for white railing and a 10-year limited warranty for colored railing . azek products are guaranteed against manufacturing defects that cause the products to rot , corrode , delaminate , or excessively swell from moisture . the azek rail warranty also guarantees against rotting , cracking , peeling , blistering or structural defects from fungal decay . estimating the required warranty reserves requires a high level of judgment as azek trim products have only been on the market for nine years and azek deck has only been on the market for four years , both of which are early in their product life cycles . management estimates warranty reserves , based in part upon historical warranty costs , as a proportion of sales by product line . management also considers various relevant factors , including its stated warranty policies and procedures as part of its evaluation of its liability . because warranty issues may surface later in the product life cycle , management continues to review these estimates on a regular basis and considers adjustment to these estimates based on actual experience compared to historical estimates . although management believes that the warranty reserves at december 31 , 2009 are adequate , actual results may vary from these estimates . goodwill and intangible assets we account for costs of acquired assets in excess of fair value ( “ goodwill ” ) in accordance with fasb asc 350. in accordance with the guidance , management reviews goodwill and other intangibles not subject to 28 amortization for impairment annually , or when events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is lower than its carrying value . testing of goodwill to identify potential impairment and calculate the amount of impairment , if any , is performed using a two step process . the first step , which involves estimating the fair value of each reporting unit , is performed by comparing the fair value of the reporting unit to the unit 's carrying values , including the goodwill allocated to that reporting unit .
| results of operations year ended december 31 , 2009 compared with year ended december 31 , 2008 the following table summarizes certain financial information relating to the company 's operating results that have been derived from their consolidated financial statements : replace_table_token_2_th the following table summarizes certain information relating to the operating results as a percentage of net sales and has been derived from the financial information presented above . we believe this presentation is useful to investors in comparing historical results . certain amounts in the table may not sum due to the rounding of individual components . 30 replace_table_token_3_th net sales . net sales were $ 266.9 million for the year ended december 31 , 2009 , a decrease of $ 38.3 million , or 12.6 % , from $ 305.2 million for the year ended december 31 , 2008. for the year ended december 31 , 2009 , azek building products net sales decreased 9.3 % , scranton products net sales decreased 11.6 % and vycom net sales decreased 25.9 % compared to the year ended december 31 , 2008. average selling price per pound across the company for the year ended december 31 , 2009 increased to $ 1.50 from $ 1.46 for the same period of 2008 , primarily due to changes in product mix . overall , we sold 178.5 million pounds of product during the year ended december 31 , 2009 , which was a 14.6 % decrease from the 209.1 million pounds sold during the year ended december 31 , 2008. volume growth in azek deck was more than offset by volume declines in our other residential businesses , as well as in our commercial and industrial businesses due to the severe slowdown in our end markets which continued throughout 2009. cost of sales .
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accordingly , the effects of the tcja were recognized in the financial statements for the year ended december 31 , 2017. as a result of the change in law , the company recorded a reduction to its deferred tax assets of $ 8.6 million and a corresponding reduction to its valuation allowance due to the reduction in the u.s. federal statutory rate from 35 % to 21 % . in addition , the story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes appearing elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this report , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . you should read the “ risk factors ” section in part 1—item 1a . of this report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a clinical stage biopharmaceutical company applying our extensive knowledge of deuterium chemistry to discover and develop novel small molecule drugs . selective incorporation of deuterium into known molecules has the potential , on a case-by-case basis , to provide better pharmacokinetic or metabolic properties , thereby enhancing their clinical safety , tolerability or efficacy . our approach typically starts with previously studied compounds , including approved drugs , which we believe may be improved with deuterium substitution . our technology provides the opportunity to develop products that may compete with the non-deuterated drug in existing markets or to leverage its known activity to expand into new indications . our deuterated chemical entity platform , or dce platform® , has broad potential across numerous therapeutic areas . as discussed in detail in item 1 above , we have a robust pipeline of wholly owned and collaboration programs . since our inception in 2006 , we have devoted substantially all of our resources to our research and development efforts , including activities to develop our deuterated chemical entity platform , or dce platform , and our core capabilities in deuterium chemistry , identify potential product candidates , undertake nonclinical studies and clinical trials , manufacture clinical trial material in compliance with current good manufacturing practices , provide general and administrative support for these operations and establish our intellectual property . we have generated an accumulated deficit of $ 116.5 million since inception through december 31 , 2018 and will require substantial additional capital to fund our research and development . we do not have any products approved for sale and have not generated any revenue from product sales . we have funded our operations primarily through the public offering and private placement of our equity , debt financing and funding from collaborations , patent assignments , and other arrangements . in march 2015 , we sold 3,300,000 shares of common stock at a price to the public of $ 15.15 per share , resulting in net proceeds to us of $ 46.7 million , after deducting the underwriting discounts , commissions and offering-related transaction costs . on march 3 , 2017 , we entered into an asset purchase agreement ( the `` asset purchase agreement '' ) with vertex pharmaceuticals , inc. , through vertex pharmaceuticals ( europe ) limited ( `` vertex '' ) , pursuant to which we agreed to sell and assign ctp-656 , now known as vx-561 , and other cystic fibrosis assets of the company , for up to $ 250 million subject to the satisfaction of certain closing conditions . on july 25 , 2017 , the asset purchase agreement closed and vertex paid us $ 160 million in cash consideration , with $ 16 million initially held in escrow , which was released to us in february 2019. additional information concerning the sale of ctp-656 is discussed further in note 12 to the consolidated financial statements and item 1 , each appearing elsewhere in this annual report on form 10-k. the company 's operating results may fluctuate significantly from year to year , depending on the timing and magnitude of cash payments received pursuant to collaboration and licensing arrangements and other agreements and the timing and magnitude of clinical trial and other development activities under our current development programs . we generated a net loss of $ 56.0 million for the year ended december 31 , 2018 , net income of $ 95.6 million for the year ended december 31 , 2017 , and a net loss of $ 50.7 million for the year ended december 31 , 2016. the net income generated during the year ended december 31 , 2017 was primarily the result of the asset purchase agreement with vertex , discussed above and in further detail in note 12 to the consolidated financial statements appearing elsewhere in this annual report on form 10-k. we expect to continue to incur significant expenses and operating losses for at least the next several years . we expect our expenses will increase substantially in connection with our ongoing activities as we continue research and development efforts and develop and conduct additional nonclinical studies and clinical trials with respect to our product candidates . we do not expect to generate revenue from product sales unless and until we , or our collaborators , obtain marketing approval for one or more of our product candidates , which we expect will take a number of years and is subject to significant uncertainty . if we obtain , or believe that we are likely to obtain , marketing approval for any product candidates for which we retain commercialization rights , and intend to commercialize a product , we expect to incur significant commercialization expenses related to product sales , marketing , manufacturing and distribution . story_separator_special_tag for detailed information regarding the adoption of asc 606 and the impact on our consolidated financial statements , see note 2 to the accompanying consolidated financial statements appearing elsewhere in this annual report on form 10-k. the terms of these agreements may include one or more of the following types of payments : non-refundable license fees , payments for research and development activities , payments based upon the achievement of specified milestones , payment of license exercise or option fees relating to product candidates and royalties on any net product sales . to date , we have received non-refundable upfront payments , several milestone payments , payments for research and development services provided to our collaborators , a change in control payment pursuant to a patent assignment agreement , and a payment for the sale of an asset . however , we have not yet earned any license exercise or option fees , sales-based milestone payments or royalty revenue as a result of product sales . in the future , we will seek to generate revenue from a combination of product sales and milestone payments and royalties on product sales in connection with our current collaborations , our asset sale with vertex , or other collaborations we may enter into . research and development expenses research and development expenses consist primarily of costs incurred for the development of our product candidates , which include : employee-related expenses , including salary , benefits , travel and stock-based compensation expense ; expenses incurred under agreements with contract research organizations and investigative sites that conduct our clinical trials ; the cost of acquiring , developing and manufacturing clinical trial materials ; facilities , depreciation and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance and other supplies ; platform-related lab expenses , which includes costs related to synthesis , analysis and in vitro and in vivo characterization of deuterated compounds to support the selection and progression of potential product candidates ; expenses related to consultants and advisors ; and costs associated with nonclinical activities and regulatory operations . research and development costs are expensed as incurred . costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites . a significant portion of our research and development costs have been external costs , which we track on a program-by-program basis . these external costs include fees paid to investigators , consultants , central laboratories and contract research organizations in connection with our clinical trials , and costs related to acquiring and manufacturing clinical trial materials . our internal research and development costs are primarily personnel-related costs , depreciation and other indirect costs . we do not track our internal research and development expenses on a program-by-program basis as they are deployed across multiple projects under development . the successful development of any of our product candidates is highly uncertain . as such , at this time , we can not reasonably predict with certainty the duration and completion costs of the current or future clinical trials of any of our product candidates or if , when , or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain marketing approval . we may never succeed in achieving regulatory approval for any of our product candidates . the duration , costs , and timing of clinical trials and development of our product candidates will depend on a variety of factors , including : the scope and rate of progress of our ongoing as well as any additional clinical trials and other research and development activities ; 59 conduct of and results from ongoing as well as any additional clinical trials and research and development activities ; significant and changing government regulation ; the terms and timing and receipt of any regulatory approvals ; the performance of our collaborators ; our ability to manufacture any of our product candidates that we are developing or may develop in the future ; and the expense and success of filing , prosecuting , defending and enforcing any patent claims and other intellectual property rights , including potential claims that we infringe other parties ' intellectual property . a change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate . for example , if the fda or another regulatory authority were to require us to conduct clinical trials or other research and development activities beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate , 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 on the completion of clinical development . 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 , due to the increased size and duration of later-stage clinical trials and the manufacturing that is typically required for those later-stage clinical trials . we expect research and development costs to increase significantly for the foreseeable future as our product candidate development programs progress but we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization . there are numerous factors associated with the successful commercialization of any of our product candidates , including future trial design and various regulatory requirements , many of which can not be determined with accuracy at this time based on our stage of development . additionally , future commercial and regulatory factors beyond our control will impact our clinical development programs and plans .
| results of operations 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 , together with the changes in those items in dollars . replace_table_token_3_th license and research and development revenue license and research and development revenue was $ 10.5 million for the year ended december 31 , 2018 as compared to $ 62 thousand for the prior year period , an increase of $ 10.4 million . in 2018 , we granted processa an exclusive , worldwide , royalty-bearing license to develop , manufacture and commercialize ctp-499 in exchange for upfront consideration of 2,090,301 shares of common stock of processa with a fair value of $ 10.5 million on the date of the transaction , which was recorded as license and research and development revenue during fiscal year 2018. for further details related to our transaction with processa , refer to note 12 to the consolidated financial statements appearing elsewhere in this annual report on form 10-k. license and research and development revenue in the 2017 period was for services performed under our celgene and jazz pharmaceuticals collaboration agreements . 64 other revenue other revenue recognized during the year ended december 31 , 2017 of $ 143.8 million was attributable to the closing of the transaction contemplated by the asset purchase agreement with vertex , discussed in detail in note 12 to the consolidated financial statements appearing elsewhere in this annual report on form 10-k. effective january 1 , 2018 , we adopted asc 606 using the modified retrospective approach . as a result of the adoption , the cumulative impact to retained earnings at january 1 , 2018 was $ 15.8 million .
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retail and wholesale distribution of pharmaceutical and other healthcare products in the prc 100 story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this report on form 10-k. the discussion in this section of this report on form 10-k contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those discussed herein . factors that could cause or contribute to such differences include , but are not limited to , those discussed in this section , those discussed in “ risk factors ” and those discussed elsewhere in this report on form 10-k. overview from 2007 until october 2019 , we , through the nf group , were engaged in the energy efficiency enhancement business , focusing on two fields : ( 1 ) manufacturing large diameter energy efficient intelligent flow control systems for thermal and nuclear power generation plants , major national and regional water supply projects and municipal water , gas and heat supply pipeline networks ; and ( 2 ) energy saving technology consulting , optimization design services , energy saving reconstruction of pipeline networks and contractual energy management services for china 's electric power , petrochemical , coal , metallurgy , construction , and municipal infrastructure industries . with the decline in the constructions of power generation plants and municipal water , gas , heat and energy pipelines in china due to a policy change by the prc government , the demand for our products and services declined markedly . our energy efficiency enhancement business , incurred operating losses in each of the last seven years , especially in 2018 , when the prc government adopted a series of policies to favor more environmentally friendly projects and products . our net loss from the operation of the energy efficiency enhancement business was $ 16.79 million in 2018 and $ 2.18 million in 2019. we explored many different alternatives in an effort to revive this business , including attempts to expand into the international markets , before we determined this business was not sustainable for us . in late 2019 , we committed to a plan to dispose of the nf group . on march 31 , 2020 , we entered into the nf spa with respect to the sale of the nf group . pursuant to the nf spa , the aggregate sale price for nf group is $ 10,000,000 in cash , determined based on the value of the total assets of nf group as shown on the company 's financial statements as of september 30 , 2019 , to be paid at the closing . the closing is subject to the satisfaction of certain conditions , including that the representations and warranties of the parties contained in the nf spa are true and correct in all material respects on the closing date and that applicable consents and approvals required to be obtained by the parties have been obtained and not withdrawn . the sale is expected to close in the second quarter of 2020. the plan to dispose of the nf group and the actions taken to fulfill the plan resulted in our classifying the business of nf group as a discontinued operation according to asc 205-20 presentation of financial statements – discontinued operation , . as a result , all of the assets and liabilities of nf group were reclassified as assets and liabilities of a discontinued operation in the statement of position as of december 31 , 2019 and 2018 , and the results of the operation are presented under the line item net loss from discontinued operation for the years ended december 31 , 2019 and 2018 . 24 we currently concentrate on our operations of our pharmacy group . on october 14 , 2019 , acquired boqi zhengji , which operates a pharmacy chain business in the prc , by purchasing 100 % of the equity interests of lasting , boqi zhengji 's parent company . this was the first step our shift of focus from the energy sector to the healthcare business . the company , through the pharmacy group , sells medicines and other health-related products . we currently have approximately sixteen directly-owned stores , operating under the brand name “ boqi pharmacy ” . all directly-owned stores are located in the city of dalian , in the liaoning province of the prc and range in size from 80 to 200 square meters . we favor retail locations in well-established residential communities with relatively concentrated consumer purchasing power or located in close proximity to local hospitals , and evaluate potential store sites to assess consumer traffic , visibility and convenience . depending on its size , each pharmacy store has between two ( 2 ) to three ( 3 ) licensed pharmacists on staff . we primarily offer third-party products at our pharmacies , including prescription drugs , otc drugs , nutritional supplements , sundry products and medical devices . following our plans to become a more cost-efficient and technology-focused company , we closed about 10 stores in 2019 to reduce the rent and overhead costs , which had been the major fixed cost items for the pharmacies , and kept about sixteen stores with the highest levels of consumer traffic visibility and convenience . meanwhile , we have developed an online platform and made it available to our club member customers . our club member customers may browse our products online , confirm availability of a specific product , make an online reservation and pick up the products at a conveniently located store . although we suffered some temporarily customer loss during the transition from reliance on physical stores to online stores , we were able to maintain the number of our club members at a stable level . story_separator_special_tag while the company believes in the viability of its strategy to increase sales volume and in its ability to raise additional funds , there can be no assurance to that effect , nor no assurance that the company will be successful in securing sufficient funds to sustain the operations . these conditions raise substantial doubt about the company 's ability to continue as a going concern . these financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of these uncertainties . management believes that the actions presently being taken to obtain additional funding and implement its strategic plan provides the opportunity for the company to continue as a going concern . 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. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods . on an on-going basis , we evaluate our estimates and judgments , including those related to revenue , receivable , inventory , and accrued expenses . we base our estimates on historical experience , known trends and events and various other factors 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 that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . changes in estimates are recorded in the period in which they become known . 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 the company adopted accounting standard codification ( “ asc ” ) topic 606 , revenues from contract with customers ( “ asc 606 ” ) for all periods presented . under asc 606 , revenue is recognized when control of the promised goods and services is transferred to the company 's customers , in an amount that reflects the consideration that the company expects to be entitled to in exchange for those goods and services , net of value-added tax . the company determines revenue recognition through the following steps : ● identify the contract with a customer ; ● identify the performance obligations in the contract ; ● determine the transaction price ; ● allocate the transaction price to the performance obligations in the contract ; and ● recognize revenue when ( or as ) the entity satisfies a performance obligation . 26 the transaction price is allocated to each performance obligation on a relative standalone selling price basis . the transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied by the control of the promised goods and services is transferred to the customers , which at a point in time or over time as appropriate . the company 's revenue is net of value added tax ( “ vat ” ) collected on behalf of prc tax authorities in respect to the sales of merchandise . vat collected from customers , net of vat paid for purchases , is recorded as a liability in the accompanying consolidated balance sheets until it is paid to the relevant prc tax authorities accounts receivable and allowance for doubtful accounts accounts receivable are recorded at the invoiced amount and do not bear interest , which are due within contractual payment terms , generally 30 to 90 days from delivery . credit is extended based on evaluation of a customer 's financial condition , the customer credit-worthiness and their payment history . accounts receivable outstanding longer than the contractual payment terms are considered past due . past due balances over 90 days and over a specified amount are reviewed individually for collectability . at the end of each period , the company specifically evaluates individual customer 's financial condition , credit history , and the current economic conditions to monitor the progress of the collection of accounts receivables . the company will consider the allowance for doubtful accounts for any estimated losses resulting from the inability of its customers to make required payments . for the receivables that are past due or not being paid according to payment terms , the appropriate actions are taken to exhaust all means of collection , including seeking legal resolution in a court of law . account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote . the company does not have any off-balance-sheet credit exposure related to its customers . inventories inventories are stated at the lower of cost or market value ( net realizable value ) , cost being determined on a weighted average method . costs include material , labor and manufacturing overhead costs . the company reviews historical sales activity quarterly to determine excess , slow moving items and potentially obsolete items and also evaluates the impact of any anticipated changes in future demand . the company provides inventory allowances based on excess and obsolete inventories determined principally by customer demand . equipment and vehicles equipment and vehicles are stated at cost less accumulated depreciation and impairment , if any . 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 : items expected useful lives residual value office equipment 3 years 5 % furniture 5 years 5 % vehicle 4 years 5 % expenditures for repairs and maintenance are expensed as incurred .
| results of operations comparison of the years ended december 31 , 2019 and 2018 replace_table_token_1_th revenues revenues for the year ended december31 , 2019 and 2018 were $ 157,978 and $ 0 , respectively . the revenues for the year ended december 31 , 2019 were all attributable to the revenues of the pharmacy group 's directly-owned pharmacy retail stores and sales to authorized retailer stores . there were no revenues from continuing operations for the year ended december 31 , 2018 , because the business operation of nf group was reclassified as a discontinued operation . cost of revenues cost of revenues consists of primarily of the cost of the pharmaceuticals , medical devices and other products sold to customers . cost of revenues for the year ended december 31 , 2019 was $ 304,120. during 2019 , the company recorded an impairment loss of $ 184,311 with respect to inventories , which was included in cost of revenues . because we closed a significant number of stores in 2019 , a large portion of our inventory was not sold and expired . operating expenses operating expenses consist mainly of auditing and legal service fees , other professional service fees and listing support fees , directors ' and officers ' compensation expenses , meeting and promotional expenses , depreciation and amortization of items not associated with production , office rental fee and utilities . operating expenses were $ 1,566,938 for the year ended december 31 , 2019 compared to $ 212,582 for the year ended december 31 , 2018 , an increase of $ 1,354,356 , or 637 % . except for the operating expenses attributable to the operation of the newly-acquired pharmacy group of appropriately $ 458,319 , the increase in operating expenses primarily resulted from the increase in auditing and legal expenses , officers ' salary and the amortization of the intangible assets recognized from the boqi acquisition .
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the standard requires entities perform the goodwill impairment test by c omparing the fair value of a reporting unit to its carrying amount and recognize the impairment charge for the amount by which the carrying amount exceeds the reporting unit 's fair value , not to exceed the total goodwill allocated to that reporting unit . t he new standard is effective for annual or interim goodwill impairment tests in fiscal years beginning after december 15 , 2019 , with early adoption permitted . we do not expect this standard to have any impact on our co nsolidated financial statements . in february 2016 , the fasb issued a comprehensive standard related to lease accounting to increase transparency and comparability among organizations in topic 842 ( “ asc 842 ” ) . the standard requires the recognition of right-of-use assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements . in july 2018 , the fasb issued an update that allows companies an optional transition method to recognize a cumulative effect adjustment to story_separator_special_tag financial condition and results of operations the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this document . this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those discussed in “ item 1a risk factors. ” see the cautionary note regarding forward-looking statements set forth at the beginning of part i of the annual report on form 10-k. fiscal 2019—a review of this past year in fiscal 2019 we drove continued strong sales results and have now recorded positive comparable sales gains for 14 consecutive quarters . fiscal 2019 sales were marked by a strong emerging skate hard goods trend , continued momentum in the footwear category and strength within our accessories category , all complimented by our unique brand experience . our focus as always remains centered on the customer ; including again launching over 100 new brands during fiscal 2019 and in each of the preceding 6 years to provide diversity to our customers . consistently providing our customers with new choices and uniqueness in our product offering is essential to our success and provides us with growth drivers for the future . the full year comparable sales for fiscal 2019 increased 4.9 % on top of comparable sales growth of 5.6 % in fiscal 2018 and 5.9 % in fiscal 2017. total net sales growth for the year was 5.7 % . operating margins increased 210 basis points from the prior year due primarily to leverage of our store operating expenses , store occupancy cost leverage , leverage of distribution and logistics costs , improvements in shrink and inventory management and modest product margin improvements . we added 6 new stores in north america in fiscal 2019 , up from 5 new stores added in fiscal 2018. during fiscal 2019 we also added 7 new blue tomato stores in europe and 3 new fast times store in australia and continue to have meaningful expansion opportunities in these areas . as a leading global lifestyle retailer , we continue to differentiate ourselves through our distinctive brand offering and diverse product selection , as well as the unique customer experience across all of our platforms . we have made investments over several years to integrate the digital and physical channels creating a seamless shopping experience for our customer , which we believe is critical for our long-term financial performance . we are continuing to deliver our online orders in north america from our stores , which has provided significant improvements in the speed of delivery to our customers and the overall experience . internationally we are driving localized fulfillment and are in various stages of roll-out in different countries . in-store fulfillment is a key part of strategy that we believe will drive long term market share by leveraging the strengths of our store sales team , providing better and faster service to customers , improving product margins , maximizing the productivity of inventory , providing additional selling opportunities , and utilizing one cost structure to serve the customer . the following table shows net sales , operating profit , operating margin and diluted earnings per share for fiscal 2019 compared to fiscal 2018. fiscal 2019 results include $ 2.0 million in net sales related to the recognition of deferred revenue due to changes in our stash loyalty program estimated redemption rate . replace_table_token_5_th ( 1 ) the increase in net sales was driven primarily by a 4.9 % comparable sales increase and the net addition of 11 stores ( 16 new stores offset by 5 store closures ) . the increase in comparable sales was driven by an increase in transactions and an increase in dollars per transaction . dollars per transaction increased due to an increase in units per transaction and average unit retail . 26 fiscal 2020 —a look at the upcoming year we are entering 2020 with strong momentum and 14 consecutive quarters of positive comparable sales growth behind us . while apparel trends slowed in 2019 , the void was replaced with a robust skate hard goods cycle , of which zumiez is well positioned to take full advantage moving forward . the trends of 2019 highlighted the inherent strength in diversity of our product offering to carry us through trend cycles as customer preferences change . in 2020 , our focus will be on continued execution of our core culture and brand strategies as well as strategic investments centered on long-term quality growth . these investments will be largely focused on enhancing the customer experience while increasing market share and creating operational efficiencies to drive operating margin expansion . as we are within our range for targeted store count in north america , we expect that store count will be roughly flat in the region . story_separator_special_tag any inability to obtain acceptable levels of initial markups or any significant increase in our use of markdowns could have an adverse effect on our gross profit and results of operations . operating profit . we view operating profit as a key indicator of our success . operating profit is the difference between gross profit and selling , general and administrative expenses . the key drivers of operating profit are net sales , gross profit , our ability to control selling , general and administrative expenses and our level of capital expenditures affecting depreciation expense . diluted earnings per share . diluted earnings per share is based on the weighted average number of common shares and common share equivalents outstanding during the period . we view diluted earnings per share as a key indicator of our success in increasing shareholder value . story_separator_special_tag fiscal 2018 compared to $ 309.9 million for fiscal 2017 , an increase of $ 26.1 million , or 8.4 % . as a percentage of net sales , gross profit increased 90 basis points in fiscal 2018 to 34.3 % . the increase was primarily driven by 50 basis points of leverage in our store occupancy costs , 40 basis points due to lower inventory shrinkage , and 20 basis points due to higher product margin , partially offset by 20 basis points in higher shipping costs . selling , general and administrative expenses selling , general and administrative ( “ sg & a ” ) expenses were $ 274.9 million for fiscal 2018 compared to $ 261.1 million for fiscal 2017 , an increase of $ 13.7 million , or 5.3 % . sg & a expenses as a percent of net sales decreased 10 basis points in fiscal 2018 to 28.1 % . the decrease was primarily driven by 40 basis points impact of leverage in our store costs partially offset by 20 basis points in corporate costs . net income net income for fiscal 2018 was $ 45.2 million , or $ 1.79 per diluted share , compared with net income of $ 26.8 million , or $ 1.08 per diluted share , for fiscal 2017. our effective income tax rate for fiscal 2018 was 27.5 % compared to 44.6 % for fiscal 2017. the decrease in the effective tax rate for fiscal 2018 compared to fiscal 2017 was primarily related to a decrease of $ 8.7 million related to the changes in u.s. federal tax legislation that decreased the u.s. federal statutory rate from 35.0 % to 21.0 % effective january 1 , 2018 , as well as fiscal 2017 included an additional $ 3.4 million or 7.0 % related to the valuation allowance against our deferred tax assets in austria . seasonality and quarterly results as is the case with many retailers of apparel and related merchandise , our business is subject to seasonal influences . as a result , we have historically experienced , and expect to continue to experience , seasonal and quarterly fluctuations in our net sales and operating results . our net sales and operating results are typically lower in the first and second quarters of our fiscal year , while the back-to-school and winter holiday periods in our third and fourth fiscal quarters historically have accounted for the largest percentage of our annual net sales . quarterly results of operations may also fluctuate significantly as a result of a variety of factors , including the timing of store openings and the relative proportion of our new stores to mature stores , fashion trends and changes in consumer preferences , calendar shifts of holiday or seasonal periods , changes in merchandise mix , timing of promotional events , general economic conditions , competition and weather conditions . 30 the following table sets forth selected unaudited quarterly consolidated statements of income data . the unaudited quarterly information has been prepared on a basis consistent with the audited consolidated financial s tatements included elsewhere herein and includes all adjustments that we consider necessary for a fair presentation of the information shown . this information should be read in conjunction with our audited consolidated financial statements and the notes t hereto . the operating results for any fiscal quarter are not indicative of the operating results for a full fiscal year or for any future period and there can be no assurance that any trend reflected in such results will continue in the future . replace_table_token_7_th replace_table_token_8_th liquidity and capital resources our primary uses of cash are for operational expenditures , inventory purchases and capital investments , including new stores , store remodels , store relocations , store fixtures and ongoing infrastructure improvements . additionally , we may use cash for the repurchase of our common stock . historically , our main source of liquidity has been cash flows from operations . the significant components of our working capital are inventories and liquid assets such as cash , cash equivalents , current marketable securities and receivables , reduced by accounts payable and accrued expenses . our working capital position benefits from the fact that we generally collect cash from sales to customers the same day or within several days of the related sale , while we typically have longer payment terms with our vendors . at february 1 , 2020 and february 2 , 2019 , cash , cash equivalents and current marketable securities were $ 251.2 million and $ 165.3 million . working capital , the excess of current assets over current liabilities , was $ 252.9 million at the end of fiscal 2019 , an increase of 8.0 % from $ 234.1 million at the end of fiscal 2018. the increase in cash , cash equivalents and current marketable securities in fiscal 2019 was due primarily to cash provided by operating activities of $ 105.6 million , partially offset by $ 18.8 million of capital expenditures primarily related to the opening of 16 new stores and 17 remodels and relocations .
| results of operations the following table presents selected items on the consolidated statements of income as a percent of net sales : replace_table_token_6_th 28 fiscal 2019 r esults compared with fiscal 2018 net sales net sales were $ 1,034.1 million for fiscal 2019 compared to $ 978.6 million for fiscal 2018 , an increase of $ 55.5 million or 5.7 % . the increase reflected a $ 47.2 million increase due to comparable sales and a $ 10.8 million increase due to the net addition of 11 stores ( made up of 6 new stores in north america , 7 new stores in europe , and 3 new stores in australia offset by 5 store closures ) . by region , north america sales increased $ 44.9 million or 5.2 % and other international sales increased $ 10.6 million or 9.7 % during fiscal 2019 compared to fiscal 2018. net sales for the year ended february 1 , 2020 included $ 6.4 million decrease due to the change in foreign exchange rates , which consisted of $ 0.7 million in canada , $ 5.1 million in europe and $ 0.6 million in australia the 4.9 % increase in comparable sales was primarily driven by an increase in comparable transactions and an increase in dollars per transaction . dollars per transaction increased due to an increase in average unit retail and units per transaction . comparable sales were primarily driven by an increase in hardgoods followed by footwear , and accessories partially offset by decreases in women 's and men 's clothing . for information as to how we define comparable sales , see “ general ” above . gross profit gross profit was $ 366.6 million for fiscal 2019 compared to $ 335.9 million for fiscal 2018 , an increase of $ 30.7 million , or 9.1 % . as a percentage of net sales , gross profit increased 110 basis points in fiscal 2019 to 35.4 % .
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we have granted equity awards primarily through our 2007 stock incentive plan , or the 2007 plan story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto and other financial information appearing elsewhere in this form 10-k. overview we are a clinical stage biopharmaceutical company focused on the development of novel immunotherapy biologic agents for the treatment of autoimmune diseases and cancer . our two principal pharmaceutical product candidates in clinical development are : tso , or cndo-201 , the microscopic eggs of the porcine whipworm , for the treatment of autoimmune diseases , such as crohn 's disease , ulcerative colitis , multiple sclerosis , autism , psoriasis , type 1 diabetes and rheumatoid arthritis ; and cndo-109 , a biologic that activates natural killer , or nk , cells of the immune system to seek and destroy cancer cells , for the treatment of acute myeloid leukemia . we acquired exclusive rights to tso in january 2011 from asphelia pharmaceuticals , inc. , or asphelia , for an aggregate purchase price of $ 20.7 million , consisting of 2,525,677 shares of our series b convertible preferred stock , or series b shares , valued at $ 6.38 per share , the assumption of a promissory note due to pcp in the aggregate principal amount of $ 750,000 , which was prepaid in september 2012 and the assumption of asphelia 's obligation to reimburse ovamed for certain development costs . of this purchase price , $ 3.8 million has been paid in cash , including $ 3.4 million to ovamed and $ 0.4 million for repayment of asphelia 's debt , including $ 61,000 to a related party . under the terms of a sublicense agreement with ovamed that we acquired from asphelia , we are required to make annual license payments to ovamed of $ 250,000 , reimburse patent expenses , make payments totaling up to $ 5.4 million , of which $ 3.0 million was paid , contingent upon the achievement of various milestones related to regulatory events for the first product to be approved for marketing , and make additional milestone payments , contingent upon the achievement of regulatory events related to subsequent indications for tso . in the event that tso is commercialized , we will be obligated to pay annual royalties based upon net sales of the product . if we sublicense tso , we must pay ovamed a portion of sublicense revenues we receive , if any . we have been required to purchase our clinical requirements of tso from ovamed at pre-determined prices . in december 2012 , we and ovamed entered into the second amendment amending certain provisions of our exclusive sublicense agreement and our manufacturing and supply agreement , between us and ovamed , and providing for certain additional agreements between the parties . pursuant to the second amendment , our exclusive license from ovamed in the north america , south america and japan known as the coronado territory was amended to include an exclusive license to make and have made product containing tso in the coronado territory and ovamed 's exclusive supply rights in the coronado territory will terminate once we establish an operational manufacturing facility in the united states . the ovamed license , as amended , terminates 15 years from the first commercial sale of tso in the united states , subject to earlier termination under certain circumstances . in exchange , we agreed to pay ovamed a total of $ 1,500,000 in three equal installments of $ 500,000 in each of december 2014 , 2015 , and 2016. additionally , in lieu of product supply payments that would have been payable to ovamed as the exclusive supplier , we will pay ovamed a manufacturing fee for product manufactured and sold by us . the manufacturing fee will be the greater of ( i ) a royalty on net sales of product we manufacture or ( ii ) a specified amount per unit , the transfer fee component . the manufacturing fee is subject to certain adjustments and credits and we have a right to reduce the transfer fee component by paying ovamed an agreed amount within 10 business days following fda approval of a biologics license application authorizing the manufacturing , marketing and commercial sale of product containing tso in the united states and an additional amount within ninety days after the end of the first calendar year in which net sales in the coronado territory exceed an agreed amount . 41 simultaneously with the execution of the second amendment , ovamed assigned to us a five-year property lease for space in woburn , massachusetts , where we intend to establish a tso manufacturing facility . build out of the manufacturing facility are planned to commence in 2013 and continue throughout the year to enable production of supplies of tso , for use in phase 3 clinical trials . ovamed agreed to assist us in establishing this facility and the second amendment contemplates that we and ovamed may act as second source suppliers to each other at agreed transfer prices pursuant to a second source agreement to be negotiated between the parties . in march 2012 , we signed a collaboration agreement with falk and ovamed for the development of tso for treatment of crohn 's disease . under the collaboration agreement , falk granted us exclusive rights and licenses under certain falk patent rights , pre-clinical data and clinical data from falk 's clinical trials of tso as a treatment for crohn 's disease , including falk 's ongoing phase 2 clinical trial , for use in the coronado territory . we granted falk exclusive rights and licenses to data from our clinical trials of tso in crohn 's disease for use in europe . story_separator_special_tag we make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time . we periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary . examples of estimated accrued research and development expenses as of december 31 , 2012 include fees to : contract research organizations , or cros , and other service providers in connection with clinical studies ; investigative sites in connection with clinical studies ; contract manufacturers in connection with production of clinical trial materials ; vendors in connection with the preclinical development activities ; and licensors for the achievement of milestone-related events . we base our expenses related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and cros that conduct and manage clinical studies on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows and expense recognition . payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from our estimate , we adjust the accrual accordingly . our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in our reporting changes in estimates in any particular period . to date , our estimates have not materially differed from actual costs . expenses related to annual license fees are accrued on a pro rata basis throughout the year . stock-based compensation we expense stock-based compensation to employees over the requisite service period based on the estimated grant-date fair value of the awards and considering estimated pre-vesting forfeiture rates . for stock-based 43 compensation awards to non-employees , we re-measure the fair value of the non-employee awards at each reporting period prior to vesting and finally at the vesting date of the award . changes in the estimated fair value of these non-employee awards are recognized as compensation expense in the period of change . determining the appropriate fair value of stock-based awards requires the use of subjective assumptions . prior to november 17 , 2011 in the absence of a public trading market for our common stock , we conducted periodic assessments of the valuation of our common stock . these valuations were performed concurrently with the achievement of significant milestones or with a significant financing . we use a black-scholes option-pricing model to determine the fair value of stock options . the determination of the grant date fair value of options using an option-pricing model is affected by our estimated common stock fair value as well as assumptions regarding a number of other subjective variables . these variables include the fair value of our common stock , our expected stock price volatility over the expected term of the options , stock option exercise and cancellation behaviors , risk-free interest rates , and expected dividends , which are estimated as follows : fair value of our common stock . when our stock was not publicly traded , we estimated the fair value of common stock as discussed in common stock valuations prior to becoming a publicly traded company below . since november 17 , 2011 , we have utilized the public trading price of our common stock . expected term . due to the limited exercise history of our own stock options , we determined the expected term based on the stratification of option holder groups . our employee options meet the criteria for the simplified method under sab 107 while the expected term for our non-employees is the remaining contractual life for both options and warrants . volatility . as we have a very limited trading history for our common stock , the expected stock price volatility for our common stock was estimated by taking the average historic price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants . industry peers consist of several public companies in the biopharmaceutical industry similar in size , stage of life cycle and financial leverage . we did not rely on implied volatilities of traded options in our industry peers ' common stock because the volume of activity was relatively low . we intend to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own common stock share price becomes available , or unless circumstances change such that the identified companies are no longer similar to us , in which case , more suitable companies whose share prices are publicly available would be utilized in the calculation . risk-free rate . the risk-free interest rate is based on the yields of united states treasury securities with maturities similar to the expected term of the options for each option group . dividend yield . we have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future . consequently , we used an expected dividend yield of zero . the estimation of the number of stock awards that will ultimately vest requires judgment , and to the extent actual results or updated estimates differ from our current estimates , such amounts will be recorded as a cumulative adjustment in the period in which estimates are revised . we consider many factors when estimating expected forfeitures , including types of awards , employee class and historical experience . actual results , and future changes in estimates , may differ substantially from our current estimates .
| results of operations general to date , we have not generated any revenues from operations and , at december 31 , 2012 , we had an accumulated deficit of $ 84.2 million primarily as a result of research and development expenses , purchases of in-process research and development and general and administrative expenses . while we may in the future generate revenue from a variety of sources , including license fees , milestone payments , research and development payments in connection with strategic partnerships and or product sales , our product candidates are at an early stage of development and may never be successfully developed or commercialized . accordingly , we expect to continue to incur substantial losses from operations from our operations for the foreseeable future and there can be no assurance that we will ever generate significant revenues . research & development expenses conducting research and development is central to our business . for the years ended december 31 , 2010 , 2011 and 2012 research and development expenses were $ 8.3 million , $ 8.6 million and $ 17.5 million , respectively , and such expenses were $ 42.0 million for the period from inception ( june 28 , 2006 ) to december 31 , 2012. noncash , stock-based compensation expense included in research and development in 2012 and from inception through 2012 was $ 3.6 million and $ 7.5 million , respectively . research and development expenses consist primarily of : employee-related expenses , which include salaries and benefits , and rent expense ; non cash stock-based compensation expense ; license fees and milestone payments related to in-licensed products and intellectual property ; expenses incurred under agreements with cros , investigative sites and consultants that conduct or provide other services relating to our clinical trials and our preclinical activities ; the cost of acquiring clinical trial materials from third party manufacturers ; and costs associated with non-clinical activities , patent filings and regulatory filings .
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we sell our products through many channels that include the office products resale industry as well as through mass retail distribution and e-tailers . we design , develop , manufacture and market a wide variety of traditional and computer-related office products , school supplies and paper-based time management products . through a focus on research , marketing and innovation , we seek to develop new products that meet the needs of our consumers and commercial end-users , and support our brands . we compete through a balance of innovation , a low-cost operating model and an efficient supply chain . we sell our products primarily to markets located in the united states , northern europe , canada , brazil , australia and mexico . our office , school and calendar product lines use name brands such as at-a-glance ® , day-timer ® , five star ® , gbc ® , hilroy ® , marbig , mead ® , nobo , quartet ® , rexel , swingline ® , tilibra ® , wilson jones ® and many others . our products and brands are not confined to one channel or product category and are designed based on end-user preference . we currently manufacture approximately half of our products , and specify and source approximately the other half of our products , mainly from asia . the majority of our office products , such as stapling , binding and laminating equipment and related consumable supplies , shredders and whiteboards , are used by businesses . most of these business end-users purchase their products from our customers , which include commercial contract stationers , retail superstores , mass merchandisers , wholesalers , resellers , mail order and internet catalogs , club stores and dealers . we also supply some of our products directly to large commercial and industrial end-users . historically , we have targeted the premium end of the product categories in which we compete . however , we also supply private label products for our customers and provide business machine maintenance and certain repair services . our school products include notebooks , folders , decorative calendars , and stationery products . we distribute our school products primarily through traditional and online retail mass market , grocery , drug and office superstore channels . we also supply private label products within the school products sector . our calendar products are sold throughout all channels where we sell office or school products , and we also sell direct to consumers . our computer products group designs , distributes , markets and sells accessories for laptop and desktop computers , tablets and smartphones . these accessories primarily include security products , ipad ® covers and keypads , smartphone accessories , power adapters , input devices such as mice , laptop computer carrying cases , hubs , docking stations and ergonomic devices . we sell these products mostly under the kensington ® , microsaver ® and clicksafe ® brand names . all of our computer products are manufactured by third-party suppliers , principally in asia , and are stored in and distributed from our regional facilities . these computer products are sold primarily to consumer electronics online retailers , information technology value-added resellers , original equipment manufacturers and office products retailers . we believe our leading product positions provide the scale to enable us to invest in product innovation and drive growth across our product categories . in addition , the expertise we use to satisfy the exacting technical specifications of our more demanding commercial customers is in many instances the basis for expanding our products and innovations to consumer products . we plan to grow via a strategy of organic growth supplemented by acquisitions that can leverage our existing business . mead c & op merger and debt refinancing on november 17 , 2011 , we announced the signing of a definitive agreement to acquire the mead consumer and office products business ( “ mead c & op ” ) . on may 1 , 2012 , we completed the merger ( `` merger '' ) of mead c & op with a wholly-owned subsidiary of the company . mead c & op is a leading manufacturer and marketer of school supplies , office products , and planning and organizing tools - including the mead ® , five star ® , trapper keeper ® , at-a-glance ® , cambridge ® , day runner ® , hilroy , tilibra and grafons brands in the u.s. , canada and brazil . in the merger , meadwestvaco corporation ( “ mwv ” ) shareholders received 57.1 million shares of the company 's common stock , or 50.5 % of the combined company , valued at $ 602.3 million on the date of the merger . after the transaction was completed we had 113.1 million common shares outstanding . under the terms of the merger agreement , mwv established a new subsidiary ( “ monaco spinco inc. ” ) to which it conveyed mead c & op in return for a $ 460.0 million payment . the shares of monaco spinco inc. were then distributed to mwv 's shareholders 22 as a dividend . immediately after the spin-off and distribution , a newly formed subsidiary of the company merged with and into monaco spinco inc. and mwv shareholders effectively received in the stock dividend and subsequent conversion approximately one share of acco brands common stock for every three shares of mwv they held . fractional shares were paid in cash . the subsidiary company subsequently merged with mead products llc ( “ mead products ” ) , the surviving corporate entity , which is a wholly-owned subsidiary of acco brands corporation . as of december 31 , 2012 , $ 30.5 million has been received back from mwv through working capital adjustments to the purchase price . for accounting purposes , the company was the acquiring enterprise . the merger was accounted for as a purchase business combination . story_separator_special_tag for further information see note 3 , acquisitions , to the consolidated financial statements contained in item 8 of this report . the company also recorded an additional tax expense of $ 2.9 million reflecting an adjustment to the deferred tax expense to reflect a change in certain tax rates for which deferred taxes have previously been provided in other comprehensive income ( loss ) . the net effect of these changes was to reduce the company 's previously reported net income for the twelve months ended december 31 , 2012 as included on the form 8-k filed on february 13 , 2013 by $ 4.1 million to $ 115.4 million , reduce earnings per diluted share by $ 0.04 to $ 1.20 per diluted share and increase our previously reported net loss for the three months ended december 31 , 2012 by $ 4.1 million to $ 16.6 million or by $ 0.04 per diluted share to $ 0.15 loss per diluted share . there was no change to the amount of pretax income previously reported . story_separator_special_tag expenses in selling , general and administrative expenses and were primarily incurred in the first half of 2011. these were largely offset by associated savings realized in the second half of 2011. these costs totaled $ 4.5 million during the year ended december 31 , 2011. we fund our liquidity needs for capital investment , working capital and other financial commitments through cash flow from continuing operations and our $ 250.0 million senior secured revolving credit facility . based on our borrowing base , as of december 31 , 2012 , $ 238.5 million remained available for borrowing under this facility . during 2009 , we determined that it was no longer more likely than not that our u.s. deferred tax assets would be realized , and as a result , we recorded a non-cash charge of $ 108.1 million to establish a valuation allowance against our u.s. deferred tax assets . due to the acquisition of mead c & op in the second quarter of 2012 , we analyzed our need for maintaining valuation reserves against the expected u.s. future tax benefits . based on our analysis we determined that there existed sufficient evidence in the form of future taxable income from the combined operations to release $ 126.1 million of the valuation allowance that had been previously recorded against the u.s. deferred income tax assets . the resulting deferred tax assets are comprised principally of net operating loss carry-forwards , that are expected to be fully realized within the expiration period and other temporary differences . 25 fiscal 2012 versus fiscal 2011 the following table presents the company 's results for the years ended december 31 , 2012 and 2011 . replace_table_token_4_th net sales net sales increased $ 440.1 million , or 33 % , to $ 1.76 billion compared to $ 1.32 billion in the prior-year period . the acquisition of mead c & op contributed sales of $ 551.5 million . the underlying decline of $ 111.4 million includes an unfavorable currency translation of $ 17.1 million , or 1 % . the remaining decline of $ 94.3 million , or 7 % , occurred primarily in the international and north america business segments . international segment sales declined $ 61 million ( excluding the effect of mead c & op and currency translation ) of which the decline in the european business accounted for $ 56 million . approximately $ 32 million of the european decline was due to the company 's decision to re-focus on more profitable business ; the remainder of the european decline was due to the weak economic environment . australia also experienced weak consumer demand and lower price points . north american segment sales declined $ 27 million ( excluding the effect of mead c & op and currency translation ) . approximately half of the sales decline was in the direct channel , which services large u.s. print finishing customers , with the remainder mainly from lower canadian sales and declines in the calendar business . cost of products sold cost of products sold includes all manufacturing , product sourcing and distribution costs , including depreciation related to assets used in the manufacturing , procurement and distribution process , allocation of certain information technology costs supporting those processes , inbound and outbound freight , shipping and handling costs , purchasing costs associated with materials and packaging used in the production processes . cost of products sold increased $ 305.9 million , or 33 % , to $ 1.23 billion . the acquisition of mead c & op contributed $ 355.8 million , which includes $ 13.3 million in amortization of the acquisition step-up in inventory value . excluding the impact of mead c & op acquisition , the principal drivers of the underlying decline of $ 49.9 million were lower sales volumes and a $ 12.1 million impact of favorable currency translation . as part of the inclusion of mead c & op 's financial results with those of the company , certain information technology costs associated with the manufacturing and distribution operations have been reclassified from advertising , selling , general and administrative expenses to cost of products sold . this reclassification was done to enable the financial results of the two businesses to be consistent and to better reflect those costs associated with the cost of products sold . all prior periods have been reclassified 26 to make the results comparable . for the year ended december 31 , 2011 , reclassified costs totaled $ 15.5 million . these historical reclassifications were not material and had no effect on net income . gross profit management believes that gross profit and gross profit margin provide enhanced shareholder understanding of underlying profit drivers . gross profit increased $ 134.2 million , or 34 % , to $ 533.4 million . the acquisition of mead c & op contributed $ 195.7 million , which includes a $ 13.3 million charge for the acquisition step-up in inventory value .
| overview of company performance acco brands ' results are dependent upon a number of factors affecting sales , including pricing and competition . historically , key drivers of demand in the office and school products industries have included trends in white collar employment levels , enrollment levels in education , gross domestic product ( gdp ) and growth in the number of small businesses and home offices together with usage of personal computers . pricing and demand levels for office products have also reflected a substantial consolidation within the global resellers of office products . this consolidation has led to multiple years of industry pricing pressure and a more efficient level of asset utilization by customers , resulting in lower sales pricing and volume for suppliers of office products . in february 2013 , two of our largest customers , office depot and office max , announced that they have entered into a merger agreement . while management currently expects that the effects on our business of the proposed merger , if consummated , would be realized primarily in our retail channel , which only represents approximately one-third of our business with these customers , there can be no assurance that the combination of these two large customers will not adversely affect our business and results of operations . see “ risk factors - our customers may further consolidate , which could adversely impact our margins and sales . '' with 45 % of revenues for the year ended december 31 , 2012 arising from foreign operations , exchange rate fluctuations can play a major role in our reported results . foreign currency fluctuations impact the business in two ways : 1 ) the translation of our foreign operations results into u.s. dollars : a weak u.s. dollar benefits us and a strong u.s. dollar reduces the dollar-denominated contribution from foreign operations ; and 2 ) the impact of foreign currency fluctuations on cost of goods sold .
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after consideration of all the evidence , both positive and negative , the company has recorded a full valuation allowance against its net deferred tax assets as of december 31 , 2020 and 2019 , respectively , because the company has determined that is it more likely than not that these assets will not be fully realized due to historic net operating losses incurred . the valuation allowance increased by $ 17.5 million and $ 5.1 million during the years ended december 31 , 2020 and 2019 , respectively , due primarily to the generation of net operating loss carryforwards during those story_separator_special_tag s the following discussion summarizes the significant factors affecting the operating results , financial condition , liquidity and cash flows of our company as of and for the periods presented below . the following discussion and analysis should be read in conjunction with the financial statements and the related notes thereto included elsewhere in this report . the statements in this discussion regarding industry outlook , our expectations regarding our future performance , liquidity and capital resources and all other non-historical statements in this discussion are forward-looking statements and are based on the beliefs of our management , as well as assumptions made by , and information currently available to , our management . actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors , including those discussed below and elsewhere in this report , particularly in the section entitled “ risk factors. ” overview company overview we are the leader in pharmaceutically-produced transdermal cannabinoid therapies for rare and near-rare neuropsychiatric disorders . we are committed to improving the lives of patients and their families living with severe , chronic health conditions including fragile x syndrome , or fxs , autism spectrum disorder , or asd , 22q11.2 deletion syndrome , or 22q , and a heterogeneous group of rare and ultra-rare epilepsies known as developmental and epileptic encephalopathies , or dee . cannabinoids are a class of compounds derived from cannabis plants . the two primary cannabinoids contained in cannabis are cannabidiol and tetrahydrocannabinol , or thc . clinical and preclinical data suggest that cannabidiol has positive effects on treating behavioral symptoms of fxs , asd , 22q and seizures in patients with epilepsy . we are currently developing zygel , the first and only pharmaceutically-produced cannabidiol formulated as a permeation-enhanced gel for transdermal delivery , which is patent protected through 2030. five additional patents expiring in 2038 are directed to methods of use relating to zygel , including methods of treating fxs and asd . in preclinical animal studies , zygel 's permeation enhancer increased delivery of cannabidiol through the layers of the skin and into the circulatory system . these preclinical studies suggest increased bioavailability , consistent plasma levels and the avoidance of first-pass liver metabolism of cannabidiol when delivered transdermally . in addition , an in vitro study published in cannabis and cannabinoid research in april 2016 demonstrated that cannabidiol is degraded to thc ( the major psychoactive cannabinoid in cannabis ) in an acidic environment such as the stomach . as a result , we believe such degradation may lead to increased psychoactive effects if cannabidiol is delivered orally . these effects may be avoided with the transdermal delivery of zygel , which maintains cannabidiol in a neutral ph . zygel is being developed as a clear gel with once- or twice-daily dosing and is targeting treatment of behavioral symptoms of fxs , asd and 22q and the reduction of seizures in patients with dee syndromes . we have been granted orphan drug designations from united states food and drug administration , or fda , for the use of cannabidiol for the treatment of fxs and for the treatment of 22q . in may 2019 , we received fast track designation from the fda for treatment of behavioral symptoms associated with fxs . the fda 's fast track program is designed to facilitate the development of drugs intended to treat serious conditions and fill unmet medical needs and can lead to expedited review by the fda in order to get new important drugs to the patient earlier . our clinical program for zygel includes clinical trials evaluating zygel in the treatment of behavioral symptoms of fxs , asd and 22q and the reduction of seizures and the treatment of associated symptoms in patients with dee syndromes . as of march 2021 , the zygel safety database across all clinical studies conducted by us includes data from 906 volunteers and patients . across these clinical studies , zygel has been well tolerated and consistent with previously reported data . 83 connect-fx trial ( fxs ) in june 2020 we announced results of our pivotal connect-fx clinical trial , a multi-national randomized , double-blind , placebo-controlled , 14-week study designed to assess the efficacy and safety of zygel in children and adolescents ages three through 17 years who have full mutation of the fmr1 gene . while zygel did not achieve statistical significance versus placebo in the primary endpoint of improvement in the social avoidance subscale of the aberrant behavior checklist – community fxs ( abc-c fxs ) , a pre-planned ad hoc analysis of the most severely impacted patients in the trial , as defined by patients having at least 90 % methylation ( “ highly methylated ” ) of the impacted fmr1 gene , demonstrated that those patients receiving zygel achieved statistical significance in the primary endpoint of improvement at 12 weeks of treatment in the social avoidance subscale of the abc-c fxs compared to placebo . following discussions with the fda regarding the connect-fx trial and the regulatory path forward for zygel , we plan to conduct a double-blind for zygel , placebo-controlled pivotal trial in pediatric and adolescent patients with fxs who have a highly methylated fmr1 gene to confirm the positive results observed in the connect-fx trial . story_separator_special_tag the cash refund is available to eligible companies with an annual aggregate revenue of less than $ 20.0 million ( australian dollars ) during the reimbursable period . we estimate the amount of cash refund we expect to receive related to the australian research and development tax incentive program and record the incentives when it is probable 1 ) we will comply with relevant conditions of the program and 2 ) the incentive will be received . certain research and development expenses incurred with respect to zygel outside of australia may also be eligible for the australian research and development tax incentive program . to receive a cash refund with respect to such expenses incurred outside of australia , the expenses must have been for eligible research and development activities , as determined by ausindustry , and the expenditures must have a scientific link to the australian activities , be unable to be conducted in australia and be less than the expenditures for activities conducted in australia , as determined by the ato . in december 2018 , the subsidiary submitted an aof application to ausindustry for a determination that its activities are eligible research and development activities , which was approved by ausindustry in july 2019 . 85 as a result of this finding , we believe the subsidiary is eligible to receive a cash refund from the ato for qualifying expenditures related to its research and development activities outside of australia in 2018 , 2019 and 2020. during the year ended december 31 , 2019 , we recorded $ 8.3 million as an incentive and tax receivable and recorded a corresponding credit to research and development expense for amounts expected to be received through the aof for the period january 1 , 2018 through december 31 , 2019. as of december 31 , 2020 , incentive and tax receivables included $ 9.0 million related to the aof . the increase of $ 0.7 million was due to unrealized foreign currency gains related to the remeasurement of the subsidiary 's assets and liabilities . we evaluate the subsidiary 's eligibility under tax incentive programs as of each balance sheet date based on the most current and relevant data available . if the subsidiary is deemed to be ineligible or unable to receive the australian research and development tax credit , or the australian government significantly reduces or eliminates the tax credit , the actual cash refund we receive may materially differ from our estimates . in june 2020 , the ato informed us that we may not qualify for the aof program based on their interpretation of certain eligibility requirements . although we continue to believe that we comply with the relevant conditions of the aof program that were in place when we received our original approval from ausindustry , we have determined it is no longer probable that the aof claim will be received . as a result , during the three months ended june 30 , 2020 , we recorded a full reserve against the aof receivable . the following table summarizes research and development expenses for the years ended december 31 , 2020 , 2019 and 2018 . replace_table_token_3_th excluding the 2020 change in research and development expenses related to the aof , we expect research and development expenses to decrease in 2021 as compared to 2020 as we concluded our pivotal connect-fx clinical trial during 2020. we expect to initiate another pivotal trial in fxs before the end of 2021. these expenditures are subject to numerous uncertainties regarding timing and cost to completion . completion of our preclinical development and clinical trials may take several years or more and the length of time generally varies according to the type , complexity , novelty and intended use of a product candidate . the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development , including , among others : ● the number of sites included in the clinical trials ; ● the length of time required to enroll suitable patients ; ● the size of patient populations participating in the clinical trials ; ● the duration of patient follow-ups ; ● the development stage of the product candidates ; and ● the efficacy and safety profile of the product candidates . due to the early stages of our research and development , we are unable to determine the duration or completion costs of our development of our product candidates . as a result of the difficulties of forecasting research and development costs 86 of our product candidates as well as the other uncertainties discussed above , we are unable to determine when and to what extent we will generate revenue from the commercialization and sale of an approved product candidate . general and administrative expenses — general and administrative expenses consist primarily of salaries , benefits and other related costs , including stock-based compensation , for personnel serving in our executive , finance , legal , human resource , investor relations and commercial functions . our general and administrative expenses also include facility and related costs not included in research and development expenses , professional fees for legal services , including patent-related expenses , litigation settlement expenses , consulting , tax and accounting services , insurance , market research and general corporate expenses . we expect that our general and administrative expenses will increase for the next several years as we increase our headcount with the continued development and potential commercialization of our product candidates . interest income — interest income primarily consists of interest earned on balances maintained in our money market bank account . foreign exchange gain ( loss ) — foreign exchange gain ( loss ) relates to the effect of exchange rates on transactions incurred by the subsidiary .
| results of operations comparison of the years ended december 31 , 2020 and december 31 , 2019 replace_table_token_4_th research and development expenses replace_table_token_5_th excluding aof activity for the years ended december 31 , 2020 and 2019 , research and development expenses decreased by $ 1.1 million , or 4 % , to $ 27.5 million for the year ended december 31 , 2020 from $ 28.7 million for the year ended december 31 , 2019. the decrease was primarily related to decreased clinical trial and manufacturing costs associated with our zygel program , partially offset by an increase in employee-related costs and a reduction in the non-aof australian research and development incentive . general and administrative expenses general and administrative expenses increased by $ 2.5 million , or 18 % , to $ 16.4 million for the year ended december 31 , 2020 from $ 13.9 million for the year ended december 31 , 2019. the increase was primarily related to legal fees and litigation settlement expenses related to our shareholder lawsuits , increases in liability insurance for our directors and officers and higher employee-related costs , including recruiting costs ; partially offset by decreases in pre-commercialization expense for our product candidates . other income during the years ended december 31 , 2020 and 2019 , we recognized $ 0.2 million and $ 1.5 million , respectively , in interest income . the decrease in interest income was primarily related to lower average interest rates earned on our investments . during the year ended december 31 , 2020 , we recognized a foreign currency gain of $ 0.5 million and 88 during the year ended december 31 , 2019 , we recognized a foreign currency loss of $ 0.1 million .
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interest is capitalized based on the interest rate applicable to specific borrowings or the weighted average of the rates applicable to other borrowings during the period . interest and real estate taxes capitalized to real estate inventories are expensed as a component of cost of sales as related units are settled . the following table is a summary of interest and real estate taxes incurred , capitalized and expensed for units settled : replace_table_token_9_th the amount of interest from entity level borrowings that we are able to capitalize in accordance with accounting standards codification ( asc ) 835 is dependent upon the average accumulated expenditures that exceed project specific borrowings . additionally , when a project becomes inactive , its interest , real estate taxes and indirect production overhead costs are no longer capitalized but rather expensed in the period they are incurred . the following is a breakdown of the interest and real estate taxes expensed in the consolidated statement of operations for the periods presented : replace_table_token_10_th fixed assets fixed assets are carried at cost less accumulated depreciation and are depreciated on the straight-line method over their estimated useful lives as follows : furniture and fixtures 7 years office equipment 5 years computer equipment and capitalized software 3 years leasehold improvements life of related lease when assets are retired or otherwise disposed of , the cost and accumulated depreciation are removed from their separate accounts and any gain or loss on sale is reflected in operations . expenditures for maintenance and repairs are charged to expense as incurred . f-10 warranty reserve warranty reserves for units settled are established to cover potential costs for materials and labor with regard to warranty-type claims expected to arise during the typical one-year warranty period provided by the company or within the two-year statutorily mandated structural warranty period for condominiums . because the company typically subcontracts its homebuilding work , subcontractors are required to provide the company with an indemnity and a certificate of insurance prior to receiving payments for their work . claims relating to workmanship and materials are generally the primary responsibility of the subcontractors and product manufacturers . the warranty reserve is established at the time of closing , and is calculated based upon historical warranty cost experience and current business factors . this reserve is an estimate and actual warranty costs could vary from these estimates . variables used in the calculation of the reserve , as well as the adequacy of the reserve based on the number of homes still under warranty , are reviewed on a periodic basis . warranty claims are directly charged to the reserve as they arise . the following table is a summary of warranty reserve activity , which is included in accounts payable and accrued liabilities : replace_table_token_11_th revenue recognition the company recognizes revenues and related profits or losses from the sale of residential properties and units , finished lots and land sales when closing has occurred , full payment has been received , title and possession of the property has transferred to the buyer and the company has no significant continuing involvement in the property . other revenues include revenue from land sales , rental revenue from leased multi-family units which is recognized ratably over the terms of the respective leases , revenue from construction services which is recognized under the percentage-of-completion method , and revenue earned from management and administrative support services provided to related parties which is recognized as the services are provided . advertising costs the total amount of advertising costs charged to operations for the year ended december 31 , 2016 was $ 586 , of which $ 542 was charged to sales and marketing and $ 44 was charged to general and administrative expenses . the total amount of advertising costs charged to operations for the year ended december 31 , 2015 was $ 725 , of which $ 714 was charged to sales and marketing and $ 11 was charged to general and administrative expenses . stock compensation as discussed in note 12 , the company sponsors stock option plans and restricted stock award plans . the company accounts for its share-based awards pursuant to accounting standards codification ( asc ) 718 , share based payments . asc 718 requires all share-based payments to employees , including grants of employee stock options , to be recognized in the financial statements over the vesting period based on their fair values at the date of grant . for the year ended december 31 , 2016 , total stock based compensation cost was $ 86 of which , $ 69 was charged to expenses within general and administrative ' and cost of sales-other ' in the consolidated statement of operations , and $ 17 was capitalized to real estate inventories ' . for the year ended december 31 , 2015 , total stock based compensation cost was $ 124 , and of this amount , $ 93 was charged to expenses within general and administrative ' and cost of sales-other ' in the consolidated statement of operations , and $ 31 was capitalized to real estate inventories ' . f-11 income taxes income taxes are accounted for under the asset and liability method in accordance with asc 740 , accounting for income taxes . deferred tax assets story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements that involve risks and uncertainties . story_separator_special_tag additionally , events of default could occur if we fail to make required debt service payments or if we fail to come to agreement on an extension on a certain facility prior to a given loan 's maturity date . any event of default would likely render the obligations under these instruments due and payable as of that event . any such event of default would allow certain of our lenders to exercise cross default provisions in our loan agreements with them , such that all debt with that institution could be called into default . at december 31 , 2016 , $ 15.8 million of our notes payable to affiliates were set to mature at the end of 2017. these funds were primarily obtained from entities wholly owned by our chief executive officer , who has unilateral ability to extend the maturity dates beyond 2017 as needed . the current performance of our projects has met all required servicing obligations required by the facilities . we are anticipating that with successful resolution of the debt extension discussions with our lenders , the recently completed capital raises from our private placements , current available cash on hand , and additional cash from settlement proceeds at existing and under development communities , the company will have sufficient financial resources to sustain its operations through the next 12 months , though no assurances can be made that the company will be successful in its efforts . refer to note 8 and 19 for further discussion regarding our debts , extension of loan maturity date and other subsequent events impacting our credit facilities . cash flow net cash used in operating activities was $ 11.8 million for the year ended december 31 , 2016. the $ 11.8 million net cash used in operations in 2016 was primarily due to $ 11.1 million of net purchases of real estate inventories associated with the townes at totten mews , the towns at 1333 , and the woods at spring ridge projects , which commenced during the year . the $ 2.6 million net cash provided from operations in 2015 was primarily due to $ 1.6 million of net releases of inventories associated with the increased number of units settled and $ 0.6 million of net reductions in other assets mainly due to deposit refunds related to land purchase options . net cash provided by investing activities was $ 0.2 million for the year ended december 31 , 2016. this was primarily attributable to the net releases of deposits from escrow accounts held as collateral for certain letters of credit of $ 0.2 million . net cash used in investing activities was $ 0.7 million for the year ended december 31 , 2015. this was primarily attributable to the increase in deposits to escrow accounts held as collateral for certain letters of credit of $ 0.6 million and $ 0.2 million in purchases of capital assets . net cash provided by financing activities was $ 4.9 million for the year ended december 31 , 2016. this was primarily attributable to an increase in contributions from non-controlling interests , net of distributions paid , of $ 9.6 million , offset by a decrease in borrowings , net of payments , on notes payable of $ 4.5 million . net cash provided by financing activities was $ 3.1 million for the year ended december 31 , 2015. this was primarily attributable to an increase in borrowings , net of payments , on notes payable of $ 3.2 million and an increase in contributions from non-controlling interests , net of distributions paid , of $ 0.1 million . share repurchase program in november 2014 , our board of directors approved a new share repurchase program authorizing the company to repurchase up to 429 thousand shares of our class a common stock in one or more open market or privately negotiated transactions . 20 during the year ended december 31 , 2015 , we repurchased 11 thousand shares , respectively , of our class a common stock under the repurchase program . no such repurchases were made in 2016. as of december 31 , 2016 , 404 thousand shares of our class a common stock remain available for repurchase pursuant to our share repurchase program . recent accounting pronouncements information regarding recent accounting pronouncements is contained in note 2 in the accompanying consolidated financial statements . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the united states ( gaap ) , which require us to make certain estimates and judgments that affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenues and expenses during the reporting periods . on an ongoing basis , we evaluate our estimates including those related to the consolidation of variable interest entities ( vies ) , revenue recognition , impairment of real estate inventories , warranty reserve and our environmental liability exposure . 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 materially from these estimates . a summary of significant accounting policies is provided in note 2 in the accompanying consolidated financial statements . the following section is a summary of certain aspects of those accounting policies that require the most difficult , subjective or complex judgments and estimates . real estate inventories real estate inventories include land , land development costs , construction and other costs .
| results of operations year ended december 31 , 2016 compared to year ended december 31 , 2015 orders , backlog and cancellations the following table summarizes certain information related to new orders , settlements and backlog for the twelve months ended december 31 , 2016 and 2015. replace_table_token_4_th revenue homebuilding the number of units delivered for the year ended december 31 , 2016 decreased by 29 to 94 as compared to 123 units for the year ended december 31 , 2015. average revenue per unit delivered decreased by $ 56 to $ 433 for the year ended december 31 , 2016 as compared to $ 489 for the year ended december 31 , 2015. revenue from homebuilding decreased by $ 19.4 million to $ 40.7 million for the year ended december 31 , 2016 as compared to $ 60.1 million for the year ended december 31 , 2015. for the year ended december 31 , 2016 , the company settled 94 units ( 4 units at the hampshires , 33 units at falls grove , 13 units at maxwell square , 29 units at townes at hallcrest , 9 units at villas at two rivers , 5 units at estates at leeland , and 1 unit at marrwood east ) , as compared to 123 units ( 37 units at the hampshires , 30 units at falls grove , 24 units at maxwell square , 20 units at townes at shady grove , 7 units at townes at hallcrest , and 5 units at villas at two rivers ) for the year ended december 31 , 2015. gross new order revenue , consisting of revenue from all units sold , for the year ended december 31 , 2016 was $ 51.2 million on 114 units as compared to $ 69.1 million on 146 units for the year ended december 31 , 2015. net new order revenue , representing revenue for all units sold less revenue from cancellations ,
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the company recognized revenue of $ 30,426,000 in 2020 and $ 29,220,000 in 2019 that was included in the contract liabilities balance at the beginning of 2020 and 2019. the story_separator_special_tag the following discussion of our financial condition and results of operations should be read together with the financial statements and related notes set forth in item 8 , `` financial statements and supplementary data . '' the following discussion also contains forward-looking statements , including the outlook for our business , that involve a number of risks and uncertainties . see part i , `` forward-looking statements , '' for a discussion of the forward-looking statements contained below and part i , item 1a , `` risk factors , '' for a discussion of certain risks that could cause our actual results to differ materially from the results anticipated in such forward-looking statements . overview company background we are a global supplier of high-value , critical components and engineered systems used in process industries worldwide . our products , technologies , and services play an integral role in enhancing process efficiency , optimizing energy utilization , and maximizing productivity in resource-intensive industries . we previously reported our financial results by combining operating entities into three reportable operating segments : papermaking systems , wood processing systems , and material handling systems , and a separate product line , fiber-based products . during the first quarter of 2020 , we changed our reportable operating segments to better align with our strategic initiatives to grow both organically and through acquisitions . see note 12 , business segment and geographical information , in the accompanying consolidated financial statements for further details regarding our segments . our financial results are reported in three new reportable operating segments : flow control , industrial processing , and material handling . the flow control segment consists of our fluid-handling and doctoring , cleaning , & filtration product lines ; the industrial processing segment consists of our wood processing and stock-preparation product lines ( excluding our baling products ) ; and the material handling segment consists of our conveying and screening , baling , and fiber-based product lines . financial information for 2019 and 2018 has been recast to conform to the new segment presentation . a description of each segment is as follows : flow control – custom-engineered products , systems , and technologies that control the flow of fluids used in industrial and commercial applications to keep critical processes running efficiently in the packaging , tissue , food , metals , and other industrial sectors . our products include rotary sealing devices , steam systems , expansion joints , doctor systems , roll and fabric cleaning devices , and filtration and fiber recovery systems . industrial processing – equipment , machinery , and technologies used to recycle paper and paperboard and process timber for use in the packaging , tissue , wood products , and alternative fuel industries , among others . our products include stock-preparation systems and recycling equipment , chemical pulping equipment , debarkers , stranders , chippers , and logging machinery . in addition , we provide industrial automation and digitization solutions to process industries . material handling – products and engineered systems used to handle bulk and discrete materials for secondary processing or transport in the aggregates , mining , food , and waste management industries , among others . our products include conveying and vibratory equipment and balers . in addition , we manufacture and sell biodegradable , absorbent granules used as carriers in agricultural applications and for oil and grease absorption . industry and business overview and the impact of covid-19 the ongoing covid-19 pandemic has resulted in significant worldwide economic disruption and adversely affected our bookings and results of operations for a substantial part of 2020 , primarily due to delayed or reduced spending by our customers , as well as customer-requested delays on certain capital projects and service work . consolidated bookings decreased $ 40 million , or 6 % , to $ 648 million in 2020 compared with $ 688 million in 2019. bookings decreased in all our segments in 2020 compared to 2019 as described below . flow control – bookings decreased $ 13 million , or 5 % , in 2020 compared with 2019 due primarily to a decrease in capital equipment bookings at our north american and , to a lesser extent , chinese businesses , largely driven by reduced or delayed spending levels related to the impact of covid-19 . in addition , demand for parts and consumables products decreased principally at our north american operations primarily due to covid-19-related downtimes and shutdowns , as well as visitation restrictions at many customer facilities during 2020. industrial processing – bookings decreased $ 17 million , or 6 % , in 2020 compared with 2019 primarily due to a 41 % decrease in capital equipment bookings at our stock-preparation product line . our stock-preparation business was impacted by customer-requested delays on large capital projects , reductions in capital equipment spending , and uncertainty in asia surrounding our customers ' response to china 's recovered paper import restriction . partially offsetting this decrease , was a 50 % increase in capital equipment bookings at our wood processing business . this increase was fueled by a robust u.s. housing market and high demand for lumber , oriented strand board and plywood , 25 kadant inc. which increased mill run rates resulting in higher capital investment by our customers at our north american business , largely in the second half of 2020. additionally , our european wood processing business experienced a similar impact for capital equipment due to increased mill run rates . on a sequential basis , the industrial processing segment 's capital equipment bookings more than doubled in the fourth quarter of 2020 , driven by an increase in stock-preparation equipment orders . story_separator_special_tag additionally , we may enter into forward currency exchange contracts to hedge certain firm purchase and sale commitments denominated in currencies other than our subsidiaries ' functional currencies . we currently do not use derivative instruments to hedge our exposure to exchange rate fluctuations created by the translation into the u.s. dollar of our foreign subsidiaries ' results that are in functional currencies other than the u.s. dollar . story_separator_special_tag segment in 2019 was negatively affected by the amortization of acquired profit in inventory of $ 3.5 million , which lowered the gross profit margin in 2019 by 2.3 percentage points . the remaining 1.1 percentage point difference was primarily due to lower gross margins in 2020 on our capital equipment as a result of an unfavorable change in product mix . selling , general , and administrative expenses selling , general , and administrative ( sg & a ) expenses in 2020 and 2019 were as follows : replace_table_token_7_th consolidated sg & a expenses as a percentage of revenue increased to 29 % in 2020 compared with 27 % in 2019 due to lower revenue in 2020. consolidated sg & a expenses decreased $ 10.6 million in 2020 compared with 2019 due to reduced travel-related costs of $ 7.8 million , benefits received from government employee retention assistance programs of $ 2.2 million , and lower acquisition-related costs of $ 1.1 million . sg & a expenses as a percentage of revenue at our flow control segment was 28 % in both 2020 and 2019. sg & a expenses decreased $ 6.0 million in 2020 compared with 2019 due to reduced travel-related costs of $ 2.8 million , and lower payroll-related costs as a result of restructuring actions taken in 2020 and benefits received from government employee retention assistance programs . sg & a expenses as a percentage of revenue at our industrial processing segment increased to 22 % in 2020 compared with 19 % in 2019 due to lower revenue in 2020. sg & a expenses decreased $ 0.9 million in 2020 compared with 2019 primarily 28 kadant inc. due to reduced travel-related costs of $ 2.8 million and benefits received from government employee retention assistance programs of $ 1.4 million . these decreases were partially offset by higher legal and other professional service fees and sg & a expenses from an acquired business of $ 1.2 million , including acquisition-related costs of $ 0.7 million in 2020. sg & a expenses as a percentage of revenue at our material handling segment decreased to 23 % in 2020 compared with 24 % in 2019. the 2020 period includes amortization of acquired backlog of $ 0.4 million , while the 2019 period includes amortization of acquired backlog of $ 1.3 million and other acquisition-related costs of $ 0.8 million associated with the acquisition of smh . sg & a expenses at corporate decreased $ 1.0 million in 2020 compared with 2019 primarily due to lower travel-related costs and professional service fees . impairment and restructuring costs impairment charges of $ 1.9 million in 2020 relate to actions taken associated with the timber-harvesting product line included in our industrial processing segment as a result of the continued decline in revenue and operating results for this business . given this decline , we performed a quantitative analysis of the recoverability of the related intangible assets using the current projected cash flows for this product line . based on this analysis , we determined that the fair values of the related intangible assets were less than their carrying values resulting in impairment charges in the fourth quarter of 2020. restructuring costs were $ 1.1 million in 2020 , which includes $ 0.6 million at our flow control segment , $ 0.3 million at our industrial processing segment , and $ 0.2 million at our material handling segment . these restructuring costs represent severance for 64 employees associated with a restructuring plan implemented in response to the slowdown in the global economy that was largely driven by the impact of covid-19 . we also reduced our workforce by 21 employees within our industrial processing segment with no associated severance costs . we expect annualized payroll-related savings as a result of these actions of approximately $ 4.6 million , including $ 2.7 million at our flow control segment , $ 1.5 million at our industrial processing segment , and $ 0.4 million at our material handling segment , which consist of approximately $ 2.1 million related to cost of sales and $ 2.5 million related to operating expenses . impairment and restructuring costs of $ 2.5 million in 2019 represent actions taken relating to our timber-harvesting product line . see impairment and restructuring costs in the discussion of operations for 2019 compared to 2018 for a discussion of the impairment charges and restructuring costs recorded in 2019. see note 1 , nature of operations and summary of significant accounting policies , under the heading impairment of long-lived assets , and note 8 , restructuring costs , in the accompanying consolidated financial statements for further details relating to impairment charges and restructuring costs recorded in 2020 and 2019. interest expense interest expense decreased $ 5.3 million to $ 7.4 million in 2020 due to a lower weighted average interest rate and lower outstanding debt . other expense , net other expense , net consists of expense related to the non-service component of our pensions and other post-retirement benefit plans . in 2019 , other expense , net included a loss of $ 5.9 million for the settlement of a defined benefit retirement plan obligation at one of our u.s. divisions and our corporate office ( retirement plan ) . see note 3 , employee benefit plans , under the heading pension and other post-retirement benefits plans in the accompanying consolidated financial statements for further details .
| results of operations 2020 compared to 2019 revenue the following table presents changes in revenue by segment between 2020 and 2019 , and those changes excluding the effect of foreign currency translation and an acquisition which we refer to as change in organic revenue . the presentation of the change in organic revenue is a non-gaap measure . we believe this non-gaap measure helps investors gain an understanding of our underlying operations consistent with how management measures and forecasts its performance , especially when comparing such results to prior periods . this non-gaap measure should not be considered superior to or a substitute for the corresponding gaap ( generally accepted accounting principles in the united states ) measure . revenue by segment in 2020 and 2019 was as follows : replace_table_token_5_th consolidated revenue and organic revenue declined 10 % due to lower capital equipment revenue at our industrial processing and flow control segments and lower parts and consumables revenue at all our segments as described below . revenue at our flow control segment decreased 10 % in 2020 , while organic revenue declined 9 % . organic revenue was adversely impacted in 2020 by decreased demand for capital equipment principally at our north american operations due to reduced or delayed customer spending as a result of covid-19 and due to relatively high demand in 2019. organic revenue was also impacted by lower demand for parts and consumables products primarily at our north american operations due to covid-19-related downtimes and shutdowns , as well as visitation restrictions at many customer facilities during 2020. revenue from our industrial processing segment decreased 13 % in 2020 , while organic revenue declined 14 % .
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borrowings under the revolving credit facility bear interest at either : ( i ) libor plus a percentage ranging from 2.3 % to 3.3 % or ( ii ) the prime rate plus a percentage ranging from 0.0 % to 0.8 % , depending on the type of borrowing made under the revolving credit facility . as of december 28 , 2016 and december 30 , 2015 , there were no amounts outstanding under the revolving credit facility . as of december 28 , 2016 , we had $ 19,920 of availability under the revolving credit facility , after giving effect to $ 80 in outstanding letters of credit . the revolving credit story_separator_special_tag this section and other parts of this annual report on form 10-k ( “ form 10-k ” ) contain forward-looking statements , within the meaning of the private securities litigation reform act of 1995 ( `` pslra '' ) , which are subject to known and unknown risks , uncertainties and other important factors that may cause actual results to be materially different . forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact . forward-looking statements can also be identified by words such as `` aim , '' `` anticipate , '' `` believe , '' `` estimate , '' `` expect , '' `` forecast , '' `` future , '' `` intend , '' `` outlook , '' `` plan , '' `` potential , '' `` predict , '' `` project , '' `` seek , '' `` may , '' `` can , '' `` will , '' `` would , '' `` could , '' `` should , '' the negatives thereof and other similar expressions . forward-looking statements are not guarantees of future performance and actual results may differ significantly from the results discussed in the forward-looking statements . all forward-looking statements are expressly qualified in their entirety by these cautionary statements , except that the safe harbor provisions of the pslra do not apply to any forward-looking statements relating to the operations of any of our partnerships or limited liability companies . factors that might cause such differences include , but are not limited to , those discussed in part i , item 1a of this form 10-k under the heading “ risk factors , ” which are incorporated herein by reference . the following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in part ii , item 8 of this form 10-k. all information presented herein is based on our fiscal calendar . unless otherwise stated , references to particular years , quarters , months or periods refer to our fiscal years and the associated quarters , months and periods of those fiscal years . we undertake no obligation to revise or update any forward-looking statements for any reason , except as required by law . overview shake shack is a modern day `` roadside '' burger stand serving a classic american menu of premium burgers , hot dogs , crispy chicken , crinkle cut fries , shakes , frozen custard , beer and wine . our fine dining heritage and commitment to community building , hospitality and the sourcing of premium ingredients is what we call `` fine casual . '' fine casual couples the ease , value and convenience of fast casual concepts with the high standards of excellence grounded in our fine dining heritage—thoughtful ingredient sourcing and preparation , hospitality and quality . our mission is to stand for something good ® in all aspects of our business , including the exceptional team we hire and train , the premium ingredients making up our menu , our community engagement and the design of our shacks . stand for something good is a call to action for all of our stakeholders—our team , guests , communities , suppliers and investors—and we actively invite them all to share in this philosophy with us . this commitment drives our integration into the local communities in which we operate and fosters a deep and lasting connection with our guests . fiscal 2016 highlights fiscal 2016 was another strong year for shake shack . we surpassed our targeted growth plan and opened 20 domestic company-operated shacks , including our 100th shack opening at the boston seaport this past august . we entered six new major markets this year—making our debut in california with a flagship in the heart of west hollywood , followed by two additional shacks later in the year ; we moved into arizona with three openings in phoenix and scottsdale ; we launched in minneapolis with a shack in the mall of america ; we opened our first shack in delaware across from the christiana fashion center ; and we successfully launched in dallas and houston , texas . we also deepened our roots in our current markets , opening shacks in the dc market , new york , massachusetts and georgia . internationally , we expanded our footprint by opening eight net new licensed shacks , including shacks in three new markets . we launched in south korea in july with a flagship shack in the gangnam district , followed by a second shack in the cheongdam neighborhood . we also made our debut in oman and bahrain , and opened additional shacks in japan , the middle east and the united kingdom . further expanding upon our presence in the sporting events arena , we opened two domestic licensed shacks at the t-mobile arena in las vegas and at the wells fargo center in philadelphia . shake shack inc. form 10-k | 48 fiscal 2016 marked a year of continued excellence in menu innovation . in january 2016 we rolled out the chick ' n shack company-wide , which originally made its first appearance in our brooklyn shacks during the summer of 2015 and is now a permanent menu item and has become a top seller . story_separator_special_tag domestically , we also plan to open two licensed shacks in fiscal 2017 with shacks planned in lax terminal 3 , as well as minute maid park , home of the houston astros . as we continue our rapid expansion , we have begun to , and expect to continue to , enter into more “ new build ” spaces , where we may be considered the owner of any landlord-funded construction assets for accounting purposes ( “ build-to-suit leases ” ) . due to various forms of continuing involvement subsequent to the end of construction , we will likely be required to continue to account for these leases as a financing , which would result in higher interest expense and depreciation expense , partially offset by lower occupancy and related expenses . see “ —critical accounting policies and estimates ” and note 2 to the consolidated financial statements for more information . while we believe that there is still ample room to grow our shack-base in our hometown of new york city , the majority of our domestic company-operated shack growth is expected to occur outside of new york city . because our historical average unit volumes ( `` auvs '' ) have been higher , due in large part to our concentration in urban markets , historical domestic company-operated auvs are not a good measure of expected sales at new shacks . as we continue to expand outside of our established markets , we expect average annual shack sales to be approximately $ 3.0 million per shack with shack-level operating profit margins of approximately 20 % ( `` target-volume shacks '' ) , which will reduce overall company-operated shack auvs and shack-level operating profit margins . however , given the visibility we currently have into our pipeline for fiscal 2017 , we expect the new shacks to be opened in fiscal 2017 to average at least $ 3.2 million in annual shack sales and achieve at least 21 % shack-level ope rating profit margins . we will continue to embrace our fine-dining heritage and , although our core menu remains focused , we plan to continue supplementing it with targeted innovation . in february 2017 , we launched a limited-edition bbq lineup—the bbq shackmeister burger , the bbq chick ' n shack and bbq bacon cheese fries—available at all domestic company-operated shacks . the bbq lineup is our new lto , which is following the baconcheddar shack that was available during the second half of 2016. in addition to these bbq items , we also launched our first trio of seasonal shakes for 2017 in january , which features mint cookies & cream , salted vanilla toffee and mud pie . the trio of seasonal shakes replaced the previous shake of the week we offered through 2016. while we believe there are significant opportunities ahead of us , we also face many challenges , along with our industry . we expect the high labor trends that began in fiscal 2016 to continue into fiscal 2017. we believe that rising minimum wage legislation will affect the entire restaurant industry and we fully expect this labor pressure to continue in the future . several states in which we operate have enacted minimum wage increases and it is possible that other states or the federal government could also enact minimum wage increases . our primary challenge for fiscal 2017 and the next few years will be preserving our margins in the face of these rising labor costs . as more minimum wage increases are enacted , we may be required to implement additional pay increases or offer additional benefits in the future in order to attract and retain the most qualified people , which we expect to put further pressure on our operating margins . one significant area of opportunity for us is our recent launch of the shack app . the shack app was developed to elevate the in-shack guest experience , resulting in shorter pick-up times and convenient mobile ordering . with the new shack app , guests can pick their food , choose an available pick-up time and it will be cooked-to-order and timed to their arrival . the launch of our shack app is just another way we are trying to meet our guests where they are and provide a whole new way to experience shake shack . this is just our first step in the digital evolution of shake shack and while it 's still early , we believe the shack app will ultimately translate into incremental sales and a better guest experience . the long-term opportunities the shack app provides are significant and we are just getting started . with only 114 shacks system-wide , as of december 28 , 2016 , we still have significant whitespace opportunity ahead of us . despite the challenges we face , we believe that we are positioned well for future growth . shake shack inc. form 10-k | 50 fiscal 2017 outlook for the fiscal year ending december 27 , 2017 , we are providing the following preliminary financial outlook : replace_table_token_5_th ( 1 ) includes approximately 1.5 % to 2 % of menu price increases taken in early january 2017 and nominal traffic and mix increases . ( 2 ) the average annual sales volume for the domestic company-operated shacks to be opened in fiscal 2017 is expected to be at least $ 3.2 million with shack-level operating profit margins of at least 21 % . 51 | shake shack inc. form 10-k story_separator_special_tag compared to 29.5 % for fiscal 2015 . this decrease was primarily the result of menu price increases implemented at the end of 2015 , lower commodity costs , primarily in beef and dairy , and to a 53 | shake shack inc. form 10-k lesser extent , efficiencies gained through supply chain enhancements , such as the restructuring of certain of our purchasing arrangements and better geographic diversification of our suppliers . these decreases were partially offset by higher distribution costs associated with entering new markets .
| results of operations the following table summarizes our results of operations for fiscal 2016 , 2015 and 2014 : replace_table_token_6_th ( 1 ) we operate on a 52/53 week fiscal year that ends on the last wednesday of the calendar year . fiscal 2016 and 2015 each contained 52 weeks . fiscal year 2014 was a 53-week year . ( 2 ) as a percentage of shack sales . shake shack inc. form 10-k | 52 shack sales shack sales represent the aggregate sales of food , beverages and shake shack branded merchandise at our domestic company-operated shacks . shack sales in any period are directly influenced by the number of operating weeks in such period , the number of open shacks and same-shack sales . same-shack sales means , for any reporting period , sales for the comparable shack base , which we define as the number of domestic company-operated shacks open for 24 months or longer . shack sales were $ 259.4 million for fiscal 2016 compared to $ 183.2 million for fiscal 2015 , an increase of $ 76.2 million or 41.6 % . the growth in shack sales was primarily driven by the opening of 20 new domestic company-operated shacks during fiscal 2016 and same-shack sales growth . shacks in the comparable shack base contributed $ 5.2 million to this increase while those domestic company-operated shacks open for less than a year contributed $ 67.3 million . additionally , we had $ 3.1 million of incremental sales from our madison square park shack which was temporarily closed in the prior year for renovations . same-shack sales increased 4.2 % during fiscal 2016 , primarily driven by a combined increase of 3.1 % in price and sales mix and increased guest traffic of 1.1 % . for purposes of calculating same-shack sales growth , shack sales for 30 shacks were included in the comparable shack base .
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the following tables present the credit risk profile of ctbi 's commercial loan portfolio based on rating category and payment activity , segregated by class of loans , as of december 31 , 2011 and 2010 : replace_table_token_49_th the following tables present the credit risk profile of ctbi 's residential real estate and consumer loan portfolios based on performing or nonperforming status , segregated by class , as of december 31 , 2011 and 2010 : replace_table_token_50_th ( 1 ) a loan is considered nonperforming if it is 90 days or more past due or on nonaccrual . a loan is considered impaired , in accordance with the impairment accounting guidance ( asc 310-10-35-16 ) , when based on current information and events , it is probable ctbi will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan . impaired loans include nonperforming commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties . these concessions could include a reduction in the interest rate on the loan , payment extensions , forgiveness of principal , forbearance , or other actions intended to maximize collection story_separator_special_tag overview the following management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is intended to help the reader understand community trust bancorp , inc. , our operations , and our present business environment . the md & a is provided as a supplement to—and should be read in conjunction with—our consolidated financial statements and the accompanying notes thereto contained in item 8 of this annual report . the md & a includes the following sections : ♦ our business ♦ financial goals and performance ♦ results of operations and financial condition ♦ contractual obligations and commitments ♦ liquidity and market risk ♦ interest rate risk ♦ capital resources ♦ impact of inflation , changing prices , and economic conditions ♦ stock repurchase program ♦ critical accounting policies and estimates our business community trust bancorp , inc. ( “ ctbi ” ) is a bank holding company headquartered in pikeville , kentucky . currently , we own one commercial bank and one trust company . through our subsidiaries , we have eighty banking locations in eastern , northeastern , central , and south central kentucky , southern west virginia , and northeastern tennessee , four trust offices across kentucky , and one trust office in northeastern tennessee . at december 31 , 2011 , we had total consolidated assets of $ 3.6 billion and total consolidated deposits , including repurchase agreements , of $ 3.1 billion , making us the largest bank holding company headquartered in the commonwealth of kentucky . total shareholders ' equity at december 31 , 2011 was $ 366.9 million . on june 8 , 2010 , we entered into an agreement and plan of share exchange with lafollette first national corporation , a tennessee corporation ( “ lafollette corporation ” ) and first national bank of lafollette ( “ lafollette bank ” ) , the wholly-owned subsidiary of lafollette corporation . on november 17 , 2010 , we completed the acquisition of lafollette corporation and lafollette bank , acquiring all outstanding shares of lafollette corporation in a share exchange for $ 650 per share , or a total of approximately $ 16.1 million . in addition , we paid $ 1.2 million to retire a debt owed by lafollette corporation . immediately following the share exchange , lafollette corporation was merged into ctbi . lafollette bank was merged into community trust bank , inc. ( ctb ) on january 21 , 2011. through our subsidiaries , we engage in a wide range of commercial and personal banking and trust and wealth management activities , which include accepting time and demand deposits ; making secured and unsecured loans to corporations , individuals and others ; providing cash management services to corporate and individual customers ; issuing letters of credit ; renting safe deposit boxes ; and providing funds transfer services . the lending activities of our bank include making commercial , construction , mortgage , and personal loans . lease-financing , lines of credit , revolving lines of credit , term loans , and other specialized loans , including asset-based financing , are also available . our corporate subsidiaries act as trustees of personal trusts , as executors of estates , as trustees for employee benefit trusts , as registrars , transfer agents , and paying agents for bond and stock issues , as depositories for securities , and as providers of full service brokerage services . for further information , see item 1 of this annual report . financial goals and performance the following table shows the primary measurements used by management to assess annual performance . the goals in the table below should not be viewed as a forecast of our performance for 2012. rather , the goals represent a range of target performance for 2012. there is no assurance that any or all of these goals will be achieved . see “ cautionary statement regarding forward looking statements. ” replace_table_token_18_th results of operations and financial condition for the year ended december 31 , 2011 , we reported earnings of $ 38.8 million , or $ 2.54 per basic share , an increase of 17.5 % from the $ 33.0 million , or $ 2.17 per basic share , earned during the year ended december 31 , 2010. earnings for the year ended december 31 , 2009 were $ 25.1 million or $ 1.66 per basic share . 2011 highlights ♦ earnings per share for the year 2011 increased $ 0.37 per share from prior year with increased net interest income and noninterest income and decreased provision for loan loss partially offset by increased noninterest expense . ♦ noninterest expense was significantly impacted by a $ 3.2 million decrease in the carrying value of two groups of foreclosed properties that were vandalized . claims have been filed with the insurance carriers and discussions are ongoing . story_separator_special_tag claims have been filed with the insurance carriers , and discussions are ongoing . since no agreement has been reached , the amount of recovery is uncertain . accordingly , the entire decrease in the carrying value of the properties has been charged against earnings and no estimate of insurance recovery is reflected at december 31 , 2011. noninterest expense for the year 2010 increased 2.4 % from 2009 as increased personnel expenses were partially offset by a decrease in fdic insurance premiums and special assessment . story_separator_special_tag perceived market fluctuations in a particular market and is typically between 12 and 18 months . ninety percent of our oreo properties have been reappraised within the past 12 months . our nonperforming loans and foreclosed properties remain primarily concentrated in our central kentucky region . management anticipates that our foreclosed properties will remain elevated as we work through current market conditions . the major classifications of foreclosed properties are shown in the following table : replace_table_token_21_th the appraisal aging analysis of foreclosed properties , as well as the holding period , at december 31 , 2011 is shown below : replace_table_token_22_th net loan charge-offs for the year were $ 14.9 million , or 0.58 % of average loans annualized , an increase from prior year 's $ 14.3 million , or 0.58 % of average loans annualized . of the total net charge-offs , $ 10.0 million were in commercial loans , $ 2.4 million were in indirect auto loans , and $ 1.8 million were in residential real estate mortgage loans . specific reserves covered 76.3 % of the commercial loan charge-offs . our loan loss reserve as a percentage of total loans outstanding at december 31 , 2011 was 1.30 % compared to 1.34 % at december 31 , 2010. our reserve coverage ( allowance for loan loss reserve to nonperforming loans ) of 93.3 % at september 30 , 2011 began to show improvement from the 59.0 % and 56.1 % at june 30 , 2011 and december 31 , 2010 , respectively . our december 31 , 2011 reserve coverage of 89.0 % evidenced two consecutive quarters of continued improvement . several of the matrices and factors utilized in evaluating the adequacy of our loan loss reserve also show significant improvement , including level of past dues , nonperforming loans , and nonaccrual loans , and after two consecutive quarters of continued improvement , we determined that our loan loss reserve of 1.30 % at december 31 , 2011 was adequate . generally accepted accounting principles require that expected credit losses associated with loans obtained in an acquisition be reflected in the estimation of loan fair value as of the acquisition date and prohibits any carryover of an allowance for credit losses . excluding amounts related to loans obtained in the fourth quarter 2010 acquisition of lafollette , the allowance-to-legacy loan ratio was 1.34 % and 1.40 % , respectively , at december 31 , 2011 and 2010. contractual obligations and commitments as disclosed in the notes to the consolidated financial statements , we have certain obligations and commitments to make future payments under contracts . at december 31 , 2011 , the aggregate contractual obligations and commitments are : replace_table_token_23_th * the amounts provided as interest on advances from federal home loan bank and interest on long-term debt assume the liabilities will not be prepaid and interest is calculated to their individual maturities . the interest on $ 61.3 million in long-term debt is based on a fixed rate of 6.52 % for the first six months of 2012 and calculated based on the three-month libor plus 1.59 % thereafter until its maturity of june 1 , 2037. the three-month libor rate is projected using the most likely rate forecast from assumptions incorporated in the interest rate risk model and is determined two business days prior to the interest payment date . these assumptions are uncertain , and as a result , the actual payments will differ from the projection due to changes in economic conditions . replace_table_token_24_th commitments to extend credit and standby letters of credit do not necessarily represent future cash requirements in that these commitments often expire without being drawn upon . refer to note 18 in the consolidated financial statements for additional information regarding other commitments . liquidity and market risk the objective of ctbi 's asset/liability management function is to maintain consistent growth in net interest income within our policy limits . this objective is accomplished through management of our consolidated balance sheet composition , liquidity , and interest rate risk exposures arising from changing economic conditions , interest rates , and customer preferences . the goal of liquidity management is to provide adequate funds to meet changes in loan and lease demand or deposit withdrawals . this is accomplished by maintaining liquid assets in the form of cash and cash equivalents and investment securities , sufficient unused borrowing capacity , and growth in core deposits . as of december 31 , 2011 , we had approximately $ 238.5 million in cash and cash equivalents and approximately $ 527.4 million in securities valued at estimated fair value designated as available-for-sale and available to meet liquidity needs on a continuing basis . additional asset-driven liquidity is provided by the remainder of the securities portfolio and the repayment of loans . in addition to core deposit funding , we also have a variety of other short-term and long-term funding sources available . we also rely on federal home loan bank advances for both liquidity and management of our asset/liability position . federal home loan bank advances were $ 21.6 million at december 31 , 2011 compared to $ 21.2 million at december 31 , 2010. as of december 31 , 2011 , we had a $ 259.3 million available borrowing position with the federal home loan bank . we generally rely upon net inflows of cash from financing activities , supplemented by net inflows of cash from operating activities , to provide cash for our investing activities .
| balance sheet review ctbi 's total assets at $ 3.6 billion increased $ 235.3 million , or 7.0 % , from december 31 , 2010. loans outstanding at december 31 , 2011 were $ 2.6 billion , decreasing $ 48.6 million , or 1.9 % , year over year . loan growth during the year of $ 22.6 million in the residential loan portfolio was offset by declines of $ 41.3 million in the commercial loan portfolio and $ 29.9 million in the consumer loan portfolio . the increase in the residential loan portfolio resulted from our decision to keep a portion of federal home loan mortgage corporation ( fhlmc ) qualified loans which we normally sell in our in-house loan portfolio during the year . ctbi 's investment portfolio increased $ 188.7 million , or 55.5 % , from december 31 , 2010. deposits , including repurchase agreements , at $ 3.1 billion increased $ 201.1 million , or 6.9 % , from december 31 , 2010. the deposit ( including repurchase agreements ) to fte ( full-time equivalent ) ratio remained at $ 2.8 million from december 31 , 2010 to december 31 , 2011. shareholders ' equity at december 31 , 2011 was $ 366.9 million compared to $ 338.6 million at december 31 , 2010. as of december 31 , 2011 , ctbi 's current dividend yield to shareholders was an annualized 4.21 % . loans replace_table_token_20_th asset quality ctbi 's total nonperforming loans were $ 37.3 million at december 31 , 2011 , a 39.9 % decrease from the $ 62.0 million at december 31 , 2010. the decrease for the year included a $ 19.2 million decrease in nonaccrual loans and a $ 5.5 million decrease in the 90+ days past due category .
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( 30 ) incorporated by reference as an exhibit to current report on form 8-k as filed with the commission on november 8 , 2017 . ( 31 ) incorporated by reference as an exhibit to current report on form 8-k as filed with the commission on december 6 , 2017 . ( 32 ) incorporated by reference as an exhibit to current report on form 8-k as filed with the commission on january 10 , 2018 . ( 33 ) incorporated by reference as an exhibit to current report on form 8-k/a as filed with the commission on april 24 , 2018 . ( 34 ) incorporated by reference as an exhibit to current report on form 8-k as filed with the commission on june 19 , 2018 . ( 35 ) incorporated by reference as an exhibit to current report on form 8-k as filed with the commission on june 19 , 2018 . ( 36 ) incorporated by reference as an exhibit to current report on form 8-k as filed with the commission on july 30 , 2018 . ( 37 ) incorporated by reference as an exhibit to current report on form 8-k as filed with the commission on july 30 , 2018 . ( 38 ) incorporated by reference as an exhibit to current report on form 8-k/a as filed with the commission on august 1 , 2018 . ( 39 ) incorporated by reference as an exhibit to current report on form 8-k/a as filed with the commission on august 1 , 2018 . ( 40 ) incorporated by reference as an exhibit to current report on form 8-k as filed with the commission on august 20 , 2018 . ( 41 ) incorporated by reference as an exhibit to current report on form 8-k as filed with the commission on august 20 , 2018 . ( 42 ) incorporated by reference as an exhibit to current report on form 8-k as filed with the commission on august 24 , 2018 . ( 43 ) incorporated by reference as an exhibit to current report on form 8-k as filed with the commission on august 24 , 2018 . ( 44 ) incorporated by reference as an exhibit to current report on form 8-k as filed with the commission on august 24 , 2018 . ( 45 ) incorporated by reference as an exhibit to current report on form 8-k as filed with the commission on august 24 , 2018 . ( 46 ) incorporated by reference as an exhibit to current report on form 8-k as filed with the commission on september 5 , 2018 . ( 47 ) incorporated by reference as an exhibit to current report on form 8-k as filed with the commission on september 25 , 2018 . ( 48 ) incorporated by reference as an exhibit to current report on form 8-k as filed with the commission on november 6 , 2018 . ( 49 ) incorporated by reference as an exhibit to current report on form 8-k as filed with the commission on november 6 , 2018 . ( 50 ) incorporated by reference as an exhibit to current report on form 8-k as filed with the commission on june 26 , 2019 . ( 51 ) incorporated by reference as an exhibit to current report on form 8-k as filed with the commission on june 26 , 2019 . ( 52 ) incorporated by reference as an exhibit to current report on form 8-k as filed with the commission on october 7 , 2019 . ( 53 ) incorporated by reference as an exhibit to current report on form 8-k as filed with the story_separator_special_tag we use the terms “ magellan , ” “ we , ” “ our , ” and “ us ” to refer to magellan gold corporation . the following discussion and analysis provides information that management believes is relevant for an assessment and understanding of our results of operations and financial condition . this information should be read in conjunction with our audited financial statements , which are included in our annual report on form 10-k for the fiscal years ended december 31 , 2019 and 2018 . 29 forward-looking statements some of the information presented in this form 10-k constitutes “ forward-looking statements ” . these forward-looking statements include , but are not limited to , statements that include terms such as “ may , ” “ will , ” “ intend , ” “ anticipate , ” “ estimate , ” “ expect , ” “ continue , ” “ believe , ” “ plan , ” or the like , as well as all statements that are not historical facts . forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from current expectations . although we believe our expectations are based on reasonable assumptions within the bounds of our knowledge of our business and operations , there can be no assurance that actual results will not differ materially from expectations . all forward-looking statements speak only as of the date on which they are made . we undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made . story_separator_special_tag margin : 0pt 0 ; text-align : justify '' > effective july 1 , 2020 , magellan entered into a stock purchase agreement to acquire clearwater gold mining corporation ( “ clearwater ” ) which owns certain unpatented mining claims in idaho county , idaho that include the historic center star gold mine near elk city , idaho . the center star mine hosts high grade gold mineralization that was discovered in the early 1900 's . story_separator_special_tag effective march 31 , 2020 the company entered into an agreement to accept collateral in full satisfaction of obligations ( the “ agreement ” ) with certain holders of promissory notes ( the “ lenders ” ) due december 31 , 2019 ( the “ notes ” ) in the aggregate principal amount of $ 1.05 million . the company is indebted under the notes to the lenders and the company 's obligations to the lenders are secured by a stock pledge and security agreement covering 100 shares of common stock of magellan acquisition corporation and one ( 1 ) share of mv2 ( the “ collateral ” ) held under a collateral agent agreement . magellan acquisition corp. and mv2 own the sda mill and el dorado prospect in nayarit , mexico . the notes matured on december 31 , 2019 and remain unpaid and in default . the lenders have accelerated the company 's indebtedness . pursuant to terms set forth in the agreement , the lenders have agreed to accept the collateral in full satisfaction of the notes and unconditionally and irrevocably waive any entitlement or right to receive payment of ( i ) the initial 10 % financing fee included in the principal amount of the notes , ( ii ) the 5 % rollover fee agreed to in an allonge and modification agreement . the effective date of the agreement was march 31 , 2020. on july 21 , 2020 , the company entered into a stock purchase agreement with tri power resources , llc to sell 1,000 shares representing 100 % ownership of gulf+western industries , inc ( “ gulf+western ” ) to tri power in consideration for the return and cancellation of 50,000 shares of the company 's series a preferred stock with a stated value of $ 10 per share . john gibbs , a majority shareholder in the company , is the managing member and chief executive officer of tri power resources , llc during the year ended december 31 , 2019 , the company sold $ 135,000 of series 2019a 10 % unsecured convertible notes . the purchase price of the note is equal to the principal amount of the note . the series 2019a notes are convertible into shares of common stock at a conversion price of $ 1.00 during the life of the note . the lenders were issued 100,000 common stock warrants with an exercise price of $ 2.00 per share . the company evaluated the conversion option and concluded a beneficial conversion feature was present at issuance . the company recognized the beneficial conversion feature and relative fair value of the warrants as a debt discount and additional paid in capital in august and december 2019. the $ 135,000 debt discount is amortized over the term of the loan . the notes will accrue interest at the rate of 10 % per annum , payable quarterly in arrears . the notes mature twelve ( 12 ) months from the date of issue . the maturity date can be extended at the option of the company for an additional one ( 1 ) year . additionally , the company received $ 514,955 of proceeds from advances from related and third parties , of which $ 345,450 was settled with the issuance series a preferred stock in september 2019. we anticipate that additional funding will be in the form of additional loans from officers , directors or significant shareholders , or equity financing from the sale of our common stock but can not assure that any future financings will occur . 34 cash flows a summary of our cash provided by and used in operating , investing and financing activities is as follows : replace_table_token_4_th at december 31 , 2020 , we had a $ 1,476,062 working capital deficit . this compares to cash of $ 167 and a working capital deficit of $ 2,494,426 at december 31 , 2019. at december 31 , 2020 , we had $ 1 in cash and a $ 1,476,062 working capital deficit . this compares to cash of $ 167 and a working capital deficit of $ 2,494,426 at december 31 , 2019. net cash used in operating activities from continuing operations during the year ended december 31 , 2020 was $ 136,802 and was mainly comprised of our $ 3,683,035 net loss during the year , adjusted by a non-cash charges of $ 2,153,183 for loss on settlement of liabilities , $ 634,921 of stock compensation and accretion of discounts on notes payable of $ 346,781. in addition , it reflects changes in operating assets and liabilities of $ 411,348. net cash used in operating activities from continuing operations during the year ended december 31 , 2019 was $ 221,970 and was mainly comprised of our $ 4,674,047 net loss during the year , adjusted by a non-cash charges of $ 12,457 gain on investment , $ 3,259,365 for loss on extinguishment of debt , $ 423,399 of stock compensation and accretion of discounts on notes payable of $ 210,445. in addition , it reflects changes in operating assets and liabilities of $ 571,325. net cash used in operating activities from discontinued operations of during the years ended december 31 , 2020 and 2019 of $ 51,491 and $ 207,034 , respectively , are related to the disposal of the mexico and gulf+western operations . 35 net cash used in investing activities from continuing operations during the year ended december 31 , 2020 was $ 113,828 and was comprised of cash payments of $ 101,328 in development costs and $ 12,500 for mineral rights for clearwater mining corporation . net cash used in investing activities from discontinued operations during the year ended december 31 , 2019 was $ 75,000 related to the disposal of mexico operations . net cash provided by financing activities from continuing operations during the year ended december 31 , 2020 was $ 233,319 comprised $ 38,500
| overview we were incorporated on september 28 , 2010 , in nevada . our principal business is the acquisition and exploration of mineral resources . we have not presently determined whether the properties to which we have mineral rights contain mineral reserves that are economically recoverable . we have only had limited operations to date and we rely upon the sale of our securities and borrowings from significant investors to fund our operations , as we have not generated any revenue . in august 2012 , we entered into an option agreement and subsequently purchased the “ silver district ” project consisting of 85 unpatented lode mining claims , 4 patented lode claims , a arizona state exploration permit of 154.66 acres and 23 unpatented mill site claims , totaling over 2,000 acres in la paz county , arizona . since our acquisition , we have increased our land position in the silver district by staking two unpatented lode mining claims , leased two additional patented claims and have increased our arizona state exploration permit to 334.85 acres . on september 30 , 2014 , we formed and organized a new wholly-owned subsidiary , gulf + western industries , inc. , a nevada corporation ( “ gulf+western ” or “ g+w ” ) , to own our silver district mining interests . on october 1 , 2014 we completed the transfer of those assets from magellan to g+w . at the time of the transfer , magellan owned all the outstanding common stock of g+w . effective december 31 , 2014 , magellan pledged all its ownership interest in g+w to mr. john d. gibbs , a significant shareholder in the company , as security for outstanding amounts under a line of credit agreement between magellan and mr. gibbs . during the year ended december 31 , 2019 , the total amount owed under the credit agreement was $ 1,174,188 , which includes $ 869,550 of principal and $ 304,638 of accrued interest was settled with the issuance of series a preferred stock .
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on february 18 , 2014 , we entered into an amendment of an employment agreement with steve komar , our chief executive officer and president , dated as of august 13 , 2010 and effective as of july 1 , 2010. the employment agreement has an initial term expiring on march 31 , 2016. the company had the option to terminate mr. komar 's employment agreement as of march 31 , 2015 by giving written notice on or before january 31 , 2015 ; however , the compensation committee affirmatively decided not to exercise such option . the agreement provides for ( 1 ) a base salary of $ 260,000 , ( 2 ) a home office/automobile expense allowance of $ 600 per month to cover such expenses incurred in the pursuit of our business ; ( 3 ) a phone allowance of $ 100 per month to cover such expenses incurred in the pursuit of our business ; ( 4 ) reimbursement for additional actual business expenses consistent with our existing policies that have been incurred for our benefit ; ( 5 ) paid medical and other benefits consistent with our existing policies with respect to our key executives , as such policies may be amended from time to time in the future ; and ( 6 ) performance incentive bonuses as may be granted annually at the discretion of the compensation committee of the board . for a five month period in calendar 2014 , mr. komar voluntarily agreed to a 10 % reduction in base salary . 55 the employment agreement contains a severance provision which provides that upon the termination of his employment without cause ( as described below ) or his voluntary resignation for a good reason ( as described below ) , mr. komar will receive severance compensation payable in a lump-sum story_separator_special_tag organizational overview we were incorporated on may 30 , 1997 under the laws of the state of delaware . we are a leading provider of federally certified secure identity management and communications solutions to the government and commercial sectors . we offer a core set of managed mobility enterprise solutions ( mms ) to enable organizations to deploy fully compliant solutions in accordance with government requirements and the demands of the commercial marketplace . our on-demand mms platforms are a suite of advanced and federally certified proprietary cloud-based software solutions designed to enable secure identity management and manage the complex processes and expenses associated with complex communication assets and services of any enterprise . 29 our advanced technology-based solutions can be customized to meet functional requirements of any organization and be accessible on-demand through the cloud . many alternative solutions lack the necessary functionality , security , reliability and depth of technical resources required to successfully administer an efficient and cost-effective solution . we are in the process of realigning our business model to sell recurring technology and services leveraging our identity and communications management platforms and sell customized on premise solutions for enterprises that require an in-house solution . acquisition of soft-ex communications ltd. ( scl ) on may 1 , 2014 , we purchased all of the outstanding equity of soft-ex communications limited ( “ scl ” ) . scl , with headquarters in dublin , ireland is a provider of telecom data intelligence services offered as a software as a service solution throughout european and middle eastern markets . scl has two operating subsidiaries , soft-ex bv and soft-ex uk limited , which maintain offices and operations in the netherlands and the united kingdom , respectively . we believe the combination of widepoint 's secure managed mobility services coupled with soft-ex 's european and middle east presence , channel partners , and additional portfolio of services provides our combined enterprise with a stronger base of operations , services and global growth opportunities . the transaction complements soft-ex 's focus and expertise in delivering business intelligence and subscriber data intelligence to the global telecommunications service provider market . through the combination of our partnerships and customers we believe that we can leverage soft-ex 's innovative software-as-a-service solutions combined with the scale and breadth of widepoint 's managed mobility offerings , thereby optimizing the core strengths of both organizations . we remain focused on continued retention and expansion of services to our existing customer base and attracting new customers in the government and commercial sectors . we are continuing to actively search out new synergistic acquisitions that we believe may further enhance our present base of business and service offerings outside the united states . recent public offering of common stock on october 23 , 2014 , we entered into an underwriting agreement relating to an underwritten public offering of shares of our common stock . we completed the public offering and received net proceeds of approximately $ 10.8 million before paying estimated offering expenses of approximately $ 0.2 million incurred by the company to complete the public offering . the proceeds strengthen our balance sheet in support of our new and expanding business relationships and growth opportunities . critical accounting policies and estimates refer to note 2 to the consolidated financial statements for a summary of our significant accounting policies referenced , as applicable , to other notes . in many cases , the accounting treatment of a particular transaction is specifically dictated by u.s. gaap and does not require management 's judgment in its application . our senior management has reviewed these critical accounting policies and related disclosures with its audit committee . see note 2 to consolidated financial statements , which contain additional information regarding accounting policies and other disclosures required by u.s. gaap . the following section below provides information about certain critical accounting policies that are important to the consolidated financial statements and that require significant management assumptions and judgments . story_separator_special_tag the company recognizes revenues and related costs on a gross basis for these arrangements as we have discretion in choosing providers , rate plans , and devices in providing the services to our customers . we establish pricing for our customer contracts . for arrangements in which we do not have such credit risk we recognize revenues and related costs on a net basis . telecommunications audit and optimization services are professional services conducted over a specified period of time . these professional services are billed based on time incurred and actual costs or on a contingency basis . the company recognizes revenues for professional services performed based on actual hours worked and actual costs incurred . the company recognizes contingent based service arrangements when our savings results are verified by the carrier and accepted by the customer . contingent fees earned are calculated based on projected or proven savings multiplied by an agreed upon recovery rate . cost associated with contingent fee arrangements are recognized as incurred . telecommunication mobile device and accessory resale services may require the company to facilitate as an agent on our customers ' account or transact on our own account to deliver third party vendor products and or services to meet our customers ' specific functional requirements . for those transactions in which we procure and deliver products and services for our own account the company recognizes revenues and related costs on a gross basis for these arrangements as we have discretion in choosing providers , rate plans , and devices in providing the services to our customers . for those transactions in which we procure and deliver products and services for our customers ' on their own account we do not recognize revenues and related costs on a gross basis for these arrangements . we recognize revenues earned for arranging the transaction and any related costs . identity management and identity service s are delivered as an on-demand managed service through the cloud to an individual or organization or sold in bulk to an organization capable of self-issuing credentials . credentialing services are not bundled and do not include other obligations to deliver . revenue is recognized from the sales of credentials to an individual or organization upon issuance or in the case of bulk sales or consoles upon issue or availability to the customer for issuance . there is no obligation to provide post contract services in relation to certificates issued and consoles delivered . certificates issued have a fixed life and can not be modified or reissued . 32 technical consulting services are professional services provided on a project basis determined by our customers ' specific requirements . these technical professional services are billed based on time incurred and actual costs . the company recognizes revenues for professional services performed based on actual hours worked and actual costs incurred . goodwill goodwill represents the excess of acquisition cost of an acquired company over the fair value of assets acquired and liabilities assumed . in accordance with gaap , goodwill is not amortized but is tested for impairment at the reporting unit level annually at december 31 and between annual tests if events or circumstances arise , such as adverse changes in the business climate , that would more likely than not reduce the fair value of the reporting unit below its carrying value . a reporting unit is defined as either an operating segment or a business one level below an operating segment for which discrete financial information is available that management regularly reviews . the company has a single reporting unit for the purpose of impairment testing . the goodwill impairment test utilizes a two-step approach . the first step identifies whether there is potential impairment by comparing the fair value of a reporting unit to its carrying amount , including goodwill . if the fair value of a reporting unit is less than its carrying amount , the second step of the impairment test is required to measure the amount of any impairment loss . the company has the option to bypass the qualitative assessment for any reporting period and proceed to performing the first step of the two-step goodwill impairment test and then subsequently resume performing a qualitative assessment in any subsequent period . the company bypassed using a qualitative assessment for 2014. goodwill impairment testing involves management judgment , requiring an assessment of whether the carrying value of the reporting unit can be supported by its fair value using widely accepted valuation techniques , such as the market approach ( earnings multiples or transaction multiples for the industry in which the reporting unit operates ) or the income approach discounted cash flow methods ) . the fair values of the reporting units were determined using a combination of valuation techniques consistent with the market approach and the income approach . when preparing discounted cash flow models under the income approach , the company estimates future cash flows using the reporting unit 's internal five year forecast and a terminal value calculated using a growth rate that management believes is appropriate in light of current and expected future economic conditions . the company then applies a discount rate to discount these future cash flows to arrive at a net present value amount , which represents the estimated fair value of the reporting unit . the discount rate applied approximates the expected cost of equity financing , determined using a capital asset pricing model . the model generates an appropriate discount rate using internal and external inputs to value future cash flows based on the time value of money and the price for bearing the uncertainty inherent in an investment .
| 2013 results of operations year ended december 31 , 2013 compared to the year ended december 31 , 2012 revenues revenues for the year ended december 31 , 2013 were approximately $ 46.8 million , a decrease of approximately $ 9.0 million ( or 16 % ) , as compared to approximately $ 55.8 million in the same period in 2012. decreased revenues are primarily a result of the federal protest that spanned substantially all of fiscal 2013 that delayed our ability to implement new agencies and generate expected revenues . our mix of mms revenues for the periods presented is set forth below : replace_table_token_5_th we believe the following factors contributed to reduced revenues : § our carrier services and managed services were lower due to long delays caused by a federal protest associated with our dhs bpa contract award and our continued shift away from lower margin carrier services . § our managed services were lower due to delays caused by a federal protest of our dhs bpa contract award , slower than anticipated commercial sales cycles , client driven implementation delays as well as some commercial customer attrition . 37 § our resale and other services were lower due sequester-related delays that affected the timing of federal procurement activity . cost of revenues cost of revenues for the year ended december 31 , 2013 was approximately $ 34.7 million ( or 74 % of revenues ) as compared to approximately $ 41.9 million ( or 75 % of revenues ) in the same period in 2012. the dollar basis decrease in cost of revenues was predominantly attributable to lower sales of government product resale transactions due to sequester-related delays and lower variable subcontract labor associated with a closed project . our cost of revenues will fall in periods in which we recognize lower government product resale transactions .
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if the story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this annual report on form 10-k. this report contains forward-looking statements including , without limitation , statements regarding trends , seasonality , cyclicality and growth in , and drivers of , the markets we sell into , our strategic direction , our future effective tax rate and tax valuation allowance , earnings from our foreign subsidiaries , remediation activities , new solution and service introductions , the ability of our solutions to meet market needs , changes to our manufacturing processes , the use of contract manufacturers , the impact of local government regulations on our ability to pay vendors or conduct operations , our liquidity position , our ability to generate cash from operations , growth in our businesses , our investments , the potential impact of adopting new accounting pronouncements , our financial results , our purchase commitments , our contributions to our pension plans , the selection of discount rates and recognition of any gains or losses for our benefit plans , our cost-control activities , savings and headcount reduction recognized from our restructuring programs and other cost saving initiatives , and other regulatory approvals , the integration of our completed acquisitions and other transactions , our transition to lower-cost regions , the existence of political or economic instability , and our and the combined group 's estimated or anticipated future results of operations , that involve risks and uncertainties . our actual results could differ materially from the results contemplated by these forward-looking statements due to various factors , including but not limited to those risks and uncertainties discussed in part ii item 1a and elsewhere in this form 10-k. story_separator_special_tag and 2018 , we received insurance proceeds of $ 22 million and $ 68 million , respectively , which has substantially covered our total fire-related expenses in excess of our $ 10 million self-insured retention amount . at october 31 , 2019 , we had a receivable of $ 5 million for losses and expenses for which insurance reimbursement is probable . the receivable is included in other current assets in the consolidated balance sheet . in addition , in 2019 and 2018 , we made investments in property , plant and equipment related to fire recovery of $ 7 million and $ 27 million , respectively , that are expected to be covered by insurance . subsequent to october 31 , 2019 , we received $ 37 million of insurance proceeds primarily related to replacement of capital and recovery of fire-related expenses . these proceeds will result in an other operating gain of approximately $ 32 million in the first quarter of fiscal 2020. no additional insurance proceeds or material expenses related to the 2017 northern california wildfires are expected . outlook our strategy of bringing solutions to market that help customers develop new technologies and accelerate innovation provides a platform for long-term growth . we expect to continue to see our customers make r & d investments in certain next-generation technologies . we are still in the early market stages for these emerging technologies , such as 5g , next-generation automotive , internet of things ( `` iot '' ) and defense modernization and expect technology investments to continue . internally , we are working to improve operational efficiency across all functions . we continue to closely monitor the current macro environment related to trade , tariffs , monetary and fiscal policies . we have complied and will continue to comply with recent u.s. department of commerce export control regulations regarding china . while short-term uncertainties exist , we remain confident in our strategy and believe we are well-positioned to capture future growth opportunities . 32 currency exchange rate exposure our revenues , expenses , and monetary assets and liabilities are exposed to changes in foreign currency exchange rates as a result of our global operating and financing activities . we hedge revenues , expenses and balance sheet exposures that are not denominated in the functional currencies of our subsidiaries on a short-term and anticipated basis . the result of the hedging has been included in our consolidated statement of operations . we experience some fluctuations within individual lines of the consolidated balance sheet and consolidated statement of operations because our hedging program is not designed to offset the currency movements in each category of revenues , expenses , monetary assets and liabilities . our hedging program is designed to hedge currency movements on a relatively short-term basis of up to twelve months in advance . therefore , we are exposed to currency fluctuations over the longer term . to the extent that we are required to pay for all , or portions , of an acquisition price in foreign currencies , we may enter into foreign exchange contracts to reduce the risk that currency movements will impact the u.s. dollar cost of the transaction . results from operations - years ended october 31 , 2019 , 2018 and 2017 net revenue revenue is recognized upon transfer of control of the promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services . cancellations are recorded in the period received from the customer and historically have not been material . replace_table_token_3_th replace_table_token_4_th the following table provides the percent change in revenue for the years ended october 31 , 2019 and 2018 by geographic region , including and excluding the impact of foreign currency movements , as compared to the respective prior year . replace_table_token_5_th net revenue for the year ended october 31 , 2019 was $ 4,303 million , an increase of 11 percent when compared to 2018. foreign currency movements had an unfavorable impact of 1 percentage point on the year-over-year comparison . story_separator_special_tag other income ( expense ) , net other income ( expense ) , net for the years ended october 31 , 2019 , 2018 and 2017 was income of $ 61 million , $ 54 million and $ 104 million , respectively , and primarily includes income related to our defined benefit and post-retirement benefit plans ( interest cost , expected return on assets and amortization of net actuarial loss and prior service credits ) and the change in fair value of our equity investments . other income for 2017 also includes a $ 68 million gain from a settlement related to our japan pension fund . income taxes replace_table_token_8_th for 2019 , the effective tax rate was 13 percent , which is lower than the u.s. statutory rate primarily due to a higher percentage of earnings in the non-u.s. jurisdictions taxed at lower statutory tax rates . for 2018 , the effective tax rate was 140 percent , which is higher than the u.s. statutory rate primarily due to the net impact of u.s. tax law changes , the singapore restructuring and tax incentive modifications completed in 2018 in response to singapore tax law changes , and the tax impact of goodwill impairment . for 2017 , the effective tax rate was 43 percent , which is higher than the u.s. statutory rate primarily due to the payment of a prior year malaysia tax assessment of $ 68 million , including tax and penalties , which we are currently in the process of appealing to the special commissioners of income tax ( “ scit ” ) in malaysia . we benefit from tax incentives in several different jurisdictions , most significantly in singapore , that have granted tax incentives that require renewal at various times in the future . the tax incentives provide lower rates of taxation on certain classes of income and require various thresholds of investment and employment or specific types of income in those jurisdictions . the tax incentives are due for renewal between 2024 and 2025. the impact of the tax incentives decreased income taxes by $ 47 million , $ 567 million and $ 49 million in 2019 , 2018 and 2017 , respectively . the decrease in the tax benefit from 2018 to 2019 is primarily due to the one-time impacts of the singapore restructuring and tax incentive modifications that were completed in 2018 in response to singapore tax law changes . the calculation of our tax liabilities involves uncertainties in the application of complex tax law and regulations in a multitude of jurisdictions . although the guidance on the accounting for uncertainty in income taxes prescribes the use of a recognition and measurement model , the determination of whether an uncertain tax position has met those thresholds will continue to require significant judgment by management . in accordance with the guidance on the accounting for uncertainty in income taxes , for all u.s. and other tax jurisdictions , we recognize potential liabilities for anticipated tax audit issues based on our estimate of whether , and the extent to which , additional taxes and interest will be due . the ultimate resolution of tax uncertainties may differ from what is currently estimated , which could result in a material impact on income tax expense . if our estimate of income tax liabilities proves to be less than the ultimate assessment , a further charge to expense would be required . if the payment of these additional 35 amounts ultimately proves to be unnecessary , the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary . we include interest and penalties related to unrecognized tax benefits within the provision for income taxes in the consolidated statements of operations . accrued interest and penalties are included on the related tax liability line in the consolidated balance sheet . the open tax years for the irs and most states are from november 1 , 2015 through the current tax year . for the majority of our foreign entities , the open tax years are from november 1 , 2014 through the current tax year . for certain foreign entities , the tax years remain open , at most , back to 2008. given the number of years and numerous matters that remain subject to examination in various tax jurisdictions , we are unable to estimate the range of possible changes to the balance of our unrecognized tax benefits . the company is being audited in malaysia for the 2008 tax year . although this tax year pre-dates our separation from agilent , pursuant to the agreement between agilent and keysight pertaining to tax matters , as finalized at the time of separation , for certain entities , including malaysia , any historical tax liability is the responsibility of keysight . in the fourth quarter of fiscal 2017 , keysight paid income taxes and penalties of $ 68 million on gains related to intellectual property rights , although we are currently in the process of appealing to the scit in malaysia . the company believes there are numerous defenses to the current assessment ; the statute of limitations for the 2008 tax year in malaysia was closed , and the income in question is exempt from tax in malaysia . the company is disputing this assessment and pursuing all avenues to resolve this issue favorably for the company . segment overview in 2019 we completed an organizational change to align our services business with our customer-solutions-oriented , go-to-market strategy as reflected by our keysight leadership model ( `` klm '' ) . this change was made to fully reflect our services delivery within the markets served and further enable the growth of our services solutions portfolio . prior period segment results were revised to conform to the presentation . as a result , keysight has three segments : communications solutions group , electronic industrial solutions group and ixia solutions group .
| overview and executive summary keysight technologies , inc. ( `` we , '' `` us , '' `` keysight '' or the `` company '' ) , incorporated in delaware on december 6 , 2013 , is a technology company that helps enterprises , service providers and governments accelerate innovation to connect and secure the world by providing electronic design and test solutions that are used in the simulation , design , validation , manufacture , installation , optimization and secure operation of electronics systems in the communications , networking and electronics industries . we also offer customization , consulting and optimization services throughout the customer 's product lifecycle , including start-up assistance , asset management , up-time services , application services and instrument calibration and repair . in 2019 we completed an organizational change to align our services business with our customer-solutions-oriented , go-to-market strategy as reflected by our keysight leadership model ( `` klm '' ) . this change enables us to provide our customers with complete solutions that incorporate both leading product capabilities and the appropriate services and support . our services delivery is now fully reflected within the markets served , which is a further catalyst of the growth of our services solutions portfolio . prior period segment results were revised to conform to the presentation . as a result , keysight has three segments : communications solutions group , electronic industrial solutions group and ixia solutions group . the organizational structure continues to include centralized enterprise functions that provide support across the groups . to more effectively and efficiently address customer solution needs across the communications ecosystem as the network transforms , in the first quarter of fiscal 2020 , we completed an organizational change to manage our ixia solutions group within our communications solutions group . we believe this realignment will create improved go-to-market and product development alignment , as well as accelerate solution synergies in 5g as this new technology is deployed globally .
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when ineffectiveness exists , the ineffective portion of changes in fair value of the interest rate swaps associated with our cash flow hedges is recognized in earnings in the period affected . hedge ineffectiveness did not impact earnings in 2013 , 2012 or 2011 , and we do not anticipate it will have a significant effect in the future . see note 8 for additional disclosures relating to our two existing interest rate swap agreements . mortgage notes receivable we have made certain mortgage loans that , because of their nature , qualify as loan receivables . at the time the loans were made , we did not intend for the arrangement to be anything other than a financing and did not contemplate a real estate investment . we evaluate each investment to determine whether the loan arrangement qualifies as a loan , joint venture or real estate investment and the appropriate accounting thereon . such determination affects our balance sheet classification of these investments and the recognition of interest income derived therefrom . on some of the loans we receive additional interest , however , we never receive in excess of 50 % of the residual profit in the project , and because the borrower has either a substantial investment in the project story_separator_special_tag forward-looking statements certain statements in this section or elsewhere in this report may be deemed “ forward-looking statements ” . see “ item 1a . risk factors ” in this report for important information regarding these forward-looking statements and certain risk and uncertainties that may affect us . the following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing in “ item 8. financial statements and supplementary data ” of this report . overview we are an equity real estate investment trust ( “ reit ” ) specializing in the ownership , management , and redevelopment of high quality retail and mixed-use properties located primarily in densely populated and affluent communities in strategically selected metropolitan markets in the northeast and mid-atlantic regions of the united states , as well as in california . as of december 31 , 2013 , we owned or had a majority interest in community and neighborhood shopping centers and mixed-use properties which are operated as 87 predominantly retail real estate projects comprising approximately 19.5 million square feet . in total , the real estate projects were 95.8 % leased and 95.1 % occupied at december 31 , 2013 . a joint venture in which we own a 30 % interest owned seven retail real estate projects totaling approximately 1.0 million square feet as of december 31 , 2013 . in total , the joint venture properties in which we own a 30 % interest were 84.9 % leased and 84.9 % occupied at december 31 , 2013 . we have paid quarterly dividends to our shareholders continuously since our founding in 1962 and have increased our dividends per common share for 46 consecutive years . critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america , referred to as “ gaap ” , requires management to make estimates and assumptions that in certain circumstances affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities , and revenues and expenses . these estimates are prepared using management 's best judgment , after considering past and current events and economic conditions . in addition , information relied upon by management in preparing such estimates includes internally generated financial and operating information , external market information , when available , and when necessary , information obtained from consultations with third party experts . actual results could differ from these estimates . a discussion of possible risks which may 29 affect these estimates is included in “ item 1a . risk factors ” of this report . management considers an accounting estimate to be critical if changes in the estimate could have a material impact on our consolidated results of operations or financial condition . our significant accounting policies are more fully described in note 2 to the consolidated financial statements ; however , the most critical accounting policies , which involve the use of estimates and assumptions as to future uncertainties and , therefore , may result in actual amounts that differ from estimates , are as follows : revenue recognition and accounts receivable our leases with tenants are classified as operating leases . substantially all such leases contain fixed escalations which occur at specified times during the term of the lease . base rents are recognized on a straight-line basis from when the tenant controls the space through the term of the related lease , net of valuation adjustments , based on management 's assessment of credit , collection and other business risk . percentage rents , which represent additional rents based upon the level of sales achieved by certain tenants , are recognized at the end of the lease year or earlier if we have determined the required sales level is achieved and the percentage rents are collectible . real estate tax and other cost reimbursements are recognized on an accrual basis over the periods in which the related expenditures are incurred . for a tenant to terminate its lease agreement prior to the end of the agreed term , we may require that they pay a fee to cancel the lease agreement . lease termination fees for which the tenant has relinquished control of the space are generally recognized on the termination date . when a lease is terminated early but the tenant continues to control the space under a modified lease agreement , the lease termination fee is generally recognized evenly over the remaining term of the modified lease agreement . current accounts receivable from tenants primarily relate to contractual minimum rent and percentage rent as well as real estate tax and other cost reimbursements . story_separator_special_tag additionally , we make estimates as to the probability of certain development and redevelopment projects being completed . if we determine the redevelopment is no longer probable of completion , we immediately expense all capitalized costs which are not recoverable . when applicable , as lessee , we classify our leases of land and building as operating or capital leases . we are required to use judgment and make estimates in determining the lease term , the estimated economic life of the property and the interest rate to be used in determining whether or not the lease meets the qualification of a capital lease and is recorded as an asset . certain external and internal costs directly related to the development , redevelopment and leasing of real estate , including pre-construction costs , real estate taxes , insurance , construction costs and salaries and related costs of personnel directly involved , are capitalized . we capitalized external and internal costs related to both development and redevelopment activities of $ 275 million and $ 6 million , respectively , for 2013 and $ 129 million and $ 6 million , respectively , for 2012 . we capitalized external and internal costs related to other property improvements of $ 48 million and $ 1 million , respectively , for 2013 and $ 52 million and $ 1 million , respectively , for 2012 . we capitalized external and internal costs related to leasing activities of $ 9 million and $ 6 million , respectively , for 2013 and $ 9 million and $ 6 million , respectively , for 2012 . the amount of capitalized internal costs for salaries and related benefits for development and redevelopment activities , other property improvements , and leasing activities were $ 6 million , $ 1 million , and $ 5 million , respectively , for 2013 and $ 5 million , $ 1 million , and $ 5 million , respectively , for 2012 . additionally , interest costs on developments and major redevelopments are capitalized as part of developments and redevelopments not yet placed in service . capitalization of interest commences when development activities and expenditures begin and end upon completion , which is when the asset is ready for its intended use . generally , rental property is considered substantially complete and ready for its intended use upon completion of tenant improvements , but no later than one year from completion of major construction activity . we make judgments as to the time period over which to capitalize such costs and these assumptions have a direct impact on net income because capitalized costs are not subtracted in calculating net income . if the time period for capitalizing interest is extended , more interest is capitalized , thereby decreasing interest expense and increasing net income during that period . real estate acquisitions upon acquisition of operating real estate properties , we estimate the fair value of assets and liabilities acquired including land , building , improvements , leasing costs , intangibles such as in-place leases , assumed debt , and current assets and liabilities , if any . based on these estimates , we allocate the purchase price to the applicable assets and liabilities . we utilize methods similar to those used by independent appraisers in estimating the fair value of acquired assets and liabilities . the value allocated to in-place leases is amortized over the related lease term and reflected as rental income in the statement of operations . we consider qualitative and quantitative factors in evaluating the likelihood of a tenant exercising a below market renewal option and include such renewal options in the calculation of in-place lease value when we consider these to be bargain renewal options . if the value of below market lease intangibles includes renewal option periods , we include such renewal periods in the amortization period utilized . if a tenant vacates its space prior to contractual termination of its lease , the unamortized balance of any in-place lease value is written off to rental income . 31 long-lived assets and impairment there are estimates and assumptions made by management in preparing the consolidated financial statements for which the actual results will be determined over long periods of time . this includes the recoverability of long-lived assets , including our properties that have been acquired or redeveloped and our investment in certain joint ventures . management 's evaluation of impairment includes review for possible indicators of impairment as well as , in certain circumstances , undiscounted and discounted cash flow analysis . since most of our investments in real estate are wholly-owned or controlled assets which are held for use , a property with impairment indicators is first tested for impairment by comparing the undiscounted cash flows , including residual value , to the current net book value of the property . if the undiscounted cash flows are less than the net book value , the property is written down to expected fair value . the calculation of both discounted and undiscounted cash flows requires management to make estimates of future cash flows including revenues , operating expenses , required maintenance and development expenditures , market conditions , demand for space by tenants and rental rates over long periods . because our properties typically have a long life , the assumptions used to estimate the future recoverability of book value requires significant management judgment . actual results could be significantly different from the estimates . these estimates have a direct impact on net income , because recording an impairment charge results in a negative adjustment to net income . contingencies we are sometimes involved in lawsuits , warranty claims , and environmental matters arising in the ordinary course of business . management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters . we accrue a liability for litigation if an unfavorable outcome is probable and the amount of loss can be reasonably estimated .
| summary of cash flows replace_table_token_18_th net cash provided by operating activities increased $ 17.9 million to $ 314.5 million during 2013 from $ 296.6 million during 2012 . the increase was primarily attributable to higher net income before certain non-cash items . net cash used in investing activities increased $ 71.6 million to $ 345.2 million during 2013 from $ 273.6 million during 2012 . the increase was primarily attributable to : $ 109.5 million increase in capital investments in 2013 due primarily to our projects at assembly row , pike & rose and santana row , and $ 6.4 million increase in acquisitions of real estate , partially offset by 42 $ 42.9 million in proceeds from the sale of real estate in 2013. net cash provided by financing activities increased $ 136.5 million to $ 82.6 million during 2013 from $ 53.9 million used in financing activities in 2012 . the increase was primarily attributable to : $ 319.6 million increase due to net proceeds of $ 564.4 million from the issuance of our 2.75 % senior notes in may 2013 and our 3.95 % senior notes in december 2013 as compared to $ 244.8 million in net proceeds from the issuance of our 3.00 % senior notes in july 2012 , and $ 74.3 million increase in net proceeds from the issuance of common shares due primarily to the sale of 1.7 million shares under our atm equity program at a weighted average price of $ 108.01 during 2013 compared to 1.0 million shares at a weighted average price of $ 103.69 during 2012 , partially offset by $ 120.3 million increase in repayment of mortgages , capital leases and notes payable due to the payoff of six mortgages totaling $ 157.3 million and $ 4.4 million in prepayment premiums in 2013 compared to the repayment of four mortgages totaling $ 41.0 million in 2012 , $ 118.4 million decrease
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45 non-gaap financial measures the following table reconciles the non-gaap financial measurements used by management to our most directly comparable gaap measures for the years ended december 31 , 2015 , 2014 , and 2013 , which represents ebitda , adjusted ebitda and distributable cash flow from continuing operations . reconciliation of ebitda , adjusted ebitda , and distributable cash flow replace_table_token_8_th story_separator_special_tag style= '' line-height:120 % ; text-align : left ; text-indent:48px ; font-size:10pt ; '' > products revenues . our ngl average sales price per barrel decreased $ 28.28 , or 47 % , resulting in a decrease to products revenues of $ 465.2 million . the decrease in average sales price per barrel was a result of a decline in market prices . product sales volumes decreased 13 % , decreasing revenues $ 67.4 million . cost of products sold . our average cost per barrel decreased $ 28.77 , or 50 % , decreasing cost of products sold by $ 473.1 million . the decrease in average cost per barrel was a result of a decline in market prices . the decrease in sales volume of 13 % , resulted in a $ 61.2 million decrease to cost of products sold . our margins increased $ 0.48 per barrel , or 20 % during the period . operating expenses . operating expenses increased $ 13.2 million , $ 11.0 million of which is related to the acquisition of cardinal , $ 1.1 million is a result of the acquisition of ngl storage assets from martin resource management in may 2014 , $ 0.6 million is a result of expenses associated with the hydrostatic test of our 200 mile ngl pipeline , and $ 0.5 million is related to the rail operations at our arcadia facility which was placed into service in june 2015. selling , general and administrative expenses . selling , general and administrative expenses increased $ 1.4 million as a result of the acquisition of cardinal . offsetting this increase was a decrease to property taxes of $ 0.2 million . depreciation and amortization . depreciation and amortization increased $ 20.2 million due to the acquisition of cardinal and $ 0.9 million is related to increased capital expenditure activity . other operating loss . other operating loss represents losses from the disposition of property , plant and equipment . 50 comparative results of operations for the twelve months ended december 31 , 2014 and 2013 replace_table_token_13_th revenues . services revenue for 2014 are attributable to the acquisition of cardinal on august 29 , 2014. ngl sales volumes increased 11 % , positively impacting product revenues by $ 94.8 million . our ngl average sales price per barrel decreased $ 4.77 , or 7 % , resulting in an offsetting decrease to product revenues of $ 70.9 million . cost of products sold . our average cost per barrel decreased $ 4.74 , or 8 % . the impact of lower prices reduced cost of products sold by $ 70.6 million while the growth in volumes increased our costs $ 91.0 million . our margins decreased by $ 0.02 , or 0.9 % , per barrel during the period . operating expenses . operating expenses increased $ 6.9 million , $ 5.3 million of which is related to the acquisition of cardinal and $ 1.5 million is a result of the acquisition of ngl storage assets from martin resource management in may 2014. selling , general and administrative expenses . selling , general and administrative expenses increased $ 2.7 million due to the acquisition of cardinal , $ 1.0 million due to increased compensation expense , $ 0.5 million due to increased property taxes , and $ 0.3 million due to increased bad debt expense . depreciation and amortization . depreciation and amortization increased due to the acquisition of cardinal . 51 sulfur services segment comparative results of operations for the twelve months ended december 31 , 2015 and 2014 replace_table_token_14_th revenues . product revenue decreased $ 42.1 million as a result of a 21 % decrease in sales prices for both sulfur and fertilizer products . further , product revenue decreased an additional $ 3.3 million due to a 2 % decrease in sales volumes , primarily related to decreased fertilizer volumes . cost of products sold . a 27 % decrease in prices reduced our cost by $ 42.6 million . a 2 % decrease in sales volumes decreased cost of products sold by $ 2.4 million . margin per ton remained consistent . operating expenses . our operating expenses decreased due to a reduction in repairs and maintenance on marine vessels of $ 1.3 million and a decrease in fuel expense of $ 0.6 million . selling , general and administrative expenses . selling , general and administrative expenses decreased as a result of decreased compensation expense . depreciation and amortization . the slight increase in depreciation and amortization is due to the impact of recent capital expenditures . other operating loss . other operating loss represents losses from the disposition of property , plant and equipment . 52 comparative results of operations for the twelve months ended december 31 , 2014 and 2013 replace_table_token_15_th revenues . product revenue increased $ 7.9 million as a result of a 4 % increase in sales volumes , attributable primarily to 12 % increase in fertilizer volumes , and were offset by a decrease of $ 5.7 million due to a 3 % decline in sales prices for both sulfur and fertilizer products . cost of products sold . a 4 % increase in sales volumes increased cost of products sold by $ 6.2 million . a 3 % decrease in prices reduced our cost by $ 4.1 million . margin per ton decreased $ 1.38 , or 4 % . operating expenses . our operating expenses increased due to higher railcar lease expense of $ 0.3 million and a $ 0.1 million decrease in story_separator_special_tag 45 non-gaap financial measures the following table reconciles the non-gaap financial measurements used by management to our most directly comparable gaap measures for the years ended december 31 , 2015 , 2014 , and 2013 , which represents ebitda , adjusted ebitda and distributable cash flow from continuing operations . reconciliation of ebitda , adjusted ebitda , and distributable cash flow replace_table_token_8_th story_separator_special_tag style= '' line-height:120 % ; text-align : left ; text-indent:48px ; font-size:10pt ; '' > products revenues . our ngl average sales price per barrel decreased $ 28.28 , or 47 % , resulting in a decrease to products revenues of $ 465.2 million . the decrease in average sales price per barrel was a result of a decline in market prices . product sales volumes decreased 13 % , decreasing revenues $ 67.4 million . cost of products sold . our average cost per barrel decreased $ 28.77 , or 50 % , decreasing cost of products sold by $ 473.1 million . the decrease in average cost per barrel was a result of a decline in market prices . the decrease in sales volume of 13 % , resulted in a $ 61.2 million decrease to cost of products sold . our margins increased $ 0.48 per barrel , or 20 % during the period . operating expenses . operating expenses increased $ 13.2 million , $ 11.0 million of which is related to the acquisition of cardinal , $ 1.1 million is a result of the acquisition of ngl storage assets from martin resource management in may 2014 , $ 0.6 million is a result of expenses associated with the hydrostatic test of our 200 mile ngl pipeline , and $ 0.5 million is related to the rail operations at our arcadia facility which was placed into service in june 2015. selling , general and administrative expenses . selling , general and administrative expenses increased $ 1.4 million as a result of the acquisition of cardinal . offsetting this increase was a decrease to property taxes of $ 0.2 million . depreciation and amortization . depreciation and amortization increased $ 20.2 million due to the acquisition of cardinal and $ 0.9 million is related to increased capital expenditure activity . other operating loss . other operating loss represents losses from the disposition of property , plant and equipment . 50 comparative results of operations for the twelve months ended december 31 , 2014 and 2013 replace_table_token_13_th revenues . services revenue for 2014 are attributable to the acquisition of cardinal on august 29 , 2014. ngl sales volumes increased 11 % , positively impacting product revenues by $ 94.8 million . our ngl average sales price per barrel decreased $ 4.77 , or 7 % , resulting in an offsetting decrease to product revenues of $ 70.9 million . cost of products sold . our average cost per barrel decreased $ 4.74 , or 8 % . the impact of lower prices reduced cost of products sold by $ 70.6 million while the growth in volumes increased our costs $ 91.0 million . our margins decreased by $ 0.02 , or 0.9 % , per barrel during the period . operating expenses . operating expenses increased $ 6.9 million , $ 5.3 million of which is related to the acquisition of cardinal and $ 1.5 million is a result of the acquisition of ngl storage assets from martin resource management in may 2014. selling , general and administrative expenses . selling , general and administrative expenses increased $ 2.7 million due to the acquisition of cardinal , $ 1.0 million due to increased compensation expense , $ 0.5 million due to increased property taxes , and $ 0.3 million due to increased bad debt expense . depreciation and amortization . depreciation and amortization increased due to the acquisition of cardinal . 51 sulfur services segment comparative results of operations for the twelve months ended december 31 , 2015 and 2014 replace_table_token_14_th revenues . product revenue decreased $ 42.1 million as a result of a 21 % decrease in sales prices for both sulfur and fertilizer products . further , product revenue decreased an additional $ 3.3 million due to a 2 % decrease in sales volumes , primarily related to decreased fertilizer volumes . cost of products sold . a 27 % decrease in prices reduced our cost by $ 42.6 million . a 2 % decrease in sales volumes decreased cost of products sold by $ 2.4 million . margin per ton remained consistent . operating expenses . our operating expenses decreased due to a reduction in repairs and maintenance on marine vessels of $ 1.3 million and a decrease in fuel expense of $ 0.6 million . selling , general and administrative expenses . selling , general and administrative expenses decreased as a result of decreased compensation expense . depreciation and amortization . the slight increase in depreciation and amortization is due to the impact of recent capital expenditures . other operating loss . other operating loss represents losses from the disposition of property , plant and equipment . 52 comparative results of operations for the twelve months ended december 31 , 2014 and 2013 replace_table_token_15_th revenues . product revenue increased $ 7.9 million as a result of a 4 % increase in sales volumes , attributable primarily to 12 % increase in fertilizer volumes , and were offset by a decrease of $ 5.7 million due to a 3 % decline in sales prices for both sulfur and fertilizer products . cost of products sold . a 4 % increase in sales volumes increased cost of products sold by $ 6.2 million . a 3 % decrease in prices reduced our cost by $ 4.1 million . margin per ton decreased $ 1.38 , or 4 % . operating expenses . our operating expenses increased due to higher railcar lease expense of $ 0.3 million and a $ 0.1 million decrease in
| results of operations the results of operations for the years ended december 31 , 2015 , 2014 , and 2013 have been derived from our consolidated financial statements . we evaluate segment performance on the basis of operating income , which is derived by subtracting cost of products sold , operating expenses , selling , general and administrative expenses , and depreciation and amortization expense from revenues . the following table sets forth our operating revenues and operating income by segment for the years ended december 31 , 2015 , 2014 , and 2013 . 46 our consolidated results of operations are presented on a comparative basis below . there are certain items of income and expense which we do not allocate on a segment basis . these items , including equity in earnings ( loss ) of unconsolidated entities , interest expense , and indirect selling , general and administrative expenses , are discussed after the comparative discussion of our results within each segment . the natural gas services segment information below excludes the discontinued operations of the floating storage assets disposed of on february 12 , 2015 for the years ended december 31 , 2015 , 2014 , and 2013. see item 8 , note 5. replace_table_token_9_th 47 terminalling and storage segment comparative results of operations for the twelve months ended december 31 , 2015 and 2014 replace_table_token_10_th services revenues . services revenue increased $ 2.9 million attributable to increased throughput rates at our smackover refinery . in addition , $ 1.5 million of the increase is due to revenues generated by our shore-based terminals primarily related to increased consigned lube revenue and increased throughput rates . service revenues at our specialty terminals decreased $ 0.9 million overall resulting from increased revenues at several of our terminals offset by decreased throughput fees of $ 2.6 million at our crude terminal in corpus christi , texas . products revenues .
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a company 's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles . a company 's internal control over financial reporting includes those policies and procedures that ( 1 ) pertain to the maintenance of records that , in reasonable detail , accurately and fairly reflect the transactions and dispositions of the assets of the company ; ( 2 ) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles story_separator_special_tag reference is made to “ part i. item 1a . risk factors ” and “ cautionary statement regarding forward-looking statements , ” which describe important factors that could cause actual results to differ from expectations and non-historical information contained herein . in addition , the following discussion should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto of charter communications , inc. and subsidiaries included in “ item 8. financial statements and supplementary data. ” overview we are a cable operator providing services in the united states with approximately 5.9 million residential and commercial customers at december 31 , 2013 . we offer our customers traditional cable video programming , internet services , and voice services , as well as advanced video services such as ondemand tm , hd television and dvr service . we also sell local advertising on cable networks and provide fiber connectivity to cellular towers . see “ part i. item 1. business — products and services ” for further description of these services , including “ customers. ” our most significant competitors are dbs providers and certain telephone companies that offer services that provide features and functions similar to our video , high-speed internet , and voice services , including in some cases wireless services , and they also offer these services in bundles similar to ours . see “ business — competition. ” in the recent past , we have grown revenues by offsetting basic video customer losses with price increases and sales of incremental services such as high-speed internet , ondemand , dvr and hd television . we expect to continue to grow revenues by increasing the number of products in our current customer homes and obtaining new customers with an improved value offering . in addition , we expect to increase revenues by expanding the sales of services to our commercial customers . however , we can not assure you that we will be able to grow revenues or maintain our margins at recent historical rates . our business plans include goals for increasing customers and revenue . to reach our goals , we have actively invested in our network and operations , and have improved the quality and value of the products and packages that we offer . we have enhanced our video product by increasing digital and hd-dvr penetration , offering more hd channels , and deemphasizing our analog service . during the second quarter of 2012 , we simplified our offers and pricing and improved our packaging of products to bring more value to new and existing customers . as part of our effort to create more value for customers , we have focused on driving penetration of our triple play offering , which includes more than 100 hd channels , video on demand , internet service , and fully featured voice service . in addition , we have implemented a number of changes to our organizational structure , selling methods and operating tactics . we are increasingly insourcing our field operations , call center and direct sales workforces and modifying the way our sales workforce is compensated , which we believe positions us for better customer service and growth . we expect that our enhanced product set combined with improved customer service will lead to lower customer churn and longer customer lifetimes , allowing us to grow our customer base and revenue more quickly and economically . we expect our capital expenditures to remain elevated as we strive to increase digital and hd-dvr penetration , place higher levels of customer premise equipment per transaction and progressively move to an all-digital platform . in july 2013 , charter and charter operating acquired bresnan from a wholly owned subsidiary of cablevision , for $ 1.625 billion in cash , subject to a working capital adjustment and a reduction for certain funded indebtedness of bresnan ( the `` bresnan acquisition '' ) . bresnan manages cable operating systems in colorado , montana , wyoming and utah that pass approximately 670,000 homes and serve approximately 375,000 residential and commercial customer relationships . total revenue growth was 9 % for the year ended december 31 , 2013 compared to the corresponding period in 2012 , and 4 % for the year ended december 31 , 2012 compared to the corresponding period in 2011 , due to the bresnan acquisition and growth in our video , internet and commercial businesses . total revenue growth on a pro forma basis for the bresnan acquisition as if it had occurred on january 1 , 2011 was 5 % for the year ended december 31 , 2013 compared to the corresponding period in 2012 , and 4 % for the year ended december 31 , 2012 compared to the corresponding period in 2011 . for the years ended december 31 , 33 2013 , 2012 and 2011 , adjusted earnings ( loss ) before interest expense , income taxes , depreciation and amortization ( “ adjusted ebitda ” ) was $ 2.9 billion , $ 2.7 billion and $ 2.7 billion , respectively . see “ —use of adjusted ebitda and free cash flow ” for further information on adjusted ebitda and free cash flow . story_separator_special_tag as of december 31 , 2013 and 2012 , the net carrying amount of our property , plant and equipment ( consisting primarily of cable network assets ) was approximately $ 8.0 billion ( representing 46 % of total assets ) and $ 7.2 billion ( representing 46 % of total assets ) , respectively . total capital expenditures for the years ended december 31 , 2013 , 2012 and 2011 were approximately $ 1.8 billion , $ 1.7 billion and $ 1.3 billion , respectively . capitalization of labor and overhead costs . costs associated with network construction , initial customer installations , installation refurbishments , and the addition of network equipment necessary to provide new or advanced video services , are capitalized . while our capitalization is based on specific activities , once capitalized , we track these costs by fixed asset category at the cable system level , and not on a specific asset basis . for assets that are sold or retired , we remove the estimated applicable cost and accumulated depreciation . costs capitalized as part of initial customer installations include materials , direct labor , and certain indirect costs . these indirect costs are associated with the activities of personnel who assist in connecting and activating the new service , and consist of compensation and overhead costs associated with these support functions . the costs of disconnecting service at a customer 's dwelling or reconnecting service to a previously installed dwelling are charged to operating expense in the period incurred . costs for repairs and maintenance are charged to operating expense as incurred , while equipment replacement , including replacement of certain components , and betterments , including replacement of cable drops from the pole to the dwelling , are capitalized . we make judgments regarding the installation and construction activities to be capitalized . we capitalize direct labor and overhead using standards developed from actual costs and applicable operational data . we calculate standards annually ( or more frequently if circumstances dictate ) for items such as the labor rates , overhead rates , and the actual amount of time required to perform a capitalizable activity . for example , the standard amounts of time required to perform capitalizable activities are based on studies of the time required to perform such activities . overhead rates are established based on an analysis of the nature of costs incurred in support of capitalizable activities , and a determination of the portion of costs that is directly attributable to capitalizable activities . the impact of changes that resulted from these studies were not material in the periods presented . labor costs directly associated with capital projects are capitalized . capitalizable activities performed in connection with customer installations include such activities as : dispatching a “ truck roll ” to the customer 's dwelling or business for service connection ; verification of serviceability to the customer 's dwelling or business ( i.e. , determining whether the customer 's dwelling is capable of receiving service by our cable network and or receiving advanced or internet services ) ; customer premise activities performed by in-house field technicians and third-party contractors in connection with customer installations , installation of network equipment in connection with the installation of expanded services , and equipment replacement and betterment ; and verifying the integrity of the customer 's network connection by initiating test signals downstream from the headend to the customer 's digital set-top box . judgment is required to determine the extent to which overhead costs incurred result from specific capital activities , and therefore should be capitalized . the primary costs that are included in the determination of the overhead rate are ( i ) employee benefits and payroll taxes associated with capitalized direct labor , ( ii ) direct variable costs associated with capitalizable activities , consisting primarily of installation and construction vehicle costs , ( iii ) the cost of support personnel , such as dispatchers , who directly assist with capitalizable installation activities , and ( iv ) indirect costs directly attributable to capitalizable activities . 35 while we believe our existing capitalization policies are appropriate , a significant change in the nature or extent of our system activities could affect management 's judgment about the extent to which we should capitalize direct labor or overhead in the future . we monitor the appropriateness of our capitalization policies , and perform updates to our internal studies on an ongoing basis to determine whether facts or circumstances warrant a change to our capitalization policies . we capitalized internal direct labor and overhead of $ 219 million , $ 202 million and $ 199 million , respectively , for the years ended december 31 , 2013 , 2012 and 2011 . valuation and impairment . we evaluate the recoverability of our property , plant and equipment upon the occurrence of events or changes in circumstances indicating that the carrying amount of an asset may not be recoverable . such events or changes in circumstances could include such factors as the impairment of our indefinite life franchises , changes in technological advances , fluctuations in the fair value of such assets , adverse changes in relationships with local franchise authorities , adverse changes in market conditions , or a deterioration of current or expected future operating results . a long-lived asset is deemed impaired when the carrying amount of the asset exceeds the projected undiscounted future cash flows associated with the asset . no impairments of long-lived assets to be held and used were recorded in the years ended december 31 , 2013 , 2012 and 2011 . we utilize the cost approach as the primary method used to establish fair value for our property , plant and equipment in connection with business combinations . the cost approach considers the amount required to replace an asset by constructing or purchasing a new asset with similar utility , then adjusts the value in consideration of all forms of depreciation as of the appraisal date for physical depreciation and function and economic obsolescence .
| results of operations the following table sets forth the percentages of revenues that items in the accompanying consolidated statements of operations constituted for the periods presented ( dollars in millions , except per share data ) : replace_table_token_5_th revenues . total revenues grew $ 651 million or 9 % in the year ended december 31 , 2013 as compared to 2012 and grew $ 300 million or 4 % in the year ended december 31 , 2012 as compared to 2011 . revenue growth primarily reflects increases in the number of residential internet and triple play customers and in commercial business customers , growth in expanded basic and digital penetration , promotional and annual rate increases , and higher advanced services penetration offset by a decrease in basic video customers and lower advertising sales in a non-political year . asset acquisitions increased revenues in 2013 as compared to 2012 by approximately $ 270 million and approximately $ 20 million in 2012 as compared to 2011 . revenues by service offering were as follows ( dollars in millions ) : replace_table_token_6_th 40 video revenues consist primarily of revenues from basic and digital video services provided to our non-commercial customers , as well as franchise fees , equipment rental and video installation revenue . residential basic video customers increased by 188,000 in 2013 and decreased by 155,000 in 2012 . however , after giving effect to asset acquisitions and dispositions , residential basic video customers decreased by 109,000 and 154,000 in 2013 and 2012 , respectively . the changes in video revenues are attributable to the following ( dollars in millions ) : replace_table_token_7_th residential internet customers grew by 598,000 and 293,000 customers in 2013 and 2012 , respectively , or 324,000 and 316,000 customers in 2013 and 2012 , respectively , after giving effect to asset acquisitions and dispositions .
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holders of stock options for which the exercise price was less than the average closing price of metropcs 's common stock for the five days preceding the closing ( “ in-the-money options ” ) had the right to receive , at their election , a cash payment based on the amount by which the average closing price exceeded the exercise price of the options . in-the-money options held by holders who made this election were canceled . finally , stock options with low exercise prices , as defined in the bca , were canceled story_separator_special_tag except as expressly stated , the financial condition and results of operations discussed throughout management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) are those of t-mobile us , inc. and its consolidated subsidiaries . overview the md & a is intended to provide a reader of our financial statements with a narrative explanation from the perspective of management of our financial condition , results of operations , liquidity and certain other factors that may affect future results . the md & a is provided as a supplement to , and should be read in conjunction with , our audited consolidated financial statements for the three years ended december 31 , 2013 included in part ii , item 8 of this form 10-k . unless expressly stated otherwise , the comparisons presented in this md & a refer to the same period in the prior year . t-mobile 's md & a is presented in the following sections : financial highlights other highlights results of operations performance measures liquidity and capital resources contractual obligations off-balance sheet arrangements related party transactions restructuring costs critical accounting policies and estimates recently issued accounting standards 22 story_separator_special_tag the decrease was primarily attributable to lower average revenue per user ( “ arpu ” ) . see “ performance measures ” for a description of arpu . branded postpaid arpu was negatively impacted by the growth of our value and simple choice plans which have lower priced rate plans than other branded postpaid rate plans . compared to other traditional bundled postpaid price plans , value and simple choice plans result in lower service revenues but higher equipment sales at the time of the purchase as the plans do not include a bundled sale of a discounted handset . branded postpaid customers on value and simple choice plans more than doubled over the past twelve months to 69 % of the branded postpaid customer base at december 31 , 2013 , compared to 30 % at december 31 , 2012 . branded prepaid revenues increased $ 3.2 billion for the year ended december 31 , 2013 , compared to the same period in 2012 . of the increase , approximately $ 2.9 billion was due to the inclusion of the operating results of metropcs since may 1 , 2013. excluding metropcs operating results , the increase for the year ended december 31 , 2013 resulted primarily from an increase in average branded prepaid customers driven by the success of t-mobile 's monthly prepaid service plans , including data services that also have higher arpu . 24 wholesale revenues increased $ 69 million , or 13 % , for the year ended december 31 , 2013 , compared to the same period in 2012 . the increase was primarily attributable to growth of the average number of mvno customers for the period . the increase in mvno customers was due in part to growth of government subsidized lifeline programs offered by our mvno partners along with mvno partnerships launched in the fourth quarter of 2012. however , a significant portion of our mvno partners ' recent customer growth has been in lower arpu products that result in revenues that do not increase in proportion with customer growth . roaming and other service revenues decreased $ 89 million , or 21 % , for the year ended december 31 , 2013 , compared to the same period in 2012 . the decrease was primarily attributable to lower early termination fees of $ 58 million due to the no annual service contract features of simple choice plans launched in march 2013. additionally , international voice and domestic data revenues decreased due to rate reductions negotiated with certain roaming partners . equipment sales increased $ 2.8 billion , or 124 % , for the year ended december 31 , 2013 , compared to the same period in 2012 . the increase was primarily attributable to significant growth in the number of handsets sold and an increase in the rate of customers upgrading their handset . additionally , equipment sales increased due to growth in the sales of smartphones , which have a higher average revenue per unit sold as compared to other handsets . this was driven by our introduction of both the apple iphone 5 and the samsung galaxy s ® 4 in the second quarter of 2013 , and the apple iphone 5s and iphone 5c in the third quarter of 2013. additionally , the inclusion of metropcs 's operating results since may 1 , 2013 contributed approximately $ 450 million to the increase in equipment sales for the year ended december 31 , 2013 . we financed $ 3.3 billion of equipment sales revenues through equipment installment plans during the year ended december 31 , 2013 , a significant increase from $ 946 million in the year ended december 31 , 2012 resulting from growth in value and simple choice plans . additionally , customers had associated equipment installment plan billings of $ 1.5 billion in the year ended december 31 , 2013 , compared to $ 450 million in the year ended december 31 , 2012 . other revenues increased $ 55 million , or 21 % , for the year ended december 31 , 2013 , compared to the same period in 2012 due primarily to an increase in imputed rental income on wireless communication tower sites . story_separator_special_tag interest income increased $ 112 million for the year ended december 31 , 2013 , compared to the same period in 2012 . the increase in interest income is primarily the result of the significant growth in handsets financed through our equipment installment plans for the year ended december 31 , 2013 . deferred interest associated with our eip receivables is imputed at the time of sale and then recognized over the financed installment term . other income ( expense ) , net increased $ 94 million for the year ended december 31 , 2013 , compared to the same period in 2012 . the increase in other income ( expense ) , net was primarily due to the recognition of gains related to the retirement of derivative instruments associated with the pre-business combination long-term debt to affiliates . see also note 7 – debt and note 13 – additional financial information of the notes to the consolidated financial statements included in part ii , item 8 of this form 10-k . income taxes income tax expense decreased $ 334 million for the year ended december 31 , 2013 , compared to the same period in 2012 . the decrease in income tax expense was primarily due to lower pre-tax income , exclusive of impairment charges . the effective tax rate was 31.4 % and ( 5.0 ) % for the years ended december 31 , 2013 and 2012 , respectively . the change in the effective tax rate for 2013 compared to 2012 was primarily due to the impact of the goodwill impairment recorded in 2012 . guarantor subsidiaries pursuant to the indenture and the supplemental indentures , the long-term debt , excluding capital leases , are fully and unconditionally guaranteed , jointly and severally , on a senior unsecured basis by t-mobile us , inc. ( “ parent ” ) and certain of t-mobile usa 's ( “ issuer ” ) 100 % owned subsidiaries ( “ guarantor subsidiaries ” ) . in 2013 , t-mobile entered into an agreement with cook inlet voice and data services , inc. ( “ cook inlet ” ) to acquire all of cook inlet 's interest in cook inlet/voicestream gsm vii pcs holdings llc , ( “ civs vii ” ) , a fully consolidated non-guarantor subsidiary . the transaction was completed in july 2013 and resulted in civs vii becoming an indirect wholly-owned subsidiary of t-mobile usa . civs vii was subsequently combined with , and the net assets transferred to , t-mobile license llc , a wholly-owned restricted subsidiary of 26 t-mobile usa . as a result , the net assets of civs vii were included in the guarantor subsidiaries condensed consolidating balance sheet information . the guarantees of the long-term debt were unchanged by the transaction . see note 14 – guarantor financial information of the notes to the consolidated financial statements included in part ii , item 8 of this form 10-k for more information regarding the transaction . the financial condition of the parent , issuer and guarantor subsidiaries is substantially similar to the company 's consolidated financial condition . similarly , the results of operations of the parent , issuer and guarantor subsidiaries are substantially similar to the company 's consolidated results of operations . the change in the financial condition of the non-guarantor subsidiaries was primarily due to the transfer of the net assets of civs vii into the guarantor subsidiaries consolidating balance sheet information as described above . as of december 31 , 2013 and december 31 , 2012 , the most significant components of the financial condition of the non-guarantor subsidiaries were property and equipment of $ 595 million and $ 678 million , respectively , spectrum licenses of none and $ 220 million , respectively , long-term financial obligations of $ 2.1 billion and $ 2.1 billion , respectively , and stockholders ' equity of $ 1.3 billion and $ 1.0 billion , respectively . the most significant components of the results of operations of our non-guarantor subsidiaries for the year ended december 31 , 2013 were services revenues of $ 823 million , offset by costs of equipment sales of $ 552 million resulting in a net comprehensive loss of $ 52 million . similarly , for the year ended december 31 , 2012 , services revenues of $ 712 million were offset by costs of equipment sales of $ 449 million , resulting in a net comprehensive income of $ 72 million . year ended december 31 , 2012 compared to the year ended december 31 , 2011 revenues branded postpaid revenues decreased by $ 1.7 billion , or 11 % , for the year ended december 31 , 2012 , compared to the same period in 2011 . the decrease was primarily attributable to a 9 % year-over-year decline in the number of average branded postpaid customers . branded postpaid revenues were also negatively impacted by the growth of our value plans which have lower arpu than our other branded postpaid rate plans . compared to other traditional bundled price plans , value plans result in lower service revenues over the service contract period , but higher equipment sales at the time of the sale , as value plans do not include a bundled sale of a heavily discounted handset . these decreases were partially offset by an increase in data revenues from customer adoption of smartphones with accompanying data plans . smartphone customers accounted for 61 % of total branded postpaid customers at december 31 , 2012 , up from 49 % at december 31 , 2011 . branded prepaid revenues increased by $ 408 million or 31 % for the year ended december 31 , 2012 , compared to the same period in 2011 .
| financial highlights total revenues increased 24 % to $ 24.4 billion in 2013 compared to $ 19.7 billion in 2012 . service revenues increased 11 % to $ 19.1 billion in 2013 compared to $ 17.2 billion in 2012 . total net customer additions were 4,377,000 for year ended december 31 , 2013 , a significant improvement compared to 203,000 net customer additions in 2012 . branded postpaid churn of 1.7 % for the year ended december 31 , 2013 , a 70 basis point improvement compared to 2.4 % in 2012 . adjusted ebitda of $ 4.9 billion for the year ended december 31 , 2013 consistent with 2012 . cash capital expenditures for property and equipment were $ 4.0 billion for the year ended december 31 , 2013 compared to $ 2.9 billion in 2012 . other highlights un-carrier value proposition – in march 2013 , we launched phase 1.0 of our un-carrier value proposition by introducing the unlimited simple choice plans , which do not require an annual service contract . qualified customers are eligible for device financing with eip , which provides customers with low out-of-pocket costs on popular devices . in july 2013 , we unveiled phase 2.0 of our un-carrier value proposition , jump ! , a groundbreaking approach to provide more frequent phone upgrades . at the same time we launched simple choice no credit , which provides families an affordable multi-line service option without credit checks . in october 2013 , we unveiled phase 3.0 of our un-carrier value proposition , which provides customers reduced calling rates from the united states to international destinations and reduced roaming fees , including 2g data while traveling abroad in over 100 countries at no extra cost . in november 2013 , we began to offer the apple ipad air and ipad mini .
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for more information regarding our consolidated results and liquidity and capital resources for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 , refer to `` part ii-item 7. management 's discussion and analysis of financial condition and results of operations '' in the company 's 2019 annual report on form 10-k , which information is incorporated herein by reference . overview we started freshpet with a single-minded mission to bring the power of real , fresh food to our dogs and cats . we were inspired by the rapidly growing view among pet owners that their dogs and cats are a part of their family , leading them to demand healthier pet food choices . since inception of the company in 2006 , we have created a comprehensive business model to deliver wholesome pet food that pet parents can trust , and in the process , we believe we have become one of the fastest growing pet food companies in north america . our business model is difficult for others to replicate and we see significant opportunity for future growth by leveraging the unique elements of our business , including our brand , our product know-how , our freshpet kitchens , our refrigerated distribution , our freshpet fridge and our culture . recent developments observations on the effects of covid-19 in december 2019 , a novel coronavirus disease ( `` covid-19 '' ) was reported , and by march 2020 , the world health organization ( `` who '' ) had characterized covid-19 as a pandemic . due to covid-19 , our retail customers experienced a surge in consumption as consumers stocked up on food and necessities towards the second half of q1 2020. the unexpected surge in consumption caused a spike in orders which at times were greater than our production capacity . at the end of q1 , we announced our post-surge pivot . that strategic pivot was built on a foundation that said , if we could keep our employees safe , then we could rebuild our supply and that would enable us to replenish our product supply in retail stores , which would allow us to turn to our advertising to drive consumption and household penetrations gains . as a result , we invested in each of those areas , including safety enhancement to protect our team , incremental capacity at freshpet kitchens south , incremental retail coverage , new e-commerce purchase and delivery options and additional media advertising . the company made and continues to make investments designed to protect its team members . these efforts include taking the temperature of every team member and administering a brief health screening before entering our freshpet kitchens , installing increased space for social distancing , instituting staggered shifts , enhancing daily sanitation efforts and weekly deep cleaning of all common areas , requiring use of face coverings by all employees , and limiting visitors , who must also submit to a health check before entering the facilities . 27 despite the covid-19 related disruptions , our ability to bring the power of fresh to pet parents has continued , in part due to our post-surge pivot . consumers ' increased interest in their pets , the strong appeal of the freshpet idea and products , our ability to continuously run our manufacturing facilities and successfully add capacity , the increased impact of our advertising , and our customers ' realization of the value that freshpet brings to their pet food category offerings and stores has resulted in some of our strongest growth . as noted above , the unexpected surge in consumption towards the second half of q1 2020 , as well as the subsequent strong growth , has caused us to draw down on trade inventory and have higher out of stocks than usual . with the additional capacity brought on during q2 through q4 , as well as freshpet kitchens 2.0 beginning production in october 2020 , we believe we will be able to rebuild our trade inventory and decrease our out of stocks during the first half of 2021. we are unsure how long the covid-19 pandemic will require us to absorb higher costs to protect and reward our employees while simultaneously ensuring we can support our pet parents with a continual supply of freshpet products . we are also monitoring our supply of raw materials , ingredients and packaging materials . although we have not experienced any extended supply interruptions to date and our chicken prices for the year are fixed contractually , subject to limited exceptions , we have used our secondary suppliers from time-to-time , and have also experienced higher beef prices as a result of reduced supplies . as of december 31 , 2020 , covid-19 related expenses were $ 3.9 million . we will continue to monitor the retail environment and pet parent demand , and intend to adapt to changing conditions to continue to drive growth and meet our goal of `` changing the way people feed their pets forever '' during the evolving covid-19 pandemic . 28 supporting freshpet 's growth at the company 's february 2020 investor day , freshpet presented its `` feed the growth - 5 by 2025 '' strategic plan . the plan looked to add 5 million more households by 2025 , for a total 8 million households . during 2020 , the company continued to see increased sales growth and household penetration despite capacity limits and less than planned advertising spend . as a result , the company is raising its 2025 household penetration target from 8 million to 11 million households . to support the strategic plan freshpet is committed to invest in production capacity as well as upgrades to our systems and processes . the company is continuously evaluating its ability to feed as many pets as possible and minimize its impact on the environment , and will continue to make investments that provides the necessary returns on its investments to deliver on pets , people , planet . story_separator_special_tag sg & a as a percentage of net sales was 49.1 % in 2018 , 46.6 % in 2019 and 42.3 % in 2020. we believe that as we continue to realize the benefits of our feed the growth initiative , sg & a expenses will continue to decrease as a percentage of net sales . our selling , general and administrative expenses consist of the following : outbound freight . we utilize a third-party logistics provider for outbound freight that ships directly to retailers as well as third-party distributors . 30 marketing & advertising . our marketing and advertising expenses primarily consist of national television media , digital marketing , social media and grass roots marketing to drive brand awareness . these expenses may vary from quarter to quarter depending on the timing of our marketing and advertising campaigns . our feed the growth initiative will focus on growing the business through increased marketing investments . freshpet fridge operating costs . freshpet fridge operating costs consist of repair costs and depreciation . the purchase and installation costs for new freshpet fridges are capitalized and depreciated over the estimated useful life . all new refrigerators are covered by a manufacturer warranty for three years . we subsequently incur maintenance and freight costs for repairs and refurbishments handled by third-party service providers . research & development ( “ r & d ” ) . r & d costs consist of expenses to develop and test new products . the costs are expensed as incurred . brokerage . we utilize third-party brokers to assist with monitoring our products at the point-of-sale as well as representing us at headquarters for various customers . these brokers visit our retail customers ' store locations and ensure items are appropriately stocked and maintained . share-based compensation . we account for all share-based compensation payments issued to employees , directors and non-employees using a fair value method . accordingly , share-based compensation expense is measured based on the estimated fair value of the awards on the grant date . we recognize compensation expense for the portion of the award that is ultimately expected to vest over the period during which the recipient renders the required services to us using the straight-line basis . other general & administrative costs . other general and administrative costs include plant salaried and non-plant personnel salaries and benefits , as well as corporate general & administrative costs . income taxes we had federal net operating loss ( “ nol ” ) carry forwards of approximately $ 239.8 million as of december 31 , 2020 , of which , approximately $ 175.0 million , generated in 2017 and prior , will expire between 2025 and 2037. the nol generated in 2018 , 2019 and 2020 , of approximately $ 64.4 million , will have an indefinite carryforward period but can generally only be used to offset 80 % of taxable income in any particular year . we may be subject to certain limitations in our annual utilization of nol carry forwards to off-set future taxable income pursuant to section 382 of the internal revenue code , which could result in nols expiring unused . at december 31 , 2020 , we had approximately $ 189.8 million of state nols , which expire between 2020 and 2038. at december 31 , 2020 , we had a full valuation allowance against our net deferred tax assets as the realization of such assets was not considered more likely than not . story_separator_special_tag discussed above . interest expense interest expense was $ 1.2 million and $ 1.0 million for the twelve months ended december 31 , 2020 and 2019 , respectively , relating primarily to our credit facilities . see “ —liquidity and capital resources. ” other income/ ( expenses ) , net other income/ ( expenses ) , net increased $ 0.1 million from an income of less than $ 0.1 million for the twelve months ended december 31 , 2019 to income of $ 0.1 million for the twelve months ended december 31 , 2020. net loss net loss increased $ 1.8 million , or 130.6 % , to net loss of $ 3.2 million for the twelve months ended december 31 , 2020 as compared to net loss of $ 1.4 million for the same period in the prior year . net loss was 1.0 % of net sales for the twelve months ended december 31 , 2020 as compared to a net loss of 0.6 % of net sales for the same period in the prior year . adjusted ebitda adjusted ebitda increased $ 17.7 million from $ 29.2 million for the twelve months ended december 31 , 2019 to $ 46.9 million for the twelve months ended december 31 , 2020. adjusted ebitda as a percentage of net sales increased 280 basis points from 11.9 % for the twelve months ended december 31 , 2019 to 14.7 % for the twelve months ended december 31 , 2020. the increase is a result of leverage gain on adjusted sg & a excluding media of 220 basis points and decreased media spend as part of our feed the growth initiative of 170 basis points , partially offset by a decrease in adjusted gross margin of 110 basis points . 33 non-gaap financial measures freshpet uses the following non-gaap financial measures in its financial communications . these non-gaap financial measures should be considered as supplements to the gaap reported measures , should not be considered replacements for , or superior to , the gaap measures and may not be comparable to similarly named measures used by other companies . adjusted gross profit adjusted gross profit as a percentage of net sales adjusted sg & a expenses adjusted sg & a expenses as a percentage of net sales ebitda adjusted ebitda adjusted ebitda as a percentage of net sales such financial measures are not financial measures prepared in accordance with u.s. gaap . we define adjusted gross profit as gross profit before non-cash depreciation expense , plant start-up expenses , non-cash share-based compensation and covid-19 expenses .
| results of operations replace_table_token_2_th 31 twelve months ended december 31 , 2020 compared to twelve months ended december 31 , 2019 net sales the following table sets forth net sales by class of retail : replace_table_token_3_th ( 1 ) stores at december 31 , 2020 and december 31 , 2019 consisted of 12,560 and 11,315 grocery ( including online ) and 5,210 and 4,963 mass and club , respectively . ( 2 ) stores at december 31 , 2020 and december 31 , 2019 consisted of 4,470 and 4,837 pet specialty and 476 and 455 natural , respectively . net sales increased $ 72.9 million , or 29.7 % , to $ 318.8 million for the twelve months ended december 31 , 2020 as compared to the same period in the prior year . the $ 72.9 million increase in net sales was driven by growth in the grocery ( including online ) , mass , and club refrigerated channel of $ 65.4 million , and pet specialty and natural of $ 7.5 million . the net sales increase was driven by overall velocity gains and an increase of freshpet fridges store locations , which grew by 5.3 % from 21,570 as of december 31 , 2019 to 22,716 as of december 31 , 2020. gross profit gross profit increased $ 18.7 million , or 16.4 % , to $ 132.9 million for the twelve months ended december 31 , 2020 as compared to the same period in the prior year . the increase in gross profit was primarily driven by higher net sales offset by decreased gross margin .
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our senior term loans are recorded at par value less debt issuance costs , which are recorded as a reduction in the carrying value of the debt . our convertible senior notes are recorded at par value less the fair value of the equity component of the notes , at their issuance date , determined using level 2 inputs and less any issuance costs . the discount and issuance costs associated with the various notes are amortized using the effective interest rate method over the term of the debt as a non-cash charge to interest expense . borrowings under our revolving credit facility , if any , are recognized at principal balance plus accrued interest based upon stated interest rates . debt maturities are classified as current liabilities on our consolidated balance sheets if we are contractually obligated to repay them in the next twelve months or , story_separator_special_tag please read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes thereto included under item 15 of this annual report on form 10-k. overview we are a leading provider of cyber safety solutions for consumers . during fiscal year 2020 , we completed the sale of our enterprise security assets to broadcom inc. ( broadcom ) and the sale of our id analytics solutions to lexisnexis risk solutions , part of relx inc. with the sale of our enterprise assets , we have transformed ourselves into a pure consumer company . our nortonlifelock branded solutions help customers protect their devices , online privacy , identity and home networks . story_separator_special_tag style= '' font-family : arial ; font-size:9pt ; color : # 231f20 ; '' > -19 through human contact could still occur and result in litigation . although we have not yet experienced a material increase in customers cancellations or a material reduction in our retention rate in 2020 , a prolonged economic downturn could result adversely affect demand for our offerings , retention rates and harm our business and results of operations , particularly in light of the fact that our 23 solutions are discretionary purchases and thus may be more susceptible to macroeconomic pressures , as well impact the value of our common stock , our ability to refinance our debt , and our access to capital . the duration and extent of the impact from the covid-19 pandemic depends on future developments that can not be accurately forecasted at this time , such as the severity and transmission rate of the disease , the extent and effectiveness of containment actions and the impact of these and other factors on our employees , customers , partners and third-party service providers . for more information on the risks associated with the covid-19 pandemic , please see “ risk factors ” in item 1a . critical accounting policies and estimates the preparation of our consolidated financial statements and related notes in accordance with generally accepted accounting principles in the u.s. ( gaap ) requires us to make estimates , including judgments and assumptions that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . we have based our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances . we evaluate our estimates on a regular basis and make changes accordingly . management believes that the accounting estimates employed , and the resulting amounts are reasonable ; however , actual results may differ from these estimates . making estimates and judgments about future events is inherently unpredictable and is subject to significant uncertainties , some of which are beyond our control . should any of these estimates and assumptions change or prove to have been incorrect , it could have a material impact on our results of operations , financial position , and cash flows . a summary of our significant accounting policies is included in note 1 of the notes to consolidated financial statements included in this annual report on form 10-k. an accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made , if different estimates reasonably could have been used , or if changes in the estimate that are reasonably possible could materially impact the financial statements . management believes the following critical accounting policies reflect the significant estimates and assumptions used in the preparation of our consolidated financial statements . business combinations we allocate the purchase price of acquired businesses to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date . any residual purchase price is recorded as goodwill . the allocation of purchase price requires management to make significant estimates and assumptions in determining the fair values of the assets acquired and liabilities assumed especially with respect to intangible assets . critical estimates in valuing intangible assets include , but are not limited to , future expected cash flows from customer relationships , developed technology , trade names , and acquired patents ; and discount rates . management estimates of fair value are based upon assumptions believed to be reasonable , but which are inherently uncertain and unpredictable . unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions , estimates , or actual results . income taxes we are subject to tax in multiple u.s. and foreign tax jurisdictions . we are required to estimate the current tax exposure as well as assess the temporary differences between the accounting and tax treatment of assets and liabilities , including items such as accruals and allowances not currently deductible for tax purposes . we apply judgment in the recognition and measurement of current and deferred income taxes which includes the following critical accounting estimates . we use a two-step process to recognize liabilities for uncertain tax positions . story_separator_special_tag the excluded revenues are summarized in the following table : replace_table_token_6_th average direct customer count presents the average of the total number of direct customers at the beginning and end of the fiscal year . arpu is calculated as estimated direct customer revenues for the period divided by the average direct customer count for the same period , expressed as a monthly figure . non-gaap fiscal 2018 estimated direct customer revenues used in the calculation of arpu is adjusted only to exclude a reduction in revenue of $ 60 million related to purchase accounting adjustments related to the february 2017 acquisition of lifelock , inc. arpu for fiscal 2018 would have been $ 7.99 without this adjustment . we believe the adjustment is useful to investors to reflect arpu trends in our business by improving the comparability of arpu between periods . fiscal 2020 and 2019 did not include any adjustments to estimated direct customer revenue as the purchase accounting adjustments were fully amortized prior to fiscal 2019. non-gaap estimated direct customer revenues and arpu have limitations as analytical tools and should not be considered in isolation or as a substitute for gaap estimated direct customer revenues or other gaap measures . we monitor apru because it helps us understand the rate at which we are monetizing our consumer customer base . annual retention rate is defined as the number of direct customers who have more than a one-year tenure as of the end of the most recently completed fiscal period divided by the total number of direct customers as of the end of the period from one year ago . we monitor annual retention rate to evaluate the effectiveness of our strategies to improve renewals of subscriptions . net revenues by geographic region percentage of revenue by geographic region as presented below is based on the billing location of the customer . replace_table_token_7_th percentages may not add to 100 % due to rounding . 26 the americas include u.s. , canada , and latin america ; emea includes europe , middle east , and africa ; apj includes asia pacific and japan . percentage of revenue by geographic region in fiscal 2020 was similar to fiscal 2019. americas revenues as a percentage of total revenues increased in fiscal 2019 compared to fiscal 2018 as a result of the sale of our wss and pki solutions which proportionally had more revenues in emea and apj than the remaining solutions and higher revenues from our identity and information protection solutions in u.s. during fiscal 2019. cost of revenues replace_table_token_8_th fiscal 2020 compared to fiscal 2019 our cost of revenues decreased $ 62 million primarily due to decreases in technical support costs and service costs , partially offset by an increase in royalty charges . in addition , during fiscal 2019 , we recorded higher inventory write-offs of $ 10 million due to our discontinuation of our consumer hardware product line . fiscal 2019 compared to fiscal 2018 our cost of revenues decreased $ 8 million primarily due to a $ 37 million decrease from the divestiture of our wss and pki solutions , partially offset by higher inventory and royalty write-offs due to our discontinuation of our consumer hardware product line in fiscal 2019 and higher fulfillment costs . operating expenses replace_table_token_9_th fiscal 2020 compared to fiscal 2019 sales and marketing expense decreased $ 11 million primarily due to a $ 75 million decrease in compensation expense and allocated corporate costs , reflecting our cost reduction initiatives . these decreases were partially offset by a $ 64 million increase in advertising and promotional expense reflecting our higher investments in direct marketing programs . research and development expense decreased $ 92 million primarily due to a $ 77 million decrease in compensation expense and allocated corporate costs , and a $ 23 million decrease in outside services , reflecting our cost reduction initiatives . general and administrative expense decreased $ 42 million primarily due to a $ 34 million decrease in compensation expense other than stock-based compensation and allocated corporate costs , and a $ 18 million decrease in stock-based compensation expense . amortization of intangible assets was relatively flat compared to fiscal 2019. restructuring , transition and other costs increased $ 45 million primarily due to $ 101 million of contract cancellation charges incurred in fiscal 2020 , a $ 71 million increase in severance costs , a $ 45 million increase in asset impairments , and a $ 20 million increase in stock-based compensation . these increases were partially offset by $ 185 million costs related to transition projects incurred in fiscal 2019 that were completed by the end of that period . see note 12 to the consolidated financial statements for further information on our restructuring plans . fiscal 2019 compared to fiscal 2018 sales and marketing expense decreased $ 129 million primarily due to a $ 41 million decrease as a result of the divestiture of our wss and pki solutions , a $ 40 million decrease in advertising and promotional expense , a $ 23 million decrease in compensation expense other than stock-based compensation , and a $ 20 million decrease in stock-based compensation expense . research and development expense decreased $ 35 million primarily due to a $ 30 million decrease in stock-based compensation expense and a $ 20 million decrease as a result of the divestiture of our wss and kpi solutions , partially offset by a $ 15 million increase in outside services . 27 general and administrative expense decreased $ 77 million primarily due to an $ 85 million decrease in stock-based compensation expense , partially offset by a $ 10 million increase in compensation expense other than stock-based compensation . amortization of intangible assets decreased $ 7 million primarily due to the intangible assets sold with the divestiture of wss and pki solutions . restructuring , transition and other costs decreased $ 159 million primarily due to a $ 75 million decrease in severance and other restructuring costs .
| fiscal year highlights in october 2019 , we sold our equity interest in digicert parent inc. for $ 380 million and realized a gain of $ 379 million , on which we paid income taxes of $ 53 million . on november 4 , 2019 , we completed the broadcom sale under which broadcom purchased certain of our enterprise security assets and assumed certain liabilities for a purchase price of $ 10.7 billion . as a result , we realized a gain of $ 5,434 million on which we paid income taxes of $ 1.9 billion as of april 3 , 2020 . the divestiture of our enterprise security business allowed us to shift our operational focus to our consumer business and represented a strategic shift in our operations . as a result , the results of our enterprise security business are classified as discontinued operations in our consolidated statements of operations and thus are excluded from both continuing operations for all periods presented . accordingly , we now have one reportable segment . revenues and associated costs of our id analytics solutions , which were formerly included in the enterprise security segment , were included in our remaining reportable segment . in november 2019 , we entered into a credit facility and drew down $ 500 million of a 5-year term loan to repay an existing term loan of $ 500 million . the credit facility also provides a revolving a line of credit of $ 1.0 billion and a delayed 5-year term loan commitment of $ 750 million through september 15 , 2020. in november 2019 , our board of directors approved a restructuring plan in connection with the strategic decision to divest our enterprise security business . we incurred costs of $ 423 million under this plan in fiscal 2020 , primarily related to workforce reduction , contract termination , and asset write-offs and impairment charges .
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this guidance also provides guidance on derecognition , classification , interest and penalties on income taxes , accounting in interim periods and requires increased disclosures . at the date of adoption , and as of june 30 , 2020 and 2019 , the company did not have a liability for unrecognized tax benefits , and no adjustment was required at adoption . the company 's policy is to record interest and penalties on uncertain tax provisions as income tax expense . as of june 30 , 2020 and 2019 , the company has no accrued interest or penalties related to uncertain tax positions . company is subject to taxation in the united states and various states and mexico . the company is subject to united states federal or state income tax examinations by tax authorities for fiscal years after 2016. note 9. gain from sale of discontinued operations ( reprints and eprints business line ) on june 30 , 2017 , we sold the intangible assets of our reprints and eprints business line , but specifically excluding billed accounts receivable and respective liabilities , pursuant to an asset purchase agreement dated june 20 , 2017. the aggregate net consideration for the sale is comprised of $ 450,000 paid on the closing date , and earn-out payments of 45 % of gross margin over the 30 month period subsequent to the closing date . we have made a policy election to record the contingent consideration when the consideration is determined to be realizable , which amounted to $ 117,445 and $ 214,737 for the years ended june 30 , 2020 and 2019 , respectively . as of june 30 , 2020 , no further consideration will be due . 40 note 10. subsequent events stock options in july 2020 , the company issued 54,777 shares of common stock upon the exercise of stock options underlying 90,000 shares of stock . on september 17 , 2020 , the company granted stock options underlying 173,000 shares of common stock to employees with a fair value of approximately $ 235,000 . the options vest over a three-year period , and have a term of ten years . restricted common stock on august 3 , 2020 , the company issued 120,000 shares of restricted stock to employees . these shares vest over a three year period , with a one year cliff vesting period , and remain subject to forfeiture if vesting conditions are not met . the aggregate value of the stock award was $ 294,000 based on the market price of our common stock of $ 2.45 per share on the date of grant , which will be amortized over the three-year vesting period . item 9. changes in and disagreements with accountants on accounting and financial disclosure there were no changes in or disagreements with our accountants on accounting and financial disclosure during the last two fiscal years . item 9a . controls and procedures evaluation of disclosure controls and procedures our management , with the participation of our chief executive officer and chief financial officer , evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this annual report on form 10-k. for purposes of this section , the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the securities exchange act of 1934 , as amended ( the “ exchange act ” ) , is recorded , processed , summarized and reported within the time periods specified in the sec 's rules and forms . disclosure controls and procedures include , without limitation , controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the exchange act is accumulated and communicated to the issuer 's management , including its principal executive and principal financial officers , or story_separator_special_tag cautionary notice regarding forward-looking statements the following discussion and analysis of our financial condition and results of operations for the years ended june 30 , 2020 and 2019 should be read in conjunction with our consolidated financial statements and related notes to those financial statements that are included elsewhere in this report . our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties , such as our plans , objectives , expectations and intentions . actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors , including those set forth under “ risk factors ” and elsewhere in this report . we use words such as “ anticipate , ” “ estimate , ” “ plan , ” “ project , ” “ continuing , ” “ ongoing , ” “ expect , ” “ believe , ” “ intend , ” “ may , ” “ will , ” “ should , ” “ could , ” and similar expressions to identify forward-looking statements . all forward-looking statements included in this report are based on information available to us on the date hereof and , except as required by law , we assume no obligation to update any such forward-looking statements . overview research solutions was incorporated in the state of nevada on november 2 , 2006 , and is a publicly traded holding company with two wholly owned subsidiaries at june 30 , 2020 : reprints desk , inc. , a delaware corporation and reprints desk latin america s. de r.l . de c.v , an entity organized under the laws of mexico . story_separator_special_tag the accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties . revenue recognition in may 2014 , the financial accounting standards board ( “ fasb ” ) issued asu 2014-09 , revenue from contracts with customers ( topic 606 ) , ( `` asc 606 '' ) . the underlying principle of asc 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected . we adopted the guidance of asc 606 on july 1 , 2018. the implementation of asc 606 had no impact on the consolidated financial statements and no cumulative effect adjustment was recognized . revenues are recognized when control of the promised goods or services are transferred to a customer , in an amount that reflects the consideration that we expect to receive in exchange for those goods or services . we derive our revenues from two sources : annual licenses that allow customers to access and utilize certain premium features of our cloud based saas research intelligence platform ( “ platforms ” ) and the transactional sale of stm content managed , sourced and delivered through the platform ( “ transactions ” ) . we apply the following five steps in order to determine the appropriate amount of revenue to be recognized as we fulfill our obligations under each of our agreements : identify the contract with a customer ; identify the performance obligations in the contract ; determine the transaction price ; allocate the transaction price to performance obligations in the contract ; and recognize revenue as the performance obligation is satisfied . 17 platforms we charge a subscription fee that allows customers to access and utilize certain premium features of our platform . revenue is recognized ratably over the term of the subscription agreement , which is typically one year , provided all other revenue recognition criteria have been met . billings or payments received in advance of revenue recognition are recorded as deferred revenue . transactions we charge a transactional service fee for the electronic delivery of single articles , and a corresponding copyright fee for the permitted use of the content . we recognize revenue from single article delivery services upon delivery to the customer provided all other revenue recognition criteria have been met . stock-based compensation we periodically issue stock options , warrants and restricted stock to employees and non-employees for services , in capital raising transactions , and for financing costs . we account for share-based payments under the guidance as set forth in the share-based payment topic 718 of the fasb accounting standards codification , which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees , officers , directors , and consultants , including employee stock options , based on estimated fair values . we estimate the fair value of stock option and warrant awards to employees and directors on the date of grant using an option-pricing model , and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in our statements of operations . we estimate the fair value of restricted stock awards to employees and directors using the market price of our common stock on the date of grant , and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in our statements of operations . in prior periods through june 30 , 2019 , we accounted for share-based payments to non-employees in accordance with topic 505 of the fasb accounting standards codification , whereby the value of the stock compensation is based upon the measurement date as determined at either a ) the date at which a performance commitment is reached , or b ) the date at which the necessary performance to earn the equity instruments is complete . stock-based compensation is based on awards ultimately expected to vest and is reduced for estimated forfeitures . forfeitures are estimated at the time of grant and revised , as necessary , in subsequent periods if actual forfeitures differ from those estimates . on july 1 , 2019 , we adopted accounting standards update ( asu ) 2018-07 which expands the scope of topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees . as a result , nonemployee share-based transactions will be measured by estimating the fair value of the equity instruments at the grant date , taking into consideration the probability of satisfying performance conditions . the adoption of the standard did not have a material impact on our financial statements . allowance for doubtful accounts we evaluate the collectability of our trade accounts receivable based on a number of factors . in circumstances where we become aware of a specific customer 's inability to meet its financial obligations to us , we estimate and record a specific reserve for bad debts , which reduces the recognized receivable to the estimated amount we believe will ultimately be collected . in addition to specific customer identification of potential bad debts , bad debt charges are recorded based on our historical losses and an overall assessment of past due trade accounts receivable outstanding . we established an allowance for doubtful accounts of $ 88,485 and $ 100,175 as of june 30 , 2020 and 2019 , respectively . foreign currency the accompanying consolidated financial statements are presented in united states dollars , the functional currency of our company . capital accounts of foreign subsidiaries are translated into us dollars from foreign currencies at their historical exchange rates when the capital transactions occurred . assets and liabilities are translated at the exchange rate as of the balance sheet date . income and expenditures
| results of operations replace_table_token_5_th 20 revenue replace_table_token_6_th total revenue increased $ 2,264,815 , or 7.9 % , for the year ended june 30 , 2020 compared to the prior year , due to the following : category impact key drivers platforms h $ 1,081,488 increased due to additional deployments to new and existing customers , and expansion from existing customers . revenue is recognized ratably over the term of the subscription agreement , which is typically one year , provided all other revenue recognition criteria have been met . billings or payments received in advance of revenue recognition are recorded as deferred revenue . transactions h $ 1,183,327 increased primarily due to orders from new customers . cost of revenue replace_table_token_7_th replace_table_token_8_th * the difference between current and prior period cost of revenue as a percentage of revenue total cost of revenue as a percentage of revenue decreased 2.0 % , from 71.0 % for the previous year to 69.0 % , for the year ended june 30 , 2020. category impact as percentage of revenue key drivers platforms i 1.5 % decreased primarily due to proportionally lower third-party data costs . transactions i 0.2 % decreased primarily due to proportionally lower copyright and personnel costs . 21 gross profit replace_table_token_9_th replace_table_token_10_th * the difference between current and prior period gross profit as a percentage of revenue operating expenses replace_table_token_11_th category impact key drivers sales and marketing h $ 429,193 increased primarily due to greater personnel costs and advertising media spend . general and administrative h $ 375,842 increased primarily due to greater personnel costs , professional service fees and nasdaq entry fee .
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) other long-term liabilities $ ( 1,814 ) accumulated other comprehensive loss $ ( 1,814 ) variable-to-fixed interest rate swap contract ( $ 150 million of libor based debt interest ) other long-term assets 1,670 accumulated other comprehensive income 1,670 $ ( 144 ) $ ( 144 ) interest expense and other debt information interest expense consists of the following components : replace_table_token_26_th - 72 - note 8 : commitments and contingencies we lease certain facilities , pipelines and rights of way under operating leases , most of which contain renewal options . the right of story_separator_special_tag this item 7 , including but not limited to the sections on “ liquidity and capital resources , ” contains forward-looking statements . see “ forward-looking statements ” at the beginning of part i and item 1a . “ risk factors. ” in this document , the words “ we , ” “ our , ” “ ours ” and “ us ” refer to hep and its consolidated subsidiaries or to hep or an individual subsidiary and not to any other person . overview hep is a delaware limited partnership . we own and operate petroleum product and crude oil pipelines and terminal , tankage and loading rack facilities that support hfc 's refining and marketing operations in the mid-continent , southwest and rocky mountain regions of the united states and alon 's refinery in big spring , texas . at december 31 , 2014 , hfc owned a 39 % interest in us including the 2 % general partnership interest . additionally , we own a 75 % interest in unev , the owner of a pipeline running from woods cross , utah to las vegas , nevada and related products terminals and a 25 % joint venture interest in the slc pipeline , a 95-mile intrastate crude oil pipeline system that serves refineries in the salt lake city , utah area . we generate revenues by charging tariffs for transporting petroleum products and crude oil through our pipelines , by charging fees for terminalling and storing refined products and other hydrocarbons and providing other services at our storage tanks and terminals . we do not take ownership of products that we transport , terminal or store , and therefore we are not directly exposed to changes in commodity prices . on january 16 , 2013 , a two-for-one unit split was paid in the form of a common unit distribution for each issued and outstanding common unit to all unitholders of record on january 7 , 2013. all references to unit and per unit amounts in this document and related disclosures have been adjusted to reflect the effect of the unit split for all prior periods presented . in march 2013 , we closed on a public offering of 1,875,000 of our common units . additionally , an affiliate of hfc , as a selling unitholder , closed on a public sale of 1,875,000 of its hep common units for which we did not receive any proceeds . we used our net proceeds of $ 73.4 million to repay indebtedness incurred under our credit facility and for general partnership purposes . amounts repaid under our credit facility may be reborrowed from time to time , and we intend to reborrow certain amounts to fund capital expenditures . in march 2014 , we redeemed the $ 150 million aggregate principal amount of 8.25 % senior notes maturing march 2018 at a redemption cost of $ 156.2 million , at which time we recognized a $ 7.7 million early extinguishment loss consisting of a $ 6.2 million debt redemption premium and unamortized discount and financing costs of $ 1.5 million . we funded the redemption with borrowings under our credit agreement . we believe the growth of crude production in the permian basin and throughout the mid-continent and refining economics should support high utilization rates for the refineries we serve , which in turn will support volumes in our product pipelines , crude gathering system and terminals . - 39 - unev pipeline interest acquisition under the terms of the transaction to acquire hfc 's 75 % interest in unev , we issued to hfc a class b unit comprising a noncontrolling equity interest in a wholly-owned subsidiary subject to redemption to the extent that hfc is entitled to a 50 % interest in our share of annual unev earnings before interest , income taxes , depreciation , and amortization above $ 30 million beginning july 1 , 2016 , and ending in june 2032 , subject to certain limitations . however , to the extent earnings thresholds are not achieved , no redemption payments are required . contemporaneously with this transaction , hfc ( our general partner ) agreed to forego its right to incentive distributions of up to $ 1.25 million per quarter over twelve consecutive quarterly periods following the closing of the transaction and up to an additional four quarters in certain circumstances . in connection with the transaction , we entered into 15-year throughput agreements with shippers containing minimum annual revenue commitments to us of $ 27 million . agreements with hfc and alon we serve hfc 's refineries under long-term pipeline and terminal , tankage and throughput agreements expiring from 2019 to 2026. under these agreements , hfc agreed to transport , store and throughput volumes of refined product and crude oil on our pipelines and terminal , tankage and loading rack facilities that result in minimum annual payments to us . additionally , such agreements require hfc to reimburse us for certain costs . these minimum annual payments or revenues are subject to annual tariff rate adjustments on july 1 , based on the ppi or ferc index . as of december 31 , 2014 , these agreements with hfc will result in minimum annualized payments to us of $ 231.6 million . story_separator_special_tag limited partners ' per unit interest in earnings decreased from $ 1.29 per unit in 2012 to $ 0.88 per unit in 2013 due to the income decreases combined with higher incentive distributions to the general partner . revenues for the year ended december 31 , 2013 , include the recognition of $ 7.8 million of prior shortfalls billed to shippers in 2012. as of december 31 , 2013 , deferred revenue on our consolidated balance sheet related to shortfalls billed was $ 12.0 million . - 44 - revenues total revenues for the year ended december 31 , 2013 , were $ 305.2 million , a $ 12.6 million increase compared to the year ended december 31 , 2012. the revenue increase was due to the effect of annual tariff increases , higher cost reimbursement receipts from hfc and a $ 1.5 million increase in previously deferred revenue realized . overall pipeline volumes were down 2 % compared to the year ended december 31 , 2012. revenues from our refined product pipelines were $ 108.3 million , an increase of $ 3.1 million compared to the year ended december 31 , 2012 , primarily due to the effects of a $ 3.3 million increase in previously deferred revenue realized and annual tariff increases . shipments averaged 170.8 mbpd compared to 170.7 mbpd for 2012. revenues from our intermediate pipelines were $ 25.4 million , a decrease of $ 3.1 million on shipments averaging 128.5 mbpd compared to 127.2 mbpd for the year ended december 31 , 2012. the decrease in revenue is due to the effects of a $ 1.8 million decrease in deferred revenue realized and reduced volumes on certain high tariff pipeline segments . revenues from our crude pipelines were $ 48.7 million , an increase of $ 2.9 million on shipments averaging 161.4 mbpd compared to 171.0 mbpd for the year ended december 31 , 2012. although crude oil pipeline shipments were down , revenues increased due to the annual tariff increases and minimum billings on certain pipeline segments . revenues from terminal , tankage and loading rack fees were $ 122.8 million , an increase of $ 9.8 million compared to year ended december 31 , 2012. the increase in revenues is due to annual fee increases and higher tank cost reimbursement receipts from hfc . refined products terminalled in our facilities decreased to an average of 318.9 mbpd compared to 325.0 mbpd for 2012. operations expense operations expense for the year ended december 31 , 2013 , increased by $ 10.2 million compared to the year ended december 31 , 2012. this increase is due to higher maintenance costs , environmental accruals , employee costs and property taxes , offset by a $ 3.5 million net tax refund related to payroll costs covering a multi-year period . depreciation and amortization depreciation and amortization for the year ended december 31 , 2013 , increased by $ 8.0 million compared to the year ended december 31 , 2012 due principally to asset abandonment charges related to tankage permanently removed from service . general and administrative general and administrative costs for the year ended december 31 , 2013 , increased by $ 4.2 million compared to the year ended december 31 , 2012 , due to increased employee costs . equity in earnings of slc pipeline our equity in earnings of the slc pipeline was $ 2.8 million and $ 3.4 million for the years ended december 31 , 2013 and 2012 , respectively . interest expense interest expense for the year ended december 31 , 2013 , totaled $ 47.0 million , a decrease of $ 0.2 million compared to the year ended december 31 , 2012. our aggregate effective interest rate was 5.7 % and 6.5 % for the years ended december 31 , 2013 and 2012 , respectively . loss on early extinguishment of debt we recognized a charge of $ 3.0 million upon the early extinguishment of our 6.25 % senior notes ( `` 6.25 % senior notes '' ) for the year ended december 31 , 2012. this charge related to the premium paid to noteholders upon their tender of an aggregate principal amount of $ 185.0 million and related financing costs that were previously deferred . gain on sale of assets the gain on the sale of assets for the year ended december 31 , 2013 , of $ 1.8 million is comprised of a gain of $ 2.0 million on the sale of property in el paso , texas , partially offset by a $ 0.2 million loss from the sale of our 50 % ownership interest in product terminals located in boise and burley , idaho . - 45 - state income tax we recorded state income tax expense of $ 333,000 and $ 371,000 for the years ended december 31 , 2013 and 2012 , respectively , which is solely attributable to the texas margin tax . we are subject to the texas margin tax based on our texas sourced taxable margin . due to a statutory change that was enacted in june 2013 , we are now able to deduct additional expenses which will result in lower cash taxes to hep in the current and future years . liquidity and capital resources overview our $ 650 million senior secured revolving credit facility ( the `` credit agreement '' ) expires in november 2018 and is available to fund capital expenditures , investments , acquisitions , distribution payments and working capital and for general partnership purposes . it is also available to fund letters of credit up to a $ 50 million sub-limit . during the year ended december 31 , 2014 , we received advances totaling $ 642.3 million and repaid $ 434.3 million , resulting in a net increase of $ 208.0 million under the credit agreement and an outstanding balance of $ 571.0 million at december 31 , 2014 . we have no letters of credit outstanding under the credit agreement at december 31 , 2014 .
| summary net income attributable to hep for the year ended december 31 , 2014 , was $ 105.5 million , a $ 26.1 million increase compared to the year ended december 31 , 2013 . this increase in earnings is due principally to higher pipeline and terminal volumes and annual tariff increases , as well as decreased interest expense due to the early retirement of our 8.25 % senior notes in march 2014. revenues for the year ended december 31 , 2014 , include the recognition of $ 12.0 million of prior shortfalls billed to shippers in 2013 . as of december 31 , 2014 , deferred revenue on our consolidated balance sheet related to shortfalls billed was $ 9.3 million . such deferred revenue will be recognized in earnings either as ( a ) payment for shipments in excess of guaranteed levels , if and to the extent the pipeline system will have the necessary capacity to provide for shipments in excess of guaranteed levels , or ( b ) when shipping rights expire unused over the contractual make-up period . revenues total revenues for the year ended december 31 , 2014 , were $ 332.5 million , a $ 27.4 million increase compared to the year ended december 31 , 2013 . the revenue increase was due to the effect of annual tariff increases , increased pipeline shipments and a $ 4.2 million increase in previously deferred revenue realized .
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such statements are based upon current expectations , assumptions , estimates and projections about travelzoo and our industry . these forward-looking statements are subject to the many risks and uncertainties that exist in our operations and business environment that may cause actual results , performance or achievements of travelzoo to be different from those expected or anticipated in the forward-looking statements . any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements . for example , words such as “ may ” , “ will ” , “ should ” , “ estimates ” , “ predicts ” , “ potential ” , “ continue ” , “ strategy ” , “ believes ” , “ anticipates ” , “ plans ” , “ expects ” , “ intends ” , and similar expressions are intended to identify forward-looking statements . travelzoo 's actual results and the timing of certain events could differ significantly from those anticipated in such forward-looking statements . factors that might cause or contribute to such a discrepancy include , but are not limited to , those discussed elsewhere in this report in the section entitled “ risk factors ” and the risks discussed in our other sec filings . the forward-looking statements included in this report reflect the beliefs of our management on the date of this report . travelzoo undertakes no obligation to update publicly any forward-looking statements for any reason , even if new information becomes available or other circumstances occur in the future . 32 overview travelzoo inc. ( the “ company ” , or “ travelzoo ” ) is a global publisher of travel and entertainment offers . we inform over 28 million members in asia pacific , europe and north america , as well as millions of website users , about the best travel and entertainment deals available from thousands of companies . our deal experts source , research and test-book offers , recommending only those that meet travelzoo 's rigorous quality standards . we provide travel , entertainment and local businesses with a fast , flexible , and cost-effective way to reach millions of consumers . our revenues are generated primarily from advertising fees . our publications and products include the travelzoo websites ( travelzoo.com , travelzoo.ca , travelzoo.co.uk , travelzoo.de , travelzoo.es , travelzoo.fr , cn.travelzoo.com , travelzoo.co.jp , travelzoo.com.au , travelzoo.com.hk , travelzoo.com.tw , among others ) , the travelzoo top 20 e-mail newsletter , and the newsflash e-mail alert service . we operate supersearch , a pay-per-click travel search tool , and the travelzoo network , a network of third-party websites that list deals published by travelzoo . our travelzoo websites include our local deals and getaway listings that allow our members to purchase vouchers for deals from local businesses such as spas , hotels and restaurants . we receive a percentage of the face value of the voucher from the local businesses . we also operate fly.com , a travel search engine that allows users to quickly and easily find the best prices on flights from hundreds of airlines and online travel agencies . more than 2,000 companies use our services , including air france , air new zealand , british airways , cathay pacific airways , ctrip , emirates , etihad , expedia , fairmont hotels and resorts , hawaiian airlines , hilton hotels & resorts , intercontinental hotels group , jtb corporation , lufthansa , key tours international , princess cruises , royal caribbean , singapore airlines , starwood hotels & resorts worldwide , travelocity , united airlines and virgin america . we have three operating segments based on geographic regions : asia pacific , europe and north america . asia pacific consists of our operations in australia , china , hong kong , japan , taiwan , and southeast asia . europe consists of our operations in france , germany , spain , and the u.k. north america consists of our operations in canada and the u.s. for the year ended december 31 , 2016 , asia pacific operations were 8 % of revenues , european operations were 30 % of revenues and north american operations were 62 % of our total revenues . financial information with respect to our business segments and certain financial information about geographic areas appears in note 10 to the accompanying consolidated financial statements . when evaluating the financial condition and operating performance of the company , management focuses on financial and non-financial indicators such as growth in the number of members to the company 's newsletters , operating margin , growth in revenues in the absolute and relative to the growth in reach of the company 's publications measured as revenue per member and revenue per employee as a measure of productivity . how we generate revenues our revenues are advertising revenues , consisting primarily of listing fees paid by travel , entertainment and local businesses to advertise their offers on travelzoo 's media properties . listing fees are based on audience reach , placement , number of listings , number of impressions , number of clicks , number of referrals , or percentage of the face value of vouchers sold . insertion orders are typically for periods between one month and twelve months and are not automatically renewed . merchant agreements for local deals and getaway advertisers are typically for twelve months and are not automatically renewed . we have three separate groups of our advertising products : travel , search and local . our travel category of revenue includes the publishing revenue for negotiated high-quality deals from travel companies , such as hotels , airlines , cruises or car rentals and includes products such as top 20 , website , newsflash , travelzoo network as well as getaway vouchers . story_separator_special_tag local revenues have been and may continue to decline over time due to market conditions driven by competition and declines in consumer demand . in the last several years , we have seen a decline in the number of vouchers sold and a decrease in the average take rate earned by us from the merchants for vouchers sold . our ability to continue to generate advertising revenue depends heavily upon our ability to maintain and grow an attractive audience for our publications . we monitor our members to assess our efforts to maintain and grow our audience reach . we obtain additional members and activity on our websites by acquiring traffic from internet search companies . the costs to grow our audience have had , and we expect will to continue to have , a significant impact on our financial results and can vary from period to period . we may have to increase our expenditures on acquiring traffic to continue to grow or maintain our reach of our publications due to competition . we continue to see a shift in the audience to accessing our services through mobile devices and social media . we are addressing this growing channel of our audience through development of our mobile applications and through marketing on social media channels . however , we will need to keep pace with technological change and this trend to further address this shift in the audience behavior in order to offset any related declines in revenue . 34 we believe that we can increase our advertising rates only if the reach of our publications increases . we do not know if we will be able to increase the reach of our publications . if we are able to increase the reach of our publications , we still may not be able to or want to increase rates given market conditions such as intense competition in our industry . we have not had any significant rate increase in recent years due to intense competition in our industry . even if we increase our rates , the increased price may reduce the amount of advertisers willing to advertise with us and , therefore , decrease our revenue . we may need to decrease our rates based on competitive market conditions and the performance of our audience in order to maintain or grow our revenue . we do not know what our cost of revenues as a percentage of revenues will be in future periods . our cost of revenues will increase if the number of searches performed on fly.com increases because we pay a fee based on the number of searches performed on fly.com . our cost of revenues may increase if the face value of vouchers that we sell for local deals and getaway increases or the total number of vouchers sold increases because we have credit card fees based upon face value of vouchers sold , due to customer service costs related to vouchers sold and due to member refunds on vouchers sold . our cost of revenues are expected to increase due to our effort to develop our hotel booking platform as well . we expect fluctuations in cost of revenues as a percentage of revenues from quarter to quarter . some of the fluctuations may be significant and have a material impact on our results of operations . we do not know what our sales and marketing expenses as a percentage of revenue will be in future periods . increased competition in our industry may require us to increase advertising for our brand and for our products . in order to increase the reach of our publications , we have to acquire a significant number of new members in every quarter and continue to promote our brand . one significant factor that impacts our advertising expenses is the average cost per acquisition of a new member . increases in the average cost of acquiring new members may result in an increase of sales and marketing expenses as a percentage of revenue . we believe that the average cost per acquisition depends mainly on the advertising rates which we pay for media buys , our ability to manage our member acquisition efforts successfully , the regions we choose to acquire new members and the relative costs for that region , and the degree of competition in our industry . we may decide to accelerate our member acquisition for various strategic and tactical reasons and , as a result , increase our marketing expenses . we expect the average cost per acquisition to increase with our increased expectations for the quality of the members we acquire . we may see an unique opportunity for a brand marketing campaign that will result in an increase of marketing expenses . in addition , there may be a significant number of members that cancel or we may cancel their subscription for various reasons , which may drive us to spend more on member acquisition in order to replace the lost members . further , we expect to continue our strategy over time to replicate our business model in selected foreign markets to result in a significant increase in our sales and marketing expenses and have a material adverse impact on our results of operations . for example , we recently acquired our asia pacific business , which we intend on increasing our investment in audience in this region . due to the continued desire to grow our business in asia pacific , europe and north america , we expect relatively high level of sales and marketing expenses in the foreseeable future . we expect fluctuations in sales and marketing expenses as a percentage of revenue from year to year and from quarter to quarter . some of the fluctuations may be significant and have a material impact on our results of operations .
| results of operations the following table sets forth , as a percentage of total revenues , the results from our operations for the periods indicated . replace_table_token_5_th 37 operating metrics the following table sets forth operating metrics in asia pacific , europe and north america : replace_table_token_6_th ( 1 ) members represent individuals who are signed up to receive one or more of our free email publications that present our travel , entertainment and local deals . ( 2 ) annual revenue divided by number of members at the beginning of the year . ( 3 ) annual revenue divided by number of employees at the end of the year ( in thousands ) . 38 revenues the following table sets forth the breakdown of revenues ( in thousands ) by category and segment . travel revenue includes travel publications ( top 20 , website , newsflash , travelzoo network ) , getaway vouchers and hotel platform . search revenue includes supersearch and fly.com . local revenue includes local deals vouchers and entertainment offers ( vouchers and direct bookings ) . replace_table_token_7_th asia pacific asia pacific revenues decreased $ 961,000 or 9 % in 2016 compared to 2015. this decrease was primarily due to the decrease in travel revenues and decrease in local revenues offset partially by a $ 207,000 positive impact from foreign currency movements relative to the u.s. dollar . the decrease in travel revenues of $ 718,000 was primarily due to the decreased number of e-mails sent . the decrease in local revenues of $ 441,000 was primarily due to the decreased number of local deals vouchers sold . asia pacific revenues decreased $ 392,000 or 4 % in 2015 compared to 2014. this decrease was primarily due to a $ 758,000 negative impact from foreign currency movements relative to the u.s. dollar and the decrease in local revenues offset by the increase in travel revenues .
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factors that could cause or contribute to such differences include , but are not limited to , those discussed in item 1a . risk factors of this annual report on form 10-k. overview chemocentryx is a biopharmaceutical company developing new medications targeted at inflammatory disorders , autoimmune diseases and cancer . each of our drug candidates selectively blocks a specific chemoattractant receptor , leaving the rest of the immune system intact . our drug candidates are small molecules , which are orally administered , offering significant quality of life benefits , since patients swallow a capsule or pill instead of having to visit a clinic for an infusion or undergo an injection . in 2016 , we executed on our strategy to form an alliance with a partner that could provide upfront commitments and milestones to support the clinical development of our leading two drug candidates , avacopan and ccx140 , to registration and pay us royalties upon sales in international markets , while we develop our own commercial infrastructure to sell directly in the united states . to help communicate the breadth of our drug discovery platform , we have segmented our pipeline into early stage and late stage drug candidates . late stage drug candidates we have chosen to focus initially on kidney disease , particularly on orphan indications , where drug candidates tend to enjoy a faster path to market and better reimbursement . our leading drug candidates address areas of clear unmet need , where the current standard of care , or soc , is insufficient to halt progression of the disease and or where today 's treatment options come with serious side effects , such as those which accompany the prolonged use of steroids : avacopan ( ccx168 ) complement inhibition in orphan diseases avacopan ( formerly ccx168 ) is an orally-administered complement inhibitor targeting the c5a receptor , or c5ar , and is being developed for orphan diseases , including ( i ) anti-neutrophil cytoplasmic auto-antibody associated vasculitis , or aav , a devastating autoimmune disease that damages blood vessels and can lead to kidney failure ; ( ii ) complement 3 glomerulopathy , or c3g , a debilitating disease that can lead to kidney failure ; and ( iii ) atypical hemolytic uremic syndrome , or ahus , a rare , life threatening disease . avacopan has been granted orphan drug designation by the u.s. food and drug administration , or fda , for the treatment of aav , c3g and ahus and by the european medicines agency , or ema , for the treatment of c3g and microscopic polyangiitis and granulomatosis with polyangiitis , both forms of aav . additionally , avacopan has been granted priority medicines , or prime , designation from the ema , to expedite its clinical development , and to potentially accelerate its marketing authorization . following completion of two phase ii clinical trials in patients with aav , in which avacopan was well-tolerated and provided effective steroid-free control of the disease , we launched the phase iii advocate trial in december 2016. the fda and the ema concurred with the design of the study . advocate is a randomized , double-blind two-arm study enrolling approximately 300 patients at approximately 200 sites in the united states , canada , europe , australia and new zealand . we expect to complete patient enrollment of 73 index to financial statements the phase iii advocate trial in mid-2018 . we recently launched a registration-supporting clinical trial to study avacopan for the treatment of patients with c3g and plan to initiate clinical studies for the treatment of patients with hidradenitis suppurativa , or hs , in 2018. meanwhile , we are actively dosing ahus patients under compassionate use protocols as we explore appropriate doses and dosing regimen for that indication . ccx140 chronic and orphan kidney diseases ccx140 , an orally-administered inhibitor of the chemokine receptor known as ccr2 , has been in development for diabetic nephropathy , or dn , a form of chronic kidney disease , or ckd , and is now being developed for focal segmental glomerulosclerosis , or fsgs , a rare renal disease characterized by progressive proteinuria , excess protein in the urine , and impaired renal function . a global phase ii clinical trial of ccx140 in patients with dn met its primary endpoint by demonstrating that ccx140 given orally once daily added to a soc renin-angiotensin-aldosterone system inhibitor treatment resulted in a statistically significant reduction in proteinuria , beyond that achieved with soc alone , with the most pronounced effect shown in the highest proteinuric patients . based on the safety and efficacy data related to reduction in proteinuria observed in the phase ii trial in dn , we launched our clinical development program of ccx140 for the treatment of patients with fsgs , for which there are currently no fda-approved treatments . kidney health alliance with vifor in may 2016 , we announced a partnership , which we refer to as the avacopan agreement , with vifor ( international ) ltd. , and or its affiliates , or collectively , vifor , a european-based world leader specializing in kidney disease . while under this agreement we retained all rights to the united states and china , we granted vifor commercial rights to avacopan in europe and certain other international markets . in december 2016 , we entered into an additional agreement with vifor , which we refer to as the ccx140 agreement , relating to ccx140 , our other late stage drug candidate . under this second agreement , we again retained all rights to the united states and china and we granted vifor worldwide rights outside of the united states and china . in february 2017 , we announced a further agreement with vifor that harmonized the geographic commercialization rights underlying the agreements for both drug candidates , which we refer to as the avacopan amendment . story_separator_special_tag the fair value of the stock options is estimated using the black-scholes valuation model . we recorded non-cash stock-based compensation expense of $ 8.7 million , $ 8.5 million and $ 9.0 million for the years ended december 31 , 2017 , 2016 , and 2015 , respectively . at december 31 , 2017 and 2016 , we had $ 8.2 million and $ 9.6 million , respectively , of total unrecognized stock-based compensation expense , net of estimated forfeitures , related to employee stock options that will be recognized over a weighted-average period of 2.5 years and 2.4 years , respectively . we expect to continue to grant stock options in the future , and to the extent that we do , our actual stock-based compensation expense recognized in future periods will likely increase . determining an estimate of the fair value of equity awards using the black-scholes valuation model requires that use of subjective assumptions related to expected stock price volatility , term , risk-free interest rate and dividend yield . results of operations revenue we have not generated any revenue from product sales . for the year ended december 31 , 2017 , our revenues were derived from ( i ) the recognition of the milestone payment related to the avacopan agreement ; 77 index to financial statements ( ii ) the recognition of the upfront payments related to the avacopan agreement , avacopan amendment and ccx140 agreement and ( iii ) collaboration revenue under the ccx140 agreement . for the year ended december 31 , 2016 , our revenues were derived from the avacopan agreement , as well as grant revenue from the fda orphan products development grant to support the clinical development of avacopan for the treatment of patients with aav . no revenue was recorded in 2015. total revenue were as follows ( in thousands ) : replace_table_token_6_th the increase in revenue from 2016 to 2017 was due to : ( i ) recognition of a milestone payment related to the avacopan agreement ; ( ii ) amortization of the upfront license fee commitments from vifor pursuant to the avacopan agreement , avacopan amendment and ccx140 agreement , as well as ( iii ) collaboration revenue for development services under the ccx140 agreement in 2017. these increases were partially offset by a decrease in grant revenue from the fda to support the clinical development of avacopan for the treatment of patients with aav . the revenue in 2016 was due to : ( i ) amortization of the upfront payment from vifor pursuant to the avacopan agreement over the service period , which began in may 2016 and ( ii ) grant revenue from the fda to support the clinical development of avacopan for the treatment of patients with aav . research and development expenses research and development expenses represent costs incurred to conduct basic research , the discovery and development of novel small molecule therapeutics , development of our suite of proprietary drug discovery technologies , preclinical studies and clinical trials of our drug candidates . we recognize all research and development expenses as they are incurred . these expenses consist primarily of salaries and related benefits , including stock-based compensation , third-party contract costs relating to research , formulation , manufacturing , preclinical study and clinical trial activities , laboratory consumables , and allocated facility costs . total research and development expenses , as compared to the prior years , were as follows ( in thousands ) : replace_table_token_7_th the increase in research and development expenses from 2016 to 2017 was primarily due to the initiation and patient enrollment of the avacopan phase iii advocate trial in patients with aav and start-up expenses related to the phase ii clinical trials of fsgs and c3g . these increases were partially offset by lower phase ii clinical development expenses primarily due to the completion of avacopan clear and classic clinical trials for the treatment of aav in 2016 and lower phase i development expense due to the completion of enrollment in the clinical trial for ccx872 in patients with advanced pancreatic cancer in 2016. the increase in research and development expenses from 2015 to 2016 was primarily attributable to higher phase i and phase iii clinical development expenses in 2016 partially offset by a decrease in phase ii 78 index to financial statements development expenses . the increase in phase iii development expense was due to the initiation of phase iii development program for avacopan in patients with aav in 2016. the increase in phase i development expense was driven by the completion of ancillary phase i clinical trials for avacopan in support of end of phase ii meetings with regulatory agencies , as well as higher expenses associated with ccx872 for our ongoing phase i clinical trial in patients with advanced pancreatic cancer . the decrease in phase ii development expense was due to the completion of the clear and classic clinical trials for avacopan for the treatment of aav in 2016. the following table summarizes our research and development expenses by project ( in thousands ) : replace_table_token_8_th we track development expenses that are directly attributable to our clinical development candidates by phase of clinical development . such development expenses include third-party contract costs relating to formulation , manufacturing , preclinical studies and clinical trial activities . we allocate research and development salaries , benefits or indirect costs to our development candidates and we have included such costs in research and development expenses . all remaining research and development expenses are reflected in research and drug discovery which represents early stage drug discovery programs . such expenses include allocated employee salaries and related benefits , stock-based compensation , consulting and contracted services to supplement our in-house laboratory activities , laboratory consumables and allocated facility costs associated with these earlier stage programs . at any given time , we typically have several active early stage research and drug discovery projects .
| recent developments and corporate highlights appointment of william j. fairey jr. as executive vice president and chief operating officer in january 2018 , we announced the appointment of william j. fairey , jr. as executive vice president and chief operating officer . mr. fairey will lead our commercial strategy , including the development and execution of our commercialization plans for our orphan disease drug candidates avacopan and ccx140 , as well as oversee other key operational functions . avacopan conditional marketing authorization application accepted for review by the european medicines agency in december 2017 , our cma application for avacopan in the treatment of patients with aav was accepted for review by the ema 's chmp . under the terms of our kidney health alliance with vifor , this validation of the avacopan cma application by the ema resulted in a $ 50.0 million milestone . ccx872 positive overall survival results for second ccr2 inhibitor in the treatment of locally advanced/metastatic pancreatic cancer in january 2018 , we announced positive overall survival , or os , results from an ongoing phase ib clinical trial of ccx872 , our second ccr2 inhibitor , in the treatment of locally advanced/metastatic pancreatic cancer . the study reported os of 29 % at 18 months with ccx872 and folfirinox combination therapy in all randomized patients treated . this result compares favorably with previously published data of os of 18.6 % at 18 months using folfirinox regimen alone to treat pancreatic cancer patients with metastatic disease . $ 50 million loan and security agreement with hercules capital , inc. in december 2017 , we entered into a $ 50 million growth capital financing agreement with hercules capital , inc. , or hercules . the borrowings under this facility are available in three tranches through june 15 , 2019 , subject to certain conditions .
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for purposes of the matis employment agreement , good reason means the executive 's resignation from all positions he or she then holds with the company if ( i ) ( a ) there is a material diminution in the executive 's duties and responsibilities with the company or in job title ; ( b ) there is a material reduction of the executive 's base salary ; provided , however , that a material reduction in the executive 's base salary pursuant to a salary reduction program affecting all or substantially all of the employees of the company and that does not adversely affect the executive to a greater extent than other similarly story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties as described under the heading forward-looking statements elsewhere in this annual report on form 10-k. you should review the disclosure under the heading risk factors in this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a clinical-stage biotechnology company that discovers and develops anticalin based drugs to target validated disease pathways in a unique and transformative way . our pipeline includes immune-oncology multi-specifics tailored for the tumor micro-environment , an inhaled anticalin to treat uncontrolled asthma and a half-life-optimized anticalin to treat anemia . proprietary to pieris , anticalin proteins are a novel class of low molecular-weight therapeutic proteins derived from lipocalins , which are naturally occurring low-molecular weight human proteins typically found in blood plasma and other bodily fluids.each of our development programs focus on the following : 300-series oncology drug candidates are multispecific anticalin-based proteins designed to engage immunomodulatory targets and consist of a variety of multifunctional biotherapeutics that genetically link an antibody with one or more anticalin proteins , thereby constituting a multispecific protein ; prs-343 our lead immune-oncology program is a 4-1bb/her2 bispecific , comprised of a her2-targeting antibody genetically linked to a 4-1bb-targeting anticalin , in which tumor-targeted drug clustering mediated by her2 expressed on certain solid tumors is intended to drive tumor localized t cell activation for patient unresponsive to current standard of care . prs-332 is a bispecific anticalin-antibody fusion protein comprising an anti-pd-1 antibody genetically fused to an anticalin targeting an undisclosed checkpoint target . in order to improve on existing pd-1 therapies , we are developing prs-332 with the intent to simultaneously block pd-1 and another immune checkpoint co-expressed on exhausted t cells . prs-080 is an anticalin protein that binds to hepcidin , a natural regulator of iron in the blood . it has been designed to target hepcidin for the treatment of functional iron deficiency in anemic patients with chronic kidney disease particularly in end-stage renal disease patients requiring dialysis . prs-060 is a drug candidate that binds to the il-4ra receptor , thereby inhibiting il-4 and il-13 , two cytokines , small proteins mediating signaling between cells within the human body , known to be key mediators in the inflammatory cascade that causes asthma and other inflammatory diseases . our programs are in varying stages : 300-serieswe are conducting activities relating to lead candidate identification , lead candidate optimization , preclinical evaluation and ind filing preparation on several of our 300-series lead candidates . our lead candidate , prs-343 , has been advanced through ind-enabling studies in 2016. preclinical safety and efficacy studies were performed . a master cell bank was generated and gmp material to support initial clinical trials has been produced . we intend to file an ind and initiate a phase i clinical trial in her2 positive solid tumor for prs-343 in the first half of 2017 ; and prs-332we expect to nominate a development candidate and initiate ind-enabling activities in the second half of 2017 . 83 prs-080we completed a phase ia single-ascending dose clinical trial with prs-080 in healthy volunteers in 2015. based on the data we obtained in the phase ia clinical trial , we initiated a phase ib clinical study in ckd 5 patients requiring hemodialysis which we expect to complete by the first quarter of 2017. data un-blinding and subsequent disclosure is currently planned for the second quarter of 2017. the company plans to initiate in the second quarter of 2017 a multi-dose clinical study in ckd patients requiring hemodialysis , which will assess the ability of prs-080 to elevate hemoglobin over a period of approximately four weeks . prs-060we have formulated prs-060 for pulmonary delivery by inhalation and we have developed a bioprocess that has generated gmp material for use in preclinical safety and tolerability studies and first in human clinical studies . we intend to pursue a first-in-human clinical trial for prs-060 in the second half of 2017. our core anticalin ® technology and platform was developed in germany , and we have partnership arrangements with major multi-national pharmaceutical companies headquartered in the u.s. , europe and japan and with regional pharmaceutical companies headquartered in india . these include existing agreements with daiichi sankyo company limited ( daiichi ) , and sanofi group ( formerly sanofi-aventis and sanofi-pasteur sa , sanofi ) and f.hoffmanla roche ltd. and hoffmannla roche inc. , ( roche ) , pursuant to which our anticalin platform has consistently achieved its development milestones . story_separator_special_tag 87 we expect that reimbursements of our development costs by daiichi sankyo and sanofi will decline going forward , and we do not expect such reimbursements to be a significant source of funding in the future . as of december 31 , 2016 , we had a total of $ 29.4 million in cash and cash equivalents . we have experienced operating losses since its inception and had a total accumulated deficit of $ 102.7 million as of december 31 , 2016. we expect to incur additional costs and require additional capital . we have incurred losses in nearly every year since inception including the year ended december 31 , 2016. these losses have resulted in significant cash used in operations . due to the upfront payment received from roche during the twelve months ended december 31 , 2016 offset with our net losses for the period , our net cash used in operating activities is $ 14.4 million . during the twelve months ended december 31 , 2015 , our cash used in operations was $ 12.7 million . we have several research and development programs underway in varying stages of development and we expect they will be continue to consume increasing amounts of cash for development , conducting clinical trials and the testing and manufacturing of product material . as we continue to conduct these activities necessary to pursue fda approval of our 300-series , including prs-343 , prs-080 and prs-060 and our other product candidates , we expect the cash needed to fund operations to increase significantly over the next several years . in july 2015 , we closed a public offering of an aggregate of 9,090,909 shares of our common stock , par value $ 0.001 per share 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 public offering , including the over-allotment option , were $ 28.3 million and net proceeds were approximately $ 25.8 million . in june 2016 , we entered into a securities purchase agreement for a private placement with a select group of institutional investors . the private placement , referred to as the 2016 pipe , consisted of the sale of 8,188,804 units at a price of $ 2.015 per unit for gross proceeds to us of approximately $ 16.5 million . after deducting for placement agent fees and offering expenses , the aggregate net proceeds from the 2016 pipe was approximately $ 15.3 million . each unit , included in the 2016 private placement transaction , consisted of ( i ) one share of common stock or non-voting series a convertible preferred stock , par value $ 0.001 per share , or the series a preferred shares , which are convertible into one share of common stock , ( ii ) one warrant to purchase 0.4 shares of common stock at an exercise price of $ 2.00 per share , and ( iii ) one warrant to purchase 0.2 shares of common stock at an exercise price of $ 3.00 per share . the 2016 pipe transaction closed on june 8 , 2016. on august 3 , 2016 , our shelf registration statement in the amount of $ 100 million was declared effective by the sec . this registration allows us to offer for sale various unspecified classes of equity and debt securities . as circumstances warrant , we may issue debt and or equity securities from time to time on an opportunistic basis , dependent upon market conditions and available pricing . we make no assurance that we can issue and sell such securities on acceptable terms or at all . we believe that our effective shelf registration statement improves our ability to access capital . in january 2017 , the company entered into a license and collaboration agreement and a non-exclusive anticalin platform technology license agreement with les laboratories servier and institut de recherches internationales servier ( collectively , servier ) . under the agreements , the company will receive an upfront payment of $ 31.3 million . the total development , regulatory and sales-based milestone payment to the company could exceed $ 1.8 million over the life of the collaboration . the company believes the signing of the agreements with servier improves the company 's liquidity profile . 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 could be forced to delay , reduce , or eliminate our research and development programs or future commercialization efforts . 88 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 .
| results of operations comparison of years ended december 31 , 2016 and december 31 , 2015 the following table sets forth our revenues and operating expenses for the fiscal years ended december 31 , 2016 and 2015 ( in thousands ) : replace_table_token_2_th revenues the following table provides a comparison of revenues for the years ended december 31 , 2016 and 2015 ( in thousands ) : replace_table_token_3_th the $ 2.7 million increase in revenues from upfront payments in the twelve months ended december 31 , 2016 compared to the twelve months ended december 31 , 2015 relates to the recognition of an upfront payment under our collaboration with roche , which commenced in january 2016 . the revenue for the upfront payment is recorded based on the proportionate performance method using full-time equivalents as a measure to recognize the upfront payment over the research term . no upfront payments were recognized for the twelve months ended december 31 , 2015. the $ 1.4 million increase in revenues from research and development services in the twelve months ended december 31 , 2016 compared to the twelve months ended december 31 , 2015 mainly relates to research and development services being provided to roche , pursuant to the roche agreement .
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latchways , which is headquartered in the united kingdom , is a leading provider of innovative fall protection systems and solutions . the acquisition of latchways represents a key step in the execution of our corporate strategy by expanding our investment in one of the largest and fastest growing product segments of the global safety market . this acquisition will double our fall protection business , positioning msa as one of the largest fall protection providers globally . within the fall protection space , the latchways acquisition strengthens our position in permanent engineered systems and our presence in other sectors such as utilities , telecommunications , and aircraft maintenance . the data presented in part ii item 6 of this form 10-k should be read in conjunction with the following comments . additionally , please refer to note 13 acquisitions , which is included in part ii item 8 of this form 10-k , for further information . the americas and international reportable segments were established on january 1 , 2016. the americas segment is comprised of our operations in north america and latin america geographies . the international segment is comprised of our operations of all geographies outside of the americas . certain global expenses are now allocated to each segment in a manner consistent with where the benefits from the expenses are derived . the 2015 and 2014 segment results have been recast to conform with current period presentation . please refer to note 7 segment information , which is included in part ii item 8 of this form 10-k , for further information . msa 's south african personal protective equipment distribution business and msa 's zambian operations had historically been part of the international reportable segment . on february 29 , 2016 , the company sold 100 % of the stock associated with these operations . in accordance with generally accepted accounting principles , these operations and related results are excluded from continuing operations and are presented as discontinued operations in all periods presented . please refer to note 20 discontinued operations , which is included in part ii item 8 of this form 10-k , for further commentary on these discontinued operations . on september 19 , 2016 , the company acquired 100 % of the common stock of senscient , inc. for $ 19.1 million in cash . senscient , which is headquartered in the uk , is a leader in laser-based gas detection technology . the acquisition of senscient expands and enhances msa 's technology offerings in the global market for fixed gas and flame detection systems , as the company continues to execute its core product growth strategy . the acquisition was funded through borrowings on our unsecured senior revolving credit facility . the data presented in part ii item 6 of this form 10-k should be read in conjunction with the following comments . additionally , please refer to note 13 acquisitions , which is included in part ii item 8 of this form 10-k , for further information . 20 business overview we are a global leader in the development , manufacture and supply of safety products that protect people and facility infrastructures . many msa products integrate a combination of electronics , mechanical systems and advanced materials to protect users against hazardous or life-threatening situations . the company 's comprehensive product line is used by workers around the world in a broad range of markets , including the oil , gas and petrochemical , fire service , construction , utilities , and mining industries . msa 's core products include fixed gas and flame detection systems , breathing apparatus where scba is the principal product , portable gas detection instruments , industrial head protection products , fire and rescue helmets , and fall protection devices.we are committed to providing our customers with service unmatched in the safety industry and , in the process , enhancing our ability to provide a growing line of safety solutions for customers in key global markets . we tailor our product offerings and distribution strategy to satisfy distinct customer preferences that vary across geographic regions . to best serve these customer preferences , we have organized our business into six geographical operating segments that are aggregated into three reportable geographic segments : americas , international and corporate . each segment includes a number of operating segments . in 2016 , 59 % and 41 % of our net sales were made by our americas and international segments , respectively . americas . our largest manufacturing and research and development facilities are located in the united states . we serve our markets across the americas with manufacturing facilities in the u.s. , mexico , brazil and canada . operations in other americas segment countries focus primarily on sales and distribution in their respective home country markets . international . our international segment includes companies in europe , middle east , africa , and the asia pacific region , some of which are in developing regions of the world . in our largest international affiliates ( in germany , france , united kingdom , ireland and china ) , we develop , manufacture and sell a wide variety of products . in china , the products manufactured are sold primarily in the home country as well as regional markets . operations in other international segment countries focus primarily on sales and distribution in their respective home country markets . although some of these companies may perform limited production , most of their sales are of products manufactured in our plants in germany , france , the u.s. , united kingdom , ireland , sweden and china or are purchased from third party vendors . corporate . the corporate segment primarily consists of general and administrative expenses incurred in our corporate headquarters , costs associated with corporate development initiatives , legal expense , interest expense , foreign exchange gains or losses , and other centrally-managed costs . corporate general and administrative costs comprise the majority of the expense in the corporate segment . story_separator_special_tag 23 corporate segment adjusted operating loss for the year ended december 31 , 2016 was $ 38.6 million , an increase of $ 0.3 million , or 1 % , compared to an operating loss of $ 38.3 million for the year ended december 31 , 2015 , reflecting higher stock compensation , bonus , and legal expenses . the following table provides a reconciliation from gaap operating income to adjusted operating income . adjusted operating margin % is calculated as adjusted operating income divided by net sales . replace_table_token_7_th note : adjusted operating income is a non-gaap financial measure used by the chief operating decision maker to evaluate segment performance and allocate resources . adjusted operating income is reconciled above to the nearest gaap financial measure , operating income . total other expense , net . other expense for the year ended december 31 , 2016 was $ 12.3 million , an increase of $ 0.6 million , or 5 % , compared to $ 11.7 million for the year ended december 31 , 2015 . the increase reflects higher interest expense associated with the latchways and senscient acquisitions . income taxes . the effective tax rate for the year ended december 31 , 2016 was 38.1 % , compared to 40.0 % for the year ended december 31 , 2015 . the decrease was primarily due to less exit taxes partially offset by higher u.s. profitability . the effective tax rate for the year is inclusive of exit taxes related to our european reorganization of 4.3 % compared to 6.9 % for the same period last year . msa finalized its european reorganization during 2016. the reorganization is designed to drive optimal performance by aligning certain strategic planning and decision making into a single location enabled by a common it platform . during 2016 , the company incurred $ 6.5 million of charges associated with exit taxes related to our european reorganization compared to $ 7.7 million in 2015. net income from continuing operations attributable to msa safety incorporated . net income from continuing operations was $ 92.7 million for the year ended december 31 , 2016 , or $ 2.44 per diluted share , an increase of $ 23.1 million , or 33 % , compared to $ 69.6 million , or $ 1.84 per diluted share , for the year ended december 31 , 2015 as a result of the factors described above . net ( loss ) income from discontinued operations attributable to msa safety incorporated . net loss from discontinued operations was $ 0.8 million for the year ended december 31 , 2016 , or $ 0.02 per diluted share compared to net income of $ 1.2 million , or $ 0.03 per diluted share , for the year ended december 31 , 2015 . please refer to note 20 to the consolidated financial statements in part ii item 8 of this form 10-k. year ended december 31 , 2015 compared to year ended december 31 , 2014 net sales from continuing operations . net sales for the year ended december 31 , 2015 were $ 1,130.8 million , a decrease of $ 3.1 million , from $ 1,133.9 million for the year ended december 31 , 2014 . organic constant currency sales increased by 7 % for the year ended december 31 , 2015 . please refer to the net sales from continuing operations table below for a reconciliation of the year over year sales change . replace_table_token_8_th 24 replace_table_token_9_th note : organic constant currency sales change is a non-gaap financial measure provided by the company to give a better understanding of the company 's underlying business performance . organic constant currency sales change is calculated by removing the percentage impact from acquisitions and currency translation effects from the overall percentage change in net sales . net sales for the americas segment were $ 704.8 million for the year ended december 31 , 2015 , an increase of $ 41.1 million million , or 6 % , compared to $ 663.7 million for the year ended december 31 , 2014 . currency translation effects decreased americas segment sales by 4 % , reflecting weaker currencies in latin america . in 2015 , organic constant currency sales in the americas segment increased 10 % over the prior year on strong g1 self-contained breathing apparatus ( `` scba '' ) sales across the segment . strength in the fire service market was partially offset by decreased demand in the gas , petroleum , & chemical markets , reflecting decreased shipments of portable gas detection , industrial head protection , and fixed gas and flame detection . net sales for the international segment were $ 426.0 million for the year ended december 31 , 2015 , an decrease of $ 44.2 million , or 9 % , compared to $ 470.2 million for the year ended december 31 , 2014 . currency translation effects decreased international segment net sales by 13 % , reflecting weakened currencies across several international geographies , notably in europe and australia . organic constant currency sales in the international segment provided 2 % growth in 2015 , driven by increased shipments of industrial head protection , portable gas detection , and fixed gas and flame detection in the middle east and europe , and higher fire helmets sales in pacific asia . gross profit . gross profit for the year ended december 31 , 2015 was $ 501.1 million , a decrease of $ 14.2 million , or 3 % , from $ 515.3 million for the year ended december 31 , 2014 . the ratio of gross profit to net sales was 44.3 % for 2015 compared to 45.4 % in 2014. the lower gross profit ratio in 2015 was primarily related to a less favorable product mix , increased indirect costs , and increased amortization related to the latchways acquisition . selling , general and administrative expenses .
| results of operations year ended december 31 , 2016 compared to year ended december 31 , 2015 replace_table_token_5_th net sales from continuing operations . net sales for the year ended december 31 , 2016 were $ 1,149.5 million , an increase of $ 18.7 million , from $ 1,130.8 million for the year ended december 31 , 2015 . organic constant currency sales decreased by 1 % for the year ended december 31 , 2016 . please refer to the net sales from continuing operations table below for a reconciliation of the year over year sales change . 21 replace_table_token_6_th note : organic constant currency sales change is a non-gaap financial measure provided by the company to give a better understanding of the company 's underlying business performance . organic constant currency sales change is calculated by removing the percentage impact from acquisitions and currency translation effects from the overall percentage change in net sales . net sales for the americas segment were $ 678.4 million for the year ended december 31 , 2016 , a decrease of $ 26.4 million , or 4 % compared to $ 704.8 million for the year ended december 31 , 2015 . currency translation effects decreased americas segment sales by 2 % , reflecting weaker currencies across latin america . acquisitions , primarily latchways , increased sales in the americas segment by 1 % . in 2016 , organic constant currency sales in the americas segment decreased 3 % compared to the prior year . this decrease was primarily related to a lower level of shipments of the g1 self-contained breathing apparatus ( `` scba '' ) . our sales in 2015 benefited from a higher backlog at december 31 , 2014 of approximately $ 35 million .
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changes in , among other things , income tax legislation , statutory income tax rates , or future taxable income levels could materially impact our valuation of income tax assets and liabilities and could cause our income tax provision to vary significantly among financial reporting periods . if , based on the weight of available evidence , it is more likely than not the deferred tax assets will not be realized , we record a valuation allowance , or release all or a portion of the valuation allowance if it is more likely than not the deferred tax assets are expected to be realized . the weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified . a high degree of judgment is required to determine if , and the extent to which , valuation allowances should be recorded against deferred tax assets . topic 740 further clarifies the accounting for uncertainty in income taxes recognized in an entity 's financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in an income tax return . topic 740 story_separator_special_tag financial condition and results of operations the discussion below contains “ forward-looking statements , ” as defined in section 21e of the securities exchange act of 1934 , as amended , that reflect our current expectations regarding our future growth , results of operations , cash flows , performance and business prospects , and opportunities , as well as assumptions made by , and information currently available to , our management . we have tried to identify forward-looking statements by using words such as “ anticipate , ” “ believe , ” “ expect , ” “ intend , ” “ should , ” “ will , ” “ continue to ” and similar expressions , but these words are not the exclusive means of identifying forward-looking statements . these statements are based on information currently available to us and are subject to various risks , uncertainties , and other factors , including , but not limited to , those matters discussed in item 1a , “ risk factors , ” in part i of this annual report on form 10-k that could cause our actual growth , results of operations , cash flows , performance , business prospects and opportunities to differ materially from those expressed in , or implied by , these statements . except as expressly required by the federal securities laws , we undertake no obligation to update such factors or to publicly announce the results of any of the forward-looking statements contained herein to reflect future events , developments , or changed circumstances , or for any other reason . as used in this annual report on form 10-k , the terms “ we , ” “ us , ” “ our , ” “ the company ” and “ cec ” refer to career education corporation and our wholly-owned subsidiaries . the terms “ college , ” “ institution ” and “ university ” each refer to an individual , branded , for-profit educational institution , owned by us and including its campus locations . the term “ campus ” refers to an individual main or branch campus operated by one of our colleges , institutions or universities . the following management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) should be read in conjunction with the company 's consolidated financial statements and the notes thereto appearing elsewhere in this annual report on form 10-k. the md & a is intended to help investors understand the results of operations , financial condition and present business environment . the md & a is organized as follows : overview consolidated results of operations segment results of operations summary of critical accounting policies and estimates liquidity , financial position and capital resources overview our academic institutions offer a quality education to a diverse student population in a variety of disciplines through online , campus-based and blended learning programs . our two universities – american intercontinental university ( “ aiu ” ) and colorado technical university ( “ ctu ” ) – provide degree programs through the master 's or doctoral level as well as associate and bachelor 's levels . both universities predominantly serve students online with career-focused degree programs that are designed to meet the educational demands of today 's busy adults . aiu and ctu continue to show innovation in higher education , advancing new personalized learning technologies like their intelli path adaptive learning platform . career education is committed to providing quality education that closes the gap between learners who seek to advance their careers and employers needing a qualified workforce . in 2015 , we made the strategic decision to focus our resources and attention on our two universities . in accordance with that strategy , we are in the process of teaching out campuses within our transitional group and culinary arts segments . students enrolled at these campuses have been afforded the reasonable opportunity to complete their program of study prior to the final teach-out date . during 2016 we completed the teach-out of thirteen campuses within our teach-out segments . the results of operations for these campuses will remain reported within the transitional group and culinary arts , as applicable , as part of continuing operations , in accordance with asc topic 360 , which limits discontinued operations reporting effective january 1 , 2015. regulatory environment we operate in a highly regulated industry , which has significant impacts on our business and creates risks and uncertainties . in recent years , there has been substantial and increasing focus by various members of the u.s. congress and federal agencies , including ed , the consumer financial protection bureau and the federal trade commission , on the role that for-profit educational institutions play in higher education . story_separator_special_tag we have further enhanced our mobile platform with added new functionality for the benefit of students . changes we made to our course sequencing and course design have promoted learning , increased faculty interaction with students and improved overall student experience during their first few sessions , all of which we believe has resulted in improved retention . we have also revised our full-time faculty and admissions training and optimized our spending across marketing channels by allocating resources towards those with a higher propensity of positive outcomes . both ctu and aiu have continued to expand their graduate team model structure which personalizes student-facing services in financial aid , admissions and advising that we believe helps increase accountability and ultimately improve overall student 46 experiences and retention . we also experienced reduced turnover in our admissions and advising functions , and increased the effectiveness and efficiency of our fro nt-end operations , which should ultimately reduce cost per start while improving student experiences . within ctu , we modified the application process for first-time students in ways we believe will increase their opportunity for success and make them more prepared for class . through incremental investments of resources in our financial aid function , we have increased our document collection and counseling efforts with students . we invested in full-time faculty roles and increased our professional development offerings . ctu has also made progressive investments of staff in its academic function and increased the number of full time faculty by 30 % since the beginning of 2016. we believe this has improved overall faculty-student engagement , promoted learning and has ultimately resulted in enhanced overall student retention and outcomes . within aiu , we focused our efforts during the year on increasing accountability at all operational and student-facing functions by a revised and improved managerial and skill development program . we redesigned our calendar to align better with student lifestyles and provide more desirable breaks in our curriculum , and we have enhanced the first course that undergraduate students take by building workload levels slowly as students develop skills and motivation . our new student advising model promotes further collaboration between faculty and advisors which we believe elevates accountability and effectiveness of our retention efforts . additionally , we started improving our discussions around financial aid and transfer of credit counseling with prospective students before they start classes which should better prepare them to be successful in their studies . our teach-out campuses remain on track and we have experienced better than expected results within these campuses , primarily driven by strong student retention through the teach-out process . we experienced decreased expenses as a result of the reduction of marketing and admissions expenses within these operations as well as the effective and efficient process that we have developed at these campuses to provide students with the opportunity to complete their programs while minimizing the overall financial impact to the organization . financial highlights revenue from continuing operations declined $ 142.9 million or 16.9 % due to an overall 15.3 % decrease in total student enrollments for 2016 as compared to the prior year , primarily as a result of our decision to divest or teach out our career schools . for the current year , we reported an operating loss of $ 32.3 million as compared to an operating loss of $ 92.2 million for the prior year . this improvement was driven by elimination of expenses and asset impairment charges in the current year related to our teach-out campuses and increased revenues within ctu partially offset with legal settlements recorded in the current year . lastly , we reported cash generated from operations for the current year of $ 5.9 million , an improvement of $ 27.6 million from the prior year 's cash usage of $ 21.7 million . for our university group , revenue increased $ 12.5 million or 2.3 % as compared to the prior year , driven by increased revenues within ctu . total enrollments for the university group increased by 5.3 % for the current year as compared to the prior year . we believe our total enrollment growth is a result of our continued focus on student retention and outcomes and providing our students with positive experiences driven by the initiatives discussed above . operating income for the university group decreased $ 23.2 million , or 24.9 % , for the current year as compared to the prior year . within aiu , we recorded a $ 10.0 million charge for a legal settlement related to a case that was filed in 2008 which was scheduled to commence in a jury trial later this month . while we felt strongly that this case had no merit , we concluded that moving forward with a trial and incurring the associated legal expenses along with the risks inherent in any jury trial was not in the best interests of the organization and our students . these decisions do not reflect in any way on our ongoing operations , practices and processes . we also recorded a separate charge for associated third-party legal fees of $ 22.0 million during 2016. excluding these legal settlements , operating income for the university group would have improved $ 8.8 million as compared to the prior year . during 2016 , the use of an adjusted ebitda measure , in our opinion , was appropriate as it allowed us to compare our current operating results for our operations with respective historical periods and with the operational performance of other companies in our industry because it did not give effect to potential differences caused by items we did not consider reflective of underlying operating performance . further , as the transitional group and culinary arts segments have been announced for teach-out , we view these operations as not reflective of the ongoing business . as a result , management viewed adjusted ebitda from the university group and corporate separately from the remainder of the organization , to assess results and make decisions .
| segment results of operations management assesses results of operations for ongoing operations separately from the transitional group and culinary arts . as a result , management 's long-term operational strategies and initiatives are primarily focused on the university group . the following tables present segment results for the reported periods ( dollars in thousands ) . replace_table_token_18_th ( 1 ) the current year results include charges recorded for a $ 10.0 million legal settlement and $ 22.0 million in associated third party legal fees . 55 replace_table_token_19_th ( 1 ) new student enrollments were positively impacted by a change to how the company records certain cancelled students . excluding the impact of this change new student enrollments would have decreased 7.1 % for ctu , increased 4.3 % for aiu and decreased 2.8 % for the university group for the year ended december 31 , 2016 as compared to the prior year . ( 2 ) teach-out campuses within the transitional group and culinary arts segments no longer enroll new students upon teach out effective date . for culinary arts , teach-outs announced in december 2015 were effective beginning after the january 2016 new enrollments . students who re-enter after 365 days are reported as new student enrollments . year ended december 31 , 2016 as compared to the year ended december 31 , 2015 university group . current year revenue increased approximately $ 12.5 million or 2.3 % driven by ctu . current year revenue for our ctu segment was positively impacted by an increase in total student enrollment as compared to the prior year primarily due to increased student retention . revenue for our aiu segment decreased $ 8.6 million or 4.3 % as a result of the lower student enrollment during the first half of the year .
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in this case no fixed charge is added to future purchases for reimbursement of tooling costs . in september 2009 , the company entered into a similar product development agreement with ablecom . under this agreement , the company has 73 super micro computer , inc. notes to consolidated story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and related notes which appear elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including those discussed below and elsewhere in this annual report on form 10-k , particularly under the heading risk factors. overview we are a global leader in server technology and green computing innovation . we develop and provide high performance server solutions based on an innovative , modular and open-standard architecture . our solutions include a range of complete rackmount , workstation , storage , graphic processing unit and blade server systems , as well as subsystems and accessories which can be used by distributors , oems and end customers to assemble server systems . to date , we have generated the majority of our net sales from subsystems . in recent years our growth in net sales has been driven by the growth in the market for application optimized server systems . for fiscal years 2010 , 2009 and 2008 , net sales of optimized servers were $ 245.2 million , $ 196.7 million and $ 209.1 million , respectively , and net sales of subsystems and accessories were $ 476.2 million , $ 309.0 million and $ 331.4 million , respectively . in fiscal year 2010 , we experienced an increase in net sales compared with fiscal year 2009 which we believe was primarily attributable to the recovery of the economy . in fiscal year 2009 , we experienced a decline in net sales compared with fiscal year 2008 which we believe was primarily attributable to reductions in information technology spending in response to the global economic downturn . we commenced operations in 1993 and have been profitable every year since inception . for fiscal years 2010 , 2009 and 2008 , our net sales were $ 721.4 million , $ 505.6 million and $ 540.5 million , respectively , and our net income was $ 26.9 million , $ 16.1 million and $ 25.4 million , respectively . our increase in profitability in fiscal year 2010 was primarily attributable to the increase in our net sales of our subsystems and accessories and server systems offset in part by a decline in gross margins across our product lines as we grew market share during a time of economic recovery and an increase in operating expenses including $ 1.1 million for a provision for litigation loss ( see note 13 of notes to consolidated financial statements ) . our decline in profitability in fiscal year 2009 was primarily attributable to the reduction in our net sales and to a lesser extent attributable to a reduction in our gross profit as a percentage of net sales as a result of increasing pricing pressure , offset in part by cost saving programs . we sell our server systems and subsystems and accessories primarily through distributors and to a lesser extent to oems as well as through our direct sales force . for fiscal years 2010 , 2009 and 2008 , we derived 66.7 % , 64.9 % and 59.9 % , respectively , of our net sales from products sold to distributors , and we derived 33.3 % , 35.1 % and 40.1 % , respectively , from sales to oems and to end customers . none of our customers accounted for 10 % or more of our net sales in fiscal years 2010 , 2009 or 2008. for fiscal years 2010 , 2009 and 2008 , we derived 60.1 % , 64.4 % and 60.4 % , respectively , of our net sales from customers in the united states . for fiscal years 2010 , 2009 and 2008 , we derived 39.9 % , 35.6 % and 39.6 % , respectively , of our net sales from customers outside the united states . we perform the majority of our research and development efforts in-house . for fiscal years 2010 , 2009 and 2008 , research and development expenses represented 5.2 % , 6.8 % and 5.6 % of our net sales , respectively . we use several suppliers and contract manufacturers to design and manufacture components in accordance with our specifications , with most final assembly and testing performed at our manufacturing facility in san jose , california . during fiscal year 2010 , we continued to invest in expanding our operations both in san jose , california and our subsidiaries in the netherlands and taiwan in order to support our growth . we have begun manufacturing and service operations in the netherlands and taiwan to support our european and asian customers and we plan to continue expanding our overseas manufacturing capacity in fiscal year 2011. one of 37 our key suppliers is ablecom , a related party , which supplies us with contract design and manufacturing support . for fiscal years 2010 , 2009 and 2008 , our purchases from ablecom represented 20.5 % , 22.1 % and 24.3 % of our cost of sales , respectively . the decrease in percentage of cost of sales in fiscal year 2010 and 2009 was primarily related to a higher product mix of subsystems and accessories which were purchased from other suppliers in fiscal year 2010 and 2009. ablecom 's sales to us constitute a substantial majority of ablecom 's net sales . we continue to maintain our manufacturing relationship with ablecom in asia in an effort to reduce our product costs and do not have any current plans to reduce our reliance on ablecom product purchases . story_separator_special_tag all research and development costs are expensed as incurred . we occasionally receive non-recurring engineering , or nre funding from certain suppliers and customers . under these programs , we are reimbursed for certain research and development costs that we incur as part of the joint development of our products and those of our suppliers and customers . these amounts offset a portion of the related research and development expenses and have the effect of reducing our reported research and development expenses . sales and marketing expenses . sales and marketing expenses consist primarily of salaries and commissions for our sales and marketing personnel , costs for tradeshows , independent sales representative fees and marketing programs . from time to time , we receive cooperative marketing funding from certain suppliers . under these programs , we are reimbursed for certain marketing costs that we incur as part of the joint promotion of our products and those of our suppliers . these amounts offset a portion of the related expenses and have the effect of reducing our reported sales and marketing expenses . similarly , we from time to time offer our distributors cooperative marketing funding which has the effect of increasing our expenses . the timing , magnitude and estimated usage of our programs and those of our suppliers can result in significant variations in reported sales and marketing expenses from period to period . spending on cooperative marketing , either by us or our suppliers , typically increases in connection with significant product releases by us or our suppliers . general and administrative expenses . general and administrative expenses consist primarily of general corporate costs , including personnel expenses , financial reporting , corporate governance and compliance and outside legal , audit and tax fees . provision for litigation loss . loss from litigation relates to an action filed in france by digitechnic , s.a. , a former customer . the company entered into a settlement agreement with digitechnic , pursuant to which the company made a payment of $ 1.1 million in december 2009. interest and other income , net . interest and other income , net represents the net of our interest income on investments or interest expense on the building loans or letters of credit for our owned facilities offset by interest earned on our cash balances . 39 income tax provision . our income tax provision is based on our taxable income generated in the jurisdictions in which we operate , currently primarily the united states and the netherlands and to a lesser extent , taiwan . our effective tax rate differs from the statutory rate primarily due to releasing of unrecognized tax liability on research and development credits resulting from lapsing statues of limitations , tax benefit of tax exempt interest income , research and development tax credits and the domestic production activities deduction . a reconciliation of the federal statutory income tax rate to our effective tax rate is set forth in note 12 of notes to consolidated financial statements . critical accounting policies our discussion and analysis of our financial condition and results of operations are based upon 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 amount of assets , liabilities , revenues and expenses . we evaluate our estimates on an on-going basis , including those related to allowances for doubtful accounts and sales returns , cooperative marketing accruals , investment valuations , inventory valuations , income taxes , warranty obligations and stock-based compensation . we base 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 the judgments we make about the carrying values of assets and liabilities that are not readily apparent from other sources . because these estimates can vary depending on the situation , actual results may differ from the estimates . we believe the following are our most critical accounting policies as they require our more significant judgments in the preparation of our financial statements . revenue recognition . we recognize revenue from sales of products , when persuasive evidence of an arrangement exists , shipment has occurred and title has transferred , the sales price is fixed or determinable , collection of the resulting receivable is reasonably assured , and all significant obligations have been met . generally this occurs at the time of shipment when risk of loss and title has passed to the customer . our standard arrangement with our customers includes a signed purchase order or contract , ex works shipping point terms , except for a few customers who have free-on-board destination terms , and revenue is recognized when the products arrive at the destination , 30 to 60 days payment terms , and no customer acceptance provisions . we generally do not provide for non-warranty rights of return except for products which have out-of-box failure , where customers could return these products for credit within 30 days of receiving the items . certain distributors and oems are also permitted to return products in unopened boxes , limited to purchases over a specified period of time , generally within 60 to 90 days of the purchase , or to products in the distributor 's or oem 's inventory at certain times ( such as the termination of the agreement or product obsolescence ) . in addition , we have a sale arrangement with an oem that has limited product return rights . to estimate reserves for future sales returns , we regularly review our history of actual returns for each major product line . we also communicate regularly with our distributors to gather information about end customer satisfaction , and to determine the volume of inventory in the channel . reserves for future returns are adjusted as necessary , based on returns experience , returns expectations and communication with our distributors .
| results of operations the following table sets forth our financial results , as a percentage of net sales for the periods indicated : replace_table_token_6_th comparison of fiscal years ended june 30 , 2010 and 2009 net sales . net sales increased by $ 215.8 million , or 42.7 % , to $ 721.4 million from $ 505.6 million , for fiscal year 2010 and 2009 , respectively . this increase was due primarily to an increase in unit volumes of subsystems and accessories and average selling prices of server systems . for fiscal year 2010 , the number of units sold increased 54.4 % to 3.4 million compared to 2.2 million for fiscal year 2009. the increase in unit volumes was primarily due to an increase in unit volumes of system accessories . for fiscal year 2010 , the number of server system units sold increased 12.1 % to 176,000 compared to 157,000 for fiscal year 2009. the average selling price of server system units increased 12.0 % to $ 1,400 in fiscal year 2010 compared to $ 1,250 in fiscal year 2009. the average selling prices of our server systems increased principally due to higher average selling prices of our 6000 series configuration of servers which incorporated additional features offset in part by declines in average selling prices of more mature products . sales of server systems increased by $ 48.6 million or 24.7 % from fiscal year 2009 to fiscal year 2010 , primarily due to higher sales of our 6000 series configuration of servers and higher sales to system integrators offset in part by lower sales of more mature products . sales of server systems represented 34.0 % of our net sales for fiscal year 2010 compared to 38.9 % of our net sales for fiscal year 2009. for fiscal year 2010 , the number of subsystems and accessories units sold increased 57.6 % to 3.3 million compared to 2.1 million for fiscal year 2009. sales of subsystems and accessories increased by $ 167.3
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audit fees for the company 's fiscal year ended july 31 , 2017 and 2016 , we have incurred $ 30,850 and $ 7,500 for professional services rendered for the audit and reviews of our financial statements . all other fees ( including , audit related fees and tax fees ) for the company 's fiscal year ended july 31 , 201 and 2016 , we did not incur any fees for tax services . part iv item 15. exhibits , financial statement schedules . ( a ) documents filed as part of this annual report ( 1 ) financial statements : ( 2 ) financial statement schedules ( 3 ) exhibits : exhibit no . description 31.1 certification of principal executive officer and principal financial officer , pursuant to 18 u.s.c . section 1350 as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 . * 32.1 certification of principal executive officer and principal financial officer pursuant to rule 13a-14 ( b ) of the exchange act and section 906 of the sarbanes-oxley act of 2002 * * 101.ins ins xbrl instance document * 101.sch sch xbrl schema document * 101.cal cal xbrl calculation linkbase document * 101.def def xbrl definition linkbase document * 101.lab lab xbrl label linkbase document * 101.pre pre xbrl presentation linkbase document * * filed herewith * * in accordance with sec release 33-8238 , exhibit 32.1 is being furnished and not filed . 16 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 . tgi solar power group , inc. date : january 31 , 2018 by : henry val name : henry val title : chairman , chief executive officer , chief financial officer and president ( principal executive , financial and accounting officer ) signature title date henry val chairman , chief executive officer , january 31 , 2018 henry val chief financial officer and president ( principal executive , financial and accounting officer ) 1 7 story_separator_special_tag the following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition . the discussion should be read along with our financial statements and notes thereto . this section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance . forward-looking statements are often identified by words like believe , expect , estimate , anticipate , intend , project and similar expressions , or words which , by their nature , refer to future events . you should not place undue certainty on these forward-looking statements . these forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions . this form 10-k also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other industry data . this data involves a number of assumptions and limitations , and investors are cautioned not to give undue weight to such estimates . we have not independently verified the statistical and other industry data generated by independent parties and contained in this form 10-k and , accordingly , we can not guarantee their accuracy or completeness . in addition , projections , assumptions and estimates of our future performance and the future performance of the industries in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors , including those described in “ risk factors ” and elsewhere in this form 10-k. these and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us . overview on june 26 , 2016 , the company sold 137,500 shares of its series c convertible preferred stock ( the “ series c stock ” ) each to ensure hr , llc , a new jersey limited liability company ( “ ensure ” ) and meros hr , llc , a new jersey limited liability company ( “ meros ” ) . upon consummation of the sale of the shares , the series c stock was convertible into a number of shares of the company 's common stock , par value $ 0.001 per share ( the “ common stock ” ) at the conversion price of $ 0.0000161240 per share and votes on an as converted basis multiplied by 1.9. as a result , the sale of the series c stock resulted in a change of control of the company . the company 's strategy is to acquire innovative and patented technologies , components , processes , and designs with commercial value that will give the company a competitive market advantage and generate shareholder value . in addition , the company plans to align itself through acquisition and joint ventures with partners whereby the company can provide project management consulting and develop custom tools software . the company has initiated plans to develop a line of electric vehicles and build five prototype electric vehicles for testing and attracting orders . engineering , design and key component sourcing has been initiated . tgi has also signed an agreement with a ukraine insurance company ( finex ) to develop a line of insurance products for tgi to include comprehensive polices for future car owners , extended warranties , roadside assistance and battery replacement . the company will be able to utilize finex office space , back office , accounting and legal personnel for operations conducted in the ukraine . 9 as of july 31 , 2017 , we had limited cash and no accounts receivable . in order to fulfill our plans as a consultant and developer of electric cars we will be required to actively market this portion of story_separator_special_tag audit fees for the company 's fiscal year ended july 31 , 2017 and 2016 , we have incurred $ 30,850 and $ 7,500 for professional services rendered for the audit and reviews of our financial statements . all other fees ( including , audit related fees and tax fees ) for the company 's fiscal year ended july 31 , 201 and 2016 , we did not incur any fees for tax services . part iv item 15. exhibits , financial statement schedules . ( a ) documents filed as part of this annual report ( 1 ) financial statements : ( 2 ) financial statement schedules ( 3 ) exhibits : exhibit no . description 31.1 certification of principal executive officer and principal financial officer , pursuant to 18 u.s.c . section 1350 as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 . * 32.1 certification of principal executive officer and principal financial officer pursuant to rule 13a-14 ( b ) of the exchange act and section 906 of the sarbanes-oxley act of 2002 * * 101.ins ins xbrl instance document * 101.sch sch xbrl schema document * 101.cal cal xbrl calculation linkbase document * 101.def def xbrl definition linkbase document * 101.lab lab xbrl label linkbase document * 101.pre pre xbrl presentation linkbase document * * filed herewith * * in accordance with sec release 33-8238 , exhibit 32.1 is being furnished and not filed . 16 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 . tgi solar power group , inc. date : january 31 , 2018 by : henry val name : henry val title : chairman , chief executive officer , chief financial officer and president ( principal executive , financial and accounting officer ) signature title date henry val chairman , chief executive officer , january 31 , 2018 henry val chief financial officer and president ( principal executive , financial and accounting officer ) 1 7 story_separator_special_tag the following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition . the discussion should be read along with our financial statements and notes thereto . this section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance . forward-looking statements are often identified by words like believe , expect , estimate , anticipate , intend , project and similar expressions , or words which , by their nature , refer to future events . you should not place undue certainty on these forward-looking statements . these forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions . this form 10-k also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other industry data . this data involves a number of assumptions and limitations , and investors are cautioned not to give undue weight to such estimates . we have not independently verified the statistical and other industry data generated by independent parties and contained in this form 10-k and , accordingly , we can not guarantee their accuracy or completeness . in addition , projections , assumptions and estimates of our future performance and the future performance of the industries in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors , including those described in “ risk factors ” and elsewhere in this form 10-k. these and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us . overview on june 26 , 2016 , the company sold 137,500 shares of its series c convertible preferred stock ( the “ series c stock ” ) each to ensure hr , llc , a new jersey limited liability company ( “ ensure ” ) and meros hr , llc , a new jersey limited liability company ( “ meros ” ) . upon consummation of the sale of the shares , the series c stock was convertible into a number of shares of the company 's common stock , par value $ 0.001 per share ( the “ common stock ” ) at the conversion price of $ 0.0000161240 per share and votes on an as converted basis multiplied by 1.9. as a result , the sale of the series c stock resulted in a change of control of the company . the company 's strategy is to acquire innovative and patented technologies , components , processes , and designs with commercial value that will give the company a competitive market advantage and generate shareholder value . in addition , the company plans to align itself through acquisition and joint ventures with partners whereby the company can provide project management consulting and develop custom tools software . the company has initiated plans to develop a line of electric vehicles and build five prototype electric vehicles for testing and attracting orders . engineering , design and key component sourcing has been initiated . tgi has also signed an agreement with a ukraine insurance company ( finex ) to develop a line of insurance products for tgi to include comprehensive polices for future car owners , extended warranties , roadside assistance and battery replacement . the company will be able to utilize finex office space , back office , accounting and legal personnel for operations conducted in the ukraine . 9 as of july 31 , 2017 , we had limited cash and no accounts receivable . in order to fulfill our plans as a consultant and developer of electric cars we will be required to actively market this portion of
| results of operations the following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes , and other financial information included in this form 10k . our management 's discussion and analysis contains not only statements that are historical facts , but also statements that are forward-looking . forward-looking statements are , by their very nature , uncertain and risky . these risks and uncertainties include international , national , and local general economic and market conditions ; our ability to sustain , manage , or forecast growth ; our ability to successfully make and integrate acquisitions ; new product development and introduction ; existing government regulations and changes in , or the failure to comply with , government regulations ; adverse publicity ; competition ; the loss of significant customers or suppliers ; fluctuations and difficulty in forecasting operating results ; change in business strategy or development plans ; business disruptions ; the ability to attract and retain qualified personnel ; the ability to protect technology ; the risk of foreign currency exchange rate ; and other risks that might be detailed from time to time in our filing with the securities and exchange commission . currently the company has no operations that provide cash flow , however a new business plan was developed and tgi intends to enter into business to provide clients with services that include : business development , project management , and management consulting we had consulting income from a related party for the years ended july 31 , 2017 and july 31 , 2016 of $ 1,000 and $ 0. during the year ended july 31 , 2017 and 2016 , we incurred $ 222,144 and $ 121,679 , respectively , in operating expenses . the increase in fiscal year 2017 is due to a full year of operating expenses .
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therefore , an impairment charge of $ 1,051,702 has been recorded for the year ended december 31 , 2016 , which reduced the carrying amount of oil and gas properties to zero as of december 31 story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and the notes thereto which appear elsewhere in this report . the results shown herein are not necessarily indicative of the results to be expected in any future periods . this discussion contains forward-looking statements based on current expectations , which involve uncertainties . actual results and the timing of events could differ materially from the forward-looking statements as a result of a number of factors . this report contains projections , expectations , beliefs , plans , objectives , assumptions , descriptions of future events or performances and other similar statements that constitute `` forward looking statements '' that involve risks and uncertainties , many of which are beyond our control . these statements are often , but not always , made through the use of words or phrases such as `` may , '' `` should , '' `` could , '' `` predict , '' `` potential , '' `` believe , '' `` will likely result , '' `` expect , '' `` will continue , '' `` anticipate , '' `` seek , '' `` estimate , '' `` intend , '' `` plan , '' `` projection , '' `` would '' and `` outlook , '' and similar expressions . all statements , other than statements of historical facts , included in this report regarding our expectations , objectives , assumptions , strategy , future operations , financial position , estimated revenue or losses , projected costs , prospects and plans and objectives of management are forward-looking statements . all forward-looking statements speak only as of december 31 , 2016. our actual results could differ materially and adversely from those anticipated in such forward-looking statements as a result of certain factors , including , but not limited to , those set forth in this report . important factors that may cause actual results to differ from projections include , but are not limited to , for example : adverse economic conditions , inability to raise sufficient additional capital to operate our business , delays , cancellations or cost overruns involving the development or construction of oil wells , the vulnerability of our oil-producing assets to adverse meteorological and atmospheric conditions , unexpected costs , lower than expected sales and revenues , and operating defects , adverse results of any legal proceedings , the volatility of our operating results and financial condition , inability to attract or retain qualified senior management personnel , expiration of certain governmental tax and economic incentives , and other specific risks that may be referred to in this report . it is not possible for management to predict all of such factors , nor can it assess the impact of each such factor on the business or the extent to which any factor , or combination of factors , may cause actual results to differ materially from those contained or implied in any forward-looking statement . we undertake no obligation to update any forward-looking statements or other information contained herein . stockholders and potential investors should not place undue reliance on these forward-looking statements . although we believe that our plans , intentions and expectations reflected in or suggested by the forward-looking statements in this report are reasonable , we can not assure stockholders and potential investors that these plans , intentions or expectations will be achieved . these cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf . except as required by law , we assume no obligation to update any forward-looking statements publicly , or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements , even if new information becomes available in the future . you should read the following discussion of our financial condition and results of operations together with the audited financial statements and the notes to the audited financial statements included in this report . this discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results may differ materially from those anticipated in these forward-looking statements . 24 overview on october 12 , 2012 , pursuant to the merger agreement , entered into by and between the company , eos and company merger sub , dated july 16 , 2012 , company merger sub merged into eos , with eos being the surviving entity in the merger . as a result of the merger , eos became a wholly owned subsidiary of the company . upon the closing of the merger , each issued and outstanding share of common stock of eos was automatically converted into the right to receive one share of our series b preferred stock . at the closing , we issued 37,850,044 shares of series b preferred stock to the former eos stockholders , subject to the rights of the stockholders of eos to exercise and perfect their appraisal rights under applicable provisions of delaware law to accept cash in lieu of shares of the equity securities of the company . effective as of may 20 , 2013 , the company changed its name to eos petro , inc. ( it previously had been named “ cellteck , inc. `` ) . we are presently focused on the acquisition , exploration , development , mining , operation and management of medium-scale oil and gas assets . our primary activities as of september 30 , 2016 , have centered on organizing activities but have also included the acquisition of existing assets , evaluation of new assets to be acquired , and pre-development activities for existing assets . our continuing development of oil and gas projects will require the acquisition of land rights , mining equipment and associated consulting activities required to convert the fields into revenue generating assets . story_separator_special_tag in order to maintain our corporate operations and to significantly expand our operations and corresponding revenue from our works property , we must raise a significant amount of working capital and capital to fund improvements to the works property . as of december 31 , 2016 , we had cash in the amount of $ 24,762. at december 31 , 2016 , we had total liabilities of $ 23,533,586. our current financial resources are not sufficient to allow us to meet the anticipated costs of our business plan for the next 12 months and we will require additional financing in order to fund these activities . in addition , our auditors in their audit report for the year ended december 31 , 2016 included a statement in their report to express a going concern uncertainty . management estimates the company 's capital requirements for the next twelve months , including drilling and completing wells for the works property , will total approximately $ 2,500,000 , excluding any amounts that may be due to dune under the parent termination fee or a $ 4 million structuring fee that may be due to gem . no assurance can be given that any future financing will be available , or if available , that it will be on terms satisfactory to the company . any debt financing or other financing of securities senior to common stock that the company is able to obtain will likely include financial and other covenants that will restrict the company 's flexibility . at a minimum , the company expects these covenants to include restrictions on its ability to pay dividends on its common stock in the case of debt financing , or cause substantial dilution for stockholders in the case of convertible debt and equity financing . any failure to comply with these covenants would have a material adverse effect on the company 's business , prospects , financial condition , results of operations and cash flows . to finance our operations , we have issued notes payable . at december 31 , 2016 , we had the following outstanding debt : 27 $ 8,250,000 in convertible and promissory notes payable to lowcal . these loans were due on may 1 , 2016 and are currently past due and in default ; $ 2,068,000 in notes payable due to ten note holders . these notes bear interest ranging from 2 % to 18 % and have maturity dates through july 31 , 2017 . during the year ended december 31 , 2016 , we received additional proceeds of $ 1,350,000 ( $ 338,190 of which the proceeds were paid directly to our vendors or for an acquisition deposit ) from issuing notes payable as described below . on january 27 , 2016 , february 9 , 2016 and february 26 , 2016 , we issued three unsecured promissory notes to bacchus investors , llc , for $ 50,000 , $ 50,000 and $ 100,000 , respectively , each with an interest rate of 10 % per annum and due on demand . we issued a series of unsecured promissory notes to plethora enterprises for an aggregate amount of $ 125,000 , with an interest rate of 10 % per annum and due on july 1 , 2016. nikolas konstant , our cfo and chairman of the board , is the sole member and manager of plethora enterprises . on december 14 , 2015 , we issued an unsecured promissory note to an individual for $ 50,000 , with interest at 10 % . on january 20 , 2016 , we issued an additional unsecured promissory note to this individual for $ 50,000 , with interest at 10 % . as of december 31 , 2016 , the total of $ 100,000 has fully been repaid . on february 18 , 2016 , we issued an unsecured promissory note in settlement of accounts payable of $ 120,000 , with interest at 10 % . $ 20,000 had been repaid on the note . on april 6 , 2016 , we issued an unsecured promissory note to an investor for $ 100,000 with an interest rate of 10 % per annum and due upon demand . on may 19 , 2016 , we issued two secured promissory notes to two investors for $ 37,500 each with an interest rate of 1 % per annum and due on july 6 , 2016. in addition , to we also issued 750,000 shares of common stock and plethora issued 250,000 shares of common stock to the two investors in connection with these two notes . these two loans were fully repaid in 2016. on june 27 , 2016 , we issued a secured promissory note to an investor for $ 200,000 with an interest rate of 10 % per annum and due on october 31 , 2016. in addition , we also issued 300,000 shares of common stock and a warrant to purchase 200,000 shares of common stock with an exercise price of $ 1.00 per share to the investors in connection with this note . this note is secured by 1,000,000 shares of common stock owned by our majority stockholder , plethora enterprises , llc ( “ plethora ” ) . on august 10 , 2016 , we issued a secured promissory note to an investor for $ 500,000 , with interest at 2 % and a maturity date of february 5 , 2017. this note is secured by 2,000,000 shares of common stock owned by our majority stockholder , plethora , and real property owned by an unrelated party . the note also provides for a loan fee of $ 75,000 to be paid upon maturity . in connection with this promissory note , we also issued to the investor 150,000 warrants to purchase shares of our common stock with an exercise price of $ 1.00 and 150,000 shares of our common stock . on october 18 , 2016 , we issued a unsecured promissory note for $ 25,000 to an investor , with interest 5 % and due upon demand .
| general and administrative expenses general and administrative expenses for the years ended december 31 , 2016 and 2015 were $ 19,124,279 and $ 27,463,607 , respectively . our general and administrative expenses have primarily been made up of professional fees ( legal and accounting services ) required for our organizing activities , acquisition agreements and development agreements . we recognized approximately $ 1,449,000 , $ 1,995,000 , and $ 15,318 in professional fees , consulting fees and compensation , respectively , for the year ended december 31 , 2016. we recognized approximately $ 849,000 , $ 20,986,000 , and $ 5,149,000 in professional fees , consulting fees and compensation , respectively for the year ended december 31 , 2015. the increase in professional fees was primarily due to warrants and common stock issued to professionals for services rendered in 2016 as compared to 2015. the increase in compensation was due primarily to the fact that during the year ended december 31 , 2016 , we recorded compensation expense of $ 14,447 related to options that were granted to our new ceo in january 2016 and vesting through january 2018. in addition , during the year ended december 31 , 2016 , we recognized costs of $ 931,060 due to our majority stockholder selling shares of common stock to entities with which we have current business relationships at a significant discount to market . during the year ended december 31 , 2015 , we recorded compensation expense of $ 4,476,000 related to options that were issued to our ceo in august 2014 and vesting though june 2015. also , during the year ended december 31 , 2015 , we recognized costs of $ 12,483,200 due to our majority stockholder selling shares of common stock to entities with which we have current business relationships at a significant discount to market .
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this discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying financial notes in item 8 of part ii of this annual report on form 10-k. our fiscal year begins on april 1 and ends on march 31. unless otherwise noted , all references to a particular year shall mean our fiscal year . certain statements in this report constitute forward-looking statements . see item 1 - business - forward-looking statements in part i of this annual report on form 10-k for additional factors relating to these statements and item 1a - risk factors in part i of this annual report on form 10-k for a list of certain risk factors applicable to our business , financial condition , and results of operations . 29 mckesson corporation financial review ( continued ) overview of our business : we are a global leader in healthcare supply chain management solutions , retail pharmacy , community oncology and specialty care , and healthcare information solutions . we partner with life sciences companies , manufacturers , providers , pharmacies , governments , and other healthcare organizations to help provide the right medicines , medical products , and healthcare services to the right patients at the right time , safely , and cost-effectively . we implemented a new segment reporting structure commencing with the second quarter of 2021 , which resulted in four reportable segments : u.s. pharmaceutical , international , medical-surgical solutions , and prescription technology solutions ( “ rxts ” ) . other , for retrospective periods presented , consists of our equity method investment in change healthcare llc ( “ change healthcare jv ” ) , which was split-off from mckesson in the fourth quarter of 2020. all prior segment information has been recast to reflect our new segment structure and current period presentation . our organizational structure also includes corporate , which consists of income and expenses associated with administrative functions and projects , and the results of certain investments . the factors for determining the reportable segments include the manner in which management evaluates the performance of the company combined with the nature of individual business activities . we evaluate the performance of our operating segments on a number of measures , including revenues and operating profit before interest expense and income taxes . the following summarizes our four reportable segments and the changes made to our reporting structure commencing in the second quarter of 2021. refer to financial note 22 , “ segments of business , ” to the accompanying consolidated financial statements included in this annual report on form 10-k for further information regarding our reportable segments . u.s. pharmaceutical , previously the u.s. pharmaceutical and specialty solutions reportable segment , continues to distribute branded , generic , specialty , biosimilar , and over-the-counter pharmaceutical drugs and other healthcare-related products . this segment also provides practice management , technology , clinical support , and business solutions to community-based oncology and other specialty practices . in addition , the segment sells financial , operational , and clinical solutions to pharmacies ( retail , hospital , alternate site ) and provides consulting , outsourcing , technological , and other services . international is a new reportable segment that includes our operations in europe and canada , bringing together non-u.s.-based drug distribution services , specialty pharmacy , retail , and infusion care services . mckesson europe was previously reflected as the european pharmaceutical solutions reportable segment and mckesson canada was previously included in other . medical-surgical solutions provides medical-surgical supply distribution , logistics , and other services to healthcare providers in the united states ( “ u.s. ” ) and was unaffected by the segment realignment . rxts is a new reportable segment that brings together existing businesses , including covermymeds , relayhealth , rxcrossroads , and mckesson prescription automation , including multi-client central fill as a service , to serve our biopharma and life sciences partners and patients . rxcrossroads was previously included in our former u.s. pharmaceutical and specialty solutions reportable segment and covermymeds , relayhealth , and mckesson prescription automation were previously included in other . 30 mckesson corporation financial review ( continued ) executive summary : the following summary provides highlights and key factors that impacted our business , operating results , financial condition , and liquidity for the year ended march 31 , 2021. coronavirus disease 2019 ( “ covid-19 ” ) impacted our results of operations for the year ended march 31 , 2021. following the declaration of covid-19 as a global pandemic by the world health organization ( “ who ” ) on march 11 , 2020 , there was a temporary increase in demand for pharmaceuticals across our businesses . subsequently , pharmaceutical distribution volumes decreased during the first quarter as a result of the weakened and uncertain global economic environment and covid-19 restrictions , including government shutdowns and shelter-in-place orders . the recovery from the covid-19 pandemic continued to fluctuate throughout our fiscal year . we benefited from demand for covid-19 tests , favorable contributions from our vaccine and related ancillary supply kit distribution programs as discussed further below , and savings from reduced travel and meetings throughout 2021 ; we expanded our existing contractual relationship with the centers for disease control and prevention ( “ cdc ” ) through an amendment to our existing vaccines for children program contract to support the u.s. government as a centralized distributor of covid-19 vaccines and ancillary supplies needed to administer vaccines . we have also partnered with the department of health and human services ( “ hhs ” ) and pfizer to manage the assembly and distribution of the ancillary supplies needed to administer covid-19 vaccines ; in december 2020 , we began distributing certain covid-19 vaccines under the direction of the cdc . through the end of the fiscal year , we had distributed approximately 100 million of covid-19 vaccine doses . story_separator_special_tag mckesson europe is also playing a role in helping support governments and public health entities in not only distributing covid-19 vaccines across several european countries , but administering them in pharmacies as well . as a global leader in healthcare supply chain management solutions , retail pharmacy , community oncology and specialty care , and healthcare information solutions , we are well positioned to respond to the covid-19 pandemic in the u.s. , canada , and europe . we have worked and continue to work closely with national and local governments , agencies , and industry partners to ensure that available supplies , including personal protective equipment ( “ ppe ” ) , and medicine reach our customers and patients . 32 mckesson corporation financial review ( continued ) our response to covid-19 in the workplace during this unprecedented time , we are committed in continuing to supply our customers and protect the safety of our employees . the various responses we put in place to mitigate the impact of covid-19 on our business operations , including telecommuting and work-from-home policies , restricted travel , employee support programs , and enhanced safety measures , are intended to limit employee exposure to the virus that causes covid-19 . we expanded employee medical benefits covering covid-19 related visits , treatments , and testing as well as expanded telehealth options to protect employee safety . we provided further support including additional emergency leave and an internal paid time off donation platform for employees impacted by covid-19 . for employees whose roles require presence at our facilities , we enhanced safety by promoting the practice of social distancing , providing reminders to wash or disinfect hands and avoid unnecessary face touching , making face masks available , placing hand sanitizers within our operating environments , and periodically cleaning and disinfecting our facilities . for employees whose roles do not require presence at our facilities , we added technology resources to support their working remotely . these responses were initially put in place during our fourth quarter of 2020. during the second quarter of 2021 , we also implemented on-site workplace temperature screening as we continue to adapt our health and safety practices in response to the covid-19 pandemic . when working in frozen vaccine storage environments , employees are provided with protective gear , including special clothing , gloves , and facial gear . these steps to protect employee safety have resulted in limited disruption from covid-19 to our normal business operations , productivity trends , and have not materially impacted our operating expenses or operating margins . we have evaluated the impact of our telecommuting and work-from-home policies on our system of internal controls and we have concluded that these policies did not have a material effect on our internal control over financial reporting during the year ended march 31 , 2021. we also took various actions to mitigate the impact of covid-19 on our results from operations through cost-containment and payroll-related expenses . trends in our business at the onset of the covid-19 pandemic late in our fourth quarter of 2020 , we experienced higher pharmaceutical distribution volumes and increased retail pharmacy foot traffic as our customers increased supplies on hand in march , which drove unfavorability in our results of operations when comparing 2021 versus 2020. during the first quarter of 2021 , we experienced growth in pharmaceutical distribution and specialty drug volumes at a lower rate in the u.s. , while pharmaceutical distribution volumes decreased in europe and canada due to the covid-19 pandemic , as compared to the same prior year period . specialty drug volumes increased , but were negatively impacted by lower demand for elective specialty drugs , as compared to the same prior year period . we also experienced decreased demand for primary care medical-surgical supplies due to deferrals in elective procedures in hospitals and surgery centers as well as decreased traffic and closures of doctors ' offices , which was partially offset by demand for ppe and covid-19 tests . additionally , the decreased traffic in doctors ' offices and general shelter-in-place guidance by governmental authorities negatively impacted retail pharmacy foot traffic in both europe and canada . while we experienced improvements in prescription volumes and primary care patient visits during our second quarter of 2021 , the impact and recovery of covid-19 for the second half of our fiscal year was non-linear and tracked with patient mobility . we also saw increased demand for covid-19 tests and continued sales of ppe throughout the year in our medical-surgical solutions segment partially offset by the impacts of social distancing measures which resulted in a less severe cough , cold , and flu season , savings for reduced travel and meetings across the enterprise , as well as improvements of retail pharmacy foot traffic in europe and canada . the vaccine and related ancillary kit distribution in the u.s. favorably impacted our results in the second half of fiscal 2021 as further discussed below . 33 mckesson corporation financial review ( continued ) our role in the distribution of covid-19 vaccines and ancillary supply kits on august 14 , 2020 , we expanded our contractual relationship with the cdc through an amendment to our existing vaccines for children program contract for the distribution of certain covid-19 vaccines . the covid-19 vaccine distribution agreement with the cdc was finalized during the third quarter of 2021. we support the u.s. government as a centralized distributor of covid-19 vaccines and ancillary supplies needed to administer vaccines . in the centralized model , the u.s. government directs us on the distribution of the vaccines and related supplies to point-of-care sites across the country . we make no decisions on where products are to be distributed nor how the products are allocated between the various provider sites and ultimately administered to the individuals receiving a vaccine . we utilize our expertise and capabilities to support the cdc 's efforts to vaccinate everyone in the u.s. who wants to receive a covid-19 vaccine . the cdc and mckesson collaborated similarly in response to the 2009 h1n1 pandemic .
| overview of segment results : segment revenues : replace_table_token_6_th u.s. pharmaceutical 2021 vs. 2020 u.s. pharmaceutical revenues for the year ended march 31 , 2021 increased 4 % compared to the prior year primarily due to market growth , including branded pharmaceutical price increases , growth in specialty pharmaceuticals , and higher volumes from retail national account customers , partially offset by branded to generic drug conversions . revenues for this segment were unfavorably impacted by fluctuations in demand for pharmaceuticals in retail pharmacies and institutional healthcare providers due to covid-19 largely during the onset of the pandemic in late march 2020 and during our first quarter of 2021 combined with the loss of certain customers . 2020 vs. 2019 u.s. pharmaceutical revenues for the year ended march 31 , 2020 increased 9 % compared to the prior year primarily due to market growth , including branded pharmaceutical price increases , growth in specialty pharmaceuticals , higher volumes from retail national account customers , partially offset by branded to generic drug conversions . international 2021 vs. 2020 international revenues for the year ended march 31 , 2021 decreased 6 % compared to the prior year . excluding the favorable effects of foreign currency exchange fluctuations , revenues for this segment decreased 9 % primarily due to the contribution of our german pharmaceutical wholesale business to a joint venture with wba and to a lesser extent , the exit of unprofitable customers in our canadian business . revenues for this segment were also unfavorably impacted by lower volumes from the adverse impacts from covid-19 in our pharmaceutical distribution and retail pharmacy businesses within europe . 2020 vs. 2019 international revenues for the year ended march 31 , 2020 increased 1 % compared to the prior year . excluding the unfavorable effects of foreign currency exchange fluctuations , revenues for this segment increased 4 % primarily due to market growth in our european pharmaceutical distribution and retail pharmacy businesses .
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our intellectual property consist of composition of matter , materials , methods of production , systems incorporating the technology and multiple medical uses with expiration dates ranging from one to 10 years . in march 2011 , our flagship product , cytosorb , an extracorporeal cytokine filter indicated for use in clinical situations where cytokines are elevated was ce marked . the ce mark demonstrates that a conformity assessment has been carried out and the product complies with the medical devices directive 93/42/eec in the eu . the goal of cytosorb is to prevent or treat organ failure by reducing cytokine storm and the potentially deadly systemic inflammatory response syndrome in diseases such as sepsis , trauma , burn injury , acute respiratory distress syndrome , pancreatitis , liver failure , and many others . organ failure is the leading cause of death in the intensive care unit , and remains a major unmet medical need , with little more than supportive care therapy ( e.g. , mechanical ventilation , dialysis , vasopressors , fluid support , etc . ) as treatment options . by potentially preventing or treating organ failure , cytosorb may improve clinical outcome , including survival , while reducing the need for costly intensive care unit treatment , thereby potentially saving significant healthcare costs . our ce mark enables cytosorb to be sold throughout all 28 countries of the eu and the countries in the european economic area . in addition , many countries outside the eu accept ce mark approval for medical devices , but may also require registration with or without additional clinical studies . the broad approved indication enables cytosorb to be used “ on-label ” in diseases where cytokines are elevated including , but not limited to , critical illnesses such as those mentioned above , autoimmune disease flares , cancer cachexia , and many other conditions where cytokine-induced inflammation plays a detrimental role . as part of the ce mark approval process , we completed our randomized , controlled , european sepsis trial amongst fourteen trial sites in germany in 2011 , with enrollment of 100 patients with sepsis and respiratory failure . the trial established that cytosorb was safe in this critically-ill population , and that it was able to broadly reduce key cytokines in the blood of these patients . we plan to conduct larger , prospective studies in septic patients in the future to confirm the european sepsis trial findings . in addition to ce mark approval , we also achieved iso 13485:2003 full quality systems certification , an internationally recognized quality standard designed to ensure that medical device manufacturers have the necessary comprehensive management systems in place to safely design , develop , manufacture and distribute medical devices in the eu . we manufacture cytosorb at our manufacturing facilities in new jersey for sale in the eu and for additional clinical studies . we also established a reimbursement path for cytosorb in germany and austria . from september 2011 through june 2012 , we began a controlled market release of cytosorb in select geographic territories in germany with the primary goal of preparing for commercialization of cytosorb in germany in terms of manufacturing , reimbursement , logistics , infrastructure , marketing , contacts , and other key issues . in late june 2012 , following the establishment of our european subsidiary , cytosorbents europe gmbh , we began the commercial launch of cytosorb in germany with the hiring of dr. christian steiner as vice president of sales and marketing and three additional sales representatives who joined us and completed their sales training in the third quarter of 2012. the fourth quarter of 2012 represented the first full quarter of direct sales with the full sales team in place . during this period , we expanded our direct sales efforts to include both austria and switzerland . at the end of 2015 , we had hundreds of kols in our commercialized territories worldwide in critical care , cardiac surgery , and blood purification who were either using cytosorb or supporting its use in clinical practice or clinical trials . 60 as of march 1 , 2016 , our sales force includes eight direct sales people , one contract sales person and nine sales support staff . we have complemented our direct sales efforts with sales to distributors and or corporate partners . in 2013 , we reached agreements with distributors in the united kingdom , ireland , turkey , russia , and the netherlands . in 2014 , we announced distribution of cytosorb in the middle east , including saudi arabia , the united arab emirates , kuwait , qatar , bahrain , and oman ( the gulf cooperative council ( gcc ) ) and yemen , iraq , and jordan through an exclusive agreement with techno orbits , we entered into an exclusive agreement with smart medical solutions s.r.l. , to distribute cytosorb for critical care applications in romania and the neighboring republic of moldova . in 2015 , we announced exclusive distribution agreements with aferetica srl to distribute cytosorb in italy , alphamedix ltd. to distribute cytosorb in israel , tekmed pty ltd. to distribute cytosorb in australia and new zealand , and hoang long pharma to distribute cytosorb in vietnam . we have been working to expand the number and scope of our strategic partnerships . in september 2013 , we entered into a strategic partnership with biocon , ltd. , india 's largest biotech company , with an initial distribution agreement for india and select emerging markets , under which biocon has the exclusive commercialization rights for cytosorb initially focused on sepsis . in september 2014 , the biocon partnership was expanded to include all critical care applications and cardiac surgery . in addition , biocon committed to higher minimum purchases of cytosorb to maintain distribution exclusivity and to conduct and publish results from multiple investigator-initiated studies and patient case studies . story_separator_special_tag some of our products include : · cytosorb - an extracorporeal hemoperfusion cartridge approved in the eu for cytokine removal , with the goal of reducing sirs and preventing or treating organ failure . · hemodefend – a development-stage blood purification technology designed to remove contaminants in blood transfusion products . the goal of hemodefend is to reduce transfusion reactions and improve the safety of older blood . · contrastsorb – a development-stage extracorporeal hemoperfusion cartridge designed to remove iv contrast from the blood of high risk patients undergoing ct imaging with contrast , or interventional radiology procedures such as cardiac catheterization . the goal of contrastsorb is to prevent contrast-induced nephropathy . · drugsorb – a development-stage extracorporeal hemoperfusion cartridge designed to remove toxic chemicals from the blood ( e.g. , drug overdose , high dose regional chemotherapy ) . 62 · betasorb – a development-stage extracorporeal hemoperfusion cartridge designed to remove mid-molecular weight toxins , such as b 2-microglobulin , that standard high-flux dialysis can not remove effectively . the goal of betasorb is to improve the efficacy of dialysis or hemofiltration . we have been successful in obtaining technology development contracts from agencies in the u.s. department of defense , including defense advanced research projects agency , or darpa , the u.s. army , and the u.s. air force . in october 2015 , we were awarded a phase ii small business innovation research , or sbir , contract by the national heart , lung , and blood institute ( nhlbi ) , a division of the national institutes of health , to help advance our hemodefend blood purification technology towards commercialization for the purification of packed red blood cell ( prbc ) transfusions . the contract , entitled “ prbcs contaminant removal with porous polymer beads ” , provides for maximum funding of approximately $ 1,520,000 over a two year period , with funding to begin in 2016. in september 2013 , the nhlbi awarded us a phase i sbir contract valued at $ 231,351 to further advance our hemodefend blood purification technology for prbc transfusions . the university of dartmouth collaborated with us as a subcontractor on the project , entitled “ elimination of blood contaminants from prbcs using hemodefend hemocompatible porous polymer beads. ” the overall goal of this program is to reduce the risk of potential side effects of blood transfusions , and help to extend the useful life of prbcs . in june 2013 , we announced that the u.s. air force will fund a 30 patient , single site , randomized controlled human pilot study in the united states amongst trauma patients with rhabdomyolysis . the primary endpoint is myoglobin removal . the fda approved our ide application for this study and we also received ethics committee approval , allowing the study to commence . however , because of the stringency of our inclusion criteria , and because of the patient mix seen at our single center , we have experienced difficulty in enrolling patients . we have subsequently modified one of the key inclusion criteria and have expanded the number of clinical trial sites to three in a revised protocol . in september 2012 , we were awarded a phase ii small business innovation research ( sbir ) contract by the u.s. army medical research and materiel command to evaluate our technology for the treatment of trauma and burn injury in large animal models . in 2013 , we finalized the phase ii sbir contract which provided for a maximum funding of approximately $ 753,000 with the granting agency . this work is supported by the u.s. army medical research and material command under an amendment to contract w81xwh-12-c-0038 . as of december 31 , 2015 , we received approximately $ 649,000 in funding under this contract and no further amounts are expected from this contract . in august 2012 , we were awarded a $ 3.8 million , five-year contract by darpa for our “ dialysis-like therapeutics ” ( dlt ) , program to treat sepsis . darpa has been instrumental in funding many of the major technological and medical advances since its inception in 1958 , including development of the internet , development of gps , and robotic surgery . the dlt program in sepsis seeks to develop a therapeutic blood purification device that is capable of identifying the cause of sepsis ( e.g. , cytokines , toxins , pathogens , activated cells ) and remove these substances in an intelligent , automated , and efficient manner . our contract is for advanced technology development of our hemocompatible porous polymer technologies to remove cytokines and a number of pathogen and biowarfare toxins from blood . we are in year 4 of the program and are currently working with the recently announced systems integrator , battelle laboratories , and its subcontractor nxstage medical , who are responsible for integrating the technology developed by us and others into a final medical device design prototype , and evaluating this device in septic animals and eventually in human clinical trials in sepsis . our work is supported by darpa and ssc pacific under contract no . n66001-12-c-4199 . as of december 31 , 2015 , we have received approximately $ 3,499,000 to date and have approximately $ 301,000 not yet billed under this contract . story_separator_special_tag margin : 0 ; text-align : justify ; text-indent : 0.5in '' > change in warrant liability : we recognize warrants as liabilities at their fair value on the date of the grant because of price adjustment provisions in the warrants , then measure the fair value of the warrants on each reporting date , and record a change to the warrant liability as appropriate .
| results of operations our financial statements have been presented on the basis that it is a going concern , which contemplates the realization of revenues from our subscriber base and the satisfaction of liabilities in the normal course of business . we have incurred losses from inception . these factors raise substantial doubt about our ability to continue as a going concern . 63 comparison of the year ended december 31 , 2015 and 2014 revenues : for the year ended december 31 , 2015 , we generated total revenue , which includes product revenue and grant income , of approximately $ 4,792,000 as compared to revenues of approximately $ 4,123,000 for the year ended december 31 , 2014 , an increase of approximately $ 669,000 , or 16 % . revenue from product sales was approximately $ 4,044,000 for the year ended december 31 , 2015 , as compared to approximately $ 3,135,000 in the year ended december 31 , 2014 , an increase of 29 % . this increase was driven by the continued growth in direct sales as well as the expansion of sales to our growing distributor network , which was offset by the negative impact of the decline in the exchange rate of the euro relative to the u.s. dollar . the impact of the decline in the exchange rate of the euro was approximately $ 637,000 , or 16 % of product sales , for the year ended december 31 , 2015. grant income decreased by approximately $ 242,000 from $ 978,000 in 2014 to approximately $ 736,000 in 2015 as a result of the conclusion of several significant grants . cost of revenue : for the years ended december 31 , 2015 and 2014 , cost of revenue was approximately $ 2,213,000 and $ 2,134,000 , respectively , an increase of approximately $ 79,000 , or 4 % .
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omers will retain this entitlement until it has received $ 30 million in royalties , at which point 100 % of such royalty interest on future global net sales of onpattro will revert to the company . omers has assumed the risk of collecting up to $ 30 million of future royalty payments from alnylam and arbutus is not obligated to reimburse omers if they fail to collect any such future royalties . the $ 30 million in royalties to be paid to omers is accounted for as a liability , with the difference between the liability and the gross proceeds received accounted for as a discount . the discount , as well as $ 1.5 million of transaction costs , will be amortized as interest expense based on the projected balance of the liability as of the beginning of each period . management estimated an effective annual interest rate of approximately 16 % . over the course of the agreement , the actual interest rate will be affected by the amount and timing of royalty revenue recognized and changes in the timing of forecasted royalty revenue . on a quarterly basis , the company will reassess the expected timing of the royalty revenue , recalculate the amortization and effective interest rate and adjust the accounting prospectively as needed . the company recognizes non-cash royalty revenue related to the sales of onpattro during the term of the agreement . as royalties are remitted to omers from alnylam , the balance of the recognized liability is effectively repaid over the life of the agreement . from the inception of the royalty sale through december 31 , 2020 , the company has recorded an aggregate of $ 5.1 million of non-cash royalty revenue for royalties earned by omers . there are a number of factors that could materially affect the amount and timing of royalty payments from alnylam , none of which are within the company 's control . during the year ended december 31 , 2020 , the company recognized non-cash royalty revenue of $ 3.4 million and $ 4.0 million of related non-cash interest expense . during the year ended december 31 , 2019 , the company recognized non-cash royalty revenue of $ 1.7 million and related non-cash interest expense of $ 2.1 million . 79 the table below shows the activity related to the net liability for the years ended december 31 , 2020 and december 31 , 2019 : replace_table_token_22_th in addition to the royalty from the alnylam lnp license agreement , the company is also receiving a second , lower royalty interest on global net sales of onpattro originating from a settlement agreement and subsequent license agreement with acuitas therapeutics , inc. ( “ acuitas ” ) . the royalty from acuitas has been retained by the company and was not part of the royalty sale to omers . 11. contingencies and commitments product development partnership with the canadian government the company entered into a technology partnerships canada ( “ tpc ” ) agreement with the canadian federal government on november 12 , 1999. under this agreement , tpc agreed to fund 27 % of the costs incurred by the company , prior to march 31 , 2004 , in the development of certain oligonucleotide product candidates up to a maximum contribution from tpc of $ 7.2 million ( c $ 9.3 million ) . the company received a cumulative contribution of $ 2.7 million ( c $ 3.7 million ) . in return for the funding provided by tpc , the company agreed to pay royalties on the share of future licensing and product revenue , if any , that is received by the company on certain non-rnai oligonucleotide product candidates covered by the funding under the agreement . these royalties are payable until a certain cumulative payment amount is achieved or until a pre-specified date . in addition , until a cumulative amount equal to the funding actually received under the agreement has been paid to tpc , the company agreed to pay 2.5 % royalties on any royalties the company receives for marqibo , a chemotherapy product sold by acrotech biopharma llc ( “ story_separator_special_tag overview we are a clinical-stage , biopharmaceutical company focused primarily on developing a cure for people with chronic hepatitis b virus ( “ hbv ” ) infection . we are advancing multiple product candidates with distinct mechanisms of action that we believe have the potential to provide a new curative regimen for chronic hbv infection . we have also initiated a drug discovery and development effort for treating coronaviruses , including covid-19 . given the biology of hbv , we believe combination therapies are the key to more effective hbv treatment and a potential functional cure . our product pipeline includes multiple product candidates that target various steps in the viral lifecycle . we believe each of these mechanisms , when administered for a finite duration in combination with existing approved therapies , have the potential to improve upon the standard of care and potentially lead to a functional cure . our hbv product pipeline consists of the following programs : our two lead product candidates are ab-729 , our proprietary subcutaneously-delivered rnai product candidate that suppresses hbsag expression , and ab-836 , our proprietary next-generation oral capsid inhibitor that suppresses hbv dna replication . ab-729 is currently in an ongoing phase 1a/1b clinical trial and we expect ab-836 to progress into a phase 1a/1b clinical trial in the first half of 2021. in parallel , we are in lead optimization with oral compounds for our pd-l1 program and next-generation hbv rna destabilizer program . story_separator_special_tag as assumptions related to the probability of program success and timing and amount of potential future product sales are highly uncertain due to the unpredictable nature of product development , management risk adjusts the estimated cash flows to reflect these uncertainties . 52 story_separator_special_tag roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > are summarized in the following table : replace_table_token_4_th interest income interest income decreased $ 1.4 million in 2020 compared to 2019 due primarily to a general decline in market interest rates . interest expense interest expense increased $ 1.9 million in 2020 compared to 2019 due primarily to the non-cash amortization of discount and issuance costs related to the sale of a portion of our onpattro royalty interest to omers in july 2019. equity investment loss in july 2020 , we participated in the recapitalization of genevant , led by roivant , with an equity investment of $ 2.5 million . we determined that this $ 2.5 million additional investment in genevant was funding prior losses and recorded the amount as an equity investment loss in 2020. due to our loss of significant influence with respect to genevant as a result of the recapitalization , we discontinued the use of equity method accounting for our interest in genevant in 2020. following the recapitalization , we account for our interest in genevant as equity securities without readily determinable fair values . accordingly , an estimate of the fair value of the securities is based on the original cost less previously recognized equity method losses , less impairments , plus or minus changes resulting from future observable price changes in orderly transactions for identical or similar genevant securities . as of december 31 , 2020 , the carrying value of our investment in genevant was zero and we owned approximately 16 % of the common equity of genevant . the equity investment losses for 2019 reflected our proportionate share of genevant 's net results under the equity method of accounting on a one-quarter lag basis of $ 14.9 million and a $ 7.6 million impairment charge to reduce the carrying value of our investment in genevant to zero . the impairment was due to uncertainty surrounding the recovery of the remaining carrying value of our investment in genevant . foreign exchange gains ( losses ) in connection with our site consolidation to warminster , pa , our canadian dollar-denominated expenses and cash balances have decreased significantly now that a majority of our business transactions are based in the united states . we continue to incur expenses and hold some cash balances in canadian dollars , and as such , we will remain subject to risks associated with foreign currency fluctuations . during the year ended december 31 , 2020 , we recorded foreign exchange losses of $ 0.1 million . during the year ended december 31 , 2019 , we recorded foreign exchange gains of less than $ 0.1 million . income tax benefit for the year ended december 31 , 2019 , we recorded an income tax benefit of $ 12.7 million related to the decrease of our deferred tax liability associated with impairments of our ipr & d intangible assets . 56 liquidity and capital resources since our incorporation , we have financed our operations through the sales of equity , debt , revenues from research and development collaborations and licenses with corporate partners , a royalty monetization , interest income on funds available for investment , and government contracts , grants and tax credits . as of december 31 , 2020 , we had cash and cash equivalents of $ 52.3 million and investments in marketable securities of $ 71.0 million , totaling $ 123.3 million . we had no outstanding debt as of december 31 , 2020. sources of liquidity in december 2018 , we entered into an open market sale agreement ( “ sale agreement ” ) with jefferies llc ( “ jefferies ” ) , under which we could issue and sell our common shares , from time to time , for an aggregate sales price of up to $ 50.0 million . in december 2019 , we entered into an amendment to the sale agreement with jefferies ( the “ 2019 amendment ” ) in connection with the filing of a shelf registration statement on form s-3 ( file no . 333-235674 ) , filed with the sec on december 23 , 2019 ( the “ shelf registration statement ” ) . the 2019 amendment revised the original sale agreement to reflect that we may sell our common shares , from time to time , for an aggregate sales price of up to $ 50.0 million , under the shelf registration statement . during july 2020 , we fully utilized the remaining availability under the sale agreement , as amended by the 2019 amendment . in august 2020 , we entered into a new amendment to the sale agreement ( the “ 2020 amendment ” ) with jefferies . pursuant to the 2020 amendment , we can issue and sell common shares , from time to time , for an aggregate sales price of up to an additional $ 75.0 million under the sale agreement . during 2020 , we issued 24,728,368 common shares under the sale agreement , as amended , resulting in net proceeds of approximately $ 86.3 million . from january 1 , 2021 through march 3 , 2021 , we received an additional $ 24.3 million of net proceeds from the issuance of our common shares under the sale agreement , as amended , and as of march 3 , 2021 there was approximately $ 16.4 million available under the sale agreement , as amended .
| results of operations the following summarizes our results of operations for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 : replace_table_token_1_th for the fiscal year ended december 31 , 2020 , our net loss attributable to common shares was $ 75.9 million , or a loss of $ 1.00 per basic and diluted common share , as compared to a net loss of $ 164.9 million , or a loss of $ 2.89 per basic and diluted common share , for the year ended december 31 , 2019. revenue revenue for the years ended december 31 , 2020 and 2019 is summarized in the following table : replace_table_token_2_th revenue consists mainly of royalties received from other companies for sales of products that utilize our licensed technologies . total revenue increased $ 0.9 million for the year ended december 31 , 2020 compared to 2019 , primarily due to a $ 3.1 million increase in license royalty revenue from alnylam and acuitas due to the growth of alnylam 's sales of onpattro . this increase was partially offset by a $ 1.8 million decrease in revenue from gritstone oncology , inc. primarily due to a $ 1.5 million milestone payment received in 2019. the royalty interest for onpattro from alnylam was sold to omers , effective as of january 1 , 2019 , for $ 20 million in gross proceeds before advisory fees . omers will retain this entitlement until it has received $ 30 million in royalties , at which point 100 % of such royalty interest on future global net sales of onpattro will revert back to us . omers has assumed the risk of collecting up to $ 30 million of future royalty payments from alnylam and we are not obligated to reimburse omers if they fail to collect any such future royalties .
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in 2016 , significant assumptions used in story_separator_special_tag the following discussion and analysis of our business , financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and notes thereto in item 8 of this form 10-k. the discussion below contains forward-looking statements that are based upon our current expectations and is subject to uncertainty and changes in circumstances . actual results may differ materially from these expectations due to inaccurate assumptions and known or unknown risks and uncertainties , including those identified in “ cautionary statement regarding forward-looking statements ” and item 1a . “ risk factors. ” business see item 1 . “ business ” for discussion pertaining to our business and reportable segments . recent acquisitions . during the year ended december 31 , 2018 , we completed two acquisitions , including ( i ) a construction management firm specializing in steel building systems and ( ii ) a wind turbine services company , both of which are included in our power generation and industrial segment . in 2017 , we completed three acquisitions , including : ( i ) a wireline/fiber deployment construction contractor , which is included in our communications segment ; ( ii ) a heavy civil construction services company , which is included in our power generation and industrial segment , and ( iii ) an oil and gas pipeline equipment company , which is included in our oil and gas segment . for additional information , see note 3 - goodwill and other intangible assets in the notes to the audited consolidated financial statements , which is incorporated by reference . economic , industry and market factors we closely monitor the effects of changes in economic and market conditions on our customers . general economic and market conditions can negatively affect demand for our customers ' products and services , which can affect our customers ' planned capital and maintenance budgets in certain end-markets . market , regulatory and industry factors could affect demand for our services , including ( i ) changes to our customers ' capital spending plans ; ( ii ) mergers and acquisitions among the customers we serve ; ( iii ) new or changing regulatory requirements or other governmental policy changes or uncertainty ; ( iv ) economic , market or political developments ; ( v ) changes in technology , tax and other incentives ; and ( v ) access to capital for customers in the industries we serve . availability of transportation and transmission capacity and fluctuations in market prices for oil , gas and other fuel sources can also affect demand for our services , in particular , on pipeline and power generation construction services . these fluctuations , as well as the highly competitive nature of our industry , can result , and in the past , have resulted , in lower bids and lower profit on the services we provide . in the face of increased pricing pressure or other market developments , we strive to maintain our profit margins through productivity improvements , cost reduction programs and or business streamlining efforts . while we actively monitor economic , industry and market factors that could affect our business , 27 we can not predict the effect that changes in such factors may have on our future results of operations , liquidity and cash flows , and we may be unable to fully mitigate , or benefit from , such changes . effect of seasonality and cyclical nature of business our revenue and results of operations can be subject to seasonal and other variations . these variations are influenced by weather , customer spending patterns , bidding seasons , project schedules , holidays and timing , in particular , for large , non-recurring projects . typically , our revenue is lowest at the beginning of the year and during the winter months because cold , snowy or wet conditions cause project delays . revenue is generally higher during the summer and fall months due to increased demand for our services when favorable weather conditions exist in many of the regions in which we operate , but continued cold and wet weather can often affect second quarter productivity . in the fourth quarter , many projects tend to be completed by customers seeking to spend their capital budgets before the end of the year , which generally has a positive effect on our revenue . however , the holiday season and inclement weather can cause delays , which can reduce revenue and increase costs on affected projects . any quarter may be positively or negatively affected by adverse or unusual weather patterns , including warm winter weather , excessive rainfall , flooding or natural catastrophes such as hurricanes or other severe weather , making it difficult to predict quarterly revenue and margin variations . additionally , our industry can be highly cyclical . fluctuations in end-user demand within the industries we serve , or in the supply of services within those industries , can affect demand for our services . as a result , our business may be adversely affected by industry declines or by delays in new projects . variations in project schedules or unanticipated changes in project schedules , in particular , in connection with large construction and installation projects , can create fluctuations in revenue , which may adversely affect us in a given quarter , even if not for the full year . in addition , revenue from master service and other service agreements , while generally predictable , can be subject to volatility . the financial condition of our customers and their access to capital ; variations in project margins ; regional , national and global economic , political and market conditions ; regulatory or environmental influences ; and acquisitions , dispositions or strategic investments/other arrangements can also materially affect quarterly results in a given period . accordingly , our operating results in any particular period may not be indicative of the results that can be expected for any other period . story_separator_special_tag financial performance metrics our senior management team regularly reviews certain key financial performance metrics within our business , including : revenue and profitability on an overall basis , by reportable segment and for selected projects ; revenue by customer and by contract type ; costs of revenue , excluding depreciation and amortization ; general and administrative expenses ; depreciation and amortization ; interest expense , net ; other income or expense ; and provision for income taxes ; earnings before interest , taxes , depreciation and amortization ( “ ebitda ” ) and adjusted ebitda , which is ebitda excluding certain items that may not be indicative of our core operating results , as well as items that can vary widely across different industries or among companies within the same industry . see discussion of our non-u.s. gaap financial measures following the “ comparison of fiscal year results ” section below ; earnings per share and adjusted earnings per share , as defined in our non-u.s. gaap financial measures discussion ; days sales outstanding , net of billings in excess of costs and earnings ; and days payable outstanding ; interest and debt service coverage ratios ; and liquidity and cash flows . management 's analysis includes detailed discussions of proposed investments in new business opportunities or property and equipment , productivity improvement efforts , acquisition integration efforts , strategic arrangement opportunities and working capital and other capital management efforts . measuring these key performance indicators is an important tool used by management to make informed and timely operational decisions , which we believe can help us improve our performance . critical accounting estimates this discussion and analysis of our financial condition and results of operations is based upon our audited consolidated financial statements , which have been prepared in accordance with u.s. gaap . the preparation of our consolidated financial statements requires the use of estimates and assumptions that affect the amounts reported in our audited consolidated financial statements and the accompanying notes . we base 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 of making judgments about our operating results , including the results of construction contracts accounted for under the cost-to-cost method , and the carrying values of assets and liabilities that are not readily apparent from other sources . given that management estimates , by their nature , involve judgments regarding future uncertainties , actual results may differ from these estimates if conditions change or if certain key assumptions used in making these estimates ultimately prove to be inaccurate . our accounting policies and critical accounting estimates are reviewed periodically by the audit committee of the board of directors . we believe that our accounting estimates pertaining to : the recognition of revenue and project profit or loss , which we define as project revenue , less project costs of revenue , including project-related depreciation , in particular , on construction contracts accounted for under the cost-to-cost method , for which the recorded amounts require estimates of costs to complete and the amount of variable consideration included in the contract transaction price ; fair value estimates , including those related to acquisitions , valuations of goodwill , indefinite-lived intangible assets and acquisition-related contingent consideration ; income taxes ; self-insurance liabilities ; and litigation and other contingencies , are the most critical in the preparation of our consolidated financial statements as they are important to the portrayal of our financial condition and require significant or complex judgment and estimates on the part of management . actual results could , however , vary materially from these accounting estimates . refer to note 1 - business , basis of presentation and significant accounting policies in the notes to the audited consolidated financial statements , which is incorporated by reference , for discussion of our significant accounting policies . revenue recognition we adopted the requirements of accounting standards update ( “ asu ” ) 2014-09 , revenue from contracts with customers , which is also referred to as accounting standards codification ( “ asc ” ) topic 606 ( “ topic 606 ” ) , under the modified retrospective transition approach effective january 1 , 2018 , with application to all existing contracts that were not substantially completed as of january 1 , 2018. the difference between the recognition criteria under topic 606 and our previous revenue recognition practices under the previous revenue recognition guidance , asc topic 605-35 , was recognized through a cumulative effect adjustment of approximately $ 2 million that was made to the opening balance of retained earnings as of january 1 , 2018. consistent with the modified retrospective transition approach , the comparative 2017 prior period was not adjusted to conform to the current period presentation . 29 under topic 606 , revenue is recognized when , or as , control of promised goods and services is transferred to customers , and the amount of revenue recognized reflects the consideration to which an entity expects to be entitled in exchange for the goods and services transferred . the adoption of topic 606 did not have a material effect on the timing or amount of revenue recognized as compared with our previous revenue recognition practices . we primarily recognize revenue over time utilizing the cost-to-cost measure of progress on contracts for specific projects and for certain master service and other service agreements , consistent with our previous revenue recognition practices . contracts .
| comparison of fiscal year results the following table , which may contain slight summation differences due to rounding , reflects our consolidated results of operations in dollar and percentage of revenue terms for the periods indicated ( dollar amounts in millions ) . our consolidated results of operations are not necessarily comparable from period to period due to the effect of recent acquisitions and certain other items , which are described in the comparison of results section below . replace_table_token_5_th we review our operating results by reportable segment . see note 13 - segments and related information in the notes to the audited consolidated financial statements , which is incorporated by reference . our reportable segments are : ( 1 ) communications ; ( 2 ) oil and gas ; ( 3 ) electrical transmission ; ( 4 ) power generation and industrial and ( 5 ) other . management 's review of reportable segment results includes analyses of trends in revenue , ebitda and ebitda margin . ebitda for segment reporting purposes is calculated consistently with our consolidated ebitda calculation . see the discussion of our non-u.s. gaap financial measures , including certain adjusted non-u.s. gaap measures , as described , following the comparison of results discussion below . the following table presents revenue , ebitda and ebitda margin by reportable segment for the periods indicated ( dollar amounts in millions ) : replace_table_token_6_th comparison of years ended december 31 , 2018 and 2017 revenue . for the year ended december 31 , 2018 , consolidated revenue totaled $ 6,909 million as compared with $ 6,607 million in 2017 , an increase of $ 302 million , or 5 % as compared with 2017 .
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factors that could cause or contribute to such differences include , but are not limited to , those discussed below and elsewhere in this form 10-k. 52 index to financial statements overview we are an independent oil and natural gas producer focused primarily in the gulf of mexico and texas . we have grown through acquisitions , exploration and development and currently hold working interests in approximately 58 producing and two capable of producing offshore fields in federal and state waters . during 2011 , we expanded onshore into west texas and east texas through an acquisition and acquiring interests in leasehold acreage . we have interests in offshore leases covering approximately 0.8 million gross acres ( 0.5 million net acres ) spanning primarily across the outer continental shelf off the coasts of louisiana , texas , mississippi and alabama and 0.2 million gross acres ( 0.2 million net acres ) onshore in texas . we operate wells accounting for approximately 80 % of our average daily production . we own interests in approximately 253 offshore structures , 158 of which are located in fields that we operate . in managing our business , we are concerned primarily with maximizing return on shareholders ' equity . to accomplish this primary goal , we focus on increasing production and reserves at a profit . we strive to grow our reserves and production through acquisitions and our drilling programs . we have focused on acquiring properties where we can develop an inventory of drilling prospects that will enable us to continue to add reserves post-acquisition . during the year 2011 , we closed on two acquisition transactions . on may 11 , 2011 , we completed the acquisition from opal of the yellow rose properties , which consists of approximately 24,500 gross acres ( 21,900 net acres ) of oil and gas leasehold interests in the permian basin of west texas . based on internal estimates , proved reserves associated with the yellow rose properties as of the acquisition date were approximately 30.1 mmboe ( 180.4 bcfe ) , comprised of approximately 69 % oil , 22 % ngls and 9 % natural gas , and approximately 70 % of which were classified as proved undeveloped . the stated purchase price was $ 366.3 million , subject to certain adjustments , including adjustments from an effective date of january 1 , 2011 until the closing date of may 11 , 2011. taking into account such adjustments , the adjusted purchase price was $ 394.4 million . the increase of $ 28.1 million primarily reflects drilling and development costs in excess of cash flow from the effective date of january 1 , 2011 to the closing date . we assumed the aro , which we have estimated to be $ 0.4 million , and recorded a long-term liability of $ 2.1 million . the acquisition was funded from cash on hand and borrowings under our revolving bank credit facility . on august 10 , 2011 , we completed the acquisition of the fairway properties , which consist of shell 's 64.3 % working interest in the fairway field along with a like interest in the associated yellowhammer gas treatment plant . based on internal estimates , proved reserves associated with the fairway field as of the acquisition date were 8.9 mboe ( 53.5 bcfe ) comprised of approximately 72 % natural gas , 27 % ngls and less than 1 % oil and which are 100 % proved developed . the stated purchase price was $ 55.0 million , subject to certain adjustments , including adjustments from an effective date of september 1 , 2010 until the closing date . taking into account such adjustments , as of december 31 , 2011 , the purchase price was reduced to $ 42.9 million . the decrease of $ 12.1 million primarily reflects net production cash flow , partially offset by plugging and abandonment and other operating costs incurred , from the effective date of september 1 , 2010 to the closing date . the purchase price is subject to further post-effective date adjustments and final settlement is expected to occur in the first half of 2012. we assumed the aro associated with the properties and plant , which we have estimated to be $ 7.8 million . the acquisition was funded from borrowings under our revolving bank credit facility . during the year 2010 , we closed on two acquisition transactions . the first was on april 30 , 2010 , when we acquired all of total 's interest , including production platforms and facilities , in three federal offshore lease blocks located in the gulf of mexico . estimates of proved reserves as of the acquisition date were 10.9 mboe ( 65.6 bcfe ) comprised of approximately 58 % oil , 6 % ngls and 36 % natural gas and which are 69 % proved developed . the adjusted purchase price was $ 121.3 million inclusive of the aro estimated at $ 6.3 million . the acquisition was funded with cash on hand . 53 index to financial statements the second acquisition in 2010 was on november 3 , 2010 , when we acquired all of shell 's interests , including production platforms and facilities , in three federal offshore lease blocks located in the gulf of mexico . estimates of proved reserves as of the acquisition date were 13.3 mboe ( 80.0 bcfe ) comprised of approximately 8 % oil , zero ngls and 92 % natural gas and which are 100 % proved developed . the adjusted purchase price was $ 134.2 million inclusive of the aro estimated at $ 18.0 million . the acquisition was funded with cash on hand . see financial statements note 2 acquisitions under part ii , item 8 of this form 10-k for additional information on acquisitions . from time to time , as part of our business strategy , we sell various properties that we consider non-core assets . story_separator_special_tag potential mitigating factors could include an increase in demand if the united states experiences a strong economic recovery , a dramatic decrease in drilling activity , including horizontal oil well drilling , ( which is n't likely at current high oil prices ) or production shut-ins due to economic factors . according to baker hughes data , the number of rigs drilling for oil has more than tripled since the beginning of 2009. there is also a risk that , as a result of successful exploration and development activities in the shale areas coupled with the availability of increasing amounts of liquefied natural gas , increased supplies of natural gas will offset or mitigate the impact of any natural gas shut-ins or demand increases resulting from improved economic conditions . according to industry sources , use of directed horizontal drilling rigs is at record levels and is up over 20 % in january 2012 compared to january 2011 , while the total oil rig count is up over 50 % in january 2012 compared to january 2011. in 2011 and 2010 , we did not incur an impairment write-down . due to declines in oil , ngl and natural gas prices , in 2009 we recorded an impairment write-down of $ 218.9 million , as determined through the application of the ceiling test . should prices decline for oil and natural gas in the future , our future oil , ngl and natural gas revenues , earnings and liquidity would be negatively impacted , and could result in impairment write-downs of the carrying value of our oil and natural gas properties . this decline could create issues with financial ratio compliance , and could result in a reduction of the borrowing base associated with our credit agreement , depending on the severity of such declines . if those factors were to occur and were significant , the willingness of financial institutions and investors to provide capital to us and others in the oil and natural gas industry in the future could be impacted . our operating costs include the expense of operating our wells , platforms and other infrastructure primarily in the gulf of mexico and texas and transporting our production to the point of sale . our operating costs are generally comprised of several components , including direct operating costs , repairs and maintenance , gathering and transportation costs , production taxes , workover costs and ad valorem taxes . our operating costs depend in part on the type of commodity produced , the level of workover activity and the geographical location of the properties . revenue from our production is highly dependent on pipelines owned by others to access markets for our products . to the extent that the transportation price such pipelines charge increases , our revenues from the sales of our products would go down or transportation costs would increase , the result of either would be a reduction in operating income . certain pipelines have filed tariffs which may increase the amounts charged to us and we believe that we have limited alternatives to use other pipelines . the approval process typically results in approval of fees less than those contained in the filing requests ; therefore , at this time , we are unable to determine whether or when the rates may ultimately be increased and are unable to estimate the impact to operating income in 2012 . 55 index to financial statements in recent years , we acquired and built platforms near the outer edge of the continental shelf and operated wells in the deepwater of the gulf of mexico . to the extent we continue our deepwater operations , our operating costs will likely increase . while each field can present operating problems that can add to the costs of operating a field , the production costs of a field are generally directly proportional to the number of production platforms built in the field . as technologies have improved , oil and natural gas can be produced from larger acreage areas using a single platform , which may reduce the operating costs associated with future development projects . our operations are exposed to potential damage from hurricanes and we obtain insurance to reduce our financial exposure risk . we incurred substantial costs from 2008 through 2011 for hurricane related damage occurring in 2008 and expect to incur costs through 2013 to complete plugging and abandonment work primarily related to three toppled platforms . we received reimbursements from our insurance carrier in each of the last three years and expect to receive additional reimbursements for covered costs incurred in future periods as covered costs incurred to date have not exceeded policy limits . see liquidity and capital resources below and financial statements note 3 hurricane remediation and insurance claims under part ii , item 8 in this form 10-k for additional information . applicable environmental regulations require us to remove our platforms after production has ceased , to plug and abandon all wells and to remediate any environmental damage our operations may have caused . the costs associated with our aro generally increase as we drill wells in deeper parts of the continental shelf and in the deepwater . we generally do not pre-fund our aro . we estimated the present value of our liability related to our aro at $ 393.9 million as of december 31 , 2011. inherent in the present value calculation of our liability are numerous estimates , assumptions and judgments , including the ultimate settlement amounts , inflation factors , changes to our credit-adjusted risk-free rate , timing of settlement and expenditure , and changes in the legal , regulatory , environmental and political environments . actual expenditures for aro could vary significantly from these estimates .
| results of operations year ended december 31 , 2011 compared to year ended december 31 , 2010 revenues . total revenues increased $ 265.3 million , or 37.6 % , to $ 971.0 million in 2011 compared to 2010. oil revenues increased $ 189.8 million , ngls revenues increased $ 53.6 million , natural gas revenues increased $ 17.7 million and other revenues increased $ 4.2 million . the oil revenue increase was attributable to a 37.0 % 56 index to financial statements increase in the average realized sales price ( unhedged ) to $ 105.92 per bbl in 2011 from $ 77.33 per bbl in 2010 , combined with an increase of 3.4 % in sales volumes . the ngls revenue increase was attributable to a 27.9 % increase in the average realized sales price ( unhedged ) to $ 55.81 per bbl in 2011 from $ 43.65 per bbl in 2010 , combined with an increase of 58.3 % in sales volumes . the sales volume increase for oil and ngls is primarily attributable to increases associated with properties acquired in 2011 and 2010. the increase in natural gas revenue resulted from a 20.1 % increase in sales volumes , partially offset by a 9.5 % decrease in the average realized natural gas sales price ( unhedged ) . for 2011 , the natural gas average realized sales price was $ 4.12 per mcf compared to $ 4.55 per mcf for 2010. the sales volume increase for natural gas is primarily attributable to increases associated with our acquisition activities , the main pass 108 fields resuming production and successful exploration efforts . other revenue changed primarily due to a disallowance of $ 4.7 million by the onrr in 2010 of royalty relief for transportation of deepwater production through our subsea pipeline system . we are contesting this onrr adjustment .
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the key strategies for each of the company 's business segments and certain related business challenges are summarized below . for a summary of the company 's business segments , see item 8 - note 15 . key strategies and challenges electric and natural gas distribution strategy provide safe and reliable competitively priced energy and related services to customers . the electric and natural gas distribution segments continually seek opportunities to retain , grow and expand their customer base through extensions of existing operations , including building and upgrading electric generation and transmission and natural gas systems , and through selected acquisitions of companies and properties at prices that will provide stable cash flows and an opportunity for the company to earn a competitive return on investment . challenges both segments are subject to extensive regulation in the state jurisdictions where they conduct operations with respect to costs and timely recovery and permitted returns on investment as well as subject to certain operational , system integrity and environmental regulations . these regulations can require substantial investment to upgrade facilities . the ability of these segments to grow through acquisitions is subject to significant competition . in addition , the ability of both segments to grow service territory and customer base is affected by the economic environment of the markets served and competition from other energy providers and fuels . the construction of any new electric generating facilities , transmission lines and other service facilities are subject to increasing cost and lead time , extensive permitting procedures , and federal and state legislative and regulatory initiatives , which will necessitate increases in electric energy prices . legislative and regulatory initiatives to increase renewable energy resources and reduce ghg emissions could impact the price and demand for electricity and natural gas . pipeline and energy services strategy utilize the segment 's existing expertise in energy infrastructure and related services to increase market share and profitability through optimization of existing operations , internal growth , investments in and acquisitions of energy-related assets and companies . incremental and new growth opportunities include : access to new energy sources for storage , gathering and transportation services ; expansion of existing gathering , transmission and storage facilities ; incremental expansion of pipeline capacity ; expansion of midstream business to include liquid pipelines and processing/refining activities ; and expansion of related energy services . challenges challenges for this segment include : energy price volatility ; tight natural gas basis differentials ; environmental and regulatory requirements ; recruitment and retention of a skilled workforce ; and competition from other pipeline and energy services companies . exploration and production strategy the company intends to market and sell its exploration and production business . however , the company has delayed its plan in light of the recent volatility in oil prices . until such sale is accomplished , this segment will apply technology and utilize existing expertise to increase production and reserves from existing leaseholds . by optimizing existing operations , this segment is focused on balancing its oil and natural gas commodity mix to maximize profitability . challenges risks and uncertainties associated with the marketing and sale of the fidelity assets ; current oil and natural gas low-price environment ; timely receipt of necessary permits and approvals ; environmental and regulatory requirements ; recruitment and retention of a skilled workforce ; utilizing appropriate technologies ; inflationary pressure on development and operating costs ; irregularities in geological formations ; and competition from other exploration and production companies are ongoing challenges for this segment . mdu resources group , inc. form 10-k 31 part ii construction materials and contracting strategy focus on high-growth strategic markets located near major transportation corridors and desirable mid-sized metropolitan areas ; strengthen long-term , strategic aggregate reserve position through purchase and or lease opportunities ; enhance profitability through cost containment , margin discipline and vertical integration of the segment 's operations ; develop and recruit talented employees ; and continue growth through organic and acquisition opportunities . vertical integration allows the segment to manage operations from aggregate mining to final lay-down of concrete and asphalt , with control of and access to permitted aggregate reserves being significant . a key element of the company 's long-term strategy for this business is to further expand its market presence in the higher-margin materials business ( rock , sand , gravel , liquid asphalt , asphalt concrete , ready-mixed concrete and related products ) , complementing and expanding on the company 's expertise . challenges recruitment and retention of key personnel and volatility in the cost of raw materials such as diesel , gasoline , liquid asphalt , cement and steel , continue to be a concern . this business unit expects to continue cost containment efforts , positioning its operations for the resurgence in the private market , while continuing the emphasis on industrial , energy and public works projects . construction services strategy provide a superior return on investment by : building new and strengthening existing customer relationships ; effectively controlling costs ; retaining , developing and recruiting talented employees ; continue growth through organic and acquisition opportunities ; and focusing our efforts on projects that will permit higher margins while properly managing risk . challenges this segment operates in highly competitive markets with many jobs subject to competitive bidding . maintenance of effective operational and cost controls , retention of key personnel , managing through downturns in the economy and effective management of working capital are ongoing challenges . for more information on the risks and challenges the company faces as it pursues its growth strategies and other factors that should be considered for a better understanding of the company 's financial condition , see item 1a - risk factors . for more information on key growth strategies , projections and certain assumptions , see prospective information . for information pertinent to various commitments and contingencies , see item 8 - notes to consolidated financial statements . story_separator_special_tag after tax ) , primarily due to lower average rates and lower storage balances lower earnings of $ 3.1 million ( after tax ) resulting from lower natural gas gathering volumes from existing operations , largely resulting from customers experiencing production curtailments , normal declines and deferral of natural gas development activity partially offsetting the earnings decrease were : higher earnings from the company 's interest in the pronghorn oil and natural gas gathering and processing assets , which were acquired in may 2012 , primarily due to higher volumes lower operation and maintenance expense ( excluding the asset impairments , net benefits related to the natural gas gathering operations litigation and pronghorn-related expense ) , which includes $ 2.0 million ( after tax ) , largely related to lower payroll-related costs , legal and contract services lower depreciation , depletion and amortization expense ( excluding depreciation on pronghorn oil and natural gas gathering and processing assets ) , which includes $ 1.6 million ( after tax ) , primarily related to the coalbed areas 36 mdu resources group , inc. form 10-k part ii exploration and production replace_table_token_20_th 2014 compared to 2013 earnings at the exploration and production business increased $ 2.3 million ( 2 percent ) due to : higher average realized natural gas prices of 39 percent , excluding gain/loss on commodity derivatives unrealized gain on commodity derivatives of $ 14.7 million ( after tax ) in 2014 compared to an unrealized loss on commodity derivatives of $ 3.9 million ( after tax ) in 2013 increased oil production of 2 percent , primarily related to the powder river basin acquisition and drilling activity in the paradox basin higher realized gain on commodity derivatives of $ 5.2 million ( after tax ) , due to lower commodity prices relative to hedge prices favorable income tax changes related to the resolution of certain income tax matters and higher income tax benefits lower gathering and transportation expense of $ 1.8 million ( after tax ) , largely due to lower gathering costs resulting from lower volumes mdu resources group , inc. form 10-k 37 part ii partially offsetting these increases were : lower average realized oil prices of 7 percent , excluding gain/loss on commodity derivatives decreased natural gas production of 26 percent , largely due to the sale of non-strategic assets higher depreciation , depletion and amortization expense of $ 7.4 million ( after tax ) , due to higher depletion rates , offset in part by lower volumes decreased ngl production of 22 percent , largely due to the sale of non-strategic assets higher lease operating expenses of $ 3.8 million ( after tax ) , primarily in the paradox basin 2013 compared to 2012 earnings at the exploration and production business increased $ 271.7 million due to : absence of the write-downs of oil and natural gas properties of $ 246.8 million ( after tax ) , as discussed in item 8 - note 1 increased oil production of 30 percent , primarily related to drilling activity in the bakken and paradox basin areas higher average realized natural gas prices of 39 percent , excluding gain/loss on commodity derivatives higher average realized oil prices of 6 percent , excluding gain/loss on commodity derivatives partially offsetting these increases were : lower realized gain on commodity derivatives of $ 21.1 million ( after tax ) , due to higher commodity prices relative to hedge prices higher depreciation , depletion and amortization expense of $ 16.2 million ( after tax ) , largely due to higher depletion rates decreased natural gas production of 16 percent , largely related to production curtailments , normal declines and deferral of certain natural gas development activity higher production taxes of $ 4.3 million ( after tax ) , primarily resulting from higher revenues unrealized loss on commodity derivatives of $ 3.9 million ( after tax ) in 2013 , compared to $ 400,000 ( after tax ) in 2012 higher general and administrative expense of $ 3.8 million ( after tax ) , including higher payroll-related costs higher net interest expense of $ 3.3 million ( after tax ) , largely due to lower capitalized interest increased lease operating expenses of $ 2.8 million ( after tax ) , largely related to higher costs in the bakken area resulting from increased production volumes and higher workover costs , as well as higher costs in the paradox basin resulting from increased production volumes , partially offset by lower costs at certain natural gas properties where curtailments of production have occurred construction materials and contracting replace_table_token_21_th * reflects a mepp withdrawal liability of approximately $ 14 million ( $ 8.4 million after tax ) . for more information , see item 8 - note 16 . 2014 compared to 2013 earnings at the construction materials and contracting business increased $ 600,000 ( 1 percent ) due to : favorable income tax changes , which includes $ 3.1 million related to the resolution of certain income tax matters and higher income tax benefits higher earnings resulting from higher asphalt margins higher earnings of $ 1.9 million ( after tax ) resulting from higher ready-mixed concrete volumes and margins 38 mdu resources group , inc. form 10-k part ii higher earnings of $ 1.7 million ( after tax ) resulting from higher aggregate margins and volumes lower interest expense of $ 600,000 ( after tax ) due to lower average debt balances partially offsetting these increases were : a mepp withdrawal liability of $ 8.4 million ( after tax ) , as discussed in item 8 - note 16 higher selling , general and administrative expense of $ 1.9 million ( after tax ) , primarily due to higher payroll and benefit-related costs 2013 compared to 2012 earnings at the construction materials and contracting business increased $ 18.5 million ( 57 percent ) due to : higher earnings of $ 6.6 million ( after tax ) resulting from higher asphalt margins and volumes higher earnings of $ 5.6 million ( after tax ) resulting from higher aggregate margins and volumes lower
| earnings overview the following table summarizes the contribution to consolidated earnings ( loss ) by each of the company 's businesses . replace_table_token_16_th 32 mdu resources group , inc. form 10-k part ii 2014 compared to 2013 consolidated earnings for 2014 increased $ 19.3 million from the prior year . this increase was due to : the absence of the 2013 impairment of coalbed natural gas gathering assets of $ 9.0 million ( after tax ) , as discussed in item 8 - note 1 , as well as higher earnings due to increased transportation rates and higher earnings from the company 's interest in the pronghorn oil and natural gas gathering and processing assets ; partially offset by lower storage services earnings other earnings and earnings from discontinued operations increased resulting from favorable income tax changes , due to the resolution of certain tax matters and higher income tax benefits partially offsetting these increases were higher operation and maintenance expense , higher depreciation , depletion and amortization expense and the absence of the 2013 $ 2.8 million ( after tax ) gain on the sale of montana-dakota 's nonregulated appliance service and repair business ; partially offset by higher other income and natural gas retail sales margins at the natural gas distribution business . 2013 compared to 2012 consolidated earnings for 2013 increased $ 279.6 million from the prior year .
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f- 13 u.s. gold corp and subsidiaries notes to consolidated financial statements april 30 , 2020 and 2019 numberco owns all of the issued and outstanding shares of orevada metals inc. ( “ orevada ” ) , a corporation under the laws of the state of nevada . at the time of acquisition , the company acquired from numberco cash of $ 159,063 , and assumed liabilities consisting of accounts payable totaling $ 125,670 . as a result , the company acquired orevada 's right to an option agreement dated in february 2019 ( the “ option agreement ” ) . the option agreement grants orevada the exclusive right and option to earn-in and acquire up to 50 % undivided interest in a property called maggie creek , located in eureka county , nevada by completing a $ 4.5 million in exploration and development expenditures ( “ initial earn-in ” ) and payment to renaissance exploration , inc. ( “ renaissance ” ) , the grantor , of $ 250,000 . orevada may elect within 60 days after making the $ 250,000 payment , to increase its interest by an additional 20 % ( total interest of 70 % ) by producing a feasibility study by the end of the ninth year of the option agreement . one of the directors of the company , mr. tim janke , is also a director of renaissance , a company which is not under common control . no earn-in expenditures have yet been invested toward the option agreement . pursuant to asu 2017-01 and asc 805 , each titled “ business combinations ” , the company analyzed the share exchange agreement to determine if the company acquired a business or assets . based on this analysis , it was determined that the company acquired assets , primarily consisting of cash and the right to an option agreement . the company excluded the cash received in the determination of the gross assets and concluded that the right to the option agreement represents substantially all of the fair value of the gross assets acquired . if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets , the asset is not considered a business . the monetary value of the 200,000 shares issued to the numberco shareholders is deemed by the company to be $ 2,020,000 . in accordance with asc 805-50-30 “ business combinations ” , the company determined that if the consideration paid is not in the form of cash , the measurement may be based on either ( i ) the cost which is measured based on the fair value of the consideration given or ( ii ) the fair value of the assets ( or net assets ) acquired , whichever is more clearly evident and thus more reliably measurable . the 200,000 shares issued to the numberco shareholders were valued at $ 2,020,000 , or $ 10.10 per share , the fair value of the company 's common stock based on the quoted trading price on the date of the share exchange agreement ( see note 8 ) . no goodwill was recorded as the share exchange agreement was accounted for as an asset purchase . the relative fair value of the assets acquired and liabilities assumed were based on management 's estimates of the fair values on september 10 , 2019 , the date of the share exchange agreement . based upon the purchase price allocation , the following table summarizes the estimated relative fair value of the assets acquired and liabilities assumed at the date of acquisition : cash $ 159,063 mineral property – maggie creek 1,986,607 total assets acquired at fair value 2,145,670 total liabilities assumed at fair value ( 125,670 ) total purchase consideration $ 2,020,000 as of the date of these consolidated financial statements , the company has not established any proven or probable reserves on its mineral properties and story_separator_special_tag this item 7 , “ management 's discussion and analysis of financial condition and results of operations , ” and other parts of this form 10-k contain forward-looking statements , within the meaning of the private securities litigation reform act of 1995 , that involve risks and uncertainties . forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact . forward-looking statements can also be identified by words such as “ future , ” “ anticipates , ” “ believes , ” “ estimates , ” “ expects , ” “ intends , ” “ plans , ” “ predicts , ” “ will , ” “ would , ” “ could , ” “ can , ” “ may , ” and similar terms . forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements . factors that might cause such differences include , but are not limited to , those discussed in part i , item 1a of this form 10-k under the heading “ risk factors , ” which are included herein . the following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in part ii , item 8 of this form 10-k. all information presented herein is based on our fiscal calendar . unless otherwise stated , references to particular years or quarters refer to our fiscal years ended in april and the associated quarters of those fiscal years . we assume no obligation to revise or update any forward-looking statements for any reason , except as required by law . story_separator_special_tag the hole intersected thick , continuous gold mineralization and will be the focus of future keystone follow-up exploration efforts . 46 ● on november 12 , 2019 , we announced the results of our 2019 keystone exploration program , including the results of assays on hole key 19-05rc . hole key19-05rc was drilled in a previously undrilled target area called nina skarn . the hole intersected thick , continuous gold mineralization and will be the focus of future keystone follow-up exploration efforts . maggie creek project ● on september 11 , 2019 , we announced the acquisition of orevada metals , inc. ( “ orevada ” ) . orevada is a wholly owned subsidiary of a canadian corporation . orevada has an option to earn up to a 70 % interest in the maggie creek exploration project , located on the carlin trend , nevada , close to newmont 's gold quarry mine . a total of 241 historic drill holes have been drilled on the maggie creek property . recent discoveries on the carlin trend have shown higher grade mineralization at greater depths and this will be the focus of our future maggie creek exploration efforts . details of the maggie creek exploration project are included on our corporate website . ● on november 21 , 2019 , we announced a new maggie creek section on our website with a link to a maggie creek presentation . sales of preferred units & common shares to raise a total of $ 4.3 million in cash on june 20 , 2019 , pursuant to a securities purchase agreement , dated june 19 , 2019 , by and among us and certain purchasers thereto , we sold 1,250 series f preferred units ( a “ unit ” ) , each unit consisting of one ( 1 ) share of 0 % series f preferred stock ( “ preferred stock ” ) and 87 class x warrants . each unit was sold for its stated value of $ 2,000 ( the “ june offering ” ) . each share of preferred stock , at the option of the holder at any time , was convertible into the number of shares of common stock of the company ( “ common stock ” ) determined by dividing the $ 2,000 stated value per share of the preferred stock by a conversion price of $ 11.40 per share ( initially approximately 219,375 shares of common stock ) , subject to adjustment . each class x warrant was exercisable to acquire one share of our common stock and one class y warrant at an exercise price of $ 1.14 , for a period of six ( 6 ) months from the date of issuance . class x warrants expired on december 19 , 2019. class y warrant was exercisable to acquire one share of common stock at an exercise price of $ 11.40 per share , commencing six ( 6 ) months from the date of issuance ( the “ initial issuance date ” ) and will expire on a date that is the five ( 5 ) year anniversary of the initial exercise date . no class x warrant was exercised prior to its expiration , and , as such , no class y warrants were issued . concurrent with the june offering , we issued to the purchasers in the june offering 2,193,750 class a warrants in a private placement . each class a warrant is exercisable to acquire one share of common stock at an exercise price of $ 11.40 per share , commencing six ( 6 ) months from the date of issuance and will expire on a date that is the five ( 5 ) year anniversary of the date of issuance . the net proceeds , after expenses of the june offering , were approximately $ 2.4 million . on april 1 , 2020 , we sold , pursuant to a securities purchase agreement , dated march 29 , 2020 , by and among us and certain institutional investors , in a registered direct offering an aggregate of 357,142 shares of common stock , at an offering price of $ 5.60 per share , for net proceeds of approximately $ 1.89 million , after the deduction of offering expenses . shareholder meeting , appointment of directors & corporate matters on september 18 , 2019 , we held our annual meeting of stockholders . at that meeting , among other matters , shareholders approved a new equity incentive plan , approved our new audit firm , and elected a new board member . effective september 18 , 2019 , our board of directors appointed mr. douglas newby to the board of directors to fill the vacancy created by the resignation of mr. davidson in july 2019. mr. newby brings a wealth of senior financial knowledge and experience to us , which includes experience with mining companies and financing mining operations . his biography follows in part ii of this form 10-k. on december 9 , 2019 , we announced the formation of a strategic advisory board , which was formed for the purpose of introducing us to a wider audience in the mining industry , including mining investors . 47 story_separator_special_tag roman , times , serif ; padding-bottom : 1.5pt '' > april 30 , 2019 net cash used in operating activities $ ( 3,897,743 ) $ ( 5,668,894 ) net cash provided by investing activities $ 159,063 $ - net cash provided by financing activities $ 4,291,456 $ 219,796 49 cash used in operating activities net cash used in operating activities totaled approximately $ 3.9 million and $ 5.7 million for the years ended april 30 , 2020 and 2019 , respectively .
| results of operations the years ended april 30 , 2020 and 2019 net revenues we are an exploration stage company with no operations , and we generated no revenues for the years ended april 30 , 2020 and 2019. operating expenses total operating expenses for the year ended april 30 , 2020 as compared to the year ended april 30 , 2019 , were approximately $ 5.7 million and $ 7.6 million , respectively . the approximate $ 1.9 million decrease in operating expenses for the year ended april 30 , 2020 , as compared to april 30 , 2019 , is comprised principally of decreases in compensation expense of $ 880,000 and exploration costs of $ 1.3 million , offset by increases of approximately $ 180,000 in professional fees and general administrative expenses of approximately $ 90,000. the decrease in exploration expenses was planned as we conserved cash by reducing our field exploration activities . we expect our operating expenses for the year ending april 30 , 2021 to be approximately $ 200,000 per month . pre-tax loss from operations we reported pre-tax losses from operations of approximately $ 5.7 million and $ 7.6 million for the years ended april 30 , 2020 and 2019 , respectively . benefit from income taxes for the year ended april 30 , 2020 and 2019 , benefit ( provision ) from income taxes was $ 438,145 and $ ( 435,345 ) , respectively .
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the standard is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services . the guidance permits two methods of adoption : retrospectively to each prior reporting period presented ( full retrospective method ) , or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application ( the modified retrospective approach ) . the company selected the modified retrospective approach however there was no material impact which required a cumulative effect adjustment . the principle of topic 606 was achieved through applying the following five-step approach : ● identification of the contract , or contracts , with a customer — a contract with a customer exists when the company enters into an enforceable contract with a customer , typically a purchase order initiated by the customer , that defines each party 's rights regarding the goods to be transferred and identifies the payment terms related to these goods . - 24 - ● identification of the performance obligations in the contract — performance obligations promised in a contract are identified based on the goods that will be transferred to the customer that are distinct , whereby the customer can benefit from the goods on their own or together with other resources that are readily available from third parties or from us . persuasive evidence of an arrangement for the sale of product must exist . the company ships product in accordance with the purchase order and standard terms as reflected within the company 's order acknowledgments and sales invoices . ● determination of the transaction price —the transaction price is determined based on the consideration to which the company will be entitled in exchange for transferring goods to the customer . this would be the agreed upon quantity and price per product type in accordance with the customer purchase order , which is aligned with the company 's internally approved pricing guidelines . ● allocation of the transaction price to the performance obligations in the contract — if the contract contains a single performance obligation , the entire transaction price is allocated to the single performance obligation . this applies to the company as there is only one performance obligation to ship the goods . ● recognition of revenue when , or as , the company satisfies a performance obligation — the company satisfies performance obligations at a point in time when control of the goods transfers to the customer . determining the point in time when control transfers requires judgment . indicators considered in determining whether the customer has obtained control of a good include : ● the company has a present right to payment ● the customer has legal title to the goods ● the company has transferred physical possession of the goods ● the customer has the significant risks and rewards of ownership of the goods ● the customer has accepted the goods it is important to note that the indicators are not a set of conditions that must be met before the company can conclude that control of the goods has transferred to the customer . the indicators are a list of factors that are often present if a customer has control of the goods . the company has typical , unmodified fob shipping point terms . as the seller , the company can determine that the shipped goods meet the agreed-upon specifications in the contract or customer purchase order ( e.g . items , quantities , and prices ) with the buyer , so customer acceptance would be deemed a formality , as noted in asc 606-10-55-86. as a result , the company has a legal right to payment upon shipment of the goods . based upon the above , the company has concluded that transfer of control substantively transfers to the customer upon shipment . other considerations of topic 606 include the following : ● contract costs - costs to obtain a contract ( e.g . customer purchase order ) include sales commissions . under topic 606 , these costs may be expensed as incurred for contracts with a duration of one year or less . the majority of the company 's customer purchase orders are fulfilled ( e.g . goods are shipped ) within two days of receipt . ● warranties - the company does not offer customers to purchase a warranty separately . therefore there is not a separate performance obligation . the company does account for warranties as a cost accrual and the warranties do not include any additional distinct services other than the assurance that the goods comply with agreed-upon specifications . there is no impact of warranties under topic 606 upon the financial reporting of the company . ● returned goods - from time to time , the company provides authorization to customers to return goods . if deemed to be material , the company would record a “ right of return ” asset for the cost of the returned goods which would reduce cost of sales . - 25 - ● volume rebates ( promotional incentives ) - volume rebates are variable ( dependent upon the volume of goods purchased by our eligible customers ) and , under topic 606 , must be estimated and recognized as a reduction of revenue as performance obligations are satisfied ( e.g . upon shipment of goods ) . story_separator_special_tag also under topic 606 , to ensure that revenue recognized would not be probable of a significant reversal , the four following factors are considered : ● the amount of consideration is highly susceptible to factors outside the company 's influence . ● the uncertainty about the amount of consideration is not expected to be resolved for a long period of time . ● the company 's experience with similar types of contracts is limited . ● the contract has a large number and broad range of possible consideration amounts . if it was concluded that the above factors were in place for the company , it would support the probability of a significant reversal of revenue . however , as none of the four factors apply to the company , promotional incentives are recorded as a reduction of revenue based upon estimates of the eligible products expected to be sold . regarding disaggregated revenue disclosures , as previously noted , the company 's business is controlled as a single operating segment that consists of the manufacture and sale of flexible metal hose . most of the company 's transactions are very similar in nature , contract , terms , timing , and transfer of control of goods . as indicated within note 2 , significant accounting policies , to the consolidated financial statements included in this report , under the caption “ significant concentration ” , the majority of the company 's sales were geographically contained within north america , with the remainder scattered internationally . all performance assessments and resource allocations are generally based upon the review of the results of the company as a whole . accounts receivable and provision for doubtful accounts accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future . the estimated allowance for uncollectible amounts is based primarily on specific analysis of accounts in the receivable portfolio and historical write-off experience . while management believes the allowance to be adequate , if the financial condition of the company 's customers were to deteriorate , resulting in their inability to make payments , additional allowances may be required . investments the company invests excess funds in liquid interest earning instruments including u.s. treasury bills and bank time deposits . these investments are stated at fair value , which approximates amortized cost , and are classified as available-for-sale in accordance with accounting standards codification 320 , investments – debt and equity securities ( or “ asc 320 ” ) . investments were $ 0 and $ 14,944,000 as of december 31 , 2019 and 2018 , respectively . maturities , from the date of purchase , were six months or less . inventories inventories are valued at the lower of cost or net realizable value . the cost of inventories is determined by the first-in , first-out ( fifo ) method . the company generally considers inventory quantities beyond two years of non-usage , measured on a historical usage basis , to be excess inventory and reduces the gross carrying value of inventory accordingly . goodwill in accordance with financial accounting standards board ( fasb ) asc topic 350 , intangibles – goodwill and other , the company performed an annual impairment test in accordance with this guidance as of december 31 , 2019 and also at december 31 , 2018. these analyses did not indicate any impairment of goodwill at the end of either period . - 26 - stock-based compensation plans in 2006 , the company adopted a phantom stock plan ( the “ plan ” ) , which allows the company to grant phantom stock units ( units ) to certain key employees , officers or directors . the units each represent a contractual right to payment of compensation in the future based upon the market value of the company 's common stock . the units follow a vesting schedule of three years from the grant date , and are then paid upon maturity . in accordance with fasb asc topic 718 , stock compensation , the company uses the black-scholes option pricing model as its method for determining the fair value of the units . further details of the plan are provided in note 11 , stock-based compensation plans , to the consolidated financial statements included in this report . product liability reserves product liability reserves represent the estimated unpaid amounts under the company 's insurance policies with respect to existing claims . the company uses the most current available data to estimate claims . as explained more fully under note 10 , commitments and contingencies , to the consolidated financial statements included in this report for various product liability claims covered under the company 's general liability insurance policies , the company must pay certain defense and settlement costs within its deductible or self-insured retention limits , ranging primarily from $ 25,000 to $ 1,000,000 per claim , depending on the terms of the policy in the applicable policy year , up to an aggregate amount . the company is vigorously defending against all known claims . leases effective january 1 , 2019 , the company adopted the requirements of fasb asu 2016-02 , leases ( topic 842 ) which defines a lease as any contract that conveys the right to use a specific asset for a period of time in exchange for consideration . leases are classified as a finance lease , formerly called a capital lease , if any of the following criteria are met : 1. the lease transfers ownership of the underlying asset to the lessee by the end of the lease term . 2. the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise . 3. the lease term is for the major part of the remaining economic life of the underlying asset . 4. the present value of the sum of lease payments and any residual value
| results of operations twelve-months ended december 31 , 2019 vs. twelve months ended december 31 , 2018 the company reported comparative results from operations for the twelve-month periods ended december 31 , 2019 and 2018 as follows : replace_table_token_4_th net sales . the company 's sales for the full year of 2019 were $ 111,360,000 , reflecting an increase of $ 3,047,000 , or 2.8 % , over $ 108,313,000 in 2018. the increase in sales resulted mostly from an increase in selling prices that were necessary to help offset a rise in the company 's material costs . gross profit . the company 's gross profit margins increased between the two periods , at 63.3 % and 61.0 % for the twelve-months ended december 31 , 2019 and 2018 , respectively . - 21 - selling expenses . selling expenses consist primarily of employee salaries and associated overhead costs , commissions , and the cost of marketing programs such as advertising , trade shows and related communication costs , and freight . selling expense was $ 19,032,000 and $ 17,117,000 for 2019 and 2018 , respectively , representing a year over year increase of $ 1,915,000 , or 11.2 % . a majority of the additional expense relates to atypical consulting costs attributable to the company 's new product , meditrac ® flexible medical gas piping , increasing $ 977,000 over last year . the company has also expanded its sales related staffing resources , and recognized an increase in commissions during the year , largely driven by the increase in sales . travel expenses , partially associated with the increase in staffing , were also higher . for the same periods , selling expense as a percentage of net sales was 17.1 % and 15.8 % , respectively . general and administrative expenses . general and administrative expenses consist primarily of employee salaries , benefits for administrative , executive and finance personnel , legal and accounting , insurance , and corporate general and administrative services .
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note 3. intangible assets amortization expense related to intangible assets was $ 0 for the years ended december 31 , 2019 and 2018 , respectively . in december 2006 , we acquired the use of a toll-free telephone number for cash consideration of $ 250,000 . this asset has an indefinite useful life . the intangible asset is tested for impairment annually or more often if events or changes in circumstances indicate that the carrying value may not be recoverable . as of december 31 , 2019 , all intangible assets have been fully amortized with the exception of the indefinite-life intangibles . 52 note 4. commitments and contingencies lease commitments sunnyvale office lease . on march 23 , 2018 , we entered into a two-year lease agreement with an effective date of april 1 , 2018 for our sunnyvale facility , covering approximately 6,283 square feet with the monthly rent of $ 14,000 . the lease is scheduled to expire on march 31 , 2020. other facility leases . we lease our facilities under non-cancelable operating lease agreements , which expire at various dates through december 2020. total facility rent expense pursuant to all operating lease agreements was $ 512,000 and $ 401,000 for the years ended december 31 , 2019 and 2018 , respectively . as of december 31 , 2019 , minimum payments due under all non-cancelable lease agreements were as follows ( in thousands ) : years ending december 31 , operating leases 2020 $ 274 2021 107 total minimum lease and principal payments $ 381 legal contingencies federal trade commission consent order . as previously disclosed , on december 20 , 2016 the federal trade commission ( “ ftc ” ) issued a confidential civil investigative demand , or cid , to the company requiring the company to produce certain documents and materials and to answer certain interrogatories relating to pc healthcheck , an obsolete software program that the company developed on behalf of a third party for their use with their customers . the investigation relates to the company providing software like pc healthcheck to third parties for their use prior to december 31 , 2016 , when the company was under management of the previous board and executive team . since issuing the cid , the ftc has sought additional written and testimonial evidence from the company . we have cooperated fully with the ftc 's investigation and provided all requested information . in addition , the company has not used pc healthcheck nor provided it to any customers since december 2016. on march 9 , 2018 , the ftc notified the company that the ftc was willing to engage in settlement discussions . on november 6 , 2018 , the company and the ftc entered into a proposed stipulation to entry of order for permanent injunction and monetary judgment , or the consent order . the consent order was approved by the commission on march 26 , 2019 and entered by the u.s. district court for the southern district of florida on march 29 , 2019. entry of the consent order by the court has finally resolved the ftc 's multi-year investigation of the company . pursuant to the consent order , under which the company neither admitted nor denied the ftc 's allegations ( except as to the court having jurisdiction over the matter ) , the ftc has agreed to accept a payment of $ 10 million in settlement of the $ 35 million judgement , subject to the factual accuracy of the information the company has provided as part of our financial representations . the $ 10 million payment was made on april 1 , 2019 and has been recognized in operating expenses within the company 's consolidated statements of operations for the year ended december 31 , 2018. additionally , pursuant to the consent order , the company has agreed to implement certain new procedures and enhance certain existing procedures . for example , the consent order necessitates that the company cooperate with representatives of the commission on associated investigations if needed ; imposes requirements on the company regarding obtaining acknowledgements of the consent order and compliance certification , including record creation and maintenance ; and prohibits the company from making misrepresentations and misleading claims or providing the means for others to make such claims regarding , among other things , detection of security or performance issues on consumer 's electronic devices . electronic devices include , but are not limited to , cell phones , tablets and computers . the company intends to monitor the impact of the consent order regularly and , while the company currently does not expect the settlement to have a long-term and materially adverse impact on its business , the company 's business may be negatively impacted as the company adjusts to some of the changes . if the company is unable to comply with the consent order , then this could result in a material and adverse impact to the company 's results of operations and financial condition . 53 other matters . the company has received and may in the future receive story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this form 10-k. the following discussion includes forward-looking statements . please see the section entitled “ risk factors ” in item 1a of this report for important information to consider when evaluating these statements . overview support.com , inc. is a full-spectrum leader in outsourced call center and direct-to-consumer and small business technical support solutions . story_separator_special_tag therefore , determining fair value for level 1 instruments generally does not require significant management judgment , and the estimation is not difficult . ● level 2 - inputs other than level 1 that are observable , either directly or indirectly , such as quoted prices for similar assets or liabilities ; quoted prices in markets that are not active ; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities . level 2 instruments require limited management judgment . ● level 3 - unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities . the determination of fair value for level 3 instruments requires the most management judgment and subjectivity . 26 our level 2 securities are priced using quoted market prices for similar instruments , nonbinding market prices that are corroborated by observable market data , or discounted cash flow techniques . marketable securities , measured at fair value using level 2 inputs , are primarily comprised of commercial paper , corporate bonds , corporate notes and u.s. government agencies securities . we review trading activity and pricing for these investments as of the measurement date . when sufficient quoted pricing for identical securities is not available , we use market pricing and other observable market inputs for similar securities obtained from various third-party data providers . these inputs either represent quoted prices for similar assets in active markets or have been derived from observable market data . stock-based compensation we account for stock-based compensation in accordance with the provisions of asc 718 , compensation - stock compensation . under the fair value recognition provisions of asc 718 , stock-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period of the award . we estimate the fair value of stock-based awards on the grant date using ( i ) the black-scholes-merton option-pricing model for service-based stock options and ( ii ) the quoted prices of the company 's common stock for restricted stock units . determining the appropriate fair value model and calculating the fair value of stock-based awards requires judgment , including estimating stock price volatility , forfeiture rates and expected life . if any of these assumptions used in the option-pricing models change , our stock-based compensation expense could change on our consolidated financial statements . accounting for income taxes we are required to estimate our income taxes in each of the tax jurisdictions in which we operate . this process involves management 's estimation of our current tax exposures together with an assessment of temporary differences determined based on the difference between the financial statement and tax basis of certain items . these differences result in net deferred tax assets and liabilities , which are included in our consolidated balance sheet . we must assess the likelihood that we will be able to recover our deferred tax assets . if recovery is not likely , we must increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable . we currently have provided a full valuation allowance on our u.s. deferred tax assets that management determined are not likely to be realized due to cumulative net losses since inception and the difficulty in accurately forecasting the company 's results . in addition , we currently have provided a partial valuation allowance on certain foreign deferred tax assets . if any of our estimates change , we may change the likelihood of recovery and our tax expense as well as the value of our deferred tax assets would change . our income tax calculations are based on the application of the respective u.s. federal , state or foreign tax law . the company 's tax filings , however , are subject to audit by the respective tax authorities . accordingly , we recognize tax liabilities based on our estimate of whether , and the extent to which , additional taxes will be due when such estimates are more-likely-than-not to be sustained . an uncertain income tax position will not be recognized if it has less than a 50 % likelihood of being sustained . our policy is to include interest and penalties related to unrecognized tax benefits as a component of income tax expense . to the extent the final tax liabilities are different than the amounts originally accrued , the increases or decreases are recorded as income tax expense or benefit in the consolidated statements of operations . 27 story_separator_special_tag text-indent : -12px ; margin-right:0px ; padding-bottom:4px ; margin-left:12px ; '' > interest income and other , net $ 1,049 9 % $ 965 interest income and other , net . interest income and other , net consists primarily of interest income on our cash , cash equivalents and short-term investments . the increase in interest income and other , net of $ 84,000 for the year ended december 31 , 2019 compared to 2018 was primarily due to due to higher yields on investments . income tax provision ( benefit ) ( $ in thousands ) 2019 % change 2018 to 2019 2018 income tax provision ( benefit ) $ 154 ( 155 % ) $ ( 1 ) income tax provision ( benefit ) . the income tax provision ( benefit ) is comprised of estimates of current taxes due in domestic and foreign jurisdictions and changes in deferred tax balances .
| results of operations the following table presents certain consolidated statements of operations data for the periods indicated as a percentage of total revenue : replace_table_token_2_th years ended december 31 , 2019 and 2018 : revenue replace_table_token_3_th services . services revenue consists primarily of fees for customer support services generated from our partners . we provide these services remotely , generally using personnel who utilize our proprietary technology to deliver the services . services revenue is also comprised of licensing of our support.com cloud applications . services revenue for the year ended december 31 , 2019 decreased by $ 4.9 million from 2018. the decrease in service revenue was primarily due to the decrease in the billable hours of our major customers . for the year ended december 31 , 2019 , services revenue generated from our partnerships was $ 56.6 million compared to $ 61.0 million for 2018. for the year ended december 31 , 2019 , direct services revenue was $ 2.9 million compared to $ 3.5 million for 2018 . as with any market that is undergoing shifts , timing of downward pressures and growth opportunities in our services programs are difficult to predict . we are experiencing downward pressure with some of our services programs as personal computer and certain retail markets are subject to internal re-alignment and other sector specific softness . however , we still see opportunity in the market for growth with our service partners as a result of the evolving support market trends . 28 software and other . software and other revenue is comprised primarily of fees for end-user software products provided through direct customer downloads , and , to a lesser extent , through the sale of these software products via partners .
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in some cases , you can identify forward-looking statements by terminology such as “ may , ” “ will , ” “ should , ” “ expect , ” “ plan , ” “ anticipate , ” “ believe , ” “ estimate , ” “ predict , ” “ potential ” or “ continue , ” the negative of such terms or other comparable terminology . these statements are only predictions . actual events or results may differ materially . 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 , neither we , nor any other person , assume responsibility for the accuracy and completeness of the forward-looking statements . we are under no obligation to update any of the forward-looking statements after the filing of this annual report to conform such statements to actual results or to changes in our expectations . the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this annual report . readers are also urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business , including without limitation the disclosures made in item 1a of part i of this annual report under the caption “ risk factors ” . risk factors that could cause actual results to differ from those contained in the forward-looking statements include but are not limited to risks related to : volatility in our revenues and results of operations ; our ability to generate sufficient revenues to achieve and maintain profitability ; our substantial level of indebtedness ; the accuracy of our estimates and valuations of inventory or assets in “ guarantee ” based engagements ; potential losses related to our auction or liquidation engagements ; potential losses related to purchase transactions in our auction and liquidations business ; the potential loss of financial institution clients ; our ability to successfully implement cost savings measures ; changing economic and market conditions ; potential liability and harm to our reputation if we were to provide an inaccurate appraisal or valuation ; potential mark-downs in inventory in connection with purchase transactions ; failure to successfully compete ; loss of key personnel ; the international expansion of our business ; our ability to borrow under our credit facilities as necessary ; failure to comply with the terms of our credit agreements ; and our ability to meet future capital requirements . except as otherwise required by the context , references in this annual report to : “ great american , ” “ the “ company , ” “ we , ” “ us ” or “ our ” refer to the combined business of great american group , inc. and all of its subsidiaries after giving effect to ( i ) the contribution to great american group , inc. of all of the membership interests of great american group , llc by the members of great american , which transaction is referred to herein as the “ contribution ” , and ( ii ) the merger of alternative asset management acquisition corp. with and into its wholly-owned subsidiary , aamac merger sub , inc. , referred to herein as “ merger sub ” , in each case , which occurred on july 31 , 2009 , referred to herein as the “ merger ” . the contribution and merger are referred to herein collectively as the “ acquisition ” ; “ gag , inc. ” refers to great american group , inc. ; “ gag , llc ” refers to great american group , llc ; the “ great american members ” refers to the members of great american group , llc prior to the acquisition ; “ phantom equityholders ” refers to certain members of senior management of great american group , llc prior to the acquisition that were participants in a deferred compensation plan ; the “ contribution consideration recipients ” refers collectively to the great american members and the phantom equityholders ; and “ aamac ” refers to alternative asset management acquisition corp. 21 the acquisition on july 31 , 2009 , gag , inc. , gag , llc and aamac completed the acquisition . as a result of the acquisition , gag , llc and aamac became subsidiaries of the company . immediately following the consummation of the acquisition , the former shareholders of aamac had an approximate 63 % voting interest in the company and the great american members had an approximate 37 % voting interest in the company . we received net proceeds of $ 69.3 million from aamac as a result of the acquisition and issued 19,346,626 shares of our common stock to aamac shareholders . upon the closing of the acquisition , the great american members received 10,560,000 shares of our common stock and $ 82.4 million consisting of ( i ) cash distributions totaling $ 31.7 million from gag , llc and ( ii ) an aggregate of $ 50.7 million in unsecured subordinated promissory notes . unsecured subordinated promissory notes amounting to an aggregate of $ 9.3 million were issued to the phantom equityholders in settlement of accrued compensation payable pursuant to a deferred compensation plan . notes payable we have entered into multiple amendments to and waivers of our obligations under the unsecured subordinated promissory notes issued in connection with the acquisition . as a result of these amendments and waivers , in 2010 the interest rate was reduced to 3.75 % with respect to an aggregate of $ 52.4 million of the then-outstanding $ 55.6 million in promissory notes . story_separator_special_tag our clients also include private equity firms such as apollo management , goldman sachs capital partners , laurus funds , sun capital partners and ubs capital . in september 2008 , we partnered with kelly capital to launch great american real estate , llc through which we and kelly capital conduct public auctions of foreclosed residential real estate and market residential and commercial loan sales to third parties on behalf of financial institutions and other private parties . we commenced auctions for foreclosed residential real estate properties in the fourth quarter of 2009 and we commenced residential and commercial loan sales to third parties on behalf of financial institutions and other private parties in the first quarter of 2010. during 2010 , the market for providers of services for foreclosed residential real estate properties was challenging and we incurred losses from our equity investment in great american real estate , llc of $ 1.6 million . the flow of new inventory of residential home foreclosures into the market was impacted by legislation at the state and federal levels . this impacted our ability to establish new relationships as the auction broker with major financial institutions , lenders , portfolio managers and investment firms , which hold title to foreclosed homes . during the fourth quarter of 2010 , we limited operations of the joint venture with kelly capital to the sale of certain residential and commercial loan sales that the joint venture purchased through an investment with a third party . during the year ended december 31 , 2011 , we incurred a loss from our equity investment in great american real estate , llc of $ 0.4 million . in april 2009 , we expanded our operations into europe by opening an office in the united kingdom . we provide services to help retailers downsize through inventory liquidation and store closures in addition to providing appraisal and valuation services . in 2010 , we hired a number of key employees to increase our presence and expand the operations of our retail liquidations solutions business throughout europe . because of the difference in the legal regime in which retailers operate in the united kingdom , our business activities in the united kingdom may frequently involve lending activities that includes the acquisition of debt of distressed retailers from banks and finance companies at a discount to face value . revenues from services , fees and financing activities from our auction and liquidation segment and valuation and appraisal services segment in the united kingdom increased to $ 11.6 million during the year ended december 31 , 2011 from $ 0.6 million during the year ended december 31 , 2010. the revenues in 2011 were primarily generated from two retail liquidation service engagements conducted in the united kingdom . in october 2009 , we formed ga capital , llc ( “ ga capital ” ) , a majority owned subsidiary of the company . ga capital focuses on services to retailers that are in need of junior secured loans for growth capital , working capital , and turnaround financing as part of our auction and liquidation segment . ga capital advises borrowers and sources loans between $ 10 million and $ 100 million secured by collateral assets of the borrowers , including inventory , accounts receivable , real estate and intellectual property . during the year ended december 31 , 2011 , revenue from capital advisory services performed by our ga capital operations increased to $ 7.3 million from $ 2.6 million during the year ended december 31 , 2010. in january 2011 , the keen consultants ' real estate team joined us and is operating as ga keen realty advisors . this newly formed division provides real estate analysis , valuation and strategic planning services , brokerage , mergers and acquisition , auction services , lease restructuring services , and real estate capital market services as part of our auction and liquidation segment . ga keen realty advisors offers services to property owners , tenants , secured and unsecured creditors , attorneys , and financial advisors . during 2011 , our operations in the retail and liquidation segment experienced an increase in business activity with the liquidation engagement for tj hughes limited , a 57 store discount department chain in the united kingdom , and our participation in a joint venture involving the liquidation of borders group , inc. , a going-out-of-business sale for all 399 remaining borders bookstore locations . during the year ended december 31 , 2011 , revenues from these two retail liquidation engagements totaled $ 17.1 million . 23 story_separator_special_tag valuation and appraisal segment increased $ 1.7 million , or 7.9 % , to $ 22.8 million during the year ended december 31 , 2011 from $ 21.1 million during the year ended december 31 , 2010 , primarily due to an increase in revenues of $ 1.2 million related to appraisals for machinery and equipment and an increase in revenues of $ 0.5 million for appraisal engagements where we perform valuations for the monitoring of collateral for financial institutions , lenders , and private equity investors . 25 gross margins in the valuation and appraisal segment increased to 57.7 % of revenues during the year ended december 31 , 2011 as compared to 55.3 % of revenues during the year ended december 31 , 2010. gross margins in 2011 were favorably impacted by the cost reduction measures that were implemented in september 2010 which resulted in a decrease in headcount and travel and entertainment related expenses in the valuation and appraisal segment as compared to 2010. the gross margins in 2011 were also favorably impacted by an increase in average pricing on asset valuations for lenders on asset-based loans for machinery and equipment . operating expenses direct costs of services .
| results of operations the following period to period comparisons of our financial results are not necessarily indicative of future results . year ended december 31 , 2011 compared to year ended december 31 , 2010 consolidated statements of operations ( dollars in thousands ) replace_table_token_5_th revenues . total revenues increased $ 21.4 million to $ 63.5 million during the year ended december 31 , 2011 from $ 42.1 million during the year ended december 31 , 2010. the increase in revenues was primarily due to a $ 19.7 million increase in revenues in the auction and liquidation segment and a $ 1.7 million increase in revenues in the valuation and appraisal services segment in 2011 as compared to the same period in 2010. the increase in revenues in the auction and liquidation segment in 2011 was primarily due to ( a ) an increase in revenues of $ 13.6 million from retail liquidation engagements , $ 9.5 million of which resulted from our united kingdom operations ; ( b ) an increase in revenues of $ 1.5 million from financing activities to a retailer in the united kingdom , ( c ) an increase in revenues of $ 4.7 million from capital advisory fees performed by our ga capital operations ; and ( d ) an increase in revenues of $ 1.4 million from our ga keen realty advisors division , a division formed in january 2011 , offset by a decrease in revenues of $ 1.5 million from the auction of wholesale and industrial equipment .
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atm programs on april 17 , 2019 , the company entered into a common stock sales agreement with h.c. wainwright & co. , llc , or wainwright , pursuant to which the company may offer and sell through wainwright , from time to time at the company 's sole discretion , shares of story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing in this annual report . some of the information contained in this discussion and analysis or set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business and related financing , includes forward - looking statements that involve risks and uncertainties . as a result of many factors , including those factors set forth in the “ risk factors ” section of this annual report , our actual results could differ materially from the results described in or implied by the forward - looking 73 statements contained in the following discussion and analysis . please also see the section entitled “ cautionary note regarding forward-looking statements. ” overview we are a biopharmaceutical company focused on developing and commercializing novel medicines for patients affected by central nervous system , or cns , disorders . our lead product , olinvyk ( oliceridine ) injection , or olinvyk , was approved by the united states food and drug administration , or the fda , in august 2020. in october 2020 , we announced that olinvyk had received scheduling from the u.s. drug enforcement administration , or dea , and was classified as a schedule ii controlled substance . we initiated commercial launch of olinvyk in the first quarter of 2021. olinvyk is an opioid agonist for use in adults for the management of acute pain severe enough to require an intravenous opioid analgesic and for whom alternative treatments are inadequate . we are also developing a pipeline of product candidates based on our proprietary product platform , including trv027 for the treatment of acute lung injury contributing to acute respiratory distress syndrome and abnormal blood clotting in patients with covid-19 ; trv250 for acute migraines ; trv734 for moderate-to-severe acute and chronic pain and opioid use disorders ; and trv045 for chronic pain and epilepsy . since our incorporation in late 2007 , our operations have included organizing and staffing our company , business planning , raising capital , discovering and developing our product candidates , and establishing our intellectual property portfolio . we have financed our operations primarily through private placements and public offerings of our equity securities and debt borrowings . as of december 31 , 2020 , we had an accumulated deficit of $ 442.5 million . our net loss was $ 29.4 million and $ 24.9 million for the years ended december 31 , 2020 and 2019 , respectively . our ability to become and remain profitable depends on our ability to generate revenue or sales . we do not expect to generate significant revenue or sales unless and until we or a collaborator successfully commercialize olinvyk or obtain marketing approval for and commercialize trv027 , trv250 , trv734 , or trv045 . we expect to incur significant expenses and operating losses for the foreseeable future as we begin to commercialize olinvyk and continue the development and clinical trials of our other product candidates . we will need to obtain substantial additional funding in connection with our continuing operations . we will seek to fund our operations through the sale of equity , debt financings or other sources , including potential collaborations . however , we may be unable to raise additional funds or enter into such other agreements when needed on favorable terms , or at all . if we fail to raise capital or enter into such other arrangements as , and when , needed , we may have to significantly delay , scale back or discontinue our operations , development programs , and or any future commercialization efforts . recent developments covid-19 the impact of the covid-19 pandemic on the global economy and on our business continues to be a fluid situation . we responded quickly across our organization to guard the health and safety of our team and participants in our clinical trials , support our partners and vendors and mitigate risk . thus far , our employees have rapidly adapted to working remotely and we are monitoring the covid-19 pandemic on a daily basis to ensure we have all necessary plans in place for mitigating disruptions in our operations . like other companies , our clinical trials have experienced some degree of disruption due to access limitations to institutions currently impacted , and we may need to make further adjustments to clinical trials in the future to comply with evolving fda guidance or otherwise . the extent to which the covid-19 pandemic will impact our efforts to commercialize olinvyk and to achieve market acceptance is uncertain and will depend upon future developments . we continue to proactively assess , monitor and respond to domestic and international developments related to the covid-19 pandemic , and we will implement risk-mitigation plans as needed to minimize the impact on our clinical trials and business operations , including our commercialization efforts of olinvyk . in addition , we have taken steps to protect the health and welfare of our employees by temporarily closing our offices and suspending business-related travel . 74 senior secured tranched term loan credit facility in september 2014 , we entered into a loan and security agreement with oxford finance llc and pacific western bank ( formerly square 1 bank ) , or the lenders , pursuant to which the lenders agreed to lend us up to $ 35.0 million in a three-tranche series of term loans , or the term loans . story_separator_special_tag we determine the transaction price based on fixed consideration in our contractual agreements , which includes estimates of variable consideration , and the transaction price is allocated entirely to the performance obligation to provide pharmaceutical products . in determining the transaction price , a significant financing component does not exist since the timing from when we deliver product to when the customers pay for the product is less than one year and the customers do not pay for product in advance of the transfer of the product . we record product revenue net of any variable consideration , which includes estimated chargebacks , prompt pay discounts , returns and distribution service fees . we utilize the expected value method to estimate chargebacks and returns and we utilize the most likely method to estimate prompt pay discounts and distribution service fees . the variable consideration is recorded as a reduction of revenue at the time revenues are recognized . we will only recognize revenue to the extent that it is probable that a significant revenue reversal will not occur in a future period . these estimates may differ from actual consideration amount received and we will re‑assess these estimates each reporting period to reflect known changes in factors . distributor chargebacks when a product is sold to a third party that is subject to a contractual price agreement , the difference between the price paid to us by the wholesaler and the price under the specific contract is charged back to us by the wholesaler . utilizing this information , we estimate a chargeback percentage for each product and record an allowance for chargebacks as a reduction to revenue when we record our sale of the products . we reduce the chargeback allowance when a chargeback request from a wholesaler is processed . reserves chargebacks are included in accounts receivable , net on the consolidated balance sheet . prompt payment ( cash ) discounts we provide customers with prompt payment discounts which may result in adjustments to the price that is invoiced for the product transferred , in the case that payments are made within a defined period . our prompt payment discount reserves are based on actual net sales and contractual discount rates . reserves for prompt payment discounts are included in accounts receivable , net on the consolidated balance sheet . distribution service fees we pay distribution service fees to our customers based on a fixed percentage of the product price . these fees are not in exchange for a distinct good or service and therefore are recognized as a reduction of the transaction price . we 76 reserve for these fees based on actual net sales , contractual fee rates negotiated with the customer and the mix of the products in the distribution channel that remain subject to fees . reserves for distribution service fees are included in accounts receivable , net on the consolidated balance sheet . product returns generally , our customers have the right to return any unopened product during the eighteen ( 18 ) month period beginning six ( 6 ) months prior to the labeled expiration date and ending twelve ( 12 ) months after the labeled expiration date in addition to slow moving or discontinued products . six ( 6 ) months following the launch of olinvyk , our customers may have the right to return inventory remaining from their initial purchase , if any , subject to certain terms and conditions . since we currently do not have a history of olinvyk returns , we estimate returns based on industry data for comparable products in the market . as we distribute our product and establish historical sales over a longer period of time ( i.e. , two to three years ) , we will be able to place more reliance on historical purchasing , demand and return patterns of our customers when evaluating our reserves for product returns . olinvyk has a forty-eight ( 48 ) month shelf life . we recognize the amount of expected returns as a refund liability , representing the obligation to return the customer 's consideration . since the returns primarily consist of expired and short dated products that will not be resold , we do not record a return asset for the right to recover the goods returned by the customer at the time of the initial sale ( when recognition of revenue is deferred due to the anticipated return ) . accrued product return estimates are recorded in accrued expenses and other current liabilities on the consolidated balance sheet . license revenues our licensing agreements typically include payment to us of one or more of the following : nonrefundable , up-front license fees ; regulatory and commercial milestone payments ; payments for manufacturing supply services ; materials shipped to support development ; and royalties on net sales of licensed products . we also assess whether there is an option in a contract to acquire additional goods or services . an option gives rise to a performance obligation only if the option provides a material right to the customer that it would not receive without entering into that contract . factors that we consider in evaluating whether an option represents a material right include , but are not limited to : ( i ) the overall objective of the arrangement , ( ii ) the benefit the collaborator might obtain from the arrangement without exercising the option , ( iii ) the cost to exercise the option ( e.g . priced at a significant and incremental discount ) and ( iv ) the likelihood that the option will be exercised . with respect to options determined to be performance obligations , we recognize revenue when those future goods or services are transferred or when the options expire .
| results of operations comparison of years ended december 31 , 2020 and 2019 ( in thousands , except per share data ) replace_table_token_0_th revenue to date , we have derived revenue mainly from activities pursuant to our licensing agreements related to the development and commercialization of olinvyk in china and south korea . we have not generated material revenue from commercial product sales . for the year ended december 31 , 2020 , we recorded $ 0.1 million in product revenue from the shipment of drug product to wholesalers . we had product available in the trade channel during the fourth quarter of 2020 in advance of the planned commercial launch in the first quarter of 2021. there was $ 3.1 million of revenue recorded for the year ended december 31 , 2020 , primarily related to the milestone payment that became payable by nhwa upon fda approval of olinvyk . revenue recorded for the year ended december 31 , 2019 relates to materials shipped to nhwa to support the development of olinvyk in china . cost of goods sold cost of goods sold for product revenue includes third party logistics costs , shipping costs , and indirect overhead costs which are recorded as period costs in the period incurred . we expensed the cost of producing validation batches of olinvyk that we are using in the commercial launch as research and development expense prior to the regulatory approval and dea scheduling of olinvyk . we expect cost of sales to increase as we deplete these inventories .
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this discussion contains forward-looking statements , within the meaning of section 27a of securities act , section 21e of the exchange act , and the private securities litigation reform act of 1995 , including statements regarding our expected financial condition , business and financing plans . these statements involve risks and uncertainties . our actual results could differ materially from the results described in or implied by these forward-looking statements as a result of various factors , including those discussed below and elsewhere in this report , particularly under the heading “ risk factors. ” overview we are a biopharmaceutical company focused on developing and commercializing therapeutic products for the prevention and treatment of infectious and inflammatory diseases . our primary focus is on the development of our lead product candidate , neutrolin , for potential commercialization in the u.s. and other key markets . we have in-licensed the worldwide rights to develop and commercialize neutrolin ® . neutrolin is a novel anti-infective solution ( a formulation of taurolidine , citrate and heparin 1000 u/ml ) for the reduction and prevention of catheter-related infections and thrombosis in patients requiring central venous catheters in clinical settings such as dialysis , critical/intensive care , and oncology . infection and thrombosis represent key complications among critical care / intensive care and cancer patients with central venous catheters . these complications can lead to treatment delays and increased costs to the healthcare system when they occur due to hospitalizations , need for iv antibiotic treatment , long-term anticoagulation therapy , removal/replacement of the central venous catheter , related treatment costs and increased mortality . we believe neutrolin addresses a significant unmet medical need and a potential large market opportunity . we plan to conduct two pivotal trials to demonstrate safety and effectiveness of neutrolin to secure marketing approval in the u.s. we initiated one phase 3 clinical trial in hemodialysis patients with a central venous catheter in december 2015 and plan to initiate one phase 3 trial in oncology patients with catheters , subject to funding requirements . in july 2013 , we received ce mark approval for neutrolin . as a result , in december 2013 , we commercially launched neutrolin in germany for the prevention of catheter-related bloodstream infections ( “ crbsi ” ) , and maintenance of catheter patency in hemodialysis patients using a tunneled , cuffed central venous catheter for vascular access . to date , neutrolin is registered and may be sold in certain european union and middle eastern countries for such treatment . since our inception , we have not generated sufficient revenue from product sales to be profitable . our operations to date have been primarily limited to licensing product candidates , developing clinical trials for our product candidates , establishing manufacturing for our product candidates , performing business and financial planning , performing research and development , seeking regulatory approval for our products , initial commercialization activities for neutrolin , and maintaining and improving our patent portfolio . we have funded our operations primarily through debt and equity financings . we have generated significant losses to date , and we expect to incur increases in our cash use in operations as we continue to commercialize neutrolin in europe and other markets , prepare for and undertake our ongoing and planned phase 3 clinical trials , pursue business development activities , incur additional legal costs to defend our intellectual property , and seek fda approval of neutrolin in the u.s. as of december 31 , 2016 , we had an accumulated deficit of approximately $ 119.2 million . we are unable to predict the extent of any future losses or when we will become profitable , if at all . 38 financial operations overview revenue we have not generated substantial revenue since our inception . through december 31 , 2016 , we have funded our operations primarily through debt and equity financings and our initial public offering , and to a lesser extent , the receipt from federal grants under the qualifying therapeutic discovery project program and the sale of our unused net operating losses through the state of new jersey 's economic development authority technology business tax certificate transfer program . research and development expense research and development , or r & d , expense consists of : ( i ) internal costs associated with our development activities ; ( ii ) payments we make to third-party contract research organizations , contract manufacturers , investigative sites , and consultants ; ( iii ) technology and intellectual property license costs ; ( iv ) manufacturing development costs ; ( v ) personnel related expenses , including salaries , stock-based compensation , benefits , travel and related costs for the personnel involved in drug development ; ( vi ) activities relating to regulatory filings and the advancement of our product candidates through preclinical studies and clinical trials ; and ( vii ) facilities and other allocated expenses , which include direct and allocated expenses for rent , facility maintenance , as well as laboratory and other supplies . all r & d is expensed as incurred . conducting a significant amount of development is central to our business model . product candidates in later-stage clinical development generally have higher development costs than those in earlier stages of development , primarily due to the significantly increased size and duration of the clinical trials . we plan to increase our r & d expenses for the foreseeable future in order to complete development of neutrolin in the u.s. , especially for the ongoing phase 3 trial in hemodialysis patients and the planned phase 3 trial in oncology . the following table summarizes the percentages of our r & d payments related to our sole product candidate neutrolin and our former product candidate crmd0004 ( we ceased development of and returned the rights to crmd004 in late 2015 ) . the percentages summarized in the following table reflect payments directly attributable to each development candidate , which are tracked on a project basis . story_separator_special_tag interest income interest income consists of interest earned on our cash and cash equivalents and short-term investments . interest expense interest expense consists of interest incurred on financing of expenditures . 40 story_separator_special_tag relations activities of $ 193,000 ; and a non-cash charge of $ 187,000 for stock-based compensation expense due to the modification of the stock options of our ceo and $ 113,000 for modification of warrants . these increases , among others of lesser significance , were partially offset by a decrease in selling costs related to commercialization of neutrolin in the eu of $ 268,000. loss on issuance of preferred stock , convertible notes and warrants . the loss on the issuance of preferred stock and warrants of $ 90,000 for the year ended december 31 , 2014 represents the difference on the issuance date between the combined fair value of the conversion option and the warrants of $ 2,054,000 , and the combined proceeds received and liabilities settled , net of all issuance-related fees and expenses of $ 1,965,000. due to the elimination of the downround protection of these derivative liabilities through an agreement modification in september 2014 , which resulted in the reclassification of derivative liabilities to equity , there was no charge to earnings during the years ended december 31 , 2016 and 2015. change in fair value of derivative liabilities . the change in the value of derivative liabilities for the year ended december 31 , 2014 of $ 8,849,000 consists of increases in the fair value of preferred stock conversion options and warrants between december 31 , 2013 and september 15 , 2014 of $ 7,138,000 and $ 1,711,000 , respectively . due to the modification of certain terms within the preferred stock which resulted in the reclassification of the remaining derivative liability to equity in september 2014 , there was no charge to earnings during the years ended december 31 , 2016 and 2015. loss on modification of equity instruments and extinguishment of derivative liabilities . the loss on extinguishment of derivative liabilities for the year ended december 31 , 2014 of $ 2,463,000 represents the change in the fair value of the preferred stock hybrid instruments of $ 2,119,000 and liability classified warrants of $ 344,000 resulting from the modifications made to those instruments on september 15 , 2014 for the purpose of changing the balance sheet classification from liability to equity . 42 foreign exchange transaction gain ( loss ) . foreign exchange transaction losses for the years ended december 31 , 2016 and 2015 of $ 8,000 and $ 7,000 , respectively , were due to the foreign exchange rate fluctuations for the payment of invoices paid in foreign currency . foreign exchange transaction loss for the year ended december 31 , 2014 was $ 151,000 due to additional funding to our german subsidiary through september 30 , 2014 and the corresponding fluctuation in the exchange rates . effective october 1 , 2014 , we considered the intercompany loans to be of long-term investment nature . foreign exchange gains or losses subsequent to october 1 , 2014 have been recorded in other comprehensive income . interest income . interest income for the year ended december 31 , 2016 was $ 126,800 , an increase of $ 66,400 from $ 60,400 for the same period in 2015. the increase was attributable to recording higher interest income on short-term investments during 2016 as compared to the same period in 2015. interest income for the year ended december 31 , 2015 was $ 60,400 , an increase of $ 57,700 from $ 2,700 for the same period in 2014. the increase was attributable to higher average interest-bearing cash balances during the year ended december 31 , 2015 as compared to the same period in 2014. interest expense . interest expense for the year ended december 31 , 2016 was $ 1,300 as compared to $ 4,000 for the same period in 2015 , a decrease of $ 2,700. interest expense for the year ended december 31 , 2015 was $ 4,000 as compared to $ 2,000 for the same period in 2014 , an increase of $ 2,000. other comprehensive income ( loss ) . unrealized foreign exchange movements related to long-term intercompany loans and the translation of the foreign affiliate financial statements to u.s. dollars and unrealized movements related to short-term investment are recorded in other comprehensive income resulting in a $ 19,000 gain in 2016 , $ 37,000 loss in 2015 and $ 108,000 gain in 2014. liquidity and capital resources sources of liquidity as a result of our cost of sales , r & d and sg & a expenditures and the lack of substantial product sales revenue , we have not been profitable and have generated operating losses since we were incorporated in july 2006. we received the following proceeds from the issuance of our common stock during the years ended : replace_table_token_6_th during the year ended december 31 , 2014 , we sold the following : ● 200,000 shares of our series c-3 non-voting convertible preferred stock and warrants to purchase up to 1,000,000 shares of our common stock for net cash proceeds of $ 1,319,000 and the settlement of accounts payable and accrued expenses of $ 645,000 ; and ● 2,960,000 units , each unit consisted of one share of our common stock and 0.35 of a warrant to purchase one share of our common stock , for gross proceeds of $ 7,400,000. we received net proceeds of approximately $ 6,723,000 . 43 net cash used in operating activities net cash used in operating activities for the year ended december 31 , 2016 was $ 22,265,000 as compared to $ 12,527,000 in 2015 , an increase in net cash use of $ 9,738,000. the increase was primarily attributable to an increase in net loss of $ 6,456,000 driven by increased research and development expenses .
| results of operations comparison of the years ended december 31 , 2016 , 2015 and 2014 the following is a tabular presentation of our consolidated operating results ( in thousands ) : replace_table_token_5_th revenue . revenue for the year ended december 31 , 2016 was $ 224,000 as compared to $ 210,000 for the same period in 2015 , an increase of $ 14,000. the increase was due to the recognition of deferred revenue of $ 106,000 for the products sold with warranty , substantially offset by a decrease in sales of neutrolin in germany and the middle east of $ 92,000. revenue for the year ended december 31 , 2015 was $ 210,000 as compared to $ 189,000 for the same period in 2014 , an increase of $ 21,000. the majority of the revenue is from sales of neutrolin in germany and middle east markets . in addition , we realized $ 8,000 associated with the amortization of deferred revenue from a non-refundable payment received from a distribution agreement in 2015 as compared to $ 4,000 in 2014. cost of sales . cost of sales for the year ended december 31 , 2016 was $ 367,000 as compared to $ 319,000 for the same period in 2015 , an increase of $ 48,000. the increase was primarily due to the $ 63,000 recognition of cost of sales associated with deferred revenue , an increase in write-off of expired raw materials of $ 58,000 , and an increase of inventory reserve of $ 5,000 , offset by decreases in ongoing stability studies of $ 35,000 and decreased cost of materials of $ 43,000 due to lower sales in 2016 excluding deferred revenue .
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however , since we control the marketing , scheduling , ticketing , pricing and seat inventories of these aircraft and therefore control the asset , the aircraft is deemed to be leased for accounting purposes . for these capacity purchase agreements , we account for the lease and non-lease components separately . the lease component consists of the aircraft and the non-lease components consist of services , such as the crew and maintenance . we allocate the consideration in the capacity purchase agreements to the lease and non-lease components using their estimated relative standalone prices . see note 12 ( b ) for additional information on our capacity purchase agreements . for real estate , we account for the lease and non-lease components as a single lease component . ( i ) income taxes income taxes are accounted for under the asset and liability method . 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 and operating loss and tax credit carryforwards . deferred tax assets and liabilities are recorded net as noncurrent deferred income taxes . we story_separator_special_tag 2020 financial overview impact of coronavirus ( covid-19 ) covid-19 has been declared a global health pandemic by the world health organization . covid-19 has surfaced in nearly all regions of the world , which has driven the implementation of significant , government-imposed measures to prevent or reduce its spread , including travel restrictions , testing regimes , closing of borders , “ stay at home ” orders and business closures . as a result , we have experienced an unprecedented decline in the demand for air travel , which has resulted in a material deterioration in our revenues . while our business performed largely as expected in january and february of 2020 , a severe reduction in air travel starting in march 2020 resulted in our total operating revenues decreasing approximately 62 % in 2020 as compared to 2019. while the length and severity of the reduction in demand due to the covid-19 pandemic is uncertain , we expect our results of operations for 2021 to be severely impacted . we have taken aggressive actions to mitigate the effects of the covid-19 pandemic on our business including deep capacity reductions , structural changes to our fleet , cost reductions , and steps to preserve cash and improve our overall liquidity position . we remain extremely focused on taking all self-help measures available to manage our business during this unprecedented time , consistent with the terms of the financial assistance we have received from the u.s. government under the coronavirus aid , relief , and economic security act ( cares act ) and subtitle a of title iv of division n of the consolidated appropriations act , 2021 ( psp extension law ) . capacity reductions we have significantly reduced our capacity ( as measured by available seat miles ) , with 2020 flying decreasing by 50 % year-over-year . domestic capacity in 2020 was down 41 % year-over-year while international capacity was down 68 % year-over-year . we also reset our international capacity and network for 2021 in response to the severe decline in demand . we have exited 19 international routes from six hubs . these changes will allow us to operate more efficiently when demand returns . we currently expect our first quarter 2021 system capacity to decrease by 45 % as compared to the first quarter of 2019. the demand environment continues to be uncertain as covid-19 cases have continued to fluctuate in jurisdictions to which we fly and travel restrictions have generally remained in place . due to this uncertainty , we will continue to adjust our future capacity to match observed booking trends for future travel and make further adjustments to our capacity as needed . fleet to better align our network with lower passenger demand , we accelerated the retirement of airbus a330-200 , boeing 757 , boeing 767 , airbus a330-300 and embraer 190 fleets as well as certain regional aircraft , including certain embraer 140 and bombardier crj200 aircraft . these retirements remove complexity from our operation and bring forward cost savings and efficiencies associated with operating fewer aircraft types . see note 1 ( g ) to aag 's consolidated financial statements in part ii , item 8a for further information on the accounting for our fleet retirements . due to the inherent uncertainties of the current operating environment , we will continue to evaluate our current fleet and may decide to permanently retire additional aircraft . in addition , we have placed a number of boeing 737-800 and certain regional aircraft into temporary storage . cost reductions we moved quickly to better align our costs with our reduced schedule . in aggregate , we estimate that we reduced our 2020 operating and capital expenditures by more than $ 17 billion . these savings were achieved primarily through capacity reductions . in addition , we implemented a series of actions , including the accelerated fleet retirements discussed above as well as reductions in maintenance expense and $ 700 million in non-aircraft capital expenditures through less fleet modification work , the elimination of ground service equipment purchases and pausing non-critical facility investments and information technology projects . we also suspended all non-essential hiring , paused non-contractual pay rate increases , reduced executive and board of director compensation , implemented voluntary leave and early retirement programs and decreased our management and support staff team , including officers , by approximately 30 % . in total , more than 20,000 team members have opted for an early retirement or long-term partially paid leave . additionally , we have made reductions in marketing , contractor , event and training expenses as well as consolidated space at airport facilities . story_separator_special_tag a significant portion of our debt financing agreements contain covenants requiring us to maintain an aggregate of at least $ 2.0 billion of unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities and or contain loan to value , collateral coverage and or debt service coverage ratio covenants . given the above actions and our current assumptions about the future impact of the covid-19 pandemic on travel demand , which could be materially different due to the inherent uncertainties of the current operating environment , we expect to meet our cash obligations as well as remain in compliance with the debt covenants in our existing financing agreements for the next 12 months based on our current level of unrestricted cash and short-term investments , our anticipated access to liquidity ( including via proceeds from financings and funds from government assistance obtained pursuant to the cares act and the psp extension law ) and projected cash flows from operations . see note 5 to aag 's consolidated financial statements in part ii , item 8a for additional information on our debt obligations . 67 aag 's 2020 results the selected financial data presented below is derived from aag 's audited consolidated financial statements included in part ii , item 8a of this report and should be read in conjunction with those financial statements and the related notes thereto . replace_table_token_10_th ( 1 ) see part ii , item 6. selected consolidated financial data – “ reconciliation of gaap to non-gaap financial measures ” and note 2 to aag 's consolidated financial statements in part ii , item 8a for details on the components of net special items . ( 2 ) not meaningful or greater than 100 % change . pre-tax income ( loss ) and net income ( loss ) pre-tax loss and net loss were $ 11.5 billion and $ 8.9 billion , respectively , in 2020. this compares to 2019 pre-tax income and net income of $ 2.3 billion and $ 1.7 billion , respectively . the year-over-year decrease in our pre-tax income was principally driven by lower revenues as a result of a severe decline in passenger demand and government travel restrictions related to the outbreak and spread of covid-19 . this decline in revenues was offset in part by a decrease in expenses due to our reduced schedule and cost reduction actions described above . additionally , we recognized $ 796 million of net special credits in 2020 driven principally by the psp1 financial assistance ( the psp1 financial assistance ) , offset in part by severance expenses and fleet impairment charges . see notes 1 and 2 to aag 's consolidated financial statements in part ii , item 8a for further information on the psp1 financial assistance and net special items , respectively . excluding the effects of pre-tax net special items , pre-tax loss was $ 12.2 billion in 2020 and pre-tax income was $ 2.9 billion in 2019. the year-over-year decrease in our pre-tax income excluding pre-tax net special items was principally driven by lower revenues and decreased expenses due to our reduced schedule and cost reduction actions as described above . revenue in 2020 , we reported total operating revenues of $ 17.3 billion , a decrease of $ 28.4 billion , or 62.1 % , as compared to 2019. passenger revenue was $ 14.5 billion , a decrease of $ 27.5 billion , or 65.4 % , as compared to 2019. the decrease in passenger revenue in 2020 was due to a severe decline in passenger demand and government travel restrictions related to the covid-19 pandemic , resulting in a 61.9 % decrease in revenue passenger miles ( rpms ) and a 20.5 point decrease in passenger load factor . 68 in 2020 , cargo revenue was $ 769 million , a decrease of $ 94 million , or 10.8 % , as compared to 2019 , primarily due to a 44.4 % decrease in cargo ton miles reflecting declines in freight volumes , principally as a result of international schedule reductions , which was offset in part by a 60.5 % increase in yield as a result of rate increases . other operating revenue decreased $ 845 million , or 29.2 % , in 2020 as compared to 2019 , driven primarily by lower revenue associated with our loyalty program and airport clubs . our total revenue per available seat mile ( trasm ) was 12.11 cents in 2020 , a 24.6 % decrease as compared to 16.05 cents in 2019. fuel our mainline and regional fuel expense totaled $ 3.4 billion in 2020 , which was $ 6.0 billion , or 63.8 % , lower compared to 2019. this decrease was primarily driven by a 49.4 % decrease in gallons of fuel consumed as a result of lower capacity and a 28.5 % decrease in the average price per gallon of aircraft fuel including related taxes to $ 1.48 in 2020 from $ 2.07 in 2019. as of december 31 , 2020 , we did not have any fuel hedging contracts outstanding to hedge our fuel consumption . our current policy is not to enter into transactions to hedge our fuel consumption , although we review that policy from time to time based on market conditions and other factors . we do not currently view the market opportunities to hedge fuel prices as attractive because , among other things , our future fuel needs remain unclear due to uncertainties regarding air travel demand and any hedging would potentially require significant capital or collateral to be placed at risk . as such , and assuming we do not enter into any future transactions to hedge our fuel consumption , we will continue to be fully exposed to fluctuations in fuel prices . other costs we remain committed to actively managing our cost structure , which we believe is necessary in an industry whose economic prospects are heavily dependent upon two variables we can not control : general economic conditions and the price of fuel .
| nonoperating results replace_table_token_16_th interest income decreased in 2020 compared to 2019 primarily as a result of lower returns on our short-term investments . interest expense , net increased in 2020 compared to 2019 primarily due to the issuance of debt and lower capitalized interest offset in part by lower interest expense on our variable-rate debt . in 2020 , other nonoperating income , net included $ 329 million of non-service related pension and other postretirement benefit plan income . this income was offset in part by $ 170 million of net special charges principally for mark-to-market unrealized losses associated with our equity investment in china southern airlines and certain treasury rate lock derivative instruments and $ 24 million of net foreign currency losses , primarily associated with losses from latin american currencies . in 2019 , other nonoperating income , net principally included $ 183 million of non-service related pension and other postretirement benefit plan income . this income was offset in part by $ 32 million of net foreign currency losses , primarily associated with losses from latin american currencies . the increase in non-service related pension and other postretirement benefit plan income in 2020 as compared to 2019 is principally due to an increase in the expected return on pension plan assets . income taxes in 2020 , we recorded an income tax benefit of $ 2.6 billion at an effective rate of approximately 22 % . substantially all of our income or loss before income taxes is attributable to the united states . at december 31 , 2020 , we had approximately $ 16.5 billion of federal nols available to reduce future federal taxable income , of which $ 8.5 billion will expire beginning in 2023 if unused and $ 8.0 billion can be carried forward indefinitely . we also had approximately $ 5.0 billion of nol carryforwards to reduce future state taxable income at december 31 , 2020 , which will expire in taxable years 2020 through 2040 if unused .
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the words expect , anticipate , intend , plan , believe , estimate , may , will , should , could , target , strategy , intend , project , guidance , likely , usually , potential , or the negative of these words or variations of such words , similar expressions , or comparable terminology are intended to identify such forward-looking statements , although not all forward-looking statements contain these identifying words . there are a number of important risks and uncertainties that could cause our actual results to differ materially from those indicated by forward-looking statements . we may not actually achieve the plans , intentions or expectations disclosed in our forward-looking statements , and you should not place undue reliance on our forward-looking statements . actual results or events could differ materially from the plans , intentions and expectations disclosed in the forward-looking statements we make . we have included important factors in the cautionary statements included in this annual report on form 10-k , particularly in the section entitled risk factors in part i , item 1a that could cause actual results or events to differ materially from the forward-looking statements that we make . our forward-looking statements do not reflect the potential impact of any future acquisitions , mergers , dispositions , joint ventures or investments that we may make . you should read this annual report on form 10-k and the documents that we have filed as exhibits to this annual report on form 10-k completely and with the understanding that our actual future results may be materially different from what we expect . the forward-looking statements contained in this annual report on form 10-k are made as of the date of this annual report on form 10-k and we do not assume any obligation to update any forward-looking statements , whether as a result of new information , future events or otherwise , except as required by applicable law . overview altimmune , inc. is a clinical stage immunotherapeutics company focused on the development of products to stimulate robust and durable immune responses for the prevention and treatment of diseases . we have two proprietary platform technologies , respirvec and densigen , each of which has been shown , in preclinical studies and early clinical trials , to activate the immune system in distinctly different ways than traditional vaccine methods . using these technologies , we have generated clinical product candidates which potentially represent an entirely new approach to harnessing the immune system . we have two programs using the respirvec recombinant adenovirus technology . nasovax , an intranasally administered recombinant influenza vaccine , uses an adenovector to achieve expression of the influenza antigen in the target cell , thereby potentially stimulating a broader and more rapid immune response than traditional influenza vaccines . our planned phase 2 program for nasovax started in september 2017. initial data , released in march 2018 , indicated that nasovax was well tolerated at all doses tested , and achieved 100 % seroprotection with the two higher doses . final data from this study will be available in the third quarter of 2018 and we expect to move forward with continued development of a quadrivalent nasovax product candidate which we expect will be ready for clinical evaluation in early 2019. the second respirvec product , nasoshield , is an anthrax vaccine designed to provide rapid , stable protection after one intranasal administration . we launched a phase 1 trial for nasoshield in the first quarter of 2018 and anticipate topline data the third quarter of 2018. with the support of niaid , we are developing an alternative anthrax vaccine candidate , sparvax-l , a recombinant protein-based anthrax vaccine designed to require fewer doses and have a longer shelf-life than the only currently licensed anthrax vaccine . the shelf life of the liquid formulation was insufficient to meet the government standards and the product was reformulated in a lyophilized ( dry powder ) formulation . we have demonstrated a significant improvement ( two years at room temperature and six years at refrigerated temperatures ) with the lyophilized formulation . recent preclinical experiments have shown it to be 100 % 93 protective with a two-dose regiment ( zero and 14 days ) with higher toxin neutralizing antibodies than the currently licensed vaccine . from the densigen platform , heptcell , an immunotherapy for patients chronically infected with the hbv heptcell is currently in a phase 1 trial in the united kingdom and south korea in patients with chronic hbv . preliminary results from this trial were inconclusive and the company is awaiting six-month follow up results which will be available in the third quarter of 2018 , to determine whether to continue with further development of heptcell , including any further clinical trials . oncosyn , a cancer immunotherapeutic is in preclinical development . merger with pharmathene our business is the result of a merger between pharmathene and private altimmune . in may of 2017 , private altimmune merged with pharmathene pursuant to the merger agreement dated january 18 , 2017 , among private altimmune , pharmathene , its wholly owned acquisition subsidiaries merger sub corp and merger sub llc . pursuant to the merger agreement , merger sub llc to acquire 100 % of the outstanding capital stock of private altimmune in the mergers . prior to the mergers , pharmathene was a publicly traded biodefense company engaged in phase 2 clinical trials in developing a next generation anthrax vaccine . on may 4 , 2017 , private altimmune and pharmathene closed the mergers in accordance with the terms of the merger agreement . story_separator_special_tag if we elect cash redemption , the redemption amount is $ 1,000 per share , plus any accrued but unpaid dividends and any accrued but unpaid late charges . as of december 31 , 2017 , there are 12,177 shares of redeemable preferred stock still outstanding and we had issued an aggregate of 2,474,480 shares of common stock in connection with the redemption of 3,479 shares of redeemable preferred stock . as of march 30 , 2018 , there are 6,958 shares of redeemable preferred stock still outstanding . current resources we have incurred accumulated losses since inception . our ability to continue as a going concern is dependent upon our ability to raise additional debt and equity capital . there can be no assurance that such capital will be available in sufficient amounts or on terms acceptable to us . these factors raise substantial doubt about our ability to continue as a going concern . the accompanying consolidated financial statements do not include any adjustments relating to the recoverability of the recorded assets or the classification of liabilities that may be necessary should we be unable to continue as a going concern . as capital resources are consumed to fund our research and development activities , we may not have sufficient capital to fund our plan of operations . in order to address our capital needs , including our planned clinical trials , in addition to the notes and the redeemable preferred stock issuance , we must continue to actively pursue additional equity or debt financing . adequate financing opportunities might not be available to us , when and if needed , on acceptable terms , or at all . if we are unable to obtain additional financing in sufficient amounts or on acceptable terms under such circumstances , our operating results and prospects will be adversely affected . as of december 31 , 2017 , the 95 combination of the net proceeds from the notes , cash assumed from the mergers , the anticipated receipt of tax refunds , the august 2017 redeemable preferred stock financing , and revenue from our government sponsored contracts will be insufficient to fund our operations and research and development efforts into the first quarter of 2019. the consolidated financial information presented below includes the accounts of altimmune , inc. altimmune uk , pharmathene uk and altimmune france . all intercompany accounts and transactions have been eliminated in consolidation . financial operations overview revenue to date , we have not generated any product sales . our revenues have been derived from license agreements and research grants that generally provide for reimbursement of approved costs as those costs are incurred by the company . we recognize revenue and related accounts receivable from license agreements when the related services are provided , and from research grants when reimbursable expenses are incurred and the earnings process is complete . research and development expenses research and development expenses consist primarily of costs incurred for the development of our product candidates , which include : expenses incurred under agreements with cros and investigative sites that conduct our clinical trials ; employee-related expenses , including salaries , benefits , travel and stock-based compensation expense ; costs associated with preclinical and clinical activities and regulatory operations , including the cost of acquiring , developing and manufacturing clinical trial materials ; and facilities , depreciation and other expenses , which include direct and allocated expenses for insurance and other supplies . research and development costs are expensed as incurred . costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors , cros and clinical sites . we can not determine with certainty the duration and completion costs of the current or future clinical trials of our product candidates or if , when or to what extent we will generate sales from the commercialization of any of our product candidates if they receive regulatory approval . the successful development of our product candidates is highly uncertain and may never result in approved products . the duration , costs and timing of clinical trials and development of our product candidates will depend on a variety of factors , including : scope , rate of enrollment and expense of our ongoing , as well as any additional , clinical trials , and other research and development activities ; significant and potentially changing government regulation ; and the timing and receipt of regulatory approvals , if any . a change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate . for example , if the fda , or another regulatory authority 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 , we could be required to expend significant additional financial resources and time on the completion of clinical development . 96 we plan to increase our research and development expenses for the foreseeable future as we continue the development of clinical and preclinical candidates . our current planned research and development activities include the following : complete the ongoing phase 2a trial of nasovax monovalent influenza vaccine in which interim data was released in march 2018. final data is anticipated in q3 2018 ; commence a phase 2 dose ranging trial of a quadrivalent formulation of nasovax influenza vaccine in early 2019 and a dose confirmation trial to follow ; additional development of nasovax for the treatment of pandemic influenza , contingent on successful results in the treatment of seasonal influenza and non-dilutive funding from barda or other governmental agencies ; complete follow up and data analysis of our phase 1b clinical trial for heptcell for the treatment of chronic hepatitis b , which began enrollment in july 2015 , initial results were reported at the end of 2017 with additional unblinded results reported
| results of operations year ended december 31 , 2017 compared to december 31 , 2016 replace_table_token_5_th 101 revenue revenue from grants and contracts for the years ended december 31 , 2017 and 2016 consisted primarily of research grants from barda and niaid in the united states for our anthrax vaccine product candidates . replace_table_token_6_th increase in research grants and contracts is the combined results of our signing a five-year contract with barda in july 2016 which we amended in march 2017 , and revenue from niaid which we assumed from the mergers with pharmathene . revenue for the year ended december 31 , 2016 did not include pharmathene or the niaid contract . research and development expenses research and development expenses for the years ended december 31 , 2017 and 2016 consisted primarily of expenses related to product candidate development . research and development expenses for the years ended december 31 , 2017 and 2016 are summarized as follows : year ended december 31 , ( in thousands except percentages ) 2017 2016 increase ( decrease ) research and development $ 18,406 $ 7,222 $ 11,184 155 % research and development expenses increased by $ 11.2 million , or 155 % , during the year ended december 31 , 2017 as compared to 2016. the increased expense was due to an increase of $ 5.1 million for nasoshield in accordance with our barda contract , $ 3.4 million for nasovax to prepare for and start a phase i clinical trial , $ 1.0 million of spending on sparvax-l acquired in the mergers , $ 0.6 million for heptcell to continue the phase 2 clinical trials and $ 1.6 million in general overhead due to increased activity , offset by $ 0.5 million reduced spending on the oncosyn product . in addition , research and development expenses for the year ended december 31 , 2016 did not include pharmathene or costs incurred under the niaid contract .
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) , denmark , equatorial guinea , the joint development area of malaysia/thailand ( jda ) , malaysia , and norway . transformation to a pure play exploration and production company in the first quarter of 2013 , the corporation announced several initiatives to continue its transformation into a more focused pure play e & p company . these initiatives represented the culmination of a multi-year strategic transformation designed to deliver long-term , cash generative growth and increase returns to stockholders by focusing on lower risk , higher growth unconventional assets , exploiting existing discoveries by leveraging offshore drilling and project development capabilities , and executing a smaller , more targeted exploratory program . as part of its transformation , the corporation sold during the period of 2012 through 2014 mature or lower margin e & p assets in azerbaijan , indonesia , norway , russia , thailand , the united kingdom north sea ( uk ) , and certain interests onshore in the u.s. in addition , the transformation plan included fully exiting the corporation 's marketing and refining ( m & r ) business , including its terminal , retail , energy marketing and energy trading operations , as well as the permanent shutdown of refining operations at its port reading facility . hovensa l.l.c . ( hovensa ) , a 50/50 joint venture between the corporation 's subsidiary , hess oil virgin islands corp. ( hovic ) , and a subsidiary of petroleos de venezuela s.a. ( pdvsa ) , had previously shut down its u.s. virgin islands refinery in january 2012 and continued operating solely as an oil storage terminal through the first quarter of 2015. see item 3. legal proceedings . as of december 31 , 2014 , all downstream businesses were sold or shutdown except for the energy trading joint venture , hetco , which was sold in february 2015 , and hovensa , which will be shut down in the first quarter of 2015. proceeds from sales of assets in e & p and m & r during the period of 2012 through 2014 totaling $ 13.4 billion were used primarily to reinvest in the e & p business , repay debt , repurchase the corporation 's common stock , and increase cash balances . in 2013 , the corporation 's board of directors authorized a plan to repurchase up to $ 4 billion of the corporation 's outstanding common stock , and subsequently in 2014 increased the authorized repurchase plan to $ 6.5 billion . through december 31 , 2014 , the corporation has repurchased a total of approximately $ 5.26 billion of outstanding common stock . response to the fourth quarter 2014 decline in crude oil prices brent crude oil and west texas intermediate crude oil prices declined approximately 40 percent in the fourth quarter of 2014 to end the year at $ 57 per barrel and $ 53 per barrel , respectively . the corporation has responded by reducing its planned 2015 capital and exploratory program to $ 4.7 billion , down 16 percent from $ 5.6 billion in 2014. as part of the 2015 capital program , the corporation expects to spend $ 1.8 billion in the bakken shale play compared with $ 2.2 billion in 2014 , and reflects reducing the rig count from seventeen rigs in 2014 to an average of 9.5 rigs in 2015. the corporation plans to actively pursue other cost savings , including cost reductions from service providers , and significantly moderate the pace of share repurchases in 2015 to preserve liquidity in the current oil price environment . consolidated net income net income was $ 2,317 million in 2014 compared with $ 5,052 million in 2013 and $ 2,025 million in 2012. diluted earnings per share were $ 7.53 in 2014 compared with $ 14.82 in 2013 and $ 5.95 in 2012. excluding items affecting comparability , net income was $ 1,308 million in 2014 , $ 1,892 million in 2013 , and $ 1,998 million in 2012. see the table of items affecting comparability of earnings between periods on page 26. exploration and production the corporation 's total proved reserves were 1,431 million barrels of oil equivalent ( boe ) at december 31 , 2014 compared with 1,437 million boe at december 31 , 2013 and 1,553 million boe at december 31 , 2012. proved reserves related to assets sold were 77 million boe in 2014 , 140 million boe in 2013 and 83 million boe in 2012. e & p earnings were $ 2,098 million in 2014 , $ 4,303 million in 2013 and $ 2,212 million in 2012. excluding items affecting comparability of earnings between periods on page 31 , e & p net income was $ 1,556 million , $ 2,192 million and $ 2,256 million for 2014 , 2013 and 2012 , respectively . average realized crude oil selling prices including the impact of 23 hedging were $ 92.17 per barrel in 2014 , $ 98.48 in 2013 and $ 86.94 in 2012. average realized natural gas selling prices were $ 6.04 per mcf in 2014 , $ 6.64 in 2013 and $ 6.16 in 2012. production averaged 329,000 barrels of oil equivalent per day ( boepd ) in 2014 , 336,000 boepd in 2013 and 406,000 boepd in 2012. excluding production from assets sold and libya , pro forma production was 318,000 boepd in 2014 , 269,000 boepd in 2013 and 268,000 boepd in 2012. the corporation currently expects total worldwide production to average between 350,000 boepd and 360,000 boepd in 2015 , excluding any contribution from libya . story_separator_special_tag liquidity , and capital and exploratory expenditures net cash provided by operating activities was $ 4,464 million in 2014 , $ 4,870 million in 2013 and $ 5,660 million in 2012. at december 31 , 2014 , cash and cash equivalents totaled $ 2,444 million , up from $ 1,814 million at december 31 , 2013. total debt was $ 5,987 million at december 31 , 2014 and $ 5,798 million at december 31 , 2013. the corporation 's debt to capitalization ratio at december 31 , 2014 was 21.2 % compared with 19.0 % at december 31 , 2013. capital and exploratory expenditures from continuing operations were as follows : replace_table_token_12_th * excludes capital expenditures related to discontinued operations of $ 431 million , $ 106 million and $ 113 million in 2014 , 2013 and 2012 , respectively . the corporation anticipates investing approximately $ 4.7 billion in capital and exploratory expenditures in 2015 down from $ 5.6 billion in 2014. the decline reflects a planned reduction in the corporation 's work program in response to the lower commodity price environment . 25 story_separator_special_tag the corporation 's transformation to a more focused e & p company . depreciation , depletion and amortization : depreciation , depletion and amortization charges increased by approximately $ 540 million in 2014 and decreased by $ 182 million in 2013 , compared with the corresponding amounts in prior years . the increase in 2014 was primarily associated with higher production volumes from the bakken , utica , valhall , and north malay basin , each of which had a dd & a rate higher than the portfolio average in 2014. the decrease in 2013 largely reflects asset sales and the mix of production volumes . excluding items affecting comparability of earnings between periods in the table below , cash operating costs per barrel of oil equivalent ( boe ) were $ 21.03 in 2014 , $ 22.63 in 2013 and $ 20.63 in 2012 and depreciation , depletion and amortization costs per boe were $ 26.68 in 2014 , $ 21.61 in 2013 and $ 19.20 in 2012. total production unit costs were $ 47.71 per boe in 2014 , $ 44.24 per boe in 2013 and $ 39.83 per boe in 2012 . 30 for 2015 , cash operating costs are estimated to be in the range of $ 19.50 to $ 20.50 per boe and depreciation , depletion and amortization costs are estimated to be in the range of $ 28.50 to $ 29.50 per boe , resulting in total production unit costs of $ 48.00 to $ 50.00 per boe assuming no contribution from libya . exploration expenses : exploration expenses , excluding items affecting comparability of earnings , were lower in 2014 compared to 2013 , primarily due to lower leasehold impairment expense , geologic and seismic costs , and employee expenses . exploration expenses decreased in 2013 compared to 2012 , primarily due to lower dry hole expenses and geological and seismic expenses partly offset by higher leasehold impairment expenses . income taxes : excluding the impact of items affecting comparability of earnings between periods provided below , the effective income tax rates for e & p operations were 41 % in 2014 , 43 % in 2013 and 45 % in 2012. the decline in the effective income tax rate in 2014 compared with 2013 and in 2013 compared with 2012 was primarily due to the impact of shut‑in production in libya from the third quarter of 2013. based on current strip crude oil prices , we are forecasting a pre-tax loss for 2015 and , as a result , the e & p effective tax rate , excluding items affecting comparability , is expected to be a benefit in the range of 38 % to 42 % excluding libyan operations . items affecting comparability of earnings between periods : reported e & p earnings included the following items affecting comparability of income ( expense ) before and after income taxes : replace_table_token_19_th 2014 : in april 2014 , the corporation completed the sale of its thailand assets for cash proceeds of approximately $ 805 million . this transaction resulted in a pre-tax gain of $ 706 million ( $ 706 million after income taxes ) . the assets in thailand were producing at an aggregate net rate of approximately 19,000 boepd at the time of sale and had a total of 45 million boe of proved reserves at december 31 , 2013. during 2014 , the corporation sold approximately 77,000 net acres , including related wells and facilities , in the dry gas area of the utica shale play , for total cash proceeds of approximately $ 1,075 million , which resulted in a pre-tax gain of $ 62 million ( $ 35 million after income taxes ) . production and proved reserves from the disposed utica acreage were not material . in the third quarter , the corporation completed the sale of an exploration asset in the united kingdom north sea , for cash proceeds of $ 53 million , which resulted in a pre-tax gain of $ 33 million ( $ 33 million after income taxes ) . in 2014 , the corporation recorded dry hole and other exploration expenses for the write-off of a previously capitalized exploration well in the western half of block 469 in the gulf of mexico of $ 169 million ( $ 105 million after income taxes ) and other charges totaling $ 135 million pre-tax ( $ 68 million after income taxes ) to write-off leasehold acreage in the paris basin of france , the shakrok block in kurdistan and the corporation 's interest in a natural gas exploration project , offshore sabah , malaysia . in 2014 , the corporation recorded pre-tax severance and other exit costs of $ 28 million ( $ 11 million after income taxes ) resulting from its transformation to a more focused pure play e & p company .
| consolidated results of operations the after‑tax income ( loss ) by major operating activity is summarized below : replace_table_token_13_th the following table summarizes , on an after‑tax basis , items of income ( expense ) that are included in net income and affect comparability between periods . the items in the table below are explained on pages 31 through 34. replace_table_token_14_th in the following discussion and elsewhere in this report , the financial effects of certain transactions are disclosed on an after‑tax basis . management reviews segment earnings on an after‑tax basis and uses after‑tax amounts in its review of variances in segment earnings . management believes that after‑tax amounts are a preferable method of explaining variances in earnings , since they show the entire effect of a transaction rather than only the pre‑tax amount . after‑tax amounts are determined by applying the income tax rate in each tax jurisdiction to pre‑tax amounts . 26 comparison of results exploration and production following is a summarized income statement of the corporation 's e & p operations : replace_table_token_15_th excluding the e & p items affecting comparability of earnings between periods in the table on page 31 , the changes in e & p earnings are primarily attributable to changes in selling prices , production and sales volumes , cost of products sold , cash operating costs , depreciation , depletion and amortization , exploration expenses and income taxes , as discussed below . selling prices : average crude oil realized selling prices were $ 92.17 per boe in 2014 , or 6 % lower compared to 2013 primarily due to declines in the benchmark prices for brent and west texas intermediary ( wti ) crude oil . average crude oil selling prices were 13 % higher in 2013 compared to 2012 due to a combination of hedging losses realized in 2012 , the second quarter 2013 sale of the corporation 's subsidiary in russia which realized significantly lower crude oil prices , and slightly higher average wti benchmark prices in 2013 .
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the expenses and donations of the charitable foundation in bermuda are paid by argo group and have been included in the consolidated results . risks and uncertainties related to covid-19 certain risks and uncertainties are inherent to our day-to-day operations . adverse story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and related notes beginning on page f-1 . this discussion contains forward-looking statements that involve risks and uncertainties . our future results may differ materially from those disclosed herein as a result of significant risks and uncertainties and various factors described in this report . these risks and uncertainties are discussed in greater detail in item 1a , “ risk factors. ” certain amounts disclosed below vary from those previously provided by the company , including those furnished as an exhibit to the form 8-k the company filed with the sec on february 17 , 2021 , as a result of the correction of certain immaterial errors . the adjustments to the financial results primarily related to foreign currency exchange gains and losses and the income tax provision , which are not included in the company 's operating earnings , a non-u.s. gaap financial measure . for further discussion about these revisions to previously reported amounts , see note 2 , “ revisions of previously issued financial statements. ” for discussion of our results of operations and changes in financial conditions for year ended december 31 , 2019 compared to year ended december 31 , 2018 refer to part ii . item 7. management 's discussion and analysis of financial conditions and results of operations in our 2019 form 10-k which was filed with the sec on february 28 , 2020 ( the “ 2019 10-k ” ) and such discussion is incorporated herein by reference . however , for certain items below in the discussion of our consolidated results of operations , we have included the discussion for the year ended december 31 , 2019 compared to year ended december 31 , 2018 , when applicable , to reflect the adjustments described above and in note 2 , “ revisions of previously issued financial statements. ” these revised discussions replace the applicable discussion in the 2019 10-k. consolidated results of operations for the year ended december 31 , 2020 , we reported a net loss attributable to common shareholders of $ 58.7 million ( $ 1.70 per diluted common share ) as compared to a net loss of $ 14.1 million ( $ 0.41 per diluted common share ) for the year ended december 31 , 2019. for the year ended december 31 , 2018 , we reported net income of $ 57.0 million ( $ 1.65 per fully diluted share ) . the following is a comparison of selected data from our results of operations , as well as book value per common share , for the relevant periods : replace_table_token_4_th replace_table_token_5_th 49 table of contents impact of covid-19 the global covid-19 pandemic has resulted in and is expected to continue to result in significant disruptions in economic activity and financial markets . covid-19 has directly and indirectly adversely affected the company and may continue to do so for an uncertain period of time . beginning in march 2020 , the pandemic and related economic conditions began to impact our results of operations . for the year ended december 31 , 2020 , our underwriting results included net pre-tax catastrophe losses of $ 73.2 million associated with covid-19 and related economic conditions , primarily resulting from contingency and property exposures in the company 's international operations and property exposures in its u.s. operations . property losses relate to sub-limited affirmative business interruption coverage , primarily in certain international markets , as well as expected costs associated with claims handling . premium levels in certain lines in both our u.s. and international operations reporting segments has been negatively impacted by the challenges of the economic slowdown . conversely , our current accident year non-catastrophe loss results saw reduced claim activity during the year ended december 31 , 2020 due , in part , to the impact of the covid-19 pandemic . our liquidity and capital resources were not materially impacted by covid-19 and related economic conditions during the year ended december 31 , 2020. the extent to which covid-19 will continue to impact our business will depend on future developments that can not be predicted , and while we have recorded our best estimates of this impact as of and for the year ended december 31 , 2020 , actual results in future periods could materially differ from those disclosed herein . in march 2020 , we transitioned predominantly all of our employees to a remote working environment , leveraging our investments over the last several years in business contingency planning and digital solutions . this has allowed argo group and its business functions to operate successfully from the onset of the covid-19 pandemic through the date of this filing . we are committed to serving the needs of our employees , customers , business partners and shareholders and have developed a covid-19 response team to monitor our efforts around safeguarding our people , supporting our front office and business operations , understanding and managing our loss exposures and other risks associated with covid-19 . we also consistently seek to keep our employees , customers , business partners and shareholders informed . non-gaap measures in presenting our results in the following discussion and analysis of our results of operations , we have included certain non-generally accepted accounting principles ( `` non-gaap '' ) financial measures within the meaning of regulation g as promulgated by the sec . we believe that these non-gaap measures , specifically the current accident year non-catastrophe loss , expense and combined ratios , which may be defined differently by other companies , better explain our results of operations in a manner that allows for a more complete understanding of the underlying trends in our business . story_separator_special_tag losses and loss adjustment expense consolidated losses and loss adjustment expenses were $ 1,208.8 million and $ 1,220.7 million for the years ended december 31 , 2020 and 2019 , respectively . the consolidated loss ratio for the year ended december 31 , 2020 was 67.9 % , compared to 70.6 % for the same period in 2019 , driven by lower net unfavorable prior-year reserve development in 2020 as compared to 2019 ( 7.6 percentage points ) , as well as a lower current accident year non-catastrophe loss ratio ( 3.4 percentage points ) , partially offset by increased catastrophe losses ( 8.3 percentage points ) , which included covid-19-related losses . catastrophe losses for the year ended december 31 , 2020 included $ 73.2 million for covid-19-related claims , with the remaining $ 106.0 million being primarily attributable to hurricanes laura , delta , zeta and sally , wildfires , and other u.s. and international events . 52 table of contents the following table summarizes the above referenced prior-year loss reserve development for the year ended december 31 , 2020 with respect to net loss reserves by line of business as of december 31 , 2019. the unfavorable prior-year reserve development in general liability lines was concentrated in u.s. operations ( $ 25 million ) and run-off lines ( $ 21 million ) , with a smaller amount of unfavorable prior-year reserve development coming from international operations ( $ 13 million ) . the favorable prior-year reserve development in surety lines relates to our u.s. operations reporting segment . our losses and loss adjustment expenses , including the prior-year loss reserve development shown in the following table , are further discussed by reporting segment under the heading “ segment results ” below . replace_table_token_8_th in determining appropriate reserve levels for the year ended december 31 , 2020 , we maintained the same general processes and disciplines that were used to set reserves at prior reporting dates . no significant changes in methodologies were made to estimate the reserves since the last reporting date ; however , at each reporting date we reassess the actuarial estimate of the reserve for loss and loss adjustment expenses and record our best estimate . consistent with prior reserve valuations , as claims data becomes more mature for prior accident years , actuarial estimates were refined to weigh certain actuarial methods more heavily in order to respond to any emerging trends in the paid and reported loss data . while prior accident years ' net reserves for losses and loss adjustment expenses for some lines of business have developed favorably in recent years , this does not imply that more recent accident years ' reserves also will develop favorably ; pricing , reinsurance costs , legal environment , general economic conditions including changes in inflation and many other factors impact our ultimate loss estimates . consolidated gross reserves for losses and loss adjustment expenses were $ 5,406.0 million ( including $ 243.7 million of reserves attributable to our syndicate 1200 and 1910 trade capital providers ) and $ 5,157.6 million ( including $ 238.5 million of reserves attributable to our syndicate 1200 and 1910 trade capital providers ) as of december 31 , 2020 and 2019 , respectively . management has recorded its best estimate of loss reserves at each date based on current known facts and circumstances . due to the significant uncertainties inherent in the estimation of loss reserves , there can be no assurance that future loss development , favorable or unfavorable , will not occur . underwriting , acquisition and insurance expenses consolidated underwriting , acquisition and insurance expenses were $ 679.4 million and $ 666.0 million for the years ended december 31 , 2020 and 2019 , respectively . the consolidated expense ratios were 38.1 % and 38.5 % , for the years ended december 31 , 2020 and 2019 , respectively . the slight increase in expenses in 2020 compared to 2019 was primarily due to decreasing our third-party capital at lloyd 's and , as such , retaining certain costs in 2020 that were previously allocated to trade capital providers , severance costs in international operations , retention bonuses in our reinsurance business , which we subsequently sold , as well as the continued investment in strategic growth areas of our business . the expense ratios were relatively flat for the comparative periods . the expense ratio for our u.s. operations was slightly improved in 2020 compared to 2019 , while international operations experienced deterioration for the comparative periods . our underwriting , acquisition and insurance expenses are further discussed by reporting segment below under the heading “ segment results. ” interest expense consolidated interest expense was $ 26.9 million and $ 34.1 million for the years ended december 31 , 2020 and 2019 , respectively . the year-over-year decrease was primarily attributable to significant reductions in short-term libor rates during 2020 , as well as a lower debt balance due to paying off our $ 125 million term loan in september 2020 . 53 table of contents foreign currency exchange gains/losses consolidated foreign currency exchange losses were $ 15.4 million for the year ended december 31 , 2020 , compared to consolidated foreign currency exchange gains of $ 9.8 million for the year ended december 31 , 2019. consolidated foreign currency exchange losses were $ 3.9 million for the year ended december 31 , 2018. the changes in the foreign currency exchange gains and losses were due to fluctuations of the u.s. dollar , on a weighted average basis , against the currencies in which we transact our business . for the year ended december 31 , 2020 , the foreign currency exchange losses were due to the u.s. dollar weakening against the euro , the british pound , the australian dollar and the canadian dollar .
| segment results we are primarily engaged in writing property and casualty insurance . we have two primary reporting segments : u.s. operations and international operations . additionally , we have a run-off lines segment for products that we no longer underwrite . 54 table of contents we consider many factors , including the nature of each segment 's insurance products , production sources , distribution strategies and regulatory environment , in determining how to aggregate reporting segments . our reportable segments include four primary insurance services and offerings as follows : property includes both property insurance and reinsurance products . insurance products cover commercial properties primarily in north america with some international covers . reinsurance covers underlying exposures located throughout the world , including the united states . these offerings include coverages for man-made and natural disasters . effective with the sale of our reinsurance business in the fourth quarter of 2020 , we do not anticipate writing significant new reinsurance business going forward . liability includes a broad range of primary and excess casualty products primarily underwritten as insurance and , to a lesser extent reinsurance , for risks on both an admitted and non-admitted basis in the united states . internationally , argo group underwrites non-u.s. casualty risks primarily exposed in the u.k. , canada , and australia . professional includes various professional lines products including errors & omissions and management liability coverages ( including directors and officers ) . specialty includes niche insurance coverages including marine & energy , accident & health and surety product offerings . in evaluating the operating performance of our segments , we focus on core underwriting and investing results before consideration of realized gains or losses from the sales of investments . intersegment transactions are allocated to the segment that initiated the transaction .
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revenue recognized at any point in time is limited to cash received and amounts contractually due . changes in estimates of total expected costs are accounted for prospectively as a change in estimate . all amounts received or due are classified as collaboration revenue as they are earned . celgene corporation in march 2014 , the company entered into a collaboration agreement with celgene corporation ( “ celgene ” ) to develop , seek regulatory approval for , and commercialize a companion diagnostic using the ncounter analysis system to identify a subset of patients with diffuse large b-cell lymphoma . the company is eligible to receive payments totaling up to $ 45.0 million , of which $ 5.8 million was received as an upfront payment upon delivery of certain information to celgene , $ 17.0 million is for potential success-based development and regulatory milestones , and the remainder is for potential commercial payments in the event sales of the test do not exceed certain pre-specified minimum annual revenue during the first three years following regulatory approval . there have been several amendments to the collaboration agreement to expand the scope of development work story_separator_special_tag you should read the following discussion and analysis together with the financial statements and the related notes to those statements included elsewhere in this report . this discussion contains forward-looking statements that involve risks and uncertainties . as a result of many factors , such as those set forth in the section of this report captioned “ risk factors ” and elsewhere in this report , our actual results may differ materially from those anticipated in these forward-looking statements . throughout this discussion , unless the context specifies or implies otherwise , the terms “ nanostring ” , “ we ” , “ us ” and “ our ” refer to nanostring technologies , inc. and its subsidiaries . overview we develop , manufacture and sell robust , intuitive products that unlock scientifically valuable and clinically actionable biologic information from minute amounts of tissue . our ncounter analysis system directly profiles hundreds of molecules simultaneously using a novel barcoding technology that is powerful enough for use in research , yet simple enough for use in clinical laboratories worldwide . we market systems and related consumables to researchers in academic , government , and biopharmaceutical laboratories for use in understanding fundamental biology and the molecular basis of disease and to clinical laboratories and medical centers for diagnostic use . as of december 31 , 2016 , we have an installed base of approximately 480 systems , which our customers have used to publish over 1,450 peer-reviewed papers . as researchers using our systems discover new biologic insights to improve clinical decision-making , these discoveries can be translated and validated as diagnostic tests , either using our ncounter elements reagents or , in certain situations , by developing in vitro diagnostic assays . for example , our first molecular diagnostic product is the prosigna breast cancer assay , or prosigna , which provides an assessment of a patient 's risk of recurrence for breast cancer . in addition , we are collaborating with several biopharmaceutical companies to develop companion diagnostics , in vitro diagnostic tests to be used to identify which patients are most likely to respond to a particular drug therapy . we derive a substantial majority of our revenue from the sale of our products to life science researchers , which consist of our ncounter instruments and related proprietary consumables , which we call codesets , ncounter elements reagents and master kits . after buying an ncounter analysis system , research customers purchase consumables from us for use in their experiments . our instruments are designed to work only with our consumable products . accordingly , as the installed base of our instruments grows , we expect recurring revenue from consumable sales to become an increasingly important driver of our operating results . we also derive revenue from processing fees related to proof-of-principle studies we conduct for potential customers and extended service contracts for our ncounter analysis systems . in 2013 , we began offering instruments and consumables for use in diagnostic testing . in september 2013 , we received 510 ( k ) clearance from the fda to market in the united states a version of prosigna providing an assessment of a patient 's risk of recurrence for breast cancer . in november 2013 , we began offering a version of the ncounter dx analysis system to high-complexity , clia-certified laboratories for research and diagnostics purposes . this flex configuration of the ncounter dx analysis system provides clinical laboratories a single platform with the flexibility to support both clinical testing , by running prosigna , and research , by processing translational research experiments using our research consumables . the ncounter elements reagents provide further flexibility by allowing laboratories to develop their own laboratory developed tests for gene expression , copy number variation and gene fusion signatures , which can be performed by a laboratory and may include genetic tests and other tests for rare conditions . in december 2013 , we commercially launched prosigna in the united states . national diagnostic laboratories , including laboratory corporation of america holdings and quest diagnostics , as well as laboratories at numerous cancer centers and major hospitals have chosen to add prosigna to their suites of breast cancer diagnostic tests . these laboratories collectively serve the pathology testing needs of a substantial portion of breast cancer patients throughout the united states . in september 2012 , we obtained a ce mark for prosigna , our first diagnostic product , and , in early 2013 we commercially launched prosigna in europe and israel . to support the commercial launch of prosigna , we added a team of experienced oncology sales , marketing , market access and medical affairs professionals , resulting in increased operating expenses . in february 2015 , we combined our two separate sales teams into a single organization selling our entire suite of products , targeted primarily toward major academic medical centers and biopharmaceutical companies . story_separator_special_tag we sell our ncounter dx analysis systems to clinical laboratory customers or offer to lease them under “ reagent rental ” arrangements where an instrument is placed at a customer location at - 48 - minimal direct cost and the customer commits to purchase a minimum volume of consumable products over a period of time . to date , the majority of our clinical laboratory customers have elected to purchase instruments . since 2010 , our average consumables revenue per installed system has exceeded $ 100,000 per year . the list price of a prosigna test in the united states and europe is $ 2,080 and 1,550 per patient , respectively . although the price of prosigna and our additional future diagnostic products will depend on many factors , including whether and how much third-party payors will reimburse laboratories for conducting such tests , we expect that the gross margin for our diagnostic kits will be higher than for our research consumables . we sell prosigna kits to our lab customers , who will be responsible for providing the testing service and contracting and billing payors . prosigna kits are sold to clinical laboratories on a fixed dollars-per-kit basis , which does not expose us to direct third-party payor reimbursement risk . however , we provide customary volume discounts , and in some cases , introductory pricing during the period in which third-party payor reimbursement is being established . as a result , the average selling price per prosigna test is lower than list price . service revenue service revenue consists of fees associated with extended service contracts and conducting proof-of-principle studies . we include a one-year warranty with the sale of our instruments and offer extended service contracts , which are purchased by a majority of our customers . we selectively provide proof-of-principle studies to prospective customers in order to help them better understand the benefits of the ncounter analysis system . collaboration revenue collaboration revenue is primarily derived from our collaborations with celgene , merck , and medivation and astellas . as of december 31 , 2016 , we have received a total of $ 61.0 million from these collaboration agreements , of which $ 16.7 million , $ 5.9 million , and $ 2.9 million have been recorded as collaboration revenue in 2016 , 2015 , and 2014 , respectively , with the remainder recorded as deferred revenue , which will be recognized as collaboration revenue over our remaining development performance period for each of the agreements . collaboration revenue also includes revenue recognized under several smaller collaborations . revenue by geography we sell our products through our own sales forces in the united states , canada , singapore , israel and certain european countries . we sell through distributors in other parts of the world . as we have expanded our european direct sales force and entered into agreements with distributors of our products in europe , the middle east , asia pacific and south america , the amount of revenue generated outside of north america has generally increased , although there have been significant quarter-to-quarter fluctuations . in the future , we intend to expand our sales force and establish additional distributor relationships outside the united states to better access international markets . the following table reflects total revenue by geography based on the geographic location of our customers , distributors and collaborators . americas consists of the united states , canada , mexico and south america ; and asia pacific includes japan , china , south korea , singapore , malaysia , and australia . replace_table_token_3_th most of our revenue is denominated in u.s. dollars . our expenses are generally denominated in the currencies in which our operations are located , which is primarily in the united states . changes in foreign currency exchange rates have not materially affected us to date ; however , they may become material to us in the future as our operations outside of the united states expand . cost of product and service revenue cost of product and service revenue consists primarily of costs incurred in the production process , including costs of purchasing instruments from third-party contract manufacturers , consumable component materials and assembly labor and overhead , installation , warranty , service and packaging and delivery costs . in addition , cost of product and service revenue includes royalty costs for licensed technologies included in our products , provisions for slow-moving and obsolete inventory and stock-based compensation expense . we provide a one-year warranty on each ncounter analysis system sold and establish a reserve for warranty repairs based on historical warranty repair costs incurred . - 49 - the average unit costs of our instruments has declined in the current year as compared to prior years primarily as a result of introducing our lower-cost ncounter sprint profiler in july 2015. we expect the average unit costs of our instruments to continue to decline as we expand our market opportunity among smaller research laboratories and sell a higher proportion of sprint systems . we expect the unit costs of consumable products to decline as a result of our ongoing efforts to improve our manufacturing processes and expected increases in production volume and yields . although the unit costs of our custom codesets vary , they are generally higher as a percentage of the related revenue than our panels , in vitro diagnostic kits and ncounter elements reagents , all of which can be manufactured at much larger scale than most custom codesets . operating expenses research and development research and development expenses consist primarily of salaries and benefits , occupancy , laboratory supplies , engineering services , consulting fees , costs associated with licensing molecular diagnostics rights and clinical study expenses ( including the cost of ncounter systems used in collaborations ) to support the regulatory approval or clearance of diagnostic products . we have made substantial investments in research and development since our inception .
| results of operations comparison of years ended december 31 , 2016 and 2015 revenue replace_table_token_6_th instruments revenue increased for the year ended december 31 , 2016 due to the increased volume of instruments sold . we sold approximately 140 instrument systems in 2016 , of which approximately 60 were ncounter sprint profilers . although we sold approximately 40 % more systems in 2016 compared to 2015 , our instrument revenue only increased 16 % . this was largely due to substantially increased sales of the lower priced sprint systems in 2016. the increase in consumables revenue was primarily driven by growth in our installed base of instrument systems as the average amount of consumables revenue was over $ 100,000 per installed system in 2016 and 2015 . in vitro diagnostic kit revenue represents sales of prosigna assays , which increased as more testing providers came online , and testing volumes increased . the increase in service revenue was primarily related to an increase in the number of instruments covered by service contracts . collaboration revenue increased $ 9.8 million in 2016 due to our new collaboration agreements with merck and medivation and astellas . cost of product and service revenue ; gross profit ; and gross margin replace_table_token_7_th the increase in cost of product and service revenue for the year ended december 31 , 2016 was related to the increased volume of instruments , consumables , in vitro diagnostic kits and services sold . the increase in gross margin on product and service revenues was primarily due to improved gross margin on consumable revenue resulting from efficiencies of scale and a favorable mix of consumable products sold during the year . in addition , gross margin benefited from a reduced technology royalty rate across all products for a portion of the year due to the achievement of a cumulative revenue milestone under the license of our foundational ncounter patents .
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hgi overview we are a holding company and our principal operations are conducted through subsidiaries that offer life insurance and annuity products ( fidelity & guaranty life , “ fgl ” , formerly harbinger f & g llc ) , reinsurance ( front street re ( delaware ) ltd. , “ front street ” ) , financing and asset management ( salus capital partners , llc , “ salus ” , five island asset management , llc , “ fiam ” , which holds our interests in fiam capital management , llc ( `` five island '' ) , energy & infrastructure capital llc ( “ eic ” ) and coramerica capital , llc ( `` coramerica '' ) ) , branded consumer products ( spectrum brands holdings , inc. , “ spectrum brands ” ) such as batteries , small appliances , pet supplies , home and garden control products , personal care products and hardware and home improvement products . we also hold oil and natural gas properties through an equity investment in a joint venture ( compass production gp , llc and compass production partners , lp , collectively , and together with their respective subsidiaries , `` compass '' , and formerly referred to as the `` exco/hgi jv '' ) with exco resources , inc. ( “ exco ” ) through our wholly-owned subsidiary , hgi energy holdings , llc ( “ hgi energy ” ) . we also own 62 % of frederick 's of hollywood , inc. ( `` foh '' ) , a retailer of women 's apparel and related products under its proprietary frederick 's of hollywood® brand . we also own 97.9 % of zap.com corporation ( “ zap.com ” ) , a public shell company that may seek assets or businesses to acquire or may sell assets and or liquidate . while we search for additional acquisition opportunities , we manage a portion of our available cash and acquire interests in possible acquisition targets through our wholly-owned subsidiary , hgi funding , llc ( `` hgi funding '' ) . we intend to acquire companies that we consider to be undervalued or fairly valued with attractive financial or strategic characteristics . we intend to take a long-term view and primarily seek opportunities that are able to generate high returns and significant cash flow to maximize long-term value for our stockholders . we intend to seek a variety of acquisition opportunities , including businesses where we believe a catalyst for value realization is already present , where we can engage with companies to unlock value or where we can realize synergies with our existing businesses . we may also seek businesses that are in need of a financial restructuring or operational turnaround . in addition to our intention to acquire controlling equity interests , we may also make investments in debt instruments and acquire minority equity interests in companies . we believe that our access to the public capital markets may give us a competitive advantage over privately-held entities with whom we compete to acquire certain target businesses on favorable terms . we may pay acquisition consideration in the form of cash , our debt or equity securities , or a combination thereof . in addition , as a part of our acquisition strategy we may consider raising additional capital through the issuance of equity or debt securities . we currently operate in four segments : ( i ) consumer products , which consists of spectrum brands ; ( ii ) insurance , which includes fgl and front street ; ( iii ) energy , which includes compass ; and ( iv ) asset management , which includes salus , five island , eic and coramerica . consumer products segment through spectrum brands , we are a diversified global branded consumer products company with positions in seven major product categories : consumer batteries ; small appliances ; pet supplies ; home and garden control products ; electric shaving and grooming ; electric personal care products and hardware and home improvement . spectrum brands ' operating performance is influenced by a number of factors including : general economic conditions ; foreign exchange fluctuations ; trends in consumer markets ; consumer confidence and preferences ; overall product line mix , including pricing and gross margin , which vary by product line and geographic market ; pricing of certain raw materials and commodities ; energy and fuel prices ; and general competitive positioning , especially as impacted by competitors ' advertising and promotional activities and pricing strategies . 109 insurance segment through fgl , we are a provider of annuity and life insurance products to the middle and upper-middle income markets in the united states ( “ u.s. ” ) . with its principal headquarters based in des moines , iowa , and baltimore , maryland , fgl operates in the u.s. through its subsidiaries fidelity & guaranty life insurance company ( “ fgl insurance ” ) and fidelity & guaranty life insurance company of new york ( “ fgl ny insurance ” ) . fgl 's principal products are deferred annuities ( including fixed indexed annuity ( “ fia ” ) contracts ) , immediate annuities , and life insurance products , which are sold through a network of independent insurance marketing organizations ( “ imos ” ) and independent insurance agents . fgl 's profitability depends in large part upon the amount of assets under management , the ability to manage operating expenses , the costs of acquiring new business ( principally commissions to agents and bonuses credited to policyholders ) and the investment spreads earned on contractholder fund balances . story_separator_special_tag eic offers a range of investment products and works with customers to develop tailored financing solutions , principally through the origination of loans . some of the debt instruments eic offers include investment grade private placement bonds and loans , reserve-based lending , project finance bonds and term loans , first or second lien institutional term loans , unitranche loans , mezzanine loans and bridge loans . coramerica , is a commercial real estate lender which originates and acquires both senior and subordinated mortgage loans for commercial and multi-family properties located in the u.s .. coramerica commenced operations in 2009 and originates and acquires loans on various types of income-producing properties , including apartments , industrial properties , manufactured housing , mixed-use properties , office buildings and retail properties . coramerica manages commercial mortgage loans , as well as fixed-income assets based on its assessment of risk-adjusted returns and inefficiencies in the marketplace . coramerica has 5 major lines of business : senior loan origination and asset management ; commercial mortgage-backed securities and commercial real estate-related debt investment management ; bridge lending ; structured debt ; and equity investments . 111 highlights for fiscal 2014 significant transactions and activity during fiscal 2014 , we made significant progress in our business strategy to reduce our cost of capital , increase our investor base , grow our existing business , and diversify the businesses in which we operate . the most significant of these steps include the following : consumer products segment in december 2013 , spectrum brands amended a senior secured term loan , issuing two tranches maturing september 4 , 2019 , which provide for borrowings in aggregate principal amounts of $ 215.0 million and 225.0 million . the proceeds from the amendment were used to refinance a portion of the term loan which was scheduled to mature december 17 , 2019 and had an aggregate amount outstanding of $ 513.3 million prior to refinancing . in january 2014 , spectrum brands completed the $ 35.8 million acquisition of the liquid fence company , inc. ( `` liquid fence '' ) , a producer of animal repellents . insurance segment in december 2013 , fgl announced an initial public offering of 9,750 thousand shares of common stock at a price to the public of $ 17 per share . the shares began trading on the new york stock exchange on december 13 , 2013 under the ticker symbol `` fgl '' . fgl also granted the underwriters an option to purchase an additional 1,463 thousand shares of common stock that was subsequently exercised . hgi was not a selling shareholder in the offering . subsequent to the offering hgi held 47,000 thousand shares of fgl 's outstanding common stock , representing an 80.4 % interest . in december 2013 , front street re ( cayman ) ltd. ( `` front street cayman '' ) , a wholly-owned indirect subsidiary of hgi , closed a reinsurance treaty with bankers life insurance company . under the terms of the treaty , bankers life insurance company ceded approximately $ 153.0 million of its annuity business to front street cayman , on a funds withheld basis . in august 2014 , fidelity & guaranty life holdings , inc. ( “ fgh ” ) , a wholly owned subsidiary of fgl , as borrower , and fgl as guarantor , entered into a three-year $ 150.0 million unsecured revolving credit facility . asset management segment salus originated $ 597.3 million of new asset-based loan commitments in fiscal 2014 . salus , together with its affiliated co-lenders fgl and front street , had $ 811.6 million of loans outstanding as of september 30 , 2014 , net of allowance for credit losses of $ 7.2 million . on april 3 , 2014 , eic an investment manager specializing in direct lending to companies in the global energy and infrastructure sectors , and a subsidiary of fiam , announced its launch . in may 2014 , fiam acquired a 17 % and controlling interest in coramerica , a commercial real estate investment firm . energy segment subsequent to a one year exemption to rule 4-10 ( c ) ( 4 ) of regulation s-x granted by the sec expiring , our energy segment recorded impairments to its oil and natural gas properties of $ 81.0 million during the second fiscal 2014 quarter , based on the ceiling test limitation under full cost method of accounting . the impairments primarily resulted from differences in the oil and natural gas prices utilized in the purchase price allocation at the acquisition date of compass ( amongst other things , market prices based on nymex futures ) and the prices used in the ceiling test calculation ( based on the simple average spot price for the trailing twelve month period ) . compass did not recognize any further impairment under the ceiling test to its proved oil and natural gas properties for fiscal 2014 . corporate and other segment in january 2014 , the company issued $ 200.0 million aggregate principal amount of 7.75 % senior unsecured notes due 2022 ( the `` 7.75 % notes '' ) . the 7.75 % notes were priced at par plus accrued interest from january 15 , 2014. in may 2014 , hgi exercised its option to convert all but one of its issued and outstanding series a participating convertible preferred stock ( “ series a preferred shares '' ) and all of its issued and outstanding series a-2 participating convertible preferred stock ( “ series a-2 preferred shares '' , together with the series a preferred shares , the `` preferred stock '' ) into common stock of the company . the company issued an aggregate of 59,133,819 shares of common stock pursuant to the conversion option , in exchange for 279,999 shares of series a preferred shares , and 94,985 shares of series a-2 preferred 112 shares . the remaining series a preferred shares will not be entitled to receive any dividends or distributions , and remains to preserve certain governance rights as set forth in the certificate of designation .
| summary of consolidated cash flows presented below is a table that summarizes the cash provided or used in our activities and the amount of the respective increases or decreases in cash provided or used from those activities between the fiscal periods ( in millions ) : replace_table_token_50_th operating activities cash provided by operating activities totaled $ 607.9 million for fiscal 2014 as compared to cash provided of $ 522.3 million for fiscal 2013 . the $ 85.6 million improvement was the result of ( i ) a $ 176.2 million increase in cash provided by the consumer products segment ; and ( ii ) a $ 7.1 million increase in cash provided by the energy segment ; offset by ( i ) a $ 33.0 million increase in cash used by the corporate and other segment ; ( ii ) a $ 16.6 million increase in cash used by the asset management segment ; and ( iii ) a $ 48.1 million decrease in cash provided by the insurance segment . the $ 176.2 million increase in cash provided by operating activities in the consumer products segment was primarily due to ( i ) higher earnings of $ 79.0 million ; ( ii ) $ 66.0 million increase in cash generated from working capital and other items driven by lower accounts receivable and inventory , partially offset by lower accounts payable and other working capital items ; ( iii ) lower cash payments for interest of $ 46.0 million ; and ( iv ) lower cash acquisition , integration and restructuring related costs of $ 14.0 million . these increases in cash provided by operating activities where partially offset by higher cash payments for income taxes of $ 31.0 million .
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the following table represents the fair market value assigned to the acquired assets and liabilities in the transaction story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with the selected financial data and our consolidated financial statements and the related notes that appear elsewhere in this form 10-k. forward-looking statements certain statements in this form 10-k may constitute “ forward-looking statements ” within the meaning of the private securities litigation reform act of 1995. such forward-looking statements are based on management 's expectations , estimates , projections and assumptions . words such as “ expects , ” “ anticipates , ” “ intends , ” “ believes , ” “ estimates , ” “ should ” , “ target ” , “ may ” , “ project , ” “ guidance , ” and variations of such words and similar expressions are intended to identify such forward-looking statements . such forward-looking statements involve known and unknown risks , uncertainties , and other factors that may cause our actual results or performance to be materially different from any future results or performance expressed or implied by such forward-looking statements . such factors include , but are not limited to , changing business , economic , and political conditions both in the united states and in foreign countries ; the uncertainty surrounding the european sovereign debt crisis and the potential for further deterioration ; increasing competition ; changes in product mix ; the development of new products and manufacturing processes and the inherent risks associated with such efforts ; the outcome of current and future litigation ; the accuracy of our analysis of our potential asbestos-related exposure and insurance coverage ; changes in the availability and cost of raw materials ; fluctuations in foreign currency exchange rates ; and any difficulties in integrating acquired businesses into our operations . such factors also apply to our joint ventures . we make no commitment to update any forward-looking statement or to disclose any facts , events , or circumstances after the date hereof that may affect the accuracy of any forward-looking statements , unless required by law . additional information about certain factors that could cause actual results to differ from such forward-looking statements include , but are not limited to , those items described in item 1a , risk factors , in this form 10-k. business overview company background and strategy we are a global enterprise that provides our customers with innovative solutions and industry leading products in a variety of markets , including portable communications , communications infrastructure , consumer electronics , mass transit , automotive , defense and clean technology . we generate revenues and cash flows through the development , manufacture , and distribution of specialty material-based products that are sold to multiple customers , primarily original equipment manufacturers ( oems ) and contract manufacturers that , in turn , produce component products that are sold to end-customers for use in various applications . as such , our business is highly dependent , although indirectly , on market demand for these end-user products . our ability to forecast future sales growth is largely dependent on management 's ability to anticipate changing market conditions and how our customers will react to these changing conditions . it is also highly limited due to the short lead times demanded by our customers and the dynamics of serving as a relatively small supplier in the overall supply chain for these end-user products . in addition , our sales represent a number of different products across a wide range of price points and distribution channels that do not always allow for meaningful quantitative analysis of changes in demand or price per unit with respect to the effect on sales and earnings . strategically , our current focus is on three mega trends that we believe will fuel the future growth of our company – growth of the internet , expansion of mass transit , and further investment in clean technology . these trends and their related markets all require materials that perform to the highest standards , which has been a key strength of our products over the years . we are also focused on growing our business both organically and through strategic acquisitions or technology investments that will add to or expand our product portfolio , as well as strengthen our presence in existing markets or expand into new ones . we will continue to focus on business opportunities and invest in expansion around the globe . in the first quarter of 2011 , we finalized the acquisition of curamik and , over the course of 2011 , made significant progress on our new manufacturing operations for our printed circuit materials ( pcm ) operating segment on our campus in suzhou , china . once these operations are complete , pcm will have a manufacturing presence in each of its three major geographic locations – north america , europe , and asia – further solidifying our commitment to be close to our customers in order to better serve their needs . our vision is to be the leading , innovative , growth oriented , and high technology materials solutions provider for our selective markets . to achieve this vision , we must have an organization that can cost effectively develop , produce and market products and services that provide clear advantages for our customers and markets . 27 2011 executive summary 2011 was another very strong year for rogers , particularly over the first three quarters of the year . overall , our sales for 2011 were $ 553.2 million , an increase of 46.3 % from the $ 378.2 million achieved in 2010 . 2011 sales included $ 132.9 million for curamik electronics solutions ( ces ) , a record sales year for the business . excluding ces , sales growth attributable to our legacy business was $ 42.1 million , or 11.1 % . story_separator_special_tag we acquired this facility as part of the mti acquisition and subsequently moved operations from richmond to our high performance foams manufacturing facility in carol stream , illinois , so the facility has been vacant and classified as held for sale since 2009. this facility had a book value of approximately $ 1.8 million prior to the signing of the agreement , and we recorded an impairment charge of approximately $ 0.4 million as of december 31 , 2011 , which represents the write down to the selling price less approximately $ 0.1 million of estimated selling costs . we expect the transaction to close in the second quarter of 2012. equity income in unconsolidated joint ventures equity income in unconsolidated joint ventures was $ 5.5 million in 2011 , a decrease of $ 3.2 million from $ 8.7 million in 2010 . 2010 results included approximately $ 0.9 million of equity income related to the rcct joint venture , which was divested in the fourth quarter of 2010. the remaining year-over-year decrease is attributable to a decline in performance at our foam joint ventures , rogers inoac suzhou ( ris ) in china and rogers inoac corporation ( ric ) in japan . other income ( expense ) , net other income was $ 1.9 million in 2011 , an increase of $ 0.5 million from $ 1.4 million in 2010. the increase is primarily due to a gain of approximately $ 1.9 million on the sale of a building in china , partially offset by an unfavorable impact of $ 0.5 million related to foreign currency fluctuations and our related hedging program . also , 2010 results included commission income of $ 0.6 million from pls , which did not recur in 2011. realized investment loss realized investment loss is the portion of the auction rate security impairment that relates to credit losses and is required to be recorded in the consolidated statements of operations . the amount of loss recognized in 2011 was $ 0.2 million , a decrease from the $ 0.6 million loss recognized in 2010. the change is attributable to market conditions surrounding the securities underlying the auction rate securities , as well as redemption of a tranche of auction rate securities during 2011 at less than par value . interest income ( expense ) , net interest income ( expense ) , net went from $ 0.2 million of interest income in 2010 to $ 4.9 million of interest expense in 2011. the interest expense is primarily due to the recognition of $ 3.8 million of expense related to our long-term debt obligations resulting from the funding of the curamik acquisition in the first quarter of 2011. additionally , in 2011 , we incurred approximately $ 0.7 million of expense associated with a capital lease obligation that we acquired as part of the curamik acquisition . income taxes our effective tax rate was 20.5 % in 2011 and 13.0 % in 2010. in both 2011 and 2010 , our tax rate was favorably impacted by the tax benefit associated with certain discrete rate items recorded during the year and also benefited from favorable tax rates on certain foreign business activity . in 2010 , our effective tax rate was also favorably impacted by the release of a portion of the valuation allowance against our u.s. deferred tax assets . in the fourth quarter of 2010 , we developed a tax planning strategy that would allow us to recognize certain deferred tax assets , resulting in a partial reduction of our valuation allowance . we believe that this strategy is reasonable , prudent , and feasible , and we will implement this strategy , if need be , to ensure that this portion of our deferred tax asset does not expire . in both 2011 and 2010 , we had cumulative losses in the u.s. as the realization of deferred taxes is principally dependent upon the achievement of future taxable income , the estimation of which requires significant management judgment , we concluded that given the weight of both positive and negative evidence , a valuation allowance should be placed against the remaining portion of our u.s. deferred tax assets , for which there is neither a tax planning strategy nor source of taxable income against which it would offset . the amount of the deferred tax assets considered realizable , however , could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased . furthermore , if objective negative evidence in the form of recent cumulative losses is no longer present , additional weight may be given to subjective evidence such as our projections for future taxable income . 31 our tax holiday on the earnings of our subsidiaries in china expired at the end of 2011. under the business license agreement granted to rogers technologies ( suzhou ) company ( rsz ) , a wholly-owned subsidiary of ours , the first two years of cumulatively profitable operations were taxed at a zero percent tax rate followed by a reduced tax rate in subsequent years that gradually increased to the 25 % full rate of tax beginning in 2012. in 2011 , rsz reported pretax income of $ 17.9 million which was subject to a tax rate of 24 % . in 2010 , rsz reported pretax income of $ 18.1 million , which was subject to a tax rate of 22 % . under the business license agreement granted to rogers ( shanghai ) international trading company ltd. ( rsh ) , also a wholly-owned subsidiary of ours , rsh was subject to a reduced rate of tax that gradually increased to the 25 % full rate of tax beginning in 2012. in 2011 , rsh reported pretax income of $ 2.4 million which was subject to a tax rate of 24 % . in 2010 , rsh reported pretax income of $ 4.8 million which was subject to a tax rate of 22 % .
| results of continuing operations the following table sets forth , for the last three fiscal years , selected company operating data expressed as a percentage of net sales . replace_table_token_3_th 29 2011 vs. 2010 net sales net sales in 2011 were $ 553.2 million , an increase of 46.3 % from $ 378.2 million of sales in 2010 . 2011 sales included approximately $ 132.9 million related to curamik , which was acquired at the beginning of 2011. excluding curamik , organic growth was approximately $ 42.1 million , or 11.1 % . this sales increase was attributable to volume improvement across all of our core strategic segments , led by high performance foams , which increased by 18.6 % from $ 149.7 million in 2010 to $ 177.6 million in 2011 ; printed circuit materials , which increased by 18.0 % from $ 141.1 million in 2010 to $ 166.4 million in 2011 ; and the power distribution systems segment , which increased by 12.6 % from $ 42.1 million to $ 47.3 million . a primary driver of these increases was the strong demand for the industry leading products and materials produced by these segments , particularly over the first nine months of 2011 , as volumes declined in the fourth quarter ( as discussed in the “ executive summary ” section above ) . additional factors impacting these results are discussed in greater detail in the “ segment sales and operations ” section below . manufacturing margins manufacturing margins decreased by approximately 11 % from 36.3 % in 2010 to 32.4 % in 2011. during 2011 , margins were impacted by several factors , many of which were anticipated and planned for by management .
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our company serves as the general partner of medalist diversified holdings , lp which was formed as a delaware limited partnership on september 29 , 2015. our company was formed to acquire , reposition , renovate , lease and manage income-producing properties , with a primary focus on ( i ) commercial properties , including flex-industrial and retail properties , ( ii ) multi-family residential properties and ( iii ) limited service hotel properties in secondary and tertiary markets in the southeastern part of the united states , with an expected concentration in virginia , north carolina , south carolina , georgia , florida and alabama . we may also pursue , in an opportunistic manner , other real estate-related investments , including , among other things , equity or other ownership interests in entities that are the direct or indirect owners of real property , and indirect investments in real property , such as those that may be obtained in a joint venture . while these types of investments are not intended to be a primary focus , we may make such investments in our manager 's discretion . 16 our company is externally managed by medalist fund manager , inc. ( the “ manager ” ) . the manager makes all investment decisions for our company . the manager and its affiliated companies specialize in acquiring , developing , owning and managing value-added commercial real estate in the mid-atlantic and southeast regions . the manager oversees our company 's overall business and affairs and has broad discretion to make operating decisions on behalf of our company and to make investment decisions . our company 's stockholders are not involved in its day-to-day affairs . as of december 31 , 2020 , our company owned and operated six investment properties , the shops at franklin square ( the “ franklin square property ” ) , a 134,239 square foot retail property located in gastonia , north carolina , the greensboro hampton inn ( the “ hampton inn property ” ) a hotel with 125 rooms on 2.162 acres in greensboro , north carolina , the hanover north shopping center ( the “ hanover square property ” ) , a 73,440 square foot retail property located in mechanicsville , virginia , the ashley plaza shopping center ( the “ ashley plaza property ” ) , a 160,356 square foot retail property located in goldsboro , north carolina , the clemson best western university inn ( the “ clemson best western property ” ) , a hotel with 148 rooms on 5.92 acres in clemson , south carolina and brookfield center ( the “ brookfield center property ” ) , a 64,880 square foot mixed-use industrial/office property located in greenville , south carolina . as of december 31 , 2020 , we owned 78 percent of the hampton inn property as a tenant in common with a noncontrolling owner which owned the remaining 22 percent interest . the tenants in common lease the hampton inn property to a taxable reit subsidiary that , as of december 31,2020 , is also owned 78 percent by us and 22 percent by the noncontrolling owner . as of december 31 , 2020 , we owned 84 percent of the hanover square property as a tenant in common with a noncontrolling owner which owned the remaining 16 percent interest . reporting segments we establish operating segments at the property level and aggregate individual properties into reportable segments based on product types in which we have investments . as of december 31 , 2020 , our reportable segments were retail center properties , flex center properties , and hotel properties . recent trends and activities significant events that have impacted our company are summarized below . equity issuances on may 8 , 2019 , our company issued and sold 1,666,667 shares of common stock at an offering price of $ 4.80 per share . net proceeds from the issuance totaled $ 7,222,501 , which includes the impact of discounts and offering costs , including the underwriter 's selling commissions and reimbursable legal fees and other expenses . on may 21 , 2019 , our company issued and sold 227,062 shares of common stock at an offering price of $ 4.80 per share , pursuant to its underwriter 's over-allotment option related to the may 8 , 2019 offering . net proceeds from the issuance totaled $ 991,807 , which includes the impact of discounts and offering costs , including the underwriter 's selling commissions . on may 31 , 2019 , our company issued and sold 270,833 shares of common stock pursuant to a private placement at an offering price of $ 4.80 per share . net proceeds from the issuance totaled $ 1,183,998 , which includes the impact of discounts and offering costs , including the underwriter 's selling commissions and reimbursable legal fees . during the year ended december 31 , 2019 , our company also incurred $ 116,632 and $ 887,465 , respectively , in offering costs , including legal , accounting , advisory and other professional fees . mandatorily redeemable preferred stock issuance on february 19 , 2020 , our company issued and sold 200,000 shares of 8.0 % series a cumulative redeemable preferred stock ( “ series a preferred stock ” ) at $ 23.00 per share , resulting in gross proceeds of $ 4,600,000. net proceeds from the issuance were $ 3,860,882 , which includes the impact of the underwriter 's discounts , selling commissions and legal , accounting and other professional fees . at issuance , our company created an escrow for $ 371,111 for the first year of dividends . as of december 31 , 2020 and december 31 , 2019 , respectively , the balance of the preferred dividend escrow was $ 97,632 and $ 0 , respectively , which is reported as restricted cash on our company 's consolidated balance sheet . our company has classified the series a preferred stock as a liability in accordance with asc topic no . story_separator_special_tag the fixed monthly payment , which includes principal and interest , increased to $ 56,882. our company has accounted for this transaction as a loan modification . under this accounting treatment , our company recorded $ 1,500 in capitalized loan issuance costs for loan fees paid to the lender and recorded $ 43,852 in third party costs associated with the transaction as an expense under retail property operating expenses on our company 's consolidated statement of operations for the year ended december 31 , 2020. the mortgage loan agreement for the hanover square property includes covenants to ( i ) maintain a debt service coverage ratio ( “ dscr ” ) in excess of 1.35 to 1.00 and ( ii ) maintain a loan-to-value of real estate ratio of 75 percent . as of december 31 , 2020 and december 31 , 2019 , respectively , our company believes that it is compliant with these covenants . ( c ) the mortgage loan for the ashley plaza property bears interest at a fixed rate of 3.75 percent and is interest only for the first twelve months . beginning on october 1 , 2020 , the monthly payment became $ 52,795 for the remaining term of the loan , which includes interest at the fixed rate , and principal , based on a thirty year amortization schedule . ( d ) the mortgage loan for the clemson best western property bears interest at a variable rate based on libor with a minimum rate of 7.15 percent . the interest rate payable is the usd libor one-month rate plus 4.9 percent . as of december 31 , 2020 , the rate in effect for the clemson best western property mortgage was 7.15 percent . ( e ) the mortgage loan for the brookfield property bears interest at a fixed rate of 3.90 percent and is interest only for the first twelve months . beginning on november 1 , 2020 , the monthly payment became $ 22,876 for the remaining term of the loan , which includes interest at the fixed rate , and principal , based on a thirty year amortization schedule . 19 our company financed its acquisitions of its assets held for sale through mortgages , which as of december 31 , 2020 are recorded as mortgages payable , net , associated with assets held for sale , on our consolidated balance sheets , as follows : monthly interest december 31 , property payment rate maturity 2020 2019 hampton inn ( a ) interest only variable may 2022 10,400,000 10,600,000 ( a ) as of december 31 , 2020 , our company reclassified the mortgage loan for the hampton inn property to liabilities associated with assets held for sale . the mortgage loan for the hampton inn property matured on november 9 , 2020 and , on november 9 , 2020 our company entered into an amendment to extend the loan until may 2022. our company has accounted for this transaction as a loan modification in accordance with asc 470. under this accounting treatment , our company recorded $ 54,000 in capitalized loan issuance costs for loan fees paid to the lender and recorded $ 22,784 in third party costs associated with the transaction as an expense under hotel property operating expenses on our company 's consolidated statement of operations for the year ended december 31 , 2020. the mortgage loan for the hampton inn property bears interest at a variable rate based on libor with a minimum rate of 6.50 percent . the interest rate payable is the usd libor one-month rate plus 6.25 percent . as of december 31 , 2020 and 2019 , the rate in effect for the hampton inn property mortgage was 6.50 percent and 6.75 percent , respectively . convertible debenture issuance on october 27 , 2020 , our company entered into an agreement providing for the issuance of convertible debentures in the principal amount of $ 5 million to a financing entity . the debentures were issued at a 5 percent discount to the principal amount , accrue interest at a rate of 5.00 percent per annum ( payable at maturity ) , and were closed in three separate tranches . during the year ended december 31 , 2020 , two tranches were closed with a total principal amount of $ 3,500,000 resulting in net proceeds of $ 2,926,483. the third tranche closed on january 5 , 2021 in the principal amount of $ 1,500,000 and net proceeds of $ 1,305,000 . ( see note 5 of the accompanying notes to consolidated financial statements . ) line of credit , short term as of december 31 , 2020 and december 31 , 2019 , our company had a line of credit , short term , outstanding in the principal amount of $ 325,000 and $ 2,000,000 , respectively . the line of credit , short term , was established on august 21 , 2019 to provide short term funding for our company 's acquisition of the ashley plaza property and the clemson best western property ( see note on 2019 acquisitions , above ) . on february 20 , 2020 , our company repaid the line of credit , short term , in the amount of $ 2,000,000 plus accrued interest of $ 21,437. effective on february 21 , 2020 , the original maturity date of the line of credit , short term , our company extended the line of credit , short term , for 60 days until april 21 , 2020. on march 3 , 2020 our company received $ 550,000 in funding from the line of credit , short term , to fund working capital and dividend payments .
| results of operations revenues total revenue was $ 9,276,160 for the year ended december 31 , 2020 , consisting of $ 5,152,150 in revenues from retail center properties , $ 3,337,176 from hotel properties and $ 786,834 from the flex center property . total revenues for the year ended december 31 , 2020 increased by $ 998,777 over the year ended december 31 , 2019 , due to new revenues from the acquisition of three new properties , the ashley plaza property , the clemson best western property and the brookfield center property , offset by declines in revenues from the franklin square property and hampton inn property due to reduced occupancy and revenues resulting from covid-19 . replace_table_token_23_th revenues from retail center properties were $ 5,152,150 for the year ended december 31 , 2020 , an increase of $ 956,790 over retail center property revenues for the year ended december 31 , 2019. decreased revenues from the franklin square property due to the impact of covid were offset by new revenues from the acquisition of the ashley plaza property and a slight increase in revenues from the hanover square property . replace_table_token_24_th revenues from hotel properties were $ 3,337,176 for the year ended december 31 , 2020 , a decrease of $ 561,078 over revenues from hotel properties for the year ended december 31 , 2019. increased revenues of $ 903,371 from the clemson best western property , which was acquired on september 27 , 2019 and owned for approximately three months during the year ended december 31 , 2019 , offset a decline in revenues from the hampton inn property of $ 1,464,449 due to reduced occupancy and revenues resulting from covid-19 .
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in assessing the impairment of indefinite lived licenses , the company first performed a qualitative impairment test to determine if story_separator_special_tag you should read the following discussion and analysis of our financial condition and plan of operations together with our financial statements and the related notes appearing elsewhere in this annual report . in addition to historical information , this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those discussed below . factors that could cause or contribute to such differences include , but are not limited to , those identified below , and those discussed in the section titled “ risk factors ” included elsewhere in this annual report . all amounts in this annual report are in u.s. dollars , unless otherwise noted . overview except as expressly stated , the financial condition and results of operations discussed throughout the management 's discussion and analysis of financial condition and results of operations are those of elys game technology , corp. and its consolidated subsidiaries . 46 we are a licensed gaming operator in the regulated italian leisure betting market holding an “ online ” , “ retail ” and “ ctd retail ” austria bookmaker license through our multigioco , and ulisse subsidiaries , respectively . as an operator , we collect gaming wagers and sports bets through two distribution channels : ( i ) online through websites on internet browsers , mobile applications and physical venues known as “ web-shops ” ( internet cafes ; kiosks , coffee-shops , convenience stores , restaurants and bars , etc . ) where patrons can play online through pc 's situated at each venue , and ( ii ) through physical land-based retail venues ( off-track betting shops , ssbt ( “ self-serve betting terminal ” ) kiosks , coffee-shops , convenience stores , restaurants , taverns and bars , etc. ) . our prior subsidiary rifa was amalgamated into multigioco with effect on january 20 , 2020. additionally , we are a global gaming technology company which owns and operates a betting software designed with a unique “ distributed model ” architecture colloquially named elys game board ( the “ platform ” ) through our odissea subsidiary . the platform is a fully integrated “ omni-channel ” framework that combines centralized technology for updating , servicing and operations with multi-channel functionality to accept all forms of customer payment through the two distribution channels described above . the omni-channel software design is fully integrated with a built in player gaming account management system , built-in sports book and a virtual sports platform through our vg subsidiary . the platform also provides seamless application programming interface integration of third-party supplied products such as online casino , poker , lottery and horse racing and has the capability to incorporate e-sports and daily fantasy sports providers . our corporate group is based in north america , which includes an executive suite situated in san francisco , california and a canadian office in toronto , ontario through which we carry-out corporate activities , handle day-to-day reporting and u.s. development planning , and through which various employees , independent contractors and vendors are engaged . we operate two business segments in the leisure gaming industry and our revenue is derived as follows : 1. betting establishments transaction revenue through our offering of leisure betting products to retail customers directly through our online distribution on websites or a betting shop establishment or through third party agents that operate white-label websites and or land-based retail venues ; and 2. betting platform software and services saas based service revenue through providing our platform and virtual sports products to betting operators . currently , transaction revenue generated through our subsidiaries multigioco and ulisse , consist of wagering and gaming transaction income broken down to : ( i ) spread on sports bet wagers , and ( ii ) fixed rate commissions on casino , poker , lotto and horse racing wagers from online based betting web-shops and websites as well as land-based retail betting shops located throughout italy ; while our service revenue generated by our platform is primarily derived from bet and wager processing through multigioco and ulisse . our subsidiary rifa was amalgamated into multigioco with effect on january 20 , 2020. we believe that our platform is considered one of the newest betting software platforms in the world and our plan is to expand our platform offering to new jurisdictions around the world on a b2b basis , including expansion through europe , south america , south africa and the developing market in the united states . during the year ended december 31 , 2020 , we also generated service revenue from royalties through authorized agents by providing our virtual sports products through our vg subsidiary in the following countries : italy , peru , nigeria , colombia , dominican republic , uganda , kenya , zimbabwe , and the united states in puerto rico . we intend to leverage our partnerships in these countries to cross-sell our platform services to expand the global distribution of our betting solutions . this management 's discussion and analysis includes a discussion of our operations for the year ended december 31 , 2020 and 2019 , which reflects the operations of vg and naos for the eleven months of the year ended december 31 , 2019. our prior non-operating holding company subsidiary naos was discontinued with effect on december 31 , 2019 . story_separator_special_tag in terms of the securities purchase agreement entered into with the virtual generation sellers in january 2019 , the sellers were entitled to an additional payment of 500,000 on achievement of a growth on gross tickets sold of 5 % . this contingent bonus earnout was not included in the original purchase consideration as we considered that the possibility of achieving the 5 % growth in gross tickets was remote . loss on share issuances loss on share issuances was $ 0 and $ 44,063 for the years ended december 31 , 2020 and 2019 , respectively , a decrease of $ 44,063 or 100 % . the loss on share issuances was primarily related to shares issued to certain convertible debenture holders to induce them to transfer their convertible debentures to another holder . other income other income was $ 165,375 and $ 149,565 for years ended december 31 , 2020 and 2019 , respectively , an increase of $ 15,810 or 10.6 % . other income represent several individually insignificant amounts received during the year . other expense other expense was $ 86,933 and $ 0 for the years ended december 31 , 2020 and 2019 , respectively , an increase of $ 86,933 or 100 % . other expense represents several individually insignificant amounts such as minor fines and penalties and non-operational commitments not related to operations , expensed during the year . loss on extinguishment of convertible debt the loss on extinguishment of convertible debt was $ 719,390 and $ 0 for the years ended december 31 , 2020 and 2019 , respectively , an increase of $ 719,390 or 100 % . in may 2020 , we issued additional warrants to certain debenture holders who agreed to extend the maturity date of their debentures by between 90 and 120 days to allow us to complete a fund raising exercise resulting in a non-cash charge of $ 719,390. these warrants were valued using a black-scholes valuation model that were recorded as a discount against the gross value of the convertible debentures with the following assumptions : no dividend yield , expected volatility of between 139.5 % and 183.5 % , risk free interest rate between 0.16 % and 0.19 % and warrant life of approximately 2 - 3 years . gain ( loss ) on marketable securities the gain on marketable securities was $ 290,000 and the loss on marketable securities was $ 97,500 for the years ended december 31 , 2020 , and 2019 , respectively , an increase of $ 387,500 or 397.4 % . the gain and loss on marketable securities is directly related to the stock price of our investment in zoompass which is marked-to-market each period . the shares in zoompass were acquired by the company as settlement of the litigation matter . loss before income taxes loss before income taxes was $ 9,030,038 and $ 8,676,629 for the years ended december 31 , 2020 and 2019 , respectively , an increase of $ 353,409 or 4.1 % . the increase is primarily attributable to the increase in the loss from operations , as discussed above , offset by a decrease in interest expense and a decrease in the amortization of debt discount and the gain on marketable securities o as discussed above . income tax provision the income tax provision was $ 906,644 and $ 598,176 for the years ended december 31 , 2020 and 2019 , respectively , an increase of $ 308,468 or 51.5 % . the increase is primarily due to the withholding tax charge on dividends declared by one of our subsidiaries to our holding company of 150,000 ( approximately $ 162,000 ) , and an increase in the operational tax charge during the current year in our multigioco operations . net loss net loss was $ 9,936,682 and $ 9,274,805 for the years ended december 31 , 2020 and 2019 , respectively , an increase of $ 661,877 or 7.1 % , due to the reasons discussed above . 51 comprehensive loss our reporting currency is the u.s. dollar while the functional currency of our subsidies is the euro , the local currency in italy and austria , the functional currency of our canadian subsidiary is the canadian dollar and the functional currency of our colombian operations is the colombian peso . the financial statements of our subsidiaries are translated into united states dollars in accordance with asc 830 , using year-end rates of exchange for assets and liabilities , and average rates of exchange for the period for revenues , costs , and expenses and historical rates for equity . translation adjustments resulting from the process of translating the local currency financial statements into u.s. dollars are included in determining other comprehensive income . we recorded a foreign currency translation gain of $ 444,665 and a foreign currency translation loss of $ 119,286 for the years ended december 31 , 2020 and 2019 , respectively . liquidity and capital resources the closing of physical betting shop locations that occurred as a result of orders imposed due to the covid-19 outbreak did not affect our online and mobile business operations , which mitigated some of the impact of the closure of the physical locations . on march 8 , 2020 the italian government imposed further restrictions on travel throughout italy as well as transborder crossings and had either postponed or cancelled most professional sports events . although most major sporting events and leagues have recently recommenced , the suspension of professional sports competitions throughout the world negatively impacted our ability to offer sports gaming products and covid-19 could have a continued material adverse impact on economic and market conditions and trigger a period of continued global economic slowdown , especially in light of potential subsequent waves or new strains of the virus . on june 19 , 2020 all land-based betting shops , including corner locations such as coffee shops throughout italy temporarily reopened until november 2020 when the italian government imposed new lockdowns that currently remain in place .
| results of operations results of operations for the years ended december 31 , 2020 and december 31 , 2019. the comparisons below include a discussion of our operations for the years ended december 31 , 2020 and 2019 , which includes the results of operations of vg and naos , subsequent to their acquisition on january 31 , 2019. our prior subsidiary rifa was amalgamated into multigioco with effect on january 20 , 2020 and our prior non-operating holding company subsidiary naos was discontinued with effect on december 31 , 2019. revenues the following table represents disaggregated revenues from our gaming operations for the years ended december 31 , 2020 and 2019. net gaming revenues represents turnover ( also referred to as “ handle ” ) , the total bets processed for the period , less customer winnings paid out , commissions paid to agents , and taxes due to government authorities . commission and service revenues represent commissions on lotto ticket sales and revenue invoiced for our platform service and royalties invoiced for the sale of virtual products . replace_table_token_1_th the company generated total revenues of $ 37,266,367 and $ 35,583,131 for the years ended december 31 , 2020 and 2019 , respectively , an increase of $ 1,683,236 or 4.7 % . the change in total revenues is primarily due to the following : web-based turnover increased by $ 176,983,966 or 53.9 % . the increase was due to the significant number of new online players acquired through web-shops opened in the second half of 2019 , while the physical betting shops were closed for a significant portion of the current year due to the pandemic . the increase over the prior period was impacted by the temporary shutdown of betting shops in italy on march 8 , 2020 due to covid-19 .
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please see `` risk factors '' and `` forward-looking statements '' for a discussion of the uncertainties , risks and assumptions associated with these statements . overview we are an industry leading provider of optical and photonic products defined by revenue and market share addressing a range of end-market applications including optical communications and commercial lasers . we have two operating segments , optical communications , which we refer to as opcomms , and commercial lasers , which we refer to as lasers . the two operating segments were primarily determined based on how the chief operating decision mater ( “ codm ” ) views and evaluates our operations . operating results are regularly reviewed by the codm to make decisions about resources to be allocated to the segments and to assess their performance . other factors , including market separation and customer specific applications , go-to-market channels , products and manufacturing , are considered in determining the formation of these operating segments . opcomms our opcomms products address the following markets : telecommunications ( telecom ) , data communications ( datacom ) and consumer and industrial . our opcomms products include a wide range of components , modules and subsystems to support and maintain customers in our two primary markets : telecom and datacom . the telecom market includes carrier networks for access ( local ) , metro ( intracity ) , long-haul ( city-to-city and worldwide ) and submarine ( undersea ) networks . the datacom market addresses enterprise , cloud and data center applications , including storage-access networks ( “ sans ” ) , local-area networks ( “ lans ” ) and wide-area networks ( “ wans ” ) . these products enable the transmission and transport of video , audio and text data over high-capacity fiber-optic cables . we maintain leading positions in the fastest-growing opcomms markets , including reconfigurable optical add/drop multiplexers ( “ roadms ” ) , tunable 10-gigabit small form-factor pluggable transceivers and tunable small form-factor pluggables . our 10g , 40g legacy transceivers and a growing portfolio of 100g pluggable transceivers support lan/san/wan needs and the cloud for customers building enterprise and hyperscale data center networks . our products for 3-d sensing applications include our light source product . customer solutions containing our 3-d sensing lasers employ our laser technology in mobile , computing , industrial and automotive applications . emerging 3-d sensing systems simplify the way people interact with technology and were first used in applications for gaming platforms . in the consumer and industrial markets , our opcomms products include our light source product which is integrated into 3-d sensing platforms being used in applications for gaming , computing , mobile and industrial segments . these systems simplify the way people interact with technology by enabling the use of natural body gestures , like the wave of a hand , to control a product or application . emerging applications for this technology include various mobile device applications , autonomous vehicles , self-navigating robotics and drones in industrial applications and 3-d capture of objects coupled with 3-d printing . our opcomms customers include ciena corporation , cisco systems , inc. , coriant gmbh , fujitsu , alphabet inc. ( formerly google ) , huawei technologies co. ltd. , microsoft corporation and nokia networks ( including alcatel-lucent international ) . lasers our lasers products serve our customers in markets and applications such as manufacturing , biotechnology , graphics and imaging , remote sensing , and precision machining such as drilling in printed circuit boards , wafer singulation and solar cell scribing . our lasers products are used in a variety of original equipment manufacturer ( “ oem ” ) applications . our laser products are used in a variety of oem applications including diode-pumped solid-state , fiber , diode , direct-diode and gas lasers such as argon-ion and helium-neon lasers . diode-pumped solid-state and fiber lasers provide excellent beam quality , low noise and exceptional reliability and are used in biotechnology , graphics and imaging , remote sensing , materials processing and precision machining applications . diode and direct-diode lasers address a wide variety of applications , including laser pumping , thermal exposure , illumination , ophthalmology , image recording , printing , plastic welding and selective soldering . gas lasers such as argon-ion and helium-neon lasers provide a stable , low-cost and reliable solution over a wide range of operating conditions , making them well suited for complex , high-resolution oem applications such as flow cytometry , dna sequencing , graphics and imaging and semiconductor inspection . 33 our acquisition of time-bandwidth enabled us to provide high-powered and ultrafast lasers for the industrial and scientific markets . manufacturers use high-power , ultrafast lasers to create micro parts for consumer electronics and to process semiconductor , led , and other types of chips . use of ultrafast lasers for micromachining applications is being driven primarily by the increasing use of consumer electronics and connected devices globally . our lasers customers include amada co. , ltd. , asml holding n.v. , beckman coulter , inc. , becton , dickinson and company , disco corporation , electro scientific industries , inc. , eo technics co. , ltd. and kla-tencor corporation . separation from jdsu lumentum holdings inc. was incorporated in delaware as a wholly owned subsidiary of jds uniphase corporation ( “ jdsu ” ) on february 10 , 2015 and is comprised of the former communications and commercial optical products ( “ ccop ” ) segment and the waveready product lines of jdsu . on august 1 , 2015 , we became an independent publicly-traded company through the distribution by jdsu to its stockholders of 80.1 % of our outstanding common stock ( the “ separation ” ) . each jdsu stockholder of record as of the close of business on july 27 , 2015 received one share of lumentum common stock for every five shares of jdsu common stock held on the record date . jdsu was renamed viavi in connection with the separation and retained ownership of 19.9 % of lumentum 's outstanding shares . story_separator_special_tag stock-based compensation stock-based compensation is measured at grant date , based on the fair value of the award , and recognized as compensation over the requisite service period . the fair value of time-based restricted units ( `` rsus '' ) is based on the closing market price of our common stock on the grant date of the award . for awards granted prior to the separation , the fair value of time-based rsus was based on the closing market price of viavi common stock on the grant date of the award . we estimate the fair value of employee stock purchase plan ( `` espp '' ) shares using the black-scholes merton option-pricing model . these valuation models require the input of highly subjective assumptions , including the award 's expected life , the price volatility of the underlying stock and the average volatility of peer companies . we estimate the expected forfeiture rate and recognize only expense for those shares expected to vest . when estimating forfeitures , we consider historical forfeiture experiences as well as our expectation about future terminations and workforce reduction programs . estimated forfeiture is trued up to actual forfeiture as the equity awards vest . the total fair value of the equity awards , net of forfeiture , is recorded on a straight-line basis over the requisite service periods of the awards , which is generally the vesting period , except for performance stock units which are amortized on a graded vesting method . goodwill we test goodwill for possible impairment on an annual basis in our fourth quarter and at any other time if events occur or circumstances indicate that the carrying amount of goodwill may not be recoverable . circumstances that could trigger an impairment test include , but are not limited to : a significant adverse change in the business climate or legal factors , an adverse action or assessment by a regulator , changes in customers , target markets and strategy , unanticipated competition , loss of key personnel , or the likelihood that a reporting unit or significant portion of a reporting unit will be sold or otherwise disposed . 35 an entity has the option to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test . if an entity determines that as a result of the qualitative assessment that it is more likely than not ( i.e. , greater than 50 % likelihood ) that the fair value of a reporting unit is less than its carrying amount , then the quantitative test is required . otherwise , no further testing is required . the two-step quantitative goodwill impairment test requires us to estimate the fair value of our reporting units . if the carrying value of a reporting unit exceeds its fair value , the goodwill of that reporting unit is potentially impaired and we proceed to step two of the impairment analysis . in step two of the analysis , we measure and record an impairment loss equal to the excess of the carrying value of the reporting unit 's goodwill over its implied fair value , if any . application of the goodwill impairment test requires judgments , including : identification of the reporting units , assigning assets and liabilities to reporting units , assigning goodwill to reporting units , a qualitative assessment to determine whether there are any impairment indicators , and determining the fair value of each reporting unit . we historically estimated the fair value of a reporting unit using the market approach , which estimates the fair value based on comparable market prices . significant estimates in the market approach include : identifying similar companies with comparable business factors such as size , growth , profitability , risk and return on investment , and assessing comparable revenue and operating income multiples in estimating the fair value of the reporting unit . we base our estimates on historical experience and on various assumptions about the future that we believe are reasonable based on available information . unanticipated events and circumstances may occur that affect the accuracy of our assumptions , estimates and judgments . for example , if the price of our common stock were to significantly decrease combined with other adverse changes in market conditions , thus indicating that the underlying fair value of our reporting units may have decreased , we might be required to reassess the value of our goodwill in the period such circumstances were identified . long-lived asset valuation ( property , plant and equipment and intangible assets subject to amortization ) we test long-lived assets for recoverability , at the asset group level , when events or changes in circumstances indicate that their carrying amounts may not be recoverable . circumstances which could trigger a review include , but are not limited to : significant decreases in the market price of the asset ; significant adverse changes in the business climate or legal factors ; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset ; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset ; and current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life . recoverability is assessed based on the carrying amounts of the long-lived assets or asset groups and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset , as well as specific appraisals in certain instances . an impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value . income taxes prior to the separation , our operations in the united states were transacted within the same viavi u.s. legal entities as the other viavi businesses which have filed u.s. and state income tax returns on that basis .
| results of operations the results of operations for the periods presented are not necessarily indicative of results to be expected for future periods . the following table summarizes selected consolidated statements of operations items as a percentage of net revenue : replace_table_token_5_th financial data for fiscal 2016 , 2015 and 2014 the following table summarizes selected consolidated statements of operations items ( in millions , except for percentages ) : replace_table_token_6_th 38 net revenue net revenue increase d by $ 65.9 million , or 7.9 % , during fiscal 2016 compared to fiscal 2015 . this increase was primarily due to an increase in net revenue from our opcomms segment . opcomms net revenue increase d $ 67.2 million , or 9.7 % , during fiscal 2016 compared to fiscal 2015 driven by increases from telecom and 100g datacom products . lasers net revenue decrease d $ 1.3 million , or 0.9 % , in fiscal 2016 compared to fiscal 2015 . net revenue increase d by $ 19.2 million , or 2.3 % , during fiscal 2015 compared to fiscal 2014 . this increase was primarily due to an increase in net revenue from our lasers segment . opcomms net revenue decrease d $ 1.0 million , or 0.1 % , during fiscal 2015 compared to fiscal 2014 . this was driven by $ 40.9 million of net revenue decreases from products addressing the consumer and industrial market , primarily due to lower demand from a key customer for 3d sensing products in 2015 compared to 2014 when this customer launched its next generation gaming console . this decrease was almost entirely offset by $ 39.9 million of net revenue increases driven by increased sales of new products for the datacom market and higher demand for our telecom products . lasers net revenue increase d $ 20.2 million , or 16.4 % , in fiscal 2015 compared to fiscal 2014 .
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the $ 20,795 cost of the reduction in the exercise price for accredited investors is included in stock based compensation expense for the year ended december 31 , 2013. f-15 amp holding inc. ( a development stage company ) notes to financial statements december 31 , 2013 and 2012 and for the period from inception , february 20 , 2007 to december 31 , 2013 the above securities were offered and sold to the investors in private placement transactions made in reliance upon exemptions from registration pursuant to section 4 ( 2 ) under the securities act of 1933 ( the “ securities act ” ) and or rule 506 promulgated under the securities act . the investors are accredited investors as defined in rule 501 of regulation d promulgated under the securities act . the following table summarizes warrant activity for accredited investors : replace_table_token_13_th the company recorded $ 902,342 , $ 20,907 , $ 546,824 , and $ 1,556,423 compensation expense for stock warrants to accredited investors for the years ended december 31 , 2013 , 2012 , 2011 and the period from inception ( february 20 , 2007 ) to december 31 , 2013 , respectively . there is no unrecognized compensation expense for these warrants because they are fully vested at date of grant . warrants to placement agent and consultants through december 2011 , the company compensated the placement agent for assisting in the sale of the company 's securities by paying the placement agent commissions and issuing the placement agent common stock purchase warrants to purchase shares of the company 's common stock . the warrants have a five year term and various exercise prices . the company has also granted , on various dates , stock warrants to purchase common stock of the company to consultants for services previously provided to the company . the terms , exercise prices and vesting of these awards vary . f-16 amp holding inc. ( a development stage company ) notes to financial statements december 31 , 2013 and 2012 and for the period from inception , february 20 , 2007 to december 31 , 2013 the following table summarizes warrant activity for the placement agent and consultants : replace_table_token_14_th the company recorded $ 0 , $ 64,936 , $ 373,876 and $ 936,340 compensation expense for stock warrants to the placement agent and consultants for the years ended december 31 , 2013 , 2012 , 2011 and the period from inception ( february 20 , 2007 ) to december 31 , 2013 , respectively . as of december 31 , 2013 , unrecognized compensation expense of $ 82,500 is related to non-vested warrants granted to consultants which is anticipated to be recognized over the next 32 months , commensurate with the vesting schedules . there is no unrecognized compensation expense for the placement agent warrants because they are fully vested at date of grant . warrants to directors and officers in december 2010 and may 2011 , the company issued to certain directors and officers common stock purchase warrants to acquire shares of common stock at an exercise price of $ 2.00 per share for a period of five years . in november 2011 , under the terms of a promissory note issued to a director and officer , common stock purchase warrants were issued to acquire 100,000 shares of common stock at an exercise price of $ 0.50 per share for a period of one year . in may 2012 , a director and officer received 100,000 2012 warrants to acquire common stock of the company at an exercise price of $ 0.50 for a period of three years . in june 2012 , a director and officer converted secured and unsecured loans provided to the company from september 2011 to june 2012 in the aggregate amount of $ 389,250 into the 2012 notes and 2012 warrants . in november 2012 , the company entered into a note and warrant amendment and conversion agreement whereby the holders and the 2012 investors converted all principal and interest under the 2012 notes into shares of common stock . further , the exercise price of the 2012 warrants was reduced to $ 0.25 per share . the $ 7,388 cost of the reduction in the exercise price for officers and directors is included in stock based compensation expense for the year ended december 31 , 2013. f-17 amp holding inc. ( a development stage company ) notes to financial statements december 31 , 2013 and 2012 and for the story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes that appear elsewhere in this annual report on form 10-k overview and 2013 highlights we recently announced that we filed a provisional patent for a new system that extends the range of electric vehicles while reducing the overall cost of the typical battery-electric power train . the new system , e-gen drive ( tm ) , is designed specifically for the package delivery vehicle market , in which the diesel and or gasoline-powered vehicles in use now , stop and restart hundreds of time a day . we believe that battery-electric technology is an ideal fit for urban and suburban delivery routes and we understand fleet owner 's concerns about range anxiety and cost . our e-gen drive system will enable them to keep the batteries recharged to a consistent state of charge throughout the day and , since we are able to use smaller battery packs , we can reduce the cost of the entire system . our e-gen drive trucks , offer a three-year payback making them price competitive with gasoline-powered trucks . story_separator_special_tag our association with power solutions international ( psix : nasdaq ) provides us with multi-fuel engines that function as generators . when the ignition is shut off , the engine automatically turns on and recharges the battery pack . when the ignition is turned back on , the engine turns off and the vehicle reverts to all-electric power . the engine and the battery-powered motor are never in use at the same time . it 's not a traditional hybrid , but an extended-range electric vehicle . we also announced the second generation , full-electric truck “ e-100 ” which is a significant improvement to our first generation vehicle . the second-generation vehicle includes a single powerful electric motor with no transmission and new lighter , high-density lithium ion batteries giving the vehicle a range of up to 100 miles . 22 we have focused our investments in research and development in these new exciting technologies . in march of 2013 , we purchased the former workhorse custom chassis assembly plant in union city , indiana from navistar international ( nav : nyse ) . this assembly plant has consistently produced more than $ 100 million dollars of revenue per year since 2003. with this acquisition , we became an original equipment manufacturer ( oem ) of class 3-6 commercial-grade , medium-duty truck chassis to be marketed under the workhorse® brand . ownership and operation of this plant enables us to build new chassis with gross vehicle weight capacities of between 10,000 and 26,000 pounds and offer them in four different fuel variants—electric , gas , propane , and cng . we plan to offer commonly known workhorse chassis like the w22 , w42 , w62 , as well as a new , 88 ” track , w88 truck chassis that will be offered to fleet purchasing managers at price points that are both attractive and cost competitive . on august 7 , 2013 we delivered an all-electric para-transit 12 passenger bus to barta ( berks county regional transit authority ) of pennsylvania . this initial vehicle was the conversion of a ford e-450 chassis . like the package delivery van , this type of chassis could also be produced at the amp workhorse facilities as an amp/workhorse chassis . the total revenue associated with the two unit conversion and integration of wireless induction charging will be $ 355,000 , one of which has been delivered during the year . story_separator_special_tag new roman ; font-weight : bold ; display : inline '' > off-balance sheet arrangements the company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the company 's financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to investors . federal tax credit qualification by the irs the company has been qualified by the irs for a vehicle federal tax credit of up to $ 7,500. the company joins a list of plug-in electric drive motor vehicle manufacturers , including ford motor company , general motors corporation , tesla , toyota , and 13 ev manufacturers in all , qualifying purchasers for up to a $ 7,500 tax credit when purchasing an electric vehicle . additionally , many states offer additional sales tax exemptions and zero emission tax credits of up to $ 5,000 that can also be applied to the purchase . california air resources board approval on february 20 , 2013 the california air resource board ( carb ) approved the medium to heavy duty amp commercial truck for sale in the state of california . most other states use this approval for sale of vehicles in their state . critical accounting policies and estimates the following accounting principles and practices of amp are set forth to facilitate the understanding of data presented in the consolidated financial statements : nature of operations a development stage company , amp is a technology-driven business that that plans to deliver a full-performance , all electric , powertrain for medium duty commercial vehicles . operating with three specific approaches , amp converts existing internal combustion engine based vehicles to all electric powertrains , provides original equipment manufacturers ( oem 's ) with amp designed and integrated modular electric components , and provides electric powertrain engineering to end-users . amp has not recorded significant revenue since inception in february 2007 , and is developing its operations through a sale , design and manufacturing facility located near cincinnati , ohio . use of estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that affect certain reported amounts and disclosures . accordingly , actual results could differ from those estimates . property and depreciation property and equipment is recorded at cost . depreciation is provided on the straight-line and accelerated methods over the estimated useful lives of the respective assets . advertising advertising and public relation costs are charged to operations when incurred . advertising and public relation expense was approximately $ 120,000 and $ 429,000 for the years ended december 31 , 2013 and 2012 , respectively , and $ 1,386,000 for the period from inception to december 31 , 2013 . 24 income taxes with the consent of its shareholders , at the date of inception , amp elected under the internal revenue code to be taxed as an s corporation . since shareholders of an s corporation are taxed on their proportionate share of the company 's taxable income , an s corporation is generally not subject to either federal or state income taxes at the corporate level . on december 28 , 2009 pursuant to the merger transaction the company revoked its election to be taxed as an s-corporation . as no taxable income has occurred from the date of this merger to
| results of operations year ended december 31 , 2013 compared to year ended december 31 , 2012 revenue . revenue was $ 177,500 for the year ended december 31 , 2013 for the all-electric para-transit 12 passenger bus to barta mentioned above . revenue was $ 272,098 for the year ended december 31 , 2012 and consisted of a limited number of customer conversions . expenses . our expenses for the year ended december 31 , 2013 were $ 6,288,053 and included payroll and payroll taxes ( $ 1,527,952 ) , stock based compensation ( $ 1,392,370 ) , consulting ( $ 1,088,818 ) legal and professional ( $ 441,439 ) , interests ( $ 258,261 ) , and batteries , motors and supplies and vehicle testing ( $ 397,617 ) . our expenses for the year ended december 31 , 2012 were $ 4,544,587 and included payroll and payroll taxes ( $ 1,773,232 ) , stock based compensation ( $ 338,853 ) , legal and professional ( $ 709,883 ) , advertising ( $ 429,483 ) , and batteries , motors and supplies ( $ 240,907 ) . the major reasons for the increase in comparing the year ended 2013 to 2012 was primarily related to non-cash payments for consulting fees associated with the workhorse plant acquisition and plant expenses as well as the development of the new gen ii and e-gen technologies . net loss . net loss for the years ended december 31 , 2013 and 2012 were $ 6,110,554 and $ 4,272,489 , respectively .
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it is not practical to estimate the fair value of notes receivable from sale of properties because no quoted market exists and there are no comparable debt instruments to provide a basis for valuation . note e – notes payable notes payable is comprised of the following ( in thousands ) : replace_table_token_9_th - 46 - aggregate annual principal maturities of long-term debt at december 31 , 2011 are as follows ( in thousands ) : replace_table_token_10_th note f – operating leases the company leases a retirement community under an operating lease which expires january 31 , 2017 , with an option to renew for an additional five-year period . the company also has operating leases for equipment and office space . the leases generally provide that the company pay property taxes , insurance and maintenance . future minimum payments for the primary lease following december 31 , 2011 are as follows ( in thousands ) : replace_table_token_11_th lease expense in 2011 , 2010 and 2009 was $ 905,000 , $ 888,000 and $ 958,000 respectively . note g - earnings per share the following table sets forth the computations of basic and diluted earnings per share ( in thousands , except per share data ) : - 47 - replace_table_token_12_th - 48 - note h – income taxes at december 31 , 2011 , the company had net operating loss carry forwards of approximately $ 7 million , which expire between 2012 and 2025. note i – stockholders ' equity replace_table_token_13_th the series b preferred stock has a liquidation value of $ 100 per share and is convertible into common stock over a ten-year period at prices escalating from $ 500 per share in 1993 to $ 1,111 per share by 2002. the right to convert expired april 30 , 2003. dividends at a rate of 6 % are payable in cash or preferred shares at the option of the company . note j – other income ( expense ) other income ( expense ) consists of the following : ( amounts in thousands ) replace_table_token_14_th note k – contingencies carlton energy group , llc in december 2006 , carlton energy group , llc ( “ carlton ” ) instituted litigation against an individual , eurenergy resources corporation ( “ eurenergy ” ) and several other entities including new concept energy , inc. , which was then known as cabeltel international corporation ( the “ company ” ) alleging tortuous conduct , breach of contract and other matters and as to the company that it was the alter ego of eurenergy . the carlton claims were based upon an alleged tortuous interference with a contract by the individual and eurenergy related to the right to explore a coal bed methane concession in bulgaria which had never ( and has not to this day ) produced a drop of hydrocarbons . at no time during the pendency of this project or since did the company or any of its officers or directors have any interest whatsoever in the success or failure of the so-called “ bulgaria project ” . however , in the litigation , carlton alleged that the company was the alter-ego of certain of the other defendants including eurenergy . - 49 - following a jury trial in 2009 , the trial court ( 295 th district court of harris county , texas ) reduced the actual damages found by the jury of $ 66.5 million and entered judgment against eurenergy and the individual jointly and severally for $ 31.16 million in actual damages on its tortuous-interference claim and the court further assessed exemplary damages against the individual and eurenergy in the amount of $ 8.5 million each . story_separator_special_tag overview the company , through its wholly owned subsidiaries mountaineer state energy , inc. and mountaineer state operations , llc . operates oil and gas wells and mineral leases in athens and meigs counties in ohio and in calhoun , jackson and roane counties in west virginia . the vast majority of this oil & gas operation was acquired through the acquisition of the carl e. smith companies in 2008 as of march 30 , 2012 the company has 159 producing gas wells , 27 non-producing wells and related equipment and mineral leases covering approximately 20,000 acres . with the exception of 8 wells that were drilled during the past two years the wells in west virginia and ohio were drilled in the 1960 's , the majority were drilled in the 1970 's and 1980 's . the majority of wells are located on leased property under mineral rights contracts . a component of the purchase price for the acquisition of carl e. smith , inc were certain non interest bearing long term obligations which the company will paid out over the next 15 years . the company has evaluated the above notes and after factoring in certain offsets provided for in the agreement has valued the above obligations at $ 1,387,000 at december 31 , 2011. as of december 31 , 2011 , the company leased one independent living community in oregon , with a capacity of 114 residents . a number of years ago the company has owned , leased and operated assisted living and retirement communities throughout the united states . during that period of time the company has both acquired and sold over seventy communities . the property in oregon is a holdover from that time period . while not an integral part of our business plan the one remaining facility is profitable and it is anticipated that it will remain a part of the company 's operations . story_separator_special_tag critical accounting policies and estimates the company 's discussion and analysis of its financial condition and results of operations are based upon the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . certain of the company 's accounting policies require the application of judgment in selecting the appropriate assumptions for calculating financial estimates . by their nature , these judgments are subject to an inherent degree of uncertainty . these judgments and estimates are based upon the company 's historical experience , current trends and information available from other sources 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 from these estimates under different assumptions or conditions . the company believes the following critical accounting policies are more significant to the judgments and estimates used in the preparation of its consolidated financial statements . revisions in such estimates are recorded in the period in which the facts that give rise to the revisions become known . - 15 - oil and gas property accounting the company uses the full cost method of accounting for its investment in oil and natural gas properties . under this method of accounting , all costs of acquisition , exploration and development of oil and natural gas properties ( including such costs as leasehold acquisition costs , geological expenditures , dry hole costs , tangible and intangible development costs and direct internal costs ) are capitalized as the cost of oil and natural gas properties when incurred . the full cost method requires the company to calculate quarterly , by cost center , a “ ceiling , ” or limitation on the amount of properties that can be capitalized on the balance sheet . to the extent capitalized costs of oil and natural gas properties , less accumulated depletion and related deferred taxes exceed the sum of the discounted future net revenues of proved oil and natural gas reserves , the lower of cost or estimated fair value of unproved properties subject to amortization , the cost of properties not being amortized , and the related tax amounts , such excess capitalized costs are charged to expense . beginning december 31 , 2009 , full cost companies use the unweighted arithmetic average first day of the month price for oil and natural gas for the 12-month period preceding the calculation date to calculate the future net revenues of proved reserves . prior to december 31 , 2009 , companies used the price in effect at the calculation date and had the option , under certain circumstances , to elect to use subsequent commodity prices if they increased after the calculation date . the company assesses any unproved oil and gas properties on an annual basis for possible impairment or reduction in value . the company assesses properties on an individual basis or as a group if properties are individually insignificant . the assessment includes consideration of the following factors , among others : intent to drill ; remaining lease term ; geological and geophysical evaluations ; drilling results and activity ; the assignment of proved reserves ; and the economic viability of development if proved reserves are assigned . during any period in which these factors indicate an impairment of unproved properties not subject to amortization , the associated costs incurred to date for such properties are then included in unproved properties subject to amortization . oil and gas reserves our proved oil and gas reserves are estimated by independent petroleum engineers . reserve engineering is a subjective process that is dependent upon the quality of available data and the interpretation thereof , including evaluations and extrapolations of well flow rates and reservoir pressure . estimates by different engineers often vary , sometimes significantly . in addition , physical factors such as the results of drilling , testing and production subsequent to the date of an estimate , as well as economic factors such as changes in product prices , may justify revision of such estimates . because proved reserves are required to be estimated using prices at the date of the evaluation , estimated reserve quantities can be significantly impacted by changes in product prices . depreciation , depletion and amortization ( “ dd & a ” ) of producing properties is computed on the unit-of-production method based on estimated proved oil and gas reserves . while total dd & a expense for the life of a property is limited to the property 's total cost , proved reserve revisions result in a change in timing of when dd & a expense is recognized . downward revisions of proved reserves result in an acceleration of dd & a expense , while upward revisions tend to lower the rate of dd & a expense recognition . the standardized measure of discounted future net cash flows and changes in such cash flows are prepared using assumptions required by the financial accounting standards board and the securities and exchange commission . such assumptions include using year-end oil and gas prices and year-end costs for estimated future development and production expenditures . discounted future net cash flows are calculated using a 10 % rate . changes in any of these assumptions could have a significant impact on the standardized measure . accordingly , the standardized measure does not represent management 's estimated current market value of proved reserves . - 16 - the company 's allowance for doubtful accounts receivable and notes receivable is based on an analysis of the risk of loss on specific accounts . the analysis places particular emphasis on past due accounts . management considers such information as the nature and age of the receivable , the payment history of the tenant , customer or other debtor and the
| results of operations fiscal 2011 as compared to 2010 revenues : total revenues for 2011 $ 3.9 million compared to $ 4.2 million in 2010. the primary reason for the decrease was lower prices for the company 's natural gas sales . the company does not have long term contracts for its oil and gas production and sell at the spot price with each month 's deliveries . the spot price for gas decreased all throughout 2011. operating expenses : in 2011 the company recorded a non-cash charge to operations of $ 1.4 million pursuant to the requirements of the “ full cost ceiling test “ interest income & expense : interest income decreased approximately $ 137,000 in 2011 when compared to 2010 from 2011 to 2010 due to the company not accruing interest income on its note receivable from prime income asset management , inc ( see note c ) . - 17 - other income & ( expense ) : other income & ( expense ) was $ ( 155,000 ) for 2011 as compared to $ ( 340,000 ) expense in 2010. the balance in 2011 is comprised of numerous events . in 2010 the company had a write-off of $ 350,000 for anattempted acquisition that did not occur .
| 6,575 |
on june 17 , 2014 , the company closed on the purchase of a 16 % non-operated working interest in 11,100 gross leasehold acres ( 1,775 net ) located in the eagle ford shale play in lasalle and frio counties , texas , at an adjusted purchase price at closing of $ 81.7 million . all of the acquired acreage was held by production and , at the time of closing , included 63 producing wells , 1 drilling well , 3 wells in the completion phase and 109 undeveloped locations . fiscal 2014 oil and ngl production increased 48 % and 86 % , respectively , over that of 2013. these production increases are primarily the result of the following : the acquisition of producing properties in the eagle ford shale and associated horizontal drilling on that leasehold ; horizontal drilling in the marmaton , hogshooter and granite wash in western oklahoma ; and horizontal woodford shale drilling in the anadarko basin in western and southern oklahoma . to a lesser extent , horizontal drilling in the mississippian in northern oklahoma and horizontal cleveland drilling in the texas panhandle contributed to the oil and ngl production increase . as of september 30 , 2014 , the company owned an average 3.0 % net revenue interest in 95 wells that were drilling or testing . as these wells begin producing and other scheduled wells are drilled and completed in the abovementioned plays , the company anticipates 2015 mcfe production volumes will increase over those of 2014 ; however , a reduction in oil prices could curtail 2015 drilling and limit mcfe production in 2015. the increased production of oil and ngl in 2014 , combined with higher 2014 oil , ngl and natural gas prices resulted in a 37 % increase in revenues from the sale of oil , ngl and natural gas . based on recent forward strip pricing , the company believes 2015 average oil , ngl and natural gas prices will be lower than their corresponding average prices in 2014 . the company 's proved developed oil , ngl and natural gas reserves increased in 2014 , compared to 2013 , by 22.1 bcfe , or 24 % . the increase was due primarily to the acquisition of producing properties in the eagle ford shale and the associated horizontal eagle ford drilling on that leasehold in addition to the company 's other successful drilling activities . the company had no off balance sheet arrangements during 2014 or prior years . ( 26 ) the following table reflects certain operating data for the periods presented : replace_table_token_13_th story_separator_special_tag > properties in the third quarter of 2014. general and administrative costs ( g & a ) g & a increased $ 631,187 or 9 % in 2014 . the increase is primarily related to increases in the following expense categories : legal $ 275,286 , personnel $ 123,586 and audit and tax $ 112,745. the increase in legal expenses was primarily the result of additional fees for legal services associated with the eagle ford shale acquisition and a property rights dispute in 2014. the increase in 2014 personnel related expenses was largely the result of compensation increases of $ 100,406. the increase in audit and tax fees in 2014 was principally due to increased fees for services associated with the eagle ford shale acquisition . provision ( benefit ) for income taxes the 2014 provision for income taxes of $ 11,820,000 was based on a pre-tax income of $ 36,821,462 , as compared to a provision for income taxes of $ 6,730,000 in 2013 , based on a pre-tax income of $ 20,690,049 . the effective tax rate for 2014 was 32 % , compared to an effective tax rate for 2013 of 33 % . the company 's utilization of excess percentage depletion , which is a permanent tax benefit , decrease d the provision for income taxes and reduced the effective tax rate below the statutory rate for both years . fiscal year 20 13 compared to fiscal year 20 12 overview the company recorded net income of $ 13,960,049 , or $ 0 . 84 per share , in 2013 , compared to net income of $ 7,370,996 , or $ 0 . 44 per share , in 2012 . revenues increased in 2013 primarily due to higher oil and natural gas sales volumes and prices , partially offset by decreased lease bonuses received . expenses increased due to higher dd & a , loe and g & a in 2013 , partially offset by decreases in the provision for impairment and exploration costs and increases in other miscellaneous income . significant well additions through drilling in 2013 increased production volumes , resulting in higher dd & a and loe in 2013 . ( 29 ) oil , ngl and n atural g as sales oil , ngl and natural gas sales increased $ 19,787,444 or 48 % for 2013 , as compared to 2012. the increase was due to increased oil volumes of 53 % , increased natural gas volumes of 20 % , increased natural gas prices of 26 % and a 2 % increase in oil prices in 2013. the oil and ngl production increase was primarily the result of horizontal drilling in the marmaton/cleveland , hogshooter and granite wash in western oklahoma , horizontal cleveland drilling in the texas panhandle and horizontal woodford shale drilling in the anadarko basin in western and southern oklahoma . to a lesser extent , focused drilling in the permian basin in west texas , the bakken in north dakota and the mississippian in northern oklahoma contributed to the oil and ngl production increase . the natural gas production increase was primarily driven by horizontal development drilling in the arkansas fayetteville shale and natural gas production associated with the aforementioned oil and ngl drilling activity . story_separator_special_tag the 2013 effective tax rate increase of 2 % was due to pre-tax income increasing 94 % from 2012 to 2013 , while the excess percentage depletion allowance ( which is a permanent tax benefit ) increased only 25 % over the same period . this resulted in a greater proportion of pre-tax income being subject to income tax and thus increased the effective tax rate . the company 's utilization of excess percentage depletion decreases the provision for income taxes . liquidity and capital resources at september 30 , 2014 , the company had positive working capital of $ 9,919,037 , as compared to positive working capital of $ 7,504,588 at september 30 , 2013 . liquidity cash and cash equivalents were $ 509,755 as of september 30 , 2014 , compared to $ 2,867,171 at september 30 , 2013 , a decrease of $ 2,357,416 . cash flows for the 12 months ended september 30 are summarized as follows : replace_table_token_16_th operating activities : net cash provided by operating activities increased $ 15,220,493 during 2014 , as compared to 2013 , the result of the following : · receipts of oil , ngl and natural gas sales ( net of production taxes and gathering , transportation and marketing costs ) and other increased $ 23,588,929 . · increased income tax payments of $ 4,606,852 . · increased net payments on derivative contracts of $ 1,242,785 . · increased payments for g & a and interest expenses of $ 1,240,734 . · increased payments for field operating expenses of $ 1,183,273 . investing activities : net cash used in investing activities increased $ 95,571,320 during 2014 , as compared to 2013 , due to : · an increase in cash used to acquire properties of $ 82,526,452 . ( 32 ) · higher drilling and completion activity during 2014 increased capital expenditures by $ 11,847,003 . · lower proceeds from mineral leasing and asset sales of $ 546,224 . financing activities : 2014 net cash provided by financing activities was $ 66,970,977 , as compared to net cash used in financing activities in 2013 of $ 10,139,362 , result ing in a net increase of $ 77,110,339 of cash provided by financing activities . this change is the result of the following : · during 2014 , net borrowings increased $ 69,737,744. d uring 2013 , net borrowings decreased $ 6,612,729 . increased borrowings were used to finance the acquisition of properties . capital resources on june 17 , 2014 , the company closed on the purchase of a 16 % non-operated working interest in 11,100 gross leasehold acres ( 1,775 net ) located in the eagle ford shale play in lasalle and frio counties , texas , at an adjusted purchase price at closing of $ 81.7 million , subject to further working capital adjustments . the purchase was funded utilizing the company 's bank credit facility . all of the acquired acreage was held by production and , at the time of closing , included 63 producing wells , 1 drilling well , 3 wells in the completion phase and 109 undeveloped locations . the property is currently being developed utilizing one drilling rig full-time . capital expenditures to drill and complete wells increased $ 11,847,003 ( 44 % ) in 2014 , as compared to 2013 . primarily , this increase was due to drilling activity in horizontal plays in western and southern oklahoma ( oil and ngl rich ) , the texas panhandle ( oil and ngl rich ) , the arkansas fayetteville shale ( dry natural gas ) and the newly acquired eagle ford shale ( oil ) . the oil and ngl rich plays in western and southern oklahoma and the texas panhandle where drilling activity has been on mineral and to a lesser extent leasehold acreage are as follows : · horizontal marmaton , hogshooter and granite wash in western oklahoma · horizontal anadarko basin woodford shale in western and southern oklahoma · horizontal cleveland in the texas panhandle production of oil , ngl and natural gas increased 9 % on an mcfe basis during 2014 , as compared to 2013 . the production increase was the result of production from the acquired properties in the eagle ford shale and new production coming on line which exceeded the natural production decline of existing wells . since the company is not the operator of any of its oil and natural gas properties , it is extremely difficult for us to predict levels of future participation in the drilling and completion of new wells and their associated capital expenditures . the recent drop in product prices may have a negative effect on the proposals we receive from operators to drill and complete new wells ; thus , making 2015 capital expenditures for drilling and completion projects difficult to forecast . as the company will be receiving oil production from the eagle ford properties for all of 2015 ( as compared to three and one half months of 2014 ) , we expect 2015 oil production to meaningfully increase over that of 2014 and natural gas production to remain relatively stable in 2015. cash flows in ( 33 ) excess of obligations to drill and complete wells will be utilized to further reduce the company 's bank debt . with continued oil and natural gas price volatility , management continues to evaluate opportunities for product price protection through additional hedging of the company 's future oil and natural gas production . see note 1 to the f inancial s tatements included in item 8 – “ financial statements and supplementary data ” for a complete list of the company 's outstanding derivative contracts . the use of the company 's cash provided by operating activities and resultant change to cash is summarized in the table below : replace_table_token_17_th outstanding borrowings on the credit facility at september 30 , 2014 , were $ 78,000,000 .
| results of operations fiscal year 2014 compared to fiscal year 2013 overview the company recorded net income of $ 25,001,462 , or $ 1.49 per share , in 2014 , compared to net income of $ 13,960,049 , or $ 0.84 per share , in 2013 . revenues increased in 2014 primarily due to higher oil and ngl sales volumes and higher natural gas sales prices , partially offset by decreased gains on derivative contracts and decreased lease bonuses received . expenses increased in 2014 due to higher loe , production taxes and g & a coupled with an increase in the provision for impairment and a decrease in other miscellaneous income . oil , ngl and natural gas sales oil , ngl and natural gas sales increased $ 22,240,650 or 37 % for 2014 , as compared to 2013 . the increase was due to increased oil and ngl volumes of 48 % and 86 % , respectively , and increased oil , ngl and natural gas prices of 2 % , 17 % and 22 % , respectively , in 2014 . the oil and ngl production increase is primarily the result of the company 's acquisition of producing properties in the eagle ford shale in south texas and the associated horizontal drilling on that leasehold , horizontal drilling in the marmaton , hogshooter and granite wash in western oklahoma and horizontal woodford shale drilling in the anadarko basin in western and southern oklahoma . to a lesser extent , horizontal drilling in the mississippian in northern oklahoma and horizontal cleveland drilling in the texas panhandle contributed to the oil and ngl production increase . ( 27 ) production by quarter for 2014 and 2013 was as follows ( mcfe ) : replace_table_token_14_th lease bonus and rentals lease bonuses and rentals decreased $ 515,518 in 2014 due to decreased mineral leasing activity .
| 6,576 |
the table below details the pipeline and storage capacity obligations as of september 30 , 2016 for the story_separator_special_tag . forward-looking statements this report contains forward-looking statements that relate to future transactions , events or expectations . rgc resources , inc. ( “ resources ” or the “ company ” ) may publish forward-looking statements relating to such matters as anticipated financial performance , business prospects , technological developments , new products , research and development activities and similar matters . these statements are based on management 's current expectations and information available at the time of such statements and are believed to be reasonable and are made in good faith . the private securities litigation reform act of 1995 provides a safe harbor for forward-looking statements . in order to comply with the terms of the safe harbor , the company notes that a variety of factors could cause the company 's actual results and experience to differ materially from the anticipated results or expectations expressed in the company 's forward-looking statements . the risks and uncertainties that may affect the operations , performance , development and results of the company 's business include , but are not limited to , those set forth in the following discussion and within item 1a “ risk factors ” of this annual report on form 10-k. all of these factors are difficult to predict and many are beyond the company 's control . accordingly , while the company believes its forward-looking statements to be reasonable , there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized . when used in the company 's documents or news releases , the words “ anticipate , ” “ believe , ” “ intend , ” “ plan , ” “ estimate , ” “ expect , ” “ objective , ” “ projection , ” “ forecast , ” “ budget , ” “ assume , ” “ indicate ” or similar words or future or conditional verbs such as “ will , ” “ would , ” “ should , ” “ can , ” “ could ” or “ may ” are intended to identify forward-looking statements . forward-looking statements reflect the company 's current expectations only as of the date they are made . the company assumes no duty to update these statements should expectations change or actual results differ from current expectations except as required by applicable laws and regulations . 13 overview resources is an energy services company primarily engaged in the regulated sale and distribution of natural gas to approximately 59,600 residential , commercial and industrial customers in roanoke , virginia , and the surrounding localities , through its roanoke gas company ( “ roanoke gas ” ) subsidiary . roanoke gas also provides certain unregulated services . resources also formed a wholly-owned subsidiary , rgc midstream , llc ( `` midstream '' ) , to invest in the mountain valley pipeline , llc ( the `` llc '' ) . on october 1 , 2015 , midstream executed agreements to become a 1 % member in the llc . more information is provided under the equity investment in mountain valley pipeline section below . the unregulated operations represent less than 2 % of revenues and margins of resources . the utility operations of roanoke gas are regulated by the virginia state corporation commission ( “ scc ” ) , which oversees the terms , conditions , and rates to be charged to customers for natural gas service , safety standards , extension of service , accounting and depreciation . the company is also subject to federal regulation from the department of transportation in regard to the construction , operation , maintenance , safety and integrity of its transmission and distribution pipelines . the federal energy regulatory commission ( `` ferc '' ) regulates prices for the transportation and delivery of natural gas to the company 's distribution system and underground storage services . the company is also subject to other regulations which are not necessarily industry specific . the company is committed to the safe and reliable delivery of natural gas to its customers . since 1991 , the company has placed an emphasis on the modernization of its distribution system through the renewal and replacement of its cast iron and bare steel natural gas distribution pipelines . with recent regulatory actions placing a greater emphasis on pipeline safety , the company continues to focus its efforts on completing its renewal and replacement program . the company completed the replacement of all cast iron pipe in fiscal 2016 and replacement of all bare steel pipe in the first quarter of fiscal 2017. the company will continue its renewal program with plans to replace first generation , pre-1973 plastic pipe over the next five years . the company is also dedicated to the safeguarding of its information technology systems . these systems contain confidential customer , vendor and employee information as well as important financial data . there is risk associated with the unauthorized access of this information with a malicious intent to corrupt data , cause operational disruptions , or compromise information . management believes it has taken reasonable security measures to protect these systems from cyber attacks and other types of incidents ; however , there can be no guarantee that an incident will not occur . in the event of a cyber incident , the company will execute its security incident response plan to assist with managing the incident . the company also maintains cyber-insurance coverage to mitigate financial implications resulting from a cyber incident . over 98 % of the company 's revenues are derived from the sale and delivery of natural gas to roanoke gas customers . the scc authorizes the rates and fees the company charges its customers for these services . these rates are designed to provide the company with the opportunity to recover its gas and non-gas expenses and to earn a reasonable rate of return for shareholders based on normal weather . story_separator_special_tag however , as the carrying cost factor used in determining carrying cost revenues is based on the company 's weighted-average cost of capital , carrying cost revenues do not directly correspond with incremental short-term financing costs . therefore , when inventory balances decline due to a reduction in commodity prices , net income will decline as carrying cost revenues decrease by a greater amount than short-term financing costs decrease . the inverse occurs when inventory costs increase . the company 's non-gas rates are designed to allow for the recovery of non-gas related expenses and provide a reasonable return to shareholders . these rates are determined based on the filing of a formal rate application with the scc utilizing historical information including investment in natural gas facilities . generally , investments related to extending service to new customers are recovered through the non-gas rates currently in place . the investment in replacing and upgrading existing infrastructure is not recoverable until a formal rate application is made to include the additional investment and new non-gas rates are approved . the save plan and rider provides the company with the ability to recover costs related to these investments on a prospective basis rather than on a historical basis . the save plan provides a mechanism to recover the related depreciation and expenses and provide a return on rate base of the additional capital investments related to improving the company 's infrastructure until such time a formal rate application is filed to incorporate this investment in the company 's non-gas rates . as the company did not file for an increase in the non-gas rates during the prior two years and the level of save qualifying capital investment continues to grow , save plan revenues have increased significantly . the company recognized approximately $ 2,538,000 , $ 1,308,000 and $ 292,000 in save plan revenues for years ended september 30 , 2016 , 2015 and 2014 , respectively . 15 save revenues will be included as part of the non-gas base rates the next time the company files for a non-gas rate increase . additional information regarding the save rider is provided under the regulatory affairs section . the economic environment has a direct correlation with business and industrial production , customer growth and natural gas utilization . the local economy has lost some key business activities over the last few years as some companies have either shut down or relocated all or portions of their operations elsewhere . however , the company continues to experience some customer and sales growth including the addition of a large natural gas fleet refueling station at a commercial customer . in addition , new business ventures have been announced in the company 's service territory that should provide some additional natural gas load over the next few years . the local economy appears relatively stable and should continue to improve absent a major economic setback on a local , regional or national level . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-weight : bold ; '' > equity in earnings of unconsolidated affiliate - the investment in mountain valley pipeline began in fiscal 2016 and the $ 152,864 equity in earnings is primarily composed of allowance for funds used during construction ( `` afudc '' ) . the investment in mountain valley pipeline and the related afudc earnings are discussed further under the equity investment in mountain valley pipeline section below . other expense - other expense , net , increased by $ 26,789 , or 12 % , primarily due to higher pipeline assessments . interest expense - total interest expense increased by $ 123,902 , or 8 % , due to a 15 % increase in the average debt outstanding . the combination of the investments in mountain valley pipeline and the level of capital expenditures during the year have required increased borrowing . income taxes - income tax expense increased by $ 495,622 , or 16 % , on higher pre-tax earnings . the effective tax rate was 38.7 % for fiscal 2016 compared to 38.4 % for fiscal 2015. net income and dividends - net income for fiscal 2016 was $ 5,806,866 compared to $ 5,094,415 for fiscal 2015. basic and diluted earnings per share were $ 1.22 in fiscal 2016 compared to $ 1.08 in fiscal 2015. dividends declared per share of common stock were $ 0.81 in fiscal 2016 compared to $ 0.77 in fiscal 2015. fiscal year 2015 compared with fiscal year 2014 the table below reflects operating revenues , volume activity and heating degree-days . replace_table_token_10_th replace_table_token_11_th total gas utility operating revenues for the year ended september 30 , 2015 decreased by 9 % from the year ended september 30 , 2014 primarily due to lower gas costs and a reduction in natural gas deliveries . the average commodity price of natural gas declined by 21 % per decatherm sold . delivered volumes declined due in part to weather , as reflected in the decline in residential and commercial volumes , and a reduction in industrial consumption . residential and commercial deliveries tend to be more weather sensitive as reflected by a decline of 1 % in volumes on 2 % fewer heating degree days . transportation and interruptible volumes , which are primarily driven by production activities rather than weather , decreased by 5 % . other revenues decreased by 5 % as well . 18 replace_table_token_12_th regulated natural gas margins from utility operations increased by 3 % from fiscal 2014 , primarily as a result of higher save plan revenues and customer base charges more than offsetting lower volumetric margins and icc revenues . save plan revenues increased by $ 1,016,000. customer base charges also increased due to modest customer growth . volumetric margin declined due to a reduction in total volumes delivered . residential and commercial volumes declined primarily due to slightly warmer weather . interruptible and transportation volumes declined due to the loss of a customer during fiscal 2015 and decreased usage at two of the company 's larger customers .
| results of operations fiscal year 2016 compared with fiscal year 2015 the table below reflects operating revenues , volume activity and heating degree-days . replace_table_token_6_th replace_table_token_7_th total gas utility operating revenues for the year ended september 30 , 2016 declined by 13 % from the year ended september 30 , 2015 primarily due to a combination of lower gas costs and a reduction in natural gas deliveries more than offsetting revenues from the save plan rider and wna . the average commodity price of natural gas declined by 28 % per decatherm sold . delivered volumes declined primarily due to weather , as reflected in the lower residential and commercial volumes . industrial consumption also declined , causing a reduction in transportation and interruptible volumes . residential and commercial deliveries tend to be more weather sensitive as reflected by a 12 % decline in volumes on 18 % fewer heating degree days . transportation and interruptible volumes , which are primarily driven by production activities rather than weather , decreased by 6 % . other revenues experienced a 10 % decrease . approximately half of the decrease in other revenues was attributable to the cessation of operations for utility consultants during the prior year and application resources during the current year . replace_table_token_8_th 16 regulated natural gas margins from utility operations increased by 5 % from fiscal 2015 , primarily as a result of wna revenues , increasing save plan revenues and customer base charges related to customer growth more than offsetting lower volumetric margins and icc revenues . save plan revenues increased by $ 1,230,000 as the company was in the third year of the current save plan . the growth in save plan revenues has been fueled by the company 's pipeline renewal program as the company continues to invest in eligible save plan infrastructure projects . as noted above , volumetric margin declined due to a reduction in total volumes delivered .
| 6,577 |
in 2012 , our proved natural gas reserves decreased 19.2 bcf , or 3 % , while our proved oil reserves increased 12.3 mmbbl , or 40 % , and our ngl reserves increased 23.4 mmbbl , or 90 % , for a total equivalent increase of 32.5 mmboe , or 20 % . we use the preceding 12-months ' average price based on closing prices on the first business day of each month in calculating our average prices used in the pv-10 value calculation . our average natural gas price used in the pv-10 value calculation for 2012 was $ 2.71 per mcf . this average price during 2012 was a decrease from $ 3.89 per mcf at year-end 2011 , compared to $ 4.08 per mcf at year-end 2010. our average oil price used in the pv-10 value calculation for 2012 was $ 103.64 per bbl . this average price during 2012 was slightly lower than the average price of $ 103.87 per bbl at year-end 2011 , compared to $ 78.31 in 2010. critical accounting policies and new accounting pronouncements property and equipment . we follow the “ full-cost ” method of accounting for oil and natural gas property and equipment costs . under this method of accounting , all productive and nonproductive costs incurred in the exploration , development , and acquisition of oil and natural gas reserves are capitalized including internal costs incurred that are directly related to these activities and which are not related to production , general corporate overhead , or similar activities . future development costs are estimated property-by-property based on current economic conditions and are amortized to expense as our capitalized oil and natural gas property costs are amortized . we compute the provision for depreciation , depletion , and amortization ( “ dd & a ” ) of oil and natural gas properties on a country-by-country basis using the unit-of-production method . 37 the costs of unproved properties not being amortized are assessed quarterly , on a property-by-property basis , to determine whether such properties have been impaired . in determining whether such costs should be impaired , we evaluate current drilling results , lease expiration dates , current oil and gas industry conditions , international economic conditions , capital availability , and available geological and geophysical information . as these factors may change from period to period , our evaluation of these factors will change . any impairment assessed is added to the cost of proved properties being amortized . the calculation of the provision for dd & a requires us to use estimates related to quantities of proved oil and natural gas reserves and estimates of unproved properties . for both reserves estimates ( see discussion below ) and the impairment of unproved properties ( see discussion above ) , these processes are subjective , and results may change over time based on current information and industry conditions . we believe our estimates and assumptions are reasonable ; however , such estimates and assumptions are subject to a number of risks and uncertainties that may cause actual results to differ materially from such estimates . full-cost ceiling test . at the end of each quarterly reporting period , the unamortized cost of oil and natural gas properties ( including natural gas processing facilities , capitalized asset retirement obligations and deferred income taxes , and excluding the recognized asset retirement obligation liability ) is limited to the sum of the estimated future net revenues from proved properties ( excluding cash outflows from recognized asset retirement obligations , including future development and abandonment costs of wells to be drilled , using the preceding 12-months ' average price based on closing prices on the first day of each month , adjusted for price differentials and the effects of cash flow hedges , discounted at 10 % , and the lower of cost or fair value of unproved properties ) adjusted for related income tax effects ( `` ceiling test '' ) . we believe our estimates and assumptions are reasonable ; however , such estimates and assumptions are subject to a number of risks and uncertainties that may cause actual results to differ materially from such estimates . see the discussion above related to reserves estimation . given the volatility of oil and natural gas prices , it is reasonably possible that our estimate of discounted future net cash flows from proved oil and natural gas reserves could continue to change in the near-term . if oil and natural gas prices decline to any material degree from the prices used in the ceiling test , even if only for a short period , it is reasonably possible that non-cash write-downs of oil and gas properties would occur in the future . if we have significant declines in our oil and natural gas reserves volumes , which also reduce our estimate of discounted future net cash flows from proved oil and natural gas reserves , non-cash write-downs of our oil and natural gas properties would occur in the future . we can not control and can not predict what future prices for oil and natural gas will be , thus we can not estimate the amount or timing of any potential future non-cash write-down of our oil and natural gas properties if a decrease in oil and or natural gas prices were to occur . new accounting pronouncements . there are no material new accounting pronouncements that have been issued but not yet adopted as of december 31 , 2012 . 38 forward-looking statements this report includes forward-looking statements intended to qualify for the safe harbors from liability established by the private securities litigation reform act of 1995 , section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended . these forward-looking statements are subject to a number of risks and uncertainties , many of which are story_separator_special_tag in 2012 , our proved natural gas reserves decreased 19.2 bcf , or 3 % , while our proved oil reserves increased 12.3 mmbbl , or 40 % , and our ngl reserves increased 23.4 mmbbl , or 90 % , for a total equivalent increase of 32.5 mmboe , or 20 % . we use the preceding 12-months ' average price based on closing prices on the first business day of each month in calculating our average prices used in the pv-10 value calculation . our average natural gas price used in the pv-10 value calculation for 2012 was $ 2.71 per mcf . this average price during 2012 was a decrease from $ 3.89 per mcf at year-end 2011 , compared to $ 4.08 per mcf at year-end 2010. our average oil price used in the pv-10 value calculation for 2012 was $ 103.64 per bbl . this average price during 2012 was slightly lower than the average price of $ 103.87 per bbl at year-end 2011 , compared to $ 78.31 in 2010. critical accounting policies and new accounting pronouncements property and equipment . we follow the “ full-cost ” method of accounting for oil and natural gas property and equipment costs . under this method of accounting , all productive and nonproductive costs incurred in the exploration , development , and acquisition of oil and natural gas reserves are capitalized including internal costs incurred that are directly related to these activities and which are not related to production , general corporate overhead , or similar activities . future development costs are estimated property-by-property based on current economic conditions and are amortized to expense as our capitalized oil and natural gas property costs are amortized . we compute the provision for depreciation , depletion , and amortization ( “ dd & a ” ) of oil and natural gas properties on a country-by-country basis using the unit-of-production method . 37 the costs of unproved properties not being amortized are assessed quarterly , on a property-by-property basis , to determine whether such properties have been impaired . in determining whether such costs should be impaired , we evaluate current drilling results , lease expiration dates , current oil and gas industry conditions , international economic conditions , capital availability , and available geological and geophysical information . as these factors may change from period to period , our evaluation of these factors will change . any impairment assessed is added to the cost of proved properties being amortized . the calculation of the provision for dd & a requires us to use estimates related to quantities of proved oil and natural gas reserves and estimates of unproved properties . for both reserves estimates ( see discussion below ) and the impairment of unproved properties ( see discussion above ) , these processes are subjective , and results may change over time based on current information and industry conditions . we believe our estimates and assumptions are reasonable ; however , such estimates and assumptions are subject to a number of risks and uncertainties that may cause actual results to differ materially from such estimates . full-cost ceiling test . at the end of each quarterly reporting period , the unamortized cost of oil and natural gas properties ( including natural gas processing facilities , capitalized asset retirement obligations and deferred income taxes , and excluding the recognized asset retirement obligation liability ) is limited to the sum of the estimated future net revenues from proved properties ( excluding cash outflows from recognized asset retirement obligations , including future development and abandonment costs of wells to be drilled , using the preceding 12-months ' average price based on closing prices on the first day of each month , adjusted for price differentials and the effects of cash flow hedges , discounted at 10 % , and the lower of cost or fair value of unproved properties ) adjusted for related income tax effects ( `` ceiling test '' ) . we believe our estimates and assumptions are reasonable ; however , such estimates and assumptions are subject to a number of risks and uncertainties that may cause actual results to differ materially from such estimates . see the discussion above related to reserves estimation . given the volatility of oil and natural gas prices , it is reasonably possible that our estimate of discounted future net cash flows from proved oil and natural gas reserves could continue to change in the near-term . if oil and natural gas prices decline to any material degree from the prices used in the ceiling test , even if only for a short period , it is reasonably possible that non-cash write-downs of oil and gas properties would occur in the future . if we have significant declines in our oil and natural gas reserves volumes , which also reduce our estimate of discounted future net cash flows from proved oil and natural gas reserves , non-cash write-downs of our oil and natural gas properties would occur in the future . we can not control and can not predict what future prices for oil and natural gas will be , thus we can not estimate the amount or timing of any potential future non-cash write-down of our oil and natural gas properties if a decrease in oil and or natural gas prices were to occur . new accounting pronouncements . there are no material new accounting pronouncements that have been issued but not yet adopted as of december 31 , 2012 . 38 forward-looking statements this report includes forward-looking statements intended to qualify for the safe harbors from liability established by the private securities litigation reform act of 1995 , section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended . these forward-looking statements are subject to a number of risks and uncertainties , many of which are
| results of operations revenues — years ended december 31 , 2012 , 2011 and 2010 2012 - our revenues in 2012 decreased by 7 % compared to revenues in 2011 , due to lower ngl and natural gas pricing , partially offset by higher natural gas and ngl production . average oil prices we received were 1 % lower than those received during 2011 , while natural gas prices were 35 % lower , and ngl prices were 33 % lower . 2011 - our revenues in 2011 increased by 37 % compared to revenues in 2010 , due to higher oil and ngl prices as well as higher ngl and natural gas production . average oil prices we received were 35 % higher than those received during 2010 , while natural gas prices were 6 % lower , and ngl prices were 23 % higher . crude oil production was 32 % , 37 % and 47 % of our production volumes in the years ended december 31 , 2012 , 2011 and 2010 , respectively . crude oil sales were 72 % , 69 % and 71 % of oil and gas sales in the years ended december 31 , 2012 , 2011 and 2010 , respectively . natural gas production was 52 % , 50 % and 39 % of our production volumes in the years ended december 31 , 2012 , 2011 and 2010 , respectively . natural gas sales were 16 % , 20 % and 18 % of oil and gas sales in the years ended december 31 , 2012 , 2011 and 2010 , respectively . the remaining production in each year was from ngls .
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the intention is to require enough information to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity 's leasing activities . asu 2016-02 is effective for interim and annual story_separator_special_tag business salisbury , a connecticut corporation , formed in 1998 , is the bank holding company for the bank , a connecticut-chartered and fdic insured commercial bank headquartered in lakeville , connecticut . salisbury 's principal business consists of the business of the bank . the bank , formed in 1848 , is engaged in customary banking activities , including general deposit taking and lending activities to both retail and commercial markets , and trust and wealth advisory services . the bank conducts its banking business from fourteen full-service offices in the towns of : canaan , lakeville , salisbury and sharon , connecticut ; great barrington , south egremont and sheffield , massachusetts ; and , fishkill , newburgh , new paltz , poughkeepsie , red oaks mill , dover plains and millerton , new york , and its trust and wealth advisory services from offices in lakeville , connecticut . in june 2017 , the bank completed its acquisition of the new paltz , new york branch of empire state bank . in april 2018 , the bank completed its acquisition of the fishkill , new york branch of orange bank & trust company and consolidated its existing fishkill branch into that new location . critical accounting policies and estimates salisbury 's consolidated financial statements follow u. s. gaap as applied to the banking industry in which it operates . application of these principles requires management to make estimates , assumptions and judgments that affect the amounts reported in the financial statements . these estimates , assumptions and judgments are based on information available as of the date of the financial statements ; accordingly , as this information changes , the financial statements could reflect different estimates , assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported . estimates , assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value , when a decline in the value of an asset not carried at fair value warrants an impairment write-down or valuation reserve to be established , or when an asset or liability needs to be recorded contingent upon a future event . salisbury 's significant accounting policies are presented in note 1 of notes to consolidated financial statements , which , along with this management 's discussion and analysis , provide information on how significant assets are valued in the financial statements and how those values are determined . management believes that the following accounting estimates are the most critical to aid in fully understanding and evaluating salisbury 's reported financial results , and they require management 's most difficult , subjective or complex judgments , resulting from the need to make estimates about the effect of matters that are inherently uncertain . loans acquired in business combinations are initially recorded at fair value with no carryover of the related allowance for credit losses . determining the fair value of the loans involves estimating the amount and timing of cash flows initially expected to be collected and discounting those cash flows at an appropriate market rate of interest . the bank continues to evaluate reasonableness of the timing and the amount of cash expected to be collected . subsequent decreases in expected cash flows may result in changes in the amortization or accretion of fair market value adjustments , and in some cases may result in the loan being considered impaired . such decreases may also result in recognition of additional provisions to the allowance for loan losses . for collateral dependent loans with deteriorated credit quality , the bank estimates the fair value of the underlying collateral of the loans . these values are discounted using market derived rates of return , with consideration given to the period of time and costs associated with the foreclosure and disposition of the collateral . the allowance for loan losses represents management 's estimate of credit losses inherent in the loan portfolio . determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans , estimated losses on pools of homogeneous loans based on historical loss experience , and consideration of current economic trends and conditions , all of which may be susceptible to significant change . the loan portfolio also represents the largest asset type on the balance sheet . note 1 describes the methodology used to determine the allowance for loan losses . a discussion of the factors driving changes in the amount of the allowance for loan losses is included in the “ provision and allowance for loan losses ” section of management 's discussion and analysis . management , with the assistance of a third party , evaluates goodwill and identifiable intangible assets for impairment annually using valuation techniques that involve observations and adjustments as to comparable transactions , estimates for discount rates , projected future cash flows and time period calculations , all of which are susceptible to change based on changes in economic conditions and other factors . for both goodwill and for the core deposit intangible , the comparable transaction methodology was used to assess , and conclude that there was no impairment at december 31 , 2018. future events , or changes in the estimates , which are used to determine the carrying value of goodwill and identifiable intangible assets or which otherwise adversely affect their value or estimated lives could have a material adverse impact on the results of operations . story_separator_special_tag for further information on income taxes , see note 12 of notes to consolidated financial statements . salisbury did not incur connecticut income tax in 2018 , 2017 or 2016 , other than minimum state income tax , as a result of a connecticut law that permits banks to shelter certain mortgage income from the connecticut corporation business tax through the use of a special purpose entity called a passive investment company or pic . salisbury avails itself of this benefit through its pic , sbt mortgage service corporation . salisbury 's income tax provision reflects the full impact of the connecticut legislation . salisbury does not expect to pay other than minimum connecticut state income tax in the foreseeable future unless there is a change in connecticut tax law . comparison of the years ended december 31 , 2017 and 2016 net interest and dividend income net interest and dividend income represents the difference between interest and dividends earned on loans and securities and interest expense incurred on deposits and borrowings . the level of net interest income is a function of volume , rates and mix of both earning assets and interest-bearing liabilities . net interest income can be affected by changes in interest rate levels , changes in the volume of assets and liabilities that are subject to re-pricing within different future time periods , and in the level of non-performing assets . interest and dividend income tax equivalent interest and dividend income increased $ 835,000 , or 2.3 % , to $ 36.4 million in 2017. loan income increased $ 1.1 million , or 3.4 % , to $ 33.8 million in 2017. the increase was primarily due to a $ 35.0 million , or 4.7 % , increase in average loans , partially offset by a 6 basis point decrease in average yield . interest income for 2017 and 2016 reflects purchase accounting adjustments consisting of net accretion related to the fair value adjustments of loans acquired in the riverside bank acquisition in the amount of $ 1.2 million and $ 1.9 million , respectively . 25 tax equivalent interest and dividend income from securities decreased $ 453,000 , or 17.5 % , to $ 2.1 million in 2017 , as a result of a $ 3.6 million , or 4.8 % , decrease in average security balances , and a 72 basis point decrease in average yield . contributing factors to the lower yield include the maturity , sale , call or pay down of higher yielding securities resulting in a remaining mix of lower yielding securities in the portfolio . interest from short term funds increased $ 170,000 in 2017 as a result of a 46 basis point increase in average yield and $ 0.4 million , or 1.1 % , increase in average short term balances . interest expense interest expense increased $ 389,000 , or 10.1 % , to $ 4.2 million in 2017. interest expense on interest bearing deposit accounts increased $ 302,000 , or 13.8 % , to $ 2.5 million in 2017 , as a result of a $ 13.3 million , or 2.3 % , increase in average interest bearing deposits and a 4 basis point increase in the average rate to 0.42 % . interest expense on fhlbb advances increased $ 65,000 , or 6.9 % , due to a $ 4.5 million , or 14.5 % , increase in average advances , partially offset by a 20 basis point decrease in the average borrowing rate to 2.87 % . in december 2015 , salisbury issued $ 10 million of subordinated debentures . the proceeds of such issuance , along with cash-on-hand , were used by salisbury to fully redeem $ 16 million of its outstanding series b preferred stock , which was issued pursuant to the participation in the u.s. treasury 's sblf program . interest expense on the subordinated debt for 2017 and 2016 was $ 624,000 and $ 624,000 , respectively . provision and allowance for loan losses the provision for loan losses was $ 1,020,000 for 2017 , compared with $ 1,835,000 for 2016. net loan charge-offs were $ 371,000 and $ 1,424,000 , for the respective years . the lower provision for loan losses in 2017 reflected lower charge-offs and higher recoveries . the reserve coverage at december 31 , 2017 , as measured by the ratio of allowance for loan losses to gross loans , was 0.84 % , as compared with 0.80 % at december 31 , 2016. non-performing loans ( non-accrual loans and accruing loans past-due 90 days or more ) decreased $ 2.2 million to $ 6.6 million , or 0.82 % of gross loans receivable , at december 31 , 2017 , down from 1.14 % at december 31 , 2016. accruing loans past due 30-89 days decreased $ 1.0 million to $ 3.5 million , or 0.44 % of gross loans receivable at december 31 , 2017. see “ overview – loan credit quality ” below for further discussion and analysis . non-interest income non-interest income increased $ 345,000 , or 4.4 % , in 2017 versus 2016. trust and wealth advisory revenues increased $ 139,000 primarily due to increased market values and a higher volume of assets under management , partially offset by decreased estate fee income . service charges and fees increased $ 585,000 mainly due to increased atm fees and ancillary account service related fees . gains on sales of mortgage loans decreased $ 104,000 due to a decline in sales volume . mortgage loans sales totaled $ 5.3 million in 2017 versus $ 10.3 million in 2016. income from servicing of mortgage loans increased $ 99,000 due primarily to a reduction in the amortization of mortgage servicing rights . loans serviced under the fhlbb mortgage partnership finance program totaled $ 117.5 million and $ 125.2 million at december 31 , 2017 and 2016 , respectively .
| results of operations comparison of the years ended december 31 , 2018 and 2017 net interest and dividend income net interest and dividend income ( presented on a tax-equivalent basis ) increased $ 1.4 million in 2018 over 2017. the net interest margin decreased 23 basis points to 3.35 % from 3.58 % , due to a 33 basis point increase in the average cost of interest-bearing liabilities partly offset by a 1 basis point increase in the average yield on interest-earning assets . the net interest margin is affected by changes in the mix of interest-earning assets and funding liabilities , asset and liability growth , and the effects of changes in market interest rates on the pricing and re-pricing of assets and liabilities . the following table sets forth the components of salisbury 's net interest income and yields on average interest-earning assets and interest-bearing funds . income and yields on tax-exempt securities are presented on a fully taxable equivalent basis . replace_table_token_2_th ( a ) includes non-accrual loans . ( b ) includes interest-bearing deposits in other banks and federal funds sold . ( c ) average balances of securities are based on amortized cost . ( d ) includes tax exempt income of $ 471,000 , $ 921,000 and $ 1,205,000 , respectively for 2018 , 2017 and 2016 on tax-exempt securities and loans whose income and yields are calculated on a tax-equivalent basis . ( e ) net interest income divided by average interest-earning assets . ( f ) interest income for 2018 , 2017 and 2016 reflects net accretion related to the fair value adjustments of loans acquired in the riverside bank acquisition in the amount of $ 0.8 million , $ 1.2 million and $ 1.9 million , respectively . 22 the following table sets forth the changes in net interest income ( presented on a tax-equivalent basis ) due to volume and rate .
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future minimum lease payments under leases with terms of one year or more are as follows at april 30 , 2012 : replace_table_token_23_th rent expense incurred under operating leases was approximately $ 1,412,455 and $ 1,569,996 for the years ended april 30 , 2012 and 2011 , respectively . in september 2010 , the company entered into a real estate lease agreement in union city , ca , to rent manufacturing and office space . under the terms of the lease agreement , the company receives incentives over story_separator_special_tag in addition to historical financial information , this discussion of the business of sigmatron international , inc. ( sigmatron ) , its wholly-owned subsidiaries standard components de mexico s.a. , ablemex , s.a. de c.v. , and sigmatron international trading co. , wholly-owned foreign enterprises wujiang sigmatron electronics co. , ltd. and sigmatron electronic technology co. , ltd. ( collectively , sigmatron china ) and international procurement office sigmatron taiwan branch ( collectively , the company ) and other items in this annual report on form 10-k contain forward-looking statements concerning the company 's business or results of operations . words such as continue , anticipate , will , expect , believe , plan , and similar expressions identify forward-looking statements . these forward-looking statements are based on the current expectations of the company . because these forward-looking statements involve risks and uncertainties , the company 's plans , actions and actual results could differ materially . such statements should be evaluated in the context of the risks and uncertainties inherent in the company 's business including , but not necessarily limited to , the company 's continued dependence on certain significant customers ; the continued market acceptance of products and services offered by the company and its customers ; pricing pressures from our customers , suppliers and the market ; the activities of competitors , some of which may have greater financial or other resources than the company ; the variability of our operating results ; the results of long-lived assets impairment testing ; the variability of our customers ' requirements ; the availability and cost of necessary components and materials ; the ability of the company and our customers to keep current with technological changes within our industries ; regulatory compliance ; the continued availability and sufficiency of our credit arrangements ; changes in u.s. , mexican , chinese , vietnamese or taiwanese regulations affecting the company 's business ; the turmoil in the global economy and financial markets ; the stability of the u.s. , mexican , chinese , vietnamese and taiwanese economic , labor and political systems and conditions ; currency exchange fluctuations ; and the ability of the company to manage its growth , including its integration of the spitfire controls operation acquired in may 2012 ; including integration of spitfire 's financial statements with the company 's statements . these and other factors which may affect the company 's future business and results of operations are identified throughout the company 's annual report on form 10-k and as risk factors and may be detailed from time to time in the company 's filings with the securities and exchange commission . these statements speak as of the date of such filings , and the company undertakes no obligation to update such statements in light of future events or otherwise unless otherwise required by law . 17 overview the company operates in one business segment as an independent provider of ems , which includes printed circuit board assemblies and completely assembled ( box-build ) electronic products . in connection with the production of assembled products , the company also provides services to its customers , including ( 1 ) automatic and manual assembly and testing of products ; ( 2 ) material sourcing and procurement ; ( 3 ) design , manufacturing and test engineering support ; ( 4 ) warehousing and shipment services ; and ( 5 ) assistance in obtaining product approval from governmental and other regulatory bodies . the company provides these manufacturing services through an international network of facilities located in the united states , mexico , china and taiwan . on may 31 , 2012 , sigmatron acquired certain assets and assumed certain liabilities of spitfire . spitfire is a privately held illinois corporation headquartered in carpentersville , illinois with captive manufacturing sites in chihuahua , mexico and suburban ho chi minh city , vietnam . both manufacturing sites were among the assets acquired by the company . spitfire was an original equipment manufacturer of electronic controls , with a focus on the major appliance ( white goods ) industry . although north america is currently its primary market , spitfire has applications that can be used worldwide . providing manufacturing solutions for spitfire since 1994 , sigmatron has been a strategic partner to spitfire as it developed its oem electronic controls business . spitfire provides cost effective designs as control solutions for its customers , primarily in high volume applications of domestic cooking ranges , dishwashers , refrigerators , and portable appliances . spitfire is a member of the association of home appliance manufacturers ( aham ) , as well as other industry related trade associations and is iso 9001-2008 certified . in addition , spitfire 's design capabilities will allow the company to offer design services for the first time in specific markets . the company relies on numerous third-party suppliers for components used in the company 's production process . certain of these components are available only from single-sources or a limited number of suppliers . in addition , a customer 's specifications may require the company to obtain components from a single-source or a small number of suppliers . the loss of any such suppliers could have a material impact on the company 's results of operations . further , the company could operate at a cost disadvantage compared to competitors who have greater direct buying power from suppliers . the company does not enter into long-term purchase agreements with major or single-source suppliers . story_separator_special_tag the company generally provides a 90 day warranty for workmanship only and does not have any installation , acceptance or sales incentives ( although the company has negotiated longer warranty terms in certain instances ) . the company assembles and tests assemblies based on customers ' specifications . historically , the amount of returns for workmanship issues has been de minimis under the company 's standard or extended warranties . inventories inventories are valued at the lower of cost or market . cost is determined by the first-in , first-out method . in the event of an inventory write-down , the company records expense to state the inventory at lower of cost or market . the company establishes inventory reserves for valuation , shrinkage , and excess and obsolete inventory . the company records provisions for inventory shrinkage based on historical experience to account for unmeasured usage or loss . actual results differing from these estimates could significantly affect the 19 company 's inventories and cost of products sold . the company records provisions for excess and obsolete inventories for the difference between the cost of inventory and its estimated realizable value based on assumptions about future product demand and market conditions . actual product demand or market conditions could be different than that projected by management . impairment of long-lived assets the company reviews long-lived assets , including amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . an asset is considered impaired if its carrying amount exceeds the future undiscounted net cash flow the asset is expected to generate . if such asset is considered to be impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair market value . income tax the company accounts for income taxes in accordance with the financial accounting standards board ( fasb ) accounting standards codification ( asc ) 740 , income taxes . our income tax expense , deferred tax assets and liabilities and reserves for unrecognized tax benefits reflect management 's best assessment of estimated future taxes to be paid . the company is subject to income taxes in both the u.s. and several foreign jurisdictions . significant judgments and estimates by management are required in determining the consolidated income tax expense assessment . deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense . in evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise , the company considers all available positive and negative evidence , including scheduled reversals of deferred tax liabilities , projected future taxable income , tax planning strategies and recent financial operations . in projecting future taxable income , the company begins with historical results adjusted for the results of discontinued operations and changes in accounting policies , and incorporates assumptions including the amount of future state , federal and foreign pretax operating income , the reversal of temporary differences , and the implementation of feasible and prudent tax planning strategies . these assumptions require significant judgment and estimates by management about the forecasts of future taxable income and are consistent with the plans and estimates the company uses to manage the underlying businesses . in evaluating the objective evidence that historical results provide , the company considers three years of cumulative operating income and or loss . the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations . changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future . management is not presently aware of any such changes that would have a material effect on the company 's results of operations , cash flows or financial position . fasb asc topic 740 , income taxes provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination , including resolutions of any related appeals or litigation processes , based on the technical merits . asc topic 740 also provides guidance on measurement , derecognition , classification , interest and penalties , accounting in interim periods , disclosure and transition . the company recognizes tax liabilities in accordance with asc topic 740 and the company adjusts these liabilities when its judgment changes as a result of the evaluation of new information not previously available . due to the complexity of some of these uncertainties , the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities . these differences will be reflected as increases or decreases to income tax expense in the period in which they are determined . new accounting standards : in october 2009 , the fasb issued accounting standards update ( asu ) no . 2009-13 for updated revenue recognition guidance under the provisions of asc 605-25 , multiple-element arrangements . the previous guidance has been retained for criteria to determine when delivered items in a multiple-deliverable arrangements should be considered separate units of accounting , however the updated guidance removes the 20 previous separation criterion that objective and reliable evidence of fair value of any undelivered items must exist for the delivered items to be considered a separate unit or separate units of accounting . this guidance was effective for fiscal years beginning on or after july 15 , 2010. the adoption of this guidance did not have a material effect on the company 's consolidated results of operations and financial condition . in march 2010 , the fasb issued asu 2010-11 , scope exception related to embedded credit derivatives to address questions that have been raised in practice about the intended breadth of the embedded credit derivative scope exception in paragraphs 815-15-15-8 through 815-15-15-9 of asc 815 , derivatives and hedging .
| financing summary . the company has a senior secured credit facility with wells fargo bank ( wells fargo ) , with a credit limit up to $ 30 million . the term of the credit facility extends through september 30 , 2013 , and allows the company to choose among interest rates at which it may borrow funds . the interest rate is the prime rate plus one half percent ( effectively , 3.75 % at april 30 , 2012 ) or libor plus two and three quarter percent ( effectively , 3.1 % at april 30 , 2012 ) , which is paid monthly . the credit facility is collateralized by substantially all of the domestically located assets of the company and requires the company to be in compliance with several financial covenants . the company was in compliance with its financial covenants at april 30 , 2012. as of april 30 , 2012 , there was a $ 16,000,000 outstanding balance and $ 14,000,000 of unused availability under the credit facility . the company entered into a mortgage agreement on january 8 , 2010 , in the amount of $ 2,500,000 , with wells fargo to refinance the property that serves as the company 's corporate headquarters and its illinois manufacturing facility . the company repaid the prior bank of america mortgage , which equaled $ 2,565,413 , as of january 8 , 2010 , using proceeds from the wells fargo mortgage and senior secured credit facility . the wells fargo note bears interest at a fixed rate of 6.42 % per year and is amortized over a sixty month period . a final payment of approximately $ 2,000,000 is due on or before january 8 , 2015. the outstanding balance as of april 30 , 2012 was $ 2,275,009. on january 19 , 2010 , the company entered into a leasing transaction with wells fargo equipment finance , inc. to refinance $ 1,287,407 of equipment .
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the company rollins , inc. ( the “ company ” ) was originally incorporated in 1948 under the laws of the state of delaware as rollins broadcasting , inc. the company is an international service company with headquarters located in atlanta , georgia , providing pest and termite control services through its wholly-owned subsidiaries to both residential and commercial customers in north america , australia , and europe with international franchises in central america , south america , the caribbean , the middle east , asia , the mediterranean , europe , africa , and mexico . services are performed through a contract that specifies the treatment and the pricing arrangement with the customer . the company has only one reportable segment , its pest and termite control business . the company 's results of operations and its financial condition are not reliant upon any single customer or a few customers or the company 's foreign operations . overview story_separator_special_tag smaller foreign and domestic companies . sales , general and administrative for the twelve months ended december 31 , 2018 , sales , general and administrative ( sg & a ) expenses increased $ 47.3 million , or 9.4 % compared to the twelve months ended december 31 , 2017. sg & a increased to 30.2 % of revenues for the year ended december 31 , 2018 compared to 30.1 % in 2017. the company increased its 401k match to employees and granted a one-time vested stock grant during the year which increased personnel related costs and administrative salaries , respectively . group insurance premiums were up for the year as well as payroll taxes . the company 's acquisitions and rising gasoline costs and lease expenses raised our fleet costs and the company had increased use of outside professional services in it projects as well as other projects . 15 gain on sales of assets , net gain on sales of assets , net increased to $ 0.9 million for the year ended december 31 , 2018 compared to $ 0.2 million in 2017. the company recognized gains from the sale of owned vehicles and owned property in 2018 and 2017. interest income , net interest income , net for each of the years ended december 31 , 2018 and 2017 was $ 0.2 million and $ 0.3 million , respectively . interest income for each year is due to interest received on cash balances in the company 's various cash accounts . taxes the company 's 2018 net income was positively affected by the tcja which was signed in to law on december 22 , 2017. the estimated positive impact of the enactment of the tcja was a $ 38.4 million decrease to tax expense , which was a direct increase to net income . 2017 had an $ 11.6 million increase in tax as follows : $ 8.0 million from transition tax on foreign earnings , $ 2.9 million from the revaluation of deferred tax assets , and $ 0.7 million from reductions in tax benefits on stock compensation . this resulted in a $ 0.05 per diluted share decrease in net income for the 2018 fiscal year . results of operations—2017 versus 2016 overview the company 's revenues increased to $ 1.674 billion in 2017 , a 6.4 % increase compared to 2016. gross margin increased to 51.0 % for 2017 from 50.9 % in 2016. sales , general and administrative expense were 30.1 % of revenues in 2017 compared to 31.2 % in 2016. the company 's depreciation and amortization margin increased 0.2 percentage points to 3.4 % in 2017 compared to 3.2 % in 2016. rollins ' net income of $ 179.1 million in 2017 was an increase of $ 11.7 million or 7.0 % over $ 167.4 million in 2016. net profit margin improved to 10.7 % in 2017 from 10.6 % in 2016. rollins continued to expand our global brand recognition with acquisitions in the united states and canada as well as expanding our orkin international franchise program in numerous countries around the globe . the company was in 53 countries at the end of 2017 and continues to seek new international opportunities . revenues revenues for the year ended december 31 , 2017 were $ 1.674 billion , an increase of $ 100.5 million or 6.4 % from 2016 revenues of $ 1.573 billion . growth occurred across all service lines and brands with our canadian and australian companies being hindered by unfavorable foreign currency exchange rates . organic growth and pricing accounted for approximately 4.5 % of our increase and our acquisitions contributed the remaining revenue growth . commercial pest control represented approximately 40 % of the company 's revenue in 2017 and grew 5.1 % due to increases in sales , an emphasis on closing leads , increased bed bug revenue , and acquisitions . commercial pest control was negatively impacted by foreign currency exchange as orkin canada and rollins australia are heavily commercial . residential pest control , which represented approximately 42 % of the company 's revenue , increased 6.4 % driven by an increase in lead closure , pricing , as well as increased taexx ® homebuilder installations , and acquisitions . the company 's termite business , which represented approximately 18 % of the company 's revenue , grew 9.7 % in 2017 due to acquisitions , increases in drywood fumigations and ancillary service sales ( such as moisture control and insulation ) . the company implemented its traditional price increase program in june 2017. less than 2 % of the company 's revenue increase is attributable to pricing actions . approximately 80 % of the company 's pest control revenue was recurring in 2017 as well as 2016 . 16 the company 's foreign operations accounted for approximately 8 % and 7 % of total revenues for the years ended december 31 , 2017 and 2016 , respectively . story_separator_special_tag replace_table_token_9_th cash provided by operating activities the company 's operations generated cash of $ 286.3 million for the year ended december 31 , 2018 primarily from net income of $ 231.7 million , compared with cash provided by operating activities of $ 235.4 million in 2017 and $ 226.5 million in 2016. the company believes its current cash and cash equivalents balances , future cash flows expected to be generated from operating activities , available borrowings under its $ 175.0 million credit facility , and access to additional financing as needed , will be sufficient to finance its current operations and obligations , and fund expansion of the business for the foreseeable future . the company 's made no contributions to the rollins , inc. and its wholly-owned subsidiaries ' defined benefit retirement plans ( the “ plans ” ) during the year ended december 31 , 2018. the plans were fully-funded with a prepaid balance . no contributions were made in 2017 and $ 3.3 million was made during 2016 , respectively , as a result of the plans ' funding status . the company 's management is not expecting to make a contribution during fiscal year 2019. in the opinion of management , additional plan contributions , if any , will not have a material effect on the company 's financial position , results of operations or liquidity . the company has initiated the process to transition its pension plan to an insurance provider . the timeline will take approximately 6-9 months from december 31 , 2018. the company 's pension plan is currently more than 100 % funded . cash used in investing activities the company used $ 101.4 million on investing activities for the year ended december 31 , 2018 , compared to $ 154.2 million and $ 76.8 million during 2017 and 2016 , respectively , and of that , invested approximately $ 27.2 million in capital expenditures during 2018 compared to $ 24.7 million and $ 33.1 million during 2017 and 2016 , respectively . capital expenditures for the year consisted primarily of property purchases , equipment replacements and technology related projects . the company expects to invest between $ 25 million and $ 30 million in 2019 in capital expenditures . during 2018 , the company and its subsidiaries acquired several small to mid-sized companies for a total of $ 76.8 million compared to $ 130.2 million and $ 46.3 million in acquisitions during 2017 and 2016 , respectively . the expenditures for the company 's acquisitions were funded with cash on hand . the company continues to seek new acquisitions . 18 cash used in financing activities the company used cash of $ 162.3 million on financing activities for the year ended december 31 , 2018 , compared to $ 130.3 million and $ 136.4 million during 2017 and 2016 , respectively . a total of $ 152.7 million was paid in cash dividends ( $ 0.47 per share ) during the year ended december 31 , 2018 including a special dividend paid in december 2018 of $ 0.09 per share , compared to $ 122.0 million in cash dividends paid ( $ 0.37 per share ) during the year ended december 31 , 2017 , including a special dividend paid in december 2017 of $ 0.07 per share and $ 109.0 million paid in cash dividends ( $ 0.33 per share ) during the year ended december 31 , 2016 , including a special dividend paid in december 2016 of $ 0.07 per share . the company did not purchase shares on the open market during the years ended december 31 , 2018 and 2017 while using $ 22.7 million to repurchase 1.3 million shares of its common stock at a weighted average price of $ 18.13 per share during 2016. there remain 7.6 million shares , adjusted for the december 10 , 2018 three-for-two stock split , authorized to be repurchased under prior board approval . the company repurchased $ 9.5 million , $ 8.2 million , and $ 8.4 million of common stock for the years ended december 31 , 2018 , 2017 and 2016 , respectively , from employees for the payment of taxes on vesting restricted shares . the company 's $ 115.5 million of total cash at december 31 , 2018 is primarily cash held at various banking institutions . approximately $ 53.6 million is held in cash accounts at international bank institutions and the remaining $ 61.9 million is primarily held in federal deposit insurance corporation ( “ fdic ” ) insured non-interest-bearing accounts at various domestic banks which at times may exceed federally insured amounts . the company 's international business is expanding and we intend to continue to grow the business in foreign markets in the future through reinvestment of foreign deposits and future earnings as well as acquisitions of unrelated companies . repatriation of cash from the company 's foreign subsidiaries is not a part of the company 's current business plan . the company maintains a large cash position in the united states while having no third-party debt to service . rollins maintains adequate liquidity and capital resources , without regard to its foreign deposits , that are directed to finance domestic operations and obligations and to fund expansion of its domestic business . the company expects to close on the acquisition of clark pest control of stockton , inc. during the first or second quarters of 2019. the company intends to fund purchase of the acquisition with a combination of cash on hand , use of its revolving credit agreement and a new term loan . the closing of the acquisition is subject to the satisfaction of customary conditions , including the truth and accuracy of the representations and warranties of the sellers , the performance of the obligations of the sellers and the receipt of regulatory clearance . for information regarding our revolving credit agreement see note 4 – debt of the notes to financial statements ( part ii , item 8 of this form 10-k ) .
| results of operations replace_table_token_8_th general operating comments 2018 marked the company 's 21st consecutive year of improved revenues and profits . revenues for the year rose 8.8 percent to $ 1.822 billion compared to $ 1.674 billion for the prior year . income before income taxes increased 5.5 % to $ 310.7 million compared to $ 294.5 million the prior year . net income increased 29.3 % to $ 231.7 million , with earnings per diluted share of $ 0.71 compared to $ 179.1 million , or $ 0.55 per diluted share for the prior year . all of the company 's business lines experienced growth for the year , with residential pest control revenues up 9.1 % , commercial pest control revenues up 6.0 % and termite and ancillary services revenues up 12.8 % , each compared to 2017. results of operations—2018 versus 2017 overview the company 's revenues increased to $ 1.822 billion in 2018 , an 8.8 % increase compared to 2017. gross margin decreased to 50.9 % for 2018 from 51.0 % in 2017. sales , general and administrative expense were 30.2 % of revenues in 2018 compared to 30.1 % in 2017. the company 's depreciation and amortization margin increased 0.3 percentage points to 3.7 % in 2018 compared to 3.4 % in 2017. rollins ' net income of $ 231.7 million in 2018 was an increase of $ 52.5 million or 29.3 % over $ 179.1 million in 2017. net profit margin improved to 12.7 % in 2018 from 10.7 % in 2017. rollins continued to expand our global brand recognition with acquisitions in the united states , canada , singapore , and australia as well as expanding our orkin international franchise program in numerous countries around the globe . the company is now in 57 countries and continues to seek new international opportunities . 14 revenues revenues for the year ended december 31 , 2018 were $ 1.822 billion , an increase of $ 147.6 million or 8.8 % from 2017 revenues of $ 1.674 billion .
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we are a leading premium spirits company that makes and sells branded distilled spirits products in major markets worldwide . our principal products include bourbon whiskey , tequila , scotch whisky , canadian whisky , vodka , cognac , rum , cordials , and ready-to-drink pre-mixed cocktails . our diverse portfolio includes several of the world 's top premium spirits brands . as further described in the notes to the consolidated financial statements included in this form 10-k , discontinued operations include the former fortune brands golf and home & security segments , both of which were disposed of in 2011. our portfolio consists of brands we identify as power brands , rising stars , local jewels , and value creators . the power brands are our core brand equities , with global reach in premium categories and large annual sales volume . rising stars are smaller premium brands in priority markets that we believe have excellent growth profiles and receive substantial brand investment to drive expansion . brands identified as local jewels act as power brands in local markets . value creators include a variety of brands providing scale and profit across multiple categories . power brands , rising stars , and combined local jewels/value creators ( including non-branded sales ) represent approximately 60 % , 15 % , and 25 % , respectively , of our net sales . our power brands and rising stars , which are the focus of our brand investment , are listed below . power brands : jim beam bourbon , maker 's mark bourbon , sauza tequila , courvoisier cognac , canadian club whisky , teacher 's scotch , and pinnacle vodka rising stars : laphroaig scotch , knob creek bourbon , basil hayden 's bourbon , kilbeggan irish whiskey , cruzan rum , hornitos tequila , skinnygirl cocktails , and sourz liqueurs the principal markets for our spirits products are the united states , australia , germany , spain , the united kingdom , and canada , and we continue to invest in emerging markets such as india , brazil , mexico , russia , central europe , asia , and other geographies . we operate our business on the basis of geographical regions , consisting of north america , europe/middle east/africa ( emea ) , and asia-pacific/south america ( apsa ) . 26 executive summary operational and financial highlights for 2012 operational and financial highlights for the year ended december 31 , 2012 include the following : our diluted earnings per share from continuing operations were $ 2.48 in 2012 compared with $ 0.85 per share in 2011. the year-over-year improvement in earnings per share is largely attributable to significant nonrecurring costs incurred in 2011 due to the separation transactions ( as noted below ) . in addition , our results in 2012 benefited from our operating strategy ( create famous brands , building winning markets , and fueling our growth ) as well as from acquisitions completed in 2012. our results included an 11 % increase in advertising and marketing expenditures as well as higher investment in aging spirits inventory , production capacity , and innovation capability to support future profitable growth ; our net sales increased 7 % ( 6 % on a comparable basis ) , exceeding the growth of our global market , which we estimate grew approximately 3 % in value in 2012. the comparable net sales growth was driven by our power brands and rising stars , benefiting from strong demand for bourbon and growth in core markets , including the united states , australia , and germany , as well as in emerging markets ; strategies to create famous brands , which resulted in record new product innovations ( such as red stag honey tea , red stag spiced , jim beam devil 's cut , jim beam honey , and skinnygirl wine , vodka , and piña colada ready-to-serve ) , higher pricing in select categories , and favorable price/mix , contributed to net sales growth and faster operating income growth ; strategies to build winning markets resulted in enhanced distribution capability in many countries , such as australia , china , and mexico , which also contributed to net sales growth and faster operating income growth ; strategies to fuel our growth , such as the consolidation of our u.s. bottling facilities into our expanded center of excellence in frankfort , kentucky and our design to value program that focuses on brand attributes consumers value , led to substantial cost savings that largely offset the impact of higher raw material related costs and contributed to increased gross margin ; we completed the acquisition of the pinnacle vodka brand and related assets ( the pinnacle assets ) to create shareholder value by driving cost and revenue synergies while enhancing our participation in the premium vodka category . we also entered the irish whiskey category with the acquisition of cooley distillery ( cooley ) ; we issued long-term debt with an aggregate principal amount of $ 600 million to fund our acquisition of the pinnacle assets ; and in january 2012 , we increased our quarterly dividend 8 % to 20.5 cents per share of common stock ( and we subsequently increased our quarterly dividend 10 % to 22.5 cents per share of common stock in january 2013 , beginning with the march 1 , 2013 dividend payment ) . 27 certain items had a significant impact on our financial results in 2012 , 2011 , and 2010. these include the impact of the separation transactions completed in 2011 , changes in foreign currency exchange rates , acquisition related items , restructuring and other related charges and income tax related matters . in 2012 , our financial results include the following : acquisition /integration charges of $ 22 million ( $ 17 million net of tax , or $ 0.11 per share ) related to the acquisition and integration of the pinnacle assets and cooley . story_separator_special_tag benefited from nontaxable income tax indemnification payments of $ 37 million related to foreign tax jurisdictions for periods prior to our acquisitions of the business ; and income tax expense was impacted by the tax effects of the significant items described above and a favorable $ 46 million related to tax assessments associated with the resolution of routine foreign and u.s. income tax audit examinations . business outlook we believe that the long-term demographic trends are favorable for the continued profitable growth of western premium spirits globally . while we estimate our global spirits market will again grow value by approximately 3 % in 2013 , supported by continued growth in the u.s. and emerging markets , the potential for slower growth in western europe and emerging economies could adversely impact trading conditions . in addition , in 2013 we expect another year of higher raw material-related costs ( mostly offset by cost savings ) , limited opportunities to increase pricing , and year-over-year declines in our india operation through the third quarter as we reposition the business there ( india comprised 2 % of 29 total 2012 net sales , and less than 2 % of total 2012 operating income ; see note 18 , commitments and contingencies , of the notes to the consolidated financial statements in part ii , item 8 of this report for more information ) . we believe that the continued management and investment focus on the best growth and return opportunities in our brand portfolio and geographic markets , including innovation , advertising and more effective routes to market , position us well for growth in 2013 and over the long term . in 2013 , we also expect to benefit from the carry-over benefit of 2012 price increases , above-market growth of the bourbon category globally , our efficiency and effectiveness agenda , and from the full-year benefit of 2012 acquisitions , including cost synergies and enhanced distribution . please see forward-looking statements for a discussion of certain factors that may cause our actual results to vary materially from those expected as of the date of the filing of this report . story_separator_special_tag compared to the fortune brands , inc. cost structure ( $ 36 million ) , lower intangible asset impairment charges ( $ 15 million ) and increased gross profit ( $ 115 million ) from higher sales , which were driven by volume , mix , and price as described above . the increase in operating income in 2012 was also due to a $ 9 million favorable impact from changes in foreign currency rates and related hedge impacts . these benefits were partially offset by increases in advertising and marketing and selling , general and administrative expenses ( excluding the fortune brands cost structure impact and other charges/gains noted above ) and the absence of $ 24 million of gross profit from the one-time sale of inventory related to our australia distribution change in 2011. interest expense interest expense decreased $ 8 million , or 7 % , from $ 117 million in 2011 to $ 109 million in 2012 due to lower average borrowings , principally due to debt reduction of approximately $ 2.3 billion during 2011 related to the separation transactions as well as additional debt reductions from scheduled debt payments that were made in 2011. new borrowings of $ 600 million in may 2012 , which were used to fund the acquisition of the pinnacle assets , partially offset this benefit . loss on early extinguishment of debt the loss on early extinguishment of debt of $ 149 million in 2011 consists of $ 155 million of purchase premiums and $ 7 million of accelerated unamortized debt issuance costs , partially offset by $ 13 million attributed to the amortization/write-off of deferred gains on terminated interest rate swaps related to the extinguished debt . refer to the section liquidity and capital resources below for additional information regarding the reduction of debt during 2011 . 33 other income other income decreased $ 5 million , or 13 % , from $ 40 million in 2011 to $ 35 million in 2012. the change from 2011 to 2012 was primarily due to lower nontaxable indemnification payments received from pernod ricard related to the settlement of tax matters ( $ 8 million ) and lower distributions related to the wind down of our maxxium joint venture investment ( $ 8 million ) , partially offset by an increase in equity income related to our international distribution joint ventures with the edrington group ( $ 5 million ) and higher foreign currency transaction gains ( $ 4 million ) . income taxes the effective income tax rates for 2012 and 2011 were 20.7 % and 21.3 % , respectively . several significant items impacted the comparability of our effective rates between 2012 and 2011. the effective tax rate in 2012 was favorably impacted primarily by net foreign tax credits ( $ 22 million ) , tax benefits recorded in 2012 as a result of final audit settlements and the expiration of foreign jurisdiction income tax review periods ( $ 17 million ) , and $ 7 million of expense related to the correction of prior year items . the effective tax rate in 2011 was favorably impacted by the tax-free treatment of indemnification income received in connection with a settlement of a mexican income tax audit and the resolution of a german tax audit , partially offset by the impact of non-deductible business separation costs and a tax assessment related to the settlement of a mexican income tax audit . see note 9 , income taxes , to our financial statements included in this report for additional information relating to foreign audit settlements , related indemnification payments , and other factors impacting our effective tax rate as compared to the u.s. federal statutory rate .
| results of operations presentation basis and non-gaap measures volume is measured on a nine liter equivalent unit basis . we divide ready-to-drink cases by 10 to obtain a nine liter case equivalent . price/mix is the number of percentage points by which the comparable net sales changes exceeds the change attributable to volume . the difference arises because of changes in the composition of sales between higher and lower priced brands or from price changes . comparable net sales growth rate is a non-gaap measure that we use to evaluate our sales growth on a year-over-year basis exclusive of certain items that are not indicative of the underlying sales performance of our business . to calculate comparable net sales , our gaap net sales growth rates are adjusted for the impact of foreign exchange , acquisitions/divestures , and the impact of transitioning in 2011 to a new manufacturing and distribution model in australia . in calculating comparable net sales , the acquisition/divesture impact is determined by comparing our actual reported revenue in the current period , including revenue attributable to acquired companies , with adjusted revenue from the prior-year period . in arriving at adjusted prior-year revenue , we include the revenue of acquired companies and remove the revenue of divested companies for the prior-year periods comparable to the current-year periods for which the companies are included in our actual reported revenue . the foreign exchange impact is calculated by translating current year results at prior year exchange rates and excluding hedge impacts . approximately 45 percent of our business was outside the u.s during 2012. as a result , changes in foreign exchange rates can have a significant impact on our reported results of operations when translated and presented in u.s. dollars . our discussion of results of operations by segment includes the use of constant currency net sales and operating income , non-gaap measures which exclude the impact of foreign exchange translation .
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additionally , if our current assumptions and estimates , story_separator_special_tag overview the company is a global leader respected for innovative eai solutions in the automatic information and data capture solutions industry . we design , manufacture , and sell a broad range of products that capture and move data , including : mobile computers ; barcode scanners and imagers ; rfid readers ; specialty printers for barcode labeling and personal identification ; rtls ; related accessories and supplies , such as self-adhesive labels and other consumables ; and software utilities and applications . we also provide a full range of services , including maintenance , technical support , and repair , managed and professional services , including cloud-based subscriptions . end-users of our products and services include those in the retail and e-commerce , transportation and logistics , manufacturing , healthcare , hospitality , warehouse and distribution , energy and utilities , government and education enterprises around the world . benefits of our solutions include improved efficiency and workflow management , increased productivity and asset utilization , real-time , actionable enterprise information , and better customer experiences . we provide our products and services globally through a direct sales force and an extensive network of partners . we provide products and services in over 180 countries , with 109 facilities and approximately 7,400 employees worldwide . segments the company 's operations consist of two reportable segments : asset intelligence & tracking ( “ ait ” ) and enterprise visibility & mobility ( “ evm ” ) . asset intelligence & tracking the ait segment is an industry leader in barcode printing and asset tracking technologies . its major product lines include barcode and card printers , supplies , services and location solutions . industries served include retail and e-commerce , transportation and logistics , manufacturing , healthcare , and other end markets within the following regions : north america ; europe , middle east , and africa ( “ emea ” ) ; asia-pacific ; and latin america . enterprise visibility & mobility the evm segment is an industry leader in automatic information and data capture solutions . its major product lines include mobile computing , data capture , rfid , and services . industries served include retail and e-commerce , transportation and logistics , manufacturing , healthcare , and other end markets within the following regions : north america ; emea ; asia-pacific ; and latin america . geographic information for the year ended december 31 , 2018 , the company recorded $ 4.2 billion of net sales in its consolidated statements of operations , of which approximately 48.4 % were attributable to north america ; approximately 33.4 % were attributable to emea ; and other foreign locations accounted for the remaining 18.2 % . relative net sales attributable to each region is comparable with the prior year period . acquisition and integration on august 14 , 2018 , the company completed its tender offer to acquire all outstanding common stock of xplore for $ 6.00 per share . in connection with this acquisition , the company paid $ 87 million in cash , which included $ 72 million for the net assets acquired , a $ 9 million payment of xplore debt , as well as $ 6 million of other xplore transaction-related obligations . the operating results of xplore are included within the company 's evm segment beginning august 14 , 2018 , contributing approximately 1 % to our consolidated net sales growth in 2018. the xplore acquisition was accounted for under the acquisition method of accounting for business combinations and the preliminary opening balance sheet was included in the company 's consolidated balance sheet and operating results beginning august 14 , 2018. on october 27 , 2014 , the company acquired enterprise from msi and began integration activities focused on creating “ one zebra ” . our integration priorities centered on maintaining business continuity while identifying and implementing cost synergies , operating efficiencies , and integration of functional organizations and processes . another key focus of the integration was to exit msi-provided tsas related primarily to it systems and support services . these tsas were an interim measure to continue the operations of the enterprise business without disruption while integration activities were completed . the company substantially completed its integration activities in fiscal year 2017 , including the implementation of a common enterprise resource planning system and has exited the last tsas with msi . restructuring programs in the first quarter 2017 , the company 's executive leadership approved an initiative to continue the company 's efforts to increase operational efficiency ( the “ productivity plan ” ) . the productivity plan built upon the exit and restructuring initiatives specific to the october 2014 enterprise acquisition ( the “ acquisition plan ” ) . actions under the productivity plan included organizational design changes , process improvements and automation . the company substantially completed all initiatives 24 under the acquisition plan as of december 31 , 2017 , and substantially completed all initiatives under the productivity plan as of december 31 , 2018. exit and restructuring costs are not included in the operating results of our segments as they do not impact the specific segment measures as reviewed by our chief operating decision maker and therefore are reported as a component of corporate eliminations . see note 18 , segment information & geographic data in the notes to consolidated financial statements . total exit and restructuring charges of $ 23 million life-to-date specific to the productivity plan have been recorded through december 31 , 2018 and include severance and related benefits , lease exit costs and other expenses . charges related to the productivity plan for the year ended december 31 , 2018 and 2017 were $ 11 million and $ 12 million , respectively . total exit and restructuring charges of $ 69 million life-to-date specific to the acquisition plan have been recorded through december 31 , 2018 and include severance and related benefits , lease exit costs and other expenses . story_separator_special_tag the lower amortization expense results from certain acquired intangible assets becoming fully amortized in 2017. additionally , the company had lower acquisition and integration charges in the current year as the enterprise business integration activities were substantially completed during 2017. current operating costs reflect higher compensation costs , which include the impact of higher incentive-based compensation associated with financial performance , a $ 13 million pretax charge related to a legal settlement included within general and administrative expense , investments to accelerate organic growth , as well as the inclusion of xplore . operating income was $ 610 million for the current year , compared to $ 322 million for the prior year . the increase was primarily due to higher net sales and gross profit as well as lower operating expenses . total other expenses , net was $ 86 million for the current year , compared to $ 234 million for the prior year . the decrease was primarily due to $ 81 million reduction of debt extinguishment and modification costs versus the prior year . the current year also benefited from lower outstanding debt and interest rates , a $ 10 million gain on sale of certain investments , and a $ 6 million increase in interest rate swap gains . the company recognized income tax expense of $ 103 million and $ 71 million for the years ended december 31 , 2018 and 2017 , respectively . the company 's effective tax rates were 19.7 % and 80.7 % as of december 31 , 2018 and 2017 , respectively . the decrease in the effective tax rate in the current year versus the prior year is primarily due to favorable year-over-year impacts of u.s. tax reform , changes in valuation allowances , u.s. impacts of the enterprise acquisition as well as uncertain tax benefits , partially offset by the benefits of net foreign deferred tax asset remeasurements and intercompany asset transfers recorded in the prior year as well as reduced year-over-year favorability of foreign income taxes . 2017 compared to 2016 net sales increased by $ 148 million or 4.1 % compared with the prior year period . the increase in net sales was due to higher hardware sales in north america , emea , and latin america , offset by lower hardware sales in asia-pacific . the increase in hardware sales was largely attributable to increased sales of mobile computing , data capture , and barcode printing products , partially offset by the impact of the divestiture of the wlan business in october 2016. services sales were lower primarily due to the impact of the wlan divestiture . organic net sales growth was 6.5 % , reflecting growth in all four geographic regions , most notably in emea , north america , and latin america . gross margin was 45.9 % in both the current and prior year periods . this reflects an increase in gross margin in the evm segment primarily due to changes in business mix and operational efficiencies , offset by lower ait segment gross margin driven primarily by higher overhead and service costs , as well as increased customer sales incentives . operating expenses for the year ended december 31 , 2017 and 2016 , were $ 1.4 billion , or 37.3 % of net sales , and $ 1.6 billion , or 43.7 % of net sales , respectively . the reduction in operating expenses was primarily due to impairment charges related to the disposal of the company 's wlan business in the prior year , lower acquisition and integration costs , and lower amortization of intangible assets . during 2017 , the company substantially completed its integration activities , including the implementation of 27 a common enterprise resource planning system , associated with the enterprise acquisition . the company also exited the transition service agreements with msi . the decrease in amortization of intangible assets was due to certain assets reaching full amortization in 2017. exit and restructuring costs were also lower than the prior year due to the prior year including costs associated with the divestiture of the wlan business . research and development costs were higher primarily due to increased incentive compensation expense associated with improved financial performance , partially offset by the impact of the divestiture of the wlan business . general and administrative expenses were lower compared to the prior year due primarily to reduced facility and it expenses , professional fees , and employee benefit costs , as well as the impact of the divestiture of the wlan business being offset partially by increased incentive compensation expense associated with improved financial performance . operating income increased $ 242 million compared to the prior year . the increase was primarily due to the decline in operating expenses as well as the increase in net sales and gross profit . total other expenses , net was $ 234 million for the current year , compared to $ 209 million for the prior year . the increase was primarily driven by $ 65 million of payments for early extinguishment and $ 16 million of accelerated amortization of debt issuance costs related to the redemption of $ 1.1 billion senior notes in the current year , partially offset by the impact of early repayments of debt and lower interest rates as well as lower long-term investment impairment charges in the current year . the company recognized income tax expense of $ 71 million and $ 8 million for the years ended december 31 , 2017 and 2016 , respectively . the company 's effective tax rates were 80.7 % and ( 6.2 ) % for the years ended december 31 , 2017 and december 31 , 2016 , respectively .
| results of operations by segment the following commentary should be read in conjunction with the financial results of each operating business segment as detailed in note 18 , segment information & geographic data in the notes to consolidated financial statements . segment results exclude purchase accounting adjustments , amortization of intangible assets , acquisition and integration costs , impairment of goodwill and intangibles , and exit and restructuring costs . segment results reflect a current year revision to the company 's operating cost allocation methodologies which more accurately reflects where costs are being incurred . the effect of this revision on prior periods resulted in $ 14 million and $ 41 million of operating expenses being reclassified from ait to evm for the years ended december 31 , 2017 and 2016 , respectively . asset intelligence & tracking segment ( “ ait ” ) ( amounts in millions , except percentages ) replace_table_token_9_th ait organic net sales growth : replace_table_token_10_th ( 1 ) operating results reported in u.s. dollars are affected by foreign currency exchange rate fluctuations . foreign currency translation impact represents the difference in results that are attributable to fluctuations in the currency exchange rates used to convert the results for businesses where the functional currency is not the u.s. dollar . this impact is calculated by 28 translating , for certain currencies , the current period results at the currency exchange rates used in the comparable prior year period , rather than the exchange rates in effect during the current period . in addition , we exclude the impact of the company 's foreign currency hedging program in both the current and prior year periods . 2018 compared to 2017 net sales for ait increased $ 112 million or 8.5 % compared to the prior year . the increase in net sales was primarily due to higher sales of barcode printing products being partially offset by declines in card printer sales .
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on september 4 , 2020 , we filed a registration statement on form s-3 , or the registration statement , which includes a prospectus , pursuant to which we may offer and sell , from time to time after the effectiveness of the registration statement , shares of our common stock having an aggregate offering price of up to $ 100.0 million under the 2020 sales agreement . on may 27 , 2020 , we completed an underwritten public offering of 107,049,375 shares of our common stock and a pre-funded warrant to purchase 8,335,239 shares of our common stock , together with accompanying warrants to purchase 57,692,307 shares of our common stock , or the stock purchase warrants . the combined public offering price of the common stock and accompanying stock purchase warrants was $ 1.30 per share . the combined public offering price of the pre-funded warrant and accompanying stock purchase warrants was $ 1.299 per share . the net cash proceeds from this offering were approximately $ 140.2 million , after deducting the underwriting discount and other offering expenses paid by us , and excludes any future proceeds from the exercise of the pre-funded warrant or the stock purchase warrants . substantially all of our revenues to date have been payments under collaboration agreements , and milestones , royalties and other revenues from our licensing arrangements . we currently have no source of product revenue . while we reported a small profit for the year ended december 31 , 2015 due to our recognition of revenue in connection with the upfront payment from janssen under the collaboration agreement , until 2015 we had never been profitable , and have not reported any profit since . we have incurred significant net losses since our inception in 1990 , resulting principally from costs incurred in connection with our research and development activities and from general and administrative costs associated with our operations . as of december 31 , 2020 , we had an accumulated deficit of approximately $ 1.2 billion . the significance of future losses , future revenues and any potential future profitability will depend primarily on the clinical and commercial success of imetelstat , our sole product candidate . in any event , imetelstat will require significant additional clinical testing prior to possible regulatory approval in the united states and other countries . we expect research and development expenses , general and administrative expenses , and losses to substantially increase in future periods as we continue to support the imetelstat development program through late-stage development , including the conduct and completion of imerge phase 3 and impactmf . to further advance the imetelstat program , including conducting the clinical and regulatory activities necessary to obtain regulatory approval for imetelstat and establishing sales and marketing capabilities to commercialize imetelstat in the united states on our own , if regulatory approval is granted , substantial additional capital will be required . if approved for marketing by regulatory authorities outside of the united states , we may seek potential commercialization partners for such territories . we do not expect imetelstat to be commercially available for many years , if at all . critical accounting policies and estimates our financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses . note 1 of notes to financial statements describes the significant accounting policies used in the preparation of our financial statements . certain of these significant accounting policies are considered to be critical accounting policies , as defined below . a critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult , subjective or complex judgments that could have a material effect on our financial condition and results of operations . specifically , critical accounting estimates have the following attributes : ( i ) we are required to make assumptions about matters that are highly uncertain at the time of the estimate ; and 81 ( ii ) different estimates we could reasonably have used , or changes in the estimate that are reasonably likely to occur , would have a material effect on our financial condition or results of operations . estimates and assumptions about future events and their effects can not be determined with certainty . we base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances . these estimates may change as new events occur , as additional information is obtained and as our operating environment changes . these changes historically have been minor and have been included in the financial statements as soon as they became known . based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies , management believes that our financial statements are stated fairly in accordance with accounting principles generally accepted in the united states , and meaningfully present our financial condition and results of operations . we believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our financial statements : fair value of financial instruments we categorize financial instruments recorded at fair value on our balance sheets based upon the level of judgment associated with inputs used to measure their fair value . the categories are as follows : level 1—inputs are unadjusted , quoted prices in active markets for identical assets or liabilities at the measurement date . an active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis . level 2—inputs ( other than quoted market prices included in level 1 story_separator_special_tag on september 4 , 2020 , we filed a registration statement on form s-3 , or the registration statement , which includes a prospectus , pursuant to which we may offer and sell , from time to time after the effectiveness of the registration statement , shares of our common stock having an aggregate offering price of up to $ 100.0 million under the 2020 sales agreement . on may 27 , 2020 , we completed an underwritten public offering of 107,049,375 shares of our common stock and a pre-funded warrant to purchase 8,335,239 shares of our common stock , together with accompanying warrants to purchase 57,692,307 shares of our common stock , or the stock purchase warrants . the combined public offering price of the common stock and accompanying stock purchase warrants was $ 1.30 per share . the combined public offering price of the pre-funded warrant and accompanying stock purchase warrants was $ 1.299 per share . the net cash proceeds from this offering were approximately $ 140.2 million , after deducting the underwriting discount and other offering expenses paid by us , and excludes any future proceeds from the exercise of the pre-funded warrant or the stock purchase warrants . substantially all of our revenues to date have been payments under collaboration agreements , and milestones , royalties and other revenues from our licensing arrangements . we currently have no source of product revenue . while we reported a small profit for the year ended december 31 , 2015 due to our recognition of revenue in connection with the upfront payment from janssen under the collaboration agreement , until 2015 we had never been profitable , and have not reported any profit since . we have incurred significant net losses since our inception in 1990 , resulting principally from costs incurred in connection with our research and development activities and from general and administrative costs associated with our operations . as of december 31 , 2020 , we had an accumulated deficit of approximately $ 1.2 billion . the significance of future losses , future revenues and any potential future profitability will depend primarily on the clinical and commercial success of imetelstat , our sole product candidate . in any event , imetelstat will require significant additional clinical testing prior to possible regulatory approval in the united states and other countries . we expect research and development expenses , general and administrative expenses , and losses to substantially increase in future periods as we continue to support the imetelstat development program through late-stage development , including the conduct and completion of imerge phase 3 and impactmf . to further advance the imetelstat program , including conducting the clinical and regulatory activities necessary to obtain regulatory approval for imetelstat and establishing sales and marketing capabilities to commercialize imetelstat in the united states on our own , if regulatory approval is granted , substantial additional capital will be required . if approved for marketing by regulatory authorities outside of the united states , we may seek potential commercialization partners for such territories . we do not expect imetelstat to be commercially available for many years , if at all . critical accounting policies and estimates our financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses . note 1 of notes to financial statements describes the significant accounting policies used in the preparation of our financial statements . certain of these significant accounting policies are considered to be critical accounting policies , as defined below . a critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult , subjective or complex judgments that could have a material effect on our financial condition and results of operations . specifically , critical accounting estimates have the following attributes : ( i ) we are required to make assumptions about matters that are highly uncertain at the time of the estimate ; and 81 ( ii ) different estimates we could reasonably have used , or changes in the estimate that are reasonably likely to occur , would have a material effect on our financial condition or results of operations . estimates and assumptions about future events and their effects can not be determined with certainty . we base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances . these estimates may change as new events occur , as additional information is obtained and as our operating environment changes . these changes historically have been minor and have been included in the financial statements as soon as they became known . based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies , management believes that our financial statements are stated fairly in accordance with accounting principles generally accepted in the united states , and meaningfully present our financial condition and results of operations . we believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our financial statements : fair value of financial instruments we categorize financial instruments recorded at fair value on our balance sheets based upon the level of judgment associated with inputs used to measure their fair value . the categories are as follows : level 1—inputs are unadjusted , quoted prices in active markets for identical assets or liabilities at the measurement date . an active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis . level 2—inputs ( other than quoted market prices included in level 1
| financial condition and results of operations the following discussion should be read in conjunction with the section entitled “ business ” in part i , item 1 and the audited financial statements and notes thereto included in part ii , item 8 of this annual report on form 10‑k . the information provided should be reviewed in the context of the sections entitled “ risks related to the development of imetelstat ” , “ risks related to covid-19 ” and “ risks related to regulatory compliance matters and commercialization of imetelstat ” under “ risk factors ” in part i , item 1a and elsewhere in this annual report on form 10-k. company overview summary geron is a late-stage clinical biopharmaceutical company that is focused on the development and potential commercialization of imetelstat , an innovative therapeutic for hematologic myeloid malignancies . geron 's vision is to be recognized as a leader in the treatment of hematologic malignancies . geron is committed to improving and extending the lives of patients by changing the course of these diseases by targeting telomerase . we are currently focused on the development and potential commercialization of imetelstat , a first in class telomerase inhibitor , and are conducting two ongoing phase 3 clinical trials that are intended to enable registration : ( i ) imerge phase 3 in low or intermediate-1 risk myelodysplastic syndromes , or lower risk mds , and ( ii ) impactmf in intermediate-2 or high-risk myelofibrosis , or refractory mf . like many other biopharmaceutical companies , we have experienced and continue to experience delays in clinical site initiations , as well as patient screening and enrollment in our clinical trials due to the covid-19 pandemic . at the beginning of 2020 , the pace of site opening and patient screening and enrollment was in line with our expectations . however , in the spring of 2020 , the covid-19 pandemic began to rapidly affect clinical trial sites around the world .
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we determined that the 73 elements within the strategic alliance agreement with sanofi should be treated as a single unit of accounting because the delivered elements did not have stand-alone value to sanofi . the following elements were delivered as part of the strategic alliance with sanofi : ( 1 ) a license for up to four micro rna targets ; and ( 2 ) a research license under our technology alliance . in june 2013 , the original research term expired , upon which we and sanofi entered into an option agreement pursuant to which sanofi was granted an exclusive right to negotiate the co-development and commercialization of certain of our unencumbered micro rna programs and we were granted the exclusive right to negotiate with sanofi for co-development and commercialization of certain mir-21 anti-mirs in oncology and alport syndrome . in july 2013 , we received an upfront payment of $ 2.5 million , of which $ 1.25 million is creditable against future amounts payable by sanofi to us under any future co-development and commercialization agreement we enter pursuant to the option agreement . revenue associated with the creditable portion of this option payment was deferred as of december 31 , 2017 , and recorded as an adjustment to accumulated deficit upon our adoption of topic 606 on january 1 , 2018. the non-creditable portion of this payment , $ 1.25 million , was recognized as revenue over the option period from the effective date of the option agreement in june 2013 through the expiration of the option period in january 2014. in february 2014 , we and sanofi entered into a second amended and restated collaboration and license agreement ( the “ 2014 sanofi amendment ” ) to renew our strategic alliance to discover , develop and commercialize micro rna therapeutics to focus on specific orphan disease and oncology targets . under the terms of the 2014 sanofi amendment , sanofi had opt-in rights to our clinical fibrosis program targeting mir-21 for the treatment of alport syndrome , our preclinical program targeting mir-21 for oncology indications , and our preclinical program targeting mir-221/222 for hcc . we were responsible for developing each of these programs to proof-of-concept , at which time sanofi had an exclusive option on each program . if sanofi chose to exercise its option on any of these programs , sanofi would reimburse us for a significant portion of our preclinical and clinical development costs and would also pay us an option exercise fee for any such program , provided that $ 1.25 million of the $ 2.5 million upfront option fee paid to us by sanofi in connection with the june 2013 option agreement will be creditable against such option exercise fee . we are eligible to receive royalties on micro rna therapeutic products commercialized by sanofi and will have the right to co-promote these products relating to our preclinical program targeting mir-221/222 . as indicated below , we entered into an additional amendment with sanofi in november 2018 , under which sanofi 's opt-in rights to our mir-21 programs under the 2014 sanofi amendment were relinquished . sanofi 's opt-in rights with regard to our mir-221/222 preclinical program under the 2014 sanofi amendment remained unchanged . in connection with the 2014 sanofi amendment , we entered into a common stock purchase agreement ( the “ purchase agreement ” ) , pursuant to which we sold 1,303,780 shares of our common stock to aventisub llc ( “ aventis ” ) , an entity affiliated with sanofi , in a private placement at a price per share of $ 7.67 for an aggregate purchase price of $ 10.0 million . under the terms of the purchase agreement , aventis was not permitted to sell , transfer , make any short sale of , or grant any option for the sale of any common stock for the 12 -month period following its effective date . the purchase agreement and the 2014 sanofi amendment were negotiated concurrently and were therefore evaluated as a single agreement . based upon restricted stock studies of similar duration and a black-scholes valuation to measure the discount for lack of marketability , approximately $ 0.4 million of the proceeds from the purchase agreement was attributed to the 2014 sanofi amendment , and represents consideration for the value of the program targeting mir-221/222 for hcc . we are recognizing the $ 0.4 million allocated consideration into revenue ratably over the estimated period of performance of the mir-221/222 program . as of december 31 , 2018 , contract liability associated with the purchase agreement and the 2014 sanofi amendment was $ 0.1 million , which we are expecting to recognize over the remaining estimated period of performance of approximately one year . in november 2018 , we entered into an amendment to the 2014 sanofi amendment with sanofi to modify the parties ' rights and obligations with respect to our mir-21 programs , including our rg-012 program ( the “ 2018 sanofi amendment ” ) . under the terms of the 2018 sanofi amendment , we have granted sanofi a worldwide , story_separator_special_tag you should read the following discussion and analysis together with “ item 6. selected financial data ” and our financial statements and related notes included elsewhere in this annual report . the following discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those expressed or implied in any forward-looking statements as a result of various factors , including those set forth under the caption “ item 1a . risk factors. ” overview we are a clinical-stage biopharmaceutical company focused on discovering and developing first-in-class drugs targeting micro rnas to treat diseases with significant unmet medical need . story_separator_special_tag we anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to our ability to maintain or enter into new strategic alliances with respect to each program or potential product candidate , the scientific and clinical success of each future product candidate , as well as ongoing assessments as to each future product candidate 's commercial potential . we will need to raise additional capital and may seek additional strategic alliances in the future in order to advance our various programs . general and administrative expenses general and administrative expenses consist primarily of salaries and related benefits , including stock-based compensation , related to our executive , finance , legal , business development and support functions . other general and administrative expenses include allocated facility-related costs not otherwise included in research and development expenses and professional fees for auditing , tax and legal services , some of which are incurred as a result of being a publicly-traded company . other income ( expense ) , net other income ( expense ) consists primarily of interest income and expense , and various income or expense items of a non-recurring nature . we earn interest income from interest-bearing accounts and money market funds for cash and cash equivalents and marketable securities , such as interest-bearing bonds , for our short-term investments . interest expense is primarily attributable to interest charges associated with borrowings under our secured term loan from oxford . critical accounting policies and estimates the preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities , and the revenues and expenses incurred 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 . 53 while our significant accounting policies are described in the notes to our financial statements appearing elsewhere in this annual report , we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results . revenue recognition our revenues generally consist of upfront payments for licenses or options to obtain licenses in the future , milestone payments and payments for other research services under strategic alliance and collaboration agreements . effective january 1 , 2018 , we adopted accounting standards update ( “ asu ” ) 2014-09 , revenue from contracts with customers ( topic 606 ) ( “ topic 606 ” ) using the modified retrospective method which consisted of applying and recognizing the cumulative effect of topic 606 at the date of initial application . topic 606 supersedes the revenue recognition requirements in accounting standards codification ( “ asc ” ) topic 605 , revenue recognition ( “ topic 605 ” ) . all periods prior to the adoption date of topic 606 have not been restated to reflect the impact of the adoption of topic 606 , but are accounted for and presented under topic 605. the following paragraphs in this section describe our revenue recognition accounting polices under topic 606 upon adoption on january 1 , 2018. refer to note 1 to the financial statements included in our annual report on form 10-k for the year ended december 31 , 2017 for revenue recognition accounting policies under topic 605. we recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services . to determine revenue recognition for contracts with customers we perform the following five steps : ( i ) identify the contract ( s ) with a customer ; ( ii ) identify the performance obligation ( s ) in the contract ; ( iii ) determine the transaction price ; ( iv ) allocate the transaction price to the performance obligation ( s ) in the contract ; and ( v ) recognize revenue when ( or as ) we satisfy the performance obligation ( s ) . at contract inception , we assess the goods or services promised within each contract , assess whether each promised good or service is distinct and identify those that are performance obligations . we recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when ( or as ) the performance obligation is satisfied . collaborative arrangements we enter into collaborative arrangements with partners that typically include payment to us of one of 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 up-front 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 ) .
| results of operations 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_2_th revenue under strategic alliances and collaborations 55 our revenues are generated from ongoing strategic alliance and collaborations , and generally consist of upfront payments for licenses or options to obtain licenses in the future , milestone payments and payments for other research services . revenue under strategic alliances and collaborations was less than $ 0.1 million for each the years ended december 31 , 2018 and 2017. as of december 31 , 2018 , we had approximately $ 2.6 million of contract liabilities , which consisted of payments received through our strategic alliances that have not yet been recognized in accordance with our revenue recognition policy ( topic 606 ) . upon adoption of asu no 2014-09 and the related supplemental asus on january 1 , 2018 , we reclassified $ 1.8 million of contract liabilities into accumulated deficit through the modified retrospective method of adoption . research and development expenses the following table summarizes the components of our research and development expenses for the periods indicated , together with year-over-year changes ( dollars in thousands ) : replace_table_token_3_th research and development expenses decreased by $ 19.2 million for the year ended december 31 , 2018 compared to the year ended december 31 , 2017. the aggregate decrease was driven by a $ 13.6 million decrease in external development expenses , primarily attributable to the reduction of spend associated with rg-012 during the negotiation and transfer of the program to sanofi in the second half of 2018. additionally , the decrease for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 was attributable to a $ 5.2 million reduction in personnel and internal expenses , driven primarily by a reduction in
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the excess of story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is intended to help the reader understand canterbury park holding corporation , our operations , our financial results and financial condition , and our present business environment . this md & a is provided as a supplement to – and should be read in conjunction with – our consolidated financial statements and the accompanying notes to the consolidated financial statements ( the “ notes ” ) . our actual results could differ materially from those anticipated in the forward-looking statements included in this discussion as a result of certain factors , including , but not limited to , those discussed in “ risk factors ” and “ forward-looking statements ” included elsewhere in this annual report . strategic overview canterbury park holding corporation ( the “ company , ” “ we , ” “ our , ” or “ us ” ) hosts pari-mutuel wagering on thoroughbred and quarter horse races and “ unbanked ” card games at its canterbury park racetrack and card casino facility ( the “ racetrack ” ) in shakopee , minnesota , which is approximately 25 miles southwest of downtown minneapolis . the racetrack is the only facility in the state of minnesota that offers live pari-mutuel thoroughbred and quarter horse racing . 20 the company 's pari-mutuel wagering operations include both wagering on thoroughbred and quarter horse races during live meets at the racetrack each year from may through september , and year-round wagering on races primarily held at out-of-state racetracks that are televised simultaneously at the racetrack ( “ simulcasting ” ) . unbanked card games , in which patrons compete against each other , are hosted in the card casino at the racetrack . the card casino operates 24 hours a day , seven days a week . the card casino offers both poker and table games at up to 80 tables . the company also derives revenues from related services and activities , such as food and beverage , parking , advertising signage , publication sales , and from other entertainment events and activities held at the racetrack . the following summarizes our financial performance for the last five years ( in 000 's ) : replace_table_token_5_th ¹ during fiscal year 2014 , the company reduced operating expenses $ 958,000 by recording a gain on insurance recoveries due to damage to our property resulting from multiple severe storms at the racetrack . 2 during fiscal year 2015 , the company reduced operating expenses $ 1,502,000 by recording a $ 495,000 gain on insurance recoveries , $ 347,000 gain on sale of its shakopee valley rv park , and $ 660,000 gain on sale of land . 3 during fiscal year 2016 , the company reduced operating expenses $ 5,311,000 by recording a $ 1,465,000 gain on insurance recoveries and $ 3,846,000 gain on sale of land . our management team has extensive knowledge of the horse racing , card casino , and food and beverage operations , and our staff has demonstrated a commitment to enhancing the customer experience . the company believes that management has a good relationship with our workforce and is able to retain qualified personnel as demonstrated by our low turnover rate . our facilities are modern by racetrack industry standards , and we have invested heavily in the past few years to update and upgrade them to meet the needs of our customers and horsemen . our 383-acre site , in a prime location on the edge of the minneapolis–st . paul metropolitan area in one of the fastest-growing counties in minnesota , provides us with great long-term growth and development opportunities , and our board of directors regularly considers additional uses for underutilized portions of our property . our long-term strategic direction is to continue to enhance our racetrack as a unique gaming and entertainment destination and develop approximately 140 acres of underutilized land not needed for our current business uses . we have a strong commitment to live racing and have been particularly successful in attracting new customers and providing a quality live racing experience for our horse racing fans as well as the horsemen who enter their horses in live races at canterbury park . however , we face a number of longer-term challenges in improving our financial results , including challenges described under “ risk factors ” elsewhere in this report . story_separator_special_tag increases were offset by the loss of two major concerts that were hosted in 2015 due to the sale of our festival field land as noted below in “ gain on sale of land ” . other revenues other revenue increased $ 580,000 , or 10.7 % , to $ 6,006,000 in fiscal year 2016 compared to 2015. this increase was primarily due to increased admission revenue from live racing and events , and an increase in cma marketing payments . operating expenses total operating expenses decreased approximately $ 2,330,000 , or 4.9 % , to $ 45,319,000 in 2016 , from $ 47,649,000 in 2015. total operating expenses as a percentage of net revenues decreased to 86.4 % in 2016 from 91.2 % in 2015. excluding the reduction in operating expenses due to insurance recoveries , gains on sale of assets and gains on land sales from both years , total operating expenses increased from $ 49,151,000 to $ 50,652,000 , an increase of 3.1 % . 23 total purse expense decreased $ 116,000 , or 1.8 % , in 2016 compared to 2015 due to a decrease in simulcast and live racing revenue , partially offset by an increase in adw revenue . these factors also resulted in a minimal decrease in mbf expense . story_separator_special_tag these policies may require management to make estimates , judgments and assumptions that we believe are reasonable based on our historical experience , contract terms , observance of known trends in our company and the industry as a whole and information available from other outside sources . our estimates affect the reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period . actual results may differ from those initial estimates . our critical accounting policies are : ● revenue recognition ; ● property and equipment ; and ● income tax expense . our significant accounting policies and recently adopted accounting policies are more fully described in note 1 to the notes to consolidated financial statements included in item 8. financial statements and supplementary data of this annual report on form 10-k. revenue recognition - racing revenue is generated by pari-mutuel wagering on live and simulcast racing content . additionally , we also generate revenue through sponsorships , admissions , concessions , and publications . our racing revenue and income are influenced by our racing calendar . therefore , revenue and operating results for any interim quarter are not generally indicative of the revenue and operating results for the year and may not be comparable with results for the corresponding period of the previous year . pari-mutuel revenue is recognized upon occurrence of the live race that is presented for wagering and after that live race is made official by the respective state 's racing regulatory body . other operating revenue such as sponsorships , admissions , concessions , and publication revenue are recognized once delivery of the product or service has occurred . card casino revenue is a percentage of the wagers received from the players as compensation for providing the card casino facility and services , referred to as “ collection revenue ” . property and equipment - we have significant capital invested in our property and equipment , which represents approximately 71.3 % of our total assets at december 31 , 2016. we utilize our judgment in various ways including : determining whether an expenditure is considered a maintenance expense or a capital asset ; determining the estimated useful lives of assets ; and determining if or when an asset has been impaired or has been disposed . management periodically reviews the carrying value of property and equipment for potential impairment by comparing the carrying value of these assets with their related expected undiscounted future net cash flows . if the sum of the related expected future net cash flows is less than the carrying value , we will determine whether an impairment loss should be recognized . an impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset . to date , we have determined that no impairment of these assets exists . 25 income taxes - we use estimates and judgments for financial reporting to determine our current tax liability and deferred taxes . in accordance with the liability method of accounting for income taxes , we recognize the amount of taxes payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns . adjustments to deferred taxes are determined based upon changes in differences between the book basis and tax basis of our assets and liabilities and measured by enacted tax rates we estimate will be applicable when these differences are expected to reverse . changes in current tax laws , enacted tax rates or the estimated level of taxable income or non-deductible expense could change the valuation of deferred tax assets and liabilities and affect the overall effective tax rate and tax provision . minimum wage legislation legislation that was enacted into law in 2014 increased the minimum wage that must be paid to most company employees from $ 7.25 to $ 8.00 on august 1 , 2014 , and from $ 8.00 to $ 9.00 per hour on august 1 , 2015. a further increase from $ 9.00 to $ 9.50 per hour went into effect on august 1 , 2016. in addition , starting january 1 , 2018 , the minimum wage will increase at the beginning of each year by the rate of inflation with a maximum increase of up to 2.5 % per year . prior to august 1 , 2014 , the company employed a large number of individuals who received an hourly wage equal to or slightly above $ 7.25 per hour . as a result , this legislation had an adverse financial impact in 2014 , 2015 , and 2016 and will continue to have an adverse impact . we have implemented measures to partially mitigate the impact of this increase by raising our prices and or reducing our employee count . however , these measures could themselves have an adverse effect because higher prices and diminished service levels may discourage customers from visiting the racetrack . cooperative marketing agreement on june 4 , 2012 , the company entered into the cma with the smsc . the primary purpose of the cma is to increase purses paid during live horse racing at canterbury park 's racetrack in order to strengthen minnesota 's thoroughbred and quarter horse industry . under the cma , as amended , this is achieved through “ purse enhancement payments to horsemen ” paid directly to the mhbpa . such payments have no direct impact on the company 's consolidated financial statements or operations . under the terms of the cma , as amended , the smsc paid the horsemen $ 6.7 million and $ 6.2 million for purse enhancements for the years ended december 31 , 2016 and 2015 , respectively .
| operations review year ended december 31 , 2016 compared to year ended december 31 , 2015 ebitda represents earnings before interest income , income tax expense , and depreciation and amortization . ebitda is not a measure of performance or liquidity calculated in accordance with generally accepted accounting principles in the united states of america ( “ gaap ” ) , and should not be considered an alternative to , or more meaningful than , net income as an indicator of our operating performance or cash flows from operating activities as a measure of liquidity . ebitda has been presented as a supplemental disclosure because it is a widely used measure of performance and basis for valuation of companies in our industry . moreover , other companies that provide ebitda information may calculate ebitda differently than we do . adjusted ebitda reflects additional adjustments to net income to eliminate unusual or non-recurring items . for the year ended december 31 , 2016 , adjusted ebitda excluded the gain on insurance recovery and gain on sale of land . for the year ended december 31 , 2015 , adjusted ebitda excluded the gain on disposal of assets relating to the sale of shakopee rv park , gain on sale of land , and gain on insurance recovery .
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general as of october 3 , 2020 , flanigan 's enterprises , inc. , a florida corporation , together with its subsidiaries ( “ we ” , “ our ” , “ ours ” and “ us ” as the context requires ) , ( i ) operated 27 units , consisting of restaurants , package liquor stores and combination restaurants/package liquor stores that we either own or have operational control over and partial ownership in ; and ( ii ) franchises an additional five units , consisting of two restaurants ( one of which we operate ) and three combination restaurants/package liquor stores . franchised units . in exchange for our providing management and related services to our franchisees and granting them the right to use our service marks `` flanigan 's seafood bar and grill '' and `` big daddy 's liquors '' , our franchisees ( four of which are franchised to members of the family of our chairman of the board , officers and or directors ) , are required to ( i ) pay to us a royalty equal to 1 % of gross package liquor sales and 3 % of gross restaurant sales ; and ( ii ) make advertising expenditures equal to between 1.5 % to 3 % of all gross sales based upon our actual advertising costs allocated between stores , pro-rata , based upon gross sales . affiliated limited partnership owned units . we manage and control the operations of the eight restaurants owned by limited partnerships , except the fort lauderdale , florida restaurant which is managed and controlled by a related franchisee . accordingly , the results of operations of all limited partnership owned restaurants , except the fort lauderdale , florida restaurant are consolidated with our results of operations for accounting purposes . the results of operations of the fort lauderdale , florida restaurant are accounted for by us utilizing the equity method . 37 story_separator_special_tag href= '' https : //www.sec.gov/archives/edgar/data/0000012040/000117494721000029/ # toc '' style= '' font-style : italic '' > restaurant food and bar sales . gross profit for restaurant food and bar sales for our fiscal year 2020 decreased to $ 56,134,000 from $ 61,212,000 for our fiscal year 2019. our gross profit margin for restaurant food and bar sales ( calculated as gross profit reflected as a percentage of restaurant food and bar sales ) , was 66.31 % for our fiscal year 2020 and 64.92 % for our fiscal year 2019. gross profit margin for restaurant food and bar sales increased during our fiscal year 2020 when compared to our fiscal year 2019 due to the inclusion of a 10 % take-out charge on restaurant food sales , offset by the negative effects of covid-19 on our restaurant bar operations and higher gross profit margin items as well as higher food costs . if we can maintain the same level of our take out charges on restaurant food sales , we expect that our gross profit margin for restaurant food and bar sales will increase during our fiscal year 2021 for the same reasons . package liquor store sales . gross profit for package liquor store sales for our fiscal year 2020 increased to $ 7,084,000 from $ 5,269,000 for our fiscal year 2019 , due primarily to increased package liquor store traffic which we believe has been caused by covid-19 , as well as the opening of our new store # 45 during the first quarter of our fiscal year 2020. our gross profit margin ( calculated as gross profit reflected as a percentage of package liquor store sales ) for package liquor store sales was 26.96 % for our fiscal year 2020 and 27.26 % for our fiscal year 2019. we anticipate that the gross profit margin for package liquor store merchandise will decrease during our fiscal year 2021 due to higher costs and a reduction in pricing of certain package store merchandise to be more competitive . payroll and related costs . payroll and related costs for our fiscal year 2020 decreased $ 474,000 or 1.32 % to $ 35,399,000 from $ 35,873,000 for our fiscal year 2019. lower payroll and related costs for our fiscal year 2020 were due to certain cost cutting measures including material layoffs at our restaurants and reduced corporate personnel salaries from mid-march 2020 through mid-may 2020 and thereafter due to an adjustment to our traditional staffing model to meet customer demand , increased by payroll for our package liquor store in kendall , florida , which opened for business during the first quarter of our fiscal year 2020. we anticipate that until our restaurant operations are restored to pre-covid-19 levels , of which there can be no assurance , payroll and related costs will be less than our costs from 2019. payroll and related costs as a percentage of total sales was 31.33 % in our fiscal year 2020 as compared to 30.87 % of total sales in our fiscal year 2019. occupancy costs . occupancy costs ( consisting of percentage rent , common area maintenance , repairs , real property taxes , amortization of leasehold purchases and rent expense associated with operating lease liabilities under asc 842 ) for our fiscal year 2020 increased $ 986,000 or 16.29 % to $ 7,040,000 from $ 6,054,000 for our fiscal year 2019 primarily due to our adoption of asc 842. we anticipate that our occupancy costs will remain stable throughout our fiscal year 2021. selling , general and administrative expenses . story_separator_special_tag as a result , and despite experiencing increased sales and traffic at certain of our package liquor stores , covid-19 has materially adversely affected our results of operations for our fiscal year 2020 and will , in all likelihood , impact our results of operations , liquidity and or financial condition for our fiscal year 2021. the extent to which our restaurant business may be adversely impacted and its effect on our operations , liquidity and or financial condition can not be accurately predicted . 41 we are not actively searching for locations for the operation of new package liquor stores , but when our attempt to expand “ the whale 's rib ” restaurant concept in miami , florida was abandoned , we decided that the space we had targeted for the “ the whales rib ” would be ideal for the operation of a package liquor store and during the fourth quarter of our fiscal year 2018 , we received governmental approval to operate a package liquor store at that location . the new package liquor store ( store # 45 ) located in kendall , florida opened for business in october 2019. during the fourth quarter of our fiscal year 2019 , we entered a lease to house a new “ big daddy 's wine & liquors ” package liquor store in space adjacent to where we are planning a new “ flanigan 's seafood bar and grill ” , restaurant in a shopping center in miramar , florida , which shopping center is currently under construction . liquidity and capital resources we fund our operations through cash from operations . as of october 3 , 2020 , we had cash of approximately $ 29,922,000 , an increase of $ 16,250,000 from our cash balance of $ 13,672,000 as of september 28 , 2019. during the third quarter of our fiscal year 2020 , we , certain of the entities owning the limited partnership stores ( the “ lp 's ” ) , franchised stores ( the “ franchisees ” ) as well as the store we manage but do not own ( the “ managed store ” ) ( collectively , the “ borrowers ” ) , applied for and received loans from an unrelated third party lender ( the “ lender ” ) pursuant to the paycheck protection program ( the “ ppp ” ) under the coronavirus aid , relief , and economic security act ( the “ cares act ” ) enacted march 27 , 2020 , in the aggregate principal amount of approximately $ 13.1 million ( the “ ppp loans ” ) , of which approximately : ( i ) $ 5.9 million was loaned to us ; ( ii ) $ 4.1 million was loaned to 8 of the lp 's ; ( iii ) $ 2.6 million was loaned to 5 of the franchisees ; and ( iv ) $ 0.5 million was loaned to the managed store . during the first quarter of our fiscal year 2020 , our wholly owned subsidiary , flanigan 's calusa center , llc , re-financed its mortgage loan with an unrelated third party lender , increasing the principal amount borrowed from $ 2.72 million to $ 7.21 million . the ppp loans , which are in the form of notes issued by each of the borrowers , mature two years from the date of funding ( dates ranging from may 5 , 2022 to may 11 , 2022 ) and bear interest at a rate of 1.00 % per annum , payable monthly commencing approximately six months from the date of issuance of the notes ( issuance dates ranging from april 30 , 2020 to may 6 , 2020 ) . the notes may be prepaid by the applicable borrower at any time prior to maturity with no prepayment penalties . proceeds from the ppp loans are available to the respective borrower to fund designated expenses , including certain payroll costs , group health care benefits and other permitted expenses , including rent and interest on mortgages and other debt obligations incurred before february 15 , 2020. under the terms of the ppp , up to the entire amount of principal and accrued interest may be forgiven to the extent the proceeds of the ppp loans are used for qualifying expenses as described in the cares act and applicable implementing guidance issued by the u.s. small business administration under the ppp . no assurance can be given that the borrowers will obtain forgiveness of the ppp loan in whole or in part . with respect to any portion of any of the ppp loans that is not forgiven under the terms of the ppp , such amounts will be subject to customary provisions for a loan of this type , including customary events of default relating to , among other things , payment defaults , breaches of the provisions of the applicable ppp note and cross-defaults on any other loan with the lender or other creditors . notwithstanding the negative effects of covid-19 on our operations , we believe that our current cash availability from our cash on hand , positive cash flow from operations and borrowed funds will be sufficient to fund our operations and planned capital expenditures for at least the next twelve months . 42 any future determination to pay cash dividends will be at our board 's discretion and will depend upon our financial condition , operating results , capital requirements and such other factors as our board deems relevant . there can be no assurances that any future dividends will be paid . cash flows replace_table_token_5_th capital expenditures in addition to using cash for our operating expenses , we use cash to fund the development and construction of new restaurants and to fund capitalized property improvements for our existing restaurants .
| results of operations revenues ( in thousands ) : replace_table_token_4_th comparison of fiscal years ended october 3 , 2020 and september 28 , 2019 revenues . total revenue for our fiscal year 2020 decreased $ 3,225,000 or 2.78 % to $ 112,977,000 from $ 116,202,000 for our fiscal year 2019. the decrease in total revenue was due primarily to the negative impact of covid-19 on our operations . due to covid-19 , from mid-march 2020 through mid-may 2020 , we ceased all dining and bar services at all of our restaurants , limiting service to take-out and delivery only of food , and implemented reduced hours at our retail package liquor stores . from mid-may 2020 through the beginning of july 2020 , there was a gradual elimination of restrictions on our restaurant operations , permitting us to , among other things , provide dining for outdoor seating patrons with appropriate social distancing and provide dining for indoor patrons at up to 50 % capacity ( depending on the location of the restaurant ) , but with no bar service and increased operating hours at our package liquor stores . from the beginning of july 2020 through the beginning of september 2020 , we ceased dine-in service at all of our miami-dade county , florida restaurants , ( two company-owned and six limited partnership owned restaurants ) . since the beginning of september 2020 , we have been offering both food and bar options at all of our restaurants , including those located in miami-dade county , florida , with appropriate social distancing and dine-in service at up to 100 % capacity , including outdoor dining . the negative effect of covid-19 on our operations was partially offset by the fifty-third week in our fiscal year 2020 , the 2019 price increases ( defined below ) and increased package liquor store sales .
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we are a leader in the core technologies of cloud computing , including database and middleware as well as web-based applications , virtualization , clustering and large-scale systems management . we provide cloud services as well as software and hardware products to other cloud service providers , both public and private . oracle database and middleware software , applications software and hardware systemsincluding computer server , storage and networking productsare the building blocks of our own cloud services , our partners ' cloud services and our customers ' private cloud environments . our customers can subscribe to use select oracle software and hardware products through our cloud offerings , or purchase our software and hardware products and related services to build their own private cloud or on-premise information technology ( it ) environments . our strategy is to deliver reliable and scalable products and services that are built upon industry standards and are engineered to work together or independently . we also pursue new or emerging growth opportunities in order to maintain technology leadership . offering customers a choice in how they use our products and serviceswhile maintaining enterprise-grade reliability , security , and interoperabilityis important to our corporate strategy . we believe that internal growth and continued innovation with respect to our software , hardware and services businesses are the foundation of our long-term strategic plans . in fiscal 2013 , we invested $ 4.9 billion , and in each of fiscal 2012 and 2011 we invested $ 4.5 billion , in research and development to enhance our existing portfolio of products and services and to develop new products and services . we continue to focus the engineering of our hardware and software products to make them work together more effectively and deliver improved computing performance , reliability and security to our customers . for example , oracle engineered systems , which include our oracle exadata database machine , oracle exalogic elastic cloud and oracle sparc supercluster products , among others , combine certain of our hardware and software offerings in a way that increases computing performance relative to our competitors ' products , creating time savings , efficiencies and operational cost advantages for our customers . with products that are engineered to work together , our customers can reduce much of the complexity of it and make available resources they would otherwise spend on it operations . in addition to our introductions of new , innovative hardware and software products , we also continue to demonstrate our commitment to customer choice through ongoing enhancements to our existing products , including our oracle e-business suite , siebel , peoplesoft and jd edwards applications software products . we believe that an active acquisition program is another important element of our corporate strategy as it enhances the products and services that we can offer to customers , expands our customer base , provides greater scale to accelerate innovation , grows our revenues and earnings and increases stockholder value . in recent years , we have invested billions of dollars to acquire a number of companies , products , services and technologies that add to , are complementary to , or have otherwise enhanced our existing offerings . we expect to continue to acquire companies , products , services and technologies to further our corporate strategy . we are organized into three businessessoftware , hardware systems and serviceswhich are further divided into certain operating segments . each of our businesses and operating segments has unique characteristics and faces different opportunities and challenges . although we report our actual results in u.s. dollars , we conduct a significant number of transactions in currencies other than u.s. dollars . therefore , we present constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations . an overview of our three businesses and related operating segments follows . software business our software business , which represented 74 % , 70 % and 68 % of our total revenues in fiscal 2013 , 2012 and 2011 , respectively , is comprised of two operating segments : ( 1 ) new software licenses and cloud software subscriptions and ( 2 ) software license updates and product support . on a constant currency basis , we expect that our software business ' total revenues generally will continue to increase due to continued demand for our software products and subscription offerings , our software license updates and product support offerings , including the high percentage of customers that renew their software license updates and product support contracts , and our acquisitions , which should allow us to grow our profits and continue to make investments in research and development . 33 new software licenses and cloud software subscriptions : we license our database and middleware , as well as our applications software , and provide access to a broad range of our software offerings through cloud software subscriptions contracts . our software solutions are built on a standards-based , integrated architecture that is designed to help customers reduce the cost and complexity of their it infrastructure . our software products are designed to operate on both single server and clustered server configurations for cloud or on-premise it environments , and to support a choice of operating systems including oracle solaris , oracle linux , microsoft windows and third party unix products , among others . our customers include businesses of many sizes , government agencies , educational institutions and resellers . we market and sell our software products and services to these customers with a sales force positioned to offer the combinations that best fit their needs . we enable customers to evolve and transform to substantially any it environment at whatever pace is most appropriate for them . the growth in new software licenses and cloud software subscriptions revenues that we report is affected by the strength of general economic and business conditions , governmental budgetary constraints , the competitive position of our software offerings , our acquisitions and foreign currency fluctuations . story_separator_special_tag our hardware business represented 14 % , 17 % and 19 % of our total revenues in fiscal 2013 , 2012 and 2011 , respectively . we expect our hardware business to have lower operating margins as a percentage of revenues than our software business due to the incremental costs we incur to produce and distribute these products and to provide support services , including direct materials and labor costs . we expect to make investments in research and development to improve existing hardware products and services and to develop new hardware products and services . hardware systems products : we provide a broad selection of hardware systems and related services including servers , storage , networking , virtualization software , operating systems , and management software to support diverse it environments , including public and private cloud computing environments . we engineer our hardware systems with virtualization and management capabilities to enable the rapid deployment and efficient management of cloud and on-premise it infrastructures . our hardware products support many of the world 's largest public and private clouds , including the oracle cloud ; our software development private cloud ; and our oracle university self-service private cloud . we have also engineered our hardware systems products to create performance and operational cost advantages for customers when our hardware and software products are combined as oracle engineered systems . oracle engineered systems are core building blocks for oracle 's data center and cloud computing products and services . oracle infrastructure-as-a-service ( iaas ) , an on-premise cloud offering for deploying oracle 's engineered systems to customers on a subscription basis , provides our customers with flexibility in deployment models and allows our customers to cost effectively handle peak computing workloads with capacity on demand . we offer a wide range of server systems using our sparc microprocessor . our sparc servers run the oracle solaris operating system and are differentiated by their reliability , security , and scalability . our mid-size and large servers are designed to offer greater performance and lower total cost of ownership than mainframe systems for business critical applications , for customers having more computationally intensive needs , and as platforms for building cloud computing it environments . our sparc servers are also a core component of the oracle sparc supercluster , one of our oracle engineered systems . we also offer enterprise x86 servers . these x86 servers are based on microprocessor platforms from intel corporation ( intel ) and are also compatible with oracle solaris , oracle linux , microsoft windows and other operating systems . our x86 systems are also a core component of many of our oracle engineered systems including oracle exadata database machine , oracle exalogic elastic cloud , oracle exalytics in-memory machine and the oracle big data appliance . our storage products are designed to securely manage , protect , archive and restore customers ' mission critical data assets and consist of tape , disk , flash and hardware-related software including file systems software , back-up and archive software and storage management software and networking for mainframe and open systems environments . our networking and data center fabric products , including oracle virtual networking , and oracle infiniband and ethernet technologies , are used with our server and storage products and are integrated into our management tools to help enterprise customers improve infrastructure performance , reduce cost and complexity and simplify storage and server connectivity . the majority of our hardware systems products are sold through indirect channels , including independent distributors and value added resellers . 35 to produce our hardware products , we rely on both our internal manufacturing operations as well as third party manufacturing partners . our internal manufacturing operations consist primarily of materials procurement , assembly , testing and quality control of our oracle engineered systems and certain of our enterprise and data center servers and storage systems . for all other manufacturing , we generally rely on third party manufacturing partners to produce our hardware related components and hardware products and we may involve our internal manufacturing operations in the final assembly , testing and quality control processes for these components and products . we distribute most of our hardware products either from our facilities or partner facilities . we strive to reduce costs by simplifying our manufacturing processes through increased standardization of components across product types and a build-to-order manufacturing process in which products generally are built only after customers have placed firm orders . we continue to evolve hardware systems support processes that are intended to proactively identify and solve quality issues and to increase the amount of new and renewed hardware systems support contracts sold in connection with the sales of our hardware systems products . our hardware systems products revenues , cost of hardware systems products and hardware systems operating margins that we report are affected by our strategy for and the competitive position of our hardware systems products , the strength of general economic and business conditions , governmental budgetary constraints , certain of our acquisitions and foreign currency rate fluctuations . in addition , our operating margins for our hardware systems products segment have been and will be affected by the amortization of intangible assets . we have limited experience in predicting our quarterly hardware systems products revenues . the timing of customer orders and delays in our ability to timely manufacture or deliver a few large hardware transactions could substantially affect the amount of hardware systems products revenues , expenses and operating margins that we report . hardware systems support : our hardware systems support offerings provide customers with software updates for software components that are essential to the functionality of our server and storage products , such as oracle solaris and certain other software products , and can include product repairs , maintenance services and technical support services . typically , our hardware systems support contract arrangements are invoiced to the customer at the beginning of the support period and are one year in duration .
| results of operations impact of acquisitions the comparability of our operating results in fiscal 2013 compared to fiscal 2012 is impacted by our acquisitions , primarily our acquisitions of acme packet in the fourth quarter of fiscal 2013 , taleo in the fourth quarter of fiscal 2012 and rightnow during the third quarter of fiscal 2012. the comparability of our operating results in fiscal 2012 compared to fiscal 2011 is impacted by our acquisitions , primarily our acquisitions of taleo in the fourth quarter of fiscal 2012 , rightnow in the third quarter of fiscal 2012 , art technology group , inc. ( atg ) in the third quarter of fiscal 2011 and phase forward incorporated ( phase forward ) during the first quarter of fiscal 2011. in our discussion of changes in our results of operations from fiscal 2013 compared to fiscal 2012 and fiscal 2012 compared to fiscal 2011 , we quantify the contributions of our acquired products to the growth in new software licenses and cloud software 46 subscriptions revenues and software license updates and product support revenues for the one year period subsequent to the acquisition date . the incremental contributions of our acquisitions to our other businesses and operating segments ' revenues and expenses are not provided as they either were not separately identifiable due to the integration of these operating segments into our existing operations and or were insignificant to our results of operations during the periods presented . we caution readers that , while pre- and post-acquisition comparisons , as well as the quantified amounts themselves , may provide indications of general trends , the acquisition information that we provide has inherent limitations for the following reasons : the quantifications can not address the substantial effects attributable to changes in business strategies , including our sales force integration efforts .
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our technology support services programs help leading brands create new revenue streams and deepen customer relationships . we offer turnkey , outsourced support services for service providers , retailers and technology companies . our technology support services programs are designed for both the consumer and small and medium business ( “ smb ” ) markets , and include computer and mobile device set-up , security and support , virus and malware removal , wireless network set-up , and home security and automation system support . our support.com cloud offering is a saas solution for companies to optimize support interactions with their customers using their own or third party support personnel . the solution enables companies to quickly resolve complex technology issues for their customers , boosting agent productivity and dramatically improving the customer experience . total revenue for the year ended december 31 , 2017 decreased by $ 1.5 million , or 2 % , from 2016. revenue from services for the year ended 2016 decreased by $ 15.8 million , or 22 % , from 2015. the decrease in service revenue was primarily due to an increase in the billable hours of comcast offset by the significant decrease in revenue from office depot due to the termination of professional service agreement between us and office depot in september , 2017. revenue from software and other increased by $ 0.1 million , or 2 % , from 2016 primarily due to new subscriptions exceeding expiring subscriptions . cost of services for the year ended december 31 , 2017 decreased by $ 3.1 million or 6 % from 2016 and was mainly driven by lower compensation and benefit cost and consulting and technology charges for 2017 . cost of software and other for the year ended december 31 , 2017 decreased by $ 0.2 million or 41 % year-over-year principally due to reduction in credit card processing fees related to our call center services . total gross margin increased from 18 % to 21 % year-over-year which was primarily attributable to lower employee benefit costs associated with our self-insured medical insurance plan and consulting and technology related charges . operating expenses for the year ended december 31 , 2017 decreased by $ 13.1 million or 48 % from 2016. the decrease is primarily related to lower research and development costs of $ 2.5 million , lower sales and marketing costs of $ 4.2 million , a decrease in general and administration costs of $ 4.3 million , all of which are due lower headcount in connection with cost reduction efforts during 2017 , which decreased compensation and benefits related expenses , stock compensation , travel , and consulting expenses and a decrease in amortization of intangibles assets and other of $ 1.0 million attributable to the company 's intangible assets being fully amortized at the end of 2016 and early 2017. also contributing to the year-over-year decrease were restructuring costs of $ 1.1 million in 2016 as compared with $ 0.1 million in 2017. we intend the following discussion of our financial condition and results of operations to provide information that will assist in understanding our consolidated financial statements , the changes in certain key items in those consolidated 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 . critical accounting policies and estimates in preparing our consolidated financial statements in conformity with generally accepted accounting principles in the united states , we make assumptions , judgments and estimates that can have a significant impact on our revenue and operating results , as well as on the value of certain assets and liabilities on our consolidated balance sheet . we base our assumptions , judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances . actual results could differ materially from these estimates under different assumptions or conditions . on a regular basis we evaluate our assumptions , judgments and estimates and make changes accordingly . we believe that the assumptions , judgments and estimates involved in the accounting for revenue recognition , fair value measurements , purchase accounting in business combinations , self-insurance accruals , accounting for intangible assets , stock-based compensation and accounting for income taxes have the greatest potential impact on our consolidated financial statements , so we consider these to be our critical accounting policies . we discuss below the critical accounting estimates associated with these policies . for further information on the critical accounting policies , see note 1 of our notes to consolidated financial statements . 19 revenue recognition our revenue recognition policy is one of our critical accounting policies because revenue is a key component of our results of operations , and revenue recognition is based on complex rules which require us to make judgments . in accordance with the provisions of asc 605 , revenue recognition , we recognize revenue only when all of the following criteria are met : ( i ) persuasive evidence of an arrangement exists , ( ii ) delivery has occurred , ( iii ) collection is considered probable , and ( iv ) the fees are fixed or determinable . we do not record revenue on sales transactions when the collection of cash is in doubt at the time of sale , and we use management judgment in determining collectability . from time to time , we may enter into agreements which involve us making payments to our partners . we use judgment in evaluating the treatment of such payments and in determining which portions of the consideration paid to customers should be recorded as contra-revenue and which should be recorded as an expense . we generally provide a refund period on services and end-user software products , and we employ judgment in determining whether a customer is eligible for a refund based on that customer 's specific facts and circumstances . story_separator_special_tag under the fair value recognition provisions of asc 718 , stock-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period of the award . we estimate the fair value of stock-based awards on the grant date using ( i ) the black-scholes-merton option-pricing model for service-based stock options and ( ii ) the quoted prices of the company 's common stock for restricted stock units . determining the appropriate fair value model and calculating the fair value of stock-based awards requires judgment , including estimating stock price volatility , forfeiture rates and expected life . if any of these assumptions used in the option-pricing models change , our stock-based compensation expense could change on our consolidated financial statements . accounting for income taxes we are required to estimate our income taxes in each of the tax jurisdictions in which we operate . this process involves management 's estimation of our current tax exposures together with an assessment of temporary differences determined based on the difference between the financial statement and tax basis of certain items . these differences result in net deferred tax assets and liabilities , which are included in our consolidated balance sheet . we must assess the likelihood that we will be able to recover our deferred tax assets . if recovery is not likely , we must increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable . we currently have provided a full valuation allowance on our u.s. deferred tax assets that management determined are not likely to be realized due to cumulative net losses since inception and the difficulty in accurately forecasting the company 's results . in addition , we currently have provided a partial valuation allowance on certain foreign deferred tax assets . if any of our estimates change , we may change the likelihood of recovery and our tax expense as well as the value of our deferred tax assets would change . our income tax calculations are based on the application of the respective u.s. federal , state or foreign tax law . the company 's tax filings , however , are subject to audit by the respective tax authorities . accordingly , we recognize tax liabilities based on our estimate of whether , and the extent to which , additional taxes will be due when such estimates are more-likely-than-not to be sustained . an uncertain income tax position will not be recognized if it has less than a 50 % likelihood of being sustained . our policy is to include interest and penalties related to unrecognized tax benefits as a component of income tax expense . to the extent the final tax liabilities are different than the amounts originally accrued , the increases or decreases are recorded as income tax expense or benefit in the consolidated statements of operations . 21 story_separator_special_tag font-family : 'times new roman ' ; font-style : italic '' > cost of software and other . cost of software and other fees consists primarily of third-party royalty fees for our end-user software products , wages , and processing fees . certain of these products were developed using third-party research and development resources , and the third party receives royalty payments on sales of products it developed . the decrease of $ 0.2 million in cost of software and other for the year ended december 31 , 2017 compared to 2016 was primarily due to the reduction in credit card processing fees related to our call center services . 23 operating expenses replace_table_token_8_th research and development . research and development expense consists primarily of compensation costs , third-party consulting expenses and related overhead costs for research and development personnel . research and development costs are expensed as they are incurred . the decrease of $ 2.5 million in research and development expense for the year ended december 31 , 2017 compared to 2016 resulted primarily from a decrease in salary and employee related expenses including employee benefit due to cost reduction efforts mainly related to the development of support.com cloud applications which also impacted travel , consulting and related stock compensation charges . sales and marketing . sales and marketing expense consists primarily of compensation costs of business development , program management and marketing personnel , as well as expenses for lead generation and promotional activities , including public relations , advertising and marketing . the decrease of $ 4.2 million in sales and marketing expense for the year ended december 31 , 2017 compared to 2016 resulted primarily from decreased salary and employee related expenses , including employee benefit and stock-based compensation , from reduced headcount in connection with cost reduction efforts . general and administrative . general and administrative expense consists primarily of compensation costs and related overhead costs for administrative personnel and professional fees for legal , accounting and other professional services . the decrease of $ 4.3 million in general and administrative expense for the year ended december 31 , 2017 compared to 2016 was attributable to lower salary and employee related expenses including employee benefit and stock-based compensation from reduced headcount in connection with cost reduction efforts , lower professional services and reimbursement of stockholder expenses as a result of the proxy contest that were incurred in the prior year , and lower consulting fees as the company was no longer required to obtain a 404 ( b ) audit . amortization of intangible assets and other . the decrease in amortization of intangibles assets and other of $ 1.0 million for the year ended december 31 , 2017 compared to 2016 was primarily attributable to the company 's intangible assets being fully amortized at the end of 2016 and early 2017. restructuring . during the third quarter of 2017 , the company incurred restructuring charges of approximately $ 0.1 million associated with the down-sizing of its bangalore , india facilities .
| results of operations the following table presents certain consolidated statements of operations data for the periods indicated as a percentage of total revenue : replace_table_token_4_th years ended december 31 , 2017 and 2016 : revenue replace_table_token_5_th services . services revenue consists primarily of fees for customer support services generated from our partners . we provide these services remotely , generally using service delivery personnel who utilize our proprietary technology to deliver the services . services revenue is also comprised of licensing of our support.com cloud applications . services revenue for the year ended december 31 , 2017 decreased by $ 1.6 million from 2016. the decrease in service revenue was primarily due to the significant decrease in revenue from office depot due to office depot reducing some of the service programs that we offer to their in-store customers , which reduced call volumes and service incidents . this decrease was somewhat offset by an increase in the billable hours of comcast . for the year ended december 31 , 2017 , services revenue generated from our partnerships was $ 50.3 million compared to $ 52.2 million for 2016. for the year ended december 31 , 2017 , direct services revenue was $ 4.4 million compared to $ 4.1 million for 2016 . on july 28 , 2017 , office depot provided written notice of its intent not to renew the professional services agreement between the company and office depot dated july 26 . 2007 , and such agreement terminated on september 30 , 2017. revenue attributed to office depot for the year ended december 31 , 2017 was $ 3.1 million compared to $ 8.9 million for the year ended december 31 , 2016. as with any market that is undergoing shifts , timing of downward pressures and growth opportunities in our services programs are difficult to predict .
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( 3 ) incorporated by reference from our registration statement on form s-1 , registration number 333-32370 , declared effective by the sec on july 13 , 2000 . ( 4 ) incorporated by reference from exhibits to our report on form 10-k for the period ending december 31 , 2001 . ( 5 ) incorporated by reference from exhibits to our report on form 10-k for the period ending december 31 , 2005 . ( 6 ) incorporated by reference from exhibits to our report on form 8-k as filed with the sec on may 29 , 2008 . ( 7 ) incorporated by reference from exhibits to our report on form 10-q for the period ending june 30 , 2008 . ( 8 ) incorporated by reference from exhibits to our report on form 10-k for the period ending december 31 , 2008 . ( 9 ) incorporated by reference from exhibits to our report on form 10-q for the period ending june 30 , 2010 . 64 ( 10 ) incorporated by reference from our report on form 10-q for the period ending march 31 , 2011 . ( 11 ) incorporated by reference from our report on form 10-q for the period ending june 30 , 2013 . ( 12 ) incorporated by reference from our report on form 10-q for the period ending june 30 , 2014 . ( 13 ) incorporated by reference from exhibits to our report on form 8-k as filed with the sec on december 22 , 2015 + confidential treatment has been requested or granted for certain portions of this exhibit . the omitted portions have been filed separately with the securities and exchange commission . * management contract , compensatory plan or arrangement . 65 story_separator_special_tag this discussion and analysis should be read in conjunction with our financial statements and accompanying notes included elsewhere in this report . operating results are not necessarily indicative of results that may occur in future periods . overview pain therapeutics , inc. develops proprietary drugs that offer significant improvements to patients and healthcare professionals . we generally focus our drug development efforts on disorders of the nervous system , such as chronic pain . our expertise consists of developing new drug candidates and guiding these through various regulatory and development pathways in preparation for their eventual commercialization . by necessity , the conduct of drug development is complex , lengthy , expensive and risky . the fda has not yet established the safety or efficacy of our drug candidates . for over a decade , we have pioneered technology , tools and techniques that enable the development of abuse-deterrent formulations , or adfs . adfs are intended to make opioid drugs difficult to abuse yet provide steady pain relief when used appropriately by patients . adfs are intended to help in the fight against prescription drug abuse . opioid drugs , such as oxycodone , are an important treatment option for patients with severe chronic pain . however , misuse , abuse and diversion of these prescription drugs remains a serious , persistent problem . nearly 19,000 people died from opioid overdose in 2014 , according to the nih 's national institute on drug abuse . our lead drug candidate is called remoxy ( oxycodone capsules cii ) . remoxy is a proprietary , abuse-deterrent , oral formulation of oxycodone ( cii ) . we developed remoxy to make oxycodone difficult to abuse yet provide 12 hours of steady pain relief when used appropriately by patients . in particular , remoxy 's thick , sticky , high viscosity formulation may deter unapproved routes of drug administration , such as injection , snorting or smoking . remoxy targets the $ 2.5 billion marketplace for long-acting formulations of oxycodone . we own exclusive , worldwide rights to remoxy . in march 2016 , w e plan to submit to the fda a new drug application , or nda , for remoxy . the remoxy nda has priority review status with the fda . we expect a review cycle of about six months . this is a 505 ( b ) ( 2 ) nda resubmission for five dosage strengths of remoxy ( 5 , 10 , 20 , 30 , 40 mg ) . the drug 's proposed indication is “ f o r the m anag e m ent of pain severe enough to require daily , arou n d-the-clock , long-term opioid trea t m ent and for which alternative treatment options are inadequate ” . the safety and clinical efficacy of remoxy is supported by multiple studies , including a successful phase iii efficacy program conducted under an fda special protocol assessment . remoxy 's abuse-deterrence is supported by a body of clinical and non-clinical data , including data comparing remoxy against currently marketed oxycodone products . the nda will propose label claims that properly characterize remoxy 's abuse-deterrent properties , including certain routes of abuse that remoxy may deter , such as injection , snorting or smoking . the nda also includes stability data that we believe meet fda guidance criteria in support of a 24-month shelf life . we have yet to generate any revenues from product sales . we have an accumulated deficit of $ 130.6 million at december 31 , 2015. these losses have resulted principally from costs incurred in connection with research and development activities , salaries and other personnel-related costs and general corporate expenses . research and development activities include costs of preclinical and clinical trials as well as clinical supplies associated with our drug candidates . story_separator_special_tag using this approach , the compensation cost is amortized on a straight-line basis over the vesting period of each respective stock option , generally four years . we have granted share-based awards that vest upon achievement of certain performance criteria , or performance awards . the value of these awards is the product of the number of shares of our common stock to be issued under the award multiplied by the fair market value of a share of our common stock on the date of grant . these awards include future performance conditions . we estimate an implicit service period for achieving these performance conditions . performance awards vest and common stock is issued on achieving performance conditions . we recognize stock-based compensation expense for performance awards when we conclude that achieving a performance condition is probable . we periodically review and update as appropriate our estimates of the implicit service periods and the likelihood of achieving the performance conditions . · revenue recognition . we recognize revenue when there is persuasive evidence that an arrangement exists , delivery has occurred , the price is fixed or determinable , and collection is reasonably assured . program fee revenue in 2013 was derived from upfront payments under the pfizer agreements . through 2013 , these payments were recognized from receipt over our estimate of the development period for product candidates under the pfizer agreements . in october 2013 , we and pfizer amended the pfizer agreements and , as a result of the amendment , we recognized all then-remaining deferred program fee revenue as program fee revenue . · income taxes . we make estimates and judgments in determining the need for a provision for income taxes , including the estimation of our taxable income or loss for each full fiscal year . we have accumulated significant deferred tax assets that reflect the tax effects of net operating loss and tax credit carryovers and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . realization of deferred tax assets is dependent upon future earnings , if any . we are uncertain as to the timing and amount of any future earnings . accordingly , we offset these deferred tax assets with a valuation allowance . we may in the future determine that our deferred tax assets will likely be realized , in which case we will reduce our valuation allowance in the quarter in which such determination is made . if the valuation allowance is reduced , we may recognize a benefit from income taxes in our statement of operations in that period . we classify interest recognized in connection with our tax positions as interest expense , when appropriate . story_separator_special_tag 2014 , offset in part by higher operating expenses in 2015 as compared to 2014. net cash used by investing activities was $ 0.2 million for 2015 compared to cash provided by investing activities of $ 1.2 million for 2014 . investing activities for both years consi sted primarily of the purchase and maturities of marketable securities . net cash used by financing activities of $ 46,000 in 2015 resulted from cash used to establish the jonestrading agreement . cash provided by financing activities of $ 0.4 million in 2014 resulted from cash from stock option exercises . realization of our deferred tax assets is dependent on future earnings , if any . we are uncertain about the timing and amount of any future earnings . accordingly , we offset these net deferred tax ass ets with a valuation allowance . we lease approximately 6,000 square feet of office space pursuant to a non-cancelable operating lease in austin , tx that expires in 201 7 . future minimum lease payments by year are as follows ( in thousands ) : replace_table_token_4_th we have license agreements that require us to make milestone payments upon the successful achievement of milestones , including clinical milestones . our license agreements also require us to pay certain royalties to our licensors if we succeed in fully commercializing products under these license agreements . all of these potential future payments are cancelable as of december 31 , 2015 . our formulation agreement with durect corporation obligates us to make certain milestone payments upon achieving clinical milest ones and regulatory milestones . we have an accumu lated deficit of $ 130.6 million at december 31 , 2015 . we expect our cash requirements to be significant in the future . the amount and timing of our future cash requirements will depend on regulatory and market acceptance of our drug candidates and the resources we devote to researching and developing , formulating , manufacturing , commercializing and supporting our products . we believe that our current resources should be sufficient to fund our operations for at least the next 12 months . we may seek additional future funding through public or private financing within this timeframe , if such funding is available and on terms acceptable to us . no shares were issued under the jonestrading agreement in 2015. as of december 31 , 2015 , there were 10.0 million shares outstanding under the jonestrading agreement . we deferred financing costs of $ 0.1 million at december 31 , 2015 paid in connection with entering into the jones trading agreement off-balance sheet arrangements as of december 31 , 2015 , we did not have any relationships with unconsolidated entities or financial partnerships , such as entities often referred to as structured finance or special purpose entities , which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes . in addition , we do not engage in trading activities involving non-exchange traded contracts . therefore , we are not materially exposed to financing , liquidity , market or credit risk that could arise if we had engaged in these relationships . we do not have
| results of operations years ended december 31 , 2015 and 2014 research and development expense research and development expense consists primarily of costs of development work associated with our drug candidates . rese arch and development expenses in creased t o $ 9.1 million in 2015 from $ 7.3 million in 2014 , primarily due to increased third-party spending on preparing the nda resubmission for remoxy . during 2015 , we received $ 0.3 million pursuant to a grant from the national institutes of health that we recorded as a reduction to our research and development expenses . research and de velopment expenses included $ 1.2 million in non-cash stock related compensation expense in 2015 and $ 1.6 million in non-cash stock related compensation expense in 2014 . we expect research and development expense to fluctuate over the next several years as we continue our development efforts . we expect our development efforts to result in our drug candidates progressing through various stages of clinical trials . our research and development expenses may fluctuate from period to period due to the timing and scope of our development activities and the results of clinical trials and preclinical studies . 39 general and administrative expense general and administrative expense consist s primarily of compensation and other general corporate expenses . gener al and administrative expense was $ 5.1 million in both 2015 and 2014. general and admin istrative expenses included $ 2.3 million in non-cash stock related compensation expense in 2015 and $ 2.1 million in non-cash stock related compensation expense in 2014. we expect other general and administrative expense to increase over the next several years in connection with support of precommercialization and commercialization activities for our drug candidates .
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as operating businesses prior to our acquisition , each entity incurred obligations for payroll withholding taxes , workers ' compensation insurance fund taxes , and other liabilities . we structured the acquisition as an asset purchase and agreed to assume only the liability for each entity 's accounts receivable financing line of credit . we also obtained representations that liabilities for payroll taxes and other liabilities not assumed by us would be paid by the entities , and in each case , those entities are contractually committed to indemnify and hold harmless command center , inc. from unassumed liabilities . since the acquisitions , it came to our attention that certain tax obligations incurred on operations prior to our acquisitions have not been paid . the entities that sold us the assets ( the “ selling entities ” ) are primarily liable for these obligations . the owners of the entities may also be liable . in most cases , the entities were owned or controlled by our ceo . based on the information currently available , we estimate that the total state payroll and other tax liabilities owed by the selling entities is between $ 400,000 and $ 600,000 and that total payroll taxes due to the internal revenue service is between $ 1 and $ 2 million . we have been advised by outside legal counsel that successor liability for the federal claims remains remote . we have not accrued any liability related to these claims for state payroll taxes and total payroll taxes due to the internal revenue service because we have been advised by outside legal counsel that the likelihood of successor liability for these claims remains remote . we would be adversely affected if the state or federal government was able to show that we are liable for these claims . 36 leases on closed stores : during fiscal years 2008 and 2009 , we closed a number of stores in response to economic conditions and a general downturn in business opportunities in certain markets . management evaluated opportunities in those markets and held out hope for a recovery that would allow us to re-open the closed stores . during the first quarter of 2009 , management assessed the likelihood of reopening the closed stores in the next twelve months as remote . as a result , we began negotiating with landlords for termination of the closed store leases and are considering other options to reduce the lease obligations on the closed stores . with the determination that store re-openings are unlikely , we recorded a reserve for closed store leases . this amount represents management 's best story_separator_special_tag the following management 's discussion and analysis reviews significant factors with respect to our financial condition at december 30 , 2011 and december 31 , 2010 , and results of operations for the two-year period ended december 30 , 2011. this discussion should be read in conjunction with the financial statements , notes , tables , and selected financial data presented elsewhere in this report . our discussion and analysis contains forward-looking statements that are provided to assist in the understanding of anticipated future financial performance . however , such performance involves risks and uncertainties that may cause actual results to differ materially from those discussed in such forward-looking statements . a cautionary statement regarding forward-looking statements is set forth under the caption “ special note regarding forward-looking statements ” in item 1 of this annual report on form 10-k. this discussion and analysis should be considered in light of such cautionary statements and the risk factors disclosed elsewhere in this report . overview our mission is to be the preferred partner of choice for all on-demand employment solutions by placing the right people in the right jobs every time . with the acquisition of the on-demand labor stores , we have consolidated operations , established and implemented corporate operating policies and procedures , and developed a unified branding strategy for all of our stores . on-demand labor store operations : at december 30 , 2011 , we operated 51 on-demand labor stores serving approximately 3,000 customers and employing over 30,0000 temporary employees . as the economic environment continues to improve , we plan to grow through acquiring and opening new locations . our target markets will include locations that we believe are underserved by competitors , areas where there is growing demand for on demand services or where we can increase business from current national accounts . additional sales growth may result from the continued increase in same store sales and selected acquisition opportunities , as well as the development of new national accounts , and by providing services in new business sectors . as we continue to grow , we are able to leverage our existing cost structure over increased revenue . this will enable us to further reduce our operating costs as a percentage of revenue . increasing our selling efforts and developing our business by targeting new customer development remains one of our top priorities the following table reflects operating results in 2011 compared to 2010 ( in thousands , except per share amounts and percentages ) . percentages indicate line items as a percentage of total revenue and the year over year change column compares percentages of revenue between years . the table serves as the basis for the narrative discussion that follows . statement of operations and year to year changes as a percentage of revenue ( 000 's omitted ) replace_table_token_4_th results of operations 52 weeks ended december 30 , 2011 story_separator_special_tag pursues collection for another 60 or more days . all balances over 180 days past due are either written off to bad debt or fully reserved . as our business matures , we continue to monitor and improve our collection efforts with respect to trade accounts receivable , which is an important factor affecting our liquidity . story_separator_special_tag we have not accrued any liability related to these claims for state payroll taxes and total payroll taxes due to the internal revenue service because we have been advised by outside legal counsel that the likelihood of showing successor liability for these claims remains remote . we would be adversely affected if the state or federal government was able to show that we are liable for these claims . 16 leases on closed stores : during 2008 and 2009 , we closed a number of stores in response to economic conditions and a general downturn in business opportunities in certain markets . management continued to evaluate opportunities in those markets and held out hope for a recovery that would allow us to reopen the closed stores . during the first quarter of 2009 , management assessed the likelihood of reopening the closed stores in the next twelve months as remote . as a result , we began negotiating with landlords for termination of the closed store leases . with the determination that store re-openings were unlikely , we recorded a reserve for closed store leases . this amount represents management 's best estimate of the amounts we are likely to pay in settlement of the outstanding lease obligations on the closed stores . management has concluded that total lease obligations on closed stores as of december 30 , 2011 is approximately $ 83,000. management has concluded that the potential liability for closed stores could be between $ 40,000 and $ 200,000 . ( see note 14 to the financial statements ) . workers ' compensation deposits : we expect that additional capital will be required to fund operations during fiscal year 2012. the amount of our capital needs will depend on store operating performance , revenue growth , our ability to control costs , and the continued impact on our business from the general economic slowdown and or recovery cycle . we are currently working on several projects intended to bring additional capital into the company . we have approximately $ 930,000 on deposit with three former workers ' compensation insurers and are pursuing the refund of amounts that we believe to be excess collateral . also , we have approximately 12.1 million warrants outstanding which may offer a source of additional capital at a future date upon exercise . management will continue to evaluate capital needs and sources of capital as we execute our business plan in 2012. critical accounting policies management 's discussion and analysis of financial condition and results of operations provides a narrative discussion of our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . management believes the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of our financial statements . use of estimates : the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management 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 . fiscal year end : the financial statements for the periods ended december 30 , 2011 and december 31 , 2010 are presented on a 52/53-week fiscal year end basis , with the last day of the year ending on the last friday of each calendar year . in fiscal years consisting of 53 weeks , the final quarter will consist of 14 weeks . in fiscal years with 52 weeks , all quarters will consist of thirteen weeks . 2011 was a 52-week year and 2010 was a 53-week year . cost of services : cost of services includes the wages of temporary employees , related payroll taxes and workers ' compensation expenses , and other direct costs of services . accounts receivable and allowance for bad debts : accounts receivable are recorded at the invoiced amount . we regularly review our accounts receivable for collectability . the allowance for doubtful accounts is determined based on historical write-off experience , age of receivable , other qualitative factors and extenuating circumstances , and current economic data and represents our best estimate of the amount of probable losses on our accounts receivable . the allowance for doubtful accounts is reviewed monthly . generally , we refer overdue balances to a collection agency at 120 days and the collection agent typically pursues collection for another 60 or more days . all balances over 180 days past due are either written off to bad debt or fully reserved . 17 workers ' compensation reserve : in accordance with the terms of our workers ' compensation liability insurance policy , we maintain working loss funds for our workers ' compensation claims . we use actuarial estimates of the future costs of the claims and related expenses discounted by a present value interest rate of 3 % to determine the amount of the reserve . we evaluate the reserve regularly throughout the year and make adjustments as needed . if the actual cost of the claims incurred and related expenses exceed the amounts estimated , additional reserves may be required . in monopolistic states , we utilize the state funds for our workers ' compensation insurance and pay our premiums in accordance with the state plans . goodwill and other intangible assets : goodwill and other intangible assets are measured for impairment at least annually and or whenever events and circumstances arise that indicate impairment may exist such as a significant adverse change in the business climate . in assessing the value of goodwill , assets and liabilities are assigned to the reporting units and appropriate valuation methodologies are used to determine fair value . identified intangible assets are amortized using the straight-line method over their estimated useful lives
| operations summary : revenue increased by approximately 18.0 % in the fiscal year ended december 30 , 2011 to $ 81.9 million from $ 69.4 million in 2010. the increase is due to increased restoration work , increased activity relating to our national accounts , and organic growth at the branch level . we have also been aggressive in our expansion into north dakota , where we have identified several areas of sustainable growth potential relating to the oil industry . we experienced a decrease in our workers ' compensation expense of 0.8 % , relative to revenue . this decrease is attributable to the change in the nature of our workers ' compensation coverage to a fully insured plan and more efficient claims handling by our new provider and should be sustainable . 14 store operations : at the beginning of 2011 , we operated 50 stores . during the year , we closed four stores and opened five , ending the year with 51 stores operating in 23 states . same store revenues increased approximately 28 % to $ 79.7 million in 2011 compared to $ 62.4 million in 2010. the increase in same store sales is primarily attributable to the continued overall improvement in general economic conditions , as well as our focus on attracting new clients , strengthening existing client relationships , and encouraging existing client growth . cost of staffing services : our cost of staffing services went to 77.2 % of revenue in 2011 from 75.3 % in 2010 , an overall increase of approximately 21.0 % of dollars expended . this increase is due to increased wages and related payroll taxes paid to our field team members . this relative increase was caused by pricing pressure put on us by our competitors and our acceptance of work at a lower margin for large accounts .
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on august 23 , 2019 , we received $ 14,635 of repayment proceeds from the borrower on its loan held for investment that was used to refinance an office building located in scarsdale , ny , which included the $ 13,997 of principal outstanding under the loan , as well as the accrued interest , an exit fee , prepayment premium and our associated legal expenses . we were required to use $ 10,422 of these repayment proceeds to repay the outstanding balance and accrued interest under our master repurchase facility associated with this loan , and we used the remaining proceeds to pay down additional outstanding balances under our master repurchase facility . further , on august 13 , 2019 , we used $ 8,000 of proceeds from the repayment of story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and accompanying notes included elsewhere in this annual report on form 10-k. overview ( dollars in thousands , except share data ) we are a reit that was organized under maryland law in 2017. our business strategy is focused on originating and investing in first mortgage whole loans secured by middle market and transitional cre . we define middle market cre as commercial properties that have values up to $ 75,000 and transitional cre as commercial properties subject to redevelopment or repositioning activities that are expected to increase the value of the properties . these assets are classified as loans held for investment in our consolidated balance sheets . loans held for investment are reported at cost , net of any unamortized loan fees and origination costs as applicable , unless the assets are deemed impaired . our manager is registered with the sec as an investment adviser under the investment advisers act of 1940 , as amended . we believe that our manager provides us with significant experience and expertise in investing in middle market and transitional cre . we operate our business in a manner consistent with our qualification for taxation as a reit under the irc . as such , we generally are not subject to u.s. federal income tax , provided that we meet certain distribution and other requirements . we also operate our business in a manner that permits us to maintain our exemption from registration under the investment company act . book value per common share the table below calculates our book value per common share ( amounts in thousands , except per share data ) : replace_table_token_1_th 58 our loan portfolio as of december 31 , 2019 , our loan portfolio consisted of 12 first mortgage whole loans with an aggregate carrying value of $ 242,078 . based on our internal risk rating policy , 11 of these loans with an aggregate carrying value of $ 217,616 were assigned a `` 3 '' acceptable risk rating and one of these loans with a carrying value of $ 24,462 was assigned a `` 2 '' average risk rating . we did not have any impaired loans , non-accrual loans or loans in maturity default as of december 31 , 2019 ; thus , we did not record a reserve for loan loss . for further information regarding the risk rating system that we use in evaluating our loans held for investment , see notes 2 and 4 to the notes to consolidated financial statements included in part iv , item 15 of this annual report on form 10-k. the table below details overall statistics for our loan portfolio as of : replace_table_token_2_th ( 1 ) unfunded commitments will primarily be funded to finance property and building improvements and leasing capital . these commitments will generally be funded over the term of each loan . ( 2 ) all in yield includes the amortization of deferred fees over the initial term of the loan . ( 3 ) maximum maturity assumes all extension options are exercised , which options are subject to the borrower meeting certain conditions . loan portfolio details the table below provides details of our loan portfolio as of december 31 , 2019 : replace_table_token_3_th 59 the table below provides details of loans closed subsequent to december 31 , 2019 : replace_table_token_4_th ( 1 ) all in yield includes the amortization of deferred fees . ( 2 ) maximum maturity assumes all extension options are exercised , which options are subject to the borrower meeting certain conditions . ( 3 ) ltv represents the initial loan amount divided by the underwritten in-place value at closing . financing activities on may 21 , 2019 , we issued and sold 5,000,000 of our common shares at a price of $ 5.65 per share in the offering for total net proceeds of $ 26,074 , after deducting the underwriting discounts and commissions and other expenses . our manager purchased 1,000,000 of our common shares in the offering at the public offering price , without the payment of any underwriting discounts . we used the net proceeds of the offering to repay the approximate $ 14,220 balance then outstanding under the rmr credit agreement and to reduce amounts outstanding under our master repurchase facility by approximately $ 11,900 . after repayment of the outstanding balance under the rmr credit agreement , the rmr credit agreement was terminated . during the year ended december 31 , 2019 , we repaid the $ 31,690 outstanding principal balance , plus accrued interest under the tcb note payable and $ 22,412 of outstanding principal balances under our master repurchase facility with the proceeds from the repayment of two of our loans held for investment by the borrowers during the year , and the tcb note payable was terminated in accordance with its terms . story_separator_special_tag core earnings ( loss ) does not represent net income ( loss ) or cash generated from operating activities and should not be considered as an alternative to net income ( loss ) determined in accordance with gaap or an indication of our cash flows from operations determined in accordance with gaap , a measure of our liquidity or operating performance or an indication of funds available for our cash needs . in addition , our methodology for calculating core earnings ( loss ) may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures ; therefore , our reported core earnings ( loss ) may not be comparable to the core earnings ( loss ) as reported by other companies . we believe that core earnings ( loss ) provides meaningful information to consider in addition to net income and cash flows from operating activities determined in accordance with gaap . this measure helps us to evaluate our performance excluding the effects of certain transactions and gaap adjustments that we believe are not necessarily indicative of our current loan portfolio and operations . in addition , core earnings ( loss ) is used in determining the amount of base management and incentive fees payable by us to our manager under our management agreement . core earnings ( loss ) we calculate core earnings ( loss ) as net income ( loss ) , computed in accordance with gaap , including realized losses not otherwise included in net income ( loss ) determined in accordance with gaap , and excluding : ( a ) the incentive fees earned by our manager ( if any ) ; ( b ) depreciation and amortization ( if any ) ; ( c ) non-cash equity compensation expense ; ( d ) unrealized gains , losses and other similar non-cash items that are included in net income ( loss ) for the period of the calculation ( regardless of whether such items are included in or deducted from net income ( loss ) or in other comprehensive income ( loss ) under gaap ) ( if any ) ; and ( e ) one-time events pursuant to changes in gaap and certain non-cash items ( if any ) . replace_table_token_8_th story_separator_special_tag interest and 64 related expenses , will increase . libor decreases are mitigated by interest rate floor provisions in our loan agreements with borrowers ; therefore , changes to income from investments , net , may not move proportionately with the decrease in libor . libor is currently expected to be phased out in 2021. we do not know what standard , if any , will replace libor if it is phased out . we currently expect that , as a result of any phase out of libor , the interest rates under our loan agreements with borrowers would be revised as provided under the agreements or amended as necessary to provide for an interest rate that approximates the existing interest rate as calculated in accordance with libor . in addition , we currently expect that the interest rates we pay under our master repurchase facility and any other then existing debt financing arrangements would be similarly revised as provided under the agreement or amended as necessary for that same purpose . size of loan portfolio . the size of our loan portfolio , as measured both by the aggregate principal balance and the number of our cre loans and our other investments , is also an important factor in determining our operating results . generally , if the size of our loan portfolio grows , the amount of interest income we receive would increase and we may achieve certain economies of scale and diversify risk within our loan portfolio . a larger portfolio , however , may result in increased expenses ; for example , we may incur additional interest expense or other costs to finance our investments . also , if the aggregate principal balance of our loan portfolio grows but the number of our loans or the number of our borrowers does not grow , we could face increased risk by reason of the concentration of our investments . at this time , we are focused on managing our current loan portfolio . we believe our growth is limited by our ability to access additional capital . liquidity and capital resources ( dollars in thousands , except per share amounts ) liquidity is a measure of our ability to meet potential cash requirements , including ongoing commitments to repay or meet margin calls resulting from our borrowings , fund and maintain our assets and operations , make distributions to our shareholders and fund other business operating requirements . we require a significant amount of cash to originate , purchase and invest in our target investments , make additional unfunded loan commitment payments , repay principal and interest on our borrowings , make distributions to our shareholders and fund other business operating requirements . our sources of cash flows may include payments of principal , interest and fees we receive on our investments , other cash we may generate from our operating results and unused borrowing capacity , including under our master repurchase facility or other repurchase agreements or financing arrangements , and may also include bank loans or public or private issuances of debt or equity securities . we believe that these sources of funds will be sufficient to meet our operating and capital expenses and pay debt service obligations and make distributions to our shareholders for the next 12 months and for the foreseeable future . pursuant to our master repurchase agreement , we may sell to , and later repurchase from , citibank floating rate mortgage loans and other related assets , or purchased assets . the initial purchase price paid by citibank for each purchased asset is up to 75 % of the lesser of the market value of the purchased asset or the unpaid principal balance of such purchased asset , subject to citibank 's approval .
| factors affecting operating results our results of our operations are impacted by a number of factors and primarily depend on the interest income from our investments and the financing and other costs associated with our business . our operating results are also impacted by general cre market conditions and unanticipated defaults by our borrowers . credit risk . we are subject to the credit risk of our borrowers in connection with our investments . we seek to mitigate this risk by utilizing a comprehensive underwriting , diligence and investment selection process and by ongoing monitoring of our investments . nevertheless , unanticipated credit losses could occur that could adversely impact our operating results . changes in fair value of our assets . we generally hold our investments for their contractual terms , unless repaid earlier by the borrower . we evaluate our investments for impairment quarterly . impairments occur when it is probable that we will not be able to collect all amounts due according to the applicable contractual terms . if we determine that a loan is impaired , we will record an allowance to reduce the carrying value of the loan to an amount that takes into account both the present value of expected future cash flows discounted at the loan 's contractual effective interest rate and the fair value of any available collateral , net of any costs we expect to incur to realize that value . 63 although we generally hold our investments for their contractual terms , we may occasionally classify some of our investments as held for sale . investments held for sale will be carried at the lower of their amortized cost or fair value within loans held for sale on our consolidated balance sheets , with changes in fair value recorded through earnings .
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other operating income , net increased $ 2.7 million as a result of business interruption recoveries related to downtime associated with the neches ship-loader insurance claim received in the first quarter of 2020. an additional $ 4.1 million increase is related to a net gain from the disposition of property , plant and equipment . gain on involuntary conversion of property , plant and equipment . the $ 4.8 million gain is primarily due to insurance proceeds received related to structural damage of our ship-loader assets during a weather incident at our neches terminal in may of 2019 . 55 natural gas liquids segment comparative results of operations for the years ended december 31 , 2020 and 2019 replace_table_token_11_th products revenues . our ngl average sales price per barrel decreased $ 10.51 , or 28 % , resulting in a decrease to products revenues of $ 103.2 million . the decrease in average sales price per barrel was a result of a decrease in market prices . product sales volumes decreased 6 % , decreasing revenues $ 15.8 million . cost of products sold . our average cost per barrel decreased $ 10.07 , or 29 % , decreasing cost of products sold by $ 98.9 million . the decrease in average cost per barrel was a result of a decrease in market prices . the decrease in sales volume of 6 % resulted in a $ 14.6 million decrease to cost of products sold . our margins decreased $ 0.44 per barrel , or 18 % during the period . operating expenses . operating expenses decreased $ 2.3 million related to the divestiture of assets and the elimination of the associated expenses . in addition , operating expenses decreased $ 1.0 million related to the settlement of an insurance claim for less than anticipated . selling , general and administrative expenses . selling , general and administrative expenses decreased $ 0.7 million as a result of decreased compensation expense . other operating income ( loss ) , net . other operating income ( loss ) , net represents the gains associated with the disposition of the east texas pipeline in 2019 . 56 interest expense comparative components of interest expense , net for the years ended december 31 , 2020 and 2019 replace_table_token_12_th indirect selling , general and administrative expenses year ended december 31 , variance percent change 2020 2019 ( in thousands ) indirect selling , general and administrative expenses $ 17,909 $ 17,981 $ ( 72 ) — % indirect selling , general and administrative expenses remained consistent from 2019 to 2020. martin resource management corporation allocates to us a portion of its indirect selling , general and administrative expenses for services such as accounting , treasury , clerical , engineering , legal , billing , information technology , administration of insurance , general office expenses and employee benefit plans and other general corporate overhead functions we share with martin resource management corporation 's retained businesses . this allocation is based on the percentage of time spent by martin resource management corporation personnel that provide such centralized services . gaap also permits other methods for allocation of these expenses , such as basing the allocation on the percentage of revenues contributed by a segment . the allocation of these expenses between martin resource management corporation and us is subject to a number of judgments and estimates , regardless of the method used . we can provide no assurances that our method of allocation , in the past or in the future , is or will be the most accurate or appropriate method of allocation for these expenses . other methods could result in a higher allocation of selling , general and administrative expense to us , which would reduce our net income . under the omnibus agreement , we are required to reimburse martin resource management corporation for indirect general and administrative and corporate overhead expenses . the board of directors of our general partner approved the following reimbursement amounts : year ended december 31 , variance percent change 2020 2019 ( in thousands ) board approved reimbursement amount $ 16,410 $ 16,657 $ ( 247 ) ( 1 ) % the amounts reflected above represent our allocable share of such expenses . the board of directors of our general partner will review and approve future adjustments in the reimbursement amount for indirect expenses , if any , annually . 57 liquidity and capital resources general our primary sources of liquidity to meet operating expenses , service our indebtedness , pay distributions to our unitholders and fund capital expenditures have historically been cash flows generated by our operations , borrowings under our revolving credit facility and access to debt and equity capital markets , both public and private . set forth below is a description of our cash flows for the periods indicated . cash flows - year ended december 31 , 2020 compared to year ended december 31 , 2019 the following table details the cash flow changes between the years ended december 31 , 2020 and 2019 : replace_table_token_13_th net cash provided by operating activities . the decrease in net cash provided by operating activities for the year ended december 31 , 2020 includes a $ 7.8 million decrease in net cash received from discontinued operating activities , a decrease in operating results of $ 11.3 million , and an unfavorable variance in other non-current assets and liabilities of $ 0.9 million . an additional $ 6.0 million decrease in other non-cash charges was primarily due to a $ 4.9 million gain on involuntary conversion of property , plant and equipment . offsetting this decrease was a favorable variance in working capital of $ 15.0 million . net cash provided by investing activities . net cash provided by investing activities for the year ended december 31 , 2020 decreased $ 172.2 million . cash received from discontinued investing activities decreased $ 209.2 million . offsetting story_separator_special_tag other operating income , net increased $ 2.7 million as a result of business interruption recoveries related to downtime associated with the neches ship-loader insurance claim received in the first quarter of 2020. an additional $ 4.1 million increase is related to a net gain from the disposition of property , plant and equipment . gain on involuntary conversion of property , plant and equipment . the $ 4.8 million gain is primarily due to insurance proceeds received related to structural damage of our ship-loader assets during a weather incident at our neches terminal in may of 2019 . 55 natural gas liquids segment comparative results of operations for the years ended december 31 , 2020 and 2019 replace_table_token_11_th products revenues . our ngl average sales price per barrel decreased $ 10.51 , or 28 % , resulting in a decrease to products revenues of $ 103.2 million . the decrease in average sales price per barrel was a result of a decrease in market prices . product sales volumes decreased 6 % , decreasing revenues $ 15.8 million . cost of products sold . our average cost per barrel decreased $ 10.07 , or 29 % , decreasing cost of products sold by $ 98.9 million . the decrease in average cost per barrel was a result of a decrease in market prices . the decrease in sales volume of 6 % resulted in a $ 14.6 million decrease to cost of products sold . our margins decreased $ 0.44 per barrel , or 18 % during the period . operating expenses . operating expenses decreased $ 2.3 million related to the divestiture of assets and the elimination of the associated expenses . in addition , operating expenses decreased $ 1.0 million related to the settlement of an insurance claim for less than anticipated . selling , general and administrative expenses . selling , general and administrative expenses decreased $ 0.7 million as a result of decreased compensation expense . other operating income ( loss ) , net . other operating income ( loss ) , net represents the gains associated with the disposition of the east texas pipeline in 2019 . 56 interest expense comparative components of interest expense , net for the years ended december 31 , 2020 and 2019 replace_table_token_12_th indirect selling , general and administrative expenses year ended december 31 , variance percent change 2020 2019 ( in thousands ) indirect selling , general and administrative expenses $ 17,909 $ 17,981 $ ( 72 ) — % indirect selling , general and administrative expenses remained consistent from 2019 to 2020. martin resource management corporation allocates to us a portion of its indirect selling , general and administrative expenses for services such as accounting , treasury , clerical , engineering , legal , billing , information technology , administration of insurance , general office expenses and employee benefit plans and other general corporate overhead functions we share with martin resource management corporation 's retained businesses . this allocation is based on the percentage of time spent by martin resource management corporation personnel that provide such centralized services . gaap also permits other methods for allocation of these expenses , such as basing the allocation on the percentage of revenues contributed by a segment . the allocation of these expenses between martin resource management corporation and us is subject to a number of judgments and estimates , regardless of the method used . we can provide no assurances that our method of allocation , in the past or in the future , is or will be the most accurate or appropriate method of allocation for these expenses . other methods could result in a higher allocation of selling , general and administrative expense to us , which would reduce our net income . under the omnibus agreement , we are required to reimburse martin resource management corporation for indirect general and administrative and corporate overhead expenses . the board of directors of our general partner approved the following reimbursement amounts : year ended december 31 , variance percent change 2020 2019 ( in thousands ) board approved reimbursement amount $ 16,410 $ 16,657 $ ( 247 ) ( 1 ) % the amounts reflected above represent our allocable share of such expenses . the board of directors of our general partner will review and approve future adjustments in the reimbursement amount for indirect expenses , if any , annually . 57 liquidity and capital resources general our primary sources of liquidity to meet operating expenses , service our indebtedness , pay distributions to our unitholders and fund capital expenditures have historically been cash flows generated by our operations , borrowings under our revolving credit facility and access to debt and equity capital markets , both public and private . set forth below is a description of our cash flows for the periods indicated . cash flows - year ended december 31 , 2020 compared to year ended december 31 , 2019 the following table details the cash flow changes between the years ended december 31 , 2020 and 2019 : replace_table_token_13_th net cash provided by operating activities . the decrease in net cash provided by operating activities for the year ended december 31 , 2020 includes a $ 7.8 million decrease in net cash received from discontinued operating activities , a decrease in operating results of $ 11.3 million , and an unfavorable variance in other non-current assets and liabilities of $ 0.9 million . an additional $ 6.0 million decrease in other non-cash charges was primarily due to a $ 4.9 million gain on involuntary conversion of property , plant and equipment . offsetting this decrease was a favorable variance in working capital of $ 15.0 million . net cash provided by investing activities . net cash provided by investing activities for the year ended december 31 , 2020 decreased $ 172.2 million . cash received from discontinued investing activities decreased $ 209.2 million . offsetting
| results of operations the results of operations for the years ended december 31 , 2020 , 2019 , and 2018 have been derived from our consolidated financial statements . discussions of the year ended december 31 , 2018 that are not included in this annual report on form 10-k and year-to-year comparisons of the year ended december 31 , 2019 and the year ended december 31 , 2018 can be found in “ management 's discussion and analysis of financial condition and the results of operations ” in part ii , item 7 of our annual report on form 10-k for the year ended december 31 , 2019. we evaluate segment performance on the basis of operating income , which is derived by subtracting cost of products sold , operating expenses , selling , general and administrative expenses , and depreciation and amortization expense from revenues . our consolidated results of operations are presented on a comparative basis below . there are certain items of income and expense which we do not allocate on a segment basis . these items , including interest expense , and indirect selling , general and administrative expenses , are discussed after the comparative discussion of our results within each segment . the natural gas liquids segment information below excludes the discontinued operations of the natural gas storage assets and wtlpg partnership interests disposed of on june 28 , 2019 and july 31 , 2018 , respectively , for the years ended december 31 , 2019 and 2018. see item 8 , note 5. the following table sets forth our operating revenues and operating income by segment for the years ended december 31 , 2020 , 2019 , and 2018 . 51 replace_table_token_7_th 52 terminalling and storage segment comparative results of operations for the years ended december 31 , 2020 and 2019 replace_table_token_8_th services revenues .
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if , based on this analysis , the partnership determines that uncertainties in tax positions exist , a liability is established , which is included in accounts payable story_separator_special_tag the carlyle group l.p. ( the “ partnership ” ) is a delaware limited partnership formed on july 18 , 2011. the partnership is a holding partnership and its sole material assets are equity interests through wholly owned subsidiary entities representing partnership units in carlyle holdings i l.p. , carlyle holdings ii l.p. and carlyle holdings iii l.p. ( collectively , ” carlyle holdings ” ) . through wholly owned subsidiary entities , the partnership is the sole general partner of carlyle holdings and operates and controls all of the business and affairs of carlyle holdings and , through carlyle holdings and its subsidiaries , continues to conduct the business now conducted by these subsidiaries . carlyle group management l.l.c . is the general partner of the partnership . as the sole general partner of carlyle holdings , the partnership consolidates the financial position and results of operations of carlyle holdings into its financial statements , and the ownership interests of the limited partners of the carlyle holdings partnerships are reflected as a non-controlling interest in the partnership 's financial statements . the following discussion should be read in conjunction with the consolidated financial statements and the related notes included in this annual report on form 10-k. overview we conduct our operations through four reportable segments : corporate private equity , global market strategies , real assets and investment solutions . corporate private equity — our corporate private equity segment advises our 22 buyout and 10 growth capital funds , which seek a wide variety of investments of different sizes and growth potentials . as of december 31 , 2015 , our corporate private equity segment had approximately $ 63 billion in aum and approximately $ 41 billion in fee-earning aum . global market strategies — our global market strategies segment advises a group of 68 funds that pursue investment opportunities across structured credit , distressed debt , corporate and energy mezzanine debt , middle-market and senior debt , as well as credit , emerging markets and commodities-focused hedge funds and a mutual fund . as of december 31 , 2015 , our global market strategies segment had approximately $ 35 billion in aum and approximately $ 31 billion in fee-earning aum . real assets — our real assets segment advises our eight u.s. and internationally focused real estate funds , our infrastructure fund , our two power funds , our international energy fund , as well as our five legacy energy funds ( funds that we jointly advise with riverstone ) . the segment also includes six ngp management fee funds and three carry funds advised by ngp . as of december 31 , 2015 , our real assets segment had approximately $ 38 billion in aum and approximately $ 31 billion in fee-earning aum . investment solutions — our investment solutions segment advises a global private equity fund of funds program and related co-investment and secondary activities across 118 fund of funds vehicles . as of december 31 , 2015 , our investment solutions segment had approximately $ 46 billion in aum and approximately $ 28 billion in fee-earning aum . we earn management fees pursuant to contractual arrangements with the investment funds that we manage and fees for transaction advisory and oversight services provided to portfolio companies of these funds . we also typically receive a performance fee from an investment fund , which may be either an incentive fee or a special residual allocation of income , which we refer to as a carried interest , in the event that specified investment returns are achieved by the fund . under u.s. generally accepted accounting principles ( “ u.s . gaap ” ) , we are required to consolidate some of the investment funds that we advise . however , for segment reporting purposes , we present revenues and expenses on a basis that deconsolidates these investment funds . accordingly , our segment revenues primarily consist of fund management and related advisory fees , performance fees ( consisting of incentive fees and carried interest allocations ) , investment income , including realized and unrealized gains on our investments in our funds and other trading securities , as well as interest and other income . our segment expenses primarily consist of compensation and benefits expenses , including salaries , bonuses , performance payment arrangements , and equity-based compensation excluding awards granted in our initial public offering or in connection with acquisitions and strategic investments , and general and administrative expenses . refer to note 18 to the consolidated financial statements included in this annual report on form 10-k for more information on the differences between our financial results reported pursuant to u.s. gaap and our financial results for segment reporting purposes . 83 trends affecting our business our results of operations , particularly our quarterly results , are affected by a variety of factors , including global economic , market and financial conditions , particularly in the united states , europe and asia . in general , a climate of stable interest rates and liquidity in the debt and equity capital markets provides a positive environment for us to invest , develop and exit investments in our carry funds at attractive returns . periods of volatility and dislocation in the capital markets also can present us with significant opportunities to invest at reduced valuations that position us for future revenue growth . for our hedge funds , opportunities to generate revenue depend on their respective investment strategies , certain of which may benefit from higher market volatility , including strategies targeted at capitalizing on low levels of correlation in equity and debt markets , differences in market prices versus fundamental value and trading inefficiencies . story_separator_special_tag this unit repurchase program may be suspended or discontinued at any time and does not have a specified expiration date . key financial measures our key financial measures are discussed in the following pages . revenues revenues primarily consist of fund management fees , performance fees , investment income , including realized and unrealized gains of our investments in our funds and other trading securities , as well as interest and other income . see “ — critical accounting policies — performance fees ” and note 2 to the consolidated financial statements included in this annual report on form 10-k for additional information regarding the manner in which management fees and performance fees are generated . fund management fees . fund management fees include ( i ) management fees and ( ii ) transaction and portfolio advisory fees . management fees are fees we earn for advisory services we provide to funds in which we hold a general partner interest or with which we have an investment advisory or investment management agreement . management fees are based on ( a ) third parties ' capital commitments to our investment funds , ( b ) third parties ' remaining capital invested in our investment funds at cost or at the lower of cost or aggregate remaining fair value , ( c ) gross assets , excluding cash and cash equivalents , ( d ) for the private equity and real estate fund of funds vehicles following the expiration of the commitment period or weighted-average investment period of such vehicles , the lower of cost or fair value of the capital invested , the net asset value for unrealized investments , or the contributions for unrealized investments , ( e ) the total par amount of assets for our clos and the aggregate principal amount of the notes of our other structured products , or ( f ) the net asset value ( “ nav ” ) of certain of our investment funds , as described in our consolidated financial statements . additionally , management fees include catch-up management fees , which are episodic in nature and represent management fees charged to fund investors in subsequent closings of a fund which apply to the time period between the fee initiation date and the subsequent closing date . management fees for funds in our corporate private equity funds , closed-end carry funds in the global market strategies segment and real assets funds generally range from 1 % to 2 % of commitments during the investment period of the relevant fund . large funds tend to have lower effective management fee rates , while smaller funds tend to have effective management fee rates approaching 2.0 % . following the expiration or termination of the investment period of such funds , the management fees generally step-down to between 0.6 % and 2.0 % generally on the lower of cost or fair value of capital invested ; however , certain of our managed accounts base management fees at all times on contributions for unrealized investments or the current value of the investment . depending upon the contracted terms of investment advisory or investment management and related agreements , these fees are called semiannually in advance and are recognized as earned over the subsequent six month period . as a result , cash on hand and deferred revenue will generally be higher at or around january and july , which are the semiannual due dates for management fees . management fees for our private equity and real estate fund of funds vehicles generally range from 0.3 % to 1.0 % on the vehicle 's capital commitments during the commitment fee period of the relevant fund or the weighted-average investment period of the underlying funds . following the expiration of the commitment fee period or weighted-average investment period of such funds , the management fees generally range from 0.3 % to 1.0 % on the lower of cost or fair value of the capital invested , the nav for unrealized investments , or the contributions for unrealized investments . the management fees for our fund of hedge funds vehicles generally range 0.2 % to 1.5 % of nav . management fees for our investment solutions segment are generally due quarterly and are recognized over the related quarter . our hedge funds generally pay management fees quarterly that range from 1.5 % to 2.0 % of nav per year . management fees for our business development companies are due quarterly in arrears at annual rates that range from 0.25 % to 1.0 % of gross assets , excluding cash and cash equivalents . management fees for our clos and other structured products typically range from 0.15 % to 1.0 % on the total par amount of assets or the aggregate principal amount of the notes in the clo and are due quarterly or semiannually based on the terms and recognized over the relevant period . our management fees for our clos/structured products and credit opportunities funds are governed by indentures and collateral management agreements . 85 with respect to claren road and esg , we retain a specified percentage of the management fees of the businesses based on our economic ownership in the management companies of 55 % . through the second quarter of 2015 , we retained 55 % of the management fees of carlyle commodity management l.l.c . ( “ ccm ” or “ carlyle commodity management ” , formerly vermillion ) based on our 55 % economic interest in carlyle commodity management . effective july 1 , 2015 , based on a restructuring of the original acquisition agreements of carlyle commodity management , in which the partnership 's economic interest increased to approximately 83 % , we are entitled to approximately 83 % of the management fees of carlyle commodity management . management fees are not subject to repayment but may be offset to the extent that other fees are earned as described below under “ —transaction and portfolio advisory fee. ” management fees attributable to carlyle partners vi , l.p. ( “ cp vi ” ) , our sixth u.s.
| consolidated results of operations the following table and discussion sets forth information regarding our consolidated results of operations for the years ended december 31 , 2015 , 2014 and 2013. our consolidated financial statements have been prepared on substantially the same basis for all historical periods presented ; however , the consolidated funds are not the same entities in all periods shown due to changes in u.s. gaap , changes in fund terms and the creation and termination of funds . we formed six clos in 2013 , eight clos in 2014 , and eight clos in 2015 and consolidated those clos beginning on their respective formation dates or closing dates . as further described below , the consolidation of these funds had the impact of increasing interest and other income of consolidated funds , interest and other expenses of consolidated funds , and net investment gains ( losses ) of consolidated funds in the year that the fund is initially consolidated . the consolidation of these funds had no effect on net income attributable to the partnership for the periods presented . in addition , as described in note 17 to the consolidated financial statements included in this annual report on form 10-k , as of september 30 , 2013 , we began consolidating urbplan , a brazilian real estate portfolio company of certain of our real estate investment funds . 98 replace_table_token_13_th 99 year ended december 31 , 2015 compared to year ended december 31 , 2014 and year ended december 31 , 2014 compared to year ended december 31 , 2013. revenues the decrease in total revenues in 2015 and 2014 was due primarily to lower appreciation in our carry funds resulting in relatively lower performance fees .
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as a result , we assigned $ 20.4 million of goodwill to the specialty business sale , which was originally recorded in connection with the cellu tissue acquisition and was allocated to the sale of the specialty mills business . in addition , certain of our customer relationships and trade name and trademarks intangible assets were associated with our divested specialty business and mills , and as a result we recorded a $ 4.9 million write-off of these assets . these charges are story_separator_special_tag the following discussion and analysis should be read in conjunction with our audited consolidated financial statements and notes thereto that appear elsewhere in this report . this discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties . actual results may differ materially from those discussed in these forward-looking statements due to a number of factors , including those set forth in the section entitled “ risk factors ” and elsewhere in this report . unless the context otherwise requires or unless otherwise indicates , references in this report to “ clearwater paper corporation , ” “ we , ” “ our , ” “ the company ” and “ us ” refer to clearwater paper corporation and its subsidiaries . overview recent events acquisition of manchester industries on december 16 , 2016 , we acquired manchester industries , an independently-owned paperboard sales , sheeting and distribution supplier to the packaging and commercial print industries , for total consideration of $ 71.7 million . the addition of manchester industries ' customers to our paperboard business extends our reach and service platform to small and mid-sized folding carton plants , by offering a range of converting services that include custom sheeting , slitting , and cutting . these converting operations include five strategically located facilities in virginia , pennsylvania , indiana , texas , and michigan . strategic capital projects as part of our focus on strategic capital spending on projects that we expect to provide a positive return on investments , we announced on september 8 , 2015 , the construction of a continuous pulp digester project at our lewiston , idaho , pulp and paperboard facility . we estimate that the total cost for this pulp optimization project will be approximately $ 148- $ 158 million , excluding estimated capitalized interest . construction on this project began in 2015 and is expected to be completed in the second half of 2017. as of december 31 , 2016 , we have incurred a total of $ 90.8 million in total project costs , of which $ 59.8 million was incurred in 2016. we expect to spend the remainder in 2017. we have also capitalized $ 2.7 million of interest related to the project to date , of which $ 2.3 million was incurred in 2016. we anticipate that this project will significantly reduce air emissions , result in operational improvements through increased pulp quality and production , and lower our costs through the more efficient utilization of wood chips . facility closure on november 29 , 2016 , we announced the permanent closure of our oklahoma city converting facility . the closure of the oklahoma city facility is planned for march 31 , 2017. due to productivity gains from cost and optimization programs across the company , we expect the production from this facility to be more efficiently supplied by our other facilities . as of december 31 , 2016 , we have incurred $ 1.7 million of costs associated with this announced closure . these costs include $ 1.3 million in accelerated depreciation on certain fixed assets . machine shutdowns also on november 29 , 2016 , we announced the permanent shutdown of two of the five tissue machines at our neenah , wisconsin , tissue facility , effective late-december 2016. we expect the shutdown of these high-cost machines and related restructuring at this plant to lower our overall costs and improve operating efficiency at our neenah facility . as of december 31 , 2016 , we have incurred $ 1.0 million of costs related to the shutdown of these machines . capital allocation on december 15 , 2015 , we announced that our board of directors had approved a new stock repurchase program authorizing the repurchase of up to $ 100 million of our common stock . the repurchase program authorizes purchases of our common stock from time to time through open market purchases , negotiated transactions or other means , including accelerated stock repurchases and 10b5-1 trading plans in accordance with applicable securities laws and other restrictions . through december 31 , 2016 , we repurchased 1,355,946 shares of our outstanding common stock at an average price of $ 48.18 per share under this program . 22 on december 15 , 2014 , we announced that our board of directors had approved a stock repurchase program authorizing the repurchase of up to $ 100 million of our common stock . we completed this program during the fourth quarter of 2015. in total , we repurchased 1,881,921 shares of our outstanding common stock at an average price of $ 53.13 per share under this program . new tissue machine on february 8 , 2017 , we announced plans to build a new tissue machine and related converting equipment at a site adjacent to our existing facility in shelby , north carolina . the new tissue machine will produce a variety of high-quality private label premium and ultra-premium bath , paper towel and napkin products . at full production capacity , the new tissue machine is expected to produce approximately 70,000 tons of tissue products annually . the estimated cost for the project includes approximately $ 283 million for the tissue machine , converting equipment and buildings , and approximately $ 57 million for the purchase and expansion of an existing warehouse that will consolidate all southeastern warehousing in shelby . story_separator_special_tag a portion of the chemicals used in our manufacturing processes , particularly in the paperboard extrusion process , are petroleum-based and are impacted by petroleum prices . in 2016 , our chemical costs decreased $ 12.9 million from 2015 , primarily due to decreased pricing for polyethylene and other paper making chemicals . in addition , chemical consumption was lower due to reduced pulp production caused by the july 2016 unplanned power outage at our idaho facility , as well as improvements due to strategic capital projects . chips , sawdust and logs . we purchase chips , sawdust and logs that we use to manufacture pulp . we source residual wood fibers under both long-term and short-term supply agreements , as well as in the spot market . overall costs were relatively flat , increasing $ 1.1 million in 2016 compared to 2015 driven by increased wood prices in the idaho region , partially offset by operational improvements . 24 maintenance and repairs . we regularly incur significant costs to maintain our manufacturing equipment . we perform routine maintenance on our machines and periodically replace a variety of parts such as motors , pumps , pipes and electrical parts . major equipment maintenance and repairs in our pulp and paperboard segment also require maintenance shutdowns approximately every 18 to 24 months at both our idaho and arkansas facilities , which increase costs and may reduce net sales in the quarters in which the major maintenance shutdowns occur . in 2016 , maintenance costs increased $ 5.1 million compared to 2015 due to a planned increase in maintenance for our consumer products segment , higher maintenance spending associated with the unplanned power outage at our idaho facility in the third quarter of 2016 and a fire at our las vegas , nevada consumer products facility in the fourth quarter of 2016. these higher costs were partially offset by lower planned major maintenance in 2016 compared to 2015 for our pulp and paperboard segment . we expect our 2017 planned major maintenance costs to be approximately $ 7 million at our arkansas facility during the second quarter of 2017 and $ 18 million at our idaho facility during the third quarter of 2017 , while operations are shutdown in connection with the anticipated startup of our new continuous pulp digester . the planned major maintenance is expected to result in three days of paper machine downtime at our arkansas facility and four days of paper machine downtime at our idaho facility . in addition to ongoing maintenance and repair costs , we make capital expenditures to increase our operating capacity and efficiency , improve safety at our facilities and comply with environmental laws . in 2016 , we spent $ 153.4 million on capital expenditures , excluding capitalized interest of $ 2.3 million , which included $ 93.9 million of capital spending on strategic projects and other projects designed to reduce future manufacturing costs and provide a positive return on investment . during 2015 , excluding capitalized interest of $ 0.4 million , we spent $ 133.7 million on capital expenditures , which included $ 73.2 million of strategic capital spending . energy . we use energy in the form of electricity , hog fuel , steam and natural gas to operate our mills . energy prices may fluctuate widely from period-to-period due primarily to volatility in weather and electricity and natural gas rates . we generally strive to reduce our exposure to volatile energy prices through conservation . in addition , a cogeneration facility that produces steam and electricity at our lewiston , idaho manufacturing site helps to lower our energy costs . energy costs for 2016 were $ 13.2 million lower than those for 2015 due largely to lower usage and pricing for natural gas , as well as lower pricing for electricity and hog fuel . to help mitigate our exposure to changes in natural gas prices , we use firm-price contracts to supply a portion of our natural gas requirements . as of december 31 , 2016 , these contracts covered approximately 20 % of our expected average monthly natural gas requirements for 2017 , which includes approximately 28 % of the expected average monthly requirements for the first quarter . our energy costs in future periods will depend principally on our ability to produce a substantial portion of our electricity needs internally , on changes in market prices for natural gas and on our ability to reduce our energy usage through conservation . packaging supplies . as a significant producer of private label consumer tissue products , we package to order for retail chains , wholesalers and cooperative buying organizations . under our agreements with those customers , we are responsible for the expenses related to the unique packaging of our products for direct retail sale to their consumers . for 2016 , packaging costs decreased $ 4.4 million compared to 2015 due to favorable pricing for packaging supplies , including lower negotiated prices for poly wrap and cartons . depreciation . we record substantially all of our depreciation expense associated with our plant and equipment in `` cost of sales '' on our consolidated statements of operations . depreciation expense for 2016 increased $ 4.3 million , compared to 2015 , primarily as a result of increased depreciation related to capital spending during recent periods , as well as accelerating depreciation on certain oklahoma city assets in association with the announced march 2017 facility closure . other . other costs not included in the above table primarily consist of wage and benefit expenses and miscellaneous operating costs . although period cut-offs can impact cost of sales amounts , we would expect this impact to be relatively steady as a percentage of costs on a period-over-period basis . certain other costs decreased in 2016 compared to 2015 due in part to insurance recoveries for both the lewiston power outage and the fire at our las vegas facility .
| cash flows summary replace_table_token_15_th operating activities —net cash flows from operating activities for 2016 increased by $ 13.1 million compared to 2015. the increase in operating cash flows was driven by an increase in earnings , after adjusting for noncash related items , of $ 7.0 million . additionally , there was an increase due to $ 5.1 million of cash from taxes receivable in 2016 compared to a net $ 13.6 million increase in taxes receivable in 2015. these increases in cash flows from operating activities were partially offset by $ 3.5 million of cash used in working capital in 2016 , compared to $ 14.8 million of cash flows generated from working capital in 2015. net cash flows from operating activities for 2015 increased by $ 20.6 million compared to 2014. the increase in operating cash flows was largely due to a $ 27.1 million increase in cash flows generated from working capital and a $ 13.8 million decrease in contributions to our qualified pension plans compared to 2014 , partially offset by a net $ 13.6 million increase in taxes receivable in 2015 compared to $ 9.2 million of cash from taxes receivable in 2014. the cash flows generated from working capital were primarily the result of a decrease in inventories and higher accounts payable and accrued liabilities , partially offset by higher accounts receivable , and prepaid expense balances in 2015 compared to 2014 . 34 investing activities —net cash flows used for investing activities increased $ 144.0 million in 2016 , compared to 2015. this was largely driven by the acquisition of manchester industries totaling $ 67.4 million , net of cash acquired . cash spent for plant and equipment increased $ 26.4 million compared to 2015 due to our investments in strategic capital projects , including our continuous pulp digester project at our lewiston , idaho facility .
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effective july 1 , 2018 , the company adopted asu 2017-11 , earnings per share ( topic 260 ) , distinguishing liabilities from equity ( topic 480 ) , derivatives and hedging ( topic 815 ) . the amendments in part i of this asu changed the classification analysis of certain equity-linked financial instruments ( or embedded features ) with down round features . when determining whether certain financial instruments should be classified as liabilities or as equity instruments , a down round feature ( i.e . a financial anti-dilution provision ) story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our audited historical consolidated financial statements and the notes thereto , which are included elsewhere in this annual report on form 10-k for the year ended december 31 , 2019 ( this2019 form 10-k ) . the following discussion includes forward-looking statements that involve certain risks and uncertainties , including , but not limited to , those described in item 1a . risk factors in this 2019 form 10-k. our actual results may differ materially from those discussed below . see special note regarding forward-looking statements and item 1a . risk factors , in each case contained in this 2019 form 10-k. overview we are a leading independent entertainment marketing and premium content development company . we were first incorporated in the state of nevada on march 7 , 1995 and domesticated in the state of florida on december 4 , 2014. our common stock trades on the nasdaq capital market under the symbol dlpn . through our subsidiaries 42west , the door and shore fire , we provide expert strategic marketing and publicity services to many of the top brands , both individual and corporate , in the entertainment and hospitality industries . 42west , the door and shore fire are each recognized global leaders in pr services for the respective industries they serve . our acquisition of viewpoint has added full-service creative branding and production capabilities to our marketing group . dolphin 's legacy content production business , founded by emmy-nominated chief executive officer , bill o'dowd , has produced multiple feature films and award-winning digital series , primarily aimed at family and young adult markets . on december 3 , 2019 , referred to as the shore fire closing date , we acquired all of the issued and outstanding capital stock of shore fire , a new york corporation . shore fire is a public relations and media management firm that specializes in music , entertainment and popular culture . we agreed to pay an aggregate purchase price of $ 3 million for shore fire , before adjustments , comprising ( i ) $ 1,000,000 in cash paid to the seller on the shore fire closing date ( as adjusted for shore fire 's indebtedness , working capital and cash targets , and transaction expenses ) ; ( ii ) $ 200,000 in shares of our common stock based on a price , per share of $ 0.64 , issued to the seller on the shore fire closing date and ( iii ) $ 140,000 in cash paid on the shore fire closing date to certain key employees , referred to as the shore fire key employees ; ( iv ) additional $ 250,000 in cash paid on each of the third , sixth , twelve and twenty-four month anniversary of the shore fire closing date ; ( v ) $ 200,000 in shares of our common stock to the seller on each of the twelve and twenty-four month anniversary of the shore fire closing date ; ( vi ) $ 140,000 in cash to the shore fire key employees on the twelve month anniversary of the shore fire closing date and ( vii ) $ 120,000 in cash to the shore fire key employees on the twenty-four month anniversary of the shore fire closing date . in connection with the acquisition of shore fire , we acquired intangible assets of approximately $ 1.1 million and goodwill of $ 1.9 million . we have established an acquisition strategy based on identifying and acquiring companies that complement our existing entertainment publicity and marketing services and content production businesses . we believe that complementary businesses , such as data analytics and digital marketing , can create synergistic opportunities and bolster profits and cash flow . we have identified potential acquisition targets and are in various stages of discussion with such targets . we intend to complete at least one acquisition during 2020 , but there is no assurance that we will be successful in doing so , whether in 2020 or at all . we currently intend to fund any acquisitions through loans or additional issuances of our common stock , securities convertible into our common stock , debt securities or a combination of such financing alternatives ; however , there can be no assurance that we will be successful in raising the capital necessary to consummate any acquisitions , whether on favorable terms or at all . we operate in two reportable segments : our entertainment publicity and marketing segment and our content production segment . the entertainment publicity and marketing segment comprises 42west , the door , shore fire and viewpoint and provides clients with diversified services , including public relations , entertainment content marketing , strategic marketing consulting , creative branding and in-house production of content for marketing . the content production segment comprises dolphin films and dolphin digital studios and specializes in the production and distribution of digital content and feature films . 21 going concern in the audit opinion for our financial statements as of and for the year ended december 31 , 2019 , our independent auditors included an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern based upon our accumulated deficit as of december 31 , 2019 and our level of working capital . the financial statements do not include any adjustments that might result from the outcome of these uncertainties . story_separator_special_tag our ability to receive additional revenues from max steel depends on our ability to repay our loans under our production service agreement and prints and advertising loan agreement from the profits of max steel . max steel did not generate sufficient funds to repay either of these loans prior to the applicable maturity dates . on august 23 , 2019 , we entered into a revenue participation agreement with the lender of the prints and advertising loan . under this revenue participation agreement , we agreed to give the lender all of the future domestic distribution proceeds of max steel up to $ 0.9 million in exchange for the payment and satisfaction in full of the prints and advertising loan . as a result , we recorded a gain on the extinguishment of debt of $ 0.7 million and impaired the capitalized production costs of $ 0.6 million during the year ended december 31 , 2019. we have provided a $ 0.6 million backstop to the guarantor of the prints and advertising loan and that amount is recorded in other current liabilities . if the lender of the production loan forecloses on the collateral securing the loan , our subsidiary max steel vie would lose any future international distribution revenue of max steel , which we believe is minimal . we are not a party to this loan and have not guaranteed to the lender any of the amounts outstanding under this loan . for a discussion of the terms of such agreements and the $ 620,000 backstop , see liquidity and capital resources below . project development and related services we have a team that dedicates a portion of its time to sourcing scripts for future development . the scripts can be for either digital or motion picture productions . we have acquired the rights to certain scripts that we intend to produce and release in the future , subject to obtaining financing . we have not yet determined if these projects would be produced for digital or theatrical distribution . 23 our pipeline of feature films includes : · youngblood , an updated version of the 1986 hockey classic ; · out of their league , a romantic comedy pitting husband versus wife in the cut-throat world of fantasy football ; and · sisters before misters , a comedy about two estranged sisters finding their way back to each other after a misunderstanding causes one of them to have to plan the other 's wedding . we have completed development of each of these feature films , which means that we have completed the script and can begin pre-production once financing is obtained . we are planning to fund these projects through loans or additional sales of our common stock , securities convertible into our common stock , debt securities or a combination of such financing alternatives ; however , there can be no assurance that we will be successful in raising any necessary capital . there is no assurance that we will be able to obtain the financing necessary to produce these feature films . expenses our expenses consist primarily of : ( 1 ) direct costs ; ( 2 ) selling , general and administrative expenses ; ( 3 ) depreciation and amortization ; ( 4 ) legal and professional fees ; and ( 5 ) payroll . for the year ended december 31 , 2018 , we also had non-cash charge of goodwill impairment of approximately $ 1.9 million . direct costs include certain cost of services , as well as certain production costs , related to our entertainment publicity and marketing business . direct costs also include amortization of deferred production costs , impairment of deferred production costs , residuals and other costs associated with our content production business . residuals represent amounts payable to various unions or guilds such as the screen actors guild , directors guild of america , and writers guild of america , based on the performance of the motion picture and digital productions in certain ancillary markets . included within direct costs are immaterial impairments for any of our projects . capitalized production costs are recorded at the lower of their cost , less accumulated amortization and tax incentives , or fair value . if estimated remaining revenue is not sufficient to recover the unamortized capitalized production costs for that title , the unamortized capitalized production costs will be written down to fair value . selling , general and administrative expenses include all overhead costs except for payroll , depreciation and amortization and legal and professional fees that are reported as a separate expense item . depreciation and amortization include the depreciation of our property , equipment and leasehold improvements and amortization of intangible assets , including the favorable lease asset . legal and professional fees include fees paid to our attorneys , fees for investor relations consultants , audit and accounting fees and fees for general business consultants . payroll expenses include wages , payroll taxes and employee benefits . other income and expenses for the years ended december 31 , 2019 and 2018 , other income and expenses consisted primarily of : ( 1 ) gain or loss on extinguishment of debt ; ( 2 ) acquisition costs ; ( 3 ) changes in the fair value of put rights ; ( 4 ) changes in fair value of contingent consideration and ( 5 ) interest expense . 24 story_separator_special_tag size= '' 1.333 '' style= '' margin-bottom:9.6px ; padding-top:9.6px '' / > as previously discussed , during the year ended december 31 , 2019 , we agreed to exchange up to $ 0.9 million of future domestic revenues of max steel for the extinguishment of the prints and advertising loan and recorded $ 0.7 million of a gain on the extinguishment of that debt .
| results of operations year ended december 31 , 2019 as compared to year ended december 31 , 2018 revenues for the years ended december 31 , 2019 and 2018 , our revenues were as follows : replace_table_token_4_th revenues from entertainment publicity and marketing increased by approximately $ 3.0 million , for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018. the increase was due to a full year of revenue of the door acquired on july 5 , 2018 and viewpoint acquired on october 31 , 2018 and one month of revenue of shore fire acquired december 3 , 2019. the increase is partially offset by the decrease in revenue of 42west due to departures of senior publicists and their staff in 2018. revenues from content production decreased by $ 0.5 million for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 , primarily due to the normal revenue cycle of our motion picture max steel . the majority of the revenues of a motion picture are recognized in the first twelve months following the release of the film . max steel was released on october 14 , 2016 , and we have already recognized the revenues from the theatrical release , a majority of home entertainment ( i.e . dvd ) and from international licensing arrangements . for the year ended december 31 , 2018 , we also recorded $ 0.2 million of revenues from domestic ancillary markets , related to our motion picture believe that was released in december of 2013. on september 4 , 2018 , our domestic distributor , open road , filed for chapter 11 bankruptcy protection .
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forward-looking statements involve risks and uncertainties that could cause our results or outcomes to differ materially from those expressed in the forward-looking statements . forward-looking statements may include , without limitation , statements relating to our plans , strategies , objectives , expectations and intentions and are intended to be made pursuant to the safe harbor provisions of the private securities litigation reform act of 1995. words such as “ believes , ” “ forecasts , ” “ intends , ” “ possible , ” “ expects , ” “ estimates , ” “ anticipates , ” or “ plans ” and similar expressions are intended to identify forward-looking statements . among the important factors on which such statements are based are assumptions concerning the state of the united states economy and the local markets in which our portfolio companies operate , the state of the securities markets in which the securities of our portfolio companies could be traded , liquidity within the united states financial markets , and inflation . forward-looking statements are also subject to the risks and uncertainties described under the caption “ risk factors ” contained in part i , item 1a of this annual report . there may be other factors not identified that affect the accuracy of our forward-looking statements . further , any forward-looking statement speaks only as of the date when it is made and , except as required by law , we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances . new factors emerge from time to time that may cause our business not to develop as we expect , and we can not predict all of them . overview we are an externally managed investment company that lends to and invests in small to medium sized companies . we have elected to be regulated as a business development company ( “ bdc ” ) under the investment company act of 1940 , as amended ( the “ 1940 act ” ) . as a bdc , we are required to comply with certain regulatory requirements . we have historically made the majority of our investments through our wholly-owned subsidiary , rand capital sbic , inc. ( “ rand sbic ” ) , which operates as a small business investment company ( “ sbic ” ) and has been licensed by the u.s. small business administration ( “ sba ” ) since 2002. on november 8 , 2019 , rand completed a stock sale transaction ( the “ closing ” ) with east asset management ( “ east ” ) . the stock sale transaction consisted of a $ 25 million investment in rand by east , in exchange for approximately 8.3 million shares of rand common stock . the consideration paid by east for the shares of rand common stock was comprised of $ 15.5 million of cash and a contribution of $ 9.5 million of portfolio assets . concurrent with the closing of the stock sale transaction with east , rand 's management and staff became employees of rand capital management , llc ( “ rcm ” ) , a registered investment adviser that has been retained by rand as its external investment adviser . in connection with retaining rcm as our investment adviser , rand entered into an investment advisory and management agreement ( the “ investment management agreement ” ) and an administration agreement ( the “ administration agreement ” ) with rcm pursuant to which rcm will serve as rand 's investment adviser and administrator . pursuant to the terms of the investment management agreement , rand will pay rcm a base management fee and may pay an incentive fee . 33 with the completion of the transactions , we also changed our investment objectives and strategy . we have adopted an investment strategy focused on higher yielding debt investments . we intend to elect u.s. federal tax treatment as a ric and , if such ric election occurs , we generally will not pay corporate-level u.s. federal income taxes on any net ordinary income or capital gains that we timely distribute to our shareholders as dividends . to maintain our ric status , we need to meet specified source-of-income and asset diversification requirements and distribute annually to our stockholders at least 90.0 % of our ordinary net income and realized net short-term capital gains in excess of realized net long-term capital losses , if any . accordingly , our board has expressed its intent to adopt a new dividend policy that may include regular cash dividends to shareholders going forward . at the end of 2019 , we had $ 25.8 million in cash and cash equivalents available for future investments and expenses , an increase of $ 21.8 million from the end of 2018. the increase was primarily due to the approximately $ 15.5 million received in november 2019 as part of the stock sale transaction with east and $ 6.6 million in portfolio company loans repaid during 2019 as well as $ 2.25 million of additional sba leverage drawn down during the year ended december 31 , 2019 . 2019 portfolio and investment activity we believe the change in net asset value over time is the leading metric of performance . exits from our portfolio holdings are the key driver of growth in net asset value over time . ● net asset value of our portfolio decreased to $ 3.66 per share , or $ 53.6 million , at december 31 , 2019 , down ( $ 1.33 ) per share , or ( 26.7 % ) , compared with net asset value of $ 4.99 per share , or $ 31.5 million , at the end of the prior year . nav benefited from the net gain on the sale of the equity investment in microcision as well as an increase in net unrealized appreciation in other portfolio investments , including acv auctions , inc. , in accordance with our valuation policy . story_separator_special_tag this approach values the equity at the value remaining after the portfolio company pays of its debt and loan balances and its outstanding liabilities . the market approach uses observable prices and other relevant information generated by similar market transactions . it may include the use of market multiples derived from a set of comparables to assist in pricing the investment . additionally , we adjust valuations if a subsequent significant equity financing has occurred that includes a meaningful portion of the financing by a sophisticated , unrelated new investor . the income approach employs a cash flow and discounting methodology to value an investment . asc 820 classifies the inputs used to measure fair value into the following hierarchy : level 1 : quoted prices in active markets for identical assets or liabilities , used in our valuation at the measurement date . level 2 : quoted prices for similar assets or liabilities in active markets , or quoted prices for identical or similar assets or liabilities in markets that are not active , or other observable inputs other than quoted prices . level 3 : unobservable and significant inputs to determining the fair value . financial assets are categorized based upon the level of judgment associated with the inputs used to measure their fair value . any changes in estimated fair value are recorded in the statement of operations as “ net change in unrealized depreciation on investments. ” under the valuation policy , we value unrestricted publicly traded companies , categorized as level 1 investments , at the average closing bid price for the last three trading days of the reporting period . there were no level 1 or level 2 investments as of december 31 , 2019. in the valuation process , we value restricted securities , categorized as level 3 investments , using information from these portfolio companies , which may include : ● audited and unaudited statements of operations , balance sheets and operating budgets ; ● current and projected financial , operational and technological developments of the portfolio company ; ● current and projected ability of the portfolio company to service its debt obligations ; ● the current capital structure of the business and the seniority of the various classes of equity if a deemed liquidation event were to occur ; ● pending debt or capital restructuring of the portfolio company ; ● current information regarding any offers to purchase the investment , or recent fundraising transactions ; ● current ability of the portfolio company to raise additional financing if needed ; ● changes in the economic environment which may have a material impact on the operating results of the portfolio company ; ● internal circumstances and events that may have an impact ( both positive and negative ) on the operating performance of the portfolio company ; ● qualitative assessment of key management ; ● contractual rights , obligations or restrictions associated with the investment ; and ● other factors deemed relevant to assess valuation . 36 the valuation may be reduced if a portfolio company 's performance and potential have deteriorated significantly . if the factors that led to a reduction in valuation are overcome , the valuation may be readjusted . equity securities equity securities may include preferred stock , common stock , warrants and limited liability company membership interests . the significant unobservable inputs used in the fair value measurement of our equity investments are earnings before interest , taxes and depreciation and amortization ( ebitda ) and revenue multiples , where applicable , the financial and operational performance of the business , and the senior equity preferences that may exist in a deemed liquidation event . standard industry multiples may be used when available ; however , our portfolio companies are typically small and in early stages of development and these industry standards may be adjusted to more closely match the specific financial and operational performance of the portfolio company . due to the nature of certain investments , fair value measurements may be based on other criteria , which may include third party appraisals . significant changes to the unobservable inputs , such as variances in financial performance from expectations , may result in a significantly higher or lower fair value measurement . significant changes in any of these unobservable inputs may result in a significantly higher or lower fair value estimate . another key factor used in valuing equity investments is a significant recent arms-length equity transaction with a sophisticated non-strategic unrelated new investor entered into by the portfolio company . the terms of these equity transactions may not be identical to the equity transactions between the portfolio company and us , and the impact of the difference in transaction terms on the market value of the portfolio company may be difficult or impossible to quantify . when appropriate the black-scholes pricing model is used to estimate the fair value of warrants for accounting purposes . this model requires the use of highly subjective inputs including expected volatility and expected life , in addition to variables for the valuation of minority equity positions in small private and early stage companies . significant changes in any of these unobservable inputs may result in a significantly higher or lower fair value estimate . for recent investments , we generally rely on the cost basis , which is deemed to represent fair value , unless other fair market value inputs are identified causing us to depart from this basis . loans and debt securities the significant unobservable inputs used in the fair value measurement of our loan and debt securities are the financial and operational performance of the portfolio company , similar debt with similar terms with other portfolio companies , current market rates for underlying risks associated with the particular company , as well as the market acceptance of the portfolio company 's products or services and its future performance . these inputs will likely provide an indicator as to the probability of principal recovery of the investment . our debt investments are often junior secured or unsecured debt securities .
| results of operations investment income comparison of the years ended december 31 , 2019 and 2018 replace_table_token_12_th investment income was received , on a current basis , during the year ended december 31 , 2019 from 17 portfolio companies . this is an increase from the 9 portfolio companies generating current investment income for the year ended december 31 , 2018. interest from portfolio companies – interest from portfolio companies was substantially unchanged during the year ended december 31 , 2019 compared to the year ended december 31 , 2018. the following investments are on non-accrual status : beetnpath , llc ( beetnpath ) , g-tec natural gas systems ( g-tec ) and a portion of the mercantile adjustment bureau , llc ( mercantile ) outstanding loan balances . interest from other investments - the increase in interest from other investments is primarily due to higher interest rates and higher average cash balance during the year ended december 31 , 2019 versus the year ended december 31 , 2018. dividend and other investment income - dividend income is comprised of cash distributions from limited liability companies ( llcs ) and corporations in which we have invested . our investment agreements with certain llcs require those llcs to distribute funds to us for payment of income taxes on our allocable share of the llc 's profits . these portfolio companies may also elect to make additional discretionary distributions . dividend income will fluctuate based upon the profitability of these llcs and corporations and the timing of the distributions or the impact of new investments or divestitures . the dividend distributions for the respective periods were : replace_table_token_13_th fee income - fee income generally consists of the revenue associated with the amortization of financing fees charged to the portfolio companies upon successful closing of sbic financings , income from portfolio company board attendance fees and other miscellaneous fees . the financing fees are amortized ratably over the life of the instrument associated with the fees .
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february 1 , 2020 , filed with the united states securities and exchange commission on march 31 , 2020. at the end of this section of this annual report on form 10-k , we have included historical data for the past five fiscal years to facilitate trend analysis of key data reported in our consolidated financial statements and other select operating data . our fiscal year is a 52/53 week year ending on the saturday closest to january 31. unless otherwise stated , references to fiscal years 2020 , 2019 and 2018 relate to the fiscal years ended january 30 , 2021 , february 1 , 2020 and february 2 , 2019 , respectively . fiscal years 2020 , 2019 and 2018 all consisted of 52 weeks . overview of our business shoe carnival , inc. is one of the nation 's largest family footwear retailers , providing customers the convenience of shopping at any of our store locations , our mobile app or online at www.shoecarnival.com . our stores combine competitive pricing with a promotional , high-energy in-store environment that encourages customer participation and injects fun and excitement into every shopping experience . we believe our distinctive shopping experience gives us various competitive advantages , including increased multiple unit sales ; the building of a loyal , repeat customer base ; the creation of word-of-mouth advertising ; and enhanced sell-through of in-season goods . a similar customer experience is reflected in our e-commerce platform through special promotions and limited time sales . our objective is to be the destination retailer-of-choice for value-priced , on-trend branded and private label footwear . our product assortment includes dress and casual shoes , sandals , boots and a wide assortment of athletic shoes for the entire family . our average store carries shoes in four general categories – women 's , men 's , children 's and athletics , as well as a broad range of accessories such as socks , belts , shoe care items , handbags , hats , sport bags , backpacks and wallets . footwear is organized by category and brand , creating strong brand statements within the aisles . these brand statements are underscored by branded signage on endcaps and in-line signage throughout the store . our signage may highlight a vendor 's product offerings or sales promotions , or may highlight seasonal or lifestyle statements by grouping similar footwear from multiple vendors . our e-commerce platform offers customers a large assortment of products in all categories of footwear with an increased depth of sizes and colors that may not be available in all stores . comparable store sales is a key performance indicator for us . comparable store sales include stores that have been open for 13 full months after such stores ' grand opening prior to the beginning of the period , including those stores that have been relocated or remodeled . therefore , stores recently opened or closed are not included in comparable store sales . we include e-commerce sales in our comparable store sales as a result of our multi-channel retailer strategy . due to our multi-channel retailer strategy , we view e-commerce sales as an extension of our physical stores . information regarding the covid-19 coronavirus pandemic ( “ covid-19 ” ) we continue to closely monitor and manage the impact of the covid-19 pandemic , and the safety and well-being of our customers , employees and business partners remains a top priority . the covid-19 pandemic has significantly impacted , and is expected to continue to impact , our operations , supply chains , and overall economic conditions and consumer spending for the foreseeable future . as guidance and mandates from governments and health officials continue to evolve , closures of some or all our stores may reoccur , and sales , including e-commerce sales , may be reduced . in response to the covid-19 pandemic , all of our physical stores were temporarily closed effective march 19 , 2020. our e-commerce platform continued to operate , and our e-commerce sales increased significantly in fiscal 2020 as customers shifted purchases to our online channel . we began reopening our physical stores in accordance 29 with applicable public health guidelines in late april 2020 . b y the beginning of our second fiscal quarter , approximately 50 % of our stores were reopened , and b y early june , substantially all of our stores had reopened . as stores reopened , we experienced increases in conversion and total average transaction despite reduced traffic due to the covid-19 pandemic . in addition , changes in customer shopping habits due to the pandemic and government stimulus impacted our peak shopping periods throughout fiscal 2020. we do not have any stores closed due to the pandemic as of january 30 , 2021. we have undertaken a number of actions to mitigate the financial impact of the covid-19 pandemic , preserve capital and keep our customers and employees safe . these actions include : implementing new health and safety procedures at our stores , corporate headquarters and distribution center . materials , such as thermometers , cleaning supplies , social distancing signage , and personal protective equipment have been distributed to our facilities . enhancing our liquidity by exercising the full accordion feature under our existing credit facility to increase our borrowing capacity from $ 50 million to $ 100 million and eliminating a covenant through the first quarter of fiscal year 2021 that may have limited our access to the increased borrowing capacity . the facility is now collateralized by our inventory . voluntarily suspending repurchases under our share repurchase program . continuing to pay employees while our stores were closed and recording tax credits in selling , general and administrative ( “ sg & a ” ) expenses that offset wage expense . this credit was associated with the coronavirus aid , relief , and economic security ( “ cares ” ) act , and represents an employee retention tax credit to support wages paid to employees while such employees were not working . story_separator_special_tag assets are grouped and the evaluation performed at the lowest level for which there are identifiable cash flows , which is generally at a store level . if the estimated future cash flows for a store are determined to be less than the carrying value of the store 's assets , an impairment loss is recorded for the difference between the estimated fair value and the carrying value . we estimate the fair value of our long-lived assets using store-specific cash flow assumptions discounted by a rate commensurate with the risk involved with such assets while incorporating marketplace assumptions . our assumptions and estimates used in the evaluation of impairment , including current and future economic trends for stores , are subject to a high degree of judgment . assets subject to impairment are adjusted to estimated fair value and , if applicable , an impairment loss is recorded in selling , general and administrative expenses . if actual operating results or market conditions differ from those anticipated , the carrying value of certain of our assets may prove unrecoverable and we may incur additional impairment charges in the future . leases – we lease our retail stores and our single distribution center , which has a current lease term of 15 years , expiring in 2034. we also enter into leases of equipment , copiers and billboards . prior to the purchase of our corporate headquarters in fiscal 2019 , it was also leased . all of our leases are operating leases . therefore , how operating leases are recognized throughout the financial statements in accordance with applicable accounting guidance can have a significant impact on our financial condition and results of operations and related disclosures . in accordance with accounting standards codification topic no . 842 – leases ( “ asc 842 ” ) , which we adopted in fiscal 2019 , on the lease commencement date we recognize a right-of-use asset for the right to use a leased asset and a liability based on the present value of remaining lease payments over the lease term . the weighted average discount rate utilized in fiscal 2020 was 5.2 % and was 5.5 % in fiscal 2019. as of the date of adoption of asc 842 and for new leases , renewals or amendments , we make certain estimates and assumptions regarding property values , market rents , property lives , discount rates and probable terms . these estimates and assumptions can impact : ( 1 ) lease classification and the related accounting treatment ; ( 2 ) rent holidays , escalations or deferred lease incentives , which are taken into consideration when calculating straight-line expense ; ( 3 ) the term over which leasehold improvements for each store are amortized ; and ( 4 ) the values and lives of adjustments to initial right-of-use assets . the amount of amortized rent expense would vary if different estimates and assumptions were used . our real estate leases typically include options to extend the lease or to terminate the lease at our sole discretion . options to extend real estate leases typically include one or more options to renew , with renewal terms that typically extend the lease term for five years or more . many of our leases also contain “ co-tenancy ” provisions , including the required presence and continued operation of certain anchor tenants in the adjoining retail space . if a co-tenancy violation occurs , we have the right to a reduction of rent for a defined period after which we have the option to terminate the lease if the violation is not cured . in addition to co-tenancy provisions , certain leases contain “ go-dark ” provisions that allow us to cease operations while continuing to pay rent through the end of the lease term . when determining the lease term , we include options that are reasonably certain to be exercised . 33 income taxes – as part of the process of preparing our consolidated financial statements , we are required to estimate our current and future income taxes for each tax jurisdiction in which we operate . significant judgment is required in determining our annual tax expense and evaluating our tax positions . as a part of this process , deferred tax assets and liabilities are recognized based on the difference between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bas i s. our temporary timing differences relate primarily to inventory , depreciation , a ccrued expenses , right-of-use assets , operating lease liabilities and stock-based compensation . deferred tax assets and liabilities are measured using the tax rates enacted and expected to be in effect in the years when those temporary differences are expected to reverse . deferred tax assets are reduced , if necessary , by a valuation allowance to the extent future realization of those tax benefits are uncertain . we are also required to make many subjective assumptions and judgments regarding our income tax exposures when accounting for uncertain tax positions associated with our income tax filings . we must presume that taxing authorities will examine all uncertain tax positions and that they have full knowledge of all relevant information . however , interpretations of guidance surrounding income tax laws and regulations are often complex , ambiguous and frequently change over time , and a number of years may elapse before a particular issue is resolved . as such , changes in our subjective assumptions and judgments can materially affect amounts recognized in our consolidated financial statements . although we believe we have no uncertain tax positions , tax authorities could assess tax liabilities in open tax periods not presently foreseen . results of operations the following table sets forth our results of operations expressed as a percentage of net sales for the following fiscal years : replace_table_token_9_th we offer our customers sales incentives , including coupons , discounts , and free merchandise . sales are recorded net of such incentives and returns and allowances .
| executive summary our sales patterns throughout fiscal 2020 were significantly impacted by the covid-19 pandemic . in the first quarter of fiscal 2020 , we sustained unprecedented comparable store sales declines and losses due to the temporary closure of our physical stores . throughout the remainder of fiscal 2020 , we experienced considerable sales growth compared to fiscal 2019. fiscal 2020 annual highlights included : record second quarter net sales despite a covid-related shift in back-to-school shopping , as the timing of back-to-school start dates were delayed in the markets we serve . record third quarter gross profit , net income and diluted net income per share . record fourth quarter net sales , net income and diluted net income per share , partially attributable to government stimulus late in 2020. during fiscal 2020 , comparable store sales decreased 42.3 % in the first quarter , followed by comparable store sales increases of 12.6 % in the second quarter , 0.9 % in the third quarter and 6.4 % in the fourth quarter . throughout fiscal 2020 , sales through our e-commerce platform increased approximately 175 % compared to fiscal 2019. in addition , in fiscal 2020 , we experienced high demand for athletics and leisure product and reduced demand for adult dress product . we believe this reflects a more casual and active lifestyle in response to the covid-19 pandemic . 30 the following tables illustrate the quarterly impact of our temporary store closures through june 2020 due to the covid-19 pandemic : ( in thousands , except per share amounts ) replace_table_token_7_th replace_table_token_8_th 1 ) per share amounts are computed independently for each quarter . for per share amounts , the sum of the quarters does not equal the total year due to the impact of changes in weighted shares outstanding and differing applications of earnings as prescribed by accounting guidance .
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forward-looking statements this annual report on form 10-k contains forward-looking statements , principally in the sections entitled “ business , ” “ risk factors , ” “ management 's discussion and analysis of financial condition and results of operations , ” and “ quantitative and qualitative disclosures about market risk. ” statements and financial discussion and analysis contained in this form 10-k that are not historical facts are forward-looking statements . these statements discuss goals , intentions and expectations as to future trends , plans , events , results of operations or financial condition , or state other information relating to us , based on our current beliefs as well as assumptions made by us and information currently available to us . forward-looking statements generally will be accompanied by words such as “ anticipate , ” “ believe , ” “ could , ” “ estimate , ” “ expect , ” “ forecast , ” “ intend , ” “ may , ” “ possible , ” “ potential , ” “ predict , ” “ project , ” or other similar words , phrases or expressions . this includes , without limitation , our statements and expectations regarding any current or future recovery in our industry and publicly announced plans for increased capital and investment spending to achieve our long-term revenue and profitability growth goals , and our expectations with respect to leverage . although we believe these forward-looking statements are reasonable , they are based upon a number of assumptions concerning future conditions , any or all of which may ultimately prove to be inaccurate . important factors that could cause actual results to differ materially from the forward-looking statements include , without limitation : the risks described in item 1a and in item 7a of this annual report on form 10-k ; changes in the financial stability of our clients or the overall economic environment , resulting in decreased corporate spending and service sector employment ; changes in relationships with clients ; the mix of products sold and of clients purchasing our products ; the success of new technology initiatives ; changes in business strategies and decisions ; competition from our competitors ; our ability to recruit and retain an experienced management team ; changes in raw material prices and availability ; restrictions on government spending resulting in fewer sales to the u.s. government , one of our largest customers ; our debt restrictions on spending ; our ability to protect our patents , copyrights and trademarks ; our reliance on furniture dealers to produce sales ; lawsuits arising from patents , copyrights and trademark infringements ; violations of environmental laws and regulations ; potential labor disruptions ; adequacy of our insurance policies ; the availability of future capital and the cost of borrowing ; the overall strength and stability of our dealers , suppliers , and customers ; access to necessary capital ; our ability to successfully integrate acquired businesses ; the success of our design and implementation of a new enterprise resource planning system ; and currency rate fluctuations . the factors identified above are believed to be important factors ( but not necessarily all of the important factors ) that could cause actual results to differ materially from those expressed in any forward-looking statement . unpredictable or unknown factors could also have material adverse effects on us . all forward-looking statements included in this form 10-k are expressly qualified in their entirety by the foregoing cautionary statements . except as required under the federal securities laws and the rules and regulations of the sec , we undertake no obligation to update , amend , or clarify forward-looking statements , whether as a result of new information , future events , or otherwise . overview we design , manufacture , market and sell high-end commercial and residential furniture , accessories , textiles , fine leathers and designer felt for the workplace and residential markets , as well as modern outdoor furniture . we work with clients to create inspired modern interiors . our design-driven businesses share a reputation for high-quality and sophistication offering a diversified product portfolio that endures throughout evolving trends and performs throughout business cycles . our products are targeted at the middle to upper-end of the market where we reach customers primarily through a broad network of independent dealers and distribution partners , our direct sales force , our showrooms , and our online presence . business highlights during the last decade we have diversified our sources of revenue among our varying operating segments . during 2017 , approximately 40 % of our sales and 74 % of our profits came from outside of our office segment . we continue to build knoll with an eye toward what works for our customers and shareholders : a constellation of design-driven brands and people , working together with our clients to create inspired modern interiors combined with our disciplined approach to the management of our business has resulted in the creation of a singular entity . over time we believe our diversification efforts and strategy will continue to result in a more profitable and less cyclical enterprise . knoll brands span commercial and residential applications with high design opportunities , and are heavily influenced by architect and designer specifiers . we are focused on targeting under-penetrated and emerging ancillary categories and markets as well as expanding our reach into residential and decorator channels around the world . 26 our efforts to diversify our sources of revenue among our operating segments has not detracted from our continued focus on growing and improving the operating performance of our office segment . we are looking beyond the traditional office product categories of systems , task seating and storage , to furniture that supports activity areas and the in-between spaces where people meet . we believe that our success in traditional office products gives us an advantage throughout the workplace . our new rockwell unscripted collection encompasses every product category ranging from seating and lounge to architectural walls and storage . story_separator_special_tag operating profit for the office segment in 2016 was $ 73.9 million , an increase of $ 18.0 million , or 32.3 % , when compared with 2015 . the increase in operating profit was driven by continuous improvement efficiencies and leveraging our fixed cost structure from higher volume . operating profit for the office segment in 2015 includes a $ 0.9 million seating product discontinuation charge and $ 0.5 million restructuring charges . studio net sales for the studio segment in 2016 were $ 323.4 million , an increase of $ 19.6 million , or 6.4 % , when compared with 2015 . the increase in the studio segment was driven by higher sales at knollstudio in north america and by our european business unit . operating profit for the studio segment in 2016 was $ 53.4 million , an increase of $ 5.5 million , or 11.4 % , when compared with 2015 . the increase in operating profit was driven by increased sales volume and net price realization . operating profit for the studio segment in 2015 includes a $ 0.4 million restructuring charge . 31 coverings net sales for the coverings segment in 2016 were $ 109.5 million , a decrease of $ 4.1 million , or 3.6 % , when compared with 2015 . continued year-over-year growth in spinneybeck | filzfelt sales was offset by lower volume at knolltextiles and edelman . operating profit for the coverings segment in 2016 was $ 26.0 million , an increase of $ 8.7 million , or 50.3 % , when compared with 2015 . operating profit for the coverings segment in 2015 includes a $ 10.7 intangible asset impairment charge . corporate corporate costs in 2016 were $ 16.9 million , a decrease of $ 3.0 million , or 15.1 % , when compared with 2015 . the decrease was driven primarily by the full year pension benefits recognized in 2016 as a result of our 2015 pension curtailment actions , partially offset by higher salary expense related to additional headcount . liquidity and capital resources the following table highlights certain key cash flows and capital information pertinent to the discussion that follows : replace_table_token_13_th we have historically funded our business through cash generated from operations , supplemented by debt borrowings . available cash is primarily used for our working capital needs , ongoing operations , capital expenditures , the payment of quarterly dividends , and the repurchase of shares . our investment in capital expenditures shows our commitment to improving our operating efficiency , innovation and modernization , showroom investment , new product tooling , manufacturing equipment and technology infrastructure . during 2017 , we made annual dividend payments of $ 0.60 per share , returning $ 29.0 million of cash to our shareholders . in addition to our quarterly dividend payments , we also paid accrued dividends on vested shares of $ 1.1 million . cash provided by operating activities was $ 103.7 million , $ 104.3 million , and $ 88.9 million in 2017 , 2016 and 2015 , respectively . for the year ended december 31 , 2017 , cash provided by operating activities consisted primarily of $ 80.2 million of net income and $ 38.0 million of various non-cash charges , including $ 26.6 million of depreciation and amortization , a $ 16.3 million asset impairment charge , and $ 9.6 million of stock based compensation , offset by $ 14.5 million of unfavorable changes in assets and liabilities primarily driven by $ 26.6 million benefit in current and deferred income taxes as a result of the 2017 tax cut and jobs act . for the year ended december 31 , 2016 , cash provided by operating activities consisted primarily of $ 82.1 million of net income and $ 69.0 million of various non-cash charges , including $ 26.0 million of deferred taxes driven by discretionary pension funding , $ 23.0 million of depreciation and amortization , and $ 10.5 million of stock based compensation , offset by $ 46.8 million of unfavorable changes in assets and liabilities primarily driven by our discretionary pension plan contribution during the year of $ 53.2 million . for the year ended december 31 , 2017 , we used $ 40.6 million of cash for capital expenditures . during 2016 , we used $ 40.1 million and $ 18.5 million of cash for capital expenditures and the purchase of businesses , respectively . the capital expenditures are reflective of our commitment to enhance and modernize our sales , manufacturing and information technology infrastructure . acquisitions are reflective of our strategy of building our global capabilities as a singular resource for high-design workplaces and homes . for the year ended december 31 , 2017 , we used cash of $ 30.2 million to fund dividend payments to shareholders , $ 10.9 million for share repurchases associated with the repurchase of shares used to offset the cost of employee tax withholdings , and $ 6.0 million of a contingent purchase price payment related to an earn-out for the holly hunt acquisition in 2014. for the year ended december 31 , 2016 we used cash of $ 29.2 million to fund dividend payments to shareholders , $ 5.5 million for share repurchases associated with the repurchase of shares used to offset the cost of employee tax withholdings , and $ 5.0 million of a contingent purchase price payment related to the earn-out for the holly hunt acquisition . 32 as of december 31 , 2017 , we were in compliance with all covenants and conditions in our existing credit facility and are currently in compliance with all covenants and conditions under our amended credit agreement . we believe that existing cash balances and internally generated cash flows , together with borrowings available under our credit facility , will be sufficient to fund working capital needs , capital spending requirements , debt service requirements and dividend payments for at least the next twelve months .
| results of operations comparison of consolidated results for the years ended december 31 , 2017 and december 31 , 2016 replace_table_token_9_th net sales net sales for the year ended december 31 , 2017 were $ 1,132.9 million , a decrease of $ 31.4 million , or 2.7 % , from sales of $ 1,164.3 million for the year ended december 31 , 2016 . the decrease in sales was largely due to a $ 48.3 million decrease in office sales driven by volume declines in both government and commercial sales , primarily in the first half of the year . the decrease in office segment sales was partially offset by an increase in studio segment sales . studio sales increased $ 17.6 million , due primarily to growth from holly hunt® and knoll europe , as well as incremental sales from a full year of datesweiser acquired in december 2016. gross profit gross profit for 2017 was $ 414.6 million , a decrease of $ 31.4 million , or 7.0 % , from gross profit of $ 446.0 million in 2016 . as a percentage of sales , gross profit decreased from 38.3 % for 2016 to 36.6 % for 2017 . this decline is due primarily to lower fixed-cost leverage resulting from lower volume in the office segment , as well as higher commodity inflation . operating profit operating profit for 2017 was $ 88.0 million , a decrease of $ 48.3 million , or 35.5 % , from operating profit of $ 136.3 million for 2016 . operating profit as a percentage of sales decreased from 11.7 % in 2016 to 7.8 % in 2017 . 27 selling , general , and administrative expenses for 2017 were $ 306.0 million , or 27.0 % of sales , compared to $ 309.7 million , or 26.6 % of sales , for 2016 .
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