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did not provide and did not bill and it was not paid any fees for , audit-related services in the fiscal year ended story_separator_special_tag critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the reported assets , liabilities , sales and expenses in the accompanying financial statements . critical accounting policies are those that require the most subjective and complex judgments , often employing the use of estimates about the effect of matters that are inherently uncertain . such critical accounting policies , including the assumptions and judgments underlying them , are disclosed in note 1 to the financial statements included in this annual report . however , we do not believe that there are any alternative methods of accounting for our operations that would have a material affect on our financial statements . results of operations year ended december 31 , 2015 compared to the year ended december 31 , 2014. we expect to generate revenue primarily by selling and licensing our manufacturing and materials technologies to businesses that seek to improve their manufacturing production processes and or manipulate and improve the most functional characteristics of the materials and other input components used in their business operations . we also expect to generate revenues though contract am manufacturing using our in-house metal 3d printing capability . however , we presently make limited sales of these technologies and services , which include limited sales of non-exclusive licenses to use our printrite3d® technologies , including under our recently established early adopter program and oem partner program , as described above . our ability to generate revenues in the future will depend on our ability to further commercialize and increase market presence of our printrite3d® technologies . during the fiscal year ended december 31 , 2015 ( “ fiscal 2015 ” ) , we generated an aggregate of $ 1,234,810 in revenues , as compared to an aggregate of $ 548,723 in revenues that were generated by us during the fiscal year ended december 31 , 2014 ( “ fiscal 2014 ” ) . the increase in revenue was primarily due to our ongoing work under additional contracts as compared to the prior year . we generated revenues and financed our operations in fiscal 2015 and fiscal 2014 primarily from engineering consulting services we provided to third parties during these periods and through private sales of our common stock . we expect that our revenue will increase in future periods as we seek to further commercialize and expand our market presence for our printrite3d®-related technologies , and obtain new contract manufacturing orders in connection with our eos m290 , as well as further perform on our engineering consulting contracts for the gea lead national additive manufacturing innovation institute program , and continue to provide our services under our contracts with honeywell aerospace for the darpa period 2 program . 19 in fiscal 2015 , we generated an aggregate of $ 1,234,810 in revenue from consulting and other contracts . specifically , we generated approximately ( i ) $ 1,164,709 in revenue in connection with our printrite3d®-enabled engineering consulting services , and ( ii ) $ 70,101 in revenue in connection with our contract manufacturing activities in metal 3dp . in fiscal 2014 , b6 sigma along with sumner associates generated an aggregate of $ 548,723 in revenue from consulting and other contracts . sumner associates generated $ 11,312 of such revenue . our other general and administrative expenses for fiscal 2015 were $ 1,282,952 , as compared to $ 1,020,262 in fiscal 2014. our payroll expenses for fiscal 2015 were $ 585,706 , as compared to $ 404,054 for fiscal 2014. our expenses relating to non-cash compensation for fiscal 2015 were $ 518,438 , as compared to $ 582,550 for fiscal 2014. our research and development expenses for fiscal 2015 were $ 330,554 , as compared to $ 219,132 for fiscal 2014. in fiscal 2014 , we also incurred a non-recurring warrant expense of $ 1,283,333. general and administrative expenses principally include operating expenses and outside service fees , the largest component of which consists of services in connection with our obligations as an sec reporting company , in addition to other legal , accounting , marketing and investor relations fees . the net increase in general and administrative , and research and development expenses in fiscal 2015 as compared to fiscal 2014 is principally the result of increased research and development costs , investor relations expenditures and consultant services provided to us due to an increase in our overall business activities , including our continued development of our ipqa®-enabled printrite3d® technologies and our related efforts to expand our services . the net increase in payroll expenses in fiscal 2015 as compared to fiscal 2014 is principally the result of our hiring of ten employees since mid 2014. the company incurred $ 518,438 of non-cash compensation expenses during 2015 , $ 334,500 of which was the result of the vesting of a total of 3,000,000 shares of company common stock issued to three of our employees and a director pursuant to the company 's 2013 equity incentive plan . the other $ 183,938 was non-cash compensation paid to our consultants , employees and directors during 2015. as a result of our increased operating activities , including as we seek further commercialization of our ipqa®-enabled printrite3d® technologies , and our increased marketing and sales efforts associated with such technologies , including with respect to our eap and oem partner program , and our contract manufacturing activities , our general and administrative expenses in the future are expected to continue to increase . similarly , we anticipate that our payroll and non-cash compensation expenses will continue to increase as we engage more employees and other service providers to support our efforts to grow our business . our net loss for fiscal 2015 decreased overall and story_separator_special_tag did not provide and did not bill and it was not paid any fees for , audit-related services in the fiscal year ended story_separator_special_tag critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the reported assets , liabilities , sales and expenses in the accompanying financial statements . critical accounting policies are those that require the most subjective and complex judgments , often employing the use of estimates about the effect of matters that are inherently uncertain . such critical accounting policies , including the assumptions and judgments underlying them , are disclosed in note 1 to the financial statements included in this annual report . however , we do not believe that there are any alternative methods of accounting for our operations that would have a material affect on our financial statements . results of operations year ended december 31 , 2015 compared to the year ended december 31 , 2014. we expect to generate revenue primarily by selling and licensing our manufacturing and materials technologies to businesses that seek to improve their manufacturing production processes and or manipulate and improve the most functional characteristics of the materials and other input components used in their business operations . we also expect to generate revenues though contract am manufacturing using our in-house metal 3d printing capability . however , we presently make limited sales of these technologies and services , which include limited sales of non-exclusive licenses to use our printrite3d® technologies , including under our recently established early adopter program and oem partner program , as described above . our ability to generate revenues in the future will depend on our ability to further commercialize and increase market presence of our printrite3d® technologies . during the fiscal year ended december 31 , 2015 ( “ fiscal 2015 ” ) , we generated an aggregate of $ 1,234,810 in revenues , as compared to an aggregate of $ 548,723 in revenues that were generated by us during the fiscal year ended december 31 , 2014 ( “ fiscal 2014 ” ) . the increase in revenue was primarily due to our ongoing work under additional contracts as compared to the prior year . we generated revenues and financed our operations in fiscal 2015 and fiscal 2014 primarily from engineering consulting services we provided to third parties during these periods and through private sales of our common stock . we expect that our revenue will increase in future periods as we seek to further commercialize and expand our market presence for our printrite3d®-related technologies , and obtain new contract manufacturing orders in connection with our eos m290 , as well as further perform on our engineering consulting contracts for the gea lead national additive manufacturing innovation institute program , and continue to provide our services under our contracts with honeywell aerospace for the darpa period 2 program . 19 in fiscal 2015 , we generated an aggregate of $ 1,234,810 in revenue from consulting and other contracts . specifically , we generated approximately ( i ) $ 1,164,709 in revenue in connection with our printrite3d®-enabled engineering consulting services , and ( ii ) $ 70,101 in revenue in connection with our contract manufacturing activities in metal 3dp . in fiscal 2014 , b6 sigma along with sumner associates generated an aggregate of $ 548,723 in revenue from consulting and other contracts . sumner associates generated $ 11,312 of such revenue . our other general and administrative expenses for fiscal 2015 were $ 1,282,952 , as compared to $ 1,020,262 in fiscal 2014. our payroll expenses for fiscal 2015 were $ 585,706 , as compared to $ 404,054 for fiscal 2014. our expenses relating to non-cash compensation for fiscal 2015 were $ 518,438 , as compared to $ 582,550 for fiscal 2014. our research and development expenses for fiscal 2015 were $ 330,554 , as compared to $ 219,132 for fiscal 2014. in fiscal 2014 , we also incurred a non-recurring warrant expense of $ 1,283,333. general and administrative expenses principally include operating expenses and outside service fees , the largest component of which consists of services in connection with our obligations as an sec reporting company , in addition to other legal , accounting , marketing and investor relations fees . the net increase in general and administrative , and research and development expenses in fiscal 2015 as compared to fiscal 2014 is principally the result of increased research and development costs , investor relations expenditures and consultant services provided to us due to an increase in our overall business activities , including our continued development of our ipqa®-enabled printrite3d® technologies and our related efforts to expand our services . the net increase in payroll expenses in fiscal 2015 as compared to fiscal 2014 is principally the result of our hiring of ten employees since mid 2014. the company incurred $ 518,438 of non-cash compensation expenses during 2015 , $ 334,500 of which was the result of the vesting of a total of 3,000,000 shares of company common stock issued to three of our employees and a director pursuant to the company 's 2013 equity incentive plan . the other $ 183,938 was non-cash compensation paid to our consultants , employees and directors during 2015. as a result of our increased operating activities , including as we seek further commercialization of our ipqa®-enabled printrite3d® technologies , and our increased marketing and sales efforts associated with such technologies , including with respect to our eap and oem partner program , and our contract manufacturing activities , our general and administrative expenses in the future are expected to continue to increase . similarly , we anticipate that our payroll and non-cash compensation expenses will continue to increase as we engage more employees and other service providers to support our efforts to grow our business . our net loss for fiscal 2015 decreased overall and

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liquidity and capital resources as of december 31 , 2015 , we had $ 1,539,809 in cash and a working capital surplus of $ 1,785,728 , as compared to $ 2,962,069 in cash and a working capital surplus of $ 2,811,606 as of december 31 , 2014. we expect to generate revenue primarily by selling and licensing our manufacturing and materials technologies to businesses that seek to improve their manufacturing production processes and or manipulate and improve the most functional characteristics of the materials and other input components used in their business operations . we also expect to generate revenues by providing contract am services using our eos m290 metal am system . however , for the period from our inception through december 31 , 2015 , we generated revenue and financed our operations primarily from printrite3d®-enabled engineering consulting services we provided during this period and through private sales of sigma common stock . during the remainder of 2016 , we expect to further ramp up our operations and our commercialization and marketing efforts , which will increase the amount of cash we will use in our operations . we expect that our continued development of our ipqa®-enabled printrite3d® technology will enable us to further commercialize this technology for the am metal market in the remainder of 2016 and 2017. however , until commercialization of our full suite of printrite3d® technologies , we plan to continue funding our development activities and operating expenses by selling and licensing our printrite3d® systems and supporting field services , as applicable , and providing printrite3d®-enabled engineering consulting services concerning our areas of expertise ( materials and manufacturing quality assurance and process control technologies ) and contract manufacturingfor metal am , and through the use of proceeds from sales of our securities .

the $ 503 million impact from recourse debt transactions is primarily due to higher net borrowings at the parent company . the $ 425 million impact from sales to noncontrolling interests is primarily due to the proceeds received from the sale of a 35 % ownership interest in southland energy . the $ 112 million impact from issuance of preferred shares in subsidiaries is due to proceeds from the issuance of preferred shares to minority interests of cochrane . 108 | 2020 annual report the $ 453 million impact from non-recourse debt transactions is primarily due to lower net borrowings at southland and gener , partially offset by a decrease in net repayments at aes brasil and dpl and higher net borrowings at distributed energy , panama , and vietnam . the $ 290 million impact from parent company revolver transactions is primarily due to higher net repayments in the current year . the $ 259 million impact from acquisitions of noncontrolling interests is primarily due to the acquisition of an additional 19.8 % ownership interest in aes brasil . fiscal year 2019 versus 2018 net cash used in financing activities decreased $ 1.6 billion for the year ended december 31 , 2019 compared to december 31 , 2018. financing cash flows ( in millions ) see note 11— debt in item 8.— financial statements and supplementary data of this form 10-k for more information regarding significant debt transactions . the $ 483 million impact from recourse debt activity is primarily due to higher net repayments of parent company debt in 2018. the $ 480 million impact from non-recourse debt transactions is primarily due to net issuances at gener , alto maipo and dpl , which were partially offset by net repayments at aes brasil , and lower net issuances in 2018 at ipalco . the $ 387 million impact from parent company revolver transactions is primarily from higher repayments in 2018 , and higher borrowings in 2019 for general corporate cash management activities . the $ 278 million impact from non-recourse revolver transactions is primarily due to higher net borrowings at dpl and net repayments at ipalco in 2018. parent company liquidity the following discussion is included as a useful measure of the liquidity available to the aes corporation , or the parent company , given the non-recourse nature of most of our indebtedness . parent company liquidity as outlined below is a non-gaap measure and should not be construed as an alternative to cash and cash equivalents , which is determined in accordance with gaap . parent company liquidity may differ from similarly titled measures used by other companies . the principal sources of liquidity at the parent company level are dividends and other distributions from our subsidiaries , including refinancing proceeds , proceeds from debt and equity financings at the parent company level , including availability under our revolving credit facility , and proceeds from asset sales . cash requirements at the parent company level are primarily to fund interest and principal repayments of debt , construction commitments , other equity commitments , common stock repurchases , acquisitions , taxes , parent company overhead and development costs , and dividends on common stock . 109 | 2020 annual report the company defines parent company liquidity as cash available to the parent company , including cash at qualified holding companies , plus available borrowings under our existing credit facility . the cash held at qualified holding companies represents cash sent to subsidiaries of the company domiciled outside of the u.s. such subsidiaries have no contractual restrictions on their ability to send cash to the parent company . parent company liquidity is reconciled to its most directly comparable gaap financial measure , cash and cash equivalents , at the periods indicated as follows ( in millions ) : replace_table_token_23_th the parent company paid dividends of $ 0.57 per outstanding share to its common stockholders during the year ended december 31 , 2020. while we intend to continue payment of dividends and believe we will have sufficient liquidity to do so , we can provide no assurance that we will continue to pay dividends , or if continued , the amount of such dividends . recourse debt our total recourse debt was $ 3.4 billion at december 31 , 2020 and 2019. see note 11— debt in item 8.— f inancial statements and supplementary data of this form 10-k for additional detail . we believe that our sources of liquidity will be adequate to meet our needs for the foreseeable future . this belief is based on a number of material assumptions , including , without limitation , assumptions about our ability to access the capital markets , the operating and financial performance of our subsidiaries , currency exchange rates , power market pool prices , and the ability of our subsidiaries to pay dividends . in addition , our subsidiaries ' ability to declare and pay cash dividends to us ( at the parent company level ) is subject to certain limitations contained in loans , governmental provisions and other agreements . we can provide no assurance that these sources will be available when needed or that the actual cash requirements will not be greater than anticipated . we have met our interim needs for shorter-term and working capital financing at the parent company level with our revolving credit facility . see item 1a.— risk factors — the aes corporation 's ability to make payments on its outstanding indebtedness is dependent upon the receipt of funds from our subsidiaries , of this form 10-k. various debt instruments at the parent company level , including our revolving credit facility , contain certain restrictive covenants . story_separator_special_tag a considerable amount of judgment is also applied in the estimation of the discount rate used in the dcf model . to the extent practical , inputs to the discount rate are obtained from market data sources ( e.g . , bloomberg ) . the company selects and uses a set of publicly traded companies from the relevant industry to estimate the discount rate inputs . management applies judgment in the selection of such companies based on its view of the most likely market participants . it is reasonably possible that the selection of a different set of likely market participants could produce different input assumptions and result in the use of a different discount rate . accounting for derivative instruments and hedging activities — we enter into various derivative transactions in order to hedge our exposure to certain market risks . we primarily use derivative instruments to manage our interest rate , commodity , and foreign currency exposures . we do not enter into derivative transactions for trading purposes . see note 6— derivative instruments and hedging activities included in item 8 of this form 10-k for further information on the classification . the fair value measurement standard requires the company to consider and reflect the assumptions of market participants in the fair value calculation . these factors include nonperformance risk ( the risk that the obligation will not be fulfilled ) and credit risk , both of the reporting entity ( for liabilities ) and of the counterparty ( for assets ) . credit risk for aes is evaluated at the level of the entity that is party to the contract . nonperformance risk on the company 's derivative instruments is an adjustment to the fair value position that is derived from internally developed valuation models that utilize market inputs that may or may not be observable . as a result of uncertainty , complexity , and judgment , accounting estimates related to derivative accounting could result in material changes to our financial statements under different conditions or utilizing different assumptions . as a part of accounting for these derivatives , we make estimates concerning nonperformance , volatilities , market liquidity , future commodity prices , interest rates , credit ratings , and future foreign exchange rates . refer to note 5— fair value included in item 8 of this form 10-k for additional details . the fair value of our derivative portfolio is generally determined using internal and third party valuation models , most of which are based on observable market inputs , including interest rate curves and forward and spot prices for currencies and commodities . the company derives most of its financial instrument market assumptions from market efficient data sources ( e.g . , bloomberg , reuters and platt 's ) . in some cases , where market data is not readily available , management uses comparable market sources and empirical evidence to derive market 114 | 2020 annual report assumptions to determine a financial instrument 's fair value . in certain instances , published pricing may not extend through the remaining term of the contract and management must make assumptions to extrapolate the curve . specifically , where there is limited forward curve data with respect to foreign exchange contracts beyond the traded points , the company utilizes the interest rate differential approach to construct the remaining portion of the forward curve . for individual contracts , the use of different valuation models or assumptions could have a material effect on the calculated fair value . regulatory assets — management continually assesses whether regulatory assets are probable of future recovery by considering factors such as applicable regulatory changes , recent rate orders applicable to other regulated entities , and the status of any pending or potential deregulation legislation . if future recovery of costs ceases to be probable , any asset write-offs would be required to be recognized in operating income . consolidation — the company enters into transactions impacting the company 's equity interests in its affiliates . in connection with each transaction , the company must determine whether the transaction impacts the company 's consolidation conclusion by first determining whether the transaction should be evaluated under the variable interest model or the voting model . in determining which consolidation model applies to the transaction , the company is required to make judgments about how the entity operates , the most significant of which are whether ( i ) the entity has sufficient equity to finance its activities , ( ii ) the equity holders , as a group , have the characteristics of a controlling financial interest , and ( iii ) whether the entity has non-substantive voting rights . if the entity is determined to be a variable interest entity , the most significant judgment in determining whether the company must consolidate the entity is whether the company , including its related parties and de facto agents , collectively have power and benefits . if aes is determined to have power and benefits , the entity will be consolidated by aes . alternatively , if the entity is determined to be a voting model entity , the most significant judgments involve determining whether the non-aes shareholders have substantive participating rights . the assessment of shareholder rights and whether they are substantive participating rights requires significant judgment since the rights provided under shareholders ' agreements may include selecting , terminating , and setting the compensation of management responsible for implementing the subsidiary 's policies and procedures , and establishing operating and capital decisions of the entity , including budgets , in the ordinary course of business . on the other hand , if shareholder rights are only protective in nature ( referred to as protective rights ) , then such rights would not overcome the presumption that the owner of a majority voting interest shall consolidate its investee . significant judgment is required to determine whether minority rights represent substantive participating rights

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cash sources and uses the primary sources of cash for the company in the year ended december 31 , 2020 were debt financings , cash flows from operating activities , sales of short-term investments , and sales to noncontrolling interests . the primary uses of cash in the year ended december 31 , 2020 were repayments of debt , capital expenditures , and purchases of short-term investments . the primary sources of cash for the company in the year ended december 31 , 2019 were debt financings , cash flows from operating activities , and sales of short-term investments . the primary uses of cash in the year ended december 31 , 2019 were repayments of debt , capital expenditures , and purchases of short-term investments . the primary sources of cash for the company in the year ended december 31 , 2018 were debt financings , cash flows from operating activities , proceeds from the sales of business interests , and sales of short-term investments . the primary uses of cash in the year ended december 31 , 2018 were repayments of debt , capital expenditures , and purchases of short-term investments . a summary of cash-based activities are as follows ( in millions ) : replace_table_token_21_th consolidated cash flows the following table reflects the changes in operating , investing , and financing cash flows for the comparative twelve month periods ( in millions ) : replace_table_token_22_th 104 | 2020 annual report operating activities fiscal year 2020 versus 2019 net cash provided by operating activities increased $ 289 million for the year ended december 31 , 2020 , compared to december 31 , 2019. operating cash flows ( 1 ) ( in millions ) ( 1 ) amounts included in the chart above

44 the following represents an overview of recently completed , ongoing or currently planned bavituximab clinical trials : phase iii registration trial – bavituximab plus docetaxel in second-line nsclc in may 2013 , we reached agreement with the u.s. food and drug administration ( “ fda ” ) on a pivotal phase iii registration trial design of our lead clinical immunotherapeutic candidate bavituximab in second-line nsclc . this phase iii clinical trial will be a randomized , double-blind , placebo-controlled trial evaluating bavituximab plus docetaxel versus docetaxel alone and will enroll approximately 600 patients at clinical sites worldwide . the trial will enroll non-squamous , nsclc patients who have progressed after standard front-line treatment . the patients will be randomized into one of two treatment arms . one treatment arm will receive docetaxel ( 75 mg/m 2 ) , up to six 21-day cycles , in combination with bavituximab ( 3 mg/kg ) weekly until progression or toxicity . the second treatment arm will receive docetaxel ( 75 mg/m 2 ) , up to six 21-day cycles , in combination with placebo weekly until progression or toxicity . the primary endpoint of the trial will be overall survival . we anticipate initiating this trial by calendar year-end 2013. the design of this phase iii trial was supported by promising data from our phase iib trial in the same indication as described below . phase iib trial – bavituximab plus docetaxel in second-line nsclc we conducted a randomized , double-blind , placebo-controlled phase iib second-line nsclc trial evaluating two dose levels of bavituximab plus docetaxel ( “ bavituximab-containing arms ” ) versus docetaxel plus placebo ( “ control arm ” ) as second-line treatment in 121 patients with stage iiib/iv nsclc . patients were randomized to one of three treatment arms at clinical sites worldwide and enrollment was completed in october 2011. all patients were randomized to receive up to six 21-day cycles of docetaxel ( 75 mg/m 2 ) . in addition , one arm was randomized to receive bavituximab ( 3 mg/kg ) weekly , a second arm was randomized to receive bavituximab ( 1 mg/kg ) weekly , and a third arm was randomized to receive placebo weekly until progression or toxicity . the trial was designed to evaluate overall response rate ( “ orr ” ) , the primary endpoint , measured in accordance with response evaluation criteria in solid tumors ( “ recist ” ) criteria , and progression-free survival ( “ pfs ” ) , duration of response , overall survival ( “ os ” ) , and safety , were secondary endpoints . on september 24 , 2012 , we announced that during the course of preparing for an end-of-phase ii meeting with regulatory authorities and following the data announcement on september 7 , 2012 from this phase iib trial , we discovered major discrepancies between some patient sample test results and patient treatment code assignments . as a result of these discrepancies , the data that we disclosed on or before september 7 , 2012 should not be relied upon . upon discovery of the discrepancies , we initiated an internal review of this phase iib trial , which included the testing of investigational product , patient samples , reviewing the operations of multiple vendors , among other activities . the initial results of this internal review were announced on january 7 , 2013 , and indicated that discrepancies were isolated to the control and 1 mg/kg bavituximab-containing treatment arms of the trial and that there was no evidence of discrepancies in the 3 mg/kg bavituximab-containing treatment arm of the trial . based on the results of our internal review , we took a conservative approach toward analyzing the results from the trial , which included combining the control arm and 1 mg/kg bavituximab-containing arm into one treatment arm ( “ combined control arm ” ) , and comparing those results to the 3 mg/kg bavituximab-containing treatment arm . 45 on february 19 , 2013 , we reported updated top-line survival data from this trial based upon the completion of the aforementioned internal review of discrepancies in the trial and updated patient survival data from the trial . updated top-line data from this phase iib trial indicated a meaningful improvement in median os of 11.7 months in the 3 mg/kg bavituximab-containing arm compared to 7.3 months in the combined control arm . on june 3 , 2013 , we presented the following final data from this phase iib trial at the 2013 asco annual meeting : 3 mg/kg bavituximab containing arm combined control arm median overall survival 11.7 months 7.3 months overall response rate 17.1 % 11.3 % median progression-free survival 4.2 months 3.9 months in addition , subgroup analyses of overall survival by key patient characteristics favored the bavituximab 3 mg/kg containing arm , including age , gender , eastern cooperative oncology group ( “ ecog ” ) status , ethnicity and prior treatment . the results also indicated that the 3 mg/kg bavituximab plus docetaxel combination was well-tolerated with no significant differences in adverse events between the two trial arms . based on these data and discussions with our medical advisors , our strategy is to initiate a pivotal phase iii trial with bavituximab in second-line nsclc by the end of calendar year 2013 as further discussed above . phase ii trial – bavituximab plus paclitaxel/carboplatin in front-line nsclc our phase ii trial is designed to assess bavituximab in combination with paclitaxel and carboplatin in front-line nsclc . this randomized trial enrolled 86 patients ( enrollment completed in september 2011 ) at clinical sites worldwide . patients were randomized to one of two treatment arms . all patients were randomized to receive up to six 21-day cycles of paclitaxel and carboplatin ( c/p ” ) . in addition , one arm was randomized to receive bavituximab ( 3 mg/kg ) weekly until progression or toxicity . story_separator_special_tag during fiscal year 2014 , we expect to continue to direct the majority of our research and development expenses towards our ps-targeting technology platform as we are actively seeking potential partners to further advance the cotara clinical program . 51 year ended april 30 , 2012 compared to the year ended april 30 , 2011 : the increase in research and development ( “ r & d ” ) expenses of $ 6,226,000 ( or 21 % ) during the year ended april 30 , 2012 compared to fiscal year 2011 was due to the following changes associated with each of our following technologies under development : replace_table_token_7_th o ps-targeting ( bavituximab and pgn650 ) – the increase in ps-targeting program expenses of $ 5,943,000 during the year ended april 30 , 2012 compared to fiscal year 2011 was primarily due to increases in clinical trial and related expenses , payroll and related expenses , and manufacturing costs to support the advancement of our later-stage clinical program for bavituximab . during fiscal year 2012 , we continued to treat patients in three separate randomized multi-center phase ii clinical trials using bavituximab in combination with chemotherapy for the treatment of patients with ( i ) front-line nsclc , ( ii ) second-line nsclc , and ( iii ) pancreatic cancer , and announced the completion of patient enrollment of the front and second-line nsclc trials during september and october 2011 , respectively . we also continued to enroll and treat patients in a randomized phase ii clinical trial using bavituximab for the treatment of patients with previously untreated genotype-1 hepatitis c virus ( hcv ) infection and announced the completion of patient enrollment during september 2011. these increases in ps-targeting clinical program expenses were further supplemented by increases in preclinical r & d expenses associated with exploring our ps-targeting antibodies potential to image tumors , which supported our recent filing of an ind application with the fda during april 2012 to advance our lead imaging candidate 124i-pgn650 into clinical development . these increases in ps-targeting program expenses were offset with a decrease in r & d expenses directly related to our former government contract with the tmt , which expired in april 2011 , and a decrease in expenses associated with the development of additional ps-targeting antibodies under a research agreement with an unrelated entity . o cotara – the increase in cotara related expenses of $ 283,000 during the year ended april 30 , 2012 compared to fiscal year 2011 was primarily related to increased development costs associated with preparing cotara for potential later-stage clinical trials for the treatment of recurrent gbm . these increases in cotara related expenses were offset by decreases in clinical trial expenses primarily associated with our phase ii trial for recurrent gbm , which completed patient enrollment during fiscal year 2011 . 52 looking beyond the next twelve months , we expect to continue to direct the majority of our research and development expenses towards our ps-targeting technology platform although it is extremely difficult for us to reasonably estimate all future research and development costs associated with each of our technologies due to the number of unknowns and uncertainties associated with preclinical and clinical trial development . these unknown variables and uncertainties include , but are not limited to : · the uncertainty of the progress and results of our ongoing preclinical and clinical studies , and any additional preclinical and clinical studies we may initiate in the future based on their results ; · the uncertainty of the ultimate number of patients to be treated in any current or future clinical study ; · the uncertainty of the u.s. food and drug administration allowing our non-lead indication oncology studies to move forward from phase i clinical studies to phase ii clinical studies or phase ii clinical studies to phase iii clinical studies ; · the uncertainty of the u.s. food and drug administration allowing our lead molecular imaging agent , pgn650 , to move forward from an exploratory study to a phase i or phase ii clinical study ; · the uncertainty of the rate at which patients are enrolled into any current or future study . any delays in clinical trials could significantly increase the cost of the study and would extend the estimated completion dates ; · the uncertainty of terms related to potential future partnering or licensing arrangements ; · the uncertainty of protocol changes and modifications in the design of our clinical trial studies , which may increase or decrease our future costs ; and · the uncertainty of our ability to raise additional capital to support our future research and development efforts beyond fiscal year 2014. we or our potential partners will need to do additional development and clinical testing prior to seeking any regulatory approval for commercialization of our product candidates as all of our products are in discovery , preclinical or clinical development . testing , manufacturing , commercialization , advertising , promotion , exporting , and marketing , among other things , of our proposed products are subject to extensive regulation by governmental authorities in the united states and other countries . the testing and approval process requires substantial time , effort , and financial resources , and we can not guarantee that any approval will be granted on a timely basis , if at all . companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in conducting advanced human clinical trials , even after obtaining promising results in earlier trials . furthermore , the united states food and drug administration may suspend clinical trials at any time on various grounds , including a finding that the subjects or patients are being exposed to an unacceptable health risk . even if regulatory approval of a product is granted , such approval may entail limitations on the indicated uses for which it may be marketed . accordingly , we or our potential partners may experience

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cash used in operating activities . net cash used in operating activities represents our ( i ) net loss , as reported , ( ii ) less non-cash operating expenses , and ( iii ) net changes in the timing of cash flows as reflected by the changes in operating assets and liabilities , as described in the below table : replace_table_token_8_th 59 net cash used in operating activities decreased $ 14,952,000 to $ 20,926,000 for the year ended april 30 , 2013 , compared to net cash used in operating activities of $ 35,878,000 for the year ended april 30 , 2012. this decrease in net cash used in operating activities was due to a decrease of $ 14,853,000 in net loss reported during fiscal year 2013 after taking into consideration non-cash operating expenses combined with a net change in operating assets and liabilities of $ 99,000. the decrease in our fiscal year 2013 net loss was primarily due to a current year increase in contract manufacturing revenue combined with a current year decrease in research and development expenses , offset by current year increases in cost of contract manufacturing , selling , general and administrative expenses and loss on early extinguishment of debt . cash used in investing activities .

these policies , along with the disclosures presented in the financial statement notes and in this financial review , provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined . based on the valuation techniques used and the sensitivity of financial statement amounts to the methods , assumptions , and estimates underlying those amounts , management has identified the determination of the allowance for credit losses , the valuation of investment securities and the related other-than-temporary impairment analysis , and the calculation of the income tax provision to be the accounting areas that require the most subjective or complex judgments , and as such could be most subject to revision as new information becomes available . the most significant accounting policies followed by united are presented in note a , notes to consolidated financial statements . allowance for credit losses the allowance for credit losses represents management 's estimate of the probable credit losses inherent in the lending portfolio . determining the allowance for credit losses requires management to make forecasts of losses that are highly uncertain and require a high degree of judgment . at december 31 , 2011 , the allowance for loan losses was $ 73.9 million and is subject to periodic adjustment based on management 's assessment of current probable losses in the loan portfolio . such adjustment from period to period can have a significant impact on united 's consolidated financial statements . to illustrate the potential effect on the financial statements of our estimates of the allowance for loan losses , a 10 % increase in the allowance for loan losses would have required $ 7.4 million in additional allowance ( funded by additional provision for credit losses ) , which would have negatively impacted the year of 2011 net income by approximately $ 4.8 million , or $ 0.10 diluted per common share . management 's evaluation of the adequacy of the allowance for credit losses and the appropriate provision for credit losses is based upon a quarterly evaluation of the loan portfolio and lending related commitments . this evaluation is inherently subjective and requires significant estimates , including estimates related to the amounts and timing of future cash 24 flows , value of collateral , losses on pools of homogeneous loans based on historical loss experience , and consideration of current economic trends , all of which are susceptible to constant and significant change . the allowance allocated to specific credits and loan pools grouped by similar risk characteristics is reviewed on a quarterly basis and adjusted as necessary based upon subsequent changes in circumstances . in determining the components of the allowance for credit losses , management considers the risk arising in part from , but not limited to , charge-off and delinquency trends , current economic and business conditions , lending policies and procedures , the size and risk characteristics of the loan portfolio , concentrations of credit , and other various factors . the methodology used to determine the allowance for credit losses is described in note a , notes to consolidated financial statements . a discussion of the factors leading to changes in the amount of the allowance for credit losses is included in the provision for credit losses section of this management 's discussion and analysis of financial condition and results of operations ( md & a ) . for a discussion of concentrations of credit risk , see item 1 , under the caption of loan concentrations in this form 10-k. investment securities accounting estimates are used in the presentation of the investment portfolio and these estimates impact the presentation of united 's financial condition and results of operations . united classifies its investments in debt and equity securities as either held to maturity or available for sale . securities held to maturity are accounted for using historical costs , adjusted for amortization of premiums and accretion of discounts . securities available for sale are accounted for at fair value , with the net unrealized gains and losses , net of income tax effects , presented as a separate component of stockholders ' equity . when available , fair values of securities are based on quoted prices or prices obtained from third party vendors . third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data . prices obtained from third party vendors that do not reflect forced liquidation or distressed sales are not adjusted by management . where prices reflect forced liquidation or distressed sales , as is the case with united 's portfolio of pooled trust preferred securities , management estimates fair value based on a discounted cash flow methodology using appropriately adjusted discount rates reflecting nonperformance and liquidity risks . due to the subjective nature of this valuation process , it is possible that the actual fair values of these securities could differ from the estimated amounts , thereby affecting united 's financial position , results of operations and cash flows . the potential impact to united 's financial position , results of operations or cash flows for changes in the valuation process can not be reasonably estimated . if the estimated value of investments is less than the cost or amortized cost , the investment is considered impaired and management evaluates whether an event or change in circumstances has occurred that may have a significant adverse effect on the fair value of the investment . if such an event or change has occurred , management must exercise judgment to determine the nature of the potential impairment ( i.e . , temporary or other-than-temporary ) in order to apply the appropriate accounting treatment . story_separator_special_tag the increase in interest-bearing deposits was due mainly to the centra merger as all major categories of interest-bearing deposits , except interest-bearing checking accounts , increased from year-end 2010. interest-bearing money market accounts ( mmdas ) increased $ 461.73 million or 27.35 % , time deposits over $ 100,000 increased $ 87.21 million or 8.81 % , time deposits under $ 100,000 increased $ 60.63 million or 5.26 % , and regular savings balances increased $ 85.49 million or 22.01 % . the $ 461.73 million increase in interest-bearing mmdas is due to a $ 325.38 million and a $ 177.32 million increase in personal mmdas and commercial mmdas , respectively . public funds mmdas , on the other hand , decreased $ 40.97 million . the $ 87.21 million increase in time deposits over $ 100,000 is the result of a $ 119.25 million increase in fixed rate certificates of deposits ( cds ) . partially offsetting this increase in fixed rate cds was a $ 28.97 million decrease in certificate of deposit account registry service ( cdars ) balances . the $ 60.63 million increase in time deposits under $ 100,000 was due to fixed rate cds increasing $ 89.27 million while variable rate cds decreased $ 25.70 million and cdars balances under $ 100,000 decreased $ 16.12 million . partially offsetting these increases in interest-bearing deposits was a decrease of $ 5.48 million or 1.89 % in interest-bearing checking deposits mainly due to a $ 22.06 million decrease in commercial interest-bearing checking accounts which was partially offset by a $ 14.57 million increase in personal interest-bearing checking accounts and a $ 2.01 million increase in state and municipal interest-bearing checking accounts . the table below summarizes the changes by deposit category since year-end 2010 : replace_table_token_10_th at december 31 , 2011 , the scheduled maturities of time deposits are as follows : replace_table_token_11_th maturities of time certificates of deposit of $ 100,000 or more outstanding at december 31 , 2011 are summarized as follows : replace_table_token_12_th 30 the average daily amount of deposits and rates paid on such deposits is summarized for the years ended december 31 : replace_table_token_13_th more information relating to deposits is presented in note i , notes to consolidated financial statements . borrowings total borrowings at december 31 , 2011 increased $ 20.46 million or 3.53 % during the year of 2011. centra added approximately $ 48 million upon the merger . since year-end 2010 , short-term borrowings increased $ 61.55 million or 31.86 % due to a $ 64.55 million increase in securities sold under agreements to repurchase . centra added approximately $ 28.57 million in short-term borrowings at merger . long-term borrowings decreased $ 41.09 million or 10.63 % since year-end 2010 as long-term fhlb advances decreased $ 60.37 million or 29.86 % due to repayments . partially offsetting this decrease in long-term fhlb advances , united assumed $ 20 million of junior subordinated debt securities in the centra merger . the table below summarizes the changes by borrowing category since year-end 2010 : replace_table_token_14_th for a further discussion of borrowings see notes j and k , notes to consolidated financial statements . accrued expenses and other liabilities accrued expenses and other liabilities at december 31 , 2011 decreased $ 5.86 million or 8.69 % from year-end 2010. the majority of the decrease was due to a $ 9.08 million decrease in income taxes payable due to a timing difference in payments . partially offsetting this decrease was an increase of $ 2.48 million in dividends payable . centra added approximately $ 3.27 million upon the merger . shareholders ' equity shareholders ' equity at december 31 , 2011 increased $ 175.83 million or 22.17 % from december 31 , 2010 mainly as a result of the centra acquisition . the centra transaction added approximately $ 161 million as 6,548,473 shares were issued from 31 united 's authorized but unissued shares for the merger at a cost of $ 170 million . earnings net of dividends for the year of 2011 were $ 18.78 million . accumulated other comprehensive income decreased $ 6.10 million due mainly due to an after tax-adjustment to united 's pension asset resulting in a decline of $ 13.38 million . partially offsetting this decrease was an increase of $ 6.17 million , net of deferred income tax , in the fair value of united 's available for sale investment portfolio . in addition , the accretion of pension costs for the year of 2011 was $ 1.46 million while the after-tax non-credit portion of otti losses for the year of 2011 was $ 354 thousand . earnings summary net income for the year 2011 was $ 75.61 million or $ 1.61 per diluted share compared to $ 71.95 million or $ 1.65 per diluted share for the year of 2010. united 's return on average assets for the year of 2011 was 0.97 % and return on average shareholders ' equity was 8.50 % as compared to 0.95 % and 9.19 % for the year of 2010. united 's most recently reported federal reserve peer group 's ( bank holding companies with total assets between $ 3 and $ 10 billion ) average return on assets was 0.79 % and average return on equity was 7.37 % for the first nine months of 2011. as previously mentioned , united completed its acquisition of centra during the third quarter of 2011. the financial results of centra are included in united 's results from the july 8 , 2011 acquisition date . as a result , comparisons for the fourth quarter and year of 2011 to the same time periods of 2010 are impacted by increased levels of average balances , income , expense , and asset quality results due to the acquisition . at consummation , centra had assets of approximately $ 1.3 billion , loans of $ 1.0 billion , deposits of $ 1.1 billion and

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capital resources united 's capital position is financially sound . united seeks to maintain a proper relationship between capital and total assets to support growth and sustain earnings . united has historically generated attractive returns on shareholders ' equity . based on regulatory requirements , united and its banking subsidiaries are categorized as “well capitalized” institutions . united 's risk-based capital ratios of 13.83 % at december 31 , 2011 and 13.65 % at december 31 , 2010 , were both significantly higher than the minimum regulatory requirements . united 's tier i capital and leverage ratios of 12.57 % and 10.22 % , respectively , at december 31 , 2011 , are also well above minimum regulatory requirements . being classified as a “well-capitalized” institution allows united to have special regulatory consideration in various areas . see note s , notes to consolidated financial statements . 45 total year-end 2011 shareholders ' equity increased $ 175.83 million or 22.17 % to $ 968.84 million from $ 793.01 million at december 31 , 2010 primarily due to the centra merger and the retention of earnings . united 's equity to assets ratio was 11.46 % at december 31 , 2011 as compared to 11.08 % at december 31 , 2010. the primary capital ratio , capital and reserves to total assets and reserves , was 12.25 % at december 31 , 2011 , as compared to 12.00 % at december 31 , 2010. united 's average equity to average asset ratio was 11.44 % and 10.39 % for the years ended december 31 , 2011 and 2010 , respectively . all these financial measurements reflect a financially sound position . during the fourth quarter of 2011 , united 's board of directors declared a cash dividend of $ 0.31 per share . dividends per share of $ 1.21 for the year of 2011 represented an increase over the $ 1.20 per share paid for 2010. total cash dividends declared to common shareholders were approximately $ 56.83 million for the year of 2011 as compared to $ 52.30 million for the year of 2010. the year 2011 was the thirty-eighth consecutive year of dividend increases to united shareholders .

changing economic conditions caused by inflation , recession , 26 unemployment , or other factors beyond the company 's control have a direct correlation with asset quality , net charge-offs , and ultimately the required provision for loan losses . overview of financial performance and condition net income increased by $ 3.7 million to $ 10.1 million , or $ 2.04 per diluted share , for the year ended december 31 , 2018 , compared to $ 6.4 million , or $ 1.30 per diluted share , for the same period in 2017 . return on average assets was 1.34 % and return on average equity was 16.36 % for the year ended december 31 , 2018 , compared to 0.89 % and 11.57 % , respectively , for the year ended december 31 , 2017 . the $ 3.7 million increase in net income for the year ended december 31 , 2018 resulted primarily from a $ 2.4 million , or 9 % , increase in net interest income , an $ 865 thousand , or 10 % , increase in noninterest income , and a $ 1.4 million , or 39 % , decrease in income tax expense , compared to the same period of 2017 . these favorable variances were partially offset by a $ 500 thousand increase in provision for loan losses and a $ 477 thousand , or 2 % , increase in noninterest expenses . net interest income increased from a higher net interest margin and from higher average earning asset balances . average earning asset balances increased 4 % and the net interest margin increased 16 basis points to 3.93 % for the year ended december 31 , 2018 , compared to 3.77 % for the same period in 2017 . noninterest income increased primarily from higher service charges on deposit accounts , higher atm and check card fees , higher wealth management revenue , higher income from bank owned life insurance , and higher other operating income . noninterest expense increased primarily from higher salaries and employee benefits expense and higher other operating expense . for a more detailed discussion of the company 's performance , see `` net interest income , `` `` noninterest income , `` `` noninterest expense `` and `` income taxes `` below . based on management 's analysis and the supporting allowance for loan loss calculation , a provision for loan losses of $ 600 thousand was recorded during the year ended december 31 , 2018 , compared to a provision for loan losses of $ 100 thousand during the year ended december 31 , 2017 . for a more detailed discussion of the provision for loan losses , see `` provision for loan losses `` below . non-gaap financial measures this report refers to the efficiency ratio , which is computed by dividing noninterest expense , excluding oreo income , amortization of intangibles , and losses on disposal of premises and equipment , by the sum of net interest income on a tax-equivalent basis and noninterest income , excluding securities losses . this is a non-gaap financial measure that the company believes provides investors with important information regarding operational efficiency . such information is not prepared in accordance with u.s. generally accepted accounting principles ( gaap ) and should not be construed as such . management believes , however , such financial information is meaningful to the reader in understanding operating performance , but cautions that such information not be viewed as a substitute for gaap . the company , in referring to its net income , is referring to income under gaap . the components of the efficiency ratio calculation are summarized in the following table ( dollars in thousands ) . replace_table_token_3_th this report also refers to net interest margin , which is calculated by dividing tax equivalent net interest income by total average earning assets . because a portion of interest income earned by the company is nontaxable , the tax equivalent net interest income is considered in the calculation of this ratio . tax equivalent net interest income is calculated by adding the tax benefit realized from interest income that is nontaxable to total interest income then subtracting total interest expense . the tax rate 27 utilized in calculating the tax benefit is 21 % for 2018 and 34 % for 2017 . the reconciliation of tax equivalent net interest income , which is not a measurement under gaap , to net interest income , is reflected in the table below ( in thousands ) . replace_table_token_4_th critical accounting policies general the company 's consolidated financial statements and related notes are prepared in accordance with gaap . the financial information contained within the statements is , to a significant extent , financial information that is based on measures of the financial effects of transactions and events that have already occurred . a variety of factors could affect the ultimate value that is obtained either when earning income , recognizing an expense , recovering an asset , or relieving a liability . the bank uses historical losses as one factor in determining the inherent loss that may be present in the loan portfolio . actual losses could differ significantly from the historical factors used . in addition , gaap itself may change from one previously acceptable method to another . although the economics of transactions would be the same , the timing of events that would impact transactions could change . presented below is a discussion of those accounting policies that management believes are the most important ( “ critical accounting policies ” ) to the portrayal and understanding of the company 's financial condition and results of operations . the critical accounting policies require management 's most difficult , subjective , and complex judgments about matters that are inherently uncertain . story_separator_special_tag net interest income equals the amount by which interest income on interest-earning assets , predominantly loans and securities , exceeds interest expense on interest-bearing liabilities , including deposits , other borrowings , subordinated debt , and junior subordinated debt . changes in the volume and mix of interest-earning assets and interest-bearing liabilities , as well as their respective yields and rates , are the components that impact the level of net interest income . the net interest margin is calculated by dividing tax-equivalent net interest income by average earning assets . the provision for loan losses , noninterest income , and noninterest expense are the other components that determine net income . noninterest income and expense primarily consists of income from service charges on deposit accounts , revenue from wealth management services , atm and check card income , revenue from other customer services , income from bank owned life insurance , general and administrative expenses , amortization expense , and other real estate owned income . net interest income for the year ended december 31 , 2018 , net interest income increased $ 2.4 million , or 9 % , to $ 27.6 million , compared to $ 25.3 million for the same period in 2017 . the increase resulted from a higher net interest margin and higher average earning asset balances . average earning asset balances increased 4 % , and the net interest margin increased 16 basis points to 3.93 % for the year ended december 31 , 2018 , compared to 3.77 % for the same period in 2017 . the increase in the net interest margin resulted from a 31 basis point increase in the yield on earning assets , which was partially offset by a 15 basis point increase in interest expense as a percent of average earning assets . the higher yield on earning assets was attributable to an increase in yields on loans , securities , and interest-bearing deposits in banks , which all benefited from increases in market rates . the 30 basis point increase in the yield on loans had the largest impact on the increase in the yield on earning assets , when comparing the periods . the increase in interest expense as a percent of average earning assets was primarily attributable to higher interest rates paid on deposits , which was impacted by higher short-term market rates and competition . the cost of interest-bearing checking accounts and money market accounts had the largest impact as their costs increased by 25 basis points and 49 basis points , respectively , when comparing the periods . the following table provides information on average interest-earning assets and interest-bearing liabilities for the years ended december 31 , 2018 , 2017 , and 2016 , as well as amounts and rates of tax equivalent interest earned and interest paid ( dollars in thousands ) . the volume and rate analysis table analyzes the changes in net interest income for the periods broken down by their rate and volume components ( in thousands ) . 32 replace_table_token_5_th ( 1 ) income and yields are reported on a taxable-equivalent basis assuming a federal tax rate of 21 % for 2018 and 34 % for 2017 and 2016. the tax-equivalent adjustment was $ 207 thousand , $ 372 thousand , and $ 391 thousand for 2018 , 2017 , and 2016 , respectively . ( 2 ) loans placed on a non-accrual status are reflected in the balances . 33 replace_table_token_6_th provision for loan losses the provision for loan losses represents management 's analysis of the existing loan portfolio and related credit risks . the provision for loan losses is based upon management 's estimate of the amount required to maintain an adequate allowance for loan losses reflective of the risks in the loan portfolio . the bank recorded a provision for loan losses of $ 600 thousand for 2018 , which resulted in a total allowance for loan losses of $ 5.0 million , or 0.92 % of total loans , at december 31 , 2018 . this compared to a provision for loan losses of $ 100 thousand for 2017 , which resulted in an allowance for loan losses of $ 5.3 million , or 1.02 % of total loans , at the prior year end . the provision for loan losses for the year ended december 31 , 2018 resulted from net charge-offs on loans and an increase in the specific reserve component of the allowance for loan losses that was partially offset by a decrease in the general reserve component . net charge-offs totaled $ 917 thousand for the year ended december 31 , 2018 , compared to $ 95 thousand of net charge-offs for the same period of 2017 . the increase in net charge-offs during 2018 was comprised primarily of $ 878 thousand of net charge-offs on consumer loans . the specific reserve increased $ 243 thousand during the year , primarily from the addition of newly identified impaired loans for which specific reserves were calculated . the general reserve decreased primarily from improvements in both the historical loss rate of the loan portfolio and the qualitative adjustment factors . improvements in qualitative adjustment factors resulted from improved asset quality in the construction and land development , 1-4 family residential , and other real estate loan classes , as evidenced by lower substandard loan amounts in these respective classes , and improved economic conditions . for the year ended december 31 , 2017 , the provision for loan losses resulted from an increase in the general reserve component of the allowance for loan losses that was partially offset by a decrease in the specific reserve component . the increase in the general reserve resulted primarily from the impact of $ 36.1 million of loan growth and higher historical loss rates during the year . the impact of loan growth and higher historical loss rates on the general reserve was partially

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liquidity liquidity represents the ability to meet present and future financial obligations through either the sale or maturity of existing assets or with borrowings from correspondent banks or other deposit markets . the company classifies cash , interest-bearing and noninterest-bearing deposits with banks , federal funds sold , investment securities , and loans maturing within one year as liquid assets . as part of the bank 's liquidity risk management , stress tests and cash flow modeling are performed quarterly . as a result of the bank 's management of liquid assets and the ability to generate liquidity through liability funding , management believes that the bank maintains overall liquidity sufficient to satisfy its depositors ' requirements and to meet its customers ' borrowing needs . at december 31 , 2018 , cash , interest-bearing and noninterest-bearing deposits with banks , securities , and loans maturing within one year totaled $ 111.1 million . at december 31 , 2018 , 15 % or $ 79.8 million of the loan portfolio matures within one year . non-deposit sources of available funds totaled $ 128.5 million at december 31 , 2018 , which included $ 75.9 million available from federal home loan bank of atlanta ( fhlb ) , $ 42.0 million of unsecured federal funds lines of credit with other correspondent banks , and $ 10.6 million available through the federal reserve discount window . subordinated debt see note 9 to the consolidated financial statements included in this form 10-k , for discussion of subordinated debt . junior subordinated debt see note 10 to the consolidated financial statements included in this form 10-k , for discussion of junior subordinated debt . 42 off-balance sheet arrangements the company , through the bank , is a party to credit related financial instruments with risk not reflected in the consolidated financial statements in the normal course of business to meet the financing needs of its customers . these financial instruments include commitments to extend credit , standby letters of credit , and commercial letters of credit . such commitments involve , to varying degrees , elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets .

our actual results , performance or achievements could differ materially from historical results as well as those expressed in , anticipated , or implied by these forward-looking statements . we do not undertake any obligation to revise these forward-looking statements to reflect any future events or circumstances . readers should not place undue reliance on these forward-looking statements , which are based on management 's current expectations and projections about future events , are not guarantees of future performance , are subject to risks , uncertainties and assumptions ( including those described below ) , and apply only as of the date of this filing . our actual results , performance or achievements could differ materially from the results expressed in , or implied by , these forward-looking statements . factors which could cause or contribute to such differences include , but are not limited to , the risks to be discussed in this annual report on form 10-k and in the press releases and other communications to shareholders issued by us from time to time which attempt to advise interested parties of the risks and factors which may affect our business . we undertake no obligation to publicly update or revise any forward-looking statements , whether as a result of new information , future events , or otherwise . 34 use of generally accepted accounting principles ( “gaap” ) financial measures we use united states gaap financial measures in the section of this report captioned “management 's discussion and analysis or plan of operation” ( md & a ) , unless otherwise noted . all of the gaap financial measures used by us in this report relate to the inclusion of financial information . this discussion and analysis should be read in conjunction with our financial statements and the notes thereto included elsewhere in this annual report . all references to dollar amounts in this section are in united states dollars , unless expressly stated otherwise . please see our “risk factors” for a list of our risk factors . overview this subsection of md & a provides an overview of the important factors that management focuses on in evaluating our businesses , financial condition and operating performance , our overall business strategy and our financial results for the periods covered . results of operations comparison of the twelve months ended november 30 , 2014 and the twelve months ended november 30 , 2013 revenue we have not earned any revenues since our inception and we do not anticipate earning revenues in the near future . expenses our expenses for the twelve months ended november 30 , 2014 are summarized as follows in comparison to our expenses for twelve months ended november 30 , 2013 : replace_table_token_2_th research and development expenses replace_table_token_3_th the increase in salaries and related expenses and in stock-based compensation in the twelve months ended november 30 , 2014 , compared to the same period last year is mainly due to a change in the mix of employees from general and administrative to research and development activities . the increase in lab expenses during the twelve months ended november 30 , 2014 , compared to the same period last year is related to expansion of research and development operations in 2014 , mainly in our belgian subsidiary . the grant deduction is due to a grant approved from dgo6 in our belgian subsidiary for our research and development activities in november 2014 . 35 general and administrative expenses replace_table_token_4_th the decrease in salaries and related expenses and in stock-based compensation for the twelve months ended november 30 , 2014 , compared to the same period last year is due to the prior year having higher employee compensation cost and stock-based compensation for a number of employees and consultant whose options had fully vested . in addition , the decrease resulted from a change in mix of employees from general and administrative to research and development activities . financial expenses , net replace_table_token_5_th the increase in interest expense in the twelve months ended november 30 , 2014 , compared to the same period last year is mainly attributable to additional convertible loans received during 2014 , including the main convertible loan received equal to $ 1,500,000. the funding fees to kodiak is due to represent the fair value of 250,000 shares of common stock issued to kodiak as part of a stock purchase agreement with kodiak . the issuance of warrants reflects issuance of “beneficial” warrants that were granted in march 2014. story_separator_special_tag agreement with eventus consulting , p.c . , an arizona professional corporation , ( “eventus” ) pursuant to which eventus has agreed to provide financial consulting and shareholder communication services to our company . in consideration for eventus ' services , we have agreed to pay eventus according to its standard hourly rate structure . the term of the consulting agreement is for a period of one year from august 1 , 2014 and shall automatically renew for additional one-year periods upon the expiration of the term unless otherwise terminated . eventus is owned and controlled by neil reithinger . chief executive officer of our subsidiary , orgenesis maryland , inc. on july 23 , 2014 , our subsidiary , orgenesis maryland , inc. entered into an employment agreement with scott carmer , to be effective july 1 , 2014. in consideration for acting as our subsidiary 's chief executive officer , we will pay mr. carmer the following compensation : ( a ) an annual salary of $ 250,000 ; 38 ( b ) an annual bonus of up to $ 100,000 subject to the discretion of our board of directors and a further bonus as determined by meeting certain milestones ; and ( c )a grant of shares or options . story_separator_special_tag there can be no assurance that additional financing will be available to us when needed or , if available , that it can be obtained on commercially reasonable terms . if we are not able to obtain the additional financing on a timely basis should it be required , or generate significant material revenues from operations , we will not be able to meet our other obligations as they become due and we will be forced to scale down or perhaps even cease our operations . off-balance sheet arrangements we have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that is material to stockholders . critical accounting policies and estimates our significant accounting policies are more fully described in the notes to our consolidated financial statements included herein for the fiscal year ended november 30 , 2014. we believe that the accounting policies below are critical for one to fully understand and evaluate our financial condition and results of operations . 42 research and development research and development expenses include costs directly attributable to the conduct of research and development programs , including the cost of salaries , stock-based compensation expenses , payroll taxes and other employees ' benefits , lab expenses , consumable equipment and consulting fees . all costs associated with research and developments are expensed as incurred . fair value measurement the fair value measurement guidance clarifies that fair value is an exit price , representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants . as such , fair value is a market-based measurement that should be determined based on assumptions that market participants would use in the valuation of an asset or liability . it establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value . the hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities ( level 1 measurements ) and the lowest priority to unobservable inputs ( level 3 measurements ) . the three levels of the fair value hierarchy under the fair value measurement guidance are described below : level 1 - unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities ; level 2 - quoted prices in markets that are not active , or inputs that are observable , either directly or indirectly , for substantially the full term of the asset or liability ; or level 3 - prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable ( supported by little or no market activity ) . embedded derivatives the company entered into convertible debentures agreement in which a derivative instrument is “embedded” . embedded derivative is separated from the host contract and carried at fair value when ( 1 ) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and ( 2 ) a separate , stand-alone instrument with the same terms would qualify as a derivative instrument . as to embedded derivatives arising from the issuance of convertible debentures , see note 4 ( b ) . volatility in stock-based compensation the volatility is based on historical volatilities of companies in comparable stages as well as the historical volatility of companies in the industry and , by statistical analysis of the daily share-pricing model . the volatility of stock-based compensation granted after november 30 , 2013 is based on historical volatility of the company for the last two years . warrants classified as liabilities warrants that entitle the holder to down-round protection ( through ratchet and anti-dilution provisions ) are classified as liabilities in the statement of financial position . the liability is measured both initially and in subsequent periods at fair value , with changes in fair value charged to finance expenses , net . the fair value of the warrants is determining by using a monte carlo type model based on a risk neutral approach . the model takes as an input the estimated future dates when new capital will be raised , and builds a multi-step dynamic model . the first step is to model the risk neutral distribution of the share value on the new issue dates , then for each path to use the black-scholes model to estimate the value of the warrants on the last issue date including all the changes in exercise price and quantity along this path . the significant unobservable input used in the fair value measurement is the future expected issue dates . significant delay in this input would result a higher fair value measurement . 43 recently adopted accounting pronouncements in june 2014 , the fasb issued asu 2014-10 , development stage entities ( topic 915 ) : elimination of certain financial reporting requirements , including an amendment to variable interest entities guidance in topic 810 , consolidation ( “asu 2014-10” ) . the amendments in asu 2014-10 remove an exception provided to development stage entities in topic 810 , consolidation , for determining whether an entity is a variable interest entity . the revised consolidation standards are effective for annual reporting periods beginning after december 15 , 2015 , including interim periods within that reporting period , with early application permitted . the company has elected to early adopt the provisions of asu 2014-10 for these consolidated financial statements . newly issued accounting pronouncements in august 2014 , the fasb issued asu 2014-15 , presentation of financial statements-going concern ( subtopic 205-40 ) : disclosure of uncertainties about an entity 's ability to continue as a going concern . asu 2014-15 defines management

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liquidity and financial condition working capital deficiency replace_table_token_6_th the increase in current assets is mainly due to an increase in cash from the investment from nine investments limited totaling $ 1,500,000 and a grant in amount of $ 810,516 received in the belgian subsidiary during the twelve months ended november 30 , 2014. the increase in current liabilities was due to an increase in expenses which resulted in an increase of accounts payable , accrued expenses and employees and related payables of $ 1,404,598 during the twelve months ended november 30 , 2014 , in addition to an increase in convertible loans and accrued interest of $ 2,173,318 . 36 cash flows replace_table_token_7_th the decrease in net cash used in operating activities in the twelve months ended november 30 , 2014 , compared to the same period last year is mainly related to the increase in our current liabilities such as accounts payable , accrued expenses and employees and related payables during the twelve month period ended november 30 , 2014 , compared to the same period last year . this amount was offset by an increase in payable and receivable on account of grant due to grants which received in the belgian and u.s subsidiaries . the increase in cash provided by financing activities in the twelve months ended november 30 , 2014 compared to the comparable period in 2013 is mainly due to an increase in convertible loans of $ 1,500,000 which was offset by a decrease in capital received through sales of common stock and warrants . recent corporate developments since the commencement of the year through november 30 , 2014 , we experienced the following corporate developments : private placement during the first quarter of 2014 , the company issued 1,128,849 units in a non-brokered private placement for total consideration of $ 587,001. each unit consisted of one share of the company 's common stock and one non-transferable common share purchase warrant , with each warrant entitling the holder to acquire one additional share of the company 's common stock at an exercise price of $ 0.52 per share for a period of three years .

million , or $ 1.46 per share with cash flows from operations of $ 173.9 million . we had capital investments of $ 136.3 million in 2011 and ended the year with $ 176.8 million of cash and investments with no debt outstanding . our production volumes of potash and trio ® increased to a combined 954,000 tons in 2011 from 886,000 in 2010 as we increased production towards full operating levels throughout 2010. our production volumes of potash increased to 813,000 tons in 2011 from 727,000 tons in 2010 , while trio ® production volumes decreased to 141,000 tons in 41 2011 from 159,000 tons in 2010. potash in 2011 , we sold 793,000 tons of potash as compared to 810,000 tons in 2010. during the first six months of 2011 , strong commodity markets provided an opportunity for improved farmer economics , which in turn increased demand for potash , resulting in higher potash prices . however , our sales of potash in 2011 were impacted by poor weather conditions such as , persistent high water levels in certain customer locations along the missouri river and the continued drought conditions in texas and nearby states . during the fourth quarter of 2011 , we saw what we believe is a short-term decrease in farmer demand for fertilizer and believe farmer buying decisions were affected by macro factors including uncertainty around global economic stability , a focus on purchases of seed and equipment , and a desire to defer the purchase of certain fertilizer inputs until the spring of 2012. the improvement in potash pricing began in the fall of 2010 and accelerated through the second quarter of 2011 , as crop economics for u.s. farmers remained solid . most crop prices moved up significantly during the second half of 2010 and remained favorable in 2011 due to continued tight stock-to-use ratios and strong demand for grains worldwide . revisions in crop yields by the united states department of agriculture ( `` usda `` ) have resulted in predictions of slightly increased world grain stocks from 463.0 million metric tons to 471.9 million metric tons for 2011 , however , this increase is still well below the 2009 levels of 491.6 million metric tons . while it appears corn crop yields in 2011 in the united states were lower than in 2010 as a result of challenging regional weather conditions , including those described above , current crop economics across a broad spectrum of agricultural commodities remain favorable to the farmer thereby incentivizing fertilizer demand . in the last half of the fourth quarter of 2011 , we saw prices of other nutrients fall , which has historically suggested a decrease in potash prices . however , the prices of nitrogen and phosphate rebounded early in 2012 and seem to have now stabilized . we have observed mid-west farmers actively applying nitrogen products well into january , which typically is a positive precursor to strong phosphate and potassium application . we expect dealers will take a conservative approach in their crop nutrient purchases through the first half of 2012 and attempt to manage inventories by timing purchases so that they minimize working capital risk of holding inventory . in order to be able to expand our marketing reach into the agricultural sector and build in flexibility to our production capacity , we are investing in additional granulation capacity , having completed new compaction facilities in wendover in 2011 and in moab in 2010. further , we are entering the permitting phase for the expansion of our granulation capacity at our north plant in carlsbad . additional compaction capacity in carlsbad should further enhance our marketing flexibility . industrial demand for our standard‑sized potash increased in 2011 over 2010 , as we sold 23 percent more tons into the industrial market compared to a year ago . this increase in sales volume has resulted from an increase in the rig count from december 2010 of approximately 19 percent in the geographic regions primarily served by our facilities with the continued expansion of drilling and fracture stimulation work in profitable oil and liquids rich natural gas development activity . we expect industrial demand for our standard-sized product will correlate over the long-term with oil and gas pricing , drilling , and well completion activities . we believe that potash is the most effective clay-swelling inhibitor available , and we are marketing potash as the drilling fluid additive of choice in our traditional industrial market . the percentage of our sales in the agricultural and feed markets stayed relatively consistent from 2010 to 2011 , but we did see a slight increase in our industrial sales volumes of standard product . with the increase in our granulation capacity , we now have the ability to market our products based on a relative margin comparison between standard and granular demand into the associated end markets . our potash sales mix was approximately as follows for the indicated periods . replace_table_token_15_th over the long-term , we believe that domestic consumption of fertilizers will remain at historical averages as the replacement of potassium in the soils is critical to continued high-yield agricultural production and the demands placed on soils for plant nutrition . this view is supported by data generated by fertecon limited , a fertilizer industry consultant , showing that over the past 25 years the domestic consumption for potash has averaged approximately 9.2 million tons with annual volatility of approximately 9 percent . these results have occurred through historical periods of low and high agricultural commodity prices , variability in oil and gas drilling , negative farmer margins , and a variety of other macro- 42 economic factors . trio ® the most significant activity related to our trio ® operations was the substantial completion of the dense media separation plant that occurred in december 2011. this new plant is designed to improve the recovery of our langbeinite to approximately 50 percent . story_separator_special_tag our effective income tax rates are impacted primarily by changes in the underlying tax rates in jurisdictions in which we are subject to income tax and permanent differences between book and tax income for the period , including the benefit associated with the estimated effect of the domestic production activities deduction . our federal and state income tax returns are subject to examination by federal and state tax authorities . as described more fully below , the decrease in effective tax rate in 2011 was primarily a function of adjusting the tax rate applied to our deferred tax asset to reflect the anticipated blended state income tax rates for the company . the tax basis of the assets and liabilities transferred to us pursuant to the exchange agreement at the time of the ipo was , in the aggregate , equal to mining 's adjusted tax basis in the assets as of the date of the exchange , increased by the amount of taxable gain recognized by mining in connection with the transactions occurring at the time of the ipo . therefore , the net tax basis in the assets and liabilities transferred to us is significantly higher than the book basis in the same assets and liabilities . the basis difference between book and tax generated a net deferred tax asset for us at the time of the transaction . the net deferred tax asset recorded as of the date of exchange was approximately $ 358 million , with a corresponding increase to additional paid-in capital . the majority of our deferred tax asset was assigned to mineral properties , and the anticipated use of percentage depletion to reduce our taxable income , relative to book income , is expected to provide full realization of this asset over time . as of december 31 , 2011 , the net deferred tax asset has been reduced to approximately $ 220.6 million , primarily through utilization of percentage depletion and placing bonus depreciation approved assets into service in 2010 and 2011. we have evaluated our deferred tax assets to determine if the need for a valuation allowance exists , and we have concluded that no material valuation allowances are necessary . we base this conclusion on the expectation that future taxable income should allow us to fully realize these deferred tax assets . on september 27 , 2010 , the small business jobs act of 2010 was enacted and , on december 17 , 2010 , the tax relief , unemployment insurance reauthorization , and jobs creation act of 2010 became law . each of these laws provides for additional tax depreciation ( i.e . “ bonus depreciation ” ) for qualifying property in the year the asset is placed in service . the combination of these laws provides for 50 percent bonus depreciation on qualifying assets placed in service after december 31 , 2009 , through september 8 , 2010 ; 100 percent bonus depreciation on qualifying assets placed in service after september 8 , 2010 , through december 31 , 2011 ; and 50 percent bonus depreciation on qualifying assets placed in service after december 31 , 2011 , through december 31 , 2012. the impact of these changes in tax depreciation contributes significantly to a resulting current and deferred tax expense ( benefit ) . for the year ended december 31 , 2011 , the total tax expense was $ 65.9 million . total tax expense for the year ended december 31 , 2011 , was comprised of $ 16.9 million of current income tax expense and $ 49.0 million of deferred income tax expense . for the year ended december 31 , 2010 , the total tax expense was $ 29.8 million . for 2010 , total tax expense was comprised of $ 0.9 million of current income tax benefit and $ 30.7 million of deferred income tax expense . our current tax expense for these periods is less than our total tax expense in large part due to the impacts of accelerated tax bonus depreciation and the utilization of percentage depletion . we are required to evaluate our deferred tax assets and liabilities each reporting period using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax liability or asset is expected to be settled or realized . the estimated statutory income tax rates that are applied to our current and deferred income tax calculations are impacted most significantly by the states in which we do business . changing business conditions for normal business transactions and operations , as well as changes to state tax rate and apportionment laws , potentially alter our apportionment of income among the states for income tax purposes . these changes in apportionment laws result in changes in the calculation of our current and deferred income taxes , including the valuation of our deferred tax assets and liabilities . the effects of any such changes are recorded in the period of the adjustment . such adjustments can increase or decrease the net deferred tax asset on the balance sheet and impact the corresponding deferred tax benefit or deferred tax expense on the income statement . a decrease of our blended state tax rate decreases the value of our deferred tax asset , resulting in additional deferred tax expense being recorded in the income statement . conversely , an increase in our blended state income tax rate would increase the value of the deferred tax asset , resulting in an increase in our deferred tax benefit . because of the magnitude of the temporary differences between book and tax bases in our assets , relatively small changes in the blended state tax rate may have a pronounced impact on the value of the net deferred tax asset . as of december 31 , 2011 , our estimate of our blended state tax rate increased , resulting in an increase of the value of the

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liquidity and capital resources as of december 31 , 2011 , we had cash , cash equivalents , and investments of $ 176.8 million , we had no debt , and we had $ 250.0 million available under our unsecured credit facility . the $ 176.8 million was made up of : $ 0.8 million in cash ; 50 $ 72.6 million in cash equivalent investments , consisting of money market accounts or certificates of deposit with banking institutions that we believe are financially sound ; $ 97.2 million and $ 6.2 million invested in short and long-term investments , respectively , comprised of certificates of deposit investments of $ 2.5 million and corporate debt securities of $ 100.9 million . there were no losses on our cash , cash equivalents and investments during 2011. our operations are primarily funded from cash on hand and cash generated by operations , and , if necessary , we have the ability to borrow under our senior credit facility . for the foreseeable future , we believe that our cash , cash equivalents , and investment balances , cash flow from operations , and available borrowings under our senior credit facility will be sufficient to fund our operations , our working capital requirements , and our presently planned capital investments . replace_table_token_18_th operating activities total cash provided by operating activities increased by $ 50.6 million in 2011 compared to 2010 primarily due to higher net income , driven by higher average net realized sales prices for both potash and trio ® .

in january 2019 , we reported positive top-line results from our phase 3 camp-1 and camp-2 pivotal trials with vp-102 for the treatment of molluscum . both clinical trials evaluated the safety and efficacy of vp-102 compared to placebo . in each trial , we observed that a clinically and statistically significant proportion of subjects treated with vp-102 achieved complete clearance of all treatable molluscum lesions compared to subjects treated with placebo . vp-102 was well-tolerated in both trials , with no serious adverse events reported in vp-102 treated subjects . we plan to submit a new drug application , or nda , to the fda for vp-102 for the treatment of molluscum in the second half of 2019. camp-1 was conducted under a special protocol assessment , or spa , agreement with the fda . we also have an ongoing phase 2 clinical trial of vp-102 for the treatment of common warts ( cove-1 ) . we expect to report top-line results from this trial in the second quarter of 2019. in addition , we plan to initiate a phase 2 trial with vp-102 in external genital warts in the first half of 2019. we also expect to submit an investigational new drug application , or ind , for vp-103 in plantar warts in the second half of 2019. we retain exclusive , royalt y -free rights to our product candidates across all indications . our strategy is to advance vp-102 through regulatory approval and self-commercialize in the united states for the treatment of several skin diseases . we intend to build a specialized sales organization in the united states focused on pediatric dermatologists , dermatologists , and select pediatricians . in the future , we also intend to develop vp-102 for commercialization in additional geographic regions , either alone or together with a strategic partner . we have a limited operating history . since our inception in 2013 , our operations have focused on developing vp-102 , organizing and staffing our company , business planning , raising capital , establishing our intellectual property portfolio and conducting clinical trials . we do not have any product candidates approved for sale and have not generated any revenue from product sales . we have funded our operations primarily through the sale of equity and equity-linked securities . on june 19 , 2018 , we completed an ipo of common stock , which resulted in the issuance and sale of 5,750,000 shares of common stock at a public offering price of $ 15.00 per share , generating net proceeds of $ 78.4 million after deducting underwriting discounts and other offering costs . we believe that the net proceeds from the ipo , together with our existing cash , cash equivalents and marketable securities , will enable us to fund our operations in the normal course of business at least through the end of 2020 . 69 since inception , we have incurred significant operating losses . for the year s ended december 31 , 2018 and 2017 , our net loss was $ 20 .6 million and $ 4.5 million , respectively . as of december 31 , 2018 , we had an accumulated deficit of $ 33.1 million . we expect to continue to incur significant expenses and operating losses for the foreseeable future . we anticipate that our expenses will increase significantly in connection with our ongoing activities , as we : continue our ongoing clinical programs evaluating vp-102 for the treatment of molluscum and common warts as well as initiate and complete additional clinical trials , as needed ; initiate clinical trials evaluating vp-102 for the treatment of external genital warts ; pursue an ind and initiate clinical trials evaluating vp-103 for the treatment of plantar warts ; pursue regulatory approvals for vp-102 for the treatment of molluscum , and eventually for the treatment of common warts , external genital warts or any other indications we may pursue for vp-102 , as well as for vp-103 ; seek to discover and develop additional product candidates ; ultimately establish a commercialization infrastructure and scale up external manufacturing and distribution capabilities to commercialize any product candidates for which we may obtain regulatory approval , including vp-102 and vp-103 ; seek to in-license or acquire additional product candidates for other dermatological conditions ; adapt our regulatory compliance efforts to incorporate requirements applicable to marketed products ; maintain , expand and protect our intellectual property portfolio ; hire additional clinical , manufacturing and scientific personnel ; add operational , financial and management information systems and personnel , including personnel to support our product development and planned future commercialization efforts ; and incur additional legal , accounting and other expenses in operating as a newly public company . services agreement with pbm capital group , llc in december 2015 , we entered into a services agreement , or sa , with pbm capital group , llc , or pbm , an affiliate of pbm capital investments , llc , to engage pbm for certain business development , operations , technical , contract , accounting and back office support services . we agreed to pay pbm a fee of $ 2,500 per month for these services . the sa had an initial term of 12 months and automatically renewed monthly thereafter . in march 2018 , we entered into an amendment to the sa with pbm effective as of april 1 , 2018 , which extended the term of the sa until march 31 , 2019 and increased the management fee we are obligated to pay to pbm to $ 50,000 per month . story_separator_special_tag other general and administrative expenses include market research costs , professional fees for legal , accounting and tax-related services , insurance costs , as well as payments made under our services agreement with pbm capital group , llc . we anticipate that our general and administrative expenses will increase as a result of increased payroll , expanded infrastructure and higher consulting , legal and tax-related services associated with maintaining compliance with stock exchange listing and sec requirements , accounting and investor relations costs , and director and officer insurance premiums associated with being a public company . in addition , we expect to incur , at an increased rate compared to prior periods , significantly higher expenses associated with building a sales and marketing team in connection with the potential regulatory filing and approval of vp-102 for the treatment of molluscum . as a result , we expect to report significantly higher general and administrative expenses in 2019. income taxes since our inception in 2013 , we have not recorded any u.s. federal or state income tax benefits for the net losses we have incurred in each year due to our uncertainty of realizing a benefit from those items . as of december 31 , 2018 , we had federal and state net operating loss carryforwards of approximately $ 24.1 million and $ 24.1 million , respectively . the federal and state net operating loss carryforwards included in the foregoing totals that were generated prior to 2018 will begin to expire , if not utilized , by 2033. these net operating loss carryforwards could expire unused and be unavailable to offset future income tax liabilities . under the 2017 federal income tax law changes , federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely , but the deductibility of such federal net operating losses is limited . utilization of the net operating loss carryforwards may be subject to an annual limitation according to section 382 of the internal revenue code of 1986 , as amended , and similar provisions . 73 results of operations for 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_0_th research and development expenses research and development expenses were $ 12.8 million for the year ended december 31 , 2018 , compared to $ 3.7 million for the year ended december 31 , 2017. the increase of $ 9.1 million was primarily attributable to costs associated with phase 2 and phase 3 clinical activities for vp-102 , an increase in c osts associated with increased headcount and associated salary , bonus and stock-based compensation expense , and a charge related to a consulting agreement with our former chief scientific officer . general and administrative expenses general and administrative expenses were $ 9.1 million for the year ended december 31 , 2018 , compared to $ 0.7 million for the year ended december 31 , 2017. the increase of $ 8.3 million was primarily a result of increased headcount and associated salary , bonus and stock-based compensation expenses , and increased insurance , professional fees and other operating costs as a result of becoming a public company . other income ( expense ) other income for the year ended december 31 , 2018 consisted of interest earned on our cash , cash equivalents and marketable securities . other expense for the year ended december 31 , 2017 was insignificant . story_separator_special_tag normal ; font-family : times new roman ; font-size:10pt ; `` > the scope , progress , results and costs of our clinical trials ; the scope , prioritization and number of our research and development programs ; the costs , timing and outcome of regulatory review of our product candidates ; the costs of preparing , filing and prosecuting patent applications , maintaining and enforcing our intellectual property rights and defending intellectual property-related claims ; the extent to which we acquire or in-license other product candidates and technologies ; the costs to scale up and secure manufacturing arrangements for commercial production ; and the costs of establishing or contracting for sales and marketing capabilities if we obtain regulatory approvals to market our product candidates . identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming , expensive and uncertain process that takes many years to complete , and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales . in addition , our product candidates , if approved , may not achieve commercial success . our commercial revenues , if any , will be derived from sales of a product candidate that we do not expect to be commercially available in the near term , if at all . we may not achieve significant revenue from product sales prior to the use of the net proceeds from our ipo . accordingly , we may need to continue to rely on additional financing to achieve our business objectives . adequate additional financing may not be available to us on acceptable terms , or at all . until such time , if ever , as we can generate substantial product revenues , we expect to finance our cash needs through a combination of equity offerings , debt financings , collaborations , strategic alliances and licensing arrangements . to the extent that we raise additional capital through the sale of equity or convertible debt securities , ownership interests of existing stockholders may be diluted , and the terms of these securities may include liquidation or other preferences that adversely affect our existing stockholders ' rights . debt financing , if available , may involve agreements that include covenants limiting or restricting our ability to take specific actions , such as incurring additional debt , making capital expenditures or declaring dividends . if we raise funds

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liquidity and capital resources since our inception , we have not generated any revenue and have incurred net losses and negative cash flows from our operations . we have financed our operations since inception through sales of our convertible preferred stock and the sale of our common stock in our ipo , receiving aggregate gross proceeds of $ 123.2 million . as of december 31 , 2018 , we had cash , cash equivalents and marketable securities of $ 89.8 million . cash in excess of immediate requirements is invested in accordance with our investment policy , primarily with a view to liquidity and capital preservation . we currently have no ongoing material financing commitments , such as lines of credit or guarantees , that are expected to affect our liquidity over the next five years . 74 cash flows the following table summarizes our cash flows for the years ended december 31 , 2018 and 2017 ( in thousands ) : replace_table_token_1_th operating activities during the year ended december 31 , 2018 , operating activities used $ 17.9 million of cash , primarily resulting from a net loss of $ 20.6 million and non-cash stock-based compensation of $ 2.3 million . net cash provided by changes in operating assets and liabilities of $ 0.4 million consisted primarily of increases in accounts payable and accrued expenses of $ 1.8 million , partially offset by increases in prepaid expenses and other assets of $ 0.9 million .

we have received gross proceeds of $ 226.0 million from public equity offerings of our common stock ( including our june 2018 initial public offering ( `` ipo `` ) and our february 2019 , february 2020 and june 2020 offerings ) , $ 104.9 million from sales of our preferred stock , $ 86.3 million from our june 2020 convertible notes offering and $ 60.0 million from the amended and restated loan and security agreement ( as amended , the `` amended loan agreement `` ) , of which $ 20 million was repaid in june 2020. in august 2019 , we filed a shelf registration statement on form s-3 with the u.s. securities and exchange commission ( `` sec `` ) , which covers the offering , issuance and sale by us of up to an aggregate of $ 250.0 million of our common stock , preferred stock , debt securities , warrants and or units , which we refer to as the `` shelf `` . we simultaneously entered into a sales agreement with jefferies llc , as sales agent , to provide for the offering , issuance and sale by us of up to $ 50.0 million of our common stock from time to time in at-the-market offerings under the shelf . 90 in february 2020 , we completed an equity offering and sold 10,299,769 shares of common stock , including 1,299,769 shares pursuant to the underwriters ' option to purchase additional shares of common stock . net proceeds from the offering were $ 39.9 million . in june 2020 , we completed a public notes offering and sold $ 86.3 million aggregate principal amount of 5.00 % convertible senior notes , including $ 11.3 million pursuant to the underwriters ' option to purchase additional notes which was exercised in full in july 2020. concurrent with the public notes offering , in june 2020 we completed an equity offering and sold 8,510,000 shares of common stock , including 1,110,000 shares pursuant to the underwriters ' option to purchase additional shares of common stock which also was exercised in full in july 2020. gross proceeds from the equity offering were $ 23.1 million . net proceeds from both june 2020 offerings were $ 102.8 million . there currently remains $ 96.1 million available for future offerings under the shelf . during the second half of 2020 , $ 39.1 million in principal amount of convertible notes were converted into 13,171,791 shares of the company 's common stock . as of december 31 , 2020 , the outstanding balance of convertible notes was $ 47.2 million . in october 2020 , we entered into a fourth amendment to the amended loan agreement , which provided for an additional $ 3.5 million term loan which was drawn in november 2020. as of december 31 , 2020 , the outstanding balance under the amended loan agreement was $ 43.5 million . for the years ended december 31 , 2020 and 2019 , we reported net losses of $ 91.1 million and $ 125.6 million , respectively . we have not been profitable since inception , and , as of december 31 , 2020 , our accumulated deficit was $ 337.4 million . in the near term , we expect to continue to incur significant expenses , operating losses and net losses as we : < continue our marketing and selling efforts related to commercialization of gvoke ; < continue our research and development efforts ; < seek regulatory approval for new product candidates and product enhancements ; and < continue to operate as a public company . we began our field launch of gvoke in january 2020 and have not yet generated significant product revenue from sales of gvoke . we may continue to seek public equity and debt financing to meet our capital requirements . there can be no assurance that such funding may be available to us on acceptable terms , or at all , or that we will be able to commercialize our product candidates , if approved . in addition , we may not be profitable even if we commercialize any of our product candidates . impact of covid-19 the current novel coronavirus ( “ covid-19 ” ) pandemic has presented a substantial public health and economic challenge around the world and has impacted our business operations , employees , patients and communities as well as the global economy and financial markets . the covid-19 pandemic continues to evolve and to date has led to the implementation of various responses , including government-imposed quarantines , stay-at-home orders , travel restrictions , mandated business closures and other public health safety measures . to date , we and our suppliers and third-party manufacturing partners have been able to continue to supply our products to our patients and currently do not anticipate any interruptions in supply . our third-party contract manufacturing partners continue to operate at or near normal levels , with enhanced safety measures intended to prevent the spread of the virus . while we currently do not anticipate any interruptions in our manufacturing process , it is possible that the covid-19 pandemic and response efforts may have an impact in the future on our third-party suppliers and contract manufacturing partners ' ability to supply and or manufacture our products . we believe that customer demand for gvoke has been adversely impacted by the covid-19 pandemic due to the disruption the pandemic has caused in patients ' normal access to healthcare as well as our sales and marketing personnel 's access to customers . initially , we suspended in-person interactions by our sales and marketing personnel in healthcare settings . we are engaging with these customers remotely , via webinar programs and virtual meetings , as we seek to continue to support healthcare professionals and patient care . story_separator_special_tag 96 critical accounting policies and use of estimates and assumptions our management 's discussion and analysis of our financial condition and results of operations on our financial statements have been prepared in accordance with generally accepted accounting principles ( `` gaap `` ) in the united states . the preparation of these financial statements requires us to make estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting periods . on an ongoing basis , we evaluate our estimates and judgments , including , among others , those related to revenue recognition , clinical trial expenses and stock-based compensation . we base our estimates on historical experience and on various other factors we believe to be appropriate under the circumstances . actual results may differ from these estimates under different assumptions or conditions . we believe that the accounting policies discussed below are critical to understanding our historical and future performance , as these policies relate to the more significant areas involving management 's judgments and estimates . our significant accounting policies are more fully described in note 2 , `` summary of significant accounting policies . `` revenue recognition we apply the guidance in asc 606 to all contracts with customers within the scope of the standard . we sell our product , gvoke , which is available in two presentations , a pre-filled syringe ( gvoke pfs ) and an auto-injector ( gvoke hypopen ) , primarily to pharmaceutical wholesalers . these wholesalers then resell our products to their customers , such as retail pharmacies . in addition , we enter into arrangements with payors , group purchasing organizations , and healthcare providers that provide for government-mandated or privately negotiated rebates , chargebacks and discounts related to our products . we currently sell gvoke in the u.s. only . revenue is recognized when our customer ( e.g . , a wholesaler ) obtains control of promised goods or services , which is when our obligations under the terms of our contract with the customer are satisfied , based on the consideration we expect to receive in exchange for those goods or services . the estimated net sales price is generally based on a list or fixed price less estimates of variable consideration ( e.g . , patient copay assistance , prompt payment and other discounts , payor rebates , chargebacks , service fees and product returns ) . the estimates of variable consideration are subject to a constraint such that some or all of the estimated amount of variable consideration will only be included in the transaction price to the extent that it is probable that a significant reversal of revenue will not occur when the uncertainty associated with the variable consideration is subsequently resolved . estimating variable consideration and the related constraint requires the use of significant management judgment and other market data . net sales represent gross product sales less estimated allowances for patient copay assistance programs , prompt payment and other discounts , payor rebates , chargebacks , service fees , and product returns , all of which are recorded at the time of sale to the pharmaceutical wholesalers or other customer . we apply significant judgments and estimates in determining some of these allowances . if actual results differ from our estimates , we will be required to make adjustments to these allowances in the future . patient copay assistance program we offer a savings program to commercially insured patients under which the cost of a prescription to a patient is discounted . we reimburse pharmacies for this discount through a third-party vendor . we record an accrual to reduce gross sales for the estimated copay on units sold to wholesalers and other customers . the estimate is based on estimated percentages of products that will be prescribed to qualified patients , expected patient utilization of the discount program , average assistance paid based on reporting from the third-party vendor as well as industry data and levels of inventory in the distribution channel . accrued copay fees are recorded as a reduction of revenue and included in accrued trade discounts and rebates on the consolidated balance sheets . prompt payment discounts as an incentive for prompt payment , we offer a discount to most customers . we expect that all eligible customers will comply with the contractual terms to earn the discount and , therefore , we accrue the discount on all eligible sales . we record the discount as an allowance against trade accounts receivable on the consolidated balance sheets and as a reduction of revenue . commercial rebates we contract with certain private payor organizations , primarily insurance companies and pharmacy benefits managers , to provide rebates with respect to utilization of gvoke and contracted formulary status . we accrue estimated rebates based on contract rates , estimated percentages of products that will be prescribed to qualified patients and estimated levels of inventory 97 in the distribution channel and record the rebate as a reduction of revenue . accrued commercial rebates are included in accrued trade discounts and rebates on the consolidated balance sheets . government rebates we participate in certain federal and state government rebate programs such as the medicaid drug rebate program , tricare retail refunds program , and medicare part d program . we accrue estimated rebates based on estimated percentages of product sold to qualified patients , estimated rebate percentages and estimated levels of inventory in the distribution channel that will be prescribed to qualified patients and record the rebates as a reduction of revenue . accrued government rebates are included in accrued trade discounts and rebates on the consolidated balance sheets . chargebacks we have arrangements with certain commercial and government entities that allow them to buy our products directly from wholesalers at specific prices . these entities purchase products through

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liquidity and capital resources our primary uses of cash are to fund costs related to the manufacturing , marketing and selling of gvoke , the research and development of our product candidates , general and administrative expenses and working capital requirements . historically , we have funded our operations primarily through private placements of convertible preferred stock , public equity offerings of common stock , and issuance of debt . in june 2018 , we completed our ipo of 6,555,000 shares of our common stock at a price of $ 15.00 per share for aggregate net proceeds of $ 88.9 million after deducting underwriting discounts and commissions as well as other equity offering expenses . in february 2019 , we completed an equity offering and sold an aggregate of 5,996,775 shares of common stock at a price of $ 10.00 per share . net proceeds from this equity offering were $ 55.5 million after deducting underwriting discounts and commissions as well as other equity offering expenses . in september 2019 , we entered into the amended loan agreement that provides for term loans of up to an aggregate of $ 85.0 million , of which $ 60.0 million was drawn in september 2019 and of which $ 20.0 million was repaid in june 2020. we become eligible to draw the second tranche of $ 15.0 million and the third tranche of $ 10.0 million if certain revenue targets are achieved prior to march 31 , 2021 and june 30 , 2021 , respectively . we currently do not anticipate that such milestones will be achieved . in august 2019 , we filed a shelf registration statement on form s-3 with the sec , which covers the offering , issuance and sale by us of up to an aggregate of $ 250.0 million of our common stock , preferred stock , debt securities , warrants and or units , which we refer to as the `` shelf '' .

ltd. , a registered company in hubei , china ( “ hubei shengrong ” ) . we refer to shengrong bvi and its consolidated subsidiaries collectively as “ china sunlong ” or the “ company ” . hubei shengrong was formed in 2009. since inception , the company has been focused on the research , development , production and sale of an array of solid waste recycling systems for the mining and industrial sectors in the prc . hubei shengrong 's waste recycling systems provide end users in these markets with a cleaner alternative to traditional waste disposal by significantly reducing solid waste disposed into the environment , and enables end users to extract value from valuable metals and other industrial waste materials in waste disposals . 43 on february 6 , 2018 , china sunlong environmental technology inc. ( “ china sunlong ” ) consummated the business combination ( the “ business combination ” ) with jm global pursuant to a share exchange agreement ( the “ share exchange agreement ” ) dated as august 28 , 2017 by and among ( i ) jm global ; ( ii ) zhong hui holding limited ; ( iii ) china sunlong ; ( iv ) each of the shareholders of china sunlong named on annex i of the share exchange agreement ( the “ sellers ” ) ; and ( v ) chuanliu ni , a chinese citizen who was the chief executive officer and director of china sunlong , in the capacity as the representative for the sellers . pursuant to the share exchange agreement , jm global acquired from the sellers all of the issued and outstanding equity interests of china sunlong in exchange for 8,995,428 newly-issued shares of common stock of jm global to the sellers . the 899,544 shares of these newly-issued shares would be held in escrow for 18 months from the closing date of the business combination as a security for china sunlong and the sellers ' indemnification obligations under the share exchange agreement . this transaction was accounted for as a “ reverse merger ” and recapitalization at the date of the consummation of the transaction since the shareholders of china sunlong owned the majority of the outstanding shares of jm global immediately following the completion of the transaction and jm global 's operations became the operations of china sunlong following the transaction . accordingly , china sunlong was deemed to be the accounting acquirer in the transaction and the transaction was treated as a recapitalization of china sunlong . on october 10 , 2017 , hubei shengrong established a fully owned subsidiary , fujian shengrong environmental protection energy-saving science and technology ltd. ( “ fujian shengrong ” ) , with registered capital of approximately usd 1,518,120 ( rmb 10,000,000 ) , to be fully funded by october 10 , 2019. prior to the company executing the ownership transfer and capital contribution agreement ( “ agreement ” ) on may 30 , 2018 , fujian shengrong had no operations prior to may 30 , 2018. fujian shengrong was a shell company . on may 30 , 2018 , hubei shengrong signed an agreement with two unrelated entities for which hubei shengrong transferred 80 % ownership interest in fujian shengrong to these two entities . in return , these two entities were required to contribute cash of approximately usd 5.0 million ( rmb 32.0 million ) into fujian shengrong to acquire the 80 % ownership interest and hubei shengrong was required to provide approximately usd 1.3 million ( rmb 8.0 million ) worth of technology services for the company as a contribution , or 20 % of investment , for a total of usd 6.3 million ( rmb 40.0 million ) . as a result , the total investment was changed to 20 % , the company accounted for the investment in fujian shengrong using the cost method . due to that hubei shengrong did not provide any cash contribution or technology services to fujian shengrong , the investment balance under the cost method investment on december 31 , 2018 was $ 0. on april 2 , 2018 , the company disposed of its subsidiary , tjcomex international group corporation ( “ tjcomex bvi ” ) , a british virgin islands corporation , in consideration of ( i ) its minimum contribution to the company 's results of operation , and ( ii ) the unsatisfactory synergy between the tjcomex bvi business and the rest of the company 's business . the company 's made the decision to dispose tjcomex bvi to ( i ) improve the company 's overall financial condition and results of operations , ( ii ) reduce the complexity of the company 's business , ( iii ) focus the company 's resources on the solid waste recycling business as well as developing environmental control business opportunities ; and ( iv ) make it possible for the company to pursue acquisition opportunities for more compatible business . tjcomex bvi was transferred to chuanliu ni , a chinese citizen who is the director of china sunlong . as of april 2 , 2018 , the net assets of tjcomex bvi were valued at $ 16,598 , which was recorded as a loss from the disposal of a subsidiary in the december 31 , 2018 consolidated financial statements . as tjcomex bvi 's operating revenue was less than 1 % of the company 's revenue and the disposal did not constitute a strategic shift that would have a major effect on the company 's operations and financial results , the results of operations for tjcomex bvi were not reported as discontinued operations under the guidance of accounting standards codification 205. on april 11 , 2018 , the company , shengrong wfoe and hubei shengrong , both of which are the company 's indirectly owned subsidiaries ( collectively “ purchasers ” ) , entered into a share purchase agreement ( the “ purchase story_separator_special_tag 48 we started our trading of industrial waste materials business mainly due to the opportunity that existed in the marketplace , as the end users of our solid waste recycling equipment , also referred to as our equipment end users , while in the process of using our solid waste recycling equipment to clean and extract waste from mines and job sites , may also extract and separate certain valuable metals from other industrial waste materials . we recognize that there is a market for these metals and waste materials and as a result , we connect our equipment end users who sell the byproduct of materials they produce to our industrial waste materials suppliers who have the capability of processing such solid waste materials into powder and directly ship such products to our industrial waste materials customers . this type of trading business is related to our solid waste recycling systems and equipment business because the end users of our solid waste recycling equipment only use our equipment to extract the valuable metals and chemicals for their needs . these end users do not need the residual materials generated as a byproduct of extraction and considered to be industrial waste materials . as a result , we believe our industrial waste material trading business is sustainable as long as our solid waste recycling system and equipment business is sustainable . we strongly believe our solid waste recycling system and equipment business is sustainable because of upcoming favorable energy conservation and emission reduction target-setting policies mandated by the prc government . notwithstanding the foregoing , this is a new line of our business that is still in the development stage . approximately two to three weeks prior to shipment , our suppliers of industrial waste materials will physically process the industrial waste materials at the locations of the equipment end users . these end users are located in different provinces of china , such as hubei , sichuan , jiangsu and zhejiang . after our industrial waste material suppliers have processed the industrial waste materials per our specifications , they will drop ship the materials by truck , which takes approximately 1 to 5 days , directly to our industrial waste materials customers in the city of wuhan , hubei province , for our inspection before being inspected and accepted by our customers . during the year ended december 31 , 2018 , the decrease of revenues from trading industrial waste materials was due to the fact that we only generated revenues from trading an aggregate of 1,700 tons of acid hydrolysis titanium dioxide , petroleum fcc catalyst , ilmenite tailings and copper smelting tailings as compared to an aggregate of 17,060 tons during the same period in 2017. our trading of industrial waste materials are dependent on the progress of our recycling equipment end users and when they are able to sell those industrial waste materials to our suppliers to process the waste . during the year ended december 31 , 2018 , we had less resources to trade the aforementioned industrial waste materials as compared to the same period in 2017 as the enterprises who has the resources of the industrial waste materials were closed for production during the year ended december 31 , 2018 due to inspection from the environment group of the chinese government until the enterprises were able to pass the environmental inspection , which reduced the resource for our trading of industrial waste materials . we do not believe that we have any competitors to compete with us in the trading of industrial waste materials as their equipment are not as sophisticated as our equipment to extract value from valuable metals and other industrial waste materials . as a result , we do not believe that other potential competitors will have the source of obtaining the industrial waste materials to compete in this business . our customers who order the industrial waste materials from us are able to manufacture from these processed industrial waste materials and turned them into variety of materials used for decoration , such as plastic wood , interior wall decorative panels and stone plastic imitation wood flooring . the decoration materials made from these processed industrial waste materials are much cheaper than using other environmental friendly raw materials , and generally have better qualities . we evaluate prices of similar raw materials for construction and then set a price with these two customers . we believe our customers might be able to obtain government support and grant for using these industrial waste materials products . in addition , environment risk does not appears to be applied to us since we are assisting the end users of our solid waste recycling equipment to reduce their solid waste discharge and we did not create any environment effect or risk . our other revenues increased by approximately $ 0.1 million , or 39.0 % , to approximately $ 0.3 million for the year ended december 31 , 2018 as compared to approximately $ 0.2 million for the year ended december 31 , 2017. the increase was mainly due to the fact that we included one month harbor cargo handling revenue after the acquisition of rong hai and the revenue is more than tjcomex 's other revenue made during the year ended december 31 , 2017 . 49 cost of revenues the company 's cost of revenues consists of cost of solid waste recycling systems and equipment revenue , cost of coating and fuel materials revenue , and cost of trading and others revenue . total cost of revenues decreased by approximately $ 0.5 million , or approximately 2.9 % to approximately $ 18.7 million for the year ended december 31 , 2018 , compared to approximately $ 19.2 million for the same period in 2017. our total cost of revenues decreased which was in line with the decrease of solid waste systems revenues because solid waste recycling infrastructure systems generally have a higher

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liquidity and capital resources the company has funded working capital and other capital requirements primarily by equity contributions , loans from shareholders , cash flow from operations , short term bank loans , loans from third parties and cash received from jm global holding company through the reverse capitalization . cash is required to repay debts and pay salaries , office expenses , income taxes and other operating expenses . as of december 31 , 2018 , our net working capital deficit was approximately $ 3.7 million , over 50 % of the company 's current liabilities was from other payables – related parties due to major shareholders . removing these liabilities , the company had net working capital of $ 2.4 million and is expected to continuing generate cash flow from operations in the twelve months period . we believe that current levels of cash and cash flows from operations will be sufficient to meet its anticipated cash needs for at least the next twelve months from the date the consolidated financial statements to be issued . however , it may need additional cash resources in the future if it experiences changed business conditions or other developments , and may also need additional cash resources in the future if it wishes to pursue opportunities for investment , acquisition , strategic cooperation or other similar actions . if it is determined that the cash requirements exceed the company 's amounts of cash and cash equivalents on hand , the company may seek to issue debt or equity securities or obtain additional credit facility . 55 the following summarizes the key components of the company 's cash flows for the year ended december 31 , 2018 and 2017. replace_table_token_8_th as of december 31 , 2018 and 2017 , the company had cash in the amount of $ 726,737 and $ 461,883 , respectively . as of december 31 , 2018 , approximately $ 719,000 and approximately $ 8,000 were held by the company 's subsidiaries in the prc and hong kong , respectively .

inflammation/respiratory program we entered into a collaboration and license agreement with galapagos nv , which became effective january 2016 , for the development and commercialization of the jak1-selective inhibitor filgotinib for inflammatory disease indications . this collaboration represents an opportunity to add complementary clinical programs to our growing inflammation research and development efforts . 2015 financial highlights during 2015 , total revenues increased to $ 32.6 billion and total product sales increased to $ 32.2 billion , compared to $ 24.9 billion and $ 24.5 billion respectively , in 2014 , driven primarily by sales of harvoni and increased sales of our hiv single tablet regimen products , stribild , complera/eviplera and the recently launched genvoya , partially offset by decreased sales of sovaldi due to the uptake of harvoni . harvoni was approved in the united states in october 2014 , in the european union in november 2014 and in japan in july 2015. for 2015 , product sales in the u.s. were $ 21.2 billion compared to $ 18.1 billion in 2014. in europe , product sales were $ 7.2 billion compared to $ 5.1 billion in 2014. sales in other international locations were $ 3.8 billion in 2015 compared to $ 1.2 billion in 2014 , primarily due to sales of sovaldi and harvoni in japan . r & d expenses increased 6 % to $ 3.0 billion for 2015 compared to 2014 due to continued investment in the progression and expansion of our product pipeline . selling , general and administrative ( sg & a ) expenses increased 15 % to $ 3.4 billion for 2015 compared to 2014 due to increased costs to support our business expansion . net income attributable to gilead for 2015 was $ 18.1 billion or $ 11.91 per diluted share , compared to $ 12.1 billion or $ 7.35 per diluted share in 2014 , due primarily to the launch of harvoni , partially offset by the declines in sales of sovaldi and increases in operating expenses . as of december 31 , 2015 , our cash , cash equivalents and marketable securities totaled $ 26.2 billion . during 2015 , we generated $ 20.3 billion in operating cash flows , issued senior unsecured notes with a total aggregate principal amount of $ 10.0 billion ( 2015 notes ) , and paid $ 3.9 billion to settle 46 million warrants related to our convertible senior notes due may 2016. we repurchased 95 million shares of our common stock in 2015 for an aggregate amount of $ 10.0 billion . we also initiated a quarterly cash dividend of $ 0.43 per share in the second quarter of 2015 , and paid a total of $ 1.9 billion in dividends to our shareholders in 2015. outlook 2016 in 2016 , we will continue to focus on our key operating objectives which include the progression of our product pipeline and continued uptake of our commercial products . from a research and development ( r & d ) perspective , we will continue to invest in conducting new and ongoing clinical studies , which support both our existing products and our product candidates . we expect to move forward on a number of late-stage clinical studies for new product candidates and plan to file marketing applications for product candidates in various therapeutic areas . from a commercial perspective , we will continue to focus on supporting the uptake of genvoya and prepare for additional anticipated launches of our new taf-based regimens , f/taf and r/f/taf , and continue to promote the use of our existing commercial products . in hcv , we will continue to focus on advancing care of people with the disease regardless of genotype or disease severity . sof/vel , if approved , would become the first and only regimen offering high sustained viral response rates with 12 weeks of treatment for patients with all hcv genotypes . we also plan to further build-out and expand our commercial infrastructure globally . additionally , we will focus both on near term and longer term objectives to help many more patients around the world . our progress is subject to a number of uncertainties , including , but not limited to , the continuation of an uncertain global macroeconomic environment ; adoption of additional pricing measures to reduce healthcare spending particularly in hcv ; volatility in foreign currency exchange rates ; inaccuracies in our hcv patient start estimates ; additional competitive launches in hcv ; an increase in discounts , chargebacks and rebates due to ongoing private and public payer negotiations ; and a larger than anticipated shift in payer mix to more highly discounted payer segments . 48 2015 results of operations total revenues the following table summarizes our product sales , and royalty , contract and other revenues : replace_table_token_4_th product sales total product sales were $ 32.2 billion in 2015 , compared to $ 24.5 billion in 2014 and $ 10.8 billion in 2013 , driven primarily by an increase in antiviral product sales . antiviral product sales , which include products in our hiv and liver disease areas , were $ 30.2 billion in 2015 , $ 22.8 billion in 2014 and $ 9.3 billion in 2013 . the sequential increases in antiviral product sales in 2015 and 2014 were driven primarily by the launch of sovaldi and harvoni . the increases in 2015 sales from the launch of harvoni across various geographies were partially offset by a year-over-year decline in sovaldi sales , with patients being prescribed harvoni instead of sovaldi . hiv products also contributed to sales increases in 2015 and 2014 primarily due to increased sales of our newer hiv single-tablet regimens , stribild , complera/eviplera and the recently launched genvoya , partially offset by declines in atripla sales volumes . story_separator_special_tag during 2014 , the internal revenue service ( irs ) issued final regulations which accelerated the expense recognition criteria for the fee obligation from the year in which the fee is paid , to the year in which the market share used to allocate the fee is determined . as a result , we recognized $ 460 million in our 2014 sg & a expenses that would have previously been accrued in 2015. our bpd fee expenses were $ 414 million in 2015 , $ 590 million in 2014 and $ 110 million in 2013 . the bpd fee is not tax deductible . in 2016 , we expect sg & a expenses to increase compared to 2015 to support our continued build-out and expansion of our commercial infrastructure globally to support our products and to increase by an estimated $ 200 million for the bpd fee . interest expense in 2015 , interest expense increased to $ 688 million compared to $ 412 million in 2014 . the increase was primarily due to the issuance of $ 10.0 billion aggregate principal amount of senior unsecured notes ( the 2015 notes ) in 2015 and the issuance of $ 8.0 billion aggregate principal amount of senior unsecured notes ( the 2014 notes ) in 2014 . 53 in 2014 , interest expense increased to $ 412 million compared to $ 307 million in 2013 . the increase was primarily a result of the issuance of the 2014 notes , offset by repayment of our senior unsecured notes issued in march and december 2011 ( the 2011 notes ) and conversion and maturity of our convertible senior notes due in may 2014 ( the may 2014 notes ) and partial conversion of our convertible senior notes due in may 2016 ( the may 2016 notes , and collectively with the may 2014 notes , the may notes ) . other income ( expense ) , net other income ( expense ) , net increased to $ 154 million in 2015 compared to $ 3 million in 2014 primarily due to higher interest income as the result of our portfolio earning a higher yield and higher cash balances . other income ( expense ) , net was insignificant in 2014 and 2013 . provision for income taxes our provision for income taxes was $ 3.6 billion , $ 2.8 billion and $ 1.2 billion in 2015 , 2014 and 2013 , respectively . the 2015 effective tax rate of 16.4 % differed from the u.s. federal statutory rate of 35 % primarily due to certain operating earnings from non-u.s. subsidiaries that are considered indefinitely reinvested and tax credits , partially offset by state taxes , our portion of the non-tax deductible bpd fee and amortization expense of the intangible asset related to sofosbuvir for which we receive no tax benefit . we do not provide for u.s. income taxes on undistributed earnings of our foreign operations that are intended to be indefinitely reinvested in our foreign subsidiaries . the 2014 effective tax rate of 18.8 % differed from the u.s. federal statutory rate of 35 % primarily due to certain operating earnings from non-u.s. subsidiaries that are considered indefinitely reinvested and tax credits , partially offset by state taxes , our portion of the non-tax deductible bpd fee and amortization expense of the intangible asset related to sofosbuvir for which we receive no tax benefit . the 2013 effective tax rate of 27.3 % differed from the u.s. federal statutory rate of 35 % primarily due to the retroactive extension of the 2012 federal research tax credit in january 2013 , the 2013 federal research tax credit and certain operating earnings from non-u.s. subsidiaries that are considered indefinitely reinvested , partially offset by state taxes , our portion of the non-tax deductible bpd fee , amortization expense of the intangible asset related to sofosbuvir and contingent consideration expense related to certain acquisitions for which we receive no tax benefit . subsequent event galapagos we entered into a license and collaboration agreement with galapagos nv ( galapagos ) , a clinical-stage biotechnology company based in belgium , for the development and commercialization of filgotinib , a jak1-selective inhibitor being investigated for inflammatory disease indications . under the terms of the agreement , which became effective on january 19 , 2016 , we made an upfront license fee payment of $ 300 million and a $ 425 million equity investment in galapagos . in addition , galapagos is eligible to receive development and regulatory milestone-based payments of up to $ 755 million , sales-based milestone payments of up to $ 600 million , tiered royalties on global sales and a profit split in potential co-promotion territories . liquidity and capital resources we believe that our existing capital resources , supplemented by our cash flows generated from operating activities will be adequate to satisfy our capital needs for the foreseeable future . the following table summarizes our cash , cash equivalents and marketable securities and working capital : replace_table_token_11_th cash , cash equivalents and marketable securities cash , cash equivalents and marketable securities totaled $ 26.2 billion at december 31 , 2015 , an increase of $ 14.5 billion or 124 % when compared to $ 11.7 billion at december 31 , 2014 . during 2015 , we generated $ 20.3 billion in cash flows from operations , received $ 9.9 billion in net proceeds from the 2015 notes and repurchased $ 10.0 billion of common stock . additionally , we utilized $ 3.9 billion to settle 46 million warrants related to the may 2016 notes ( the 2016 warrants ) and paid cash dividends of $ 1.9 billion . 54 cash , cash equivalents and marketable securities totaled $ 11.7 billion at december 31 , 2014 , an increase of $ 9.2 billion or 356 % when compared to $ 2.6 billion at december 31 , 2013. during 2014 , we generated $ 12.8

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cash provided by operating activities was $ 12.8 billion in 2014 , consisting primarily of net income of $ 12.1 billion , adjusted for non-cash items such as $ 1.1 billion of depreciation and amortization expenses and $ 360 million of stock-based compensation expenses . this was partially offset by $ 518 million of net cash outflow related to changes in operating assets and liabilities . cash provided by operating activities was $ 3.1 billion in 2013 , consisting primarily of net income of $ 3.1 billion , adjusted for non-cash items such as $ 345 million of depreciation and amortization expenses and $ 252 million of stock-based compensation expenses . this was partially offset by $ 562 million of net cash outflow related to changes in operating assets and liabilities . cash used in investing activities cash used in investing activities in 2015 was $ 12.5 billion , consisting primarily of $ 11.7 billion in net purchases of marketable securities and $ 747 million in capital expenditures related to the expansion of our business . cash used in investing activities in 2014 was $ 1.8 billion , consisting primarily of $ 1.2 billion in net purchases of marketable securities and $ 557 million in capital expenditures related to the expansion of our business . cash used in investing activities in 2013 was $ 254 million , consisting primarily of $ 379 million used in our acquisition of ym biosciences , net of cash acquired and $ 190 million of capital expenditures primarily related to construction in progress associated with new facilities at our headquarters to support the ongoing growth of our business . this was partially offset by $ 315 million of net proceeds from sales of marketable securities . 55 cash used in financing activities cash used in financing activities in 2015 was $ 5.0 billion , consisting primarily of $ 10.0 billion used to repurchase common stock under our stock repurchase programs , $ 3.9 billion used to settle 46 million of the 2016 warrants , and $ 1.9 billion used to pay dividends .

in addition , revenue increased during the year ended december 31 , 2017 compared to the same period in 2016 due to an increase in our average commission rates , the inclusion of results from our recent acquisitions ( see part ii , item 8 , note 3 , acquisitions ) , and a higher average order size . net income increased by $ 49.4 million to $ 99.0 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016. the increase was primarily related to the increase in revenues described above as well an income tax benefit of $ 34.1 million related to the tax act ( see part ii , item 8 , note 10 , income taxes ) and excess tax benefits of $ 7.1 million related to stock-based compensation recognized in income tax benefit for the year ended december 31 , 2017. these increases were partially offset by an increase in operating expenses to support higher order volume including delivery related expenses and payment processing costs ; an increase in certain other expenses to support organic growth in the business , including compensation and benefits expense and advertising ; as well as increased expenses related to recent acquisitions including depreciation and amortization of intangible assets , acquisition-related expenses and other general and administrative expenses of the acquired companies . on october 10 , 2017 , we acquired all of the issued and outstanding equity interests of eat24 and on august 23 , 2017 , we acquired substantially all of the assets and certain expressly specified liabilities of foodler . the aggregate purchase price for the acquisitions was $ 332.8 million , including net cash and non-cash consideration . additionally , on september 14 , 2017 , we acquired certain assets of orderup , an online and mobile food-ordering company and wholly-owned subsidiary of groupon , inc . ( “ groupon ” ) for $ 20.1 million in cash . the acquisition of businesses and other intangible assets has increased the breadth and depth of our network of restaurants and diners and expanded our takeout marketplace , including delivery services in certain markets . additionally , we announced a strategic partnership with yelp inc. ( “ yelp ” ) whereby grubhub will be the preferred partner powering online ordering from restaurants on the yelp platform . we also partnered groupon in 2017 under a similar arrangement . on october 10 , 2017 , we entered into a credit agreement which provides for aggregate revolving loans up to $ 225 million and term loans in an aggregate principal amount of $ 125 million ( the “ credit agreement ” ) , subject to an increase of up to an additional $ 150 million under certain conditions . the credit agreement replaced our previous $ 185.0 million revolving credit facility . on october 10 , 2017 , the company borrowed $ 200 million under the credit agreement to finance a portion of the purchase price and transaction costs in connection with the acquisition of eat24 . during the year ended december 31 , 2017 , we made principal payments of $ 25.8 million from cash flows from operations . as of december 31 , 2017 , outstanding borrowings under the credit agreement were $ 174.2 million . on february 8 , 2018 , we entered into an investment agreement with yum restaurant services group , llc , in which we agreed to issue and sell shares of our common stock for an aggregate purchase price of $ 200.0 million , subject to certain closing conditions , including regulatory approval . see part ii , item 8 , note 15 , subsequent events , to our consolidated financial statements in this annual 28 report on form 10-k for additional details . concurrent with the investm ent agreement , we entered into a services agreement with yum ! brands , inc. ( “ yum ! brands ” ) to provide online ordering and delivery services to yum ! brand s restaurants across the u.s. key business metrics to analyze our business performance , determine financial forecasts and help develop long-term strategic plans , we review the following key business metrics : active diners . we count active diners as the number of unique diner accounts from which an order has been placed in the past twelve months through our platform . diner accounts from which an order has been placed on one of our websites or one of our mobile applications are included in our active diner metrics . active diners is an important metric for us because the number of diners using our platform is a key revenue driver and a valuable measure of the size of our engaged diner community . some of our diners could have more than one account if they were to set up multiple accounts using a different e-mail address for each account . as a result , it is possible that our active diners metric may count certain diners more than once during any given period . daily average grubs . we count daily average grubs as the number of revenue generating orders placed on our platform divided by the number of days for a given period . daily average grubs is an important metric for us because the number of orders processed on our platform is a key revenue driver and , in conjunction with the number of active diners , a valuable measure of diner activity on our platform for a given period . gross food sales . we calculate gross food sales as the total value of food , beverages , taxes , prepaid gratuities , and any diner-paid delivery fees processed through our platform . we include all revenue generating orders placed on our platform . gross food sales is an important metric for us because the total volume of food sales transacted through our platform is a key revenue driver . story_separator_special_tag the company 's adjusted ebitda may not be comparable to similarly titled measures of other organizations because other organizations may not calculate adjusted ebitda in the same manner . we have included adjusted ebitda in this annual report on form 10-k because it is an important measure upon which management assesses the company 's operating performance . we use adjusted ebitda as a key performance measure because we believe it facilitates operating performance comparisons from period to period by excluding potential differences primarily caused by variations in capital structures , tax positions , the impact of acquisitions and restructuring , the impact of depreciation and amortization expense on the company 's fixed assets and the impact of stock-based compensation expense . because adjusted ebitda facilitates internal comparisons of our historical operating performance on a more consistent basis , we also use adjusted ebitda for business planning purposes , in evaluating business opportunities and determining incentive compensation for certain employees . in addition , management believes adjusted ebitda and similar measures are widely used by investors , securities analysts , ratings agencies and other parties in evaluating companies in the industry as a measure of financial performance and debt-service capabilities . our use of adjusted ebitda has limitations as an analytical tool , and you should not consider it in isolation or as a substitute for analysis of our results as reported under gaap . some of these limitations are : adjusted ebitda does not reflect our cash expenditures for capital equipment or other contractual commitments ; although depreciation and amortization are non-cash charges , the assets being depreciated and amortized may have to be replaced in the future , and adjusted ebitda does not reflect capital expenditure requirements for such replacements ; adjusted ebitda does not reflect changes in , or cash requirements for , our working capital needs ; and other companies , including companies in the same industry , may calculate adjusted ebitda differently , which reduces its usefulness as a comparative measure . in evaluating adjusted ebitda , you should be aware that in the future the company will incur expenses similar to some of the adjustments in this presentation . the presentation of adjusted ebitda should not be construed as indicating that our future results will be unaffected by these expenses or by any unusual or non-recurring items . when evaluating our performance , you should consider adjusted ebitda alongside other financial performance measures , including net income and other gaap results . 34 the following table sets forth adjusted ebitda and a reconciliation to net income for each of the periods presented below : replace_table_token_13_th ( a ) due to interest incurred on borrowings under the credit agreement during the three months ended december 31 , 2017 ( see part ii , item 8 , note 8 , debt , to the company 's consolidated financial statements in this annual report on form 10-k for additional details ) the company has updated its calculation of adjusted ebitda to include net interest expense . the company did not recast periods prior to 2017 due to the insignificance of net interest income in those periods . ( b ) acquisition and restructuring costs include transaction and integration-related costs , such as legal and accounting costs , associated with acquisition and restructuring initiatives . legal costs included above are not expected to be recurring ( see part ii , item 8 , note 7 , commitments and contingencies , to the company 's consolidated financial statements in this annual report on form 10-k for additional details ) . liquidity and capital resources as of december 31 , 2017 , we had cash and cash equivalents of $ 234.1 million consisting of cash , money market funds , commercial paper and u.s. and non-u.s.-issued corporate debt securities with original maturities of three months or less and short-term investments of $ 23.6 million consisting of commercial paper and u.s. and non-u.s.-issued corporate debt securities with original maturities greater than three months , but less than one year . we generate a significant amount of cash flows from operations and have additional availability under our revolving credit facility , as necessary . additionally , we expect to have access to proceeds of $ 200.0 million resulting from the sale of our common stock in the first quarter of 2018 as further described below . as of december 31 , 2017 , cash and cash equivalents of $ 234.1 million included $ 8.1 million held in the accounts of our u.k. subsidiary , seamless europe , ltd. in accordance with the tax act , we recorded a tax liability of $ 0.4 million as of december 31 , 2017 related to the one-time tax on the accumulated earnings of our u.k. subsidiary of approximately $ 9.5 million . we plan to repatriate the cash from our u.k. subsidiary to the u.s. and we estimate no additional tax liability as there are no applicable withholding taxes for the repatriation of unremitted earnings of our u.k. subsidiary ( see part ii , item 8 , note 10 , income taxes , for additional details ) . amounts deposited with third-party financial institutions exceed federal deposit insurance corporation and securities investor protection insurance limits , as applicable . these cash , cash equivalents and short-term investments balances could be affected if the underlying financial institutions fail or if there are other adverse conditions in the financial markets . we have not experienced any loss or lack of access to our invested cash , cash equivalents or short-term investments ; however , such access could be adversely impacted by conditions in the financial markets in the future . we believe that our existing cash , cash equivalents , short term investments and available credit facility will be sufficient to meet our working capital requirements for at least the next twelve months . however , our liquidity assumptions may prove to be incorrect , and we could

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cash flows used in investing activities our primary investing activities during the periods presented consisted primarily of acquisitions of businesses and certain assets of businesses , purchases of and proceeds from maturities of short-term investments , website and internal-use software development and the purchase of property and equipment to support the growth of the business . for the year ended december 31 , 2017 , net cash used in investing activities was $ 337.0 million compared to $ 45.5 million in 2016. the increase in net cash used in investing activities was primarily the result of an increase in the acquisition of businesses and certain assets of businesses of $ 292.3 million in 2017. for the year ended december 31 , 2016 , net cash used in investing activities was $ 45.5 million compared to $ 116.4 million in 2015. the decrease in net cash used in investing activities was primarily the result of an increase in proceeds from maturities of short- 37 term investments of $ 94.8 million and a decrease in the acquisition of businesses of $ 8.1 million , part ially offset by increases in purchases of property and equipment of $ 19.9 million , purchases of investments of $ 6.0 million , and capitalized website and development costs of $ 5.7 million . for the year ended december 31 , 2015 , net cash used in investing activities was $ 116.4 million which was primarily due to purchases of short-term investments of $ 220.7 million and acquisitions of businesses of $ 73.9 million , partially offset by maturities of short-term investments of $ 189.9 million .

we originated and funded $ 2.8 billion in principal value of commercial mortgage loans , which was offset by $ 1.3 billion of sales and $ 1.5 billion of principal repayments in the year ended december 31 , 2018 . we acquired $ 771.3 million of new securities , which was offset by $ 324.8 million of sales and $ 109.4 million of amortization in the portfolio , which partially contributed to a net increase in our securities portfolio of $ 303.6 million during the year ended december 31 , 2018 . we also invested $ 122.7 million in real estate and received proceeds from the sale of real estate of $ 218.7 million . operating overview net income ( loss ) totaled $ 137.0 million for the year ended december 31 , 2019 , compared to $ 221.7 million for the year ended december 31 , 2018 . the most significant drivers of the $ 84.7 million decrease are as follows : a decrease in net interest income of $ 24.6 million , primarily attributable to higher prevailing libor rates during 2018 , partially offset by the investment mix composition with lower yields on securities investments versus higher yields on loan investments and a decreased reliance on fhlb financing , and an increased reliance on mortgage loan financing ; and a decrease in total other income ( loss ) of $ 75.7 million , primarily as a result of a $ 94.5 million decrease in profits on sales of real estate and a $ 45.9 million decrease in net results from derivative transactions , partially offset by an increase of $ 38.2 million in sales of loans , net and an increase of $ 20.7 million in realized gains on securities . income ( loss ) before taxes income ( loss ) before taxes totaled $ 139.6 million for the year ended december 31 , 2019 , compared to $ 228.3 million for the year ended december 31 , 2018 . the significant components of the $ 88.7 million decrease in income ( loss ) before taxes are described in the two bullet points under operating overview above . core earnings core earnings , a non-gaap financial measure , totaled $ 190.6 million for the year ended december 31 , 2019 , compared to $ 230.1 million for the year ended december 31 , 2018 . the significant components of the $ 39.5 million decrease in core earnings are a decrease in total other income ( loss ) of $ 58.7 million , primarily as a result of a decrease of $ 77.2 million in sale of real estate , net and a decrease of $ 43.4 million in net results from derivative transactions , partially offset by an increase of $ 38.4 million in sale of loans , net and an increase of $ 20.7 million in gain ( loss ) on securities . see “ —reconciliation of non-gaap financial measures ” for our definition of core earnings and a reconciliation to income ( loss ) before taxes . net interest income the $ 14.6 million decrease in interest income was primarily attributable to higher prevailing libor rates during 2018 , partially offset by the investment mix composition with lower yields on securities investments versus higher yields on loan investments . for the year ended december 31 , 2019 , securities investments averaged $ 1.8 billion and loan investments averaged $ 3.4 billion . for the year ended december 31 , 2018 , securities investments averaged $ 1.1 billion and loan investments averaged $ 3.8 billion . there was a $ 404.9 million decrease in average loan investments , offset by a $ 668.3 million increase in average securities investments . the $ 10.1 million increase in interest expense was primarily attributable to increased borrowing levels due to an increase in our real estate securities portfolio , a decreased reliance on fhlb financing , and an increased reliance on mortgage loan financing , partially offset by lower prevailing libor rates during 2019. the average securities balance was $ 1.8 billion for the year ended december 31 , 2019 compared to $ 1.1 billion for the year ended december 31 , 2018 , an increase of $ 668.3 million . our interest expense related to mortgage loan financing increased by $ 1.6 million from $ 36.9 million for the year ended december 31 , 2018 to $ 38.5 million for the year ended december 31 , 2019 , primarily as a result of our increase in average outstanding mortgage loan financing of $ 742.3 million for the year ended december 31 , 2019 compared to $ 735.2 million for the year ended december 31 , 2018 . the $ 13.3 million decrease in net interest income after provision for loan losses was primarily attributable to the decrease in net interest income and the increase in interest expense discussed above . 67 as of december 31 , 2019 , the weighted average yield on our mortgage loan receivables was 6.8 % , compared to 7.7 % as of december 31 , 2018 as the weighted average yield on new loans originated was lower than the weighted average yield on loans that were securitized or paid off . as of december 31 , 2019 , the weighted average interest rate on borrowings against our mortgage loan receivables was 3.1 % , compared to 4.1 % as of december 31 , 2018 . the decrease in the rate on borrowings against our mortgage loan receivables from december 31 , 2018 to december 31 , 2019 was primarily due to lower prevailing market borrowing rates as of december 31 , 2019 compared to december 31 , 2018 . as of december 31 , 2019 , we had outstanding borrowings secured by our mortgage loan receivables equal to 38.3 % of the carrying value of our mortgage loan receivables , compared to 43.3 % as of december 31 , 2018 . story_separator_special_tag accordingly , our cash requirement to pay dividends to maintain reit status could be substantially reduced at the discretion of the board . a summary of our financial obligations is provided below in our contractual obligations table . all our existing financial obligations due within the following year can be extended for one or more additional years at our discretion or repaid at maturity using other existing facilities or are incurred in the normal course of business ( i.e . , interest payments/loan funding obligations ) . 71 we generally seek to maintain an adjusted leverage ratio of approximately 3.0:1.0 or below . see “ —reconciliation of non-gaap financial measures ” for our definition of adjusted leverage and a reconciliation to debt obligations , net . we expect this ratio to fluctuate during the course of a fiscal year due to the normal course of business in our conduit lending operations , in which we generally securitize our inventory of conduit loans at intervals , and also because of changes in our asset mix , due in part to such securitizations . we generally seek to match fund our assets according to their liquidity characteristics and expected hold period . we believe that the defensive positioning of our predominantly senior secured assets and our financing strategy has allowed us to maintain financial flexibility to capitalize on an attractive range of market opportunities as they have arisen . we and our subsidiaries may incur substantial additional debt in the future . however , we are subject to certain restrictions on our ability to incur additional debt in the indentures governing the notes ( the “ indentures ” ) and our other debt agreements . under the indentures , we may not incur certain types of indebtedness unless our consolidated non-funding debt to equity ratio ( as defined in the indentures ) is less than or equal to 1.75 to 1.00 or if the unencumbered assets of the company and its subsidiaries is less than 120 % of their unsecured indebtedness , although our subsidiaries are permitted to incur indebtedness where recourse is limited to the assets and or the general credit of such subsidiary . our borrowings under certain financing agreements and our committed loan facilities are subject to maximum consolidated leverage ratio limits ( currently ranging from 3.50 to 1.00 to 4.00 to 1.00 ) , including maximum consolidated leverage ratio limits weighted by asset composition that change based on our asset base at the time of determination , and , in the case of one provider , a minimum interest coverage ratio requirement of 1.50 to 1.00 if certain liquidity thresholds are not satisfied . these restrictions , which would permit us to incur substantial additional debt , are subject to significant qualifications and exceptions . our principal debt financing sources include : ( 1 ) long-term senior unsecured notes in the form of corporate bonds , ( 2 ) borrowings on both a short- and long-term committed basis , made by tuebor from the fhlb , ( 3 ) long term non-recourse mortgage financing , ( 4 ) committed secured funding provided by banks , and ( 5 ) uncommitted secured funding sources , including asset repurchase agreements with a number of banks . as of december 31 , 2019 , we had unrestricted cash and cash equivalents of $ 58.2 million , unencumbered loans of $ 1.6 billion , unencumbered securities of $ 48.1 million , unencumbered real estate of $ 59.2 million and $ 185.2 million of other assets not secured by any portion of secured indebtedness , including the net equity in consolidated vies . to maintain our qualification as a reit under the code , we must annually distribute at least 90 % of our taxable income . consistent with the guidance provided in revenue procedure 2017-45 , we have paid several of our past dividends in a combination of cash and stock and may pay future distributions in such a manner ; however , the reit distribution requirements limit our ability to retain earnings and thereby replenish or increase capital for operations . we believe that our significant capital resources and access to financing will provide us with financial flexibility at levels sufficient to meet current and anticipated capital requirements , including funding new investment opportunities , paying distributions to our shareholders and servicing our debt obligations . our captive insurance company subsidiary , tuebor , is subject to state regulations which require that dividends may only be made with regulatory approval . largely as a result of this restriction , $ 2.0 billion of tuebor 's member 's capital was restricted from transfer via dividend to tuebor 's parent without prior approval of state insurance regulators at december 31 , 2019 . to facilitate intercompany cash funding of operations and investments , tuebor and its parent maintain regulator-approved intercompany borrowing/lending agreements . the company established a broker-dealer subsidiary , ladder capital securities llc ( “ lcs ” ) , which was initially licensed and capitalized to do business in july 2010. lcs is required to be compliant with financial industry regulatory authority ( “ finra ” ) and sec regulations , which require that dividends may only be made with regulatory approval . largely as a result of this restriction , $ 2.2 million of lcs 's member 's capital was restricted from transfer to lcs 's parent without prior approval of regulators at december 31 , 2019 . cash , cash equivalents and restricted cash we held cash , cash equivalents and restricted cash of $ 355.7 million at december 31 , 2019 , of which $ 58.2 million was unrestricted cash and cash equivalents and $ 297.6 million was restricted cash . we held cash , cash equivalents and restricted cash of $ 98.5 million at december 31 , 2018 , of which $ 67.9 million was unrestricted cash and cash equivalents and $ 30.6 million was restricted cash .

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clo debt as of december 31 , 2019 , the company had no clo debt outstanding . as of december 31 , 2018 , the company had a total of $ 601.5 million , of floating rate , non-recourse clo debt included in debt obligations on its consolidated balance sheets . unamortized debt issuance costs of $ 2.6 million were included in clo debt as of december 31 , 2018 . in october 2019 , the company redeemed all outstanding debt obligations related to the two clo transactions . the company continues to consider the clo market as a potential source of liquidity given its contribution of $ 888.4 million into two ladder sponsored clos in 2017. fhlb financing on july 11 , 2012 , tuebor became a member of the fhlb . as of december 31 , 2019 , tuebor had $ 1.1 billion of borrowings outstanding ( with an additional $ 872.3 million of committed term financing available from the fhlb ) , with terms of overnight to 4.8 years , interest rates of 1.47 % to 2.95 % , and advance rates of 60.8 % to 100 % of the collateral . as of december 31 , 2019 , collateral for the borrowings was comprised of $ 432.0 million of cmbs and u.s. agency securities and $ 675.2 million of first mortgage commercial real estate loans . the weighted-average borrowings outstanding were $ 1.2 billion for the year ended december 31 , 2019 . on december 6 , 2017 , tuebor 's advance limit was updated by the fhlb to the lowest of a set dollar limit ( currently $ 2.0 billion ) , 40 % of tuebor 's total assets or 150 % of the company 's total equity . beginning april 1 , 2020 through december 31 , 2020 , the set dollar limit will be $ 1.5 billion . beginning january 1 , 2021 through february 19 , 2021 , the set dollar limit will be $ 750.0 million .

most of this growth will be concentrated in our domestic network , especially in our mid-continent hubs . we believe greater scale and connectivity at our hubs reinforces our relevance and value proposition to our customers . rebanking at our hubs is expected to drive significant additional connection opportunities . we will also expand flights in non-peak times of the year to more efficiently use our aircraft and facilities with the objective of driving an increase in profitability . fuel . the company 's average aircraft fuel price per gallon including related taxes was $ 1.74 in 2017 as compared to $ 1.49 in 2016. the price of jet fuel has increased since january 2016 and remains volatile . based on projected fuel consumption in 2018 , a one dollar change in the price of a barrel of crude oil would change the company 's annual fuel expense by approximately $ 96 million . results of operations in this section , we compare results of operations for the year ended december 31 , 2017 with results of operations for the year ended december 31 , 2016 , and results of operations for the year ended december 31 , 2016 with results of operations for the year ended december 31 , 2015 . 2017 compared to 2016 operating revenue the table below illustrates the year-over-year percentage change in the company 's operating revenues for the years ended december 31 ( in millions , except percentage changes ) : replace_table_token_8_th 29 the table below presents selected passenger revenue and operating data of the company , broken out by geographic region , expressed as year-over-year changes : replace_table_token_9_th ( a ) see part ii , item 6 , selected financial data , of this report for the definition of these statistics . consolidated passenger revenue increased $ 0.9 billion , or 3.0 % , in 2017 as compared to 2016 primarily due to a 2.8 % increase in traffic . consolidated prasm decreased 0.4 % in 2017 as compared to 2016. the decline in prasm was driven by factors including more aggressive low-cost carrier pricing in our hub markets , temporary share loss during roll-out of our basic economy pricing , and softer demand in china and guam . our revenue in 2017 was negatively impacted by severe storms during the third quarter . cargo revenue increased $ 159 million , or 18.2 % , in 2017 as compared to 2016 due to higher year-over-year international freight volume and yield . operating expense the table below includes data related to the company 's operating expense for the years ended december 31 ( in millions , except percentage changes ) : replace_table_token_10_th salaries and related costs increased $ 770 million , or 7.5 % , in 2017 as compared to 2016 primarily due to higher pay rates and benefit expenses driven by collective bargaining agreements finalized in 2016 , and a 2.5 % increase 30 in average full-time equivalent employees , partially offset by a decrease in profit sharing and other employee incentives . aircraft fuel expense increased $ 1.1 billion , or 18.9 % , primarily due to increased fuel prices and a 3.5 % increase in capacity . the table below presents the significant changes in aircraft fuel cost per gallon for the years ended december 31 ( in millions , except percentage changes ) : replace_table_token_11_th landing fees and other rent increased $ 75 million , or 3.5 % , in 2017 as compared to the year-ago period due to higher rental and landing fee rates . regional capacity purchase costs increased $ 35 million , or 1.6 % , in 2017 as compared to the year-ago period despite regional capacity being down 3.8 % in 2017 as compared to 2016 due to increases in annual rates , maintenance cycle-related costs and lease return costs . depreciation and amortization increased $ 172 million , or 8.7 % , in 2017 as compared to 2016 primarily due to additions of new and used aircraft , aircraft improvements and increases in information technology infrastructure and application development projects . aircraft maintenance materials and outside repairs increased $ 107 million , or 6.1 % , in 2017 as compared to 2016 primarily due to an increase in airframe and engine maintenance visits and additional repairs to wireless and inflight entertainment equipment . aircraft rent decreased $ 59 million , or 8.7 % , in 2017 as compared to 2016 primarily due to the purchase of leased aircraft and lower lease renewal rates . the table below presents special charges incurred by the company during the years ended december 31 ( in millions ) : replace_table_token_12_th see note 14 to the financial statements included in part ii , item 8 of this report for additional information . other operating expenses increased $ 236 million , or 4.4 % , in 2017 as compared to 2016 primarily due to increased costs in food , marketing and technology associated with the company 's enhanced customer experience initiatives , and due to volume-driven increases in cargo trucking and handling costs . 31 nonoperating income ( expense ) the following table illustrates the year-over-year dollar and percentage changes in the company 's nonoperating income ( expense ) for the years ended december 31 ( in millions , except percentage changes ) : replace_table_token_13_th 2016 compared to 2015 operating revenue the table below illustrates the year-over-year percentage change in the company 's operating revenues for the years ended december 31 ( in millions , except percentage changes ) : replace_table_token_14_th the table below presents selected passenger revenue and operating data of the company , broken out by geographic region , expressed as year-over-year changes : replace_table_token_15_th ( a ) see part ii , item 6 , selected financial data , of this report for the definition of these statistics . story_separator_special_tag fees charged in association with changes or extensions to non-refundable tickets are recorded as other revenue at the time the fee is incurred . the fare on the changed ticket , including any additional collection of fare , is deferred and recognized in accordance with our transportation revenue recognition policy at the time the transportation is provided . change fees related to non-refundable tickets are considered a separate transaction from the air transportation because they represent a charge for the company 's additional service to modify a previous sale . therefore , the pricing of the change fee and the initial customer order are separately determined and represent distinct earnings processes . the company records an estimate of breakage revenue on the flight date for tickets that will expire unused . these estimates are based on the evaluation of actual historical results and forecasted trends . refundable tickets expire after one year from the date of issuance . the financial accounting standards board ( “fasb” ) issued accounting standards update no . 2014-09 , revenue from contracts with customers ( topic 606 ) ( “topic 606” ) . topic 606 prescribes that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . the standard impacts the classification of certain revenue streams and affects the timing of revenue and expense recognition for others . for the company , the most significant impact of the standard is the reclassification of certain ancillary fees from other operating revenue into passenger revenue on the statement of consolidated operations . for 2016 and 2017 , the amount to be 40 reclassified at adoption of the new standard from other operating revenue into passenger revenue under topic 606 is approximately $ 2.0 billion and $ 2.1 billion , respectively . these ancillary fees are directly related to passenger travel , such as ticket change fees and baggage fees , and will no longer be considered distinct performance obligations separate from the passenger travel component . in addition , the ticket change fees , which were previously recognized when received , will be recognized when transportation is provided . on january 1 , 2018 , we adopted topic 606 using the full-retrospective approach . see note 1 to the financial statements included in part ii , item 8 of this report for additional information on recently issued accounting standards . frequent flyer accounting . united 's mileageplus program is designed to increase customer loyalty . program participants earn miles by flying on united and certain other participating airlines . program participants can also earn miles through purchases from other non-airline partners that participate in united 's loyalty program . we sell miles to these partners , which include domestic and international credit card issuers , retail merchants , hotels , car rental companies and our participating airline partners . miles can be redeemed for free ( other than taxes and government imposed fees ) , discounted or upgraded air travel and non-travel awards . the company records its obligation for future award redemptions using a deferred revenue model . when frequent flyers earn miles for flights , the company recognizes a portion of the ticket sales as revenue when the air transportation occurs and defers a portion of the ticket sale representing the value of the related miles as a multiple-deliverable revenue arrangement . the company determines the estimated selling price of air transportation and miles as if each element is sold on a separate basis . the total consideration from each ticket sale is then allocated to each of these elements , individually , on a pro rata basis . the miles are recorded in frequent flyer deferred revenue on the company 's consolidated balance sheet and recognized into revenue when the transportation is provided . the company 's estimated selling price of miles is based on an equivalent ticket value less fulfillment discount , which incorporates the expected redemption of miles , as the best estimate of selling price for these miles . the equivalent ticket value is based on the prior 12 months ' weighted average equivalent ticket value of similar fares as those used to settle award redemptions while taking into consideration such factors as redemption pattern , cabin class , loyalty status and geographic region . the estimated selling price of miles is adjusted by a fulfillment discount that considers a number of factors , including redemption patterns of various customer groups . united has a significant contract to sell mileageplus miles to its co-branded credit card partner , chase . united identified the following significant revenue elements in its second amended and restated co-branded card marketing services agreement ( the “co-brand agreement” ) : the air transportation element represented by the value of the mile ( generally resulting from its redemption for future air transportation and whose fair value is described above ) ; use of the united brand and access to mileageplus member lists ; advertising ; and other travel related benefits . the fair value of the elements is determined using management 's estimated selling price of each element . the objective of using the estimated selling price based methodology is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis . accordingly , we determine our best estimate of selling price by considering multiple inputs and methods including , but not limited to , discounted cash flows , brand value , volume discounts , published selling prices , number of miles awarded and number of miles redeemed . the company estimated the selling prices and volumes over the term of the co-brand agreement in order to determine the allocation of proceeds to each of the multiple elements to be delivered . we also evaluate volumes on an

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debt issuances during 2017 , united received and recorded $ 1.8 billion of proceeds as debt related to enhanced equipment trust certificate ( “eetc” ) offerings created in 2016 and 2017 to finance the purchase of aircraft . in 2017 , ual issued , and united guaranteed , ( i ) $ 400 million aggregate principal amount of unsecured 4.25 % senior notes due october 1 , 2022 , and ( ii ) $ 300 million aggregate principal amount of unsecured 5 % senior notes due february 1 , 2024. in 2017 , united and ual , as borrower and guarantor , respectively , increased the term loan under the 2017 credit agreement by approximately $ 440 million . during 2017 , united borrowed approximately $ 497 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2017. debt and capital lease principal payments during the year ended december 31 , 2017 , the company made debt and capital lease principal payments of $ 1.0 billion . 36 significant financing events in 2016 were as follows : share repurchases the company used $ 2.6 billion of cash to purchase 50 million shares of its common stock during 2016 under its share repurchase programs . debt issuances in 2016 , united completed two eetc offerings for a total principal amount of $ 2.0 billion . of the $ 2.0 billion , united received and recorded $ 708 million of proceeds as debt as of december 31 , 2016 to finance the purchase of 17 aircraft . in 2016 , united borrowed approximately $ 369 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2016. debt and capital lease principal payments during the year ended december 31 , 2016 , the company made debt and capital lease principal payments of $ 1.4 billion . significant financing events in 2015 were as follows : share repurchases the company used $ 1.2 billion of cash to purchase 21 million shares of its common stock during 2015 under its share repurchase programs . debt issuances during 2015 , united issued $ 1.4 billion of debt related to eetc offerings to finance aircraft .

overview overall , the company 's financial performance improved significantly in 2016 when compared to 2015 . the company had net income in 2016 in the amount of $ 2,835,200 compared to a net income of $ 1,044,304 for 2015 . the primary reasons for the increase in net profit was the significant increase in sales , a two percentage point decrease in cost of goods sold as a percentage of total revenue and overhead costs remaining relatively flat . sales were particularly strong in the third quarter of 2016 due to several large short-term highway barrier rental projects , which produce profits slightly higher than our normal rental projects because of the large amount of preparation , installation and removal and follow through that must be accomplished in a short period of time . sales continue to look strong for 2017 , although several larger projects were delayed from starting in the first quarter of 2017 and will not start until the second quarter of the year . based on current market activity and the company 's backlog , management believes that 2017 will be another strong financial year for the company , although no assurance can be given . results of operations year ended december 31 , 2016 compared to the year ended december 31 , 2015 for the year ended december 31 , 2016 , the company had total revenue of $ 40,050,046 compared to total revenue of $ 29,204,239 for the year ended december 31 , 2015 , an increase of $ 10,845,807 , or 37 % . sales include revenues from product sales , royalty income , barrier rental income and shipping and installation income . product sales are further divided into wall panel sales , which include soundwall , architectural and slenderwall panels , highway barrier , beach prisms , easi-set® and easi-span® buildings , utility and farm products and miscellaneous precast products . the following table summarizes the sales by product type and a comparison for the years ended december 31 , 2016 and 2015 : 12 replace_table_token_1_th wall panel sales – wall panel sales are generally medium to large contracts issued by general contractors for production , delivery and installation of a specific wall panel product for a specific construction project . changes in the mix of wall panel sales depend on what contracts are in production during the period . overall wall panel sales increased by 20.5 % for year ended december 31 , 2016 , compared to the same period in 2015 . the following describes the changes by wall panel type : soundwall panel sales increased by 143.9 % in 2016 compared to 2015 due primarily to the larger number of projects in production in 2016 compared to 2015 and the number of larger dollar value projects in production during 2016. soundwall bid projects continue to remain strong in 2017 and management believes that it will be able to obtain a sizable share of the projects available , although no assurance can be given . there are several very large soundwall projects in the bid process at the current time which could add a significant amount of production and sales to the company 's backlog for the years 2017 , 2018 and 2019. related bids for highway barrier will be awarded either prior to or along with the soundwall projects ( see the barrier sales section below ) . the bids will be awarded over the next several months . architectural panel sales decreased by 70.1 % in 2016 compared to 2015 as the company was awarded fewer pieces of architectural wall panels to produce during 2016 while there was a large architectural project produced in 2015. while most of the construction economy has come back during 2015 and 2016 , the architectural product line is lagging far behind our other product lines . management does believe , however , that 2017 architectural sales should increase slightly over that of 2016. slenderwall panel sales decreased by 46.0 % in 2016 when compared to 2015 . the company had a total of four slenderwall projects in production in 2015 while there was only one slenderwall project in production in 2016. slenderwall sales should be up in 2017 as the company currently has two slenderwall projects in its backlog with two projects in the final steps of potentially being awarded to the company . management believes the two additional slenderwall projects have a high probability of being awarded to the company . miscellaneous panel sales are mainly retaining walls which are used to hold back earth on sloped land . miscellaneous wall sales increased by 26.9 % in 2016 when compared to 2015 , due mainly to a large order for a special wall type panels for noise and elements deflection . miscellaneous projects are difficult to predict from year to year , however , based on the company 's current backlog of orders and our bid outlook , management believes that production and sales of miscellaneous wall products in 2017 will be somewhat less than 2016 levels . 13 barrier sales – barrier sales are dependent on the number of highway projects active during the period and whether customers are more prone to buy barrier than to rent . in 2016 barrier sales increased by $ 6,618,289 from the previous year . the increase is a result of adding the columbia , south carolina production plant and the barrier produced in that facility under a $ 3.5 million contract awarded to the company , and the barrier produced under a large contract produced in the north carolina production plant . in addition to the increase in barrier sales at these two production facilities , the virginia production plant increased barrier sales by $ 1.0 million . story_separator_special_tag this payment schedule could result in liquidity problems for the company because it must bear the cost of production for its products before it receives payment . the company 's days sales outstanding ( dso ) in 2016 was 74 days compared to 88 days in 2015 . the decrease in the dso is due primarily to more aggressive collection activities during the year . although no assurance can be given , the company believes that anticipated cash flow from operations with adequate project management on jobs will be sufficient to finance the company 's operations and necessary capital expenditures for at least the next 12 months . the company 's inventory at december 31 , 2016 was $ 2,578,817 and at december 31 , 2015 was $ 2,494,284 , an increase of $ 84,533 . the annual inventory turns for 2016 and 2015 were 7.7 and 10.0 , respectively . the inventory turns for 2016 have 16 been reduced primarily because of an increase in highway barrier inventory produced by the company to prepare for the local market area requirement of barrier to be used in association with several large soundwall projects coming up in the second half of 2017 and 2018 , which projects the company anticipates obtaining a sizable portion thereof , but there can be no assurance thereof . critical accounting policies the company 's significant accounting policies are more fully described in its summary of accounting policies to the company 's consolidated financial statements . the preparation of financial statements in conformity with accounting principles generally accepted within the united states of america requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying financial statements and related notes . in preparing these consolidated financial statements , management has made its best estimates and judgments of certain amounts included in the consolidated financial statements , giving due consideration to materiality . the company does not believe there is a great likelihood that materially different amounts would be reported related to the accounting policies described below , however , application of these accounting policies involves the exercise of judgment and the use of assumptions as to future uncertainties and as a result , actual results could differ from these estimates . the company evaluates the adequacy of its allowance for doubtful accounts at the end of each quarter . in performing this evaluation , the company analyzes the payment history of its significant past due accounts , subsequent cash collections on these accounts and comparative accounts receivable aging statistics . based on this information , along with other related factors , the company develops what it considers to be a reasonable estimate of the uncollectible amounts included in accounts receivable . this estimate involves significant judgment by the management of the company . actual uncollectible amounts may differ from the company 's estimate . the company recognizes revenue on the sale of its standard precast concrete products at shipment date , including revenue derived from any projects to be completed under short-term contracts . installation services for precast concrete products , leasing and royalties are recognized as revenue as they are earned on an accrual basis . licensing fees are recognized under the accrual method unless collectability is in doubt , in which event revenue is recognized as cash is received . certain sales of soundwall , slenderwall , and other architectural concrete products are recognized upon completion of units produced under long-term contracts . percent-of-completion contracts are estimated based on the number of units produced during the period multiplied by the unit rate stated in the contract . when necessary , provisions for estimated losses on these contracts are made in the period in which such losses are determined . changes in job performance , conditions and contract settlements that affect profit are recognized in the period in which the changes occur . unbilled trade accounts receivable represents revenue earned on units produced and not yet billed . seasonality the company services the construction industry primarily in areas of the united states where construction activity may be inhibited by adverse weather during the winter . as a result , the company may experience reduced revenues from december through february and realize the substantial part of its revenues during the other months of the year . the company may experience lower profits , or losses , during the winter months , and as such , must have sufficient working capital to fund its operations at a reduced level until the spring construction season . the failure to generate or obtain sufficient working capital during the winter may have a material adverse effect on the company . inflation management believes that the company 's operations were not significantly affected by inflation in 2016 and 2015 , particularly in the purchases of certain raw materials such as cement , steel and fuel . the company believes that raw material pricing will likely increase in 2017 as the economy continues its recovery , although no assurance can be given regarding future pricing . backlog as of march 8 , 2017 the company 's sales backlog of inventoried products and unbilled construction contracts was approximately $ 18 million as compared to approximately $ 12.9 million at approximately the same time in 2016 . the increase in the backlog relates to the company 's continued emphasis on its proprietary product , slenderwall . a substantial majority of the projects relating to the sales backlog as of march 8 , 2017 are scheduled to be billed , some through stored material , and shipped during 2017 . 17 the company also maintains a regularly occurring repeat customer business , which should be considered in addition to the orders in the sales backlog described above . these orders typically have a quick turn around and represent purchases of the company 's inventoried standard products , such as highway safety barrier , utility and easi-set building products .

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liquidity and capital resources the company financed its capital expenditures requirements for 2016 with cash flows from operations , cash balances on hand and notes payable to a bank . the company had $ 3,933,034 of debt obligations at december 31 , 2016 , of which $ 587,523 was 15 scheduled to mature within twelve months . during the twelve months ended december 31 , 2016 , the company made repayments of outstanding debt in the amount $ 2,262,840 , of which $ 1,450,000 was paid to reduce the balance on the company 's line of credit . the company has a note payable to summit community bank ( the “ bank ” ) with a balance of $ 1,328,549 as of december 31 , 2016 . the note has a remaining term of approximately five years and a fixed interest rate of 3.99 % annually with monthly payments of $ 25,642 and is secured by principally all of the assets of the company . under the terms of the note , the bank will permit chattel mortgages on purchased equipment not to exceed $ 250,000 for any one individual loan so long as the company is not in default . also , the company is limited to $ 1,500,000 for annual capital expenditures .

net sales replace_table_token_4_th net sales decreased by $ 36.3 million , or 3.3 % , in the year ended december 31 , 2015 , compared with the prior year . net sales excluding precious metals decreased $ 27.7 million , primarily driven by decreased sales in performance coatings and performance colors and glass of $ 55.2 million and $ 28.0 million , respectively , partially mitigated by increased net sales in pigments , powders and oxides of $ 55.5 million . the main driver of the decrease in net sales excluding precious metals was unfavorable foreign currency impacts , which totaled approximately $ 132.4 million , and unfavorable pricing impacts of $ 16.6 million , partially mitigated by $ 56.9 million of sales from nubiola , which was acquired in the third quarter of 2015 , and $ 56.0 million of sales from vetriceramici , which was acquired in the fourth quarter of 2014. the decline in precious metal sales in 2015 was attributable to the expiration of tolling arrangements resulting from the sale of our north american and asian metal powders business and exit of our solar pastes business in 2014 , which contributed $ 5.7 million of the decrease and was driven by lower sales in perf ormance colors and glass of $ 2.9 million , compared with 2014. gross profit gross profit increased $ 16.6 million , or 5.8 % , in 2015 to $ 301.7 million , compared with $ 285.1 million in 2014 and as a percentage of net sales excluding precious metals , it increased 230 basis points to 29.1 % . the significant driver of the increased gross profit was strong performance in our pigments , powders and oxides segment which exceede d prior- year gross profit by $ 17.2 million , primarily driven by nubiola , which was acquired in the third quarter of 2015 . gross profit was negatively impacted by a charge of $ 5.8 million related to a purchase price adjustment from the acquisition of nubiola , which was acquired in the third quarter of 2015 , for step up of inventory acquired and subsequently sold in the third quarter that will not recur . g eographic revenues the following table presents our sales on the basis of where sales originated . replace_table_token_5_th 21 the decline in net sales excluding precious metals of $ 27.7 million , compared with 2014 , was driven by decreased sales in europe , asia pacific and latin america , partially mitigated by an increase in sales in the united states . the decline in sales in europe was due to lower sales in performance colors and glass and performance coatings of $ 20.4 million and $ 18.7 million , respectively , and was largely due to unfavorable foreign currency impacts . the decrease in europe was partially mitigated by increased sales in pigments , powders and oxides of $ 17.1 million , driven by sales from nubiola , which was acquired in the third quarter of 2015. the decline in asia pacific was driven by lower sales of $ 22.6 million in performance coatings and the result of the sale of our north american and asian metal powders business , which comprised $ 2.3 million of the decrease . the decrease was partially mitigated by an increase in sales in pigments , powders and oxides primarily driven by sales from nubiola of $ 6.9 million . the lower sales in latin america was due to lower sales in performance coatings and performance colors and glass of $ 8.9 million and $ 7.4 million , respectively , partially mitigated by higher sales in pigments , powders and oxides of $ 13.2 million . the decline in sales in latin america in performance coatings was primarily due to the unfavorable foreign currency impact s related to the change in currency exchange mechanisms in venezuela during the first quarter of 2015 and the sale of our operating affiliate in venezuela in the fourth quarter of 2015. the higher sales in the united states in 2015 compared to 2014 , was driven by higher sales volumes within pigments , powders and oxides and performance colors and glass , partially offset by lower sales in performance coatings . the follow ing table presents our sales on the basis of where sold products were shipped . replace_table_token_6_th selling , general and administrative expense the following table presents s elling , general and administrative expenses attributable to operating sites and regional costs outside the united states together as performance materials , and regional costs attributable to the united states and other corporate costs together as corporate . performance materials and corporate sg & a expenses exclude the impact of the annual mark-to-market adjustment and curtailment and settlement effects on our pension and other postretirement benefit plans , as the volatility in this adjustment does not allow for a meaningful co mparison of underlying sg & a costs between periods . replace_table_token_7_th 22 the following table includes sg & a components with significant changes between 2015 and 2014 : replace_table_token_8_th sg & a expenses were $ 69.9 million lower in 2015 compared with the prior year . as a percentage of net sales excluding precious metals , sg & a expenses decreased 600 basis points from 26.9 % in 2014 to 20.9 % in 2015 . the most significant driver of the decrease in sg & a expenses in 2015 was the change in the mark-to-market loss and curtailment and settlement effects on our defined benefit pension plans and postretirement health care and life insurance benefit plans of $ 80.3 million , and is included within the pension and other postretirement benefits line above . the expense in 2014 was primarily related to changes in actuarial assumptions used in calculating the value of the u.s. pension liability . story_separator_special_tag the increase in sales in europe and latin america was driven by sales from nubiola of $ 21.2 million and $ 13.7 million , respectively , partially mitigated by a decrease in sales of $ 4.1 million and $ 0.5 million in pigments , respectively . the increase in sales in asia pacific was primarily driven by sales from nubiola of $ 6.9 million , which were partially offset by the sale of our north american and asian metal powders business , which contributed $ 2.3 million in the prior-year period . comparison of the years ended december 31 , 2014 and 2013 performance coatings replace_table_token_24_th net sales decreased in performance coatings compared with 2013 , primarily due to lower sales of our porcelain enamel products of $ 6.9 million , and our tile frits and glazes , and colors product lines of $ 6.1 million and $ 5.7 million , respectively . these declines were partially mitigated by increased sales of our digital inks product line of $ 6.4 million . other tile product line sales declined $ 3.3 million . net sales in 2014 included $ 3.8 million for the month of december related to our acquisition of vetriceramici . sales were impacted by higher sales volumes of $ 9.4 million , favorable mix of $ 15.2 million , lower product pricing of $ 19.0 million and unfavorable foreign currency impacts of $ 17.4 million . our product pricing continues to be impacted by competitive pressures in our digital inks product line . gross profit decreased from 2013 , and was driven by favorable sales volumes and mix of $ 4.3 million , lower product pricing impacts of $ 19.0 million , favorable raw material impacts of $ 12.2 million , lower manufacturing costs of $ 1.3 million and unfavorable foreign currency impacts of $ 2.2 million replace_table_token_25_th net sales in 2014 decreased $ 11.8 million compared with 2013 due to lower sales in all regions . the decline in sales in europe was attributable to lowe r sales of our porcelain enamel products , partially mitigated by higher sales of tile products , including vetriceramici sales during december . the decline in sales in 2014 in latin america , compared to 2013 , was due to lower sales of our tile color and porcelain enamel products , partially mitigated by higher sales of digital inks products . the decline in asia pacific was 30 driven by lower sales of tile products , primarily frits and glaze products , which was partially mitigated by higher sales of digital inks products . the decline in the united states was all attributable to lower sales of porcelain enamel products . performance colors and glass replace_table_token_26_th net sales excluding precious metals increased $ 21.2 million in 2014 compared with 2013 , with increases in all of our product lines . net sales excluding precious metals were impacte d by higher sales volumes of $ 21.8 million , unfavorable mix of $ 1.1 million , higher product pricing of $ 2.6 million and unfavorable foreign currency impacts of $ 2.1 million . gross profit in creased in 2014 , compared with 2013 , due to favorable sales volumes and mix of $ 17.8 million , higher product pricing impacts of $ 2.6 million , unfavorable raw material impacts of $ 6.7 million , l ower manufacturing costs of $ 9.2 million , and unfavorable foreign currency impacts of $ 0.7 million . replace_table_token_27_th the increase in 2014 in net sales excluding precious metals of $ 21.2 million compared with 2013 reflected higher sales in all regions and in all product lines . pigments , powders and oxides replace_table_token_28_th net sales excluding precious metals decreased in 2014 compared with 2013 , primarily due to the sale of our north american and asian metal powders business and exit of solar pastes , which comprised approximately $ 27.5 million of the decrease . the remainder of 31 the decrease in net sales excluding precious metals of $ 8.1 million was primarily due to lower sales of our surface polishing materials in 2014 compared with 2013. gross profit declined in 2014 compared with 2013 and wa s primarily the result of exited and sold businesses , which contributed to $ 6.0 million of gross profit in the prior year that did n ot recur in the current year . the decrease in gross profit in 2014 was due to lower sales volumes and mix of $ 15.1 million , which was partially mitigated by favorable raw material impacts of $ 2.6 million and lower manufacturing costs of $ 5.0 million . replace_table_token_29_th the decrease in net sales excluding precious metals of $ 35.6 million in 2014 , compared with 2013 , was due to lower sales in the united states , latin america and asia pacific , which were partially mitigated by higher sales in europe . the decline in sales in the united states and asia pacific was primarily driven by the sale of our north american and asian metal powders business which contributed $ 27.5 million in the prior year that did not recur . also contributing to the decline in the u.s. was lower sales of our surface polishing materials . partially mitigating the decline in asia pacific were higher sales of ou r pigments products . the decline in latin america was driven by lower sales of our pigments products . summary of cash flows for the years ended december 31 , 2015 , 2014 , and 2013 replace_table_token_30_th operating activities . cash flows from operating activities decreased $ 9.3 million in 2015 compared to 2014 . the change was driven by lower net income of $ 23.1 million . the decrease was partially mitigated by reduced payments associated with restructuring activities of $ 9.8 million and by a cash inflows of $ 12.2 million in 2015 related to working capital , compared to cash outflows of $ 12.3 million in 2014.

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cash flows from financing activities increased $ 137.9 million in 2015 , compared with 2014. the increase was primarily as a result of net borrowings on the revolving credit facility of $ 170.0 million in 2015 compared to a repayment of $ 9.2 million in 2014. net borrowings in 2015 were primarily used to fund the acquisitions , the share repurchase program , and for other general business use . further , we had a cash outflow of $ 41.0 million in 2014 , related to repayment of debt outstanding under our accounts receivable securitization program that expired during the year . cash flows from financing activities increased $ 18.6 million in 2014 , compared with 2013. the increase was due to net borrowings on our term loan facility of $ 300.0 million , partially offset by the repayment of the 7.875 % senior notes of $ 260.5 million . further , we had a cash outflow of $ 44.4 million in 2014 , a decrease of $ 45.1 million compared with 2013 , related to repayment of debt outstanding under our accounts receivable securitization program that expired during the year , as well as our revolving credit facility that was amended during 2014. we have paid no dividends on our common stock since 2009 . 33 capital resources and liquidity major debt instruments that were outstanding during 201 5 are described below . credit facility on july 31 , 2014 , the company entered into a new credit facility ( the “ credit facility ” ) with a group of lenders to refinance the majority of its then outs tanding debt , as discussed below . the credit facility consists of a $ 200 million secured revolving line of credit with a term of five years and a $ 300 million secured term loan facility with a term of seven years . the credit facility replaces the prior $ 250 million revolving credit facility and provided funding to repurchase the 7.875 % senior notes .

the hma also provides for interstate to advance a key money incentive fee to the hotel for capital improvements in the amount of $ 2,000,000 under certain terms and conditions described in a separate story_separator_special_tag results of operations as of june 30 , 2018 , the company owned approximately 81.9 % of the common shares of its subsidiary , santa fe , and santa fe owned approximately 68.8 % of the common shares of portsmouth square , inc. intergroup also directly owns approximately 13.4 % of the common shares of portsmouth . the company 's principal sources of revenue continue to be derived from the general and limited partnership interests of its subsidiary , portsmouth , in the justice investors limited partnership ( “ justice ” or the “ partnership ” ) , rental income from its investments in multi-family and commercial real estate properties , and income received from investment of its cash and securities assets . justice owns a 544 room hotel property located at 750 kearny street , san francisco , california 94108 , known as the “ hilton san francisco financial district ” ( the “ hotel ” or the “ property ” ) and related facilities , including a five-level underground parking garage . the financial statements of justice have been consolidated with those of the company . 22 the hotel is operated by the partnership as a full-service hilton brand hotel pursuant to a license agreement with hilton . the partnership entered into the license agreement on december 10 , 2004. the term of the license agreement was for an initial period of 15 years commencing on the reopening date , upon completion of a major renovation , with an option to extend the license agreement for another five years , subject to certain conditions . on june 26 , 2015 , the partnership and hilton entered into an amended franchise agreement which extended the license agreement through 2030 , modified the monthly royalty rate , extended geographic protection to the partnership and also provided the partnership certain key money cash incentives to be earned through 2030. the key money cash incentive of $ 4,750,000 was received on july 1 , 2015. after a lengthy review process of several national third-party hotel management companies , on february 1 , 2017 , justice entered into a hotel management agreement ( “ hma ” ) with interstate management company , llc ( “ interstate ” ) to manage the hotel with an effective takeover date of february 3 , 2017. the term of management agreement is for an initial period of 10 years commencing on the takeover date and automatically renews for an additional year not to exceed five years in the aggregate subject to certain conditions . the hma also provides for interstate to advance a key money incentive fee to the hotel for capital improvements in the amount of $ 2,000,000 under certain terms and conditions described in a separate key money agreement . the parking garage that is part of the hotel property was managed by ace parking pursuant to a contract with the partnership . the contract was terminated with an effective termination date of october 4 , 2016. the company began managing the parking garage in-house after the termination of ace parking . effective february 3 , 2017 , interstate took over the management of the parking garage along with the hotel . in addition to the operations of the hotel , the company also generates income from the ownership and management of real estate . properties include sixteen apartment complexes , one commercial real estate property , and three single-family houses as strategic investments . the properties are located throughout the united states , but are concentrated in texas and southern california . the company also has an investment in unimproved real property . the company acquires its investments in real estate and other investments utilizing cash , securities or debt , subject to approval or guidelines of the board of directors . the company also invests in income-producing instruments , equity and debt securities and will consider other investments if such investments offer growth or profit potential . fiscal year ended june 30 , 2018 compared to fiscal year ended june 30 , 2017 the company had a net income of $ 5,813,000 for the year ended june 30 , 2018 compared to a net loss of $ 1,676,000 for the year ended june 30 , 2017. the change is primarily attributable to the receipt of $ 8,300,000 in settlement proceeds related to the glaser matter as described in item 3 - legal proceedings . the increase in net income was offset by $ 2,535,000 increase in provision for income tax expense . hotel operations the company had net income from hotel operations of $ 12,827,000 for the year ended june 30 , 2018 compared to net income of $ 3,494,000 for the year ended june 30 , 2017. the increase in net income was primarily attributable to the receipt of $ 8,300,000 in settlement proceeds related to the glaser matter . 23 the following table sets forth a more detailed presentation of hotel operations for the years ended june 30 , 2018 and 2017. replace_table_token_4_th for the year ended june 30 , 2018 , the hotel generated operating income of $ 16,996,000 before non-recurring charges , interest , depreciation , and amortization on total operating revenues of $ 57,099,000 compared to operating income of $ 13,617,000 before non-recurring charges , interest , depreciation , and amortization on total operating revenues of $ 54,334,000 for the year ended june 30 , 2017. roomrevenues increased by $ 1,463,000 for the year ended june 30 , 2018 compared to the year ended june 30 , 2017 primarily as a result of increased occupancy due to strategic changes of our sales strategy along with increased group room nights . story_separator_special_tag hotel focused on sellout efficiency specifically on shoulder days and months . food and beverage revenue increased by $ 1,288,000 for the year ended june 30 , 2018 compared to the year ended june 30 , 2017 primarily due to the increased per group room night banquet food and beverage contribution as well as increased audio-visual spending . operating expenses decreased by $ 614,000 for the year ended june 30 , 2018 to $ 40,103,000 compared to the year ended june 30 , 2017 of $ 40,717,000 primarily due to the receipt of settlement proceeds related to the glaser matter . the reduction of $ 2,725,000 in legal expense related to the glaser matter was offset by increase in legal expenses due to the same matter . the following table sets forth the average daily room rate , average occupancy percentage and room revenue per available room ( “ revpar ” ) of the hotel for the year ended june 30 , 2018 and 2017. replace_table_token_5_th the hotel 's continued focus on growing occupancy during off peak timeframes resulted in the $ 8 revpar growth from fiscal year 2017. while the hotel focused on rate growth over peak demands of midweek , the growth of occupancy came over weekends and holidays which resulted in the overall rate remaining flat year over year at $ 250. we believe that enhancing the hotel 's technology is critical and to that end , we are currently working with all hilton approved vendors to upgrade all technical aspects of the hotel and the implementation of state-of-the-art systems that will set us apart from our competitors . we have made ten additional rooms available by eliminating the justice administrative office from the hotel and relocating the accounting department to administrative space and eliminated the unprofitable wellness center that was added by previous management . we anticipate that the additional ten rooms will be placed into service within the fiscal year ending june 30 , 2019. additionally , the fitness center which is occupying the equivalent of five rooms and the executive lounge which is occupying the equivalent of three rooms , will be relocated to a different area within the hotel . the eight equivalent rooms will be placed back into service . part of this renovation will be funded by the hotel 's furniture , fixture and equipment reserve account with our lender as well as the $ 2,000,000 key money incentive provided by interstate . lastly , we anticipate the completion of the installation of a complete exterior building maintenance system during fiscal 2019 in order to wash the windows periodically . 24 real estate operations revenue from real estate operations decreased to $ 14,480,000 for the year ended june 30 , 2018 from $ 14,671,000 for the year ended june 30 , 2017 primarily as a result of increased vacancy loss . real estate operating expenses increased to $ 7,579,000 from $ 7,166,000 primarily as a result of higher real estate taxes . management continues to review and analyze the company 's real estate operations to improve occupancy and rental rates and to reduce expenses and improve efficiencies . investment transactions the company had a net loss on marketable securities of $ 1,777,000 for the year ended june 30 , 2018 compared to a net loss on marketable securities of $ 3,496,000 for the year ended june 30 , 2017. for the year ended june 30 , 2018 , the company had an unrealized loss of $ 2,337,000 and a realized loss of $ 6,007,000 , related to the company 's investment in the common stock of comstock mining inc. ( “ comstock ” - nyse mkt : lode ) . for the year ended june 30 , 2017 , the company had an unrealized loss of $ 4,517,000 and zero realized loss related to the company 's investment in the common stock of comstock . as of june 30 , 2018 and 2017 , investments in comstock represent approximately 7 % and 28 % , respectively , of the company 's investment portfolio . for the year ended june 30 , 2018 , the company had a net realized loss of $ 5,375,000 and a net unrealized gain of $ 3,598,000. for the year ended june 30 , 2017 , the company had a net realized gain of $ 356,000 and a net unrealized gain of $ 3,852,000. gains and losses on marketable securities may fluctuate significantly from period to period in the future and could have a significant impact on the company 's results of operations . however , the amount of gain or loss on marketable securities for any given period may have no predictive value and variations in amount from period to period may have no analytical value . for a more detailed description of the composition of the company 's marketable securities see the marketable securities section below . during the years ended june 30 , 2018 and 2017 , the company performed an impairment analysis of its other investments and determined that its investments had an other than temporary impairment and recorded impairment losses of $ 200,000 and $ 178,000 , respectively . the company and its subsidiaries , portsmouth and santa fe , compute and file income tax returns and prepare discrete income tax provisions for financial reporting . the income tax expense during the year ended june 30 , 2018 and 2017 represents primarily the combined income tax effect of portsmouth 's pretax income which includes its share in net income from the hotel and the pre-tax loss from intergroup ( standalone ) . marketable securities and other investments as of june 30 , 2018 and 2017 , the company had investments in marketable equity securities of $ 13,841,000 and $ 17,177,000 , respectively . the following table shows the composition of the company 's marketable securities portfolio by selected industry groups as : 25 replace_table_token_6_th replace_table_token_7_th the company 's investment portfolio is diversified

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financial condition and liquidity the company 's cash flows are primarily generated from its hotel operations , general partner management fees from justice investors , its real estate operations and from the investment of its cash in marketable securities and other investments . to fund the redemption of limited partnership interests and to repay the prior mortgage , justice obtained a $ 97,000,000 mortgage loan and a $ 20,000,000 mezzanine loan in december of 2013. the mortgage loan is secured by the partnership 's principal asset , the hotel . the mortgage loan bears an interest rate of 5.275 % per annum and matures in january 2024. as additional security for the mortgage loan , there is a limited guaranty executed by the company in favor of mortgage lender . the mezzanine loan is a secured by the operating membership interest held by mezzanine and is subordinated to the mortgage loan . the mezzanine loan bears interest at 9.75 % per annum and matures in january 2024. as additional security for the mezzanine loan , there is a limited guaranty executed by the company in favor of mezzanine lender . effective as of may 12 , 2017 , intergroup agreed to become an additional guarantor under the limited guaranty and an additional indemnitor under the environmental indemnity for justice investors limitedpartnership 's $ 97,000,000 mortgage loan and the $ 20,000,000 mezzanine loan .

operating expenses in 2012 included a $ 76 million expense related to the settlement of disputes involving the gsa and usps contracts . also included was $ 24 million of expense related to branch closure costs , restructuring charges related to improving the long-term performance of the businesses in europe , india and china and an impairment charge for grainger lighting services ( formerly known as alliance energy solutions ) , an acquisition completed in november 2009. the year 2011 included $ 18 million of branch closure costs . excluding these expenses from both years , operating expenses increased 10 % , primarily driven by the fabory and anfreixo acquisitions and incremental growth-related spending on new sales representatives , ecommerce and advertising , primarily in the united states . 13 operating earnings of $ 1,131 million for 2012 increased 7 % from $ 1,052 million for 2011 . excluding the expenses mentioned above for both years , operating earnings increased 15 % , primarily due to higher sales and gross profit margins , and operating expenses increasing at a slightly slower rate than sales . net earnings attributable to grainger for 2012 increased by 5 % to $ 690 million from $ 658 million in 2011 . the increase in net earnings primarily resulted from an increase in operating earnings . diluted earnings per share of $ 9.52 in 2012 were 5 % higher than $ 9.07 for 2011 , due to increased net earnings . the table below reconciles reported diluted earnings per share determined in accordance with generally accepted accounting principles in the united states to adjusted diluted earnings per share , a non-gaap measure . management believes adjusted diluted earnings per share is an important indicator of operations because it excludes items that may not be indicative of core operating results . because non-gaap financial measures are not standardized , it may not be possible to compare this financial measure with other companies ' non-gaap financial measures having the same or similar names . replace_table_token_8_th segment analysis the following comments at the reportable segment and other business unit level include external and intersegment net sales and operating earnings . see note 16 to the consolidated financial statements . united states net sales were $ 6,926 million for 2012 , an increase of $ 425 million , or 7 % , when compared with net sales of $ 6,501 million for 2011 . the 7 % daily increase for the year consisted of the following contributors : percent increase/ ( decrease ) volume 4 % price 3 % total 7 % sales to all customer end-markets increased for 2012 . the increase was led by growth in sales to heavy and light manufacturing customers , followed by diversified commercial services customers . the segment gross profit margin increased 0.3 percentage points in 2012 over 2011 , primarily driven by price increases exceeding product cost increases , partially offset by customer mix . operating expenses were up 8 % for 2012 versus 2011 . the 2012 year included a $ 76 million expense related to the settlement of disputes involving the gsa and usps contracts . also included was $ 10 million of expense primarily related to branch closure costs and an impairment charge for grainger lighting services ( formerly known as alliance energy solutions ) , an acquisition completed in november 2009. the 2011 year included costs for the closure of 35 branches of $ 18 million . excluding these expenses from both years , operating expenses increased 4 % , primarily driven by an incremental $ 70 million in growth-related spending on new sales representatives , ecommerce and advertising . 14 for the segment , operating earnings of $ 1,133 million for 2012 increased 6 % over $ 1,066 million in 2011 . excluding the expenses mentioned above in both years , operating earnings were up 12 % . the improvement in operating earnings for 2012 was due to an increase in net sales and gross profit margin , and operating expenses increasing at a slower rate than sales . canada net sales were $ 1,106 million for 2012 , an increase of $ 113 million , or 11 % , when compared with $ 993 million for 2011 . in local currency , daily sales increased 12 % for 2012. the 11 % daily increase for the year consisted of the following contributors : percent increase/ ( decrease ) volume 11 % price 1 % foreign exchange ( 1 ) % total 11 % the increase in net sales was led by growth to oil and gas , commercial and construction customers . the gross profit margin increased 0.2 percentage points in 2012 over 2011 , primarily driven by price increases exceeding product cost increases , partially offset by unfavorable customer and product mix . operating expenses increased 9 % in 2012 . in local currency , operating expenses increased 10 % primarily due to higher volume-related payroll and travel costs , and higher advertising and depreciation expense , partially offset by lower occupancy costs . operating earnings of $ 127 million for 2012 were up $ 20 million , or 18 % , versus 2011 . in local currency , operating earnings increased 19 % . the increase in earnings was due to strong sales growth , an improved gross profit margin and expense leverage . other businesses net sales for other businesses , which include operations in europe , asia , latin america and other u.s. operations were up 55 % for 2012 . the sales increase was due primarily to a full year of sales from fabory , acquired in august 2011 , and incremental sales from anfreixo , acquired in april 2012 , as well as strong growth from the businesses in japan and mexico . operating earnings for other businesses were $ 20 million for 2012 compared to $ 31 million for 2011 . story_separator_special_tag grainger completed the annual impairment testing using the qualitative approach for all of its reporting units and the two-step quantitative test for two of its reporting units . grainger recorded an impairment of $ 4 million reducing the carrying value of goodwill to $ 13 million for one of them . the estimated fair value of the other reporting unit with the carrying value of goodwill of $ 125 million exceeded its carrying value and no indication of impairment existed as of the test date . 22 grainger uses the discounted cash flow method to derive the fair value of a reporting unit . the discounted cash flow method requires considerable management judgment , assumptions and estimates regarding future profitability and cash flows of its reporting units and general market conditions , including terminal growth rate and discount rate assumptions . due to the inherent uncertainties associated with these unobservable level 3 inputs , the results of these tests may differ and impairment charges could occur in future periods . while grainger will continue to consider the economic environment and other pertinent factors that may have an adverse effect on its reporting units , there can be no assurance that grainger 's estimates and assumptions regarding forecasted cash flows or other inputs used in forecasting the fair value of future cash flows will prove to be accurate projections . stock incentive plans . grainger maintains stock incentive plans under which a variety of incentive grants may be awarded to employees and directors . grainger uses a binomial lattice option pricing model to estimate the fair value of stock option grants . the model requires projections of the risk-free interest rate , expected life , volatility , expected dividend yield and forfeiture rate of the stock option grants . the fair value of options granted used the following assumptions : replace_table_token_14_th the risk-free interest rate is selected based on yields from u.s. treasury zero-coupon issues with a remaining term approximately equal to the expected term of the options being valued . the expected life selected for options granted during each year presented represents the period of time that the options are expected to be outstanding based on historical data of option holders ' exercise and termination behavior . expected volatility is based upon implied and historical volatility of the closing price of grainger 's stock over a period equal to the expected life of each option grant . historical information is also the primary basis for selection of the expected dividend yield assumptions . because stock option compensation expense is based on awards ultimately expected to vest , it has been reduced for estimated forfeitures , using historical forfeiture experience . the amount of stock option compensation expense is significantly affected by the valuation model and these assumptions . if a different valuation model or different assumptions were used , the stock option compensation expense could be significantly different from what is recorded in the current period . compensation expense for other stock-based awards is based upon the closing market price on the last trading date preceding the date of the grant . because the expense for other stock-based awards should reflect the awards ultimately expected to vest , it has been reduced for estimated forfeitures , using historical forfeiture experience . for additional information concerning stock incentive plans , see note 11 to the consolidated financial statements . postretirement healthcare benefits . postretirement healthcare obligation and net periodic cost are dependent on assumptions and estimates used in calculating such amounts . the assumptions used include , among others , discount rates , assumed rates of return on plan assets and healthcare cost trend rates , and certain employee-related factors , such as turnover , retirement age and mortality rates . changes in these and other assumptions ( caused by conditions in equity markets or plan experience , for example ) could have a material effect on grainger 's postretirement benefit obligation and expense , and could affect its results of operations and financial condition . these changes in assumptions may also affect voluntary decisions to make additional contributions to the trust established for funding the postretirement benefit obligation . the discount rate assumptions used by management reflect the rates available on high-quality fixed income debt instruments as of december 31 , the measurement date , of each year . a lower discount rate increases the present value of benefit obligations and net periodic benefit costs . as of december 31 , 2012 , grainger decreased the discount rate used in the calculation of the postretirement plan obligation from 4.5 % to 4.0 % to reflect the decrease in market interest rates . grainger estimates that this decrease could reduce 2013 pretax earnings by approximately $ 5 million . however , other changes in assumptions may increase , decrease or eliminate this effect . 23 grainger considers the long-term historical actual return on plan assets and the historical performance of the standard & poor 's 500 index and the total international composite index in developing its expected long-term return on plan assets . in 2012 , grainger maintained the expected long-term rate of return on plan assets of 6.0 % ( net of tax ) based on the historical average of long-term rates of return . a 1 percentage point change in assumed healthcare cost trend rates would have had the following effects on december 31 , 2012 results ( in thousands of dollars ) : 1 percentage point increase ( decrease ) effect on total of service and interest cost $ 8,909 $ ( 6,670 ) effect on accumulated postretirement benefit obligation 35,541 ( 28,647 ) during the fourth quarter 2012 , grainger implemented an employer group waiver plan ( egwp ) and a secondary supplemental `` wrap-around `` plan for its medicare eligible retiree medical plan participants , and the part d retiree drug subsidy ( rds ) was eliminated effective january 1 , 2013. as a result of

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cash flow fiscal year 2012 compared with fiscal year 2011 cash from operating activities continues to serve as grainger 's primary source of liquidity . net cash flows from operations in 2012 were $ 816 million and increased $ 70 million from $ 746 million in 2011. the primary driver of the improvement was an increase in net earnings of $ 32 million as well as an increase of $ 38 million in net non-cash expenses . net cash used in investing activities of $ 306 million in 2012 was driven by net cash expended for property , buildings , equipment and software of $ 241 million and net cash paid for business acquisitions of $ 65 million . additional information regarding capital spending is detailed in the capital expenditures section below . net cash used in investing activities was $ 229 million less than in 2011 due primarily to a decrease in net cash paid for business acquisitions of $ 294 million versus 2011. net cash used in financing activities of $ 394 million in 2012 increased $ 217 million from $ 177 million in 2011. the increase was primarily due to higher treasury shares repurchases and higher dividends paid in 2012 versus 2011. cash paid for treasury share purchases was $ 341 million in 2012 versus $ 151 million in 2011 , an increase of $ 190 million . cash dividends paid were $ 220 million in 2012 , an increase of $ 39 million versus 2011. fiscal year 2011 compared with fiscal year 2010 cash from operating activities served as grainger 's primary source of liquidity .

net interest income for 2020 decreased $ 2.0 million compared to 2019. of this decrease , $ 8.3 million was due to changes in rates earned or paid , partially offset by $ 6.3 million increase from changes in the volume of average interest earning assets and interest bearing liabilities . the largest changes came in commercial loan interest income which decreased by $ 1.9 million in 2020. of the $ 1.9 million decrease in interest income on commercial loans , $ 7.4 million was due to decreases in rates earned , partially offset by $ 5.5 million increase from increases in average balances , driven by ppp loans . average interest earning assets totaled $ 2.25 billion for 2020 compared to $ 1.89 billion in 2019. increases of $ 216.5 million in average short-term investment balances and $ 124.2 million in average loan balances from 2019 to 2020 were the primary drivers of the increase in total earning assets . yield on commercial loans ( excluding ppp loans ) decreased from 4.72 % in 2019 to 4.01 % in 2020. yield on ppp loans was 3.32 % in 2020. yield on residential mortgage loans decreased from 3.72 % in 2019 to 3.66 % in 2020 , while yield on consumer loans decreased from 5.19 % in 2019 to 4.32 % in 2020. the decreases in yields on commercial loans and consumer loans , in particular , were the result of the predominance of loans in these categories with variable rates of interest tied to prime and libor which decreased significantly in 2020. our net interest margin for 2020 was positively impacted from a 56 basis point decrease in our cost of funds from 0.94 % for 2019 to 0.38 % for 2020. average interest bearing liabilities increased from $ 1.32 billion in 2019 to $ 1.47 billion in 2020. decreases in the rates paid on certain deposit account types in response to market rate declines were the primary cause of the decrease in our cost of funds . while these costs have decreased , the yields on our interest earning assets decreased to a larger extent , causing net interest margin to decrease from 2019 to 2020 . - 25 - in 2021 , we expect that net interest margin will continue to be pressured by our higher levels of short-term investment balances held . the following table shows an analysis of net interest margin for the years ended december 31 , 2020 , 2019 and 2018 ( dollars in thousands ) . replace_table_token_15_th ( 1 ) yields are presented on a tax equivalent basis using a 21 % tax rate . ( 2 ) loan fees of $ 852,000 , $ 946,000 and $ 701,000 for 2020 , 2019 and 2018 , respectively , are included in interest income . includes average nonaccrual loans of approximately $ 2.2 million , $ 375,000 and $ 316,000 for 2020 , 2019 and 2018 , respectively . excludes ppp loans . ( 3 ) includes loan fees of $ 5.4 million for the twelve months ended december 31 , 2020 . - 26 - the following table presents the dollar amount of changes in net interest income due to changes in volume and rate . replace_table_token_16_th provision for loan losses : the provision for loan losses for 2020 was $ 3.0 million compared to negative $ 450,000 for 2019. the provision for loan losses for 2020 was impacted by additional qualitative adjustments made to provide for estimated losses associated with the covid-19 pandemic as well as a $ 4.1 million charge-off taken in june 2020 related to a single loan relationship with a movie theater business for which the underlying assets were sold through bankruptcy proceedings . no other loans of this industry type remain in our portfolio . this was partially offset by continued strong asset quality metrics and loan portfolio contraction . the balances of loans graded 5 and 6 , which receive higher allocations increased by $ 1.0 million from december 31 , 2019 to december 31 , 2020. specific reserves on impaired loans decreased by $ 414,000 from $ 1.6 million at december 31 , 2019 to $ 1.2 million at december 31 , 2020. when excluding ppp loans , which are 100 % guaranteed by the sba , total loans decreased by $ 185.4 million from december 31 , 2019 to december 31 , 2020. net loan chargeoffs were $ 2.8 million in 2020 compared to net loan recoveries of $ 774,000 in 2019. our overall weighted average commercial loan grade has been below 4.00 for the past several years . our weighted average commercial loan grade was 3.71 at december 31 , 2020 and 3.67 at december 31 , 2019. the amounts of loan loss provision in each period were the result of establishing our allowance for loan losses at levels believed necessary based upon our methodology for determining the adequacy of the allowance . the sustained level of net recoveries over the past several years has had a significant effect on the historical loss component of our methodology . more information about our allowance for loan losses and our methodology for establishing its level may be found in this item 7 of this report under the heading “ allowance for loan losses ” below and in item 8 of this report in note 3 of the consolidated financial statements . noninterest income : noninterest income totaled $ 24.0 million in 2020 compared to $ 19.7 million in 2019. the components of noninterest income are shown in the table below ( in thousands ) : replace_table_token_17_th - 27 - net gains on sales of mortgage loans increased $ 4.1 million from 2019 to 2020 due to higher sales volumes in 2020. net gains on mortgage loans included gains on the sale of real estate mortgage loans in the secondary market . we sell the majority of the fixed-rate mortgage loans we originate . story_separator_special_tag million of remaining ppp loans which were generated during 2020. the ratio excluding these loans was 1.45 % at december 31 , 2020. the allowance for loan losses to nonperforming loan coverage ratio remained high at 3266 % at december 31 , 2020 compared to 8473 % at december 31 , 2019. the following is a summary of our portfolio loan balances at the end of each period and the daily average balance of these loans . it also includes changes in the allowance for loan losses arising from loans charged-off , recoveries on loans previously charged-off , and provisions for loan losses . replace_table_token_29_th the continued reduction in net charge-offs over the last several years has had a significant effect on the historical loss component of our allowance for loan losses computation as have the improvements in our credit quality metrics . the table below shows the changes in these metrics over the past five years : replace_table_token_30_th nonperforming loans have been low over the past several years . at december 31 , 2020 , we have had net loan recoveries in twenty-two of the past twenty-four quarters . perhaps even more importantly , our total delinquencies have continued to be minimal , and were just $ 600,000 at december 31 , 2020 . - 35 - these factors all provide for a reduction in our allowance for loan losses , and thus impact our provision for loan losses . the provision for loan losses was $ 3.0 million for 2020 compared to a negative $ 450,000 for 2019. the provision in each period was due to the levels of nonperforming loans and net charge-off/recovery experience . we had net charge-offs in 2020 totaling $ 2.8 million compared to net recoveries of $ 774,000 in 2019. the ratio of net charge-offs / ( recoveries ) to average loans was 0.19 % for 2020 compared to ( 0.06 % ) for 2019. despite the unique charge-off we incurred in 2020 , we are encouraged by the low level of charge-offs over the past several years . we do , however , recognize that future charge-offs and resulting provisions for loan losses are expected to be impacted by the timing and extent of changes in the overall economy and the real estate markets . our allowance for loan losses is maintained at a level believed appropriate based upon our assessment of the probable estimated losses inherent in the loan portfolio . our methodology for measuring the appropriate level of allowance and related provision for loan losses relies on several key elements , which include specific allowances for loans considered impaired , general allowance for commercial loans not considered impaired based upon applying our loan rating system , and general allocations based on historical trends for homogeneous loan groups with similar risk characteristics . impaired loans decreased $ 3.2 million , or 23 % , to $ 10.6 million at december 31 , 2020 compared to $ 13.9 million at december 31 , 2019. the specific allowance for impaired loans decreased $ 414,000 to $ 1.2 million , or 11.4 % of total impaired loans , at december 31 , 2020 compared to $ 1.6 million , or 11.7 % of total impaired loans , at december 31 , 2019. specific allowances are established on individually impaired credits where we believe it is probable that a loss may be incurred . specific allowances are determined based on discounting estimated cash flows over the life of the loan or based on the fair value of collateral supporting the loan . for commercial real estate loans , generally appraisals are used to estimate the fair value of the collateral and determine the appropriate specific allowance . estimated selling costs are also considered in the estimate . when it becomes apparent that liquidation of the collateral is the only source of repayment , the collateral shortfall is charged off rather than carried as a specific allowance . the general allowance ( referred to as “ formula allowance ” ) allocated to commercial loans that were not considered to be impaired was based upon the internal risk grade of such loans . we use a loan rating method based upon an eight point system . loans are stratified between real estate secured and non-real estate secured . the real estate secured portfolio is further stratified by the type of real estate . each stratified portfolio is assigned a loss allocation factor . generally , a worse grade assigned to a loan category results in a greater allocation percentage . changes in risk grade of loans affect the amount of the allowance allocation . the determination of our loss factors is based upon our actual loss history by loan grade and adjusted for significant factors that , in management 's judgment , affect the collectability of the portfolio as of the analysis date . we use a rolling 18 month ( 6 quarter ) actual net charge-off history as the base for our computation for commercial loans . the 18 month period ended december 31 , 2020 reflected net recoveries for most of our loan pools . we addressed this volatility in the qualitative factor considerations applied in our allowance computation . we also considered the extended period of improved asset quality in assessing the overall qualitative component . at december 31 , 2020 , we also considered the effect that the covid-19 pandemic has had and is having on our loan borrowers and our local economy . an analysis of each credit in our commercial loan portfolio was performed to evaluate the impact of the shutdown on each business and identify the potential loss exposure . while this analysis revealed limited stress in our portfolio and significant stimulus and mitigation efforts are expected to soften the impact of the shutdowns , we determined a downgrade to our economic qualitative factor was appropriate and we added 7 basis points in march 2020 , 6 basis points in

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cash and cash equivalents : our cash and cash equivalents , which include federal funds sold and short-term investments , were $ 783.7 million at december 31 , 2020 compared to $ 272.5 million at december 31 , 2019. this $ 511.3 million increase was primarily due to many of our customers holding higher balances , particularly liquid deposits , in the low interest rate environment and due to uncertainty related to the covid-19 pandemic . securities : securities available for sale were $ 236.8 million at december 31 , 2020 compared to $ 225.2 million at december 31 , 2019. the balance at december 31 , 2020 primarily consisted of u.s. agency securities , agency mortgage backed securities and various municipal investments . our held to maturity portfolio decreased from $ 82.7 million at december 31 , 2019 to $ 79.5 million at december 31 , 2020. our held to maturity portfolio is comprised of state aid notes and locally sourced municipal and commercial bonds . the commercial bond component of this category declined by $ 2.7 million in 2020. these bonds represent financing provided to some of our non-profit commercial customers who qualified for borrowing on a tax-exempt basis . portfolio loans and asset quality : total portfolio loans increased by $ 43.7 million to $ 1.43 billion at december 31 , 2020 compared to $ 1.39 billion at december 31 , 2019. during 2020 , our commercial portfolio increased by $ 119.6 million , while our residential mortgage portfolio decreased by $ 61.5 million and our consumer portfolio decreased by $ 14.4 million . the sba created the paycheck protection program to provide an efficient means to provide funding for small businesses to maintain payroll and operations during the covid-19 pandemic . we were an active participant in this program and originated a total of 1,738 loans totaling $ 346.7 million in 2020. borrowers who use the funds from their ppp loans to maintain payroll and for certain fixed expenses such as rent , occupancy , etc . are eligible to have 100 % of their loans forgiven by the sba .

we believe that we are well-positioned to manage the challenges presented in a volatile commodity pricing environment by : continuing to exercise discipline in our capital program with the expectation of funding our capital expenditures with cash on hand , operating cash flows , and if required , borrowings under our revolving credit facility . continuing to optimize our drilling , completion and operational efficiencies , resulting in lower operating costs per unit of production . continuing to manage our balance sheet , which we believe provides sufficient availability under our revolving credit facility and existing cash balances to meet our capital requirements and maintain compliance with our debt covenants . continuing to manage price risk by strategically hedging our production . while we are unable to predict future commodity prices , in the e vent that commodity prices significantly decline , management would test the recoverability of the carrying value of its oil and gas properties and , if necessary , record an impairment charge . financial condition capital resources and liquidity our primary sources of cash in 2019 were from the sale of natural gas production and proceeds from the sale of our equity investment in meade . these cash flows were primarily used to fund our capital expenditures , interest payments on debt , repurchases of shares of our common stock , payment of dividends and contributions to our equity method investments . see below for additional discussion and analysis of cash flow . on april 22 , 2019 , we entered into a second amended and restated credit agreement ( revolving credit facility ) . the borrowing base under the terms of our revolving credit facility is redetermined annually in april . in addition , either we or the banks may request an interim redetermination twice a year or in connection with certain acquisitions or divestitures of oil and gas properties . the borrowing base and available commitments were reaffirmed at $ 3.2 billion and $ 1.5 billion , respectively . as of december 31 , 2019 , there were no borrowings outstanding under our revolving credit facility and our unused commitments remained at $ 1.5 billion . a decline in commodity prices could result in the future reduction of our borrowing base and related commitments under our revolving credit facility . unless commodity prices decline significantly from current levels , we do not believe that any such reductions would have a significant impact on our ability to service our debt and fund our drilling program and related operations . we strive to manage our debt at a level below the available credit line in order to maintain borrowing capacity . our revolving credit facility includes a covenant limiting our total debt . we believe that , with internally generated operating cash flow , cash on hand and availability under our revolving credit facility , we have the capacity to finance our spending plans . at december 31 , 2019 , we were in compliance with all restrictive financial covenants for both our revolving credit facility and senior notes . refer to note 5 of the notes to the consolidated financial statements for further details regarding restrictive covenants . cash flows our cash flows from operating activities , investing activities and financing activities are as follows : replace_table_token_14_th operating activities . operating cash flow fluctuations are substantially driven by commodity prices , changes in our production volumes and operating expenses . commodity prices have historically been volatile , primarily as a result of supply 38 and demand for natural gas and crude oil , pipeline infrastructure constraints , basis differentials , inventory storage levels and seasonal influences . in addition , fluctuations in cash flow may result in an increase or decrease in our capital expenditures . our working capital is substantially influenced by the variables discussed above and fluctuates based on the timing and amount of borrowings and repayments under our revolving credit facility , repayments of debt , the timing of cash collections and payments on our trade accounts receivable and payable , respectively , payment of dividends , repurchases of our securities and changes in the fair value of our commodity derivative activity . from time to time , our working capital will reflect a deficit , while at other times it will reflect a surplus . this fluctuation is not unusual . at december 31 , 2019 and 2018 , we had a working capital surplus of $ 240.2 million and $ 257.3 million , respectively . we believe we have adequate liquidity and availability under our revolving credit facility to meet our working capital requirements over the next twelve months . net cash provided by operating activities in 2019 increase d by $ 340.9 million compared to 2018 . this increase was primarily due to an increase in cash received in settlement of derivatives , higher natural gas revenue , lower operating expenses and favorable changes in working capital and other assets and liabilities . these increases were partially offset by a decrease in brokered natural gas revenue . the increase in natural gas revenue was due to higher equivalent production , partially offset by a decrease in realized natural gas prices . average realized natural gas prices decrease d by 4 percent in 2019 compared to 2018 . equivalent production increase d by 18 percent for 2019 compared to 2018 as a result of higher natural gas production in the marcellus shale . refer to `` results of operations `` for additional information relative to commodity price , production and operating expense fluctuations . we are unable to predict future commodity prices and , as a result , can not provide any assurance about future levels of net cash provided by operating activities . investing activities . story_separator_special_tag have no off-balance sheet debt or other similar unrecorded obligations . story_separator_special_tag replace_table_token_18_th replace_table_token_19_th natural gas revenues the increase in natural gas revenues of $ 104.1 million was due to higher production partially offset by lower natural gas prices . the increase in production was a result of an increase in our drilling and completion activities in the marcellus shale . crude oil and condensate revenues the decrease in crude oil and condensate revenues of $ 48.7 million was primarily due to the sale of our eagle ford shale assets in february 2018. impact of derivative instruments on operating revenues replace_table_token_20_th brokered natural gas brokered natural gas revenues decreased $ 209.5 million . there was no brokered natural gas activity in the current period . 45 operating and other expenses replace_table_token_21_th total costs and expenses from operations decrease d by $ 211.6 million from 2018 to 2019 . the primary reasons for this fluctuation are as follows : direct operations increase d $ 7.3 million primarily driven by $ 18.7 million of higher operating costs due to higher production , which included a $ 10.1 million increase in workover expense . this increase was partially offset by an $ 11.4 million decrease in operating costs as a result of the sale of our eagle ford shale assets in february 2018. transportation and gathering increase d $ 77.9 million due to higher throughput as a result of higher marcellus shale production , partially offset by a decrease in demand charges related to a change in commitments . brokered natural gas decrease d $ 184.2 million . there was no brokered natural gas activity in the current period . taxes other than income decrease d $ 5.6 million due to $ 3.6 million lower production taxes resulting from the sale of the eagle ford shale assets in february of 2018 and $ 2.7 million lower drilling impact fees driven by a decrease in rates associated with lower natural gas prices . exploration decrease d $ 93.6 million as a result of a decrease in exploratory dry hole costs of $ 95.5 million compared to 2018. the exploratory dry hole costs in 2018 related to our exploration activities in west texas and ohio . this decrease was partially offset by an increase of $ 4.3 million in geological and geophysical costs . depreciation , depletion and amortization decrease d $ 11.7 million primarily due to lower amortization of unproved properties of $ 49.7 million , partially offset by higher dd & a of $ 37.1 million . amortization of unproved properties decreased due to lower amortization rates as a result of a decrease in exploration activities . the increase in dd & a was primarily due to an increase of $ 58.0 million due to higher equivalent production volumes in the marcellus shale , partially offset by a decrease of $ 21.0 million related to a lower dd & a rate of $ 0.42 per mcfe for 2019 compared to $ 0.45 per mcfe for 2018. the lower dd & a rate was primarily due to positive reserve revisions to our 2018 year-end reserve estimates and lower cost reserve additions . general and administrative decrease d $ 1.8 million primarily due to a $ 6.1 million decrease in professional services and a $ 2.4 million decrease in stock-based compensation expense associated with certain of our market-based performance awards . these decreases were partially offset by $ 2.1 million in severance cost incurred in the second quarter 2019 and $ 3.0 million in higher employee costs . the remaining changes in other general and administrative expenses were not individually significant . 46 earnings on equity method investments earnings on equity method investments increase d $ 79.4 million primarily due to the sale of our investment in meade for a gain of $ 75.8 million and the recognition of our proportionate share of net income from our equity method investments in 2019 compared to 2018 primarily from our investment in meade , which commenced operations in late 2018. loss on sale of assets during 2019 , we recognized a net aggregate loss of $ 1.5 million primarily due to the conveyance of certain remaining properties related to the sale of our eagle ford shale assets . during 2018 , we recognized a net aggregate loss of $ 16.3 million primarily due to the sale of our eagle ford shale assets , partially offset by a gain on the sale of oil and gas properties in the haynesville shale . interest expense , net interest expense decreased $ 18.2 million primarily due to $ 14.1 million lower interest expense resulting from the repayment of $ 237.0 million of our 6.51 % weighted-average senior notes , which matured in july 2018 and $ 67.0 million of our 9.78 % senior notes that matured in december 2018 and a $ 6.2 million decrease related to income tax reserves . these decreases were partially offset by $ 3.6 million of lower interest income . income tax expense income tax expense increase d $ 78.1 million due to higher pretax income and a higher effective tax rate . the effective tax rates for 2019 and 2018 were 24.3 percent and 20.2 percent , respectively . the increase in the effective tax rate is primarily due to the impact of non-recurring discrete items recorded during 2019 compared to 2018. excluding the impact of any discrete items , we expect our 2020 effective income tax rate to be approximately 23.0 percent . however , this rate may fluctuate based on a number of factors , including but not limited to changes in enacted federal and or state rates that occur during the year , changes in our executive compensation and the amount of excess tax benefits on stock-based compensation , as well as changes in the composition and location of our asset base , our employees and our customers . 2018 and 2017 compared we reported net income for 2018 of $ 557.0 million , or $ 1.25 per share , compared to net

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cash flows used in investing activities increase d by $ 250.5 million from 2018 compared to 2019 . the increase was due to $ 675.8 million lower proceeds from the sale of assets primarily due to the divestiture of our eagle ford shale assets in february 2018 and our haynesville shale assets in july 2018. this change was partially offset by $ 249.5 million of proceeds from the sale of our equity investment in meade in november 2019 , $ 106.1 million of lower capital expenditures and $ 67.9 million of lower capital contributions associated with our equity method investments . financing activities . cash flows used in financing activities decrease d by $ 598.9 million from 2018 compared to 2019 . the decrease was due to $ 352.9 million of lower repurchases of our common stock in 2019 and $ 290.0 million of lower net repayments of debt primarily related to maturities of certain of our senior notes in 2018. this decrease was partially offset by $ 34.1 million of higher dividend payments related to an increase in our dividend rate in 2019 , $ 7.4 million higher debt issuance costs related to amending our revolving credit facility in early 2019 and $ 2.4 million higher tax withholdings on vesting of stock awards . share repurchases in 2019 include $ 31.4 million of share repurchases that were accrued in 2018 and paid in 2019 . 2018 and 2017 compared .

31 business results and highlights financial results 2019 financial highlights included : consolidated net revenues decreased 13 % to $ 6.5 billion and consolidated operating income decreased 19 % to $ 1.6 billion , as compared to consolidated net revenues of $ 7.5 billion and consolidated operating income of $ 2.0 billion in 2018 ; revenues from digital online channels decreased 15 % to $ 4.9 billion and were 76 % of consolidated net revenues , as compared to $ 5.8 billion and 77 % of consolidated net revenues in 2018 ; operating margin was 24.8 % , as compared to 26.5 % in 2018 ; consolidated net income decreased to $ 1.5 billion , as compared to $ 1.8 billion in 2018 , which included significant discrete tax-related impacts in both 2019 and 2018—refer to “ consolidated results , income tax expense ” discussion below for details ; diluted earnings per common share decreased to $ 1.95 , as compared to $ 2.40 in 2018 ; and cash flows from operating activities were approximately $ 1.83 billion , an increase of 2 % , as compared to $ 1.79 billion in 2018 . since certain of our games are hosted online or include significant online functionality that represents a separate performance obligation , we defer the transaction price allocable to the online functionality from the sale of these games and recognize the attributable revenues over the relevant estimated service periods , which are generally less than a year . net revenues and operating income for the year ended december 31 , 2019 , include net effects of $ 101 million and $ 52 million , respectively , from the recognition of deferred net revenues and related cost of revenues . additionally , for the year ended december 31 , 2019 , 18 % of total net revenues recognized were from revenue sources that were recognized at a “ point-in-time , ” while “ over-time and other ” revenues were 82 % of total net revenues . revenue recognized at a “ point-in-time ” is primarily comprised of the portion of revenue from software products that is recognized when the customer takes control of the product ( i.e . , upon delivery of the software product ) and revenues from our distribution business . “ over-time and other revenue ” is primarily comprised of revenue associated with the online functionality of our games , in-game purchases , and subscriptions . content release and event highlights games and downloadable content that were released during 2019 , include : activision 's sekiro tm : shadows die twice ; activision 's crash tm team racing nitro-fueled ; activision 's spyro ® reignited trilogy on nintendo switch and pc ; activision 's call of duty : mobile ; activision 's call of duty : modern warfare ; blizzard 's world of warcraft ® classic ; and blizzard 's latest expansions to hearthstone—rise of shadows tm , saviors of uldum tm , tombs of terror tm , , and descent of dragons tm . 32 the overwatch league , the first major global professional esports league with city-based teams , completed its second season in 2019 and began its third season in february 2020. during 2019 , we also sold the first 12 teams for the call of duty league , which began its first season in january 2020. international sales international sales are a fundamental part of our business . an important element of our international strategy is to develop content that is specifically directed toward local cultures and customs . net revenues from international sales accounted for approximately 54 % , 54 % , and 55 % of our total consolidated net revenues for the years ended december 31 , 2019 , 2018 , and 2017 , respectively . the majority of our net revenues from foreign countries are generated by consumers in australia , brazil , canada , china , france , germany , italy , japan , the netherlands , south korea , spain , sweden , and the united kingdom . our international business is subject to risks typical of an international business , including , but not limited to , foreign currency exchange rate volatility and changes in local economies . accordingly , our future results could be materially and adversely affected by changes in foreign currency exchange rates and changes in local economies . operating metrics the following operating metrics are key performance indicators that we use to evaluate our business . the key drivers of changes in our operating metrics are presented in the order of significance . net bookings and in-game net bookings we monitor net bookings as a key operating metric in evaluating the performance of our business because it enables an analysis of performance based on the timing of actual transactions with our customers and provides more timely indication of trends in our operating results . net bookings is the net amount of products and services sold digitally or sold-in physically in the period , and includes license fees , merchandise , and publisher incentives , among others . net bookings is equal to net revenues excluding the impact from deferrals . in-game net bookings primarily includes the net amount of downloadable content and microtransactions sold during the period , and is equal to in-game net revenues excluding the impact from deferrals . net bookings and in-game net bookings were as follows ( amounts in millions ) : replace_table_token_4_th net bookings the decrease in net bookings for 2019 , as compared to 2018 , was primarily due to : a $ 572 million decrease in blizzard net bookings primarily driven by ( 1 ) lower net bookings from hearthstone and ( 2 ) overall lower net bookings from world of warcraft expansion and in-game content sales , primarily due to world of warcraft : battle for azeroth , which was released in august 2018 , with no comparable release in 2019 ( although net story_separator_special_tag 40 reconciliations of total segment net revenues and total segment operating income to consolidated net revenues and consolidated income before income tax expense are presented in the table below ( amounts in millions ) : replace_table_token_9_th ( 1 ) includes other income and expenses from operating segments managed outside the reportable segments , including our distribution business . also includes unallocated corporate income and expenses . ( 2 ) since certain of our games are hosted online or include significant online functionality that represents a separate performance obligation , we defer the transaction price allocable to the online functionality from the sale of these games and then recognize the attributable revenues over the relevant estimated service periods , which are generally less than a year . the related cost of revenues is deferred and recognized as an expense as the related revenues are recognized . this table reflects the net effect from the deferrals of revenues and recognition of deferred revenues , along with the related cost of revenues , on certain of our online enabled products . ( 3 ) intersegment revenues reflect licensing and service fees charged between segments . ( 4 ) reflects restructuring initiatives , which include severance and other restructuring-related costs . ( 5 ) reflects the impact of other unusual or unique tax‑related items and activities . segment net revenues activision the decrease in activision 's net revenues for 2019 , as compared to 2018 , was primarily due to : lower revenues from the destiny franchise ( reflecting our sale of the publishing rights for destiny to bungie in december 2018 ) ; and lower revenues from call of duty franchise catalog titles . 41 the decrease was partially offset by : revenues from sekiro : shadows die twice , which was released in march 2019 ; revenues from crash team racing nitro-fueled , which was released in june 2019 ; and revenues from call of duty : mobile , which was released in october 2019. blizzard the decrease in blizzard 's net revenues for 2019 , as compared to 2018 , was primarily due to : lower revenues from hearthstone ; and overall lower revenues from world of warcraft , primarily due to world of warcraft : battle for azeroth , which was released in august 2018 , with no comparable release in 2019 ( although revenues from subscriptions increased due to the release of world of warcraft classic in august 2019 ) . king the decrease in king 's net revenues for 2019 , as compared to 2018 , was primarily due to lower in-game revenues from player purchases across various franchise titles , primarily driven by the candy crush franchise , partially offset by an increase in advertising revenues . segment income from operations activision the decrease in activision 's operating income for 2019 , as compared to 2018 , was primarily due to : lower revenues , as discussed above ; and marketing costs associated with the release of call of duty : mobile in october 2019. the decrease was partially offset by : lower cost of revenues as a result of the decrease in revenues discussed above , primarily associated with destiny ; and lower operating expenses , such as sales and marketing and product developments costs , for destiny . blizzard the decrease in blizzard 's operating income for 2019 , as compared to 2018 , was primarily due to lower revenues , as discussed above . the decrease is partially offset by : lower spending on sales and marketing , primarily driven by lower marketing for esports initiatives ; higher capitalization of development costs driven by the timing of blizzard 's game development cycles ; lower personnel costs ; lower software amortization from world of warcraft , primarily due to the release of world of warcraft : battle for azeroth in august 2018 , with no comparable release in 2019 ; and 42 lower service provider fees , such as digital storefront fees ( e.g . , fees retained by apple and google for our sales on their platforms ) , payment processor fees , and server bandwidth fees . king king 's operating income for 2019 was slightly less than in 2018 , primarily due to lower revenues , as discussed above . the impact of the lower revenues was largely offset by : lower personnel costs ; and lower service provider fees , such as digital storefront fees ( e.g . , fees retained by apple and google for our sales on their platforms ) , payment processor fees , and server bandwidth fees . foreign exchange impact changes in foreign exchange rates had a negative impact of $ 126 million and a positive impact of $ 48 million on reportable segment net revenues for 2019 and 2018 , respectively , as compared to the same periods in the previous year . the changes are primarily due to changes in the value of the u.s. dollar relative to the euro and british pound . consolidated results net revenues by distribution channel the following table details our consolidated net revenues by distribution channel ( amounts in millions ) : replace_table_token_10_th ( 1 ) net revenues from “ digital online channels ” include revenues from digitally-distributed subscriptions , downloadable content , microtransactions , and products , as well as licensing royalties . ( 2 ) net revenues from “ other ” primarily includes revenues from our distribution business and the overwatch league . digital online channel net revenues the decrease in net revenues from digital online channels for 2019 , as compared to 2018 , was primarily due to : lower revenues recognized from the destiny franchise ( reflecting our sale of the publishing rights for destiny to bungie in december 2018 ) ; and lower revenues recognized from hearthstone . 43 retail channel net revenues the decrease in net revenues from retail channels for 2019 , as compared to 2018 , was primarily due to

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net cash provided by operating activities the primary driver of net cash flows associated with our operating activities is the collection of customer receivables generated from the sale of our products and services . these collections are typically partially offset by : payments to vendors for the manufacturing , distribution , and marketing of our products ; payments for customer service support for our consumers ; payments to third-party developers and intellectual property holders ; payments for interest on our debt ; payments for software development ; payments for tax liabilities ; and payments to our workforce . net cash provided by operating activities for 2019 was $ 1.83 billion , as compared to $ 1.79 billion for 2018. the increase was primarily due to : lower tax payments , primarily due to payments for a tax settlement in the u.s. in 2018 with no comparable activity in 2019 ; and changes in our working capital resulting from the timing of collections and payments , in addition to lower cash spent to support the destiny franchise ( reflecting our sale of the publishing rights for destiny to bungie in december 2018 ) . the increase was partially offset by lower net income in 2019 as compared to 2018 and a decrease in non-cash adjustments to net income , primarily due to lower amortization of intangible assets related to the acquisition of king and lower amortization of capitalized software development costs and intellectual property licenses . 50 net cash used in investing activities the primary drivers of net cash flows associated with investing activities typically include capital expenditures , purchases and sales of investments , changes in restricted cash balances , and cash used for acquisitions .

our power solutions and protection backlog grew by 11 % , led by higher demand for our power supplies and circuit protection products through our distribution partners . · product mix – material and labor costs vary by product line and any significant shift in product mix between higher- and lower-margin product lines will have a corresponding impact on the company 's gross margin percentage . in general , our connectivity products have the highest contribution margins , our magnetic products are more labor intensive and are therefore less profitable than the connectivity products and our power products are on the lower end of our profit margin range , due to their high material content . fluctuations in sales volume among our product groups will have a corresponding impact on bel 's profit margins . 16 return to index · pricing and availability of materials – there have been recent supply constraints related to components that constitute raw materials in our manufacturing processes , particularly with resistors , capacitors , mosfets and printed circuit boards . lead times have been extended and the reduction in supply has also caused an increase in prices for certain of these components throughout 2018. as a result , the company 's material costs as a percentage of sales increased to 41.9 % during 2018 from 40.2 % during 2017. we 've started to see some relief in availability and pricing of passive components and capacitors in early 2019 as compared to 2018 levels though pricing remains high compared to pre-2018 levels . we anticipate our material costs as a percentage of sales will continue to be elevated during the first half of 2019 as we work through our higher-cost inventory on hand . the preceding sentence represents a forward-looking statement . see `` cautionary notice regarding forward-looking statements . `` · labor costs – labor costs increased from 10.8 % of sales during 2017 to 11.5 % of sales during 2018 , primarily due to the appreciation of the renminbi against the u.s. dollar , particularly during the first half of 2018 , minimum wage increases in the prc , and growth in sales of our labor-intensive integrated connector module ( icm ) products . effective february 1 , 2018 , the prc government issued an increase to the minimum wage in a region where one of bel 's factories is located . effective july 1 , 2018 , government-mandated minimum wage increases went into effect at bel 's other three manufacturing facilities in the prc . we anticipate labor costs will continue to be a challenge in 2019 in the areas in which we operate , particularly in mexico , where an increase in minimum wage rate took effect on january 1 , 2019 , and in the prc . the preceding sentence represents a forward-looking statement . see `` cautionary notice regarding forward-looking statements . `` · restructuring – the company continues to implement restructuring programs to increase operational efficiencies and incurred $ 0.2 million in restructuring costs during 2018. by the end of the third quarter , we had completed the transition of one of our product lines from a third party factory in malaysia to an existing bel facility in the prc . annual savings of approximately $ 1.4 million are expected from the initiatives completed during 2018 ( primarily within cost of sales ) . additional restructuring efforts are expected to continue into 2019 as we realign our r & d resources dedicated to our power solutions and protection group . we expect the 2019 initiative to result in incremental restructuring costs of approximately $ 0.4 million with annualized cost savings of $ 1.5 million once implemented . the preceding sentence represents a forward-looking statement . see `` cautionary notice regarding forward-looking statements . `` · impact of foreign currency – during 2018 , the company realized foreign exchange transactional gains of $ 2.7 million , offset by higher labor and overhead costs of $ 0.8 million related to unfavorable fluctuation in exchange rates versus 2017. since we are a u.s. domiciled company , we translate our foreign currency-denominated financial results into u.s. dollars . due to the changes in the value of foreign currencies relative to the u.s. dollar , translating our financial results and the revaluation of certain intercompany as well as third-party transactions to and from foreign currencies to u.s. dollars may result in a favorable or unfavorable impact to our consolidated statements of operations and cash flows . the company was unfavorably impacted by transactional foreign exchange losses in 2018 due to the appreciation of the euro , pound , and renminbi against the u.s. dollar as compared to exchange rates in effect during 2017. the company has significant manufacturing operations located in the prc where labor and overhead costs are paid in local currency . as a result , the u.s. dollar equivalent costs of these operations were $ 0.8 million higher in 2018. the company monitors changes in foreign currencies and may implement pricing actions to help mitigate the impact that changes in foreign currencies may have on its consolidated operating results . · erp system implementation – in january 2019 , the company completed the first phase of its erp system implementation with the successful transition of its power solutions business onto the new system without any notable issues . the company incurred expenses of $ 2.2 million during 2018 related to this project . the other phases of this project will largely leverage bel 's trained internal resources which should result in lower implementation costs going forward , including the elimination of redundant systems . in connection with the completion of this first phase of the project , we anticipate annualized savings of $ 1.3 million beginning in the second quarter of 2019 . · effective tax rate – the company 's effective tax rate will fluctuate based on the geographic segment in which the pretax profits are earned . story_separator_special_tag story_separator_special_tag million primarily due to higher sales volume in the fourth quarter of 2018 as compared to the fourth quarter of 2017. days sales outstanding ( dso ) decreased to 59 days at december 31 , 2018 from 60 days at december 31 , 2017. inventories increased by $ 24.7 million from the december 31 , 2017 level as raw material and work in progress volumes are at higher levels to accommodate an increase in customer demand for our products . i nventory turns increased slightly to 3.7 times per year at december 31 , 2018 from 3.6 times per year at december 31 , 2017 . 22 return to index contractual obligations the following table sets forth at december 31 , 2018 the amounts of payments due under specific types of contractual obligations , aggregated by category of contractual obligation , for the time periods described below . replace_table_token_7_th ( 1 ) represents the principal amount of the debt required to be repaid in each period . ( 2 ) includes interest payments required under our csa related to our term loans and revolver balance . the interest rate in place under our csa on december 31 , 2018 was utilized and this calculation assumes obligations are repaid when due . ( 3 ) represents estimated future minimum annual rental commitments primarily under non-cancelable real and personal property leases as of december 31 , 2018. at december 31 , 2018 , we had liabilities for unrecognized tax benefits and related interest and penalties of $ 28.9 million , most of which is included in other liabilities and the remaining balance of which is included in other current liabilities on our consolidated balance sheet . at december 31 , 2018 , we can not reasonably estimate the future period or periods of cash settlement of these liabilities . see note 9 , `` income taxes , `` of the notes to consolidated financial statements for further discussion . the company is required to pay serp obligations at the occurrence of certain events . as of december 31 , 2018 , $ 18.7 million is included in long-term liabilities as an unfunded pension obligation on the company 's consolidated balance sheet . included in other assets at december 31 , 2018 is the cash surrender value of company-owned life insurance and marketable securities held in a rabbi trust with an aggregate value of $ 13.0 million , which has been designated by the company to be utilized to fund the company 's serp obligations . critical accounting policies and other matters the company 's consolidated financial statements include certain amounts that are based on management 's best estimates and judgments . estimates are used when accounting for amounts recorded in connection with mergers and acquisitions , including determination of the fair value of assets and liabilities . additionally , estimates are used in determining such items as current fair values of goodwill and other intangible assets , as well as provisions related to product returns , bad debts , inventories , intangible assets , investments , serp expense , income taxes and contingencies and litigation . the company bases its estimates on historical experience and on various other assumptions , including in some cases future projections , that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . the following accounting policies require accounting estimates that have the potential for significantly impacting bel 's financial statements . inventory the company makes purchasing and manufacturing decisions principally based upon firm sales orders from customers , projected customer requirements and the availability and pricing of raw materials . future events that could adversely affect these decisions and result in significant charges to the company 's operations include miscalculating customer requirements , technology changes which render certain raw materials and finished goods obsolete , loss of customers and or cancellation of sales orders , stock rotation with distributors and termination of distribution agreements . the company reduces the carrying value of its inventory for estimated obsolescence or unmarketable inventory by an amount equal to the difference between the cost of inventory and the estimated market value based on the aforementioned assumptions . when such inventory is subsequently used in the manufacturing process , the lower adjusted cost of the material is charged to cost of sales and the improved gross profit is recognized at the time the completed product is shipped and the sale is recorded . as of december 31 , 2018 and 2017 , the company had reserves for excess or obsolete inventory of $ 9.9 million and $ 8.3 million , respectively . if actual market conditions are less favorable than those projected by management , additional inventory write-downs may be required . goodwill and indefinite-lived intangible assets goodwill is reviewed for possible impairment at least annually on a reporting unit level during the fourth quarter of each year . a review of goodwill may be initiated before or after conducting the annual analysis if events or changes in circumstances indicate the carrying value of goodwill may no longer be recoverable . 23 return to index a reporting unit is the operating segment unless discrete financial information is prepared and regularly reviewed by management at businesses one level below that operating segment , the `` component `` level , and the component has economic characteristics that are different from the economic characteristics of the other components of the operating segment , in which case the component is the reporting unit . while we are permitted to conduct a qualitative assessment to determine whether it is necessary to perform a two-step quantitative goodwill impairment test , for our annual goodwill impairment tests in the fourth quarter of 2018 and 2017 , we performed

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liquidity and capital resources our primary sources of cash are the collection of trade receivables generated from the sales of our products and services to our customers and amounts available under our existing lines of credit , including our credit facility . our primary uses of cash are payments for operating expenses , investments in working capital , capital expenditures , interest , taxes , dividends , debt obligations and other long-term liabilities . we believe that our current liquidity position and future cash flows from operations will enable us to fund our operations , including all of the items mentioned above in the next twelve months . at december 31 , 2018 and 2017 , $ 46.3 million and $ 50.5 million , respectively ( or 86 % and 73 % , respectively ) , of cash and cash equivalents was held by foreign subsidiaries of the company . during the third quarter of 2018 , the company repatriated $ 12.2 million of funds from outside of the u.s. , with minimal incremental tax liability . of this amount , approximately $ 9 million was utilized to pay down intercompany balances that have been generating foreign exchange gains/losses in our consolidated statement of operations . management currently intends to repatriate an additional $ 10 to $ 14 million in the first half of 2019 , with minimal incremental tax liability . we continue to analyze our global working capital and cash requirements and the potential tax liabilities attributable to further repatriation , and we have yet to make any further determination regarding repatriation of funds from outside the u.s. to fund the company 's u.s. operations in the future . in the event these funds were needed for bel 's u.s. operations , the company would be required to accrue and pay u.s. state taxes and any applicable foreign withholding taxes to repatriate these funds . 21 return to index in june 2014 , the company entered into a senior credit and security agreement , which was subsequently amended in march 2016 , and further amended and refinanced in december 2017 ( see note 10 , `` debt , '' for additional details ) .

1 ) ( iv ) of regulation s-k and the related instructions , or a reportable event within the meaning set forth in item 304 ( a ) ( 1 ) ( v ) of regulation s-k. audit fees the fees involved with the audit by bfb of the financial statements for the year ended december 31 , 2019 are $ 5,000 . other than that , the company paid $ 4,500 to bfb for the review of all interim financial statements during 2019 , $ 4,500 for the previous audit for the year ended december 31 , 2018 and $ 4,500 for the review of all interim financial statements during 2018. audit-related fees during the years ended december 31 , 2019 and december 31 , 2018 , our principal accountant did not render audit-related services to us . tax fees during the year ended december 31 , 2019 and december 31 , 2018 , our principal accountant did not render services to us for tax compliance , tax advice or tax planning . all other fees during the year ended december 31 , 2019 and december 31 , 2018 there were no fees billed for products and services provided by the principal accountant other than those set forth above . currently , we have no independent audit committee . our full board of directors functions as our audit committee and is comprised of one director who is not considered to be `` independent `` in accordance with the requirements of rule 10a-3 under the exchange act . our audit committee 's pre-approval policies and procedures described in paragraph ( c ) ( 7 ) ( i ) of rule 2-01 of regulation s-x were that the audit committee pre-approve all accounting related activities prior to the performance of any services by any accountant or auditor . 18 part iv item 15 exhibits , financial statement schedules ( a ) the following documents are filed as a part of this report : 1. financial statements . the following financial statements of new leap , inc. are included in item 8 : replace_table_token_8_th 2. financial statement schedule ( s ) : all schedules are omitted for the reason that the information is included in the financial statements or the notes thereto or that they are not required or are not applicable . 3. exhibits : replace_table_token_9_th _ * filed herewith . ( 1 ) incorporated herein by reference from the company 's form s-1 filed with the securities and exchange commission on august 8 , 2017 . 19 signatures in accordance with section 13 or 15 ( d ) of the securities exchange act , the registrant caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . march 27 , 2020 itzhak ostashinsky itzhak ostashinsky chief executive officer 20 story_separator_special_tag this discussion summarizes the significant factors affecting the operating results , financial condition , liquidity and cash flows of the company for the fiscal year ended december 31 , 2019. the discussion and analysis that follows should be read together with the section entitled “ forward looking statements ” and our consolidated financial statements and the notes to the consolidated financial statements included elsewhere in this annual report on form 10-k. except for historical information , the matters discussed in this section are forward-looking statements that involve risks and uncertainties and are based upon judgments concerning various factors that are beyond the company 's control . consequently , and because forward-looking statements are inherently subject to risks and uncertainties , the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements . you are urged to carefully review and consider the various disclosures made by us in this report . company overview new leap plans to match up potential investors from all over the world , except for u.s. residents with private u.s. companies and companies which are publicly traded in the u.s. ( both u.s. and foreign incorporated ) . the goal is to use the crowdfunding trend in order to make private investments in such companies more accessible to non-u.s. investors on one hand and allow easier access to capital for these companies on the other . we will not allow u.s. persons access to the materials presented by the companies offering their securities on our website . anyone trying to gain access to the offering materials posted on our website will first need to fill out a questionnaire which will include a question about the country of residence . anyone answering “ u.s.a ” or any of its states will be prohibited from gaining access to the page showing the offering materials of the presenting companies . we intend to start developing a website following completion of this offering . for this purpose our intention is to use a third party vendor which can provide both design and programming services . all securities will bear a legend indicating that the securities are `` restricted securities `` and may not be sold in the u.s. absent an effective registration statement under the securities act covering the resale of such securities or an available exemption from such registration requirement . new leap will keep a complete audit trail of investments in the companies presenting on its website . funds committed for an investment will be kept in an escrow account until the company 's funding goal is reached . upon reaching such goal , funds will be transferred from the escrow account to the company 's bank account while simultaneously stock certificates will be delivered to the investors . should the funding goal not be reached until the deadline of the offering , funds would immediately be returned to the investors . results of operations january 1 , 2018 to december 31 , 2018 compared to january 1 , 2019 to december 31 , 2019 selling , general and administrative expenses selling , general and administrative story_separator_special_tag 1 ) ( iv ) of regulation s-k and the related instructions , or a reportable event within the meaning set forth in item 304 ( a ) ( 1 ) ( v ) of regulation s-k. audit fees the fees involved with the audit by bfb of the financial statements for the year ended december 31 , 2019 are $ 5,000 . other than that , the company paid $ 4,500 to bfb for the review of all interim financial statements during 2019 , $ 4,500 for the previous audit for the year ended december 31 , 2018 and $ 4,500 for the review of all interim financial statements during 2018. audit-related fees during the years ended december 31 , 2019 and december 31 , 2018 , our principal accountant did not render audit-related services to us . tax fees during the year ended december 31 , 2019 and december 31 , 2018 , our principal accountant did not render services to us for tax compliance , tax advice or tax planning . all other fees during the year ended december 31 , 2019 and december 31 , 2018 there were no fees billed for products and services provided by the principal accountant other than those set forth above . currently , we have no independent audit committee . our full board of directors functions as our audit committee and is comprised of one director who is not considered to be `` independent `` in accordance with the requirements of rule 10a-3 under the exchange act . our audit committee 's pre-approval policies and procedures described in paragraph ( c ) ( 7 ) ( i ) of rule 2-01 of regulation s-x were that the audit committee pre-approve all accounting related activities prior to the performance of any services by any accountant or auditor . 18 part iv item 15 exhibits , financial statement schedules ( a ) the following documents are filed as a part of this report : 1. financial statements . the following financial statements of new leap , inc. are included in item 8 : replace_table_token_8_th 2. financial statement schedule ( s ) : all schedules are omitted for the reason that the information is included in the financial statements or the notes thereto or that they are not required or are not applicable . 3. exhibits : replace_table_token_9_th _ * filed herewith . ( 1 ) incorporated herein by reference from the company 's form s-1 filed with the securities and exchange commission on august 8 , 2017 . 19 signatures in accordance with section 13 or 15 ( d ) of the securities exchange act , the registrant caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . march 27 , 2020 itzhak ostashinsky itzhak ostashinsky chief executive officer 20 story_separator_special_tag this discussion summarizes the significant factors affecting the operating results , financial condition , liquidity and cash flows of the company for the fiscal year ended december 31 , 2019. the discussion and analysis that follows should be read together with the section entitled “ forward looking statements ” and our consolidated financial statements and the notes to the consolidated financial statements included elsewhere in this annual report on form 10-k. except for historical information , the matters discussed in this section are forward-looking statements that involve risks and uncertainties and are based upon judgments concerning various factors that are beyond the company 's control . consequently , and because forward-looking statements are inherently subject to risks and uncertainties , the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements . you are urged to carefully review and consider the various disclosures made by us in this report . company overview new leap plans to match up potential investors from all over the world , except for u.s. residents with private u.s. companies and companies which are publicly traded in the u.s. ( both u.s. and foreign incorporated ) . the goal is to use the crowdfunding trend in order to make private investments in such companies more accessible to non-u.s. investors on one hand and allow easier access to capital for these companies on the other . we will not allow u.s. persons access to the materials presented by the companies offering their securities on our website . anyone trying to gain access to the offering materials posted on our website will first need to fill out a questionnaire which will include a question about the country of residence . anyone answering “ u.s.a ” or any of its states will be prohibited from gaining access to the page showing the offering materials of the presenting companies . we intend to start developing a website following completion of this offering . for this purpose our intention is to use a third party vendor which can provide both design and programming services . all securities will bear a legend indicating that the securities are `` restricted securities `` and may not be sold in the u.s. absent an effective registration statement under the securities act covering the resale of such securities or an available exemption from such registration requirement . new leap will keep a complete audit trail of investments in the companies presenting on its website . funds committed for an investment will be kept in an escrow account until the company 's funding goal is reached . upon reaching such goal , funds will be transferred from the escrow account to the company 's bank account while simultaneously stock certificates will be delivered to the investors . should the funding goal not be reached until the deadline of the offering , funds would immediately be returned to the investors . results of operations january 1 , 2018 to december 31 , 2018 compared to january 1 , 2019 to december 31 , 2019 selling , general and administrative expenses selling , general and administrative

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liquidity and capital resources the following is a summary of the company 's cash flows provided by ( used in ) operating , investing , and financing activities for the year ended december 31 , 2018 and the year ended december 31 , 2019 : replace_table_token_1_th to date , most of our resources and work have been devoted to planning our business , completing our registration statement and building our website . private capital , if sought , we believe will be sought from former business associates of our president and chief executive officer or through private investors referred to us by those same business associates . if a market for our shares ever develops , of which there can be no assurances , we may use restricted shares of our common stock to compensate employees/consultants and independent contractors wherever possible . we can not predict the likelihood or source of raising capital or funds that may be needed to complete the development of our business plan . we are a public company and as such we have incurred and will continue to incur significant expenses for legal , accounting and related services . as a public entity , subject to the reporting requirements of the exchange act of 1934 , we incur ongoing expenses associated with professional fees for accounting , legal and a host of other expenses including annual reports and proxy statements , if required . we estimate that these costs will range up to $ 50,000 per year over the next few years and may be significantly higher if our business volume and transactional activity increases but should be lower during our first year of being public because our overall business volume ( and financial transactions ) will be lower , and we will not yet be subject to the requirements of section 404 of the sarbanes-oxley act of 2002 until we exceed $ 250 million in market capitalization ( if ever ) . these obligations will certainly reduce our ability and resources to expand our business plan and activities .

you can identify these statements by forward-looking words such as “ may , ” “ will , ” “ expect , ” “ anticipate , ” “ believe , ” “ estimate ” and “ continue , ” or similar words . those statements include statements regarding the intent , belief or current expectations of us and members of our management team as well as the assumptions on which such statements are based . prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties , and that actual results may differ materially from those contemplated by such forward-looking statements . readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the securities and exchange commission . important factors currently known to management could cause actual results to differ materially from those in forward-looking statements . we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions , the occurrence of unanticipated events or changes in the future operating results over time . we believe that our assumptions are based upon reasonable data derived from and known about our business and operations . no assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions . factors that could cause differences include , but are not limited to , expected market demand for our products , fluctuations in pricing for materials , and competition . business overview we were formed in august 2015 to expand upon the successful implementation of a hydrogen energy system used to completely power a residence or commercial property with clean energy so that it can run independent of the utility grid and also provide energy to the utility grid for monetary credits . this system uses renewable energy as its source for hydrogen production . it functions as a self-sustaining clean energy system using hydrogen and fuel cell technology . its production of electricity is truly eco-friendly , as it is not produced by the use of fossil fuels . it is a revolutionary green-energy concept that is safe , renewable , self-sustaining and cost effective . there are great benefits to hydrogen energy . the use of hydrogen as an energy source produces no carbon dioxide or other greenhouse gases . unlike fossil fuels , the only emission from hydrogen is chemically pure water . hydrogen can be extracted from water using renewable energy from the sun and unlike batteries , hydrogen can be stored indefinitely . there is no drilling , fracking or mining required to produce hydrogen . we believe it is safe and the most abundant and cleanest energy source on the planet . in addition to offering this self-sustaining clean energy system using hydrogen and fuel cell technology , we offer a number of renewable energy services , such as audits of energy consumption , review of energy/tax credits available , feasibility studies , solar/battery system installation , zoning/permitting analysis , site design/preparation and restoration , system startup , testing , commissioning , maintenance and interconnection applications . we have succeeded in developing and installing hydrogen energy systems that are combined with renewable solar energy to produce clean electricity . we call the hydrogen energy system the hc-1 . the hc-1 system functions as a self-sustaining renewable energy system . it can be configured as an off grid solution for all your electricity needs or it can be connected to the grid to generate energy credits . it is a system comprised of solar , batteries , a hydrogen generator , a fuel cell and a hydrogen storage tank . when there is sunlight , the solar produce renewable energy that charges a bank of batteries . after the batteries are fully charged , the excess electricity is then combined with water through a hydrogen generator that extracts the hydrogen from the water in a gasified state , which is safely transferred to a tank and stored for later use . if the tank is full , excess electricity is sent from the batteries to the utility grid , which results in energy credits for the system owner . the electricity for the end user is always provided by the charged batteries . if there is no solar power to charge the batteries , the system keeps the batteries fully charged by using the hydrogen gas stored in the tank , which processed through a fuel cell , creates the electricity to charge the batteries . as the system is able to produce its own hydrogen gas , which keeps the tank full , it provides a continuous supply of clean energy and sustainability that is independent from the grid . each hc-1 system is custom designed to accommodate the electrical loads for an end user . the system is completely scalable . if a customer wishes to connect the system to the electrical grid in order to generate renewable energy credits , we obtain interconnection agreements from the local electric utility company . if the customer obtains authorization for interconnection to the utility grid , once the hc-1 system is operational , the hc-1 system owner can eliminate their electric bill and , if in a permissible state , can begin generating energy credits . in certain states , an end user receives one energy credit for each 1,000 kilowatt hours ( kwh ) produced through renewal energy . story_separator_special_tag if between fifteen thousand and one ( 15,001 ) shares to thirty thousand ( 30,000 ) shares are traded on average per day , the relevant put shall be capped to thirty thousand ( 30,000 ) shares ; iii . if between thirty thousand and one ( 30,001 ) shares to sixty thousand ( 60,000 ) shares are traded on average per day , the relevant put shall be capped to sixty thousand ( 60,000 ) shares ; iv . if between sixty thousand and one ( 60,001 ) shares to one hundred and fifty thousand ( 150,000 ) shares are traded on average per day , the relevant put shall be capped to one hundred and fifty thousand ( 150,000 ) shares ; and v. if the average daily traded volume for the pricing period is equal to or greater than one hundred fifty thousand and one ( 150,001 ) shares , then the relevant put shall be limited to an amount which equals two times ( 2x ) the average daily volume for the shares during the pricing period . in all instances , we may not sell shares of our common stock to ghs under the equity purchase agreement if it would result in ghs beneficially owning more than 4.99 % of our common stock . in addition , no put can be made in an amount that exceeds $ 400,000. as of march 24 , 2020 , we have sold an aggregate of 188,250 shares of our common stock to ghs under the equity purchase agreement for aggregate net proceeds of $ 59,949 . 2019 convertible note financing on october 17 , 2019 , we entered into a securities purchase agreement with firstfire global opportunities fund llc ( “ firstfire ” ) , an unrelated third party , pursuant to which , we sold a $ 110,000 principal amount convertible note ( the “ 2019 note ” ) to firstfire for gross proceeds of $ 100,000 , with an original discount issuance of $ 10,000. the transaction closed on october 23 , 2019 upon receipt of the funds from firstfire . the 2019 note will mature on october 17 , 2020 and will bear interest at the rate of 8 % per annum , which interest will be payable on the maturity date or any redemption date and may be paid , in certain conditions , through the issuance of common shares , at our discretion . we make a monthly principal payment to firstfire of $ 6,000 on the 17 th day of each month , which started november 17 , 2019. we also have the right , at any time , to repay all or a part of the 2019 note , on at least one prior business days ' notice , in an amount equal to 115 % of the principal being repaid , plus any accrued but unpaid interest on the principal amount being repaid . the 2019 note will be convertible into our common stock at a conversion price of $ 0.50 per share ( the “ fixed conversion price ” ) at the discretion of the holder . at no time will firstfire be entitled to convert any portion of the 2019 note to the extent that after such conversion , firstfire ( together with its affiliates ) would beneficially own more than 4.99 % of our outstanding common stock as of such date . the 2019 note contains standard anti-dilution protection . 24 the 2019 note includes customary event of default provisions , and provides for a default interest rate of 15 % . upon the occurrence of an event of default , firstfire may require us to redeem all or any portion of the 2019 note ( including all accrued and unpaid interest ) , in cash , at a price equal to the product of ( a ) the amount to be redeemed multiplied by ( b ) 125 % . in addition , upon an event of default , the conversion price would be the lower of ( i ) the fixed conversion price or ( ii ) 75 % of the lowest closing price of our common stock during the 10 trading days prior to the conversion date . 2020 convertible note financing on january 15 , 2020 , we entered into a securities purchase agreement with firstfire pursuant to which , we sold a $ 85,250 principal amount convertible note ( the “ 2020 note ” ) to firstfire for gross proceeds of $ 77,500 , with an original discount issuance of $ 7,750. the transaction closed on january 16 , 2020 upon receipt of the funds from firstfire . the 2020 note will mature on january 15 , 2021 and will bear interest at the rate of 8 % per annum , which interest will be payable on the maturity date or any redemption date and may be paid , in certain conditions , through the issuance of common shares , at our discretion . we make a monthly principal payment to firstfire of $ 4,500 on the 15 th day of each month , which started february 15 , 2020. we also have the right , at any time , to repay all or a part of the 2020 note , on at least one prior business days ' notice , in an amount equal to 115 % of the principal being repaid , plus any accrued but unpaid interest on the principal amount being repaid . the 2020 note will be convertible into our common stock at the fixed conversion price at the discretion of the holder . at no time will firstfire be entitled to convert any portion of the 2020 note to the extent that after such conversion , firstfire ( together with its affiliates ) would beneficially own more than 4.99 % of our outstanding common stock as of such date . the 2020 note contains standard anti-dilution

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liquidity and capital resources as of december 31 , 2019 , we had a working capital deficit of $ 249,147 , comprised of $ 702,133 of accounts payables and accrued expenses , $ 269,746 in current line of credit , $ 87,897 of current operating lease liability , $ 80,500 of current convertible note payable , $ 75,743 of current finance leases payable , $ 47,098 of billings in excess of cost , $ 41,426 of income tax payable , $ 39,751 of sales and withholding tax payable and $ 27,435 of current equipment notes payable , which made up current liabilities at december 31 , 2019 , offset by $ 803,659 of accounts receivable , $ 277,620 of cash , $ 26,045 of costs in excess of billings and $ 15,258 of prepaid expenses . at december 31 , 2019 , non-current assets included $ 1,373,621 in goodwill , $ 478,238 of property and equipment , $ 222,524 in right of use asset , $ 130,072 in deferred offering cost , $ 63,161 of customer list , $ 46,000 of a deferred tax asset and $ 32,233 of security deposits . non-current liabilities included $ 473,770 in convertible notes payable – related party , net of discount , $ 307,804 in finance leases , $ 209,199 of earn out payable , $ 137,071 in operating lease liability and $ 72,140 of equipment notes payable .

certain factors affecting our business overall factors affecting our business and results of operations . the most significant factors include national , regional and local economic conditions , our clients ' profitability , mergers and acquisitions of our clients , changes in top management of our clients and our ability to retain and attract key employees . new business wins and client losses occur due to a variety of factors . the two most significant factors are ; clients ' desire to change marketing communication firms , and the creative product our firms are offering . a client may choose to change marketing communication firms for a number of reasons , such as a 15 change in top management and the new management wants to retain an agency that it may have previously worked with . in addition , if the client is merged or acquired by another company , the marketing communication firm is often changed . further , global clients are trending to consolidate the use of numerous marketing communication firms to just one or two . another factor in a client changing firms is the agency 's campaign or work product is not providing results and they feel a change is in order to generate additional revenues . clients will generally reduce or increase their spending or outsourcing needs based on their current business trends and profitability . these types of changes impact the performance marketing services group more than the strategic marketing services group due to the performance marketing services group having clients who require project-based work as opposed to the strategic marketing services group who primarily have retainer-based relationships . acquisitions and dispositions . our strategy includes acquiring ownership stakes in well-managed businesses with strong reputations in the industry . we engaged in a number of acquisition and disposal transactions during the 2010 to 2014 period , which affected revenues , expenses , operating income and net income . additional information regarding material acquisitions is provided in note 4 “ acquisitions ” and information on dispositions is provided in note 10 “ discontinued operations ” in the notes to the consolidated financial statements included herein . foreign exchange fluctuation . our financial results and competitive position are affected by fluctuations in the exchange rate between the u.s. dollar and non-u.s. dollars , primarily the canadian dollar . see also item 7a , “ quantitative and qualitative disclosures about market risk — foreign exchange . ” seasonality . historically , with some exceptions , we generate the highest quarterly revenues during the fourth quarter in each year . the fourth quarter has historically been the period in the year in which the highest volumes of media placements and retail related consumer marketing occur . fourth quarter results . revenues for the fourth quarter of 2014 increased to $ 339.9 million , compared to 2013 fourth quarter revenues of $ 289.2 million . the increase consisted of organic growth of $ 36.2 million , acquisition revenue of $ 18.2 million and a decrease of $ 3.7 million due to foreign currency fluctuations . the strategic marketing services segment had revenue growth of $ 42.9 million in 2014 , of which $ 33.0 million was organic , acquisition revenue of $ 12.7 million , offset by a decrease of $ 2.8 million due to foreign currency fluctuations . the performance marketing services segment had increased revenue of $ 7.8 million in 2014 , which consisted of organic growth of $ 3.2 million , acquisition revenue of $ 5.5 million , offset by a decrease of $ 0.9 million related to foreign currency fluctuations . operating results for the fourth quarter of 2014 resulted in a profit of $ 25.7 million , compared to a loss of $ 70.1 million in 2013. the increase in operating profits was primarily related to two compensation related items from 2013 : a stock based compensation charge of $ 55.8 million relating to the company 's settlement of its outstanding sar 's in cash , and a one-time contractual bonus to the company 's ceo of $ 9.6 million for the company 's stock price achieving specified targets and to a reduction of $ 28.8 million relating to the estimated deferred acquisition consideration expense . loss from continuing operations for the fourth quarter of 2014 was $ 6.4 million , compared to $ 90.1 million in 2013. other expense net increased to $ 9.1 million in 2014 , compared to $ 4.6 million in 2013 due to unrealized losses due to foreign currency fluctuations . interest expense was higher in 2014 by $ 2.9 million , income tax expense was also higher by $ 5.8 million and equity in earnings of non-consolidated affiliates was $ 1.2 million in 2014 , compared to $ 0.1 million in 2013. interest expense increased due to the company 's additional issuance of $ 75 million aggregate principal 6.75 % notes in april 2014. summary of key transactions year ended december 31 , 2014 the company completed several key acquisitions in 2014. mdc acquired a 60 % equity interest in luntz global partners llc , a 65 % equity interest in kingsdale partners lp , a 100 % equity interest in the house worldwide ltd , an additional 82 % equity interest in trapeze media limited , a 65 % equity interest in hunter pr llc , a 75 % equity interest in albion brand communications limited and two additional non-material acquisitions . the total aggregate purchase price for these 2014 transactions was $ 151.2 million , which included closing cash payments equal to $ 67.2 million , plus additional estimated contingent purchase payments in future years of approximately $ 84.0 million . see note 4 of the notes to the consolidated financial statements included herein for additional information on these and other acquisitions . on april 2 , 2014 , the company issued an additional $ 75 million aggregate principal amount of its 6.75 % notes . story_separator_special_tag these amounts were also impacted by an increase in foreign exchange losses of $ 4.4 million in 2013 and an increase in other income , net of $ 2.1 million . marketing communications group revenues attributable to the marketing communications group , which consists of two segments — strategic marketing services and performance marketing services , were $ 1.1 billion in the aggregate in 2013 , compared to $ 1.0 billion in 2012 , representing a year-over-year increase of 9.2 % . the components of the change in revenue for 2013 are shown in the following table : replace_table_token_9_th the geographic mix in revenues was relatively consistent between 2013 and 2012 and is demonstrated in the following table : replace_table_token_10_th the operating profit of the marketing communications group increased by $ 71.3 million to $ 93.5 million from $ 22.2 million . operating margins increased by 6.5 % and were 8.8 % for 2013 , compared to 2.3 % for 2012. the increase in operating profit and operating margin was primarily due to increases in revenue and decreases in direct costs , office and general expenses , and depreciation and amortization . total staff costs were consistent at approximately 58 % . direct costs ( excluding staff costs ) decreased as a percentage of revenues from 18.2 % in 2012 , to 14.4 % in 2013. direct costs decreased as there were fewer pass-through costs incurred on the clients ' behalf during 2013 where the company was acting as principal versus agent for certain client contracts . office and general expenses decreased as a percentage of revenue from 24.9 % in 2012 , to 21.6 % in 2013. this decrease was primarily due to a reduction of $ 17.1 million in expense relating to estimated deferred acquisition consideration and the increase in revenue on relatively fixed costs . depreciation and amortization as a percentage of revenue decreased from 4.2 % in 2012 to 3.3 % in 2013 due to the increase in revenue . 23 marketing communications businesses strategic marketing services revenues attributable to strategic marketing services in 2013 were $ 836.9 million , compared to $ 751.5 million in 2012. the year-over-year increase of $ 85.5 million , or 11.4 % , was attributable primarily to organic growth of $ 91.4 million or 12.2 % ; these increases were offset by a foreign exchange translation decrease due to the strengthening of the u.s. dollar compared to the canadian dollar . this organic revenue growth was driven by net new business wins . the operating profit of strategic marketing services increased by $ 61.4 million from $ 25.5 million in 2012 to $ 86.9 million in 2013. operating margins increased from 3.4 % in 2012 to 10.4 % in 2013. the increase in operating profits and operating margins were primarily due to increases in revenues and decreases in direct costs , office and general costs and depreciation and amortization . total staff costs were relatively consistent at 59 % . direct costs ( excluding staff labor ) decreased as a percentage of revenue from 14.5 % 2012 to 10.1 % in 2013. direct costs decreased as there were fewer pass-through costs incurred on the clients ' behalf during 2013 where the company was acting as principal versus agent for certain client contracts . office and general expenses decreased as a percentage of revenue from 25.8 % in 2012 to 22.8 % in 2013. the decrease was due to a reduction of $ 12.4 million in expense relating to estimated deferred acquisition consideration and the increased revenue on relatively fixed costs . depreciation and amortization as a percentage of revenue decreased from 3.7 % in 2012 to 2.9 % in 2013 , due to the increase in revenue . performance marketing services performance marketing services generated revenues of $ 225.5 million for 2013 , an increase of $ 4.0 million , or 1.8 % , compared to revenues of $ 221.5 million in 2012. the year-over-year increase was attributable primarily to acquisition growth of $ 5.8 million and foreign translation decrease of $ 1.7 million . the operating profit of performance marketing services increased by $ 9.8 million , from a loss of $ 3.3 million in 2012 to income of $ 6.6 million in 2013. operating margins increased from a loss of 1.5 % in 2012 to income of 2.9 % in 2013. the increase in operating profits and operating margins were primarily due to increased revenue and decreases in total staff costs , direct costs ( excluding staff labor ) , office and general expenses , and depreciation and amortization . total staff costs decreased from 52.6 % in 2012 to 51.8 % in 2013. direct costs decreased from 30.7 % in 2012 to 30.1 % in 2013 due to decreased pass-through costs incurred on the clients ' behalf during 2013 where the agency was acting as principal versus agent for certain client contracts . office and general costs decreased as a percentage of revenue from 21.9 % in 2012 to 17.1 % in 2013 primarily due to decreased expenses relating to estimated deferred acquisition consideration and increased revenue on relatively fixed costs . depreciation and amortization decreased from 6.0 % in 2012 to 4.7 % in 2013 , due to the increase in revenue . corporate operating costs related to the company 's corporate operations increased by $ 87.9 million to $ 128.1 million in 2013 , compared to $ 40.2 million in 2012. this increase was primarily related to increased compensation and related costs of $ 89.0 million . the increase in compensation and related costs is due to the company 's settlement of its sar 's in cash resulting in a stock based compensation charge of $ 78.0 million and a one-time bonus payment of $ 9.6 million to our ceo for the company 's stock price achieving specified targets . increases in benefits and severance costs accounted for the remaining increase . additional advertising and

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liquidity and capital resources the following table provides information about the company 's liquidity position : replace_table_token_11_th as of december 31 , 2014 , 2013 , and 2012 , $ 6.5 million , $ 0.7 million and $ 2.5 million , respectively , of the company 's consolidated cash position was held by subsidiaries . although this amount is available for the subsidiaries ' use , it does not represent cash that is distributable as earnings to mdc for use to reduce its indebtedness . it is the company 's intent through its cash management system to reduce outstanding borrowings under the credit agreement by using available cash . working capital at december 31 , 2014 , the company had a working capital deficit of $ 269.3 million compared to a deficit of $ 189.8 million at december 31 , 2013. working capital deficit increased by $ 79.5 million primarily related to a $ 37.8 million increase in short term deferred acquisition consideration . the increase in deficit was primarily due to timing in the amounts collected from clients , and when paid to suppliers , primarily media outlets . at december 31 , 2014 , the company had no borrowings under its credit agreement . the company includes amounts due to noncontrolling interest holders , for their share of profits , in accrued and other liabilities . during 2014 , 2013 and 2012 , the company made distributions to these noncontrolling interest holders of $ 6.5 million , $ 5.5 million and $ 7.7 million , respectively . at december 31 , 2014 , $ 6.0 million remains outstanding to be distributed to noncontrolling interest holders over the next twelve months .

we also offer advanced design helmets , body armor , and goggles for skiing , mountain and road cycling , as well as eyewear , skis , ski poles , ski bindings , ski boots , ski skins , and ski safety products , including avalanche transceivers , shovels , and probes . on may 28 , 2010 , we acquired black diamond equipment , ltd. ( which may be referred to as “ black diamond equipment ” or “ bdel ” ) and gregory mountain products , llc ( which may be referred to as “ gregory mountain products ” , “ gregory ” or “ gmp ” ) . on january 20 , 2011 , the company changed its name from clarus corporation to black diamond , inc. , which we believe more accurately reflects our current business . in july 2012 we acquired poc sweden ab and its subsidiaries ( collectively , “ poc ” ) and in october 2012 we acquired pieps holding gmbh and its subsidiaries ( collectively , “ pieps ” ) . on july 23 , 2014 , the company and gregory mountain products , its then wholly-owned subsidiary , completed the sale of certain assets to samsonite llc ( “ samsonite ” ) comprising gregory 's business of designing , manufacturing , marketing , distributing and selling technical , alpine , backpacking , hiking , mountaineering and active trail products and accessories as well as outdoor-inspired lifestyle bags ( the “ business ” ) pursuant to the terms of that certain asset purchase agreement ( the “ gmp purchase agreement ” ) , dated as of june 18 , 2014 , by and among the company , gregory and samsonite . under the terms of the gmp purchase agreement , samsonite paid $ 84,135,000 in cash for gregory 's assets comprising the business and assumed certain specified liabilities ( the “ gmp sale ” ) . the activities of gregory have been segregated and reported as discontinued operations for all periods presented . see note 4. discontinued operations to the notes to consolidated financial statements . 32 critical accounting policies and use of estimates management 's discussion of financial condition and results of operations is based on the consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) . the preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements . estimates also affect the reported amounts of revenues and expenses during the reporting periods . we continually evaluate our estimates and assumptions including those related to derivatives , revenue recognition , income taxes and valuation of long-lived assets , goodwill and other intangible assets . we base our estimates on historical experience and other assumptions that are believed to be reasonable under the circumstances . actual results could differ from these estimates . we believe the following critical accounting policies include the more significant estimates and assumptions used in the preparation of our consolidated financial statements . our accounting policies are more fully described in note 1 of our consolidated financial statements . · we use derivative instruments to hedge currency rate movements on foreign currency denominated sales . we enter into forward contracts , option contracts , and non-deliverable forwards to manage the impact of foreign currency fluctuations on a portion of our forecasted sales denominated in foreign currencies . these derivatives are carried at fair value on our consolidated balance sheets in other assets and accrued liabilities . changes in fair value of the derivatives not designated as hedge instruments are included in the determination of net income . for derivative contracts designated as hedge instruments , the effective portion of gains and losses resulting from changes in fair value of the instruments are included in accumulated other comprehensive income and reclassified to earnings in the period the underlying hedged item is recognized in earnings . we use operating budgets and cash flow forecasts to estimate future sales and to determine the level and timing of derivative transactions intended to mitigate such risks in accordance with our risk management policies . if the forecasted sales levels are not reached , our derivative instruments may be deemed to be not effective which may result in foreign currency gains and losses being recorded in our statement of comprehensive income , which could materially affect our financial position and results of operations . · we sell our products pursuant to customer orders or sales contracts entered into with our customers . revenue is recognized when title and risk of loss pass to the customer and when collectability is reasonably assured . charges for shipping and handling fees are included in net sales and the corresponding shipping and handling expenses are included in cost of sales in the accompanying consolidated statements of operations . at the time of revenue recognition , we also provide for estimated sales returns and miscellaneous claims from customers as reductions to revenues . the estimates are based on historical rates of product returns and claims . however , actual returns and claims in any future period are inherently uncertain and thus may differ from these estimates . if actual or expected returns and claims are significantly greater or lower than the allowances that we have established , we will record a reduction or increase to sales in the period in which we make such a determination . · we account for income taxes using the asset and liability method . the asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities , and for operating loss and tax credit carryforwards . story_separator_special_tag selling , general , and administrative expenses of $ 55,946 during the year ended december 31 , 2012. the increase in selling , general , and administrative expenses was primarily attributable to the inclusion of poc and pieps for the full year ended december 31 , 2013 , the addition of our black diamond japan gk operations , the company 's investments in its strategic initiatives , such as apparel sold by black diamond equipment , and infrastructure to support both current and anticipated future growth , as well as an increase in stock based compensation expense of $ 1,321 as a result of the company issuing fully vested stock option awards . restructuring charges consolidated restructuring expense increased $ 102 , or 139.7 % , to $ 175 during the year ended december 31 , 2013 compared to consolidated restructuring expense of $ 73 during the year ended december 31 , 2012. the restructuring expenses incurred during the year ended december 31 , 2013 relate to the relocation of poc 's portsmouth , nh facility to the company 's u.s. distribution facilities in salt lake city , ut . merger and integration costs consolidated merger and integration expense increased $ 321 , or 131.6 % , to $ 565 during the year ended december 31 , 2013 compared to consolidated merger and integration expense of $ 244 during the year ended december 31 , 2012 , which consisted of expenses related to the integration of poc and pieps . transaction costs consolidated transaction expense decreased $ 1,975 , or 97.3 % , to $ 54 during the year ended december 31 , 2013 compared to consolidated transaction expense of $ 2,029 during the year ended december 31 , 2012 , which consisted of professional fees and expenses in 2013 related to the company 's acquisitions of poc and pieps . interest expense , net consolidated interest expense increased $ 110 , or 4.5 % , to $ 2,577 during the year ended december 31 , 2013 compared to consolidated interest expense of $ 2,467 during the year ended december 31 , 2012. the increase in interest expense was primarily attributable to higher average outstanding debt amounts during the year ended december 31 , 2013 compared to the same period in 2012. other , net consolidated other , net , decreased to income of $ 350 during the year ended december 31 , 2013 compared to a consolidated other , net income of $ 869 during the year ended december 31 , 2012. the decrease in other , net , was primarily attributable to a decrease in remeasurement gains recognized on the company 's foreign denominated accounts receivable and accounts payable , partially offset by an increase in gains on mark-to-market adjustments on non-hedged foreign currency contracts . 39 income taxes consolidated income tax benefit increased $ 1,905 , or 55.0 % , to a benefit of $ 5,369 during the year ended december 31 , 2013 compared to consolidated income tax benefit of $ 3,464 during the same period in 2012. the increase in income tax benefit is due to an increase in loss before income tax recorded during the year ended december 31 , 2013 , compared to the same period in 2012. our effective income tax rate was 32.5 % for the year ended december 31 , 2013 compared to an effective income tax rate of 80.1 % for the same period in 2012. during the year ended december 31 , 2013 , a benefit of $ 230 was recorded as a discrete event for the 2012 federal research credit that was retroactively reinstated in 2013. the decrease in the effective income tax rate is primarily attributable to a release of valuation allowance and changes in foreign statutory tax rates during the year ended december 31 , 2012. discontinued operations discontinued operations increased $ 2,448 , to $ 5,262 during the year ended december 31 , 2013 compared to discontinued operations of $ 2,814 during the year ended december 31 , 2012. the increase was due to an increase in sales and gross margin recorded by gregory during the year ended december 31 , 2013 compared to the same period in 2012. story_separator_special_tag 10pt times new roman , times , serif ; margin : 0pt 0 ; text-align : justify `` > on october 31 , 2014 , the company together with its direct and indirect domestic subsidiaries entered into a second amended and restated loan agreement ( the “ second amended and restated loan agreement ” ) with zions first national bank ( the “ lender ” ) , which matures on april 1 , 2017. under the second amended and restated loan agreement , the company has a $ 30,000 revolving line of credit ( the “ revolving line of credit ” ) pursuant to a second amended and restated promissory note ( revolving loan ) ( the “ revolving line of credit promissory note ” ) which is inclusive of a $ 10,000 accordion option ( the “ accordion ” ) available to the company to increase the revolving line of credit on a seasonal or permanent basis for funding general corporate needs including working capital , capital expenditures , permitted loans or investments in subsidiaries , and the issuance of letters of credit . also pursuant to the second amended and restated loan agreement , the company terminated its outstanding term loan facility which previously allowed the company to borrow up to $ 10,000 and certain additional changes were made to the original amended and restated loan agreement and the covenants contained therein . 41 all debt associated with the second amended and restated loan agreement bears interest at one-month london interbank offered rate ( “ libor ” ) plus an applicable margin as determined by the ratio of total senior debt to trailing twelve month ebitda as follows : ( i ) one month libor plus 4.00 % per annum at all

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liquidity and capital resources consolidated year ended december 31 , 2014 compared to consolidated year ended december 31 , 2013 the following presents a discussion of cash flows for the consolidated year ended december 31 , 2014 compared with the consolidated year ended december 31 , 2013. our primary ongoing funding requirements are for working capital , expansion of our operations , and general corporate needs , as well as investing activities associated with the expansion into new product categories . we plan to fund our future expansion of operations and investing activities through a combination of our future operating cash flows , revolving credit facilities , and the net proceeds from the gmp sale . we believe that our liquidity requirements for at least the next 12 months will be adequately covered by existing cash , marketable securities , cash provided by operations and our existing revolving credit facilities . at december 31 , 2014 , we had total cash of $ 31,034 and marketable securities of $ 9,902 compared to a cash balance of $ 4,478 at december 31 , 2013 , which were substantially controlled by the company 's u.s. entities . the increase in cash and marketable securities as of december 31 , 2014 was mainly due to the sale of gregory . at december 31 , 2014 , the company had $ 1,562 of the $ 31,034 in cash held by foreign entities ; however , this cash is available for repatriation without significant tax consequence .

from 2009 to 2012 , we capitalized on all of our investments , both organic and acquired , and integrated these technologies into the counter threat platform in order to provide our clients with a comprehensive view of their network environments and security threats , while adapting to a constantly evolving threat landscape . over the last several years , we have continued to expand our offerings , including through the launch of our advanced endpoint threat detection solution and our advanced malware protection and detection solution . we continuously evaluate potential investments and acquisitions of businesses , services and technologies to expand our offerings and supplement our organic growth . from april 2009 to february 2 , 2018 , the number of events processed by our technology platform increased from five billion to as many as 250 billion events per day . further , our client base has grown to approximately 4,400 subscription-based clients as of february 2 , 2018 . this significant growth has required continual investment in our business , resulting in net losses . we believe these investments are critical to our success , although they may continue to impact our near-term profitability . key factors affecting our performance we believe that our future success will depend on many factors , including the adoption of our solutions by organizations , continued investment in our counter threat platform and threat intelligence research , our introduction of new solutions , our ability to increase sales of our solutions to new and existing clients and our ability to attract and retain top talent . although these areas present significant opportunities , they also present risks that we must manage to ensure our future success . for additional information about these risks , refer to “ risk factors ” in this report . we operate in a highly competitive industry and face , among other competitive challenges , pricing pressures within the information security market as a result of action by our larger competitors to reduce the prices of their security monitoring , detection and prevention products , as well as their managed security services . we must continue to efficiently manage our investments and effectively execute our strategy to succeed . if we are unable to address these challenges , our business could be adversely affected . adoption of intelligence-driven solution strategy . the evolving landscape of applications , modes of communication and it architectures makes it increasingly challenging for organizations of all sizes to protect their critical business assets , including proprietary information , from cyber threats . new technologies heighten security risks by increasing the number of ways a threat actor can attack a target , by giving users greater access to important business networks and information and by facilitating the transfer of control of underlying applications and infrastructure to third-party vendors . an effective cyber defense strategy requires the coordinated deployment of multiple products and services tailored to an organization 's specific security needs . our integrated suite of solutions is designed to facilitate the successful implementation of such a strategy , but continuous investment in , and adaptation of , our technology will be required as the threat landscape continues to evolve rapidly . the degree to which prospective and current clients recognize the mission-critical nature of our intelligence-driven information security solutions , and subsequently allocate budget dollars to our solutions , will affect our future financial results . investment in our platform and threat intelligence research . our counter threat platform constitutes the core of our intelligence-driven information security solutions . it provides our clients with an integrated perspective and intelligence regarding their network environments and security threats . the platform is augmented by our counter threat unit research team , which conducts exclusive research into threat actors , uncovers new attack techniques , analyzes emerging threats and evaluates the risks posed to our clients . our performance is significantly dependent on the investments we make in our research and development efforts , and on our ability to be at the forefront of threat intelligence research , and to adapt our platform to new technologies as well as to changes in existing technologies . this is an area in which we will continue to invest , while leveraging a flexible staffing model to align with solutions development . we believe that investment in our platform will contribute to long-term revenue growth , but it may continue to adversely affect our near-term profitability . introduction of new information security solutions . our performance is significantly dependent on our ability to continue to innovate and introduce new information security solutions that protect our clients from an expanding array of cybersecurity threats . we continue to invest in solutions innovation and leadership , including hiring top technical talent and focusing on core technology innovation . in addition , we will continue to evaluate and utilize third-party proprietary technologies , where appropriate , for the continuous development of complementary offerings . we can not be certain that we will realize increased 46 revenue from our solutions development initiatives . we believe that our investment in solutions development will contribute to long-term revenue growth , but it may continue to adversely affect our near-term profitability . investments in expanding our client base and deepening our client relationships . to support future sales , we will need to continue to devote resources to the development of our global sales force . we have made and plan to continue to make significant investments in expanding our sales teams and distribution programs with our channel partners and increasing awareness of our brand . any investments we make in our sales and marketing operations will occur before we realize any benefits from such investments . therefore , it may be difficult for us to determine if we are efficiently allocating our resources in this area . story_separator_special_tag effective august 1 , 2015 , assets and liabilities supporting our business were contributed by dell to us where necessary . for a description of the basis of presentation and an understanding of the limitations of the financial statements , see “ notes to consolidated financial statements— note 1 —description of the business and basis of presentation ” in our consolidated financial statements included in this report . 51 initial public offering on april 27 , 2016 , we completed our ipo in which we issued and sold 8,000,000 shares of class a common stock at a price to the public of $ 14.00 per share . we received net proceeds of $ 99.6 million from the sale of shares of class a common stock after deducting $ 12.4 million of underwriting discounts and commissions and unpaid offering expenses payable by us . components of results of operations revenue we sell managed security solutions and threat intelligence solutions on a subscription basis and various professional services , including security and risk consulting and incident response solutions . our managed security subscription contracts typically range from one to three years and , as of february 2 , 2018 , averaged approximately two years in duration . our initial contracts with clients may include amounts for hardware , installation and professional services that may not recur . revenue related to these contracts is recognized ratably over the terms of the contracts . professional services clients typically purchase solutions pursuant to customized contracts that are shorter in duration . in general , these contracts have terms of less than one year . revenue related to professional services is recognized as services are performed . the fees we charge for our solutions vary based on a number of factors , including the solutions selected , the number of client devices covered by the selected solutions , and the level of management we provide for the solutions . in fiscal 2018 , approximately 78 % of our revenue is derived from subscription-based solutions , provided under managed security services , while approximately 22 % is derived from professional services engagements . as we respond to the evolving needs of our clients , the relative mix of subscription-based solutions and professional services we provide our clients may fluctuate . international revenue , which we define as revenue contracted through non-u.s. entities , represented approximately 16 % , 13 % and 12 % of our total net revenue in fiscal 2018 , fiscal 2017 , and fiscal 2016 , respectively . although our international clients are located primarily in europe , asia pacific and canada , we provided managed security services to clients across 59 countries as of february 2 , 2018 . over all of the periods presented in this report , our pricing strategy for our various offerings was relatively consistent , and accordingly did not significantly affect our revenue growth . because we operate in a competitive environment , however , we may adjust our pricing to support our strategic initiatives . gross margin we operate in a challenging business environment , where the complexity as well as the number of cyber attacks are constantly increasing . accordingly , initiatives to drive the efficiency of our counter threat platform and the continued training and development of our employees are critical to our long-term success . gross margin has been and will continue to be affected by these factors as well as others , including the mix of solutions sold , the mix between large and small clients , timing of revenue recognition and the extent to which we expand our counter threat operations centers . cost of revenue consists primarily of personnel expenses , including salaries , benefits and performance-based compensation for employees who maintain our counter threat platform and provide solutions to our clients , as well as perform other critical functions . also included in cost of revenue are amortization of equipment and costs associated with hardware provided to clients as part of their subscription services , amortization of technology licensing fees , fees paid to contractors who supplement or support our solutions , maintenance fees and overhead allocations . as our business grows , the cost of revenue associated with our solutions may fluctuate . we operate in a high-growth industry and have experienced significant revenue growth since our inception . accordingly , we expect our gross margin to increase in absolute dollars . we continue to invest in initiatives to drive the efficiency of our business to increase gross margin as a percentage of total revenue . however , as we balance revenue growth and efficiency initiatives , gross margin as a percentage of total revenue may fluctuate from period to period . 52 operating costs and expenses our operating costs and expenses consist of research and development expenses , sales and marketing expenses and general and administrative expenses . ▪ research and development , or r & d , expenses . research and development expenses include compensation and related expenses for the continued development of our solutions offerings , including a portion of expenses related to our threat research team , which focuses on the identification of system vulnerabilities , data forensics and malware analysis , and product management . r & d expenses also encompass expenses related to the development of prototypes of new solutions offerings and allocated overhead . our solutions offerings have generally been developed internally . we operate in a competitive and highly technical industry . therefore , to maintain and extend our technology leadership , we intend to continue to invest in our r & d efforts by hiring more personnel to enhance our existing security solutions and to add complementary solutions . sales and marketing , or s & m , expenses . sales and marketing expenses include salaries , sales commissions and performance-based compensation benefits and related expenses for our s & m personnel , travel and entertainment , marketing and advertising

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cash and cash equivalents $ 101,539 $ 116,595 accounts receivable , net $ 157,764 $ 113,546 at february 2 , 2018 , our principal sources of liquidity consisted of cash and cash equivalents of $ 101.5 million and accounts receivable of $ 157.8 million . our cash and cash equivalents balance at february 2 , 2018 included $ 59.0 million of net proceeds from our ipo . we invoice our clients based on a variety of billing schedules . during fiscal 2018 , on average , 53 % of our recurring revenue was billed in advance and approximately 47 % was billed on either a monthly or a quarterly basis . invoiced accounts receivable are usually collected over a period of 30 to 120 days . as of february 2 , 2018 , our accounts receivable , net increased compared to february 3 , 2017 . this increase resulted primarily from an increase in the amount of annual billing for clients in the fourth quarter of fiscal 2018 compared with the same period in fiscal 2017 and the impact of higher revenue on accounts receivable . we regularly monitor our accounts receivable for collectability , particularly in markets where economic conditions remain uncertain and continue to take actions to reduce our exposure to credit losses . as of february 2 , 2018 and february 3 , 2017 , the allowance for doubtful accounts was $ 8.2 million and $ 6.1 million , respectively . the increase in the allowance for doubtful accounts was due to growth in revenue and the impact of certain longer-aged receivables . based on our assessment , we believe we are adequately reserved for expected credit losses . revolving credit facility secureworks , inc. , our wholly-owned subsidiary , has entered into a revolving credit agreement with a wholly-owned subsidiary of dell inc. under which we have obtained a $ 30 million senior unsecured revolving credit facility . under the facility , up to $ 30 million principal amount of borrowings may be outstanding at any time .

given these trends , we believe that many individuals will be attracted to our high quality academic programs at affordable tuition rates . we also believe that competition for students continues to increase . we compete primarily with traditional public and four-year degree-granting regionally accredited colleges and universities and other proprietary degree-granting regionally accredited schools . an increasing number of traditional colleges , universities and community colleges are offering distance learning and other online education programs , including programs that are geared towards the needs of working adult students . this trend has been accelerated by private companies that provide and or manage online learning platforms for traditional colleges and universities . as the proportion of traditional colleges and universities providing alternative learning modalities increases , we face increasing competition for students from such institutions , including those with well-established reputations for excellence . regulation and oversight . we are subject to extensive regulation by federal and state governmental agencies and accrediting bodies . in particular , the higher education act of 1965 , as amended ( the “higher education act” ) , and the regulations promulgated thereunder by the department of education subject us to significant regulatory scrutiny on the basis of numerous standards that schools must satisfy in order to participate in the various federal student financial assistance programs under title iv of the higher education act . recent regulations have imposed new reporting and disclosure requirements that have caused increased administrative burden and costs and may have a negative effect on our growth and enrollments . in addition , in recent years , there has been increased focus by congress on the role that proprietary educational institutions play in higher education and various proposals to modify the laws to which proprietary educational institutions are subject . we can not predict what legislation , if any , may result from these congressional proposals or what impact any such legislation might have on the proprietary education sector generally or our business in particular . to the extent that any laws or regulations are adopted , or other administrative actions are taken , that limit our participation in title iv programs or the amount of student financial aid for which the students at our institutions are eligible , our enrollments , revenues and results of operation could be materially and adversely affected . 42 fiscal year 2016 highlights we achieved the following in 2016 : enrollment , net revenue , operating income growth with no increase in ground tuition rates . we achieved enrollment growth of 9.9 % during the fiscal year ended december 31 , 2016 , as ground enrollment increased 13.6 % and online enrollment increased 9.0 % over the prior year . we attribute the significant growth in our ground enrollment between years to our increasing brand recognition and the value proposition that our ground traditional campus affords to traditional-aged students and their parents . after scholarships , our ground traditional students pay tuition , room , board , and fees in an amount that is often half to a third of what it costs to attend a private , traditional university in another state and an amount comparable to what it costs to attend a public university . our online students pay tuition and fees in an amount that is often less than the cost of other high service online programs such as ours . for example , our largest local competitor 's undergraduate tuition for online programs ranges from $ 490 to $ 553 per credit hour and its graduate tuition for online programs ranges from $ 492 to $ 1,132 per credit hour while our online tuition per credit hour ranges from $ 355 to $ 470 for undergraduate programs and $ 330 to $ 640 for graduate programs . there are online programs that are less expensive than ours but those programs generally do not provide the full level of support services that we provide to our students . although our online enrollment continues to grow , as the proportion of traditional colleges and universities providing alternative learning modalities increases , we will face increasing competition for working adult students from such institutions , including those with well-established reputations for excellence . we did not raise tuition in any of our programs for our 2016-2017 academic year . a tuition increase of approximately 1 % was implemented for the majority of online programs for our 2015-2016 academic year . we have not raised our tuition for our traditional ground programs in eight years . net revenues increased 12.2 % over the prior year primarily due to the enrollment growth and due to an increase in ancillary revenues resulting from the increased traditional student enrollment ( e.g . housing , food , etc . ) . operating income was $ 237.2 million for the fiscal year ended december 31 , 2016 , an increase of 12.8 % over the $ 210.4 million in operating income for 2015. continued program expansion . in the fall of 2014 , the university launched the college of science , engineering and technology , rolling out programs in computer science and information technology . in the fall of 2015 , three engineering programs , electrical engineering , bio-medical engineering and mechanical engineering began . in total the university now offers over 200 graduate and undergraduate degree programs and certificates across nine colleges with over 33 new programs or emphases rolled out in 2016 and another 34 are planned for 2017. capital expenditures . our capital expenditures in 2016 of $ 178.3 million were primarily related to the expansion of our over 260 acre physical campus in phoenix , arizona and significant investments in technology innovation to support our students and staff . story_separator_special_tag we attribute the significant growth in our ground enrollment between years to our increasing brand recognition and the value proposition that our ground traditional campus affords to traditional-aged students and their parents . after scholarships , our ground traditional students pay for tuition , room , board , and fees , often half to a third of what it costs to attend a private , traditional university in another state and an amount comparable to what it costs to attend a public university . although our online enrollment continues to grow , as the proportion of traditional colleges and universities providing alternative learning modalities increases , we will face increasing competition for working adult students from such institutions , including those with well-established reputations for excellence . the growth in revenue per student between years is primarily due to our residential traditional campus enrollment growing at a rate higher than our working adult enrollment . when factoring in room , board and fees , the revenue per student is higher for these students than for our working adult students . 46 instructional costs and services expenses . our instructional costs and services expenses for the year ended december 31 , 2016 were $ 373.1 million , an increase of $ 43.4 million , or 13.2 % , as compared to instructional costs and services expenses of $ 329.7 million for the year ended december 31 , 2015. this increase was primarily due to increases in instructional compensation and related expenses including share-based compensation , faculty compensation , occupancy and depreciation and amortization , dues , fees , subscriptions and other instructional supplies , bad debt expense and other miscellaneous instructional costs and services of $ 10.9 million , $ 8.9 million , $ 14.2 million , $ 5.6 million , $ 2.0 million and $ 1.8 million , respectively . the increase in employee compensation and related expenses and faculty compensation are primarily due to the increase in the number of staff to support the increasing number of students attending the university , tenure adjustments , and increased benefit costs between years . in addition , we continue to increase our full-time faculty between years . the increase in occupancy , depreciation and amortization is the result of us placing into service additional buildings to support the growing number of ground traditional students . the increase in dues , fees , subscriptions and other instructional supplies is primarily due to increased licensing fees related to educational resources and increased food costs associated with a higher number of residential students . our instructional costs and services expenses as a percentage of net revenue increased by 0.3 % to 42.7 % for the year ended december 31 , 2016 , as compared to 42.4 % for the year ended december 31 , 2015 due to an increase in dues , fees , subscriptions and other instructional supplies as a percentage of revenue due to the low profit margin derived on food sales , and occupancy , depreciation and amortization increasing as a percentage of revenue . bad debt expense stayed flat year over year at 2.1 % of net revenue . we anticipate that instructional costs and services will continue to increase as a percentage of revenue due to these factors . admissions advisory and related expenses . our admissions advisory and related expenses for the year ended december 31 , 2016 were $ 119.3 million , an increase of $ 6.7 million , or 6.0 % , as compared to admissions advisory and related expenses of $ 112.6 million for the year ended december 31 , 2015. this increase was primarily due to increases in employee compensation and related expenses , partially offset by decreases in other admissions advisory expenses of $ 7.0 million and $ 0.3 million , respectively . employee compensation and related expenses increased as a result of increasing the number of admissions advisors , tenure adjustments , and increasing benefit costs between years . our admissions advisory and related expenses as a percentage of net revenue decreased by 0.8 % to 13.7 % for the year ended december 31 , 2016 , from 14.5 % for the year ended december 31 , 2015 primarily due to our ability to leverage our admissions advisory personnel across an increasing revenue base . although we are hopeful that we will continue to see leverage of our admissions advisory personnel , we do not anticipate the leverage in future years will be as significant as in 2016. advertising expenses . our advertising expenses for the year ended december 31 , 2016 were $ 88.2 million , an increase of $ 12.0 million , or 15.6 % , as compared to advertising expenses of $ 76.2 million for the year ended december 31 , 2015. this increase was primarily due to increased digital media and branding advertising . our advertising expenses as a percentage of net revenue increased by 0.3 % to 10.1 % for the year ended december 31 , 2016 , from 9.8 % for the year ended december 31 , 2015 as we have increased our advertising spend to increase brand awareness . we plan to continue to increase our advertising spend on brand awareness in 2017 to counter the increased advertising of our competitors . marketing and promotional expenses . our marketing and promotional expenses for the year ended december 31 , 2016 were $ 8.9 million , an increase of $ 1.6 million , or 21.6 % , as compared to marketing and promotional expenses of $ 7.3 million for the year ended december 31 , 2015. our marketing and promotional expenses as a percentage of net revenue increased slightly by 0.1 % to 1.0 % for the year ended december 31 , 2016 , from 0.9 % for the year ended december 31 , 2015. general and administrative expenses . our general and administrative expenses for the year ended december 31 , 2016 were $ 43.2

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cash flows operating activities . net cash provided by operating activities for the years ended december 31 , 2016 , 2015 and 2014 was $ 218.3 million , $ 173.9 million and $ 167.0 million , respectively . cash provided by operations in 2016 , 2015 and 2014 resulted from our net income plus non-cash charges for provision for bad debts , depreciation and amortization , timing of income tax and employee related payments and student deposits and changes in other working capital . 50 investing activities . net cash used in investing activities was $ 216.0 million , $ 200.9 million , and $ 161.0 million for the years ended december 31 , 2016 , 2015 , and 2014 , respectively . our cash used in investing activities is primarily related to the purchase of short-term investments and capital expenditures , partially offset by proceeds from the sale or maturity of short-term investments . proceeds from investment , net of purchases of short-term investments , was $ 20.8 million , $ 17.4 million , and $ 7.6 million during the years ended december 31 , 2016 , 2015 and 2014 , respectively . capital expenditures were $ 178.3 million , $ 204.7 million and $ 168.7 million for the years ended december 31 , 2016 , 2015 , and 2014 , respectively . in 2016 , capital expenditures primarily consisted of ground campus building projects that started in late 2015 such as three more apartment style residence halls , a 170,000 square foot classroom building for our college of science , engineering and technology , a student service center , and a fourth parking structure , as well as land purchases adjacent to or near our phoenix campus , and purchases of computer equipment , other internal use software projects and furniture and equipment to support our increasing employee headcount . included in off-site development during 2016 is $ 60.7 million primarily related to an off-site student services center and parking garage that is in close proximity to our ground traditional campus . employees that worked in two leased office buildings in the phoenix area were relocated to this new building by the end of 2016.

11 critical accounting policies and estimates the company 's significant accounting policies are fully described in note 1 to the company 's consolidated financial statements included in its 2017 annual report on form 10-k. management believes the following critical accounting policies , among others , affect its more significant judgments and estimates used in the preparation of its consolidated financial statements . revenue recognition the company recognizes revenue when the following criteria are met : ( i ) persuasive evidence of an agreement exists , ( ii ) there is a fixed and determinable price for the company 's product or service , ( iii ) shipment and passage of title occurs or service has been provided , and ( iv ) collectability is reasonably assured . revenues from product sales are recorded at the time the product is shipped or delivered to the customer pursuant to the terms of the sale . revenues for services are recorded at the time the service is provided to the customer pursuant to the terms of sale . the company reports its sales on a net sales basis , with net sales being computed by deducting from gross sales the amount of actual sales returns and other allowances and the amount of reserves established for anticipated sales returns and other allowances . the company analyzes sales returns and is able to make reasonable and reliable estimates of product returns based on the company 's past history . estimates for sales returns are based on several factors including actual returns and based on expected return data communicated to it by its customers . accordingly , the company believes that its historical returns analysis is an accurate basis for its allowance for sales returns . actual results could differ from those estimates . concentration of credit risk an entity is more vulnerable to concentrations of credit risk if it is exposed to risk of loss greater than it would have had if it mitigated its risk through diversification of customers . such risks of loss manifest themselves differently , depending on the nature of the concentration , and vary in significance . the company had one customer with an accounts receivable balance that comprised 24 % and 22 % of the company 's accounts receivable at june 30 , 2017 and 2016 , respectively . sales to this customer comprised 13 % of net sales in each of the fiscal years ended june 30 , 2017 , 2016 and 2015. in the ordinary course of business , we have established a reserve for doubtful accounts and customer deductions in the amount of $ 155,000 and $ 145,000 as of june 30 , 2017 and 2016 , respectively . our reserve for doubtful accounts is a subjective critical estimate that has a direct impact on reported net earnings . this reserve is based upon the evaluation of accounts receivable agings , specific exposures and historical or anticipated events . inventories inventories are valued at the lower of cost or market , with cost being determined on the first-in , first-out ( fifo ) method . the reported net value of inventory includes finished saleable products , work-in-process and raw materials that will be sold or used in future periods . inventory costs include raw materials , direct labor and overhead . the company 's overhead expenses are applied based , in part , upon estimates of the proportion of those expenses that are related to procuring and storing raw materials as compared to the manufacture and assembly of finished products . these proportions , the method of their application , and the resulting overhead included in ending inventory , are based in part on subjective estimates and actual results could differ from those estimates . in addition , the company records an inventory obsolescence reserve , which represents the difference between the cost of the inventory and its estimated market value , based on various product sales projections . this reserve is calculated using an estimated obsolescence percentage applied to the inventory based on age , historical trends , requirements to support forecasted sales , and the ability to find alternate applications of its raw materials and to convert finished product into alternate versions of the same product to better match customer demand . there is inherent professional judgment and subjectivity made by both production and engineering members of management in determining the estimated obsolescence percentage . in addition , and as necessary , the company may establish specific reserves for future known or anticipated events . the company also regularly reviews the period over which its inventories will be converted to sales . any inventories expected to convert to sales beyond 12 months from the balance sheet date are classified as non-current . 12 intangible assets the company evaluates its intangible assets for impairment at least on an annual basis and will evaluate them earlier if there are indicators of a potential impairment . those intangible assets that are classified as goodwill or as other intangibles with indefinite lives are not amortized . impairment testing is performed in two steps : ( i ) the company determines if there is impairment by comparing the fair value of a reporting unit with its carrying value , and ( ii ) if there is impairment , the company measures the amount of impairment loss by comparing the implied fair value of intangible assets with the carrying amount of the intangible assets . income taxes the company has identified the united states and new york state as its major tax jurisdictions . the fiscal 2012 and forward years are still open for examination . story_separator_special_tag for the year ended june 30 , 2017 , the company recognized a net income tax expense of $ 696,000. during the year ending june 30 , 2017 the company increased its reserve for uncertain income tax positions by $ 35,000. the company 's practice is to recognize interest and penalties related to income tax matters in income tax expense and accrued income taxes . as of june 30 , 2017 , the company had accrued interest totaling $ 0 and $ 183,000 of unrecognized net tax benefits that , if recognized , would favorably affect the company 's effective income tax rate in any future period . the company uses the flow through method to account for investment tax credits earned on eligible research and development expenditures . under this method , the investment tax credits are recognized as a reduction to income tax expense . deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities . deferred tax assets are reduced by a valuation allowance when , in the opinion of management , it is more likely than not that some portion or all of the deferred tax assets will not be realized . the company measures and recognizes the tax implications of positions taken or expected to be taken in its tax returns on an ongoing basis . story_separator_special_tag the company 's napco brand intrusion products ( $ 4,081,000 ) , marks brand door-locking products ( $ 808,000 ) and continental brand access control products ( $ 240,000 ) and was partially offset by decreases in the company 's alarm lock brand door-locking products ( $ 268,000 ) . the company 's gross profit increased by $ 1,994,000 to $ 29,578,000 or 33.9 % of net sales in fiscal 2017 as compared to $ 27,584,000 or 33.4 % of net sales in fiscal 2016. gross profit was primarily affected by the increase in net sales as discussed above as partially offset by increased research and development expenditures which are included in cost of sales . selling , general and administrative expenses for fiscal 2017 increased by $ 1,939,000 to $ 23,200,000 as compared to $ 21,261,000 in fiscal 2016. selling , general and administrative expenses as a percentage of net sales increased to 26.6 % in fiscal 2017 from 25.8 % in fiscal 2016. the increases in dollars and as a percentage of sales resulted primarily from increases in selling wages and commissions as well as increased advertising and tradeshow expenditures . the company increased expenditures in these areas in order to generate higher sales . interest expense for fiscal 2017 decreased by $ 96,000 to $ 83,000 from $ 179,000 for the same period a year ago . the decrease in interest expense is primarily the result of the company 's reduction of its outstanding borrowings under its revolving line of credit and its term loan , which was repaid in full during fiscal 2017 . 15 the company 's provision for income taxes for fiscal 2017 increased by $ 325,000 to $ 696,000 as compared to $ 371,000 for the same period a year ago . the increase in income taxes from fiscal 2016 to fiscal 2017 resulted primarily from the benefit recognized in fiscal 2016 from a one-time reversal of certain reserves . net income for fiscal 2017 decreased by $ 174,000 to $ 5,599,000 as compared to $ 5,773,000 in fiscal 2016. this resulted primarily from the items discussed above . results of operations fiscal 2016 compared to fiscal 2015 replace_table_token_9_th net sales in fiscal 2016 increased by $ 4,751,000 to $ 82,513,000 as compared to $ 77,762,000 in fiscal 2015. the increase in net sales was primarily due to increased sales of the company 's napco brand intrusion products ( $ 2,676,000 ) , alarm lock brand door-locking products ( $ 253,000 ) , and marks brand door-locking products ( $ 2,947,000 ) and was partially offset by decreases in the company 's continental brand access control products ( $ 1,125,000 ) . the company 's gross profit increased by $ 1,537,000 to $ 27,584,000 or 33.4 % of net sales in fiscal 2016 as compared to $ 26,047,000 or 33.5 % of net sales in fiscal 2015. gross profit was primarily affected by the increase in net sales as discussed above as partially offset by increased research and development expenditures which are included in cost of sales . selling , general and administrative expenses for fiscal 2016 increased by $ 495,000 to $ 21,261,000 as compared to $ 20,766,000 in fiscal 2015. selling , general and administrative expenses as a percentage of net sales decreased to 25.8 % in fiscal 2016 from 26.7 % in fiscal 2015. the increases in dollars resulted primarily from increases in selling wages and commissions as well as increased advertising and tradeshow expenditures . the company increased expenditures in these areas in order to generate higher sales . the decrease as a percentage of net sales was due primarily to net sales increasing at a higher rate than selling , general and administrative expenses . interest expense for fiscal 2016 decreased by $ 36,000 to $ 179,000 from $ 215,000 for the same period a year ago . the decrease in interest expense is primarily the result of the company 's reduction of its outstanding borrowings under its revolving line of credit and its

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liquidity and capital resources the company 's cash on hand as of june 30 , 2016 combined with proceeds from operating activities during fiscal 2017 were adequate to meet the company 's capital expenditure needs and debt obligations during fiscal 2017. the company 's primary internal source of liquidity is the cash flow generated from operations . the primary source of external financing is a revolving credit facility of $ 11,000,000 ( the “ revolving credit facility ” ) which expires in june 2021. as of june 30 , 2017 , $ 3,500,000 was outstanding under this revolving line of credit . as of june 30 , 2017 , the company 's unused sources of funds consisted principally of $ 3,454,000 in cash and $ 7,500,000 unused balance available under its revolving line of credit . during the year ended june 30 , 2017 the company utilized a portion of its cash on hand at june 30 , 2016 ( $ 2,714,000 of $ 3,805,000 ) to repay outstanding debt ( $ 1,300,000 ) and purchase property , plant and equipment ( $ 1,414,000 ) . as of june 30 , 2017 , long-term debt consisted of a revolving credit facility of $ 11,000,000 ( the “ revolving credit facility ” ) which expires in june 2021. the term loan which was outstanding as of june 30 , 2016 was repaid in full as of june 30 , 2017. the company 's long-term debt is described more fully in note 6 to the condensed consolidated financial statements .

we plan to continue to invest in initiatives to enhance our opportunities in the united states and canada , including aggressively growing our sales force in order to reach more businesses ; however , we will also broaden our sales strategy by developing new and evolving sales channels , such as self-serve advertising and partnerships with marketing agencies and resellers , and deepening our relationships with existing customers . in addition , we will continue the expansion of the yelp platform to drive transaction volume , new business owner products and comprehensive tools to measure the effectiveness of our products , as well as our local business outreach . we expect to continue to invest in capital expenditures in 2017 to support the growth of our business , primarily to increase our office space , upgrade our technology and infrastructure to improve the ability of our platform to handle the projected increase in usage , and enable the release of new features and solutions . as a result of this investment philosophy , we expect that our operating expenses will continue to increase for the foreseeable future . factors affecting our performance traffic and user engagement . changes in consumer traffic , as well as the quality and quantity of contributed content , has affected and will continue to affect our revenue and financial performance . traffic to our platform determines the number of ads we are able to show , affects the value of those ads to businesses and influences the content creation that drives further traffic ; as a result , our ability to grow our business depends on our ability to increase traffic on our platform . because we rely on internet search engines to drive traffic to our platform , a significant portion of our traffic can be affected by a number of factors , many of which are not in our direct control . changes in a search engine 's ranking algorithms , methodologies or design layouts may result in links to our website not being prominent enough to drive traffic to our website and mobile app . for example , google has previously made changes to its algorithms and methodologies that may be contributing to the slowing of our traffic growth rate , particularly in our international markets where we have less content and more competitors . we believe this headwind on our ability to achieve prominent display of our content in international unpaid search results disrupted the network effect we expected in our international markets based on what we experienced domestically , whereby increases in content led to increases in traffic . this was a contributing factor to our decision to wind down our international sales and marketing operations . google also announced that , beginning in the fourth quarter of 2015 , the rankings of sites showing certain types of app install interstitials could be penalized on its mobile search results pages . while we believe the type of interstitial we currently use will not be penalized , the parameters of google 's policy may change from time to time , be poorly defined and be inconsistently interpreted . for example , in january 2017 , google broadened the categories of interstitials that may be penalized . as a result , google may unexpectedly penalize our app install interstitials , which may cause links to our mobile website to be featured less prominently in google 's mobile search results page , and traffic to both our mobile website and mobile app may be harmed as a result . we can not predict the long-term impact of these changes . we also anticipate that our traffic growth will continue to slow over time , and potentially decrease in certain periods , as our business matures and we achieve higher penetration rates . as our traffic growth rate slows , our success will become increasingly dependent on our ability to increase levels of user engagement on our platform . this dependence may increase as the portion of our revenue derived from performance-based advertising increases . if user engagement decreases , our advertisers may stop or reduce the amount of advertising on our platform and our results of operations would be harmed . in addition , we also expect the cyclicality and seasonality in our business to become more pronounced as our growth rate slows , including weaker traffic in the fourth quarter of the year . 42 increasing mobile usage . the number of people who access information about local businesses through mobile devices has increased dramatically over the past few years and is expected to continue to increase . although many consumers access our platform both on their mobile devices and through personal computers , we have seen substantial growth in mobile usage . we anticipate that growth in use of our mobile platform will be the driver of our growth for the foreseeable future and that usage through personal computers will continue to decline worldwide . while we currently deliver advertising on our mobile platform , the mobile market remains a new and evolving market with which we have limited experience . our continued success depends on , among other things , our efforts to innovate and introduce enhanced mobile products and features . if our efforts to develop compelling mobile advertising products are not successful , advertisers may stop or reduce their advertising with us . at the same time , we must balance advertiser demands against our commitment to prioritizing the quality of user experience over short-term monetization . if we are not able to balance these competing considerations successfully , we may not be able to generate meaningful revenue from our mobile products despite the expected growth in mobile usage , which would adversely impact our financial performance . ability to attract and retain advertisers . our revenue growth is driven by our ability to attract and retain local business that purchase our advertising products . story_separator_special_tag total net revenue increased $ 163.4 million , or 30 % , in 2016 compared to 2015 , and $ 172.2 million , or 46 % , in 2015 compared to 2014. advertising revenue increased $ 173.8 million , or 37 % , in 2016 compared to 2015 , and $ 136.0 million , or 41 % in 2015 compared to 2014. the increase in both periods was primarily due to a significant increase in the number of customers purchasing advertising plans as we expanded our sales force to reach more businesses . the growth in both periods was driven primarily by purchases of cost-per-click advertising . in both 2016 and 2015 , a majority of ad clicks were delivered on mobile . our transactions revenue increased $ 18.6 million , or 43 % , in 2016 compared to 2015 , and $ 38.6 million , or 736 % , in 2015 compared to 2014. the increase in both periods was primarily the result of increased transactions from yelp eat24 , which we acquired in february 2015. as of the beginning of 2016 , we no longer offer brand advertising products . as a result , we generated no brand advertising revenue in 2016 , a decrease of $ 31.0 million from 2015. our brand revenue decreased $ 3.5 million , or 10 % , in 2015 compared to 2014 , primarily due to a decrease in the number of brand advertisers and our phase out of our brand advertising products . our other services revenue increased $ 1.9 million , or 56 % , in 2016 compared to 2015 , and $ 1.1 million , or 45 % , in 2015 compared to 2014. the increases in both years were primarily due to increases in revenue from yelp reservations . 50 cost of revenue our cost of revenue consists primarily of web hosting costs and credit card processing fees , as well as salaries , benefits and stock-based compensation expense for our infrastructure teams related to the operation of our website and mobile app . it also includes costs associated with video production for our local advertisers as well as confirmation and delivery services associated with yelp eat24 . we expect cost of revenue to increase in 2017 at a similar rate to 2016. replace_table_token_18_th cost of revenue increased $ 9.3 million , or 18 % , in 2016 compared to 2015 , and $ 26.6 million , or 109 % , in 2015 compared to 2014. the increases in 2016 and 2015 were primarily attributable to increases of $ 6.9 million and $ 9.1 million , respectively , in merchant fees related to credit card transactions due to growth in advertising and transactions revenue , particularly as a result of our acquisition of eat24 in the three months ended march 31 , 2015. set up and creative design costs , consisting primarily of video production costs , increased by $ 1.2 million and $ 2.4 million in 2016 and 2015 , respectively , due to greater demand by businesses for video on their business listing pages . external website hosting , and the salaries and related expenses of the internal personnel that support the website infrastructure increased $ 1.0 million and $ 12.2 million in 2016 and 2015 , respectively , resulting from an increase in the number of visitors to our website and transactions completed in our website compared to the prior years , as well as increased headcount for personnel supporting the website infrastructure . in 2016 , those increases were partially offset by improved pricing from key website hosting vendors achieved during 2016. cost of revenue also increased by $ 0.2 million and $ 2.9 million in 2016 and 2015 , respectively , as a result of third-party food delivery related costs associated with yelp eat24 . sales and marketing our sales and marketing expenses primarily consist of salaries ( including employer payroll taxes ) , benefits , travel expense and incentive compensation expense , including stock-based compensation expense , for our sales and marketing employees . in addition , sales and marketing expenses include business and consumer acquisition marketing , community management , branding and advertising costs , as well as allocated facilities , insurance , business taxes and other supporting overhead costs . historically , we have focused on organic and viral growth driven by the community development efforts of our community management team , which is responsible for growing and fostering local communities , as well as coordinating events to raise awareness of our brand . as a result , we historically have incurred relatively low sales and marketing expenses to increase consumer awareness of yelp . while community development continues to be our primary marketing strategy , we launched our first advertising campaign in 2014 and launched additional campaigns in each year since then . we plan to continue investing in various advertising channels in 2017 . 51 in the fourth quarter of 2016 , we significantly reduced our sales and marketing activities in markets outside of the united states and canada . nevertheless , we expect our sales and marketing expenses to increase as we expand our communities , increase the number of advertising and subscription accounts and continue to build our brand in the united states and canada . the majority of these expenses will be related to hiring sales employees and community managers , as well as costs incurred with various third-party media outlets and other advertising channels . we expect sales and marketing expenses to increase in 2017 at or slightly above the rate at which revenue increases in 2017 , and to be our largest expense for the foreseeable future . replace_table_token_19_th sales and marketing expenses increased $ 81.1 million , or 27 % , in 2016 compared to 2015 , and $ 100.7 million , or 50 % , in 2015 compared 2014. the increases in 2016 and 2015 were primarily attributable to $ 48.5

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cash flows the following table summarizes our cash flows for the periods indicated : replace_table_token_31_th operating activities . we generated $ 126.9 million of cash in operating activities in the year ended december 31 , 2016 , primarily resulting from our net loss of $ 4.7 million , which included non-cash depreciation and amortization expenses of $ 35.3 million , non-cash stock-based compensation expense of $ 86.3 million and non-cash provision for doubtful accounts and sales returns of $ 17.3 million . in addition , significant changes in our operating assets and liabilities resulted from the following : ● increase in accounts receivable of $ 31.6 million due to an increase in billings for advertising plans , as well as the timing of payments from these customers ; 59 ● increase in accounts payable , accrued expenses and other liabilities of $ 15.3 million , primarily driven by an increase in restaurant revenue share liability , accrued vacation and employee-related expenses , and the timing of invoices and payments to the vendors , particularly marketing-related vendors ; and ● decrease in prepaids and other assets of $ 5.7 million , primarily due to the collection of non-trade receivables we generated $ 57.4 million of cash in operating activities in the year ended december 31 , 2015 , primarily resulting from our net loss of $ 32.9 million , which included non-cash depreciation and amortization expenses of $ 29.6 million , non-cash stock-based compensation expense of $ 60.8 million , non-cash provision for doubtful accounts of $ 16.8 million and a $ 20.3 million expense related to a valuation allowance recorded against certain domestic and foreign deferred tax assets .

performance indicators we use the following key metrics in evaluating our performance : same store sales . we include a restaurant in the same store restaurant group starting in the first full accounting period following the eighteenth month of operations . our same store restaurant base consisted of 45 restaurants at december 29 , 2019. changes in same store sales reflect changes in sales for the same store group of restaurants over a specified period of time . this measure highlights the performance of existing restaurants , as the impact of new restaurant openings is excluded . 37 measuring our same store sales allows us to evaluate the performance of our existing restaurant base . various factors impact same store sales including : consumer recognition of our concepts and our ability to respond to changing consumer preferences ; overall economic trends , particularly those related to consumer spending ; our ability to operate restaurants effectively and efficiently to meet guest expectations ; pricing ; guest traffic ; spending per guest and average check amounts ; local competition ; trade area dynamics ; and introduction of new menu items . average weekly sales . average weekly sales per restaurant is computed by dividing total restaurant sales for the period by the total number of days all restaurants were open for the period to obtain a daily sales average . the daily sales average is then multiplied by seven to arrive at average weekly sales per restaurant . days on which restaurants are closed for business for any reason other than scheduled closures on thanksgiving and christmas are excluded from this calculation . revenue associated with the reduction in liabilities for gift cards which are not redeemed , commonly referred to as gift card breakage , is not included in the calculation of average weekly sales per restaurant . average weekly same store sales . average weekly same store sales per restaurant is computed by dividing total restaurant same store sales for the period by the total number of days all same store restaurants were open for the period to obtain a daily sales average . the daily same store sales average is then multiplied by seven to arrive at average weekly same store sales per restaurant . days on which restaurants are closed for business for any reason other than scheduled closures on thanksgiving and christmas are excluded from this calculation . sales and sales days used in this calculation include only those for restaurants in operation at the end of the period which have been open for more than 18 months . revenue associated with the reduction in liabilities for gift cards which are not redeemed , commonly referred to as gift card breakage , is not included in the calculation of average weekly same store sales per restaurant . average check . average check is calculated by dividing total restaurant sales by guest counts for a given time period . total restaurant sales includes food , alcohol and beverage sales . average check is influenced by menu prices and menu mix . management uses this indicator to analyze trends in guests ' preferences , the effectiveness of menu changes and price increases and per guest expenditures . average unit volume . average unit volume consists of the average sales of our restaurants over a certain period of time . this measure is calculated by multiplying average weekly sales by the relevant number of weeks for the period presented . this indicator assists management in measuring changes in guest traffic , pricing and development of our concepts . cost of sales . cost of sales is an important metric to management because it is the only truly variable component of cost relative to the sales volume while other components of cost can vary significantly due to the ability to leverage fixed costs at higher sales volumes . guest counts . guest counts are measured by the number of entrees ordered at our restaurants over a given time period . our business is subject to seasonal fluctuations . historically , the percentage of our annual revenues earned during the first and fourth quarters has been higher due , in part , to increased gift card redemptions and increased private dining during the year-end holiday season . in addition , we operate on a 52- or 53-week fiscal year that ends on the sunday closest to december 31. each quarterly period has 13 weeks , except for a 53-week year when the fourth quarter has 14 weeks . our next 53-week fiscal year will occur in 2020. as many of our operating expenses have a fixed component , our operating income and operating income margins have historically varied from quarter to quarter . accordingly , results for any one quarter are not necessarily indicative of results to be expected for any other quarter , or for the full fiscal year . key financial definitions net sales . net sales consist primarily of food and beverage sales at our restaurants , net of any discounts , such as management meals and employee meals , associated with each sale . net sales are directly influenced by the number of operating weeks in the relevant period , the number of restaurants we operate and same store sales growth . gift card breakage is also included in net sales . 38 cost of sales . cost of sales consists primarily of food and beverage expenses and is presented net of earned vendor rebates . food and beverage expenses are generally influenced by the cost of food and beverage items , distribution costs and menu mix . the components of cost of sales are variabl e in nature , increase with revenues , are subject to increases or decreases based on fluctuations in commodity costs , including beef prices , and depend in part on the controls we have in place to manage cost of sales at our restaurants . restaurant labor and related costs . story_separator_special_tag the repurchase program does not obligate the company to acquire any particular amount of stock . there was no common stock repurchase activity under the program during fiscal year 2019. short-term capital requirements our operations have not required significant working capital . many companies in the restaurant industry operate with a working capital deficit . guests pay for their purchases with cash or by credit card at the time of the sale while restaurant operations do not require significant inventories or receivables . in addition , trade payables for food and beverage purchases and other obligations related to restaurant operations are not typically due for approximately 30 days after the sale takes place . since requirements for funding accounts receivable and inventories are relatively insignificant , virtually all cash generated by operations is available to meet current obligations . we had a working capital deficit of $ 13,134 at december 29 , 2019 compared to a deficit of $ 16,313 at december 30 , 2018 , which included the termination fee payable to black knight , on january 31 , 2019. management does not believe a low working capital position or working capital deficits impair our overall financial condition . 45 credit facility the company currently has four separate notes under its second amended and restated loan agreement ( “ loan agreement ” ) with pinnacle bank . the borrower under the loan agreement is j. alexander 's , llc , and it is guaranteed by j. alexander 's holdings , llc and all of its significant subsidiaries . the indebtedness outstanding under this loan agreement is secured by liens on certain personal property of the company and its subsidiaries , subsidiary guarantees , and a mortgage lien on certain real property . the loan agreement , among other things , permits payments of tax dividends to members , limits capital expenditures , assets sales and liens and encumbrances , prohibits dividends , and contains certain other provisions customarily included in such agreements . the loan agreement consists of the following : a $ 1,000 revolving line of credit ( “ revolving line of credit ” ) that matures on september 3 , 2021 , and which may be used for general corporate purposes . the outstanding balance was $ 0 at both december 29 , 2019 and december 30 , 2018. a $ 5,000 term loan ( “ mortgage loan ” ) that matures on september 3 , 2021. a $ 20,000 development line of credit ( “ development line of credit ” ) that matures on september 3 , 2021. a $ 10,000 term loan ( “ term loan ” ) entered into in 2015 with a term of five years ending on may 3 , 2020. the current balance of each of these credit facilities is set forth below . in 2019 , j. alexander 's , llc entered into two separate modification agreements with respect to the loan agreement . the first modification agreement ( the “ first modification agreement ” ) became effective on january 2 , 2019 , while the second modification agreement ( the “ second modification agreement ” ) became effective on september 3 , 2019. the loan agreement previously provided that both the development line of credit and the term loan would bear interest at 30-day libor plus 220 basis points and amounts borrowed under the revolving line of credit and the mortgage loan would bear interest at 30-day libor plus 250 basis points . the revolving line of credit previously had a minimum interest rate of 3.25 % , and the mortgage loan had minimum and maximum interest rates of 3.25 % and 6.25 % , respectively . under the terms of the first modification agreement , effective january 2 , 2019 , all of the notes under the loan agreement bear interest at libor plus a sliding interest rate scale determined by the maximum adjusted debt to ebitdar ratio . for the year ended december 29 , 2019 , the interest rate was set at libor plus 1.85 % . additionally , the non-use fee payable quarterly on the development line of credit and revolving line of credit decreased as a result of the first modification agreement from 0.25 % to a sliding rate based on the maximum adjusted debt to ebitdar ratio . the interest rate and non-use fee rate scale is set forth as follows : replace_table_token_5_th the second modification agreement extended the maturity dates with respect to the development line of credit , the revolving line of credit and the mortgage loan to september 3 , 2021. prior to the second modification agreement , the revolving line of credit , the development line of credit , and the mortgage loan were set to mature on september 3 , 2019 , may 3 , 2020 and september 3 , 2020 , respectively . no further changes to the loan agreement were made as a result of the modification agreements discussed above . the loan agreement , among other things , permits payments of tax dividends to members , limits capital expenditures , asset sales and liens and encumbrances , and contains certain other provisions customarily included in such agreements . the indebtedness outstanding under these facilities is secured by liens on certain personal property of j. alexander 's holdings , llc and its subsidiaries , subsidiary guaranties and a mortgage lien on certain real property . the loan agreement includes certain financial covenants . a fixed charge coverage ratio , as defined in our loan agreement , of at least 1.25 to 1 as of the end of any fiscal quarter based on the four quarters then ending must be maintained . in addition , the maximum adjusted debt to ebitdar ratio , as defined in our loan agreement , must not exceed 4.0 to 1 at the end of any fiscal quarter . see item 8. financial statements and supplementary data , note 10 – debt

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cash flows the table below shows our net cash flows from operating , investing and financing activities for the periods indicated : replace_table_token_4_th operating activities . net cash flows provided by operating activities decreased to $ 17,255 for fiscal year 2019 from $ 21,680 for fiscal year 2018 , a decrease of $ 4,425. our operations generate receipts from guests in the form of cash and cash equivalents , with receivables related to credit card payments considered cash equivalents due to their relatively short settlement period , and the majority of our expenses are paid within a 30-day pay period . in fiscal year 2019 , net sales increased by $ 4,940 , which excludes the impact of the comparative increase in gift card breakage of $ 65 , compared to 2018 , and total restaurant operating expenses also increased by $ 6,341 compared to fiscal year 2018 , resulting in a net decrease to cash flow from operations of approximately $ 1,401. additionally , as compared to 2018 , payments for transaction , contested proxy and other related costs were approximately $ 3,426 higher during 2019 , which was primarily related to the termination fee payable to black knight paid during 2019 as well as certain payments associated with the proxy solicitation for the 2019 annual meeting of shareholders and payments made to advisors pursuant to the ongoing exploration of strategic alternatives . investing activities . net cash used in investing activities for 2019 totaled $ 12,192 compared to $ 18,608 in 2018 , a decrease of $ 6,416 , with the 2019 use of cash being attributed primarily to capital expenditures related to the construction of the new merus grill restaurant which opened in houston , texas , during the fourth quarter of 2019 as well as restaurant remodels that occurred at certain locations and routine additions at other locations .

the most significant and ongoing factor is the company 's acquisition of heritage global partners during the first quarter of 2012. in particular , cash , accounts receivable and inventory associated with heritage global partners at december 31 , 2012 were $ 820 , $ 365 and $ 238 , respectively , and accounts payable and accrued liabilities were $ 3,426. the second factor relates to the uneven nature of the timing of asset liquidation transactions . transactions in the fourth quarter of 2012 , which included a significant acquisition of assets that had not been sold at december 31 , were responsible for the increase in debt payable to third parties . the company 's debt payable to third parties consists of borrowings under counsel rb 's revolving credit facility , and , as noted above , is subject to significant fluctuation depending on the number and magnitude of asset liquidation transactions in process at any given date . the credit facility has a limit of $ 15,000 , which may be used to finance its purchases of assets for resale , as discussed in note 7 of the audited consolidated financial statements . during 2012 , the company 's primary source of cash , in addition to borrowings under counsel rb 's revolving credit facility , was the operations of its asset liquidation business . cash disbursements , other than those related to repayment of debt , and the net $ 2,344 related to the acquisition of heritage global partners , were primarily related to operating expenses . it should be noted that generally accepted accounting principles in the united states of america ( “ gaap ” ) require the company to classify both real estate inventory and asset liquidation investments as non-current , although they are expected to be converted to cash within a year . if these assets were classified as current , the company would report working capital of $ 7,348 at december 31 , 2012 and working capital of $ 13,212 at december 31 , 2011. the company is continuing to pursue licensing and royalty agreements with respect to its patents . however , the company expects that its asset liquidation business will continue to be the primary source of cash required for ongoing operations for the foreseeable future , and that its operations will generate sufficient cash to cover the company 's requirements . the company 's portfolio investments are in companies that are not publicly traded , and therefore these investments are illiquid . the company 's investments were made with the objective of recognizing long-term capital gains , and neither the amount nor the timing of such gains can be predicted with any certainty . to date the company has realized capital gains on its investments in mytrade.com , limos.com and buddy media , inc. , and has not sold any investments at a loss . 15 story_separator_special_tag $ 1,410 in 2011. also in 2012 , net cash of $ 2,334 was advanced to the company 's parent , counsel , as compared to a net cash advance of $ 203 in 2011 , and net cash of $ 849 was paid to the former owners of heritage global partners . in 2012 the company received $ 14 with respect to the exercise of 31,750 options , as compared to 2011 , when the company received a total of $ 1,839 cash from a private placement of one million common shares and the exercise of 30,000 options . consolidated results of operations key selected financial data for the years ended december 31 , 2012 and 2011 are as follows : replace_table_token_3_th asset liquidation revenue is primarily earned from the acquisition and subsequent disposition of distressed and surplus assets , including industrial machinery and equipment , real estate , inventories , accounts receivable and distressed debt . following the acquisitions of heritage global partners and equity partners , it is also earned from more traditional asset disposition services , such as commissions from on-site and webcast auctions , liquidations and negotiated sales , and fees earned for management advisory services . the company also earns income from its asset liquidation business through its earnings from equity accounted asset liquidation investments . the revenues and expenses discussed below include the operating results of heritage global partners for the period following its acquisition by the company on february 29 , 2012. in the near-term , the company 's earnings have been impacted by the incremental costs associated with the acquisition and integration of heritage global partners and the expansion of its operations into latin america and europe , as discussed above under overview , history and recent developments . 2012 compared to 2011 asset liquidation revenues were $ 14,128 in 2012 compared to $ 17,238 in 2011 , asset liquidation expense was $ 7,090 in 2012 compared to $ 9,766 in 2011 , and earnings of equity accounted asset liquidation investments were $ 2,023 in 2012 compared to $ 2,183 in 2011. the net earnings of these three items were $ 9,061 in 2012 compared to $ 9,655 in 2011. because the company conducts its asset liquidation operations both independently and through partnerships , as discussed in note 2 of the audited consolidated financial statements , and the ratio of the two is unlikely to remain constant year over year , the operations must be considered as a whole rather than on a line-by-line basis . the lower revenues and expenses in 2012 reflect the vagaries of the timing of completion of asset liquidation transactions . in addition , the operating results in 2011 were impacted by one large transaction , the sale of a paper mill in gorham , nh . story_separator_special_tag 1 gp llc ( “ knight 's bridge gp ” ) . both investments are accounted for under the equity method . under this method , the investments are carried at cost , plus or minus the company 's share of increases and decreases in the investee 's net assets and certain other adjustments . the company 's share of the net income or loss of the investee is reported separately in the company 's income statement , and any return of capital or dividend received from the investee is credited to the investment account . the company also recognizes any other-than-temporary impairments of equity accounted investments . since neither of these investments are traded on an open market , and they are not convertible into investments that are traded on an open market , significant judgment is involved in estimating their fair values . these fair value estimates are based on level 3 inputs . for polaroid , an internal valuation , based on current financial statements and projections , was prepared at december 31 , 2012. the company concluded that its investment was not impaired . the value of knight 's bridge gp is primarily based on the value of the investments held by its own equity method investee , the internet fund . these investments are also not publicly traded , and their values are estimated using level 3 inputs , primarily investee financial statements and projections . based on an analysis of knight 's bridge gp and the internet fund at december 31 , 2012 , management concluded that its equity investment was not impaired as at december 31 , 2012. assets and liabilities acquired in the course of its operations , most recently with respect to the heritage global partners acquisition in february 2012 , the company acquires assets and liabilities as a component of a business combination . valuations are assigned to the acquired assets and liabilities based on management 's assessment of their fair market value , which assessments may include engaging the services of third parties with valuation expertise . historically , acquired liabilities have been short term and cash-based , such as accounts payable , and therefore valuation has not required a large degree of judgment . intangible assets and goodwill related to business combinations have been more complex , and are discussed further below . intangible assets intangible assets are recorded at fair value upon acquisition and are amortized over their estimated lives . the company monitors events and changes in circumstances which require an assessment of recoverability . if the carrying amount of the intangible assets is not recoverable , an impairment loss is recognized in the statement of operations , determined by comparing the carrying amount of the asset to its fair value . at december 31 , 2012 the company 's intangible assets relate to its acquisition of heritage global partners in february 2012 , and consist of customer/broker network and trade name . the company engaged the services of an independent third party in order to determine the value of these intangible assets , and the valuation process was completed in the third quarter of 2012. based on the company 's assessment at december 31 , 2012 , these assets were not impaired . see note 2 and note 6 for more detail regarding the company 's intangible assets . 20 goodwill goodwill , which results from the difference between the purchase price and the fair value of net identifiable assets acquired , is not amortized but is tested annually for impairment in accordance with gaap . this testing is a two-step process , in which the carrying amount of the reporting unit associated with the goodwill is first compared to the reporting unit 's estimated fair value . if the carrying amount of the reporting unit exceeds its estimated fair value , the fair values of the reporting unit 's assets and liabilities are analyzed to determine whether the goodwill of the reporting unit has been impaired . an impairment loss is recognized to the extent that the company 's recorded goodwill exceeds its implied fair value as determined by this two-step process . an accounting pronouncement issued in may 2011 and early adopted by the company in december 2011 , testing goodwill for impairment ( “ asu 2011-08 ” ) provides the option to perform a qualitative assessment prior to performing the two-step process , which may eliminate the need for further testing . goodwill , in addition to being tested for impairment annually , is tested for impairment between annual tests if an event occurs or circumstances change such that it is more likely than not that the carrying amount of goodwill may be impaired . at december 31 , 2012 the company 's goodwill relates to its acquisition of equity partners in june 2011 and its acquisition of heritage global partners in february 2012. the valuation of the goodwill relating to heritage global partners was completed in the third quarter of 2012 , together with the valuation of the acquired intangible assets , as discussed above . valuation tests were performed and no goodwill impairment was identified at december 31 , 2012. see note 2 and note 6 for more detail regarding the company 's goodwill . deferred income tax assets the company recognizes deferred tax assets and liabilities for temporary differences between the tax bases of assets and liabilities and the amounts at which they are carried in the financial statements , based upon the enacted tax rates in effect for the year in which the differences are expected to reverse . the company establishes a valuation allowance when necessary to reduce deferred tax assets to the amount expected to be realized . the company periodically assesses the value of its deferred tax assets , which have been generated by a history of net operating and net capital losses , and determines the necessity for a valuation allowance . the company

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ownership structure and capital resources · at december 31 , 2012 the company had stockholders ' equity of $ 46,012 , as compared to $ 42,940 at december 31 , 2011 . · at december 31 , 2012 the company is 71.3 % ( december 31 , 2011 – 76.1 % ) owned , and therefore controlled , by counsel . at december 31 , 2011 the co-ceos of counsel rb each owned 5.98 % of the company . one million shares , or 3.7 % , were held by a single investor . the remaining 8.2 % was owned by public stockholders . on february 29 , 2012 , as discussed in note 2 of the audited consolidated financial statements , the company issued one million common shares as part of the consideration for its acquisition of heritage global partners , representing 3.69 % of the then-outstanding common shares . subsequently , on august 10 , 2012 , the company issued 800,000 shares to its co-ceos in connection with the acquisition of intellectual property from them . counsel 's ownership was thereby decreased to 71.3 % , that of the co-ceos increased to 7.0 % each , that of both the single investor referenced above , and the former owners of heritage global partners , decreased to 3.5 % , and that of the remaining public stockholders decreased to 7.7 % . cash position and cash flows cash at december 31 , 2012 was $ 4,314 compared to $ 6,672 at december 31 , 2011. cash provided by or used in operating activities .

in exchange for this exclusive right , we paid marina an upfront payment of $ 0.3 million and will also be required to pay marina milestone payments of up to an aggregate of $ 14.5 million for each dnai product candidate other than pnt2258 as well as low single-digit royalties on net sales for dnai product candidates other than pnt2258 . in april 2014 , we entered into a license payment agreement with novosom , pursuant to which we made a one-time payment to novosom of $ 11.0 million in april 2014 and terminated the other payment obligations owed to novosom for pnt2258 except for one remaining $ 3.0 million payment due upon regulatory approval of pnt2258 and a low single-digit royalty on net sales of pnt2258 . 70 since inception , we have devoted substantially all of our resources to research and development activities , including the clinical development of our lead product candidate , pnt2258 , and providing general and administrative support for these operations . we have never generated revenue and have incurred significant net losses since inception . our net losses were $ 53.3 million and $ 23.9 million for the years ended december 31 , 2015 and 2014 , respectively . as of december 31 , 2015 , we had an accumulated deficit of $ 534.2 million . we expect to incur significant expenses and increasing operating losses for the foreseeable future . we anticipate that our expenses will increase substantially as we : invest significantly to further develop , and seek regulatory approval for , our lead product candidate , pnt2258 ; acquire or in-license other drugs and technologies ; invest in scaling our manufacturing capacity to support development and our global commercialization strategy ; continue to develop our dnai technology platform ; identify and develop additional product candidates ; hire additional clinical , scientific and management personnel ; seek regulatory and marketing approvals for any product candidates that we may develop ; ultimately establish a sales , marketing and distribution infrastructure to commercialize any drugs for which we may obtain marketing approval ; maintain , expand and protect our intellectual property portfolio ; and add operational , financial and management information systems and personnel , including personnel to support our drug development , any future commercialization efforts and operating as a public company . on july 21 , 2015 , we completed the initial public offering ( ipo ) of our common stock pursuant to a registration statement on form s-1 . in the ipo , we sold an aggregate of 9,315,000 shares of our common stock , which included 1,215,000 shares of common stock purchased by the underwriters upon the full exercise of their options to purchase additional common stock , at a price of $ 17.00 per share . we received aggregate cash proceeds of approximately $ 143.6 million from the ipo , net of underwriting discounts and commissions and offering expenses . we have funded our operations to date primarily from the issuance and sale of our common stock in our ipo and our convertible and redeemable convertible preferred stock in private financings and , to a lesser extent , through debt financings and exercises of our preferred stock warrants . as of december 31 , 2015 , we had cash and cash equivalents of $ 150.2 million . components of statements of operations operating expenses research and development research and development expenses consist primarily of the following : fees or milestone payments incurred in connection with license agreements ; personnel-related costs , which include salaries , benefits , stock-based compensation , recruitment fees and travel costs ; costs associated with preclinical studies and clinical trials , regulatory activities and manufacturing activities to support clinical activities ; 71 fees paid to external service providers that conduct certain research and development , clinical and manufacturing activities on our behalf ; and facility-related costs , which include direct and allocated expenses for rent and maintenance of facilities , depreciation and amortization expense and other supplies . the largest recurring component of our total operating expenses has historically been our investment in research and development activities , including the clinical development of our product candidate . we expect our research and development expenses will increase over the next few years as we advance our development programs , pursue regulatory approval of our product candidate in the united states and other jurisdictions and prepare for potential commercialization , which will require a significant investment in costs related to contract manufacturing and inventory buildup . the process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming . we may never succeed in achieving marketing approval for pnt2258 or any future product candidates . the probability of success of our product candidate may be affected by numerous factors , including clinical data , regulatory developments , competition , manufacturing capability and commercial viability . as a result , we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization of pnt2258 or any future product candidates . general and administrative general and administrative expenses consist of personnel-related costs , facility-related costs , allocated expenses and professional fees for services , including legal , human resources , audit and accounting services . personnel-related costs consist of salaries , benefits , stock-based compensation , recruitment fees and travel costs . we expect to incur additional expenses associated with supporting our growing research and development activities , operating as a public company and other administration and professional services . other income ( expense ) , net interest expense interest expense consists of interest expense on our historical debt obligations as well as amortization of financing costs . we may incur additional interest expense in the future if we enter into debt arrangements . story_separator_special_tag this process involves the following : reviewing quotations and contracts , identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost ; estimating and accruing expenses in our financial statements as of each balance sheet date based on facts and circumstances known to us at the time ; and periodically confirming the accuracy of our estimates with selected service providers and making adjustments , if necessary . estimated research and development expenses that we accrue include clinical trial costs under arrangements with third parties , such as contract research organizations ( cros ) , manufacturing costs under agreements with contract manufacturing organizations ( cmos ) , external research and development expenses incurred under arrangement with third parties and consultants and license fees for technology that has not reached technological feasibility and does not have an alternative future use . we base our expense accruals related to clinical trials on patient enrollment and our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions that conduct and manage clinical trials on our behalf . the financial terms of these agreements vary for each contract and may result in uneven payment flows . payments under some of these contracts depend on several 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 we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services , our actual expenses could differ from our estimates . for service contracts entered into that include a nonrefundable prepayment for service , the upfront payment is deferred and recognized in the statement of operations as the services are rendered . 78 to date , we have not experienced significant changes in our estimates of accrued research and development expenses after a reporting period . however , due to the nature of estimates , we can not assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical trials and other research activities . stock-based compensation stock-based compensation costs related to stock options granted to employees are measured at the date of grant based on the estimated fair value of the award , net of estimated forfeitures . we estimate the grant date fair value , and the resulting stock-based compensation expense , using the black-scholes option-pricing model . the grant date fair value of the stock-based awards is recognized on a straight-line basis over the requisite service period , which is generally the vesting period of the respective awards . the fair value of any options issued to non-employees is recorded as expense over the vesting period . proceeds from options exercised by employees prior to vesting pursuant to an early exercise provision , the related shares of which we have the option to repurchase prior to the vesting date should employment of the early exercised option holder be terminated , are recognized as a liability until the shares vest . we expect to continue to grant stock options in the future , and to the extent that we do , our actual stock-based compensation will likely increase . the black-scholes option-pricing model requires the use of highly subjective assumptions which determine the estimated fair value of stock-based awards . these assumptions include : expected term— the expected term represents the period that stock-based awards are expected to be outstanding . as our historical share option exercise is limited due to a lack of sufficient data points , and did not provide a reasonable basis upon which to estimate an expected term , we estimated the expected term by using the midpoint between the vesting commencement date and the contractual expiration period of the stock-based award . the expected term for options issued to non-employees is the contractual term . expected volatility— since we have limited information on the volatility of common stock due to its short trading history , the expected volatility was derived from the historical stock volatilities of comparable peer public companies within its industry that are considered to be comparable to our business over a period equivalent to the expected term of the stock-based awards . risk-free interest rate— the risk-free interest rate is based on the u.s. treasury yield curve in effect at the date of grant for zero-coupon u.s. treasury notes with maturities approximately equal to the stock-based awards ' expected term . expected dividend rate— the expected dividend is zero as we have not paid nor anticipate paying any dividends on our common stock in the foreseeable future . forfeiture rate— the forfeiture rate is estimated based on an analysis of actual forfeitures . we will continue to evaluate the adequacy of the forfeiture rate based on actual forfeiture experience , analysis of employee turnover behavior and other factors . the impact from any forfeiture rate adjustment would be recognized in full in the period of adjustment and if the actual number of future forfeitures differs from management 's estimates , we might be required to record adjustments to stock-based compensation in future periods . we will continue to use judgment in evaluating the expected volatility , expected terms , and forfeiture rates utilized for our stock-based compensation calculations on a prospective basis and will revise in subsequent periods if actual forfeitures differ from those estimates . preferred stock warrant liabilities warrants for the purchase of shares of our preferred stock were classified as derivative liabilities on our consolidated balance sheets at their fair value on the date

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cash flows from operating activities in 2015 , cash used in operating activities of $ 28.3 million was attributable to a net loss of $ 53.3 million , partially offset by $ 20.8 million in non-cash charges and a net change of $ 4.2 million in our net operating assets and liabilities . the non-cash charges consisted primarily of $ 17.4 million for the change in fair value of our preferred stock warrants and $ 3.2 million in stock-based compensation . the change in operating assets and liabilities was primarily attributable to an increase in accrued liabilities of $ 5.3 million due to an increase in accrued research and development activities and headcount , partially offset by an increase in prepaid expenses of $ 1.1 million , driven by an increase in prepaid insurance and third-party manufacturing costs . in 2014 , cash used in operating activities of $ 21.8 million was attributable to a net loss of $ 23.9 million , of which $ 11.0 million pertained to a milestone payment to novosom , partially offset by $ 1.7 million in non-cash charges and a net change of $ 0.4 million in our net operating assets and liabilities . the non-cash charges consisted primarily of $ 1.4 million for the change in fair value of our preferred stock warrants and $ 0.3 million in stock-based compensation . the change in operating assets and liabilities was primarily attributable to a $ 0.5 million increase in prepaid expenses and other current assets related to our prepayment of manufacturing costs for clinical supply , offset by a $ 0.9 million increase in accounts payable and accrued liabilities due to an increase in headcount and accrued research and development costs driven by growth in our research and development activities . in 2013 , cash used in operating activities of $ 3.6 million was attributable to a net loss of $ 6.8 million partially offset by $ 3.0 million in non-cash charges and a net change of $ 0.2 million in our net operating assets and 76 liabilities .

from time to time , we have experienced volatility in international sales . our product development costs were primarily related to completing the phase 3 clinical trials for triferic® , our lead drug candidate . we believe our triferic® product has unique and substantive benefits compared to current treatment options and has the potential to compete in the iron maintenance therapy market . we successfully completed the phase 3 clinical trial program for triferic® in early 2014 and we are preparing to file our nda for triferic® in the first quarter of 2014. in 2011 , we acquired the right to manufacture the generic version of calcitriol , a vitamin d analogue , indicated in the treatment of secondary hyperparathyroidism , which is common in esrd patients . we are in the process of obtaining fda approval to make a change in manufacturing locations and we expect to receive such approval during the first half of 2014. we anticipate that our gross profit margins and operating cash flows will improve once we begin marketing calcitriol . in march and may 2013 , we completed common stock offerings for a total of approximately $ 50.4 million in net proceeds . in june 2013 , we entered into a secured loan agreement and borrowed $ 20.0 million . as of december 31 , 2013 , we had $ 23.9 million in cash , cash equivalents and short term investments . we have completed the major spending on triferic® development and future spending on triferic® r & d and commercial launch is not expected to require additional cash resources to complete . we believe we have adequate cash resources to fund our business development and drug launch efforts for triferic® and calcitriol . results of operations for the year ended december 31 , 2013 compared to the year ended december 31 , 2012 sales in 2013 , our sales were $ 52.4 million compared to $ 49.9 million in 2012. sales increased $ 2.5 million or 5.1 % in 2013 compared to 2012. domestic sales increased $ 1.8 million or 4.0 % to $ 46.0 million while international sales increased by $ 0.8 million or 14 % to $ 6.4 million . 28 domestic sales increased due to new business additions , including the renewal and expansion of the supply agreement with our largest customer , as well as conversions to our citrapure and dry acid concentrate product lines . dry acid concentrate lowers providers ' cost per treatment and reduces our sales , but improves our gross profit margins due to a reduction in shipping costs . international sales and domestic sales shipped internationally increased due to increased demand in international markets for dialysis products . gross profit our gross profit was $ 6.7 million in both 2013 and 2012. gross profit margins were 12.7 % in 2013 compared to 13.4 % in 2012. favorable product mix changes from citrapure growth were offset by higher costs for material , shipping and operating costs , as well as growth in lower margin sales and higher regulatory compliance costs . selling , general and administrative expenses selling , general and administrative expenses were $ 14.3 million in 2013 compared to $ 12.7 million in 2012. the increase of $ 1.6 million was primarily due to an increase of $ 1.3 million in compensation expense , an increase of $ 0.6 million in non-cash charges relating to extending the expiration date of outstanding warrants and an increase in other expense of $ 0.8 million attributable to the medical device excise tax imposed on us beginning in 2013. these increases were partially offset by a reduction in non-cash equity compensation for services of $ 1.1 million . the increase in compensation costs included an increase in non-cash charges for equity compensation of $ 0.9 million while cash compensation and benefit costs increased $ 0.4 million . research and development we incurred product development and research costs related to the commercial development , patent approval and regulatory approval of new products , primarily triferic® , aggregating approximately $ 39.4 million and $ 48.3 million in 2013 and 2012 , respectively . costs incurred in 2013 and 2012 were primarily for conducting human clinical trials of triferic® and other triferic® testing and development activities . we have now completed the clinical testing for triferic® and incurred the majority of triferic® development expenses by the end of 2013. interest expense , net our net interest expense was $ 1,724,000 in 2013 compared to net interest and investment income of $ 242,000 in 2012. the increase in net interest expense was due to the loan agreement entered into in june 2013 coupled with reduced net interest and investment income due to lower funds available for investment in 2013 compared to 2012. income tax expense we have substantial tax loss carryforwards from our earlier losses . we have not recorded a federal income tax benefit from either our prior losses or our current year losses because we might not realize the carryforward benefit of the remaining losses . 29 for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 sales in 2012 , our sales were $ 49.9 million compared to $ 49.0 million in 2011. sales increased $ 0.9 million or 1.8 % in 2012 compared to 2011. domestic sales increased $ 1.7 million or 3.9 % to $ 44.2 million while international sales decreased by $ 0.8 million or 12.1 % to $ 5.6 million . international sales to a single international distributor decreased $ 1.4 million while all other international sales increased $ 0.6 million . story_separator_special_tag domestic sales increased due to new business additions as well as changes in product mix to higher margin products including our citrapure product lines and due to higher volume of our dry acid concentrate product lines . gross profit our gross profit in 2012 was $ 6.7 million an increase of $ 1.1 million or 18.6 % compared to 2011. gross profit margins were 13.4 % in 2012 compared to 11.5 % in 2011. the increase in gross profit margins was due to increased sales of higher margin products and product lines including our citrapure product lines along with conversions to dry acid concentrates . margins also benefited from efforts to control operating costs in the face of inflationary cost increases for material , transportation operating costs and diesel fuel . selling , general and administrative expenses selling , general and administrative expenses were $ 12.7 million in 2012 compared to $ 9.5 million in 2011. the increase of $ 3.2 million was primarily due to an increase in non-cash charges for equity compensation of $ 2.9 million . employee non-cash equity compensation aggregated $ 5.0 million in 2012 compared to $ 4.1 million in 2011. in addition , share based compensation for services increased $ 2.0 million to $ 2.3 million in 2012. research and development we incurred product development and research costs related to the commercial development , patent approval and regulatory approval of new products , primarily triferic® , aggregating approximately $ 48.3 million and $ 17.8 million in 2012 and 2011 , respectively . costs incurred in both 2012 and 2011 were primarily for conducting human clinical trials of triferic® and other triferic® testing and development activities . our spending increased considerably in 2012 for our phase 3 clinical program as enrollment efforts and related testing activities increased dramatically and were in effect for the full year . interest and investment income , net net interest and investment income in 2012 was $ 242,000 compared to $ 244,000 in 2011. we earned higher rates of return on investable funds in 2012 compared to 2011 while overall investable funds were reduced throughout 2012 to fund our clinical development program . income tax expense we have substantial tax loss carryforwards from our earlier losses . we have not recorded a federal income tax benefit from either our prior losses or our current year losses because we might not realize the carryforward benefit of the remaining losses . 30 critical accounting estimates and judgments our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the united states of america . these accounting principles require us to make estimates , judgments and assumptions that affect the reported amounts of revenues , expenses , assets , liabilities , and contingencies . all significant estimates , judgments and assumptions are developed based on the best information available to us at the time made and are regularly reviewed and updated when necessary . actual results will generally differ from these estimates . changes in estimates are reflected in our financial statements in the period of change based upon on-going actual experience , trends , or subsequent realization depending on the nature and predictability of the estimates and contingencies . interim changes in estimates are generally applied prospectively within annual periods . certain accounting estimates , including those concerning revenue recognition , allowance for doubtful accounts , impairments of long-lived assets , and accounting for income taxes , are considered to be critical in evaluating and understanding our financial results because they involve inherently uncertain matters and their application requires the most difficult and complex judgments and estimates . these are described below . for further information on our accounting policies , see note 2 to our consolidated financial statements . revenue recognition we recognize revenue at the time we transfer title to our products to our customers consistent with generally accepted accounting principles . our products are generally sold domestically on a delivered basis and as a result we do not recognize revenue until delivered to the customer with title transferring upon completion of the delivery . for our international sales , we recognize revenue upon the transfer of title as defined by standard shipping terms and conventions uniformly recognized in international trade . allowance for doubtful accounts accounts receivable are stated at invoice amounts . the carrying amount of trade accounts receivable is reduced by an allowance for doubtful accounts that reflects our best estimate of accounts that may not be collected . we review outstanding trade account receivable balances and based on our assessment of expected collections , we estimate the portion , if any , of the balance that may not be collected as well as a general valuation allowance for other accounts receivable based primarily on historical experience . all accounts or portions thereof deemed to be uncollectible are written off to the allowance for doubtful accounts . if we underestimate the allowance , we would incur a current period expense which could have a material adverse effect on earnings . impairments of long-lived assets we account for impairment of long-lived assets , which include property and equipment , amortizable and non-amortizable intangible assets and goodwill , in accordance with authoritative accounting pronouncements . an impairment review is performed annually or whenever a change in condition occurs which indicates that the carrying amounts of assets may not be recoverable . such changes may include changes in our business strategies and plans , changes to our customer contracts , changes to our product lines and changes in our operating practices . we use a variety of factors to assess the realizable value of long-lived assets depending on their nature and use . goodwill is not amortized ; however , it must be tested for impairment at least annually . the goodwill impairment analysis is based on the fair market value of our common shares . amortization continues to be recorded for other intangible

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liquidity and capital resources our strategy is centered on obtaining regulatory approval to market triferic® and developing other high potential drug candidates , while also expanding our dialysis products business . we have completed the clinical trials required for the submission of our nda for triferic® . our future spending on research and development for triferic® is not expected to be material in future periods . we believe we have adequate cash resources to launch triferic® once approved by the fda and to fund other business development opportunities we may elect to pursue . our cash resources include cash generated from our business operations , the $ 50.4 million in net proceeds generated from equity offerings during 2013 and the $ 20.0 million borrowed under the secured loan agreement executed in june 2013. the repayment and other terms of the loan are described in note 10 to our consolidated financial statements . we were in compliance with the terms of the loan agreement and there was no event of default as of december 31 , 2013. as of december 31 , 2013 ,our cash and investments were $ 23.9 million and our current assets exceeded our current liabilities by $ 14.1 million .

we complement our core fortigate product line with other appliances and software that offer additional protection from security threats to other critical areas of the enterprise , such as our wireless access point , advanced threat protection , secure email gateway , web application firewalls , application delivery controllers , databases security product , ddos security product , and endpoint security product for employee computers and mobile devices . sales of these complementary products have grown in recent quarters , although these products still represented less than 10 % of our total revenue in fiscal 2014. financial highlights we recorded total revenue of $ 770.4 million in fiscal 2014 , an increase of 25 % compared to fiscal 2013 . product revenue was $ 360.6 million , an increase of 30 % compared to fiscal 2013 . services and other revenue was $ 409.8 million in fiscal 2014 , an increase of 22 % compared to fiscal 2013 . cash , cash equivalents and investments were $ 991.7 million as of december 31 , 2014 , an increase of $ 148.7 million , or 18 % , from december 31 , 2013 . deferred revenue was $ 558.8 million as of december 31 , 2014 , an increase of $ 126.1 million , or 29 % , from december 31 , 2013 . we generated cash flows from operating activities of $ 196.6 million in fiscal 2014 , an increase of $ 49.2 million , or 33 % , compared to fiscal 2013 . we received $ 20.0 million pursuant to a six-year mutual covenant-not-to-sue and release agreement with palo alto networks , inc. in january 2014. we repurchased 1.6 million shares of common stock under our previously-announced share repurchase program for an aggregate purchase price of $ 38.6 million in fiscal 2014. revenue grew as a result of our focus on growth and our strategy to increase sales capacity and invest in our marketing activities during fiscal 2014. we also continued to gain traction with several recently introduced fortigate products , including demand for certain of our high speed , low latency next-generation enterprise data center security products . during fiscal 2014 , we made significant investments in sales and marketing to increase brand awareness and grow our global sales force and distribution channels to expand our global presence both geographically and by industry segment . we continue to focus on selling to large customers , such as enterprise , service providers and government organizations worldwide . as a result , we had increased sales from large enterprises and enterprise data center deployments , with particular strength in the telecommunication , technology , government , and financial sectors . in fiscal 2014 , sales of high-end fortigate products ( fortigate-1000 to -5000 series ) increased due to enterprise adoption of our high-end appliances such as the fortigate-1500d and 3700d . the percentage of our fortigate related billings from high-end products increased from 34 % in fiscal 2013 to 38 % in fiscal 2014 , while the mid-range products decreased from 29 % in fiscal 2013 to 26 % in fiscal 2014 and the entry-level products decreased from 38 % in fiscal 2013 to 36 % in fiscal 2014 . 34 we also continue to invest in research and development to strengthen our technology leadership position . we believe that continued product innovation has strengthened our technology and resulted in market share gains , as evidenced by our introduction of the fortigate-1500d and -3700d enterprise security appliances . in fiscal 2014 , operating expenses increased 32 % compared to fiscal 2013 . the increase was primarily driven by our accelerated pace of hiring and marketing investments to support our growth as we continued to invest in expanding our sales coverage , marketing capabilities , developing new products and scaling our customer support organization to meet the needs of our customer base . headcount , including full time equivalent employees , increased to 2,854 as of december 31 , 2014 from 2,308 as of december 31 , 2013. business model our sales strategy is based on a distribution model whereby we primarily sell our products and services directly to distributors who sell to resellers and service providers , who , in turn , sell to our end-customers . in certain cases , we sell directly to government-focused resellers , large service providers and major systems integrators , who have significant purchasing power and unique customer deployment requirements . typically , fortiguard security subscription services and forticare technical support services are purchased along with our physical and virtual appliances . we invoice at the time of our sale for the total price of the products and subscription and technical support services , and the invoice generally becomes payable within 30 to 90 days . we generally recognize product revenue up-front based on the allocated revenue value and defer revenue for the sale of new , and renewal of existing , fortiguard security subscription and forticare technical support services contracts . we recognize the related services revenue over the service period , which is typically one to three years from the date the end-customer registers for these services ( the date on which the services can first be used by the customer ) , although it can be as long as five years . sales of new and renewal services increase our deferred revenue balance , which contributes significantly to our positive cash flow from operations . key metrics we monitor the key financial metrics set forth below to help us evaluate growth trends , establish budgets , measure the effectiveness of our sales and marketing efforts , and assess operational efficiencies . the following table summarizes revenue , deferred revenue , billings ( non-gaap ) , cash , cash equivalents and investments , net cash provided by operating activities , and free cash flow ( non-gaap ) . story_separator_special_tag revenue allocated to each element is then recognized when the basic revenue recognition criteria are met for each element . we determine vsoe of fair value for elements of an arrangement based on the historical pricing and discounting practices for those services when sold separately . in establishing vsoe , we require that a substantial majority of the selling prices for a service fall within a reasonably narrow pricing range , generally evidenced by a substantial majority of such historical stand-alone transactions falling within a reasonably narrow range as a percentage of list price . we are typically not able to determine tpe for our products or services . tpe is determined based on competitor prices for similar deliverables when sold separately , which is generally unavailable . for our hardware appliances , we use besp as our selling price . for our support and other services , we generally use vsoe as our selling price estimate . when we are unable to establish a selling price using vsoe for our support and other services , we use besp in our allocation of arrangement consideration . we determine besp for a product or service by considering multiple historical factors including , but not limited to , cost of products , gross margin objectives , pricing practices , geographies , customer classes and distribution channels that fall within a reasonably narrow range as a percentage of list price . for multiple-element arrangements where software deliverables are included , revenue is allocated to the non-software deliverables and to the software deliverables as a group using the relative estimated selling prices of each of the deliverables in 39 the arrangement based on the estimated selling price hierarchy . the amount allocated to the software deliverables is then allocated to each software deliverable using the residual method when vsoe of fair value exists . if evidence of vsoe of fair value of one or more undelivered elements does not exist , all software allocated revenue is deferred and recognized when delivery of those elements occurs or when fair value can be established . when the undelivered element for which we do not have vsoe of fair value is support , revenue for the entire arrangement is recognized ratably over the support period . the same residual method and vsoe of fair value principles apply for our multiple element arrangements that contain only software elements . stock-based compensation expense employees stock options . we estimate the fair value of employee stock options awarded to our employees using the black-scholes-merton ( “ black-scholes ” ) pricing model . for all employee stock options , we recognize expense , net of estimated forfeitures , over the requisite service period using the straight-line method . our option pricing model requires the input of subjective assumptions , including the expected stock price volatility , expected term , and forfeiture rate . the assumptions used in our option pricing model represent management 's best estimates . these estimates involve inherent uncertainties and the application of management 's judgment . during fiscal 2014 , stock options granted to employees were not significant . a 10 % change in any of these assumptions would not have a significant impact on our stock-based compensation expense . employee stock purchase plan . we estimate the fair value of the rights to acquire stock under our employee stock purchase plan ( “ espp ” ) using the black-scholes pricing model and is amortize the fair value over the requisite service period using the straight-line method . the pricing model requires the input of the fair value of our common stock and subjective assumptions , including the expected term of the award , the expected volatility of the price of our common stock , risk-free interest rates , and the expected dividend yield of our common stock . our espp provides for consecutive six-month offering periods and we use our own historical volatility data in the valuation of espp shares . a 10 % change in any of these assumptions would not have a material impact on our stock-based compensation expense . restricted stock units . we account for the fair value of restricted stock units ( “ rsus ” ) awarded to employees and members of our board of directors using the closing market price of our common stock on the date of grant . rsus are payable in shares of our common stock as the periodic vesting requirements are satisfied . rsus generally vest over a four-year period if the employees , contractors , or directors , as applicable , remain with us for the duration of the vesting period . for all rsus , we recognize expense , net of estimated forfeitures , over the requisite service period using the straight-line method . performance stock units . performance stock units ( “ psus ” ) are rsus that contain both service-based and market-based vesting conditions . psus vest over a specified service period upon the satisfaction of certain market-based vesting conditions , and settle into shares of our common stock upon vesting over a two- or three-year period . the fair value of a psu is calculated using the monte carlo simulation model on the date of grant and is based on the market price of our common stock on the date of grant modified to reflect the impact of the market-based vesting condition , including the estimated payout level based on that condition . we do not adjust compensation cost for subsequent changes in the expected outcome of the market-based vesting conditions . valuation of inventory inventory is recorded at the lower of cost ( using the first-in , first-out method ) or market , after we give appropriate consideration to obsolescence and inventory in excess of anticipated future demand . in assessing the ultimate recoverability of inventory , we make estimates regarding future customer demand , the timing of new product introductions , economic trends and market conditions . if the

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liquidity and capital resources replace_table_token_24_th liquidity and capital resources may be impacted by our operating activities , as well as acquisitions , capital expenditures , stock repurchases , proceeds associated with stock option exercises and issuances of common stock , and investments in strategic relationships that we have made or may make in the future . in january 2014 , we received a cash payment of $ 20.0 million pursuant to a six year mutual covenant-not-to-sue and release agreement with palo alto networks , inc. as of december 31 , 2014 , $ 122.5 million remains available for future share repurchases under our stock repurchase program , which will be financed through our available working capital . in recent years we have received significant capital resources related to the exercise of stock options and purchases under our espp . we expect proceeds in future years to be impacted by our share price and the mix of stock options and rsus issued . we expect to spend approximately $ 42.0 million related to our capital expenditures , primarily related to purchase of computer equipment , expansion of our offices , as well as the implementation of our enterprise resource planning system in fiscal 2015. as of december 31 , 2014 , our cash , cash equivalents , and investments of $ 991.7 million were held for working-capital purposes and were invested primarily in corporate debt securities , commercial paper , municipal bonds , certificates of deposit and term deposits , money market funds , and u.s. government and agency debt securities . it is our investment policy to invest excess cash in a manner that preserves capital , provides liquidity and maximizes return without significantly increasing risk . as of december 31 , 2014 , $ 265.6 million of our cash and investments was held by our international subsidiaries and is therefore not immediately available to fund domestic operations unless the cash is repatriated .

risk factors ” of this annual report on form 10-k. 96 overview we are a clinical-stage genetic medicines company committed to delivering life-changing treatments for people battling devastating diseases . using prism , our proprietary discovery and drug development platform that enables the precise design , optimization and production of novel stereopure oligonucleotides , we aspire to develop best in class medicines for genetically defined diseases with a high degree of unmet need . we are developing oligonucleotides that target ribonucleic acid ( “ rna ” ) to either reduce the expression of disease-promoting proteins or transform the production of dysfunctional mutant proteins into the production of functional proteins . by intervening at the rna level , we have the potential to address diseases that have historically been difficult to treat with small molecules or biologics , while retaining the ability to titrate dose and avoid permanent off-target genetic changes and other challenges associated with dna editing or gene therapy approaches . the mechanisms that we are currently using to target rna with our oligonucleotides include silencing , splicing , and adar ( adenosine deaminases acting on rna ) -mediated rna editing ( “ adar editing ” ) . oligonucleotides have additional advantages as a therapeutic class including the ability to access multiple tissue types and the ability to modulate the frequency of dosing to ensure broad distribution within tissues over time . oligonucleotides also have well-established manufacturing processes and validated test methods based on decades of improvements . the oligonucleotides we are developing with prism are stereopure and differ from the mixture-based oligonucleotides currently on the market or in development by others . a stereopure oligonucleotide is comprised of molecules with atoms precisely arranged in three-dimensional orientations at each linkage . based on our preclinical studies , we believe that controlling the stereochemistry of each backbone position will allow us to optimize the pharmacological profile of our oligonucleotides by maximizing the potential therapeutic benefit while minimizing the potential for side effects and safety risks . to further mitigate pharmacological risks and potential manufacturing challenges , our approach focuses on designing oligonucleotides without the need for delivery vehicles . through our work in developing stereopure oligonucleotides , we have created and continue to evolve prism , our proprietary discovery and drug development platform . prism enables us to target genetically defined diseases with stereopure oligonucleotides across multiple therapeutic modalities . prism combines our unique ability to construct stereopure oligonucleotides with a deep understanding of how the interplay among oligonucleotide sequence , chemistry and backbone stereochemistry impacts key pharmacological properties . by exploring these interactions through iterative analysis of in vitro and in vivo outcomes and machine learning-driven predictive modeling , we continue to define design principles that we deploy across programs to rapidly develop and manufacture clinical candidates that meet pre-defined product profiles . in august 2020 , we introduced our novel pn backbone chemistry modifications , which were discovered through prism and have been shown preclinically to increase potency , tissue exposure and durability across various modalities . our lead clinical development programs are focused on genetic diseases within neurology . our first stereopure therapeutic candidates in development , wve-120101 and wve-120102 , are designed to selectively target mutant huntingtin ( “ mhtt ” ) and spare wild-type , or healthy , huntingtin ( “ wthtt ” ) for the treatment of huntington 's disease ( “ hd ” ) . wve-120101 and wve-120102 are currently being studied in two phase 1b/2a clinical trials , precision-hd1 and precision-hd2 , and we expect to deliver data from both trials at the end of the first quarter of 2021. we also expect to initiate dosing in three new clinical trials with compounds containing our novel pn backbone chemistry modifications in 2021. these new programs include wve-003 , our mhtt snp3 program for the treatment of hd , wve-004 , our c9orf72 program for the treatment of amyotrophic lateral sclerosis ( “ als ” ) and frontotemporal dementia ( “ ftd ” ) , and wve-n531 , our exon 53 program for the treatment of duchenne muscular dystrophy ( “ dmd ” ) . we continue to advance our atxn3 program in sca3 . we are also pursuing additional programs in disorders of the central nervous system ( “ cns ” ) , including alzheimer 's disease , parkinson 's disease , and others , in collaboration with takeda pharmaceutical company limited ( “ takeda ” ) . in addition to neurology , our pipeline includes programs in hepatic diseases , including alpha-1 antitrypsin disease ( “ aatd ” ) , and ophthalmologic disorders , specifically inherited retinal diseases . we continue to invest in prism to continue to evolve and apply the expanding capabilities and promise of our unique platform . we have also established and continue to enhance our internal current good manufacturing practices ( “ cgmp ” ) manufacturing capabilities to increase control and visibility of our drug substance supply chain , while continuing to innovate oligonucleotide manufacturing . 97 financial operations overview we have never been profitable , and since our inception , we have incurred significant operating losses . our net loss was $ 149.9 million in 2020 and $ 193.6 million in 2019. as of december 31 , 2020 and 2019 , we had an accumulated deficit of $ 683.3 million and $ 533.4 million , respectively . we expect to incur significant expenses and operating losses for the foreseeable future . revenue we have not generated any product revenue since our inception and do not expect to generate any revenue from the sale of products for the foreseeable future . story_separator_special_tag we believe that our revenue recognition policy , particularly ( a ) assessing the number of performance obligations ; ( b ) determining the transaction price ; ( c ) allocating the transaction price to the performance obligations in the contract ; and ( d ) determining the pattern over which performance obligations are satisfied , including estimates to complete performance obligations , and the assumptions and estimates used in our analysis of contracts with cros and cmos to estimate the contract expense , involve a greater degree of judgment , and therefore we consider them to be our critical accounting policies . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ from these estimates under different assumptions and conditions . 104 revenue recognition the company recognizes revenue in accordance with accounting standards codification ( “ asc ” ) topic 606 , revenue from contracts with customers ( “ asc 606 ” ) . under this method , the company revised its consolidated financial statements for the years ended december 31 , 2017 and 2016 , and applicable interim periods within those years , as if asc 606 had been effective for those periods . this standard applies to all contracts with customers , except for contracts that are within the scope of other standards , such as leases , insurance , and financial instruments . under asc 606 , an entity recognizes revenue when its customer obtains control of promised goods or services , in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services . to determine revenue recognition for arrangements that an entity determines are within the scope of asc 606 , the entity performs the following five-step analysis : ( i ) identify the contract ( s ) with a customer ; ( ii ) identify the performance obligations in the contract ; ( iii ) determine the transaction price ; ( iv ) allocate the transaction price to the performance obligations in the contract ; and ( v ) recognize revenue when ( or as ) the entity satisfies a performance obligation . the company only applies the five-step analysis to contracts when it is probable that the entity will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer . at contract inception , once the contract is determined to be within the scope of asc 606 , the company assesses the goods or services promised within each contract , determines those that are performance obligations , and assesses whether each promised good or service is distinct . the company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when ( or as ) the performance obligation is satisfied . the company has entered into collaboration agreements for research , development , and commercial services , under which the company licenses certain rights to its product candidates to third parties . the terms of these arrangements typically include payment to the company of one or more of the following : non-refundable , upfront license fees ; reimbursement of certain costs ; customer option exercise fees ; development , regulatory and commercial milestone payments ; and royalties on net sales of licensed products . any variable consideration is constrained , and therefore , the cumulative revenue associated with this consideration is not recognized until it is deemed not to be at significant risk of reversal . in determining the appropriate amount of revenue to be recognized as the company fulfills its obligations under each of its agreements for which the collaboration partner is also a customer , the company performs the following steps : ( i ) identification of the promised goods or services in the contract ; ( ii ) determination of whether the promised goods or services are performance obligations , including whether they are distinct in the context of the contract ; ( iii ) measurement of the transaction price , including the constraint on variable consideration ; ( iv ) allocation of the transaction price to the performance obligations ; and ( v ) recognition of revenue when ( or as ) the company satisfies each performance obligation . as part of the accounting for these arrangements , the company must use significant judgment to determine : ( a ) the number of performance obligations based on the determination under step ( ii ) above ; ( b ) the transaction price under step ( iii ) above ; and ( c ) the timing of satisfaction of performance obligations as a measure of progress in step ( v ) above . the company uses significant judgment to determine whether milestones or other variable consideration , except for royalties , should be included in the transaction price as described further below . the transaction price is allocated to the optional goods and services the company expects to provide . the company uses estimates to determine the timing of satisfaction of performance obligations . amounts received prior to being recognized as revenue are recorded as deferred revenue . amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current portion of deferred revenue in the accompanying consolidated balance sheets . amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue , net of current portion . licenses of intellectual property : in assessing whether a promise or performance obligation is distinct from the other promises , the company considers factors such as the research , development , manufacturing and commercialization capabilities of the customer and the availability of the associated expertise in the general marketplace . in addition , the company considers whether the customer can benefit from a promise for its intended purpose without the

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liquidity and capital resources since our inception , we have not generated any product revenue and have incurred recurring net losses . to date , we have primarily funded our operations through private placements of debt and equity securities , public offerings of our ordinary shares and collaborations with third parties . through december 31 , 2020 , we have received an aggregate of approximately $ 808.6 million in net proceeds from these transactions . we received $ 89.3 million in net proceeds from private placements of our debt and equity securities , $ 100.4 million in net proceeds from our initial public offering , $ 40.0 million under the pfizer agreements ( as defined in note 5 ) , including $ 10.0 million as an upfront payment under the pfizer collaboration agreement and $ 30.0 million in the form of an equity investment , $ 93.5 million in net proceeds from our april 2017 follow-on underwritten public offering , $ 170.0 million in upfront payments under the takeda agreements ( as defined in note 5 ) , including $ 110.0 million as an upfront payment under the takeda collaboration agreement ( as defined in note 5 ) and $ 60.0 million in the form of an equity investment , $ 161.8 million in net proceeds from our january 2019 follow-on underwritten public offering , $ 59.9 million in net proceeds from our at-the-market equity program , and $ 93.7 million in net proceeds from our september 2020 follow-on underwritten public offering . as of december 31 , 2020 , we had cash and cash equivalents of $ 184.5 million , restricted cash of $ 3.7 million and an accumulated deficit of $ 683.3 million . our operating lease commitments as of december 31 , 2020 total $ 43.8 million , of which $ 6.3 million is related to payments in 2021 and $ 37.5 million is related to payments beyond 2021 . we expect that our existing cash and cash equivalents will be sufficient to fund our operations for at least the next twelve months .

based on the valuation techniques used and the sensitivity of financial statement amounts to the methods , assumptions , and estimates used , we have identified the allowance for loan losses , and goodwill and other intangible assets , and business combinations as the accounting areas that require the most subjective or complex judgments or are the most susceptible to change . 22 allowance for loan losses we review our allowance for loan losses quarterly to determine if it is sufficient to absorb probable loan losses in the portfolio . this determination requires management to make significant estimates and assumptions . while management uses its best judgment and available information , the ultimate adequacy of the allowance is dependent upon a variety of factors beyond our control , including the performance of our loan portfolio , the economy , changes in interest rates , and the view of regulatory authorities towards loan classifications . these uncertainties may result in material changes to the allowance for loan losses in the near term ; however , the amount of the change can not reasonably be estimated . our allowance for loan losses consists of reserves assigned to specific loans and credit relationships and general reserves assigned to loans not separately identified that have been segmented into groups with similar risk characteristics using our internal risk grades . general reserve allocations are based on management 's judgments of qualitative and quantitative factors about macro and micro economic conditions reflected within the loan portfolio and the economy . factors considered in this evaluation include , but are not limited to , probable losses from loan and other credit arrangements , general economic conditions , changes in credit concentrations or pledged collateral , historical loan loss experience , and trends in portfolio volume , maturities , composition , delinquencies , and nonaccruals . historical loss rates for each risk grade of commercial loans are adjusted by environmental factors to estimate the amount of reserve needed by segment . individually significant loans require additional analysis that may include the borrower 's underlying cash flow and capacity for debt repayment , specific business conditions , and value of secondary sources of repayment ; consequently , this analysis may result in the identification of weakness and a corresponding need for a specific reserve . no allowance for loan losses is carried over or established at acquisition for purchased loans acquired in business combinations . a provision for loan losses is recorded for any credit deterioration in purchased performing loans after the acquisition date . loans acquired in business combinations that are deemed impaired at acquisition , purchased credit impaired ( “ pci ” ) loans , are grouped into pools and evaluated separately from the non-pci portfolio . the estimated cash flows to be collected on pci loans are discounted at a market rate of interest . management believed the allowance was adequate to absorb probable loan losses inherent in the loan portfolio as of december 31 , 2019. for additional information , see note 6 , “ allowance for loan losses , ” to the consolidated financial statements in item 8 of this report . third-party collateral valuations are regularly obtained and evaluated to help management determine changes in cash flows on purchased loans acquired in business combinations , potential credit impairment , and the amount of impairment to record . internal collateral valuations are generally performed within two to four weeks of identifying the initial potential impairment . the internal evaluation compares the original appraisal to current local real estate market conditions and considers experience and expected liquidation costs . when a third-party evaluation is received , it is reviewed for reasonableness . once the evaluation is reviewed and accepted , discounts are applied to fair market value , based on , but not limited to , our historical liquidation experience for like collateral , resulting in an estimated net realizable value . the estimated net realizable value is compared to the outstanding loan balance to determine the appropriate amount of specific impairment reserve . specific reserves are generally recorded for impaired loans while third-party evaluations are in process and for impaired loans that continue to make some form of payment . while waiting for receipt of the third-party appraisal , we regularly review the relationship to identify any potential adverse developments and begin the tasks necessary to gain control of the collateral and prepare it for liquidation , including , but not limited to , engagement of counsel , inspection of collateral , and continued communication with the borrower . generally , the only difference between current appraised value , adjusted for liquidation costs , and the carrying amount of the loan , less the specific reserve , is any downward adjustment to appraised value that we determine appropriate , such as the costs to sell the property . impaired loans that do not meet certain criteria and do not have a specific reserve have typically been written down through partial charge-offs to net realizable value . based on prior experience , the company rarely returns loans to performing status after they have been partially charged off . impaired credits move quickly through the process towards ultimate resolution except in cases involving bankruptcy and various state judicial processes , which may extend the time for ultimate resolution . goodwill and other intangible assets we test goodwill for impairment annually , or more frequently if events or circumstances indicate there may be impairment , using either a qualitative or quantitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount . we have one reporting unit , which is consistent with our sole operating segment , community banking . story_separator_special_tag income tax expense decreased $ 11.85 million , or 57.43 % , and the effective tax rate decreased to 19.46 % in 2018 compared to 48.98 % in 2017 primarily due to the decreased tax rate and deferred tax asset revaluation charge taken in 2017 as a result of the enactment of the tax reform act . 29 f inancial condition total assets as of december 31 , 2019 , increased $ 554.47 million , or 24.71 % , to $ 2.80 billion from $ 2.24 billion as of december 31 , 2018. the increase is primarily attributable to the december 31 , 2019 acquisition of highlands with total assets of $ 563 million . total liabilities as of december 31 , 2019 , increased $ 458.51 million , or 23.99 % , to $ 2.37 billion from $ 1.91 billion as of december 31 , 2018. the increase is primarily attributable to the december 31 , 2019 acquisition of highlands as noted earlier . investment securities our investment securities are used to generate interest income through the deployment of excess funds , to provide liquidity , to fund loan demand or deposit liquidation , and to pledge as collateral where required . the composition of our investment portfolio changes from time to time as we consider our liquidity needs , interest rate expectations , asset/liability management strategies , and capital requirements . available-for-sale debt securities as of december 31 , 2019 , increased $ 16.46 million , or 10.75 % , compared to december 31 , 2018 , and includes $ 53.7 million in investments securities acquired in the highlands transaction . the market value of debt securities available for sale as a percentage of amortized cost was 100.65 % as of december 31 , 2019 compared to 99.76 % as of december 31 , 2018. there were no held-to-maturity debt securities as of december 31 , 2019. the remaining debt securities in the held-to-maturity category in 2018 matured during the first quarter of 2019. the funds were used to repay the company 's remaining wholesale repurchase agreement of $ 25 million . the following table presents the amortized cost and fair value of debt securities as of the dates indicated : replace_table_token_9_th the following table provides information about our investment portfolio as of the dates indicated : replace_table_token_10_th there were no holdings of any one issuer , other than the u.s. government and its agencies , in an amount greater than 10 % of our total consolidated shareholders ' equity as of december 31 , 2019 or 2018 . 30 the following table presents the amortized cost , fair value , and weighted-average yield of available-for-sale debt securities by contractual maturity , as of december 31 , 2019. actual maturities could differ from contractual maturities because issuers may have the right to call or prepay obligations with or without penalties . replace_table_token_11_th ( 1 ) fte basis of 21 % investment securities are reviewed quarterly for indications of other-than-temporary impairment ( “ otti ” ) charges . we recognized no otti charges in earnings associated with debt securities in 2019 or 2018. for additional information , see note 1 , “ basis of presentation and accounting policies , ” and note 3 , “ debt securities , ” to the consolidated financial statements in item 8 of this report . loans held for investmen t loans held for investment , our largest component of interest income , are grouped into commercial , consumer real estate , and consumer and other loan segments . each segment is divided into various loan classes based on collateral or purpose . certain loans acquired in fdic-assisted transactions are covered under loss share agreements ( “ covered loans ” ) . the general characteristics of each loan segment are as follows : ● commercial loans – this segment consists of loans to small and mid-size industrial , commercial , and service companies that include , but are not limited to , natural gas producers , retail merchants , and wholesale merchants . commercial real estate projects represent a variety of sectors of the commercial real estate market , including single family and apartment lessors , commercial real estate lessors , and hotel/motel operators . commercial loan underwriting guidelines require that comprehensive reviews and independent evaluations be performed on credits exceeding predefined size limits . updates to these loan reviews are done periodically or annually depending on the size of the loan relationship . ● consumer real estate loans – this segment consists of loans to individuals within our market footprint for home equity loans and lines of credit and for the purchase or construction of owner occupied homes . residential real estate loan underwriting guidelines require that borrowers meet certain credit , income , and collateral standards at origination . ● consumer and other loans – this segment consists of loans to individuals within our market footprint that include , but are not limited to , personal lines of credit , credit cards , and the purchase of automobiles , boats , mobile homes , and other consumer goods . consumer loan underwriting guidelines require that borrowers meet certain credit , income , and collateral standards at origination . total loans held for investment , net of unearned income , as of december 31 , 2019 , increased $ 339.38 million , or 19.12 % , compared to december 31 , 2018 , primarily due to a $ 345.33 million , or 19.66 % , increase in non-covered loans , which was driven by the acquisition of highlands . covered loans decreased $ 5.95 million , or 31.64 % , as the waccamaw bank ( “ waccamaw ” ) covered loan portfolio continues to pay down . we had no foreign loans or loan concentrations to any single borrower or industry , which are not otherwise disclosed as a category of loans that represented 10 % or more of outstanding loans , as

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cash flows the following table summarizes the components of cash flow for the periods indicated : replace_table_token_24_th 201 9 compared to 201 8 . cash and cash equivalents increased $ 140.14 million compared to a decrease of $ 81.08 million in the prior year . the increase was primarily due to a $ 121.98 million increase in net cash used in investing activities due to a net decrease in funds used to purchase investment securities and an increase in loan proceeds received . net cash provided by financing activities increased $ 92.08 million largely due to a reduction in the net decrease in deposits year over year , and a net decrease in the repayment of borrowings . net cash provided by operating activities increased $ 7.16 million primarily due to an increase in net income and a decrease in accretion income on aquired loans . 2018 compared to 2017 . cash and cash equivalents decreased $ 81.08 million compared to an increase of $ 81.64 million in the prior year . the decrease was primarily due to a $ 157.45 million increase in net cash used in financing activities due to a net decrease in deposit accounts , the repayment of fhlb borrowings , an increase in cash dividends , and an increase in the repurchase of treasury stock . net cash provided by investing activities decreased $ 18.40 million largely due to the purchase of available for sale securities . net cash provided by operating activities increased $ 13.13 million primarily due to an increase in net income .

we serve a broad range of end consumers , including outdoor enthusiasts , hunters and recreational shooters , athletes , as well as law enforcement and military professionals . our products are sold through a wide variety of mass , specialty and independent retailers , such as bass pro shops , cabela 's , dick 's sporting goods , gander mountain , recreational equipment , inc. , sportsman 's warehouse , target and walmart . we also sell certain of our products directly to consumers through the relevant brand 's website . we have a scalable , integrated portfolio of brands that allows us to leverage our deep customer knowledge , product development and innovation , supply chain and distribution , and sales and marketing functions across product categories to better serve our retail partners and end users . as of march 31 , 2016 , we operated in two business segments . these operating segments are defined based on the reporting and review process used by the chief operating decision maker , vista outdoor 's chief executive officer . as of march 31 , 2016 , vista outdoor 's two operating segments were : shooting sports , which generated 62 % of our sales in fiscal year 2016 . shooting sports product lines include centerfire ammunition , rimfire ammunition , shotshell ammunition , reloading components , centerfire rifles , rimfire rifles , shotguns and range systems . outdoor products , which generated 38 % of our sales in fiscal year 2016 . the outdoor products product lines are archery/hunting accessories , global eyewear and sport protection , golf , hydration products , optics , shooting accessories , tactical products and water sports . archery/hunting accessories include high-performance hunting arrows , game calls , hunting blinds , game cameras and waterfowl decoys . global eyewear and sport protection products include safety and protective eyewear , as well as fashion and sports eyewear and helmets . golf products include laser rangefinders . hydration products include hydration packs and water bottles . optics products include binoculars , riflescopes and telescopes . shooting accessories products include reloading equipment , clay targets , and premium gun care products . tactical products include holsters , duty gear , bags and packs . water sports products include stand up paddle boards . financial highlights and notable events certain notable events or activities affecting our fiscal 2016 financial results and subsequent results included the following : financial highlights for fiscal 2016 annual sales of $ 2,270,734 and $ 2,083,414 for the fiscal years ended march 31 , 2016 and 2015 , respectively . the increase was driven by the acquisition of camelbak and jimmy styks and increase in demand within the shooting sports market , partially offset by unfavorable foreign currency impacts . gross profit was $ 619,445 and $ 528,921 for the fiscal years ended march 31 , 2016 and 2015 , respectively . the increase was driven by the sales increase noted above , product mix , and favorable material procurement . the decrease in the current year 's tax rate to 38.3 % from 48.4 % in the year ended march 31 , 2015 was primarily caused by the absence of the nondeductible goodwill impairment recorded in the prior year period and lower nondeductible transaction costs , partially offset by true-up of deferred taxes and income taxes payable . on july 20 , 2015 , we completed the jimmy styks acquisition , using $ 40,000 of cash on hand with additional contingent consideration payable if incremental profitability growth milestones are achieved over the next three years . on august 3 , 2015 , we completed the acquisition of camelbak products , llc ( the `` camelbak acquisition `` ) for total consideration of $ 412,500 , subject to a customary working capital adjustment , utilizing cash on hand and borrowings under our existing credit facilities . on august 11 , 2015 , we issued $ 350,000 aggregate principal amount of 5.875 % senior notes ( the “ notes ” ) that mature on october 1 , 2023 . 32 during fiscal 2016 , we repurchased 3,179,086 shares for $ 142,200. notable events-subsequent to year end on april 1 , 2016 , we completed the acquisition of brg sports inc. 's action sports division , which was operated by bell sports corp. the acquisition includes the market-leading brands bell and giro , as well as blackburn , copilot , krash and raskullz . under the terms of the transaction , we paid $ 400,000 , subject to customary working capital adjustments , and additional contingent consideration payable if incremental profitability growth milestones within the bell powersports product line are achieved . on april 1 , 2016 , in connection with the action sports acquisition , we completed a refinancing of our senior secured credit facilities , under which our term loan balance was $ 332,500 , by entering into new senior secured credit facilities consisting of a $ 400,000 revolving credit facility and a $ 640,000 term loan facility maturing april 1 , 2021. we also drew $ 80,000 on our revolving credit facility to fund the purchase of action sports . outlook shooting sports market - the current year has seen an increase in the number of new long-gun background checks as evidenced by the nics . this increase along with higher sales on a year-over-year basis within shooting sports in the back half of fiscal year 2016 , indicates the market is stabilizing after the declines seen in fiscal years 2014 and 2015. critical accounting policies our discussion and analysis of our financial condition and results of operations are based upon our consolidated and combined financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . story_separator_special_tag these increases were partially offset by the absence of a $ 52,220 pre-tax non-cash impairment charge ( $ 41,020 impairment to goodwill and $ 11,200 impairment to tradename ) recorded in the fiscal year ended march 31 , 2015. net interest expense years ended march 31 2016 2015 $ change % change interest expense $ 24,351 $ 30,108 $ ( 5,757 ) ( 19.1 ) % the decrease in interest expense was due to our debt balances being lower than those allocated to us by orbital atk in the prior year period , partially offset by a higher average interest rate . 37 income tax provision replace_table_token_8_th the decrease in the current period tax rate is primarily due to the absence of the nondeductible goodwill impairment recorded in the prior year period and lower nondeductible transaction costs , partially offset by true-up of deferred taxes and income taxes payable . our provision for income taxes includes federal , state and foreign income taxes . the effective tax rate for fiscal 2016 of 38.3 % differs from the federal statutory rate of 35.0 % primarily due to state income taxes and true-up of deferred and payable taxes , partially offset by dmd , which decreased the rate . the effective tax rate for fiscal year 2015 of 48.4 % differs from the federal statutory rate of 35.0 % due to the nondeductible goodwill impairment , state income taxes and nondeductible transaction costs , partially offset by dmd and true-up of prior year taxes , which decreased the rate . we entered into a tax matters agreement with orbital atk that governs the respective rights , responsibilities and obligations of vista outdoor and orbital atk after the spin-off with respect to tax liabilities and benefits , tax attributes , tax contests and other tax sharing regarding u.s. federal , state , local and foreign income taxes , other tax matters and related tax returns . we have joint and several liability with orbital atk to the irs for the consolidated u.s. federal income taxes of the orbital atk consolidated group relating to the taxable periods in which we were part of that group . however , the tax matters agreement specifies the portion , if any , of this tax liability for which we bear responsibility , and orbital atk agrees to indemnify us against any amounts for which the we are not responsible . the tax matters agreement also provides special rules for allocating tax liabilities in the event that the spin-off is determined not to be tax-free . the tax matters agreement provides for certain covenants that may restrict the ability to pursue strategic or other transactions that otherwise could maximize the value of the business and may discourage or delay a change of control . for example , unless we ( or orbital atk , as applicable ) were to receive a supplemental private letter ruling from the irs or an unqualified opinion from a nationally recognized tax advisor , or orbital atk were to grant us a waiver , we would be restricted until two years after the spin-off is consummated from entering into transactions which would result in an ownership shift in the company of more than 30 % ( measured by vote or value ) or divestitures of certain businesses or entities which could impact the tax-free nature of the spin-off . though valid as between the parties , the tax matters agreement is not binding on the irs . prior to the spin-off , orbital atk or one of its subsidiaries filed income tax returns in the u.s. federal and various u.s. state jurisdictions that included vista outdoor . in addition , certain of our subsidiaries file income tax returns in foreign jurisdictions . after the spin-off we file income tax returns in the u.s. federal , foreign and various u.s. state jurisdictions . with a few exceptions , orbital atk and its subsidiaries and vista outdoor are no longer subject to u.s. federal , state and local , or foreign income tax examinations by tax authorities prior to 2009. the irs has completed the audits of orbital atk through fiscal year 2012 and is currently auditing orbital atk 's tax returns for fiscal years 2013 and 2014. the irs is also currently auditing the our tax return that begins after the spin-off and ends on march 31 , 2015. we believe appropriate provisions for all outstanding issues relating to our portion of these returns have been made for all remaining open years in all jurisdictions . as of march 31 , 2016 and 2015 , the total amount of unrecognized tax benefits was $ 36,194 and $ 30,768 , respectively , of which $ 29,884 and $ 25,875 , respectively , would affect the effective tax rate , if recognized . the remaining balance is related to deferred tax items which only impact the timing of tax payments . although the timing and outcome of audit settlements are uncertain , it is reasonably possible that a $ 5,388 reduction of the uncertain tax benefits will occur in the next 12 months . the settlement of these unrecognized tax benefits could result in earnings from $ 0 to $ 4,574 . see note 11 to the consolidated and combined financial statements for further details . we believe it is more likely than not that the recorded deferred benefits will be realized through the reduction of future taxable income . our recorded valuation allowance of $ 3,234 at march 31 , 2016 relates to certain tax credits , net operating losses and interest carryforwards that are not expected to be realized before their expiration . the valuation allowance decreased during fiscal year 2016 primarily due to the expiration of certain capital losses and credits and the use of certain credits . 38 fiscal 2015 sales the following is a summary of each operating segment 's sales : replace_table_token_9_th the overall fluctuation in net sales was driven

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net cash provided by operating activities was $ 154,338 in fiscal 2015 compared to $ 172,310 in fiscal year 2014. this decrease of $ 17,972 was driven by the timing of the collection of receivables and increases in balances settled with orbital atk . 41 investing activities . net cash used for investing activities was $ 503,204 in fiscal 2016 compared to $ 42,869 in fiscal year 2015. this increase of $ 460,335 was primarily caused by the impact of the acquisitions of camelbak and jimmy styks . net cash used for investing activities was $ 42,869 in fiscal 2015 compared to $ 1,341,747 in fiscal year 2014. the decrease of $ 1,298,878 was primarily caused by the impact of the acquisitions of bushnell and savage arms in the prior year . financing activities . net cash provided by financing activities was $ 192,600 in fiscal year 2016 compared to $ 116,126 in fiscal year 2015. this change of $ 76,474 reflects the absence of the dividend to orbital atk of $ 214,000 , partially offset by an increase in share repurchases in the current year of $ 138,097 . net cash provided by financing activities was $ 116,126 in fiscal year 2015 compared to $ 1,209,316 in fiscal year 2014. this change of $ 1,093,190 reflects the issuance of $ 350,000 in debt and the dividend to orbital atk of $ 214,000 as well as changes in orbital atk 's investment in vista outdoor and the allocation of debt to vista outdoor from orbital atk . subsequent to the spin-off , we no longer participate in cash management and funding arrangements with orbital atk . prior to the spin-off , we utilized those arrangements to fund significant expenditures , such as manufacturing capacity expansion and acquisitions . liquidity in addition to our normal operating cash requirements , our principal future cash requirements will be to fund capital expenditures , debt repayments , employee benefit obligations , share repurchases , and any strategic acquisitions . our short-term cash requirements for operations are expected to consist mainly of capital expenditures to maintain and expand production facilities and working capital requirements .

historically , we have been successful in passing on price increases to our customers . we monitor propane prices daily and adjust our retail prices to maintain expected margins by passing on the wholesale costs to our customers . we believe that volatility in commodity prices will continue , and our ability to adjust to and manage this volatility may impact our financial results . in periods of significant propane price increases we have experienced , and expect to continue to experience , conservation of propane used by our customers that could result in a decline in our sales volumes , revenues and gross margins . in periods of decreasing propane costs , we have experienced an increase in our product margin . the retail propane business is weather-sensitive and subject to seasonal volume variations due to propane 's primary use as a heating source in residential and commercial buildings and for agricultural purposes . typically , over 70 % of our retail volume is sold during the peak heating season from october through march . consequently , our revenues , operating profits , and operating cash flows are typically lower in the first and second quarters of each fiscal year . refined products our refined products marketing business purchases gasoline and diesel fuel primarily from eight suppliers , and sells to over 300 customers . we purchase and sell these products at a nationwide network of third-party owned terminaling and storage facilities . we typically sell the product at the same time it is purchased in back-to-back transactions . 56 renewables our ethanol marketing business purchases ethanol primarily at production facilities , and transports the ethanol for sale at various locations to refiners and blenders . we also transport and market third-party owned ethanol for a service fee . our biodiesel marketing business purchases biodiesel from production facilities in the midwest and in houston , texas , and transports the product on leased railcars for sale to refiners and blenders . we lease biodiesel storage at facilities in phoenix , arizona and deer park , texas . recent developments acquisitions of businesses have had a significant impact on the comparability of our results of operations from fiscal 2012 through 2014. these transactions are described under part i , item 1 , “business — acquisitions subsequent to initial public offering.” consolidated results of operations the following table summarizes our historical consolidated statements of operations for the years ended march 31 , 2014 , 2013 , and 2012 : replace_table_token_11_th see the detailed discussion of revenues , cost of sales , operating expenses , general and administrative expenses , depreciation and amortization expense and operating income by segment below . interest expense see note 8 to our consolidated financial statements included in this annual report for additional information on our long-term debt . the change in interest expense during the periods presented is due primarily to fluctuations in the average outstanding debt balance , and in the applicable interest rates , as summarized below : replace_table_token_12_th 57 interest expense also includes amortization of debt issuance costs , which represented $ 5.7 million of expense during the year ended march 31 , 2014 , $ 3.4 million of expense during the year ended march 31 , 2013 , and $ 1.3 million of expense during the year ended march 31 , 2012. interest expense also includes letter of credit fees , interest on equipment financing notes , and accretion of interest on non-interest bearing debt obligations assumed in business combinations . on june 19 , 2012 , we made a principal payment of $ 306.8 million to retire our previous revolving credit facility . upon retirement of this facility , we wrote off the portion of the debt issuance cost asset that had not yet been amortized . this expense is reported as “loss on early extinguishment of debt” in our consolidated statement of operations for the year ended march 31 , 2013. the increased levels of debt outstanding during the periods from fiscal 2012 through fiscal 2014 are due primarily to borrowings to finance acquisitions . income tax provision we believe that we qualify as a partnership for income tax purposes . as such , we generally do not pay united states federal income tax . rather , each owner reports his or her share of our income or loss on his or her individual tax return . we have certain taxable corporate subsidiaries in the united states and canada . in addition , our operations in texas are subject to a state franchise tax that is calculated based on revenues net of cost of sales . noncontrolling interests we have certain consolidated subsidiaries in which outside parties own interests . the noncontrolling interest shown in our consolidated statements of operations represents the other owners ' share of the net income of these entities . non-gaap financial measures the following tables reconcile net income attributable to parent equity to ebitda and adjusted ebitda , each of which are non-gaap financial measures : replace_table_token_13_th we define ebitda as net income ( loss ) attributable to parent equity , plus interest expense , loss on early extinguishment of debt , income taxes , and depreciation and amortization expense . we define adjusted ebitda as ebitda excluding the unrealized gain or loss on derivative contracts , the gain or loss on the disposal or impairment of assets , and share-based compensation expense . ebitda and adjusted ebitda should not be considered an alternative to net income , income before income taxes , cash flows from operating activities , or any other measure of financial performance calculated in accordance with accounting principles generally accepted in the united states ( “gaap” ) as those items are used to measure operating performance , liquidity or the ability to service debt obligations . story_separator_special_tag the decrease in revenue per barrel was due primarily to the fact that the expansion of our water solutions business subsequent to our merger with high sierra has been primarily in texas , where the market rates for water disposal services are typically lower than in wyoming or colorado . in our june 2012 merger with high sierra , we acquired a water transportation business in oklahoma . in our august 2013 acquisition of owl , we acquired a water transportation business in texas . our water solutions segment generated $ 17.3 million of transportation revenues during the year ended march 31 , 2014 , compared to $ 7.9 million of transportation revenues during the year ended march 31 , 2013. this increase was due primarily to the acquisition of owl . this increase was partially offset by a decrease in water transportation revenues generated by the water solutions business acquired in the merger with high sierra , which resulted primarily from a slowdown in production activities by a customer . during the three months ended december 31 , 2013 , we wound down our water transportation operations in oklahoma , transferring certain of the assets to our business in texas and selling the remaining assets . cost of sales . the cost of sales for our water solutions segment was $ 11.7 million during the year ended march 31 , 2014. our cost of sales during the year ended march 31 , 2014 was increased by $ 0.6 million of unrealized losses on derivatives . because a portion of our processing revenue is generated from the sale of recovered hydrocarbons , we enter into derivatives to protect against the risk of a decline in the market price of a portion of the hydrocarbons we expect to recover . during the year ended march 31 , 2013 , the cost of sales for our water solutions segment was $ 5.6 million . our cost of sales during the year ended march 31 , 2013 was increased by $ 1.0 million of unrealized losses on derivatives . the increase in our cost of sales was due primarily to the expansion of our operations through acquisitions of water solutions businesses . operating expenses . our water solutions segment incurred $ 58.2 million of operating expenses during the year ended march 31 , 2014 , compared to $ 25.5 million of operating expenses during the year ended march 31 , 2013. this increase was due primarily to the fact that we did not own a water solutions business until our june 19 , 2012 merger with high sierra , and was also due primarily to subsequent acquisitions of businesses . we incurred losses on disposal of property , plant and equipment of $ 2.0 million during the year ended march 31 , 2014 as a result of property damage from lightning strikes at two of our facilities . general and administrative expenses . our water solutions segment incurred $ 7.8 million of general and administrative expenses during the year ended march 31 , 2014 , compared to $ 1.7 million of general and administrative expenses during the year ended march 31 , 2013. this increase was due in part to the fact that we did not own a water solutions business until our june 19 , 2012 merger with high sierra , and was also due to subsequent acquisitions of businesses . depreciation and amortization expense . our water solutions segment incurred $ 55.1 million of depreciation and amortization expense during the year ended march 31 , 2014 , compared to $ 20.9 million of depreciation and amortization expense during the year ended march 31 , 2013. this increase was due in part to the fact that we did not own a water solutions business until our june 19 , 2012 merger with high sierra , and was also due to subsequent acquisitions of businesses . the increase is also due in part to $ 2.1 million of amortization expense related to trade name intangible assets . during the year ended march 31 , 2014 , we ceased using certain trade names and began amortizing them as finite-lived defensive assets . operating income . our water solutions segment generated $ 10.3 million of operating income during the year ended march 31 , 2014 , compared to operating income of $ 8.6 million during the year ended march 31 , 2013. exclusive of acquisitions during the year ended march 31 , 2014 , our operating income decreased by $ 3.7 million . increases in revenues were offset by increases in operating expenses , including a $ 7.2 million increase in depreciation and amortization expense . the businesses acquired during the year ended march 31 , 2014 generated operating income of $ 5.5 million , which included $ 27.0 million of depreciation and amortization expense , which consisted primarily of amortization expense on acquired customer relationship intangible assets . 63 liquids the following table summarizes the operating results of our liquids segment for the years ended march 31 , 2014 and 2013 : replace_table_token_19_th ( 1 ) revenues include $ 245.6 million of intersegment sales during the year ended march 31 , 2014 and $ 128.9 million of intersegment sales during the year ended march 31 , 2013 that are eliminated in our consolidated statements of operations . revenues . our liquids segment generated $ 1.6 billion of wholesale propane sales revenue during the year ended march 31 , 2014 , selling 1.1 billion gallons at an average price of $ 1.37 per gallon . during the year ended march 31 , 2013 , our liquids segment generated $ 841.4 million of wholesale propane sales revenue , selling 912.6 million gallons at an average price of $ 0.92 per gallon . approximately 221.2 million gallons of the increase in volumes was due to the fact that we only owned the natural gas liquids business of high sierra for a part of the year ended march

Write a concise summary of the following text delimited by triple quote marks. Return your response as a narrative which covers the key points highlighting the location, dates, entity names and account holder and financial information (when available) in chronological order of the text.

cash flows the following summarizes the sources ( uses ) of our cash flows : replace_table_token_29_th operating activities . the growth in our operating cash flows over the period from fiscal 2012 to fiscal 2014 was driven primarily by increased operating activity resulting from acquisitions . changes in working capital due to changes in the timing of cash receipts and payments can have a significant impact on cash flows from operations . during fiscal 2013 and fiscal 2014 , our cash outflows from investing activities included the purchase of working capital in business combinations , a portion of which has benefitted ( or will benefit ) cash flows from operations as the working capital is recovered . our operating cash flows during the year ended march 31 , 2012 included the sale of $ 30.3 million of inventory ( net of purchases ) . this was due in part to our acquisition of assets from semstream on november 1 , 2011 , in which we acquired $ 104.2 million of inventory . the cash paid to complete the semstream transaction is included within cash outflows from investing activities . investing activities . our cash flows from investing activities are primarily impacted by our capital expenditures . in periods where we are engaged in significant acquisitions , we will generally realize negative cash flows in investing activities , which , depending on our cash flows from operating activities , may require us to increase the borrowings under our revolving credit facility . during the year ended march 31 , 2014 , we completed a number of business combinations for which we paid $ 1.3 billion of cash , net of cash acquired , on a combined basis . also during the year ended march 31 , 2014 , we paid $ 165.1 million for capital expenditures , which related primarily to water disposal and natural gas liquids terminal assets .

for our continuing operations , we observed recurring and new client wage billings growth for the first half of fiscal 2020 , followed by a significant decline beginning in march 2020. for existing clients at february 29 , 2020 , we experienced a may 2020 quarterly billings decrease of approximately 27 % due to the covid-19 pandemic , or approximately $ 3.9 million , of which $ 0.6 million was attributable to clients that have not reopened to date , and $ 3.3 million to clients whose operations have been largely ongoing throughout the pandemic . we benefited from a qsr client mix that has been able to adapt towards takeout , delivery , and outside or limited inside dining , particularly in southern california , where most of our clients are located and the weather and climate are more favorable to “ distanced dining ” than other regions of the country . we recovered approximately $ 1.8 million in billings during the quarter ended august 31 , 2020 , representing more than 50 % of the billings lost due primarily to the pandemic during the prior fiscal quarter . we were also successful in acquiring new customers during the second half of fiscal 2020 , adding 26 new clients that resulted in $ 3.8 million of additional billings during the period . included among these new customers is a nurse staffing company that we acquired as a client in july 2020 , which we expect to generate significantly greater billings per wse than our food industry clients given the higher wages earned by nurses compared to restaurant workers . we expect to continue to experience significant customer growth based on the adoption of our technology , which we believe provides a significant value proposition to existing and potential clients . however , we have experienced approximately $ 32 million of operating losses over the past two fiscal years as we have invested in both our technology solutions as well as the back-office operations required to service a large employee base under a traditional staffing model . for most of fiscal 2020 , our primary focus was on clients in the restaurant and hospitality industries , traditionally market segments with high employee turnover and low pay rates . we also entered the healthcare staffing industry late in the fiscal year . we believe that these industries will be better served by our hris technology platform and related mobile application which provide payroll and human resources tracking for our clients and which we believe result in lower operating costs , improved customer experience and revenue growth acceleration . california continued to be our largest market and account for approximately 78.2 % of our gross billings during fiscal 2020. washington , new mexico and pennsylvania represented our other significant markets , reflecting approximately 11.6 % , 2.5 % and 2 % , of our total revenues , respectively . the other locations have not yet had a material impact on our revenue . all of our clients enter into service agreements with us or our wholly owned subsidiary , rethink . significant developments in 2020 offices update in august 2020 , we signed a lease to relocate our headquarters to miami , florida , with occupancy beginning in october 2020. our administrative , marketing and east coast sales and customer support staffs have already begun operating from the miami facility . we intend to maintain offices in california primarily for use by our research and development team and our west coast sales and customer support . we also signed a lease in october 2020 , for space in miami , florida , to house our ghost kitchens and production facilities associated with shiftpixy labs . we are currently in the process of building out this space , and expect to commence operations there during the second quarter of fiscal 2021 . 44 software development we believe that our hris platform and the related mobile application functionality that we are developing will be key differentiators and drivers of our low-cost customer acquisition strategy . as such , we have invested heavily in our hris platform over the past four years . the heart of shiftpixy 's employment services solutions is a technology platform , including a mobile app , through which shiftpixy employees ( and in the future , shifters not currently in our ecosystem ) will be able to find available shifts at shiftpixy client locations , solving a problem of finding available shifts for both the shifters looking for additional shifts when they want to work and businesses looking to fill open shifts . a key element of our software development involves using shiftpixy 's blockchain ledger to process and record our critical peer-to-peer ( “ p2p ” ) connections . while not necessarily a new development , we note that we intend to use blockchain technology in an effort to keep our data secure . any data considered to be a human capital validation point or part of the hiring and onboarding process will be utilized and recorded in shiftpixy 's blockchain ledger . for example , we expect the employee i-9 verification process—one of the most stringent , rigorous , and penalty-laden compliance procedures – to be positively impacted by blockchain utilization of biometric authentication and automatic verification of i-9 data , removing human error in the process of screening for fraudulent information . verification of that data on the blockchain will allow both employers and auditing agencies to confidently validate additional criteria such as employment dates , and candidates ' background ( i.e . education , references , certifications , etc . ) , and share the verification status directly on multiple distributed sources within the blockchain , further underscoring the trust and accuracy of candidates ' information and corporate compliance . story_separator_special_tag 48 financing activities during the year ended august 31 , 2020 , and through october 31 , 2020 , the company successfully recapitalized through a combination of a $ 13.3 million underwritten public offering in may 2020 , a $ 12 million public offering in october 2020 , and settlement , repayment , or conversion of all convertible notes . as of august 31 , 2020 , we had no convertible debt and no options or warrants outstanding that carry dilutive provisions . october 2020 public offering on october 8 , 2020 , the company entered into an underwriting agreement ( the “ october underwriting agreement ” ) with a.g.p./alliance global partners ( “ a.g.p . ” ) , in connection with a public offering ( the “ october 2020 offering ” ) of an aggregate of ( i ) 4,000,000 shares of our common stock and ( ii ) warrants to purchase 2,300,000 shares of common stock ( the “ october 2020 common warrants ” ) , which included the partial exercise of a.g.p . 's over-allotment option to purchase 300,000 additional october 2020 common warrants . each share of common stock was sold together with an october 2020 common warrant as a fixed combination , with each share of common stock sold being accompanied by an october 2020 common warrant to purchase 0.5 shares of common stock . each share of common stock and accompanying october 2020 common warrant was sold at a price to the public of $ 3.00. the october 2020 common warrants were immediately exercisable , will expire on october 13 , 2025 , and have an exercise price of $ 3.30 per share , subject to anti-dilution and other adjustments for certain stock splits , stock dividends , or recapitalizations . the october 2020 offering closed on october 14 , 2020 , yielding gross proceeds to the company of approximately $ 12.0 million , prior to deducting $ 1.4 million of costs consisting of underwriting discounts and commissions and offering expenses payable by the company , which includes a partial exercise of the underwriter 's over-allotment option to purchase additional october 2020 common warrants . pursuant to the october underwriting agreement , the company , upon closing of the offering , issued to a.g.p . warrants to purchase up to 200,000 shares of common stock ( the “ october underwriter warrants ” ) , which is equal to 5.0 % of the aggregate number of shares of common stock sold in the october 2020 offering . the october underwriter warrants are exercisable at any time and from time to time , in whole or in part , commencing from six months after the closing date and ending five years from the closing date , at a price per share equal to $ 3.30 , which is 110 % of the public offering price per share . may 2020 public offering on may 20 , 2020 , we entered into an underwriting agreement with a.g.p . ( the “ may underwriting agreement ” ) in connection with the may 2020 offering of an aggregate of ( i ) 1,898,850 shares of our common stock , ( ii ) pre-funded warrants to purchase 323,310 shares of common stock ( the “ pre-funded warrants ” ) , and ( iii ) warrants to purchase 1,277,580 shares of common stock ( the “ may 2020 common warrants ” ) , which included the partial exercise of a.g.p . 's over-allotment option to purchase 166,500 additional may 2020 common warrants . each share of common stock and pre-funded warrant sold in the may 2020 offering was sold together with a may 2020 common warrant as a fixed combination , with each share of common stock and pre-funded warrant sold being accompanied by a may 2020 common warrant to purchase 0.5 shares of common stock . each share of common stock and accompanying may 2020 common warrant was sold at a price to the public of $ 5.40 , and each pre-funded warrant and accompanying may 2020 common warrant was sold at a price to the public of $ 5.399. the may 2020 common warrants were immediately exercisable and will expire on may 26 , 2025 and have an exercise price of $ 5.40 per share , subject to anti-dilution and other adjustments for certain stock splits , stock dividends , or recapitalizations . we closed the may 2020 offering on may 26 , 2020 , which yielded gross proceeds to the company of approximately $ 12.0 million , prior to deducting $ 1.7 million of costs consisting of underwriting discounts and commissions and offering expenses payable by us , which includes a partial exercise of the underwriter 's over-allotment option to purchase additional may 2020 common warrants . all pre-funded warrants issued or issuable were exercised on the closing date of may 26 , 2020 . 49 on june 11 , 2020 we closed an over-allotment option from the may 2020 offering for additional gross proceeds of approximately $ 0.9 million , prior to deducting underwriting discounts and commissions and offering expenses payable by us , representing the partial exercise of a.g.p . 's over-allotment option to purchase 250,340 shares of common stock at $ 5.40 per share . on july 7 , 2020 , we closed an over-allotment option from the may 2020 offering for additional gross proceeds of approximately $ 0.45 million , prior to deducting underwriting discounts and commissions and offering expenses payable by us , representing the partial exercise of a.g.p . 's over-allotment option to purchase 83,840 shares of common stock at $ 5.40 per share . convertible note settlements , amendments , and related litigation settlements and resolution during fiscal 2020 , the company settled , converted , or repaid all of the $ 6.8 million of convertible note principal outstanding as of august 31 , 2019 , and resolved all related litigation , as follows : march 2019 note exchange on december

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liquidity as of august 31 , 2020 , we had cash of $ 4.3 million and a working capital deficit of $ 2.8 million . subsequent to the end of fiscal 2020 , in october 2020 , we closed an additional equity financing for $ 12 million , or $ 10.7 million net of fees . during fiscal 2020 , we used approximately $ 15.5 million of cash in our continuing operations and repaid $ 1.2 million of convertible notes , after receiving $ 9.7 million of cash from the vensure asset sale described above and closed an underwritten public offering that yielded $ 11.5 million in proceeds , net of offering costs . we have incurred recurring losses , resulting in an accumulated deficit of $ 119.5 million as of august 31 , 2020. the recurring losses and cash used in operations are indicators of substantial doubt as to our ability to continue as going concern within one year from issuance of this form 10-k. our plans to alleviate substantial doubt are discussed below . historically , our principal source of financing has come through the sale of our common stock and issuance of convertible notes . in march 2019 , we completed a private placement of senior secured notes to certain institutional investors , raising $ 3.75 million ( $ 3.3 million net of costs ) . between september 1 , 2019 and may 22 , 2020 , all convertible notes outstanding as of august 31 , 2019 were repaid or converted into equity . on may 26 , 2020 , we successfully completed an underwritten public offering , raising a total of $ 12 million ( $ 10.3 million net of costs ) , and closed an additional $ 1.35 million ( $ 1.24 million net of costs ) between june 1 , 2020 and july 7 , 2020 pursuant to the underwriter 's overallotment . in october 2020 , we closed an additional $ 12 million equity offering ( $ 10.7 million net of costs ) .

we assess the health of our business by measuring daus and arpu because we believe that these metrics are important ways for both management and investors to understand engagement and monitor the performance of our platform . user engagement we calculate average daus for a particular quarter by adding the number of daus on each day of that quarter and dividing that sum by the number of days in that quarter . daus are broken out by geography because markets have different characteristics . we had 265 million daus on average in the fourth quarter of 2020 , compared to 249 million in the prior quarter and 218 million in the fourth quarter of 2019. quarterly average daily active users ( in millions ) ( 1 ) north america includes mexico , the caribbean , and central america . ( 2 ) europe includes russia and turkey . 47 monetization in the year ended december 31 , 2020 , we recorded revenue of $ 2.5 billion compared to revenue of $ 1.7 billion for the year ended december 31 , 2019 , an increase of 46 % year-over-year . we monetize our business primarily through advertising . our advertising products include snap ads and ar ads . we measure our business using arpu because it helps us understand the rate at which we are monetizing our daily user base . arpu was $ 3.44 in the fourth quarter of 2020 , up from $ 2.73 in the third quarter of 2020 and $ 2.58 in the fourth quarter of 2019. for purposes of calculating arpu , revenue by user geography is apportioned to each region based on a determination of the geographic location in which advertising impressions are delivered , as this approximates revenue based on user activity . this differs from the presentation of our revenue by geography in the notes to our consolidated financial statements , where revenue is based on the billing address of the advertising customer . quarterly average revenue per user ( 1 ) north america includes mexico , the caribbean , and central america . ( 2 ) europe includes russia and turkey . 48 results of operations components of results of operations revenue we generate substantially all of our revenue through the sale of our advertising products , which primarily include snap ads and ar ads , and measurement services , referred to as advertising revenue . snap ads may be subject to revenue sharing arrangements between us and the media partner . we also generate revenue from sales of our hardware product , spectacles . this revenue is reported net of allowances for returns . cost of revenue cost of revenue consists primarily of payments to third-party infrastructure partners for hosting our products , which include expenses related to storage , computing , and bandwidth costs . cost of revenue also includes payments for content and third-party selling costs , referred to as partner arrangements . in addition , cost of revenue includes advertising measurement services , and personnel-related costs , including salaries , benefits , and stock-based compensation expenses . cost of revenue also includes facilities and other supporting overhead costs , including depreciation and amortization , and inventory costs for spectacles . research and development expenses research and development expenses consist primarily of personnel-related costs , including salaries , benefits , and stock-based compensation expense for our engineers , designers , and other employees engaged in the research and development of our products . in addition , research and development expenses include facilities and other supporting overhead costs , including depreciation and amortization . research and development costs are expensed as incurred . sales and marketing expenses sales and marketing expenses consist primarily of personnel-related costs , including salaries , benefits , commissions , and stock-based compensation expense for our employees engaged in sales and sales support , business development , media , marketing , corporate partnerships , and customer service functions . sales and marketing expenses also include costs incurred for advertising , market research , tradeshows , branding , marketing , promotional expense , and public relations , as well as facilities and other supporting overhead costs , including depreciation and amortization . general and administrative expenses general and administrative expenses consist primarily of personnel-related costs , including salaries , benefits , and stock-based compensation expense for our finance , legal , information technology , human resources , and other administrative teams . general and administrative expenses also include facilities and supporting overhead costs , including depreciation and amortization , and external professional services . interest income interest income consists primarily of interest earned on our cash , cash equivalents , and marketable securities . interest expense interest expense consists primarily of interest expense associated with our senior convertible notes , or the convertible notes , and commitment fees and amortization of financing costs related to our revolving credit facility . other income ( expense ) , net other income ( expense ) , net consists of realized gains and losses on sales of marketable securities , our portion of non-marketable investment income and losses , foreign currency transaction gains and losses , and gains and impairments on non-marketable investments . other income ( expense ) , net also includes any gains or losses on divestitures of businesses . income tax benefit ( expense ) we are subject to income taxes in the united states and numerous foreign jurisdictions . these foreign jurisdictions have different statutory tax rates than the united states . additionally , certain of our foreign earnings may also be taxable in the united states . accordingly , our effective tax rates will vary depending on the relative proportion of foreign to domestic income , use of tax credits , changes in the valuation of our deferred tax assets and liabilities , and changes in tax laws . story_separator_special_tag the critical accounting estimates , assumptions , and judgments that we believe to have the most significant impact on our consolidated financial statements are described below . revenue recognition revenue is recognized when control of the promised goods or services is transferred to our customers , in an amount that reflects the consideration we expect to receive in exchange for those goods or services . we determine collectability by performing ongoing credit evaluations and monitoring customer accounts receivable balances . sales tax , including value added tax , is excluded from reported revenue . we determine revenue recognition by first identifying the contract or contracts with a customer , identifying the performance obligations in the contract , determining the transaction price , allocating the transaction price to the performance obligations in the contract , and recognizing revenue when , or as , we satisfy a performance obligation . we generate substantially all of our revenues by offering various advertising products on snapchat , which include snap ads and ar ads , referred to as advertising revenue . ar ads include sponsored filters and sponsored lenses . sponsored filters allow users to interact with an advertiser 's brand by enabling stylized brand artwork to be overlaid on a snap . sponsored lenses allow users to interact with an advertiser 's brand by enabling branded augmented reality experiences . the substantial majority of advertising revenue is generated from the display of advertisements on snapchat through contractual agreements that are either on a fixed fee basis over a period of time or based on the number of advertising impressions delivered . revenue related to agreements based on the number of impressions delivered is recognized when the advertisement is displayed . revenue related to fixed fee arrangements is recognized ratably over the service period , typically less than 30 days in duration , and such arrangements do not contain minimum impression guarantees . in arrangements where another party is involved in providing specified services to a customer , we evaluate whether we are the principal or agent . in this evaluation , we consider if we obtain control of the specified goods or services before they are transferred to the customer , as well as other indicators such as the party primarily responsible for fulfillment , inventory risk , and discretion in establishing price . for advertising revenue arrangements where we are not the principal , we recognize revenue on a net basis . for the periods presented , revenue for arrangements where we are the agent was not material . stock-based compensation in the year ended december 31 , 2020 , total stock-based compensation expense recognized was $ 770.2 million . we have granted stock-based awards consisting primarily of restricted stock units , or rsus , restricted stock awards , or rsas , and to a lesser extent , stock options to employees , members of our board of directors , and non-employee advisors . the substantial majority of our stock-based awards have been made to employees . rsus granted before january 1 , 2017 , or pre-2017 rsus , included both service-based and performance conditions to vest in the underlying common stock . the service-based condition for the majority of these awards is satisfied over four years . the performance condition related to these awards was satisfied on the effectiveness of the registration statement for our ipo , which occurred in march 2017. on the effectiveness of the registration statement for our ipo , we recognized $ 1.3 billion in stock-based compensation expense . all rsus and rsas granted after december 31 , 2016 , or post-2017 awards , vest on the satisfaction of only service-based conditions . the service condition for post-2017 awards granted prior to february 2018 is generally satisfied over four years , 10 % after the first year of service , 20 % over the second year , 30 % over the third year , and 40 % over the fourth year . the service condition for post-2017 awards granted after february 2018 is generally satisfied in equal monthly or quarterly installments over three or four years . we account for stock-based employee compensation under the fair value recognition and measurement provisions , in accordance with applicable accounting standards , which requires stock-based awards to be measured based on the grant date fair value . stock-based compensation expense is recorded net of estimated forfeitures in our consolidated statements of operations . accordingly , stock-based compensation expense is only recorded for those potential stock-based awards that we expect to vest . we estimate the forfeiture rate using historical forfeitures of equity awards and other expected changes in facts and circumstances , if any . we will re-evaluate our estimated forfeiture rate if actual forfeitures differ from our initial estimates . a modification of the terms of a stock-based award is treated as an exchange of the original award for a new award with total compensation cost equal to the grant-date fair value of the original award plus the incremental value of the modification to the award . 60 restricted stock units and restricted stock awards as of december 31 , 2020 , total unrecognized compensation cost related to post-2017 awards was $ 1.8 billion and is expected to be recognized over a weighted-average period of 2.6 years . all compensation cost related to pre-2017 rsus was recognized as of december 31 , 2020. ceo award on the closing of the ipo , our ceo received the ceo award for 37.4 million shares of series fp preferred stock , which automatically converted into an equivalent number of shares of class c common stock on the closing of the ipo . the ceo award represented 3.0 % of all outstanding shares on the closing of the ipo , including shares sold by us in the ipo and vested stock options and rsus on the closing of the ipo , net of shares withheld to satisfy tax withholding obligations . the ceo

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net cash used in investing activities 2020 compared to 2019 net cash used in investing activities was $ 729.9 million and $ 728.6 million for the years ended december 31 , 2020 and 2019 , respectively . our investing activities in the current period consisted primarily of the purchase of marketable securities of $ 3.5 billion , partially offset by the sales and maturities of marketable securities of $ 3.1 billion . net cash used in investing activities in the prior period consisted of the purchase of marketable securities of $ 2.5 billion partially offset by the sales and maturities of marketable securities of $ 1.8 billion . net cash provided by financing activities 2020 compared to 2019 net cash provided by financing activities was $ 922.8 million and $ 1.2 billion for the years ended december 31 , 2020 and 2019 , respectively . our financing activities in the current period consisted primarily of net proceeds of $ 888.6 million from the issuance of the 2025 notes and the purchase of the 2025 capped call transactions . net cash provided by financing activities in the prior periods consisted of net proceeds of $ 1.15 billion from the issuance of the 2026 convertible notes and the purchase of the 2026 capped call transactions .

our customers can be classified into three primary markets : factory automation , semiconductor and electronics capital equipment , and surface inspection . factory automation customers , who are included in the company 's mvsd segment , purchase cognex vision products and incorporate them into their manufacturing processes . virtually every manufacturer can achieve better quality and manufacturing efficiency by using machine vision , and therefore , this market includes a broad base of customers across a variety of industries , including consumer electronics , automotive , consumer products , food and beverage , medical devices , and pharmaceuticals . the factory automation market also includes customers who purchase cognex vision products for use outside of the assembly process , such as using id products in logistics automation for package sorting and distribution . sales to factory automation customers represented approximately 82 % of total revenue in 2014 compared to 80 % of total revenue in 2013. semiconductor and electronics capital equipment manufacturers , who are included in the company 's mvsd segment , purchase cognex vision products and integrate them into the automation equipment that they manufacture and then sell to their customers to either make semiconductor chips or assemble printed circuit boards . demand from these capital equipment manufacturers has historically been highly cyclical , with periods of investment followed by downturn . sales to 18 semiconductor and electronics capital equipment manufacturers represented approximately 6 % of total revenue in 2014 compared to 7 % of total revenue in 2013. surface inspection customers , who comprise the company 's sisd segment , are manufacturers of materials processed in a continuous fashion , such as metals , paper , nonwoven , plastics , and glass . these customers need sophisticated machine vision to detect , classify , and analyze defects on the surfaces of those materials as they are being processed at high speeds . surface inspection sales represented approximately 12 % of total revenue in 2014 compared to 13 % of total revenue in 2013. revenue for the year ended december 31 , 2014 totaled $ 486,270,000 , representing an increase of $ 132,384,000 , or 37 % over the prior year , driven by higher sales to factory automation customers , including revenue of approximately $ 70 million from a single customer . gross margin was 75 % of revenue in 2014 compared to 76 % of revenue in 2013 due to a relatively lower gross margin on the revenue from this single customer , as well as higher new product introduction costs and inventory charges . operating expenses increased by $ 38,149,000 , or 21 % , from the prior year due primarily to additional headcount to support the significantly higher level of business in 2014. despite this higher spending level , operating income increased by $ 57,295,000 , or 66 % , from the prior year . operating income was $ 143,663,000 , or 30 % of revenue , in 2014 compared to operating income of $ 86,368,000 , or 24 % of revenue , in 2013 ; net income was $ 121,485,000 , or 25 % of revenue , in 2014 compared to net income of $ 73,573,000 , or 21 % of revenue , in 2013 ; and net income per diluted share was $ 1.36 in 2014 compared to $ 0.83 in 2013. the following table sets forth certain consolidated financial data as a percentage of revenue : replace_table_token_5_th results of operations as foreign currency exchange rates are a factor in understanding period-to-period comparisons , we believe the presentation of results on a constant-currency basis in addition to reported results helps improve investors ' ability to understand our operating results and evaluate our performance in comparison to prior periods . we also use results on a constant-currency basis internally as one measure to evaluate our performance . constant-currency information compares results between periods as if exchange rates had remained constant period-over-period . we generally refer to such amounts calculated on a constant-currency basis as excluding the impact of foreign currency exchange rate changes . results on a constant-currency basis are not in accordance with accounting principles generally accepted in the united states of america ( u.s. gaap ) and should be considered in addition to , and not as a substitute for , results prepared in accordance with u.s. gaap . year ended december 31 , 2014 compared to year ended december 31 , 2013 revenue revenue for the year ended december 31 , 2014 increased by $ 132,384,000 , or 37 % , from the prior year . the company recorded higher sales in all three markets it serves . sales to factory automation customers increased by $ 115,519,000 , or 41 % ; sales to semiconductor and electronics capital equipment customers increased by $ 3,279,000 , or 14 % ; and sales to surface inspection customers increased by $ 13,586,000 , or 29 % . factory automation market sales to customers in the factory automation market represented 82 % of total revenue in 2014 compared to 80 % of total revenue in 2013. sales to these customers increased by $ 115,519,000 , or 41 % , from the prior year . foreign currency exchange rate changes did not have a material impact on total factory automation revenue , as the impact of a stronger euro in 2014 , on average for the full year , compared to the prior year was offset by the impact of a weaker 19 japanese yen . although the euro was stronger , on average , for the full year 2014 compared to the full year 2013 , the euro weakened vs. the u.s. dollar in the fourth quarter of 2014 and this trend is continuing into the first quarter of 2015 as of the date of this report . story_separator_special_tag 23 surface inspection market sales to customers in the surface inspection market represented 13 % of total revenue in 2013 compared to 16 % of total revenue in 2012. sales to these customers decreased by $ 4,348,000 , or 9 % , from the prior year . excluding the impact of foreign currency exchange rate changes , sales to surface inspection customers decreased by $ 2,896,000 , or 6 % , from 2012. this decrease was primarily due to delays in revenue recognition related to a new software release . product revenue product revenue increased by $ 31,198,000 , or 11 % , from the prior year . this increase was driven by a higher volume of mvsd systems sold than in the prior year , partially offset by lower mvsd average selling prices due to a shift in revenue mix to id products , which have relatively lower average selling prices . service revenue service revenue , which is derived from the sale of maintenance and support , training , consulting , and installation services , decreased by $ 1,591,000 , or 6 % , from the prior year . this decrease was due to lower consulting services at mvsd , as well as lower revenue from sisd spare part sales , training services , and maintenance and support contracts . service revenue decreased as a percentage of total revenue to 8 % in 2013 from 9 % in 2012. gross margin gross margin as a percentage of revenue increased to 76 % for 2013 compared to 75 % for 2012. this increase was primarily due to a higher percentage of total revenue from the sale of mvsd products , which have relatively higher margins than the sale of sisd products or the sale of services . mvsd margin mvsd gross margin as a percentage of revenue was 80 % in both 2013 and 2012 , as slightly lower product margins were offset by improvements in consulting service margins . the minor deterioration in the product margin was due to higher provisions for excess and obsolete inventory and for warranties , as well as a shift in revenue mix to relatively lower-margin id products . this was largely offset by the favorable impact of higher sales volume and material cost reductions . sisd margin sisd gross margin as a percentage of revenue was 54 % in both 2013 and 2012 , as improvements in installation service margins were offset by higher provisions for excess and obsolete inventory . product margin product gross margin as a percentage of revenue was 78 % in both 2013 and 2012. a slight reduction in product margins at both mvsd and sisd , as described above , were offset by a favorable shift in revenue mix to mvsd products , which have relatively higher margins than sisd products . service margin service gross margin as a percentage of revenue was 55 % in 2013 compared to 51 % in 2012. this increase was due to improved margins from mvsd consulting services , as well as improvements in sisd installation service margins . operating expenses research , development , and engineering expenses research , development , and engineering ( rd & e ) expenses in 2013 increased by $ 6,538,000 , or 16 % , from the prior year . mvsd rd & e expenses increased by $ 6,300,000 , or 17 % , while sisd rd & e expenses increased by $ 238,000 , or 6 % . 24 the table below ( in thousands ) details the $ 6,300,000 net increase in mvsd rd & e in 2013 : replace_table_token_8_th personnel costs have increased from the prior year due to additional headcount , and to a lesser extent , higher average costs per employee . over the past few years , the company has increased engineering headcount to support new product development , resulting in higher personnel costs , such as salaries and fringe benefits . average costs per employee have increased over the prior year due primarily to modest wage increases granted early in 2013 and higher fringe benefits , such as health care costs . in addition , mvsd recorded higher bonus accruals , increased costs related to outsourced engineering services , and increased stock-based compensation expense due to a higher valuation of stock options granted in the first quarter of 2013. the increase in sisd rd & e expenses was primarily due to increased costs related to outsourced engineering services ( $ 133,000 ) and increased personnel costs ( $ 107,000 ) . rd & e expenses as a percentage of revenue were 14 % in 2013 and 13 % in 2012. selling , general , and administrative expenses selling , general , and administrative ( sg & a ) expenses in 2013 increased by $ 15,523,000 , or 13 % , from the prior year . mvsd sg & a expenses increased by $ 12,138,000 , or 13 % , and sisd sg & a expenses increased by $ 763,000 , or 6 % . corporate expenses that are not allocated to either division increased by $ 2,622,000 , or 22 % . the table below ( in thousands ) details the $ 12,138,000 net increase in mvsd sg & a in 2013 : replace_table_token_9_th personnel costs have increased from the prior year due to additional headcount , and to a lesser extent , higher average costs per employee . over the past few years , the company has increased headcount in selective areas , principally sales , resulting in higher personnel costs , such as salaries , fringe benefits , commissions , and travel expenses . average costs per employee have increased over the prior year due primarily to modest wage increases granted early in 2013 and higher fringe benefits , such as health care costs and foreign retirement obligations . the company also recorded higher expenses related to sales commissions resulting from higher business levels , mvsd

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liquidity and capital resources the company has historically been able to generate positive cash flow from operations , which has funded its operating activities and other cash requirements and has resulted in an accumulated cash and investment balance of $ 546,995,000 as of december 31 , 2014 . the company has established guidelines relative to credit ratings , diversification , and maturities of its investments that maintain liquidity . 26 the company 's cash requirements in 2014 were met with its existing cash balances , cash from investment maturities and sales , positive cash flows from operations , and the proceeds from stock option exercises . cash requirements consisted of operating activities , purchases of investments , the company 's stock repurchase program , and capital expenditures . as of december 31 , 2014 , the company had collected the vast majority of the accounts receivable from the single-customer revenue arrangement noted in 2014 `` results of operations . '' capital expenditures totaled $ 20,934,000 in 2014 and included the purchase in late 2014 of a building in cork , ireland for 4,500,000 euros ( approximately $ 5,444,000 ) where the company had previously leased space for several years that serves as the distribution center for mvsd customers outside of the americas . 450,000 euros of the purchase price was paid in december 2014 and the remaining 4,050,000 euros were paid in early february 2015. capital expenditures also included building improvements at the company 's headquarters and adjacent buildings in natick , massachusetts , as well as expenditures for computer hardware and manufacturing test equipment related to new product introductions .

our digital commerce platform utilizes couponing and discount daily deals to create promotional opportunities for local and national merchants under our sweetjack , sweetdeals and incentrev brands . we also sell banner and other display ads across more than 400 local radio station websites , mobile applications , and ancillary custom client microsites . political advertising . we generate political advertising revenue across all of our broadcast and digital assets , but highlight it as a separate category to distinguish its highly cyclical nature versus core revenue . political advertising is generally strongest during even-numbered years , especially in the fourth quarter of such years , when most national and state elections are conducted . in addition to candidate advertising revenue , we also receive advertising revenue from special interest and advocacy groups . license fees & other . all of our other non-advertising based revenue is aggregated in our license fees & other revenue category . this includes cash based fees we receive for content licensing , third party network compensation , proprietary software licensing , subleases and rents , and all other revenue . subsequent to december 31 , 2015 , we modified our management reporting framework which changed how we evaluate operating performance and internally report financial information . we are currently assessing the expected impact , if any , on our reportable segments . operating overview and highlights we believe that we have created a leading national audio advertising platform that allows us to leverage and expand upon our strengths , market presence and programming . specifically we have an extensive radio station portfolio , including a presence in eight of the top 10 markets , and broad diversity in format , listener base , geography , advertiser base and revenue stream , designed to reduce our dependence on any single demographic , region or industry . as a leader in the radio broadcast industry , we provide exclusive content that is fully distributed through our 454 owned-and-operated stations in 90 u.s. media markets , more than 8,200 broadcast radio affiliates and numerous digital channels . our nationwide platform generates premium content distributable through both broadcast and digital platforms , and our scale allows larger , significant investments in the local digital media marketplace enabling us to leverage our local digital platforms and strategies , including our social commerce initiatives , across additional markets . our websites average over 12.9 million page views from approximately 3.1 million unique users on a monthly basis and stream music to approximately 5.3 million unique users each month . we believe our national platform perspective allows us to optimize our available advertising inventory while providing holistic and comprehensive solutions for our customers . we believe that our capital structure provides adequate liquidity and scale for us to operate and grow our current business . 38 index to financial statements liquidity considerations historically , our principal needs for funds have been for acquisitions , expenses associated with our station , network advertising and corporate operations , capital expenditures , and interest and debt service payments . we believe that our funding needs in the future will be for substantially similar matters . our principal sources of funds have primarily been cash flow from operations and borrowings under credit facilities in existence from time to time . our cash flow from operations is subject to factors such as changes in demand due to shifts in population , station listenership , demographics , audience tastes , and fluctuations in preferred advertising media . in addition , our cash flows may be affected if customers are not able to pay , or delay payment of , accounts receivable that are owed to us , which risks may be exacerbated in challenging or otherwise uncertain economic periods . in recent periods , management has taken steps to mitigate these risks through heightened collection efforts and enhancements to our credit approval process , although no assurances as to the longer-term success of these efforts can be provided . in addition , we believe that our national platform and extensive station portfolio representing a broad diversity in format , listener base , geography , and advertiser base helps us maintain a more stable revenue stream by reducing our dependence on any single demographic , region or industry . we continually monitor our capital structure and from time to time have evaluated , and expect that we will continue to evaluate , future opportunities to obtain additional public or private capital from the divestiture of radio stations or other assets that are not a part of , or do not complement , our strategic operations , as well as the issuance of equity and or debt securities , in each case subject to market and other conditions in existence at the appropriate time . we also evaluate credit market conditions and , subject to restrictive covenants in our credit agreement and senior notes indenture , may take advantage of opportunities to improve our liquidity when conditions exist that the company deems favorable in the market pricing of any of our debt securities . no assurances can be provided that any source of funds would be available when needed on terms acceptable to the company , or at all . we are party to an amended and restated credit agreement , dated as of december 23 , 2013 ( the `` credit agreement `` ) . the credit agreement consists of a $ 2.025 billion term loan ( the “ term loan ” ) maturing in december 2020 and a $ 200.0 million revolving credit facility ( the `` revolving credit facility `` ) maturing in december 2018. under the revolving credit facility , up to $ 30.0 million of availability may be drawn in the form of letters of credit . story_separator_special_tag this decrease was primarily due to the reduction in severance and legal costs which were higher in 2014 due to our acquisition of westwoodone in december 2013 , but which decreases were partially offset by one-time compensation expenses associated with the 2015 departure of two of our executives . impairment of intangible assets and goodwill during the year ended december 31 , 2015 , we recorded impairment charges related to goodwill and indefinite-lived intangible assets ( fcc licenses ) of $ 549.7 million and $ 15.9 million , respectively , due to the sustained declines in our stock price and operating results . there were no similar impairments for the year ended december 31 , 2014 . for additional information on these charges , see note 6 , intangible assets and goodwill in the consolidated financial statements included elsewhere in this form 10-k. impairment charges - equity interest in pulser media inc. impairment charges on the equity interest in pulser media inc. was $ 19.4 million for the year ended december 31 , 2015 . there were no impairment charges on the equity interest in pulser media inc. for the year ended december 31 , 2014 . for additional information on these charges , see note 9 , fair value measurements in the consolidated financial statements included elsewhere in this form 10-k. loss ( gain ) on sale of assets or stations during the year ended december 31 , 2015 , we recorded a loss on sale of assets or stations of $ 2.9 million . during the year ended december 31 , 2014 , we recorded a gain on sale of assets or stations of $ 1.3 million , in each case related to our sales of individual stations and assets . interest expense interest expense for the year ended december 31 , 2015 decreased $ 3.9 million to $ 141.7 million compared to $ 145.5 million for the year ended december 31 , 2014 . interest expense associated with outstanding debt under the credit agreement decreased by $ 4.1 million to $ 82.0 million as compared to $ 86.1 million in the prior year due to a lower average amount of indebtedness outstanding in 2015. the following summary details the components of our interest expense ( dollars in thousands ) : replace_table_token_17_th 44 index to financial statements income tax benefit ( expense ) we recorded an income tax benefit on continuing operations of $ 45.8 million in 2015 as compared to $ 10.3 million in expense during the prior year . the tax benefit recorded in 2015 is primarily the result of the pretax loss on continuing operations net of the amount of goodwill impairment with no related deferred tax liability . adjusted ebitda as a result of the factors described above , adjusted ebitda for the year ended december 31 , 2015 decreased $ 70.4 million , or 21.4 % , to $ 259.1 million compared to $ 329.5 million for the year ended december 31 , 2014 . reconciliation of non-gaap financial measure the following table reconciles adjusted ebitda to net income ( the most directly comparable financial measure calculated and presented in accordance with gaap ) as presented in the accompanying consolidated statements of operations ( dollars in thousands ) : replace_table_token_18_th intangible assets ( including goodwill ) , net . intangible assets , net of amortization , were $ 2,456.0 million and $ 3,094.2 million as of december 31 , 2015 and 2014 , respectively . these intangible asset balances primarily consist of broadcast licenses and goodwill . intangible assets , net , decreased from the prior year primarily due to impairment charges related to goodwill and indefinite-lived intangible assets and amortization recognized on definite-lived intangible assets . our impairment testing requires us to make certain assumptions in determining fair value , including assumptions about the cash flow growth of our businesses . additionally , fair values are significantly impacted by macroeconomic factors , including market multiples at the time the impairments tests are performed . the following factors could adversely impact the current carrying value of our broadcast licenses and goodwill : ( a ) a sustained decline in the price of our common stock , ( b ) the potential for a decline in our forecasted operating profit margins or expected cash flow growth rates , ( c ) a decline in our industry forecasted operating profit margins , ( d ) the potential for a continued decline in advertising market revenues within the markets in which we operate stations , or ( e ) the sustained decline in the selling prices of radio stations . 45 index to financial statements year ended december 31 , 2014 compared to year ended december 31 , 2013 net revenue net revenue consists of gross revenue less agency commissions , third party producer revenue shares and other direct costs . agency commissions are variable as they are based upon a stated percentage of our gross billings . replace_table_token_19_th the following table presents our broadcast advertising revenue by source ( dollars in thousands ) . replace_table_token_20_th net revenue for the year ended december 31 , 2014 increased $ 237.3 million , or 23.1 % , to $ 1,263.4 million compared to $ 1,026.1 million for the year ended december 31 , 2013 . the increase resulted from increases of $ 178.7 million , $ 30.3 million , $ 16.2 million and $ 12.1 million in broadcast advertising , digital advertising , political advertising and license fees and other revenue , respectively . the broadcast advertising increase was primarily attributable to the addition of the operations of westwoodone , which was acquired on december 12 , 2013 , and several new stations being operated under lmas in chicago and san jose , ca . the increases were partially offset by decreases in local spot and national spot revenue . the increase in digital advertising was primarily due to increased rdio user generation activity and digital commerce generated

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loss on early extinguishment of debt for the year ended december 31 , 2013 , we recorded $ 34.9 million in losses on early extinguishment of debt primarily as a result of our debt refinancing in december 2013 . there were no such debt refinancings or similar losses in 2014 . income tax benefit ( expense ) we recorded an income tax expense on continuing operations of $ 10.3 million in 2014 as compared to a $ 68.5 million benefit during the prior year . the tax benefit recorded in 2013 is primarily the result of the release of our valuation allowance on the future recovery of deferred tax assets ( primarily net operating loss carryovers ) . adjusted ebitda as a result of the factors described above , adjusted ebitda for the year ended december 31 , 2014 decreased $ 0.5 million , or 0.1 % , to $ 329.5 million compared to $ 330.0 million for the year ended december 31 , 2013 . reconciliation of non-gaap financial measure the following table reconciles adjusted ebitda to net income ( the most directly comparable financial measure calculated and presented in accordance with gaap ) as presented in the accompanying consolidated statements of operations ( dollars in thousands ) : 47 index to financial statements replace_table_token_22_th intangible assets ( including goodwill ) , net . intangible assets , net of amortization , were $ 3,094.2 million and $ 3,168.6 million as of december 31 , 2014 and 2013 , respectively . these intangible asset balances primarily consist of broadcast licenses and goodwill . intangible assets , net , decreased from the prior year primarily due to amortization recognized on definite-lived intangible assets . seasonality and cyclicality our operations and revenues tend to be seasonal in nature , with generally lower revenue generated in the first quarter of the year and generally higher revenue generated in the second and fourth quarters of the year . the seasonality of our business reflects the adult orientation of our formats and relationship between advertising purchases on these formats with the retail cycle . this seasonality causes and will likely continue to cause a variation in our quarterly operating results .

to date , we have fired an otsg located in aera energy 's belridge field outside bakersfield , california at a rate of 42.5 million btu/hr and met the san joaquin valley air pollution control district 's regulations under rule 4320 requiring nox emissions of 5 ppm ( corrected at 3 % o 2 ) . these results were achieved without major modifications to the burner or the need for fgr . during testing , aera 's otsg unit continued to supply steam at the capacity and quality required for oil field operations . we continue to conduct testing to address additional performance criteria in order to continue to validate the environmental and operational benefits of our duplex technology . assuming continued successful completion of the demonstration and testing , our agreement with aera energy includes time-sensitive pricing , delivery and installation terms , if elected , that will apply to future purchases of this duplex application . in december 2014 , we executed agreements regarding two further field tests with prospective customers at two separate petroleum refineries in the san joaquin valley related to process heaters with a thermal output ranging from 12 to 15 million btu/hr . each agreement has a term of four months , but may be extended by agreement of the parties . pursuant to each agreement , if we are able to retrofit the prospective customer 's process heater in accordance with the specifications set forth in the agreement , the prospective customer will purchase a duplex system from us . these prospective customers have no other financial obligations under the agreements . we intend to continue field validation of our duplex technology in order to produce sufficient data to demonstrate product attributes and dependability . regarding our ecc technology , we continue to conduct solid fuel laboratory testing in conjunction with six parties who have contributed $ 110,000 in 2014 to our research . if successful , this would create a basis for further focused laboratory studies prior to any field demonstrations . there is no assurance that additional revenues will be realized , terms will be reached , or a final agreement executed between us and any of these companies . 18 in april and may 2012 , we completed an initial public offering ( ipo ) of our common stock whereby we sold 3,450,000 shares of common stock at $ 4.00 per share , which included the exercise of the underwriter 's overallotment option , resulting in gross proceeds of $ 13.8 million and , after deducting certain costs paid with common stock , net proceeds of $ 11.6 million . in march 2014 , we completed a registered direct offering of our common stock whereby we sold 812,500 shares of common stock at $ 8.00 per share resulting in gross proceeds of $ 6.5 million and net proceeds of approximately $ 5.8 million . in february 2015 , we completed an underwritten public offering of our common stock whereby we sold 2,990,000 shares of common stock at $ 5.85 per share resulting in gross proceeds of $ 17.5 million and net proceeds of approximately $ 16.3 million . we currently intend to use the net proceeds from this offering as follows : approximately $ 6 million for research and development including capital expenditures , approximately $ 3 million for protection of intellectual property , approximately $ 2 million for business development and marketing , and the balance for working capital and general corporate purposes . our anticipated costs include employee salaries and benefits , compensation paid to consultants , capital costs for research and other equipment , costs associated with development activities including travel and administration , legal expenses , sales and marketing costs , general and administrative expenses , and other costs associated with an early stage , publicly-traded technology company . we currently have 12 full-time employees and 2 part-time employees . we anticipate continuing to increase the number of employees required to support our activities in the areas of research and development , sales and marketing , and general and administrative functions . we expect to incur consulting expenses related to technology development commensurate with our current levels and we expect to incur increasing expenses to protect our intellectual property . the amount that we spend for any specific purpose may vary significantly , and could depend on a number of factors including , but not limited to , the pace of progress of our commercialization and development efforts , actual needs with respect to product testing , development and research , market conditions , and changes in or revisions to our marketing strategies . research , development , and commercial acceptance of new technologies are , by their nature , unpredictable . although we will undertake development and commercialization efforts with reasonable diligence , there can be no assurance that the net proceeds from our securities offerings will be sufficient to enable us to develop our technology to the extent needed to create future sales to sustain operations . if the net proceeds from these offerings are insufficient for this purpose , we will consider other options to continue our path to commercialization , including , but not limited to : additional financing through follow-on equity offerings , debt financing , co-development agreements , sale or licensing of developed intellectual or other property , or other alternatives . if management is unable to implement its proposed business plan or employ alternative financing strategies , it does not presently have any alternative proposals . in that case , we may be required to scale back our development plans by reducing expenditures for employees , consultants , business development and marketing efforts , and other envisioned expenditures or curtail or even suspend our operations . story_separator_special_tag we can not assure that our technology will be accepted , that we will ever earn revenues sufficient to support our operations , or that we will ever be profitable . furthermore , we have no committed source of financing and we can not assure that we will be able to raise money as and when we need it to continue our operations . if we can not raise funds as and when we need them , we may be required to severely curtail , or even to cease , our operations . critical accounting policies the following discussion and analysis of financial condition and results of operations is based upon our financial statements , which have been prepared in conformity with accounting principles generally accepted in the united states of america . certain accounting policies and estimates are particularly important to the understanding of our financial position and results of operations and require the application of significant judgment by our management or can be materially affected by changes from period to period in economic factors or conditions that are outside of our control . as a result , they are subject to an inherent degree of uncertainty . in applying these policies , our management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates . those estimates are based on our historical operations , our future business plans and projected financial results , the terms of existing contracts , our observance of trends in the industry , information provided by our customers and information available from other outside sources , as appropriate . see note 2 to our audited financial statements for a more complete description of our significant accounting policies . 19 revenue recognition . the company recognizes revenue on co-development agreements using the percentage of completion method . under this method , the completion percentage is determined by dividing costs incurred to date by total estimated project costs . since our projects will require technological development to complete , which by its nature is difficult to predict , the actual cost required to complete contracted work may vary from estimates . estimated project costs are revised regularly which can alter the reported level of project profitability . any estimated project losses are recognized in the current reporting period . customer billings are recorded when cash receipts are probable and in accordance with the underlying co-development contract . if billings exceed recognized revenue , the difference is recorded as a current liability , while any recognized revenues exceeding billings are recorded as a current asset . recognized revenues are subject to revisions as the contract progresses to completion and actual revenue and cost become certain . revisions in revenue estimates are reflected in the period in which the facts that give rise to the revision become known . cost of revenue . cost of co-development revenue includes both direct and allocated indirect costs of completing the scope of work of co-development agreements . direct costs include labor , materials and other costs incurred directly in fulfilling co-development agreements . indirect costs include labor , rent , depreciation and other costs associated with operating the company . due to the nature of the work involved , the cost of co-development projects may fluctuate substantially from period to period . research and development . the cost of research and development is expensed as incurred . research and development costs consist of salaries , benefits , share based compensation , consulting fees , rent , utilities , depreciation , and consumables . stock-based compensation . the costs of all employee stock options , as well as other equity-based compensation arrangements , are reflected in the financial statements based on the estimated fair value of the awards on the grant date . that cost is recognized over the period during which an employee is required to provide service in exchange for the award . stock compensation for stock granted to non-employees is determined as the fair value of the consideration received or the fair value of equity instruments issued , whichever is more reliably measured . fair value of financial instruments . fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . assets and liabilities measured at fair value are categorized based on whether or not the inputs are observable in the market and the degree that the inputs are observable . the categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement . the company 's financial instruments primarily consist of cash and cash equivalents , accounts payable and accrued expenses . as of the balance sheet dates , the estimated fair values of the financial instruments were not materially different from their carrying values as presented on the balance sheets . this is primarily attributed to the short maturities of these instruments . the company did not identify any other non-recurring assets and liabilities that are required to be presented in the balance sheets at fair value . 20 results of operations comparison of the years ended december 31 , 2014 and 2013 revenue , cost of revenue , and gross profit . the company reported revenue of $ 93,000 in 2013 resulting from a solid fuel burner co-development project that resulted in an immaterial gross profit . no revenue was reported in 2014. operating expenses . operating expenses increased by $ 2,000,000 , or approximately 37 % , to $ 7,301,000 in 2014 compared to 2013. the company increased its research and development ( r & d ) expenses by $ 366,000 to $ 2,217,000 for 2014. r & d expenses rose due primarily to the addition of personnel hired as a result of increased research activities resulting in a $ 357,000 increase in

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liquidity and capital resources at december 31 , 2014 , our cash and cash equivalent balance totaled $ 1,845,000 compared to $ 2,688,000 at december 31 , 2013. this cash reduction reflected our continued costs in research and development of our technology and our business development and marketing efforts in forming co-development agreements to enable product commercialization and future revenue . in february 2015 , we completed the sale of 2,990,000 shares of our common stock resulting in net proceeds of approximately $ 16.3 million . although we are pursuing co-development agreements , there is no assurance that they will be adequate to fund our operations and to commercialize our technology . to the extent co-development agreement funding is insufficient for these purposes , we may undertake offerings of our securities , debt financing , selling or licensing our developed intellectual or other property , or other alternatives . the company filed a form s-3 shelf registration statement with the securities and exchange commission ( sec ) on may 6 , 2013 that was declared effective on may 30 , 2013. following the offering that closed in february 2015 , the registration statement allows the company to offer up to an aggregate of $ 6,008,000 of common stock , preferred stock or warrants from time to time as market conditions permit .

the reverse acquisition is deemed a capital transaction in substance whereas the assets and liabilities of loop holdings , inc. ( the accounting acquirer ) are carried forward to first american group ( the legal acquirer and the reporting entity ) at their carrying value before the combination and the equity structure ( the number and type of equity interests issued ) of loop holdings , inc. is being retroactively restated using the exchange ratio established in the share exchange agreement and stock redemption agreements to reflect the number of shares of first american group issued to effect the acquisition . the number of common shares issued and outstanding and the amount recognized as issued equity interests in the consolidated financial statements is determined by adding the number of common shares deemed issued and the issued equity interests of loop holdings , inc. immediately prior to the business combination to the unredeemed shares and the fair valueof first american group determined in accordance with the guidance in asc section 805-40-55 applicable to business combinations , i.e . the equity structure ( the number and type of equity interests issued ) in the consolidated financial statements immediately post combination reflects the equity structure of first american group , including the equity interests the legal acquirer issued to effect the combination . loop holdings was incorporated on october 23 , 2014 , in nevada . we are a development company and have never generated any revenues . the commercialization of our depolymerization technology is in its incipient stages and must be scaled-up before we can commercialize the technology and generate any revenues . the depolymerization technology underlying the business of loop holdings was originally developed by hatem essaddam , who sold the depolymerization technology to loop holdings for a purchase price of up to $ 445,050 and contingent consideration consistent in up to cdn $ 800,000 pursuant to an intellectual property assignment agreement dated october 27 , 2014 , by and among hatem essadam , loop holdings , and daniel solomita , our president and chief executive officer , secretary , treasurer and chairman of the board of directors . 13 our depolymerization of polyethylene terephthalate ( pet ) process is completed through a series of chemical reactions is completed at room temperature and under normal atmospheric pressure . the resulting monomers of the depolymerization is purified terephthalic acid and ethylene glycol . our depolymerization process is summarized as follows : · pet bottles are shredded into 5 mm size pieces ; · shredded pet is put into a large reactor , where certain chemicals are added ; · the pet molecular chain begins to be broken down in 20 minutes ; · purified terephthalic acid ( solid ) and ethylene glycol ( liquid ) and mother liquor are separated using a combination of centrifugation and distillation ; · the mother liquor is returned to the reactor to be reused in the process ; and · purified terephthalic acid and ethylene glycol are processed and packaged . plan of operation we have not yet generated or realized any revenues from our business . we are aiming to become an environmentally friendly manufacturer of purified terephthalic acid ( pta ) and mono ethelyne glycol ( meg ) , these high purity specialty chemicals are mainly used in the production of polyethylene terephthalate . we have completed the construction of our pilot plant facility which is capable of producing 5000 lbs . per day of high purity pta and meg , we are currently doing qualification testing of the resulting resin with potential costumers . we are currently refining our process to ensure an easy transition from pilot scale to full scale commercial manufacturing facility . we anticipate that this facility will have the initial capacity to process approximately 36,000,000 lbs . of pet plastic per year . estimated costs for this facility are approximately $ 15 million dollars . results of operations for the year ended february 29 , 2016 and the period from october 23 , 2014 ( inception ) to february 28 , 2015 we recorded no revenues for the year ended february 29 , 2016 and the period from october 23 , 2014 ( inception ) to february 28 , 2015. for the year ended february 29 , 2016 and the period from october 23 , 2014 ( inception ) to february 28 , 2015 , general and administrative expenses were $ 1,748,044 , and $ 285,908 , respectively . the increase of $ 1,462,136 was due primarily to the short 2015 period which included 5 months only vs twelve months in the year 2016. in addition , the increase is due to the intensification of the company 's operations including rent of a corporate office in montreal , increased head count and additional costs related to compliance and public company operations , including professional fees , filing fees , payroll and related expenses . the increase is also the result of a charge of $ 277,700 corresponding to the fair value of warrants granted to employees and the amortization of $ 534,000 prepaid stock compensation costs . for the year ended february 29 , 2016 and the period from october 23 , 2014 ( inception ) to february 28 , 2015 , research and development expenses were $ 801,666 , and $ 40,614 , respectively . the increase of $ 761,052 was due primarily to the short 2015 period which included 5 months only vs twelve months in the year 2016. in addition , the increase is due to the intensification of the company 's operations including the start-up of a pilot plant in montreal and increased head count . the increase is also the result of a charge of $ 126,806 corresponding to the fair value of warrants granted to employees . 14 for the year ended february 29 , 2016 and the period from october 23 , 2014 ( inception ) to february 28 , 2015 , story_separator_special_tag the reverse acquisition is deemed a capital transaction in substance whereas the assets and liabilities of loop holdings , inc. ( the accounting acquirer ) are carried forward to first american group ( the legal acquirer and the reporting entity ) at their carrying value before the combination and the equity structure ( the number and type of equity interests issued ) of loop holdings , inc. is being retroactively restated using the exchange ratio established in the share exchange agreement and stock redemption agreements to reflect the number of shares of first american group issued to effect the acquisition . the number of common shares issued and outstanding and the amount recognized as issued equity interests in the consolidated financial statements is determined by adding the number of common shares deemed issued and the issued equity interests of loop holdings , inc. immediately prior to the business combination to the unredeemed shares and the fair valueof first american group determined in accordance with the guidance in asc section 805-40-55 applicable to business combinations , i.e . the equity structure ( the number and type of equity interests issued ) in the consolidated financial statements immediately post combination reflects the equity structure of first american group , including the equity interests the legal acquirer issued to effect the combination . loop holdings was incorporated on october 23 , 2014 , in nevada . we are a development company and have never generated any revenues . the commercialization of our depolymerization technology is in its incipient stages and must be scaled-up before we can commercialize the technology and generate any revenues . the depolymerization technology underlying the business of loop holdings was originally developed by hatem essaddam , who sold the depolymerization technology to loop holdings for a purchase price of up to $ 445,050 and contingent consideration consistent in up to cdn $ 800,000 pursuant to an intellectual property assignment agreement dated october 27 , 2014 , by and among hatem essadam , loop holdings , and daniel solomita , our president and chief executive officer , secretary , treasurer and chairman of the board of directors . 13 our depolymerization of polyethylene terephthalate ( pet ) process is completed through a series of chemical reactions is completed at room temperature and under normal atmospheric pressure . the resulting monomers of the depolymerization is purified terephthalic acid and ethylene glycol . our depolymerization process is summarized as follows : · pet bottles are shredded into 5 mm size pieces ; · shredded pet is put into a large reactor , where certain chemicals are added ; · the pet molecular chain begins to be broken down in 20 minutes ; · purified terephthalic acid ( solid ) and ethylene glycol ( liquid ) and mother liquor are separated using a combination of centrifugation and distillation ; · the mother liquor is returned to the reactor to be reused in the process ; and · purified terephthalic acid and ethylene glycol are processed and packaged . plan of operation we have not yet generated or realized any revenues from our business . we are aiming to become an environmentally friendly manufacturer of purified terephthalic acid ( pta ) and mono ethelyne glycol ( meg ) , these high purity specialty chemicals are mainly used in the production of polyethylene terephthalate . we have completed the construction of our pilot plant facility which is capable of producing 5000 lbs . per day of high purity pta and meg , we are currently doing qualification testing of the resulting resin with potential costumers . we are currently refining our process to ensure an easy transition from pilot scale to full scale commercial manufacturing facility . we anticipate that this facility will have the initial capacity to process approximately 36,000,000 lbs . of pet plastic per year . estimated costs for this facility are approximately $ 15 million dollars . results of operations for the year ended february 29 , 2016 and the period from october 23 , 2014 ( inception ) to february 28 , 2015 we recorded no revenues for the year ended february 29 , 2016 and the period from october 23 , 2014 ( inception ) to february 28 , 2015. for the year ended february 29 , 2016 and the period from october 23 , 2014 ( inception ) to february 28 , 2015 , general and administrative expenses were $ 1,748,044 , and $ 285,908 , respectively . the increase of $ 1,462,136 was due primarily to the short 2015 period which included 5 months only vs twelve months in the year 2016. in addition , the increase is due to the intensification of the company 's operations including rent of a corporate office in montreal , increased head count and additional costs related to compliance and public company operations , including professional fees , filing fees , payroll and related expenses . the increase is also the result of a charge of $ 277,700 corresponding to the fair value of warrants granted to employees and the amortization of $ 534,000 prepaid stock compensation costs . for the year ended february 29 , 2016 and the period from october 23 , 2014 ( inception ) to february 28 , 2015 , research and development expenses were $ 801,666 , and $ 40,614 , respectively . the increase of $ 761,052 was due primarily to the short 2015 period which included 5 months only vs twelve months in the year 2016. in addition , the increase is due to the intensification of the company 's operations including the start-up of a pilot plant in montreal and increased head count . the increase is also the result of a charge of $ 126,806 corresponding to the fair value of warrants granted to employees . 14 for the year ended february 29 , 2016 and the period from october 23 , 2014 ( inception ) to february 28 , 2015 ,

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liquidity and capital resources at february 29 , 2016 we had a cash balance of $ 422,586 and a negative working capital balance of $ ( 353,455 ) . such cash amount will not be sufficient to continue our next 12-month plan of operations and fund our ongoing operational expenses . subsequent to february 29 , 2016 , and up to the filing date , the company sold 857,335 shares and received total proceeds of $ 2,572,006 , including 204,667 shares for which the company had received advances of $ 614,001 as of february 29 , 2016. we will need to raise additional funds to finance the transition from pilot scale to commercial manufacturing facility and we believe that additional funding will likely come from debt financing or equity financing from the sale of our common stock . if we are successful in completing equity financing , existing shareholders will experience dilution of their interest in our company . we do not have any financing arranged and we can not provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock to fund our next 12-month plan of operation and ongoing operational expenses . in the absence of such financing , our business will likely fail . there are no assurances that we will be able to achieve further sales of our common stock or any other form of additional financing . critical accounting policies stock based compensation the company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs .

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 . certain policies inherently have a greater reliance on the use of 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 on the financial statements 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 . carrying assets and liabilities at fair value inherently result in more financial statement volatility . the fair values and the information used to record valuation adjustments for certain assets and liabilities are based on quoted market prices , collateral value or are provided by other third-party sources , when available . the most significant accounting policies that the company follows are presented in note 1 to the consolidated financial statements . these policies , along with the disclosures presented in the notes to the financial statements and in this discussion , provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined . based on the valuation techniques used and the sensitivity of financial statement amounts to the methods , assumptions , and estimates underlying those amounts , management has determined that the accounting policies with respect to the allowance for credit losses , goodwill and other intangible assets , deferred tax assets , and fair value are critical accounting policies . these policies are considered critical because they relate to accounting areas that require the most subjective or complex judgments , and , as such , could be most subject to revision as new information becomes available . the allowance for credit losses represents management 's estimate of credit losses inherent in the loan portfolio as of the balance sheet date . determining the amount of the allowance for credit 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 consolidated balance sheets . note 1 to the consolidated financial statements describes the methodology used to determine the allowance for credit losses . a discussion of the factors driving changes in the amount of the allowance for credit losses is included in the asset quality - provision for credit losses and risk management section below . goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired . other intangible assets represent purchased assets that also lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract , asset or liability . goodwill and other intangible assets are required to be recorded at fair value at inception . determining fair value is subjective , requiring the use of estimates , assumptions and management judgment . goodwill and other intangible assets with indefinite lives are tested at least annually for impairment , usually during the third quarter , or on an interim basis if circumstances dictate . intangible assets that have finite lives are amortized over their estimated useful lives and also are subject to impairment testing . impairment testing requires that the fair value of each of the company 's reporting units be compared to the carrying amount of its net assets , including goodwill . if the fair value of a reporting unit is less than book value , an expense may be required to write down the related goodwill or purchased intangibles to record an impairment loss . as of december 31 , 2018 , the company had only one banking reporting unit . 27 deferred tax assets and liabilities are determined by applying the applicable federal and state income tax rates to cumulative temporary differences . these temporary differences represent differences between financial statement carrying amounts and the corresponding tax bases of certain assets and liabilities . deferred taxes result from such temporary differences . a valuation allowance , if needed , reduces deferred tax assets to the expected amount most likely to be realized . realization of deferred tax assets is dependent on the generation of a sufficient level of future taxable income , recoverable taxes paid in prior years and tax planning strategies . the company evaluates all positive and negative evidence before determining if a valuation allowance is deemed necessary regarding the realization of deferred tax assets . the company measures certain financial assets and liabilities at fair value , with the measurements made on a recurring or nonrecurring basis . significant financial instruments measured at fair value on a recurring basis are investment securities . impaired loans and other real estate owned are significant financial instruments measured at fair value on a nonrecurring basis . fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability ( an exit price ) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date . story_separator_special_tag 32 investment securities available for sale were $ 154.4 million at the end of 2018 and $ 197.0 million at the end of 2017. there were no purchases of available for sale securities in 2018 , while investment activity for 2017 included purchases of $ 53.5 million in mortgage-backed securities and $ 31.0 million in u.s. government agencies . at year-end 2018 , 21.0 % of the available for sale securities in the portfolio were u.s. government agencies and 79.0 % of the securities were mortgage-backed securities , compared to 22.3 % and 74.3 % , respectively , at year-end 2017. as seen in the table below , 19 % of the available-for-sale portfolio will mature in over one through five years and 38 % will mature in over ten years based on contractual maturities . the comparable amounts for 2017 were 38 % and 57 % , respectively . our investments in mortgage-backed securities are issued or guaranteed by u.s. government agencies or government-sponsored agencies . investment securities held to maturity totaled $ 6.0 million at december 31 , 2018. the comparable amount was $ 6.2 million at december 31 , 2017. the following table sets forth the maturities and weighted average yields of the bond investment portfolio as of december 31 , 2018. replace_table_token_5_th 1 yields have been adjusted to reflect a tax equivalent basis using the statutory federal tax rate of 21 % . loans the loan portfolio is the primary source of our income . loans totaled $ 1.2 billion at december 31 , 2018 , an increase of $ 101.8 million , or 9.3 % , from 2017. most of our loans are secured by real estate and are classified as construction , residential or commercial real estate loans . the increase in loans was comprised of increases in commercial real estate loans of $ 58.5 million , or 12.6 % , residential real estate loans of $ 30.4 million , or 7.6 % , commercial loans , which include financial and agricultural loans , of $ 10.2 million , or 10.5 % , construction loans of $ 1.8 million , or 1.5 % and consumer loans of $ 867 thousand , or 13.5 % at december 31 , 2018 compared to december 31 , 2017. at december 31 , 2018 , the loan portfolio was comprised of 10.7 % construction , 35.9 % residential real estate and 43.8 % commercial real estate . that compares to 11.5 % , 36.5 % and 42.5 % , respectively , at december 31 , 2017. commercial and consumer loans were 9.0 % and 0.6 % , respectively , of the portfolio at december 31 , 2018 and 8.9 % and 0.6 % , respectively , at december 31 , 2017. at december 31 , 2018 , 73.3 % of the loan portfolio had fixed interest rates and 26.7 % had adjustable interest rates , compared to 74.2 % and 25.8 % , respectively , at december 31 , 2017. see the discussion below under the caption “ asset quality - provision for credit losses and risk management ” and note 5 , “ loans and allowance for credit losses ” , in the notes to consolidated financial statements for additional information . at december 31 , 2018 and 2017 , the company did not have any loans held for sale . we do not engage in foreign or subprime lending activities . 33 the table below sets forth trends in the composition of the loan portfolio over the past five years ( including net deferred loan fees/costs ) . replace_table_token_6_th the table below sets forth the maturities and interest rate sensitivity of the loan portfolio at december 31 , 2018. replace_table_token_7_th liabilities deposits the bank uses deposits primarily to fund loans and to purchase investment securities . total deposits increased from $ 1.20 billion at december 31 , 2017 to $ 1.21 billion at december 31 , 2018. the increase is the result of having $ 22.1 million in brokered deposits and an increase in noninterest bearing deposits of $ 2.1 million , which was partially offset by the $ 14.7 million decline in interest-bearing deposits . average interest-bearing deposits increased $ 31.8 million , or 3.9 % , in 2018 , compared to an increase of $ 86.3 million , or 11.7 % in 2017. average certificates of deposit and other time deposits decreased $ 26.9 million , or 9.9 % in 2018 , compared to a decrease of $ 4.5 million , or 1.6 % in 2017. average noninterest-bearing deposits increased $ 30.4 million , or 10.3 % , in 2018 , compared to an increase of $ 54.9 million , or 22.8 % in 2017. deposits provided funding for approximately 86.9 % and 91.9 % of average earning assets for 2018 and 2017 , respectively . average deposits increased for 2017 primarily in noninterest-bearing deposits of $ 54.9 million as well as an increase in interest-bearing transaction accounts of $ 90.7 million , partially offset by a decline in certificates of deposit and other time deposits of $ 4.5 million . the increase was primarily the result of the deposits acquired in the branch purchase which had a balance of $ 187.0 million at december 31 , 2017 . 34 the following table sets forth the average balances of deposits and the percentage of each category to total average deposits for the years ended december 31. replace_table_token_8_th the following table sets forth the maturity ranges of certificates of deposit with balances of $ 250,000 or more as of december 31 , 2018. replace_table_token_9_th short-term borrowings short-term borrowings generally consist of securities sold under agreements to repurchase and short-term borrowings from the fhlb . securities sold under agreements to repurchase are issued in conjunction with cash management services for commercial depositors . we also borrow from the fhlb on a short-term basis and occasionally borrow from correspondent banks under federal fund lines of credit arrangements

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capital resources management total stockholders ' equity for the company was $ 183.2 million at december 31 , 2018 , compared to $ 163.7 million at december 31 , 2017. the increase in stockholders ' equity in 2018 was primarily due to net income during the year and the sale of avon , which was partially offset by dividends paid to common stockholders . the ratio of period-end equity to total assets was 12.35 % for 2018 , as compared to 11.75 % for 2017. this ratio increased primarily due to the significant increase in stockholders ' equity due to the sale of avon . 35 we record unrealized holding gains ( losses ) , net of tax , on investment securities available for sale as accumulated other comprehensive income ( loss ) , a separate component of stockholders ' equity . at december 31 , 2018 , the portion of the investment portfolio designated as “ available for sale ” had net unrealized holding ( losses ) , net of tax , of ( $ 3.0 ) million compared to net unrealized holding ( losses ) , net of tax , of $ ( 1.3 ) million at december 31 , 2017. in august of 2018 the economic growth , regulatory relief , and consumer protection act ( “ egrrcpa ” ) directed the frb to revise the small bank holding company policy statement to raise the total consolidated asset limit in the policy statement from $ 1 billion to $ 3 billion . the company meets the conditions of the revised policy statement and is , therefore , exempt from the consolidated capital requirements at december 31 , 2018. the following table compares the bank 's capital ratios to the minimum regulatory requirements as of december 31 , 2018 , 2017 and 2016. replace_table_token_11_th * includes phased in capital conservation buffer for 2018 of 1.875 % see note 18 to the consolidated financial statements for further information about the regulatory capital positions of the company ( december 31 , 2017 ) and the bank ( december 31 , 2018 and 2017 ) .

the pandemic is having a significant impact on the u.s. economy and on the local markets in which our properties are located . nearly every industry has been impacted directly or indirectly , and the commercial real estate market has come under pressure due to numerous factors , including preventative measures taken by local , state and federal authorities to alleviate the public health crisis such as mandatory business closures , quarantines , and restrictions on travel and “ shelter-in-place ” or “ stay-at-home ” orders . the future impact of covid-19 on our business and financial activities will depend on future developments , which at this stage are unpredictable considering the fluctuations of covid-19 outbreaks and the resulting changes in the market . overview our primary business is currently investing in mortgage receivables . the principal source of revenue for the company is interest income on approximately $ 94 million of note receivables due from related parties . since april 30 , 2011 , pillar is the company 's external advisor and cash manager under a contractual arrangement that is reviewed annually by our board of directors . pillar 's duties include , but are not limited to , locating , evaluating and recommending business and investment opportunities . pillar also arranges , for ior 's benefit , debt and equity financing with third party lenders and investors . as the contractual advisor , pillar is compensated by ior under an advisory agreement . the company has no employees . employees of pillar render services to ior in accordance with the terms of the advisory agreement . this advisory agreement is more fully described in part iii , item 10. directors , executive officers and corporate governance – the advisor . pillar also serves as an advisor and cash manager to arl and tci . we have historically engaged in and may continue to engage in certain business transactions with related parties , including but not limited to asset acquisition , dispositions and financings . transactions involving related parties can not be presumed to be carried out on an arm 's length basis due to the absence of free market forces that naturally exist in business dealings between two or more unrelated entities . related party transactions may not always be favorable to our business and may include terms , conditions and agreements that are not necessarily beneficial to or in our best interest . critical accounting policies we present our financial statements in accordance with generally accepted accounting principles in the united states ( “ gaap ” ) . the accompanying consolidated financial statements include our accounts and our subsidiaries . as of december 31 , 2020 , ior is not the primary beneficiary of a vie . recognition of revenue our revenues are composed largely of interest income on notes receivable . 8 non-performing notes receivable the company considers a note receivable to be non-performing when the maturity date has passed without principal repayment and the borrower is not making interest payments in accordance with the terms of the agreement . interest recognition on notes receivable we record interest income as earned in accordance with the terms of the related loan agreements . allowance for estimated losses we assess the collectability of notes receivable on a periodic basis , of which the assessment consists primarily of an evaluation of cash flow projections of the borrower to determine whether estimated cash flows are sufficient to repay principal and interest in accordance with the contractual terms of the note . we recognize impairments on notes receivable when it is probable that principal and interest will not be received in accordance with the contractual terms of the loan . the amount of the impairment to be recognized generally is based on the fair value of the partnership 's real estate that represents the primary source of loan repayment . ( see note 3 , below , notes and interest receivable from related parties , for details on our notes receivable . ) fair value measurement the company applies the guidance in asc 820 , fair value measurements and disclosures , to the valuation of notes receivable . these provisions define fair value as the price that would be received to sell an asset or paid to transfer a liability in a transaction between market participants at the measurement date , establish a hierarchy that prioritizes the information used in developing fair value estimates and require disclosure of fair value measurements by level within the fair value hierarchy . the hierarchy gives the highest priority to quoted prices in active markets ( level 1 measurements ) and the lowest priority to unobservable data ( level 3 measurements ) , such as the reporting entity 's own data . the valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date and includes three levels defined as follows : level 1—unadjusted quoted prices for identical and unrestricted assets or liabilities in active markets . level 2—quoted prices for similar assets and liabilities in active markets , and inputs that are observable for the asset or liability , either directly or indirectly , for substantially the full term of the financial instrument . level 3—unobservable inputs that are significant to the fair value measurement . a financial instrument 's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement . management reviews the carrying values of our mortgage notes receivable at least annually and whenever events or a change in circumstances indicates that impairment may exist . for notes receivable , impairment is considered to exist if it is probable that all amounts due under the terms of the note will not be collected . the note receivable review includes an evaluation of the collateral property securing such note . story_separator_special_tag if impairment is found to exist , a provision for loss is recorded by a charge against earnings . we did not record any impairment charges for the years ended december 31 , 2020 and 2019. related parties we apply asc 850 , related party disclosures , to evaluate business relationships . related parties are persons or entities who have one or more of the following characteristics , which include entities for which investments in their equity securities would be required , trust for the benefit of persons including principal owners of the entities and members of their immediate families , management personnel of the entity and members of their immediate families and other parties with which the entity may deal if one party controls or can significantly influence the decision making of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests , or affiliates of the entity . 9 contractual obligations at december 31 , 2020 , the company had no outstanding debt , lease or purchase obligations . newly issued accounting pronouncements in december 2019 , the fasb issued asu 2019-12 , income taxes ( topic 740 ) : simplifying the accounting for income taxes . the amendments in this update simplify the accounting for income taxes by removing certain exceptions from asc 740. also , the amendments in this update simplify the accounting for income taxes by requiring that an entity recognize a franchise tax ( or similar tax ) that is partially based on income as an income-based tax , requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination , and other targeted changes . the effective date of the amendments is for fiscal years , and interim periods within those years , beginning after december 15 , 2020. the company 's adoption of asu 2019-12 on january 1 , 2021 , did not have a material impact on the company 's consolidated financial statements . results of operations the following discussion is based on our consolidated financial statements consolidated statement of operations , for the years ended december 31 , 2020 , 2019 , and 2018 from part ii , item 8. financial statements and supplementary data and is not meant to be an all-inclusive discussion of the changes in our net income applicable to common shares . instead , we have focused on significant fluctuations within our operations that we feel are relevant to obtain an overall understanding of the change in income applicable to common shareholders . our operating expenses consist primarily of general and administrative costs such as audit and legal fees and administrative fees paid to a related party . we also have other income and expense items . we receive interest income from the funds deposited with our advisor at a rate of prime plus 1.0 % . we have receivables from related parties which also provide interest income . comparison of the year ended december 31 , 2020 to the year ended december 31 , 2019 we had a net income applicable to common shares of $ 4.2 million or $ 1.01 per diluted earnings per share for the year ended december 31 , 2020 , compared to a net income applicable to common shares of $ 4.1 million or $ .99 per diluted earnings per share for the same period ended 2019. expenses general and administrative expenses were $ 450,000 for the year ended december 31 , 2020. general and administrative expenses were $ 494,000 for the year ended december 31 , 2019. this included a decrease in legal expenses of $ 17,000 , a decrease in audit fees of $ 11,000 , and a decrease in expense reimbursements to pillar and of $ 13,000. net income fee to related party was $ 371,000 for the year ended december 31 , 2020. this represents an increase of $ 14,000 , compared to the net income fee of $ 357,000 for the year ended december 31 , 2019. the net income fee paid is calculated at the rate of 7.5 % of net income . advisory fees were $ 768,000 for the year ended december 31 , 2020. this represents an increase of $ 31,000 compared to advisory fees of $ 737,000 for the year ended december 31 , 2019. advisory fees are computed based on a gross asset fee of 0.0625 % per month ( 0.75 % per annum ) of the average of the gross asset value . 10 other income ( expense ) interest income was $ 5.4 million for the year ended december 31 , 2020. this represents a decrease of $ 1.2 million , compared to interest income of $ 6.6 million for the year ended december 31 , 2019. this decrease was primarily due to a decrease in the prime rate . other income was $ 1.5 million for the year ended december 31 , 2020. this represents an increase of $ 1.3 million compared to other income of $ 237 thousand for the year ended december 31 , 2019. this increase was primarily due to collection of a note previously written off . income tax expense was $ 1.1 million for the year ended december 31 , 2020 and income tax expense was $ 1.1 million for the year ended december 31 , 2019. net income before taxes was $ 5.3 million for the year ended december 31 , 2020. this represents an increase of $ .1 million compared to net income before taxes of $ 5.2 million for the year ended december 31 , 2019. comparison of the year ended december 31 , 2019 to the year ended december 31 , 2018 we had a net income applicable to common shares of $ 4.1 million or $ .99 per diluted earnings per share for the year ended december 31 , 2019 , compared to a

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liquidity and capital resources general our principal liquidity needs are to fund normal recurring expenses . our principal sources of cash are and will continue to be the collection of mortgage notes receivables , and the collections of receivables and interests from related companies . cash flow summary the following summary discussion of our cash flows is based on the consolidated statements of cash flows as presented in part i , item 8. financial statements and supplementary data and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented . 11 our cash and cash equivalents were $ 12,000 and $ 5,000 as of december 31 , 2020 and 2019 , respectively . the increase was a result of the following increases and decreases in cash flows : replace_table_token_1_th the primary source of cash provided by operating activities is from interest income on notes receivable . cash for operations from related parties is primarily used for daily operating costs , general and administrative expenses , advisory fees , and land holding costs . the increase in cash provided by operating activities was due to more proceeds received on notes receivable in the current period .

28 during the third quarter of 2015 , given the impact of lower oil prices on net sales and profitability , the uncertain macroeconomic environment and a recent slowing of industrial production and related demand , we announced a financial improvement plan ( `` fip `` ) to improve our profitability , cash flow conversion and operational efficiency . as part of the fip , we originally targeted cost actions to yield approximately $ 15 million of annual savings , accelerating approximately $ 5 million of savings initiatives in the energy reportable segment , with the remaining $ 10 million of savings initiatives spread relatively evenly across the remainder of the company . the fip consisted of headcount reductions , manufacturing and administrative cost reduction and facility closures or consolidations , for which we estimate one-time cash and non-cash charges to implement of approximately $ 6 million to $ 7 million . we expect the majority of the actions to be completed by the end of the first quarter of 2016. we believe the fip will help to mitigate the external factors pressuring our top-line , and position the company for improved profitability and operating leverage across a lower fixed cost structure in the future when demand levels recover . we continue to evaluate further actions as merited based on business performance , considering additional cost reductions or facility closures should sales and profitability levels continue below historical levels . due to a significant decline in profitability levels in our energy and engine products reporting units during 2015 and a decline in our stock price and resulting market capitalization , we determined there were indicators that the fair value of the energy and engine products reporting units , and or other units , may be less than the carrying value . as such , we performed an impairment analysis of each of our reporting units and indefinite-lived trademarks/trade names , along with a comparison of the estimated aggregate fair value of all reporting units to our market capitalization , all as required by the authoritative accounting literature . based on the results of the goodwill impairment test , we recorded pre-tax goodwill impairment charges in the fourth quarter of 2015 of approximately $ 70.9 million in our energy reporting unit and approximately $ 3.2 million in our engine products reporting unit . as of december 31 , 2015 , there is no goodwill recorded in the energy and engine products reporting units . over the past few years , we have executed on our growth strategies via bolt-on acquisitions , new products and geographic expansion within our existing platforms in each of our reportable segments . we have also proceeded with the aforementioned cost savings activities in our energy reportable segment , moving toward more efficient facilities and lower cost country production . while our growth strategies have significantly contributed to increased net sales levels over this time period , our earnings margins over the period of execution have declined from historical levels , primarily due to costs incurred to move , close or consolidate existing facilities , the incurrence of acquisition diligence and integration costs , the margin impact of acquiring businesses with historically lower margins than our legacy businesses and due to increasing business in new markets to trimas , where we make pricing decisions to penetrate new markets and do not yet have volume leverage . in addition to the energy end-market challenges , we have also incurred significant costs related to manufacturing inefficiencies associated with changes in aerospace customer demand with some distribution customer consolidation , a trend toward smaller lot order sizes and less consistent order patterns over the past few quarters . while these challenges and endeavors have significantly impacted margins , we believe that the margins in these businesses will migrate to historical levels over time ( and have in packaging , for example , where the acquisitions in the past few years have been integrated ) as we integrate our acquisitions into our businesses , right-size our facilities and staffing levels to current and expected demand levels and patterns and capitalize on productivity initiatives and volume efficiencies . critical factors affecting our ability to succeed include : our ability to create organic growth through product development , cross selling and extending product-line offerings , and our ability to quickly and cost-effectively introduce new products ; our ability to acquire and integrate companies or products that supplement existing product lines , add new distribution channels , expand our geographic coverage or enable better absorption of overhead costs ; our ability to manage our cost structure more efficiently via supply base management , internal sourcing and or purchasing of materials , selective outsourcing and or purchasing of support functions , working capital management , and greater leverage of our administrative functions . if we are unable to do any of the foregoing successfully , our financial condition and results of operations could be materially and adversely impacted . our businesses do not experience significant seasonal fluctuation . we do not consider sales order backlog to be a material factor in our business . we expect sales growth to be derived from international sources , which exposes us to certain risks , including currency risks . we are sensitive to price movements in our raw materials supply base . our largest material purchases are for steel , aluminum , polyethylene and other resins and utility-related inputs . historically , we have experienced volatility in costs of steel and resin and have worked with our suppliers to manage costs and disruptions in supply . we also utilize pricing programs to pass increased steel , aluminum and resin costs to customers . although we may experience delays in our ability to implement price increases , we have been generally able to recover such increased costs . story_separator_special_tag however , the international branch sales increase was more than offset by an approximate $ 5.9 million sales decline in north america due to the lower petrochemical and refinery customer demand levels and approximately $ 4.8 million of lower sales in china and brazil due to our restructuring activities in those regions . in addition , this segment was impacted by approximately $ 4.5 million of net unfavorable currency exchange , as our reported results in u.s. dollars were negatively impacted as a result of the stronger u.s. dollar relative to foreign currencies . gross profit within energy decreased approximately $ 12.0 million to $ 23.7 million , or 12.3 % of sales , in 2015 , as compared to $ 35.7 million , or 17.3 % of sales , in 2014 . gross profit decreased primarily due to the decrease in sales and the resulting reduction in fixed costs absorption . in addition , we incurred approximately $ 4.0 million due to higher material sourcing costs , related to u.s. west coast port delays , where we moved certain production to higher cost facilities to meet current orders . gross profit continues to be impacted by our restructuring efforts , including facility closures and footprint optimization costs and severance , as this effort was also underway during 2014 , the year over year impact on gross profit was approximately $ 3.1 million . 34 selling , general and administrative expenses within energy increased approximately $ 6.2 million to $ 46.8 million , or 24.2 % of net sales , in 2015 , as compared to $ 40.6 million or 19.6 % of net sales , in 2014 . during 2015 , we incurred incremental costs of approximately $ 6.0 million associated with our restructuring efforts , including facility closures and footprint optimization costs , consulting fees and severance costs . additionally , we incurred higher legal costs of approximately $ 0.6 million primarily due to the resolution of a previous legal claim , net of insurance recoveries . operating profit within energy decreased approximately $ 90.5 million to a $ 97.2 million loss , or 50.2 % of sales , in 2015 , as compared to a $ 6.7 million loss , or 3.2 % of sales , in 2014 . operating profit and related margin decreased primarily as a result of a $ 72.5 million goodwill and indefinite-lived intangible assets impairment charge during the fourth quarter of 2015 , an approximate $ 1.4 million charge in 2015 associated with the disposal of equipment in conjunction with our facility closures and consolidation efforts , higher restructuring related costs and higher sourcing costs resulting from port delays . engineered components . net sales in 2015 decreased approximately $ 61.5 million , or 27.8 % , to $ 159.8 million , as compared to $ 221.4 million in 2014 . sales of our slow speed and compressor engine and related products declined approximately $ 35.2 million , and sales of our gas compression products declined approximately $ 17.7 million , both primarily as a result of reduced levels of oil and gas drilling and well completions in the u.s. and canada in response to lower oil prices . sales further declined as a result of a one-time sale of our compressor packages by a significant customer in 2014 for approximately $ 5.6 million that did not recur . in addition , sales of our industrial cylinder products decreased approximately $ 8.6 million , primarily due to a reduction of sales of our acetylene cylinders and lower export sales due to the impact of the stronger u.s. dollar . gross profit within engineered components decreased approximately $ 15.2 million to $ 33.2 million , or 20.8 % of sales , in 2015 , from $ 48.4 million , or 21.9 % of sales , in 2014 . gross profit declined as a result of the decreased sales levels in our engine and compression-related products due to lower oil prices . gross profit margin for engine and compression-related products further declined due to lower fixed cost absorption , despite cost reductions to better align our cost structure with current demand levels . these decreases were partially offset by increased gross profit and gross profit margin from sales of our industrial cylinders as a result of continued productivity initiatives , as we continue to gain efficiencies from our previous asset acquisition . selling , general and administrative expenses decreased approximately $ 2.4 million to $ 11.8 million , or 7.4 % of sales , in 2015 , as compared to $ 14.2 million , or 6.4 % of sales , in 2014 , substantially all due to cost reductions in our engine and compression-related products , as we reduced costs given the low oil-related activity to better align our cost structure with current demand levels . operating profit within engineered components decreased approximately $ 15.8 million to $ 18.2 million , or 11.4 % of sales , in 2015 , as compared to $ 34.1 million , or 15.4 % of sales , in 2014 , primarily due to the reduced sales levels . operating profit also decreased as a result of a $ 3.2 million goodwill impairment charge during the fourth quarter of 2015 as a result of the significant decline in current and forecasted sales of engine and engine-related products . operating profit margin decreased as a result of lower fixed cost absorption related to our engine and compression-related products , which was partially offset by increased productivity initiatives and additional fixed cost absorption for our industrial cylinder products . corporate expenses . corporate expenses included in operating profit consist of the following : replace_table_token_5_th corporate expenses included in operating profit decreased approximately $ 4.4 million to $ 32.1 million in 2015 , from $ 36.5 million in 2014 . the decrease between years is primarily attributed to $ 1.4 million lower acquisition due diligence costs incurred in 2015 than in 2014

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cash flows cash flows provided by operating activities of continuing operations in 2015 were approximately $ 76.6 million , as compared to $ 92.5 million in 2014 . significant changes in cash flows provided by operating activities of continuing operations and the reasons for such changes are as follows : in 2015 , the company generated $ 92.8 million in cash flows , based on the reported net loss from continuing operations of $ 28.7 million and after considering the effects of non-cash items related to impairment of goodwill and indefinite-lived intangible assets , losses on dispositions of businesses and other assets , depreciation , amortization , stock compensation and related changes in excess tax benefits , changes in deferred income taxes , debt financing and extinguishment costs and other , net . in 2014 , the company generated $ 91.2 million based on the reported net income from continuing operations of $ 46.9 million and after considering the effects of similar non-cash items . decreases in accounts receivable resulted in a source of cash of approximately $ 5.3 million in 2015 , while increases in receivables resulted in a use of cash of approximately $ 9.8 million in 2014 . the primary driver of the change in each year was the year-over-year change in net sales , given sales in the last quarter of each year , based on historical turnover , are likely collected in the quarter following the sale . fourth quarter 2015 net sales was approximately 14 % lower than fourth quarter 2014 sales , and fourth quarter 2014 sales was approximately 17 % higher than fourth quarter 2013. partially offsetting the cash source in 2015 was an increase in days sales outstanding of receivables to approximately 58 days , as compared to approximately 55 days in 2014 . for the year ended december 31 , 2015 , we reduced our investment in inventory by approximately $ 3.3 million , primarily as a result of lower sales levels .

we have reported long term , 18-month data from the precise trial for chronic myocardial ischemia , which showed that cytori 's cell therapy demonstrated safety and sustained improvement in cardiac functional capacity as measured by vo 2 max . results from the apollo trial for acute heart attack demonstrated safety and sustained improvement in infarct size . in addition to our cardiovascular disease therapeutic pipeline , cytori is also developing its cell therapy platform for the treatment of thermal burns combined with radiation injury , sports medicine and orthopedics . in the third quarter of 2012 , we were awarded a contract to develop a new countermeasure for thermal burns valued at up to $ 106 million with the u.s. department of health and human service 's biomedical advanced research and development authority ( barda ) . the initial base period includes $ 4.7 million over two years and covers preclinical research and continued development of cytori 's celution® system to improve cell processing . the additional contract options , if fully executed , could cover our clinical development through fda approval under a device-based pma regulatory pathway . we are making progress in fulfilling the required milestones of the base contract with the goal of completing the base period in early 2014. we have also received fda approval in late 2013 to conduct a safety and feasibility clinical trial in patients with acute hamstring tears in order to evaluate the effect of cytori cell therapy on healing in muscle injury . 27 results of operations product revenues product revenues consisted of revenues primarily from our celution® and stemsource® cell banks . the following table summarizes the components for the years ended december 31 , 2013 , 2012 and 2011 : replace_table_token_4_th a significant contributor to cytori 's product revenue historically and throughout 2013 has been sales in japan . in september 2012 we obtained class i device clearance for celution® and a number of our other products in japan . this clearance is expected to facilitate sales growth in japan and it is anticipated that demand will come mostly from researchers at academic hospitals seeking to perform investigator-initiated and funded studies using cytori 's cell therapy . we experienced a decrease in product revenue during year ended december 31 , 2013 as compared to the same periods in 2012 and 2011 , due principally to the product mix comprising revenue for each period and anticipated timing associated with larger system related sales . an additional $ 3.6 million in orders shipped to customers in 2013 was excluded from product revenues as the relevant revenue recognition criteria were not met , and is expected to be recognized in 2014. the future : we expect to continue to generate product revenues from a mix of celution® and stemsource® system and consumables sales . we will sell the products to a diverse group of distributors and partners in europe , asia and the u.s. , who may apply the products towards reconstructive surgery , soft tissue repair , research , aesthetics , and cell and tissue banking as approved in each country . additionally , as a result of class i device clearance for celution® and a number of our other products in japan , we anticipate to sell these products to researchers at academic hospitals seeking to perform investigator-initiated and funded studies using cytori 's cell therapy . as a result of sale of our puregraft® product line discussed in note 5 of the consolidated financial statements , we do not expect significant revenues from that product line in the foreseeable future . cost of product revenues cost of product revenues relate primarily to celution® system products and stemsource® cell banks and includes material , manufacturing labor , and overhead costs . the following table summarizes the components of our cost of revenues for the years ended december 31 , 2013 , 2012 and 2011 : replace_table_token_5_th 28 cost of product revenues as a percentage of product revenues was 48.0 % , 45.9 % and 48.1 % for the years ended december 31 , 2013 , 2012 and 2011 , respectively . fluctuation in this percentage is to be expected due to the product mix , distributor and direct sales mix , and allocation of overhead . the future . we expect to continue to see variation in our gross profit margin as the product mix comprising revenues fluctuates . development revenues the following table summarizes the components of our development revenues for the years ended december 31 , 2013 , 2012 and 2011 : replace_table_token_6_th we recognize deferred revenues , related party , as development revenue when certain performance obligations are met ( i.e . , using a proportional performance approach ) . during the year ended december 31 , 2013 , we recognized $ 638,000 of revenue associated with our arrangements with olympus as a result of the united states court of appeals upholding the fda 's previous determination that our cell processing devices were not substantially equivalent to the cited predicate devices . the recognition of revenue associated with this event reflects the completion of our efforts expended to use commercially reasonable efforts to obtain device regulatory approvals in the united states as it pertains to the 510 ( k ) pathway . during the year ended december 31 , 2012 we recognized $ 2,882,000 of revenue associated with our arrangements with olympus as a result of two remaining milestones for the apollo and precise clinical trials that were reached upon the completion of all patient follow up procedures and recognition of a regulatory milestone triggered upon us obtaining class i device clearance for celution® and a number of our other products in japan . story_separator_special_tag the transaction was completed on october 13 , 2010 raising approximately $ 20,700,000 in gross proceeds before deducting underwriting discounts and commissions and other offering expenses payable by us . · in december 2010 , we raised $ 10,000,000 in gross proceeds from a sale of 1,428,571 shares of unregistered common stock to astellas pharma inc. for $ 7.00 per share in a private stock placement . · in july 2011 , we entered into a common stock purchase agreement with seaside 88 , lp relating to the offering and sale of a total of up to 6,326,262 shares of our common stock . the agreement required us to issue and seaside to buy 1,326,262 shares of our common stock at an initial closing and 250,000 shares of our common stock once every two weeks , commencing 30 days after the initial closing , for up to an additional 20 closings , subject to the satisfaction of customary closing conditions . at the initial closing , the offering price was $ 4.52 , which equaled to 88 % of our common stock 's volume-weighted average trading prices , or vwap , during the ten-day trading period immediately prior to the initial closing date , raising approximately $ 6,000,000 in gross proceeds . at subsequent closings , the offering price was 90.25 % of our common stock 's volume-weighted average trading prices during the ten-day trading period immediately prior to each subsequent closing date . we raised approximately $ 18,233,000 in gross proceeds from the sale of 5,826,262 shares in our scheduled closings through april 9 , 2012. effective , april 30 , 2012 , we terminated the agreement with seaside 88 , lp and we will not sell the remaining and final 500,000 shares that would otherwise have been sold under this agreement . 34 · in september 2011 , we entered into an second amendment to the amended and restated loan and security agreement with the gecc , svb , and oxford finance corporation ( lenders ) , pursuant to which the lenders increased the prior term loan made to the company to a principal amount of $ 25.0 million . · in december 2012 , we entered into an underwriting agreement with lazard capital markets , llc ( underwriter ) , relating to the issuance and sale of 7,020,000 shares of our common stock . this price to the public in this offering was $ 2.85 per share and the underwriter purchased the shares from us at a price of $ 2.69 per share . the transaction was completed on december 19 , 2012 raising approximately $ 20,007,000 in gross proceeds before deducting underwriting discounts and commissions and other offering expenses payable by us . · in january 2013 , lazard capital markets , llc ( underwriter ) exercised the option and as a result we sold an additional 1,053,000 shares raising approximately $ 3,000,000 in gross proceeds before deducting underwriting discounts and commissions and other offering expenses payable by us . · on june 28 , 2013 we entered into a loan and security agreement ( loan agreement ) with oxford finance llc and silicon valley bank ( together , the “ lenders ” ) , pursuant to which the lenders funded an aggregate principal amount of $ 27.0 million ( term loans ) , subject to the terms and conditions set forth in the loan agreement . the term loan accrues interest at a fixed rate of 9.75 % per annum . in connection with the term loans , on june 28 , 2013 , we issued to the lenders warrants to purchase up to an aggregate of 596,553 shares of our common stock at an exercise price of $ 2.26 per share . these warrants are immediately exercisable and will expire on june 28 , 2020. in connection with the loan agreement , we prepaid all outstanding amounts under the prior loan agreement , at which time the company 's obligations under the prior loan agreement immediately terminated . the net proceeds of the term loans , after payment of lender fees and expenses and prepaying all the outstanding amounts relating to the prior loan agreement , were approximately $ 7.8 million . · on july 30 , 2013 , we entered into a sale and exclusive license/supply agreement with bimini technologies llc ( “ bimini ” ) , pursuant to which we sold to bimini substantially all of the assets ( other than certain retained rights and licenses ) of our puregraft® product line , a series of standalone fat transplantation products that were developed to improve the predictability of outcomes for autologous fat grafting and aesthetic body contouring . the aggregate value of the consideration paid by bimini at the execution of the agreement was $ 5.0 million . · on october 29 , 2013 , we entered into a partnership with lorem vascular , to commercialize cytori cell therapy for the cardiovascular , renal and diabetes markets , in china , hong kong , malaysia , singapore and australia ( license/supply agreement ) , and a common stock purchase agreement . on january 30 , 2014 we entered into the amended and restated license/supply agreement with lorem vascular ( the “ restated agreement ” ) expanding the licensed field to all uses excepting alopecia ( hair loss ) . under the restated agreement , lorem vascular committed to pay up to $ 500 million in license fees in the form of revenue milestones . in addition , lorem is required to pay us 30 % of their gross profits in china , hong kong and malaysia for the term of the agreement . cytori cell therapy is derived from the company 's celution® system , which enables access to a patient 's own adipose-derived regenerative cells ( adrcs ) at the point-of-care . . in addition , lorem vascular agrees to purchase the cytori celution® system and consumables under the restated agreement

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liquidity and capital resources short-term and long-term liquidity the following is a summary of our key liquidity measures at december 31 , 2013 and 2012 : replace_table_token_15_th 33 we incurred net losses of $ 26,177,000 , $ 32,279,000 and $ 32,451,000 for the years ended december 31 , 2013 , 2012 and 2011 , respectively . we have an accumulated deficit of $ 300,905,000 as of december 31 , 2013. additionally , we have used net cash of $ 34,563,000 , $ 32,193,000 and $ 35,323,000 to fund our operating activities for years ended december 31 , 2013 , 2012 and 2011 , respectively . to date , these operating losses have been funded primarily from outside sources of invested capital and gross profits . during 2013 and 2012 , we expanded our commercialization activities while simultaneously pursuing available financing sources to support operations and growth . we have had , and we will likely continue to have , an ongoing need to raise additional cash from outside sources to fund our future operations . w e b e li e v e our pl a n s t o r a i se a dditi o n a l cas h f r om o ut s id e so ur ces a nd , if n ecessa r y , o ur cos t co nt a inm e nt ef f o rt s a r e s uf f i c i e nt t o a ll o w u s t o co ntinu e o p e r a tion s f o r th e n e x t twe

meet our debt service obligations and other cash needs ; our ability to maintain effective controls over financial reporting ; our ability to continue to recruit and retain productive agents and distribution partners and customer response to new products , distribution channels and marketing initiatives ; our ability to achieve additional upgrades of the financial strength ratings of cno and our insurance company subsidiaries as well as the impact of our ratings on our business , our ability to access capital , and the cost of capital ; the risk factors or uncertainties listed from time to time in our filings with the sec ; regulatory changes or actions , including those relating to regulation of the financial affairs of our insurance companies , such as the payment of dividends and surplus debenture interest to us , regulation of the sale , underwriting and pricing of products , and health care regulation affecting health insurance products ; and changes in the federal income tax laws and regulations which may affect or eliminate the relative tax advantages of some of our products or affect the value of our deferred tax assets . other factors and assumptions not identified above are also relevant to the forward-looking statements , and if they prove incorrect , could also cause actual results to differ materially from those projected . all written or oral forward-looking statements attributable to us are expressly qualified in their entirety by the foregoing cautionary statement . our forward-looking statements speak only as of the date made . we assume no obligation to update or to publicly announce the results of any revisions to any of the forward-looking statements to reflect actual results , future events or developments , changes in assumptions or changes in other factors affecting the forward-looking statements . the reporting of rbc measures is not intended for the purpose of ranking any insurance company or for use in connection with any marketing , advertising or promotional activities . overview we are a holding company for a group of insurance companies operating throughout the united states that develop , market and administer health insurance , annuity , individual life insurance and other insurance products . we focus on serving the senior and middle-income markets , which we believe are attractive , underserved , high growth markets . we sell our products through three distribution channels : career agents , independent producers ( some of whom sell one or more of our product lines exclusively ) and direct marketing . the company manages its business through the following operating segments : bankers life , washington national and colonial penn , which are defined on the basis of product distribution ; other cno business , comprised primarily of products we no longer sell actively ; and corporate operations , comprised of holding company activities and certain noninsurance company businesses . the company 's segments are described below : bankers life , which markets and distributes medicare supplement insurance , interest-sensitive life insurance , traditional life insurance , fixed annuities and long-term care insurance products to the middle-income senior market through a dedicated field force of career agents and sales managers supported by a network of community-based sales offices . the bankers life segment includes primarily the business of bankers life and casualty company . bankers life also markets and distributes medicare advantage plans primarily through distribution arrangements with humana and united healthcare and pdp primarily through a distribution arrangement with coventry . 49 washington national , which markets and distributes supplemental health ( including specified disease , accident and hospital indemnity insurance products ) and life insurance to middle-income consumers at home and at the worksite . these products are marketed through pma and through independent marketing organizations and insurance agencies including worksite marketing . the products being marketed are underwritten by washington national . colonial penn , which markets primarily graded benefit and simplified issue life insurance directly to customers in the senior middle-income market through television advertising , direct mail , the internet and telemarketing . the colonial penn segment includes primarily the business of colonial penn life insurance company . other cno business , which consists of blocks of interest-sensitive life insurance , traditional life insurance , annuities , long-term care insurance and other supplemental health products . these blocks of business are not actively marketed and were primarily issued or acquired by conseco life and washington national . 50 the following summarizes our earnings for the three years ending december 31 , 2013 ( dollars in millions , except per share data ) : 2013 2012 2011 income before loss related to reinsurance transaction , net realized investment gains , fair value changes in embedded derivative liabilities , equity in earnings of certain non-strategic investments and earnings attributable to non-controlling interests , corporate interest expense , loss on extinguishment of debt and income taxes ( `` ebit `` a non-gaap financial measure ) ( a ) : bankers life $ 310.5 $ 300.9 $ 290.9 washington national 120.8 127.1 96.1 colonial penn ( 12.5 ) ( 8.6 ) ( 4.7 ) other cno business 25.5 ( 48.8 ) 15.3 ebit from business segments 444.3 370.6 397.6 corporate operations , excluding corporate interest expense 18.6 ( 20.3 ) ( 47.7 ) ebit 462.9 350.3 349.9 corporate interest expense ( 51.3 ) ( 66.2 ) ( 76.3 ) income before loss related to reinsurance transaction , net realized investment gains , fair value changes in embedded derivative liabilities , equity in earnings of certain non-strategic investments and earnings attributable to non-controlling interests , loss on extinguishment of debt and income taxes 411.6 284.1 273.6 tax expense on operating income 141.6 103.7 102.1 net operating income 270.0 180.4 171.5 loss related to reinsurance transaction ( net of taxes ) ( 63.3 ) — — net realized investment gains ( net of related amortization and taxes ) 20.7 48.4 36.7 fair value changes in embedded derivative liabilities ( net of related story_separator_special_tag in certain circumstances , a mismatch of the durations or related cash flows of invested assets and insurance liabilities could have a significant impact on our results of operations and financial position . see `` - quantitative and qualitative disclosures about market risks `` for additional discussion of the duration of our invested assets and insurance liabilities . for more information on our investment portfolio and our critical accounting policies related to investments , see the note to our consolidated financial statements entitled `` investments `` . present value of future profits and deferred acquisition costs in conjunction with the implementation of fresh start accounting , we eliminated the historical balances of our predecessor 's deferred acquisition costs and the present value of future profits and replaced them with the present value of future profits as calculated on the effective date . the value assigned to the right to receive future cash flows from contracts existing at the effective date is referred to as the present value of future profits . the balance of this account is amortized , evaluated for recovery , and adjusted for the impact of unrealized gains ( losses ) in the same manner as the deferred acquisition costs described below . we expect to amortize the balance of the present value of future profits as of december 31 , 2013 as follows : 10 percent in 2014 , 9 percent in 2015 , 8 percent in 2016 , 7 percent in 2017 and 7 percent in 2018 . deferred acquisition costs represent incremental direct costs related to the successful acquisition of new or renewal insurance contracts . for interest-sensitive life or annuity products , we amortize these costs in relation to the estimated gross profits using the interest rate credited to the underlying policies . for other products , we amortize these costs in relation to future anticipated premium revenue using the projected investment earnings rate . insurance acquisition costs are amortized to expense over the lives of the underlying policies in relation to future anticipated premiums or gross profits . the insurance acquisition costs for policies other than interest-sensitive life and annuity products are amortized with interest ( using the projected investment earnings rate ) over the estimated premium-paying period of the policies , in a manner which recognizes amortization expense in proportion to each year 's premium income . the insurance acquisition costs for interest-sensitive life and annuity products are amortized with interest ( using the interest rate credited to the underlying policy ) in proportion to estimated gross profits . the interest , mortality , morbidity and persistency assumptions used to amortize insurance acquisition costs are consistent with those assumptions used to estimate liabilities for insurance products . for interest-sensitive life and annuity products , these assumptions are reviewed on a regular basis . when actual profits or our current best estimates of future profits are different from previous estimates , we adjust cumulative amortization of insurance acquisition costs to maintain amortization expense as a constant percentage of gross profits over the entire life of the policies . when we realize a gain or loss on investments backing our interest-sensitive life or annuity products , we adjust the amortization of insurance acquisition costs to reflect the change in estimated gross profits from the products due to the gain or loss realized and the effect on future investment yields . we increased amortization expense for such changes by $ 1.6 million , $ 6.5 million and $ 5.4 million during the years ended december 31 , 2013 , 2012 and 2011 , respectively . we also adjust insurance acquisition costs for the change in amortization that would have been recorded if fixed maturity securities , available for sale , had been sold at their stated aggregate fair value and the proceeds reinvested at current yields . such adjustments are commonly referred to as `` shadow adjustments `` and may include adjustments to : ( i ) deferred acquisition costs ; ( ii ) the present value of future profits ; ( iii ) loss recognition reserves ; and ( iv ) income taxes . we include the impact of this adjustment in 55 accumulated other comprehensive income ( loss ) within shareholders ' equity . we limit the total adjustment related to unrealized losses to the total of the costs capitalized plus interest ( or the total value of policies inforce recognized at the effective date plus interest with respect to the present value of future profits ) related to insurance policies issued in a particular year ( or policies inforce at the effective date with respect to the present value of future profits ) . the total pre-tax impact of such adjustments on accumulated other comprehensive income was a decrease of $ 184.7 million at december 31 , 2013 ( including $ 27.8 million for premium deficiencies that would exist on certain long-term care products if unrealized gains on the assets backing such products had been realized and the proceeds from our sales of such assets were invested at then current yields . ) the total pre-tax impact of such adjustments on accumulated other comprehensive income at december 31 , 2012 was a decrease of $ 1,135.7 million ( including $ 802.0 million for premium deficiencies that would exist on certain long-term care products if unrealized gains on the assets backing such products had been realized and the proceeds from our sales of such assets were invested at then current yields . ) at december 31 , 2013 , the balance of insurance acquisition costs was $ 1.8 billion prior to shadow adjustments . the recoverability of this amount is dependent on the future profitability of the related business . each year , we evaluate the recoverability of the unamortized balance of insurance acquisition costs . these evaluations are performed to determine whether estimates of the present value of future cash flows , in combination with the related liability for insurance products

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loss on extinguishment of debt in 2013 of $ 65.4 million resulted from : ( i ) the offer and repurchase of 7.0 % debentures , the write-off of unamortized discount and issuance costs associated with the 7.0 % debentures that were repurchased and other transaction costs ; and ( ii ) expenses related to the amendment of our senior secured credit agreement and the write-off of unamortized discount and issuance costs associated with prepayments on the senior secured credit agreement . the loss on extinguishment of debt of $ 200.2 million in 2012 represents : ( i ) $ 136.5 million due to our repurchase of $ 200.0 million principal amount of 7.0 % debentures and the write-off of unamortized discount and issuance costs associated with the 7.0 % debentures ; ( ii ) $ 58.2 million related to the tender offer and consent solicitation for the 9.0 % notes , the write-off of unamortized issuance costs related to the 9.0 % senior secured notes due january 2018 ( the `` 9.0 % notes '' ) and other transactions ; ( iii ) $ 5.1 million representing the write-off of unamortized discount and issuance costs associated with repayments of our previous senior secured credit agreement ; and ( iv ) $ .4 million representing the write-off of unamortized discount and issuance costs associated with payments on our senior secured credit agreement . the loss on extinguishment of debt of $ 3.4 million in 2011 represents the write-off of unamortized discount and issuance costs associated with repayments of the previous senior secured credit agreement . these transactions are further discussed in the note to the consolidated financial statements entitled `` notes payable - direct corporate obligations '' . 84 ebit from business segments summarized by in-force and new business management believes that an analysis of ebit , separated between in-force and new business provides increased clarity around the value drivers of our business , particularly since the new business results are significantly impacted by the rate of sales , mix of business and the distribution channel through which new sales are made .

we generated cash flow from operations of $ 99.9 million during 2014 , an increase of 24 % over 2013. the increase in cash flow from operations was primarily driven by increased net income and our strong accounts receivable collections in 2014. in addition to the above key financial metrics , management also focuses on license and cloud backlog . license and cloud backlog is computed by adding billed deferred license and cloud revenue as recorded on the balance sheet and license and cloud commitments , which are not billed and not recorded on our balance sheet . license and cloud backlog may vary in any given period depending on the amount and timing of when arrangements are executed , as well as the mix between perpetual and term license arrangements . replace_table_token_6_th to grow our business , we intend to : execute sales and support models for the needs of our expanding target market ; employ a digital marketing program in support of customer buying ; utilize our network of partner alliances to support our growth strategies ; and develop talent and an organizational structure capable of supporting our growth targets . whether or not we are successful depends on our ability to : successfully execute our marketing and sales strategies ; appropriately manage our expenses as we grow our organization ; develop new products or product enhancements ; and successfully incorporate acquired technologies into our applications and unified pega 7 platform . 22 results of operations replace_table_token_7_th revenue replace_table_token_8_th the mix between perpetual and term license arrangements executed in a particular period varies based on client needs . a change in the mix between perpetual and term license arrangements executed may cause our revenues to vary materially from period to period . a higher proportion of term license arrangements executed would result in more license revenue being recognized over longer periods as payments become due or earlier if prepaid . additionally , some of our perpetual license arrangements include extended payment terms or additional rights of use , which also result in the recognition of revenue over longer periods . the aggregate value of new license agreements executed also fluctuates quarter to quarter . subscription revenue primarily consists of the ratable recognition of license , maintenance and bundled services revenue on license arrangements that include a right to successor products or unspecified future products . subscription revenue does not include revenue from our pega cloud arrangements , which is included in services . the timing of client scheduled payments under subscription arrangements may limit the amount of revenue recognized in a reporting period . consequently , our subscription revenue may vary materially quarter to quarter . 2014 compared to 2013 the aggregate value of new license arrangements executed during 2014 increased compared to 2013 due to a higher number of license arrangements executed in 2014. the increase in the aggregate value of license arrangements executed was primarily due to one perpetual license arrangement executed in the second quarter of 2014 for more than $ 10 million , partially offset by a decrease in the value of new license arrangements executed in the fourth quarter of 2014. during 2014 and 2013 , approximately 82 % and 80 % , respectively , of the value of new license arrangements were executed with existing clients . the increase in perpetual license revenue was primarily due to the higher number and total value of license arrangements executed in 2014. the aggregate value of payments due under noncancellable perpetual licenses was $ 31.3 million as of december 31 , 2014 compared to $ 30.7 million as of december 31 , 2013. the increase in term license revenue was primarily due to term license arrangements executed in 2014 and the second half of 2013. the aggregate value of payments due under noncancellable term licenses and pega cloud arrangements grew to $ 270.1 million as of december 31 , 2014 compared to $ 252.4 million as of december 31 , 2013. see the table of future cash receipts in liquidity and capital resources—cash provided by operating activities . 23 the increase in subscription revenue in 2014 compared to 2013 was primarily due to the timing of payments for a client arrangement . 2013 compared to 2012 the aggregate value of new license arrangements executed in 2013 was higher than in 2012. the aggregate value of new license arrangements executed in the fourth quarter of 2013 was down slightly as compared to the fourth quarter of 2012. the aggregate value of new license arrangements executed fluctuates quarter to quarter . during 2013 and 2012 , approximately 80 % and 74 % , respectively , of the value of new license arrangements were executed with existing clients . the increase in perpetual license revenue was primarily due to higher number and total value of perpetual arrangements executed during 2013 and the fourth quarter of 2012 than during 2012 and the fourth quarter of 2011. the increase in term license revenue was primarily due to revenue recognized on term license arrangements executed in 2012 and 2011. the aggregate value of payments due under noncancellable term licenses and our pega cloud arrangements increased to $ 252.4 million as of december 31 , 2013 compared to $ 221.7 million as of december 31 , 2012. the decrease in subscription revenue in 2013 was primarily due to revenue recognized in the second quarter of 2012 for a large payment that became due . replace_table_token_9_th the increases in maintenance revenue were primarily due to the growth in the aggregate value of the installed base of our software and continued strong renewal rates . maintenance revenue attributable to recognition of the fair value of the acquired antenna deferred maintenance revenue was $ 0.8 million in 2014 and 2013. replace_table_token_10_th 2014 compared to 2013 consulting services revenue primarily relate to new license implementations . story_separator_special_tag contractual obligations as of december 31 , 2014 , we had purchase obligations for customer support and marketing programs and payments under operating leases . our lease arrangement for our new office headquarters expires in 2023 , subject to our option to extend for two additional five-year periods . we also lease space for our other offices under noncancellable operating leases that expire at various dates through 2021. replace_table_token_21_th ( 1 ) represents the fixed or minimum amounts due under purchase obligations for customer support and marketing programs . ( 2 ) as of december 31 , 2014 , our recorded liability for uncertain tax positions was approximately $ 22.9 million . we are unable to reasonably estimate the timing of the cash outflow due to uncertainties in the timing of the effective settlement of tax positions . ( 3 ) includes deferred rent of approximately $ 1.4 million included in accrued expenses and approximately $ 10 million in other long-term liabilities in the accompanying audited consolidated balance sheet as of december 31 , 2014. critical accounting estimates and significant judgments management 's discussion and analysis of the financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the u.s. and the rules and regulations of the sec for annual financial reporting . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . we base our estimates and judgments on historical experience , knowledge of current conditions and beliefs of what could occur in the future given available information . we believe that , of our significant accounting policies , which are described in note 2 , “significant accounting policies , ” in the notes to consolidated financial statements included in item 8 of this annual report on form 10-k , the following accounting policies are most important to the portrayal of our financial condition and require the most subjective judgment . accordingly , these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations . if actual results differ significantly from management 's estimates and projections , there could be a material effect on our financial statements . revenue recognition our revenue is derived primarily from software licenses , maintenance fees related to our software licenses , and consulting services . our license arrangements , whether involving a perpetual license or a term license , generally contain multiple elements , including consulting services , training , and software maintenance services . 33 software revenue recognition requires judgment , including whether a software arrangement includes multiple elements , and if so , whether vendor-specific objective evidence ( “vsoe” ) of fair value exists for those elements . the amount of arrangement consideration allocated to undelivered elements is based on the vsoe of fair value for those elements and recognized as those elements are delivered . any remaining portion of the total arrangement fee is allocated to the software license , the first delivered element . revenue is recognized for each element when all of the revenue recognition criteria have been met . changes in the mix of the elements in a software arrangement , the ability to identify vsoe for those elements , the fair value of the respective elements , and changes to a product 's estimated life cycle could materially impact the amount of earned and unearned revenue . before we can recognize revenue , the following four basic criteria must be met : persuasive evidence of an arrangement —as evidence of the existence of an arrangement , we use a contract or purchase order signed by the client for software and maintenance and a statement of work for consulting services . in the event the client is a reseller , we ensure a binding agreement exists between the reseller and end user of the software . delivery of product and services —software is delivered electronically or shipped via disk media . services are considered delivered as the work is performed or , in the case of maintenance , over the contractual service period . fee is fixed or determinable —we assess whether a fee is fixed or determinable at the onset of the arrangement . in addition , we assess whether contract modifications to an existing arrangement constitute a concession . our agreements do not include a right of return . collection of fee is probable —we assess the probability of collecting from each client at the onset of the arrangement based on a number of factors , including the client 's payment history , its current creditworthiness , economic conditions in the client 's industry and geographic location , and general economic conditions . if , in our judgment , collection of a fee is not probable , revenue is recognized as cash is collected , provided all other conditions for revenue recognition have been met . software license revenues perpetual software license fees are recognized as revenue when the software is delivered , any acceptance required by contract that is not perfunctory is obtained , no significant obligations or contingencies exist related to the software , other than maintenance , and all other revenue recognition criteria are met . term software license fees are payable on a monthly , quarterly , or annual basis under license agreements that typically have a three to five-year term and may be renewed for additional terms at the client 's option . as a result of our focus on frequent sales to our targeted clients , our strategy to sell initial term licensing agreements to those clients with the goal to generate follow-on sales , and as a result of extended payment terms and other factors , such as the risk of concessions

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cash provided by operating activities the primary drivers during 2014 were net income of $ 33.3 million , a $ 13.4 million increase in accounts payable and accrued expenses primarily due to the timing of income tax payments , and an $ 11.2 million increase in deferred revenue primarily resulting from the difference in timing of billings and revenue recognition for annual maintenance . the primary drivers during 2013 were net income of $ 38 million and the $ 18.2 million in net inflows from operating asset and liability changes primarily due to the timing of payments for certain accrued expenses and additional tax liabilities associated with antenna . the primary driver during 2012 was net income of $ 21.9 million . future cash receipts from license arrangements total contractual future cash receipts due from our existing license agreements was approximately $ 301.4 million as of december 31 , 2014 , $ 283.1 million as of december 31 , 2013 , and $ 265.2 million as of december 31 , 2012. the approximate timing of future cash receipts due as of december 31 , 2014 are summarized as follows : replace_table_token_19_th ( 1 ) these amounts include contractual future cash receipts related to our on-premises term licenses and hosted pega cloud service offerings . the amounts related to our on-premises term licenses will be recognized as term license revenue in the future over the term of the agreement as payments become due or earlier if prepaid . future revenue associated with our pega cloud arrangements will be recognized ratably as cloud revenue within services revenue over the term of the agreement . the timing of future revenue recognition and future cash receipts may not coincide . ( 2 ) these amounts include contractual future cash receipts related to perpetual licenses with extended payment terms and or additional rights of use .

the consolidated financial statements in this annual report include the accounts of radnet management , brmg and the ny groups . the consolidated financial statements also include radnet management i , inc. , radnet management ii , inc. , radiologix , inc. , radnet management imaging services , inc. , delaware imaging partners , inc. , new jersey imaging partners , inc. and diagnostic imaging services , inc. ( dis ) , all wholly owned subsidiaries of radnet management . accounting standards codification ( asc ) 810-10-15-14 , consolidation , stipulates that generally any entity with a ) insufficient equity to finance its activities without additional subordinated financial support provided by any parties , or b ) equity holders that , as a group , lack the characteristics specified in the codification which evidence a controlling financial interest , is considered a variable interest entity ( “ vie ” ) . we consolidate all vies in which we own a majority voting interest and all vies for which we are the primary beneficiary . we determine whether we are the primary beneficiary of a vie through a qualitative analysis that identifies which variable interest holder has the controlling financial interest in the vie . the variable interest holder that has both of the following has the controlling financial interest and is the primary beneficiary : ( 1 ) the power to direct the activities of the vie that most significantly impact the vie 's economic performance and ( 2 ) the obligation to absorb losses of , or the right to receive benefits from , the vie that could potentially be significant to the vie . in performing our analysis , we consider all relevant facts and circumstances , including : the design and activities of the vie , the terms of the contracts the vie has entered into , the nature of the vie 's variable interests issued and how they were negotiated with or marketed to potential investors , and which parties participated significantly in the design or redesign of the entity . facility acquisitions , formation of joint ventures and dispositions facility acquisitions on october 5 , 2017 we completed our acquisition of all of the outstanding equity interests in radsite , llc , for $ 1.0 million in common stock and $ 856,000 in cash . radsite provides both quality certification and accreditation programs for imaging providers in accordance with standards of private insurance payors and federal regulations under medicare . we have made a fair value determination of the acquired assets and approximately $ 91,000 of current assets , $ 25,000 in fixed assets , a $ 150,000 covenant not to compete , $ 75,000 in liabilities and $ 1.7 million in goodwill were recorded . 37 on october 1 , 2017 we completed our acquisition of certain assets of remote diagnostic imaging p.l.l.c . , consisting of a single multi-modality center located in new york , new york , for purchase consideration of $ 3.9 million . we have made a fair value determination of the acquired assets and approximately $ 2.6 million in fixed assets , a $ 50,000 covenant not to compete , and $ 1.2 million in goodwill were recorded . on august 7 , 2017 we acquired diagnostic imaging associates ( “ dia ” ) for $ 13.0 million in cash and $ 1.5 million in radnet common stock . located in the state of delaware , dia operates five multi-modality imaging locations which provide mri , ct , ultrasound , mammography and x-ray services . we have made a fair value determination of the acquired assets and approximately $ 3.1 million of fixed assets and equipment , $ 1.2 million in current assets , and $ 10.2 million in goodwill were recorded . on june 1 , 2017 we completed our acquisition of certain assets of stockton mri and molecular imaging medical center inc. , consisting of a multi-modality center located in stockton , ca , for consideration of $ 4.4 million . the facility provides mri , ct , ultrasound , x-ray and nuclear medicine services . we have made a fair value determination of the acquired assets and approximately $ 1.2 million of fixed assets and equipment , a $ 50,000 covenant not to compete , and $ 3.1 million of goodwill were recorded . on may 3 , 2017 we completed our acquisition of certain assets of d & d diagnostics inc. , consisting of a single multi-modality imaging center located in silver spring , maryland , for total purchase consideration of $ 2.4 million . we have made a fair value determination of the acquired assets and approximately $ 820,000 of fixed assets , $ 16,000 of other assets , and $ 1.5 million of goodwill were recorded . the facility provides mri , ct , x-ray and related services . on february 1 , 2017 , we completed our acquisition of certain assets of mri centers , inc. , consisting of one single-modality imaging center located in torrance , ca providing mri and sports medicine services , for cash consideration of $ 800,000 and the payoff of $ 81,000 in debt . we have made a fair value determination of the acquired assets and approximately $ 289,000 of fixed assets , $ 9,800 of other assets , $ 100,000 covenant not to compete and $ 401,000 of goodwill were recorded . on january 13 , 2017 , we completed our acquisition of certain assets of resolution medical imaging corporation for consideration of $ 4.0 million . the purchase of resolution was enacted to contribute its assets to a joint venture with cedars sinai medical corporation which was effective april 1 , 2017. see the formation of new joint ventures section in note 2 in the financial statements contained herein for further information . story_separator_special_tag · salaries and professional reading fees , excluding stock-based compensation and severance salaries and professional reading fees increased $ 43.2 million , or 10.7 % , to $ 445.7 million for the year ended december 31 , 2016 , compared to $ 402.5 million for the year ended december 31 , 2015. salaries and professional reading fees for only those centers in operation throughout the full fiscal years of both 2016 and 2015 , increased $ 16.2 million , or 4.2 % . this comparison excludes contributions from centers that were acquired subsequent to january 1 , 2015. for the year ended december 31 , 2016 , salaries and professional reading fees from centers that were acquired subsequent to january 1 , 2015 and excluded from the above comparison was $ 48.0 million . for the year ended december 31 , 2015 , salaries and professional reading fees from centers that were acquired subsequent to january 1 , 2015 , and excluded from the above comparison was $ 21.0 million . · stock-based compensation stock-based compensation decreased $ 1.8 million , or 23.8 % , to $ 5.8 million for the year ended december 31 , 2016 compared to $ 7.6 million for the year ended december 31 , 2015. this decrease was driven by the lower fair value of stock based compensation awarded and vested in the year 2016 as compared to 2015 . · building and equipment rental building and equipment rental expenses increased $ 2.5 million , or 3.6 % , to $ 74.2 million for the year ended december 31 , 2016 , compared to $ 71.7 million for the year ended december 31 , 2015. building and equipment rental expenses , including only those centers which were in operation throughout the full fiscal years of both 2016 and 2015 , decreased $ 3.3 million , or 5.2 % , mainly due to favorable lease negotiations at existing facilities . this comparison excludes contributions from centers that were acquired subsequent to january 1 , 2016. for the year ended december 31 , 2016 , building and equipment rental expenses from centers that were acquired subsequent to january 1 , 2015 , and excluded from the above comparison , was $ 12.9 million . for the year ended december 31 , 2015 , building and equipment rental expenses from centers that were acquired subsequent to january 1 , 2015 , and excluded from the above comparison , was $ 7.1 million . 45 · medical supplies medical supplies expense increased $ 2.3 million , or 4.7 % , to $ 51.7 million for the year ended december 31 , 2016 , compared to $ 49.4 million for the year ended december 31 , 2015. medical supplies expense , including only those centers which were in operation throughout the full fiscal years of both 2016 and 2015 , decreased $ 2.2 million , or 4.6 % . this 4.6 % decrease is primarily due to renegotiation of our medical supplier contracts . this comparison excludes contributions from centers that were acquired or divested subsequent to january 1 , 2016. for the year ended december 31 , 2016 , medical supplies expense from centers that were acquired subsequent to january 1 , 2015 , and excluded from the above comparison was $ 7.1 million . for the year ended december 31 , 2015 , medical supplies expense from centers that were acquired subsequent to january 1 , 2015 , and excluded from the above comparison was $ 2.6 million . · other operating expenses other operating expenses increased $ 21.3 million , or 12.0 % , to $ 198.3 million for the year ended december 31 , 2016 compared to $ 177.0 million for the year ended december 31 , 2015. other operating expenses , including only those centers which were in operation throughout the full fiscal years of both 2016 and 2015 , decreased $ 2.5 million or 1.6 % . this comparison excludes contributions from centers that were acquired or divested subsequent to january 1 , 2015. for the year ended december 31 , 2016 , other operating expenses from centers that were acquired subsequent to january 1 , 2015 , and excluded from the above comparison were $ 43.5 million . for the year ended december 31 , 2015 , other operating expenses from centers that were acquired subsequent to january 1 , 2015 , and excluded from the above comparison were $ 19.7 million . · depreciation and amortization expense depreciation and amortization expense increased $ 6.0 million , or 9.9 % , to $ 66.6 million for the year ended december 31 , 2016 when compared $ 60.6 million for the year ended december 31 , 2015. depreciation and amortization expense at those centers which were in operation throughout the full fiscal years of both 2016 and 2015 , increased $ 793,000 or 1.4 % . this comparison excludes contributions from centers that were acquired or divested subsequent to january 1 , 2015. for the year ended december 31 , 2016 , depreciation and amortization from centers that were acquired or divested subsequent to january 1 , 2015 and excluded from the above comparison was $ 10.0 million . for the year ended december 31 , 2015 , depreciation and amortization from centers that were acquired subsequent to january 1 , 2015 and excluded from the above comparison was $ 4.8 million . · loss on sale and disposal of equipment loss on sale of equipment was $ 767,000 and $ 866,000 for the years ended december 31 , 2016 and 2015 , respectively , and primarily related to the difference between the net book value of certain equipment sold and proceeds we received from the sale . · severance costs during the year ended december 31 , 2016 , we had severance costs of $ 2.9 million compared to $ 745,000 recorded during the year ended december 31 , 2015. in the third

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provision for bad debts provision for bad debts increased $ 1.2 million , or 2.6 % , to $ 46.6 million , or 4.8 % of net revenue , for the year ended december 31 , 2017 compared to $ 45.4 million , or 4.9 % of net revenue , for the year ended december 31 , 2016. we review our provision by the application of judgment based on factors such as contractual reimbursement rates , payor mix , the age of receivables , historical cash collection experience and other relevant information . revenue under capitation arrangements revenue under capitation arrangements for the year ended december 31 , 2017 was $ 111.5 million compared to $ 108.3 million for the year ended december 31 , 2016 , an increase of $ 3.2 million , or 3.0 % % . revenue under capitation arrangements , including only those centers which were in operation throughout the full fiscal years of both 2017 and 2016 , increased $ 3.6 million , or 3.3 % . this comparison excludes revenue contributions from centers that were acquired subsequent to january 1 , 2016. for the year ended december 31 , 2017 , revenue under capitation arrangements from centers that were acquired subsequent to january 1 , 2016 and excluded from the above comparison was $ 129,000. for the year ended december 31 , 2016 , net revenue from centers that were acquired subsequent to january 1 , 2016 and excluded from the above comparison was $ 484,000. operating expenses cost of operations for the year ended december 31 , 2017 increased approximately $ 26.6 million , or 3.4 % , from $ 775.8 million for the

13 million ) , the recovery of higher lbr related to 2015 energy efficiency programs , an increase in transmission earnings due primarily to a higher transmission rate base and lower reserves associated with the ferc roe complaint proceedings recorded in 2015 compared to 2014 , and higher retail sales volumes . these favorable earnings impacts were partially offset by an increase in employee-related expenses and higher depreciation expense . story_separator_special_tag net reflects an increase in the deferral to expense of energy supply costs and other amortizations for 2015 , as compared to 2014. fluctuations in these costs are recovered from customers in rates and have no impact on earnings . taxes other than income taxes increased in 2015 , as compared to 2014 , due primarily to an increase in property taxes as a result of an increase in utility plant balances . earnings summary psnh 's earnings increased $ 0.5 million in 2015 compared to 2014 , driven by higher distribution revenues due primarily to the impact of the distribution rate increase effective july 1 , 2015 and higher retail sales volumes , and an increase in transmission earnings due primarily to a higher transmission rate base and lower reserves associated with the ferc roe complaint proceedings recorded in 2015 compared to 2014. these favorable earnings impacts were offset by a $ 5 million contribution to create a clean energy fund recorded in 2015 in connection with the generation divestiture agreement , which is not recoverable from customers , higher property tax expense , higher depreciation expense and an increase in operations and maintenance costs . liquidity psnh had cash flows provided by operating activities of $ 274.5 million in 2015 , as compared to $ 248 million in 2014. the increase in operating cash flows was due primarily to the timing of payments related to fuel , materials and supplies as well as an increase in recoveries from customers in 2015 , compared to 2014 , and the timing of collections and payments related to our working capital items , including accounts receivable and accounts payable . partially offsetting these favorable impacts were doe damages proceeds received from the yankee companies of $ 1 million in 2015 , compared to $ 14.5 million in 2014 . 57 results of operations – western massachusetts electric company the following provides the amounts and variances in operating revenues and expense line items in the statements of income for wmeco for the years ended december 31 , 2015 and 2014 included in this annual report on form 10-k : replace_table_token_31_th operating revenues wmeco 's operating revenues increased by $ 24.7 million in 2015 compared to 2014. fluctuations in wmeco 's sales volumes have no impact on total operating revenues or earnings , as wmeco 's revenues are decoupled from sales volumes . fluctuations in the overall level of operating revenues are primarily related to tracked revenues . tracked revenues consist of certain costs that are recovered from customers in rates through dpu-approved cost tracking mechanisms and therefore have no impact on earnings . costs recovered through cost tracking mechanisms include energy supply costs , transmission related costs , energy efficiency programs , low income assistance programs , and restructuring and stranded costs as a result of deregulation . tracked revenues increased due primarily to an increase in energy supply costs ( $ 20.3 million ) driven by increased average retail rates . the increase in operating revenues was partially offset by a $ 3.9 million decrease in revenues that impacts earnings due to the absence of a 2014 wholesale billing adjustment . transmission revenues increased by $ 8.7 million due primarily to higher revenue requirements associated with ongoing investments in our transmission infrastructure and the impact of a lower ferc roe complaint proceedings reserve recorded in 2015 as compared to 2014. purchased power and transmission expense includes costs associated with purchasing electricity on behalf of wmeco 's customers . these energy supply costs are recovered from customers in dpu-approved cost tracking mechanisms , which have no impact on earnings ( tracked costs ) . purchased power and transmission increased in 2015 , as compared to 2014 , due primarily to the following : ( millions of dollars ) increase/ ( decrease ) purchased power costs $ 18.1 transmission costs ( 13.8 ) total purchased power and transmission $ 4.3 included in purchased power are the costs associated with wmeco 's basic service charge and deferred energy supply costs . the basic service charge recovers energy-related costs incurred as a result of providing electric generation service supply to all customers that have not migrated to competitive energy suppliers . the increase in purchased power costs was due primarily to higher prices associated with the procurement of energy supply . the decrease in transmission costs was as a result of a decrease in the retail transmission cost deferral , which reflects the actual costs of transmission service compared to estimated amounts billed to customers . operations and maintenance expense includes tracked costs and costs that are part of base distribution rates with changes impacting earnings ( non-tracked costs ) . operations and maintenance decreased in 2015 , as compared to 2014 , driven by $ 3.9 million reduction in tracked costs , which have no earnings impact , that was primarily attributable to lower employee-related expenses , partially offset by higher tracked bad debt expense . non-tracked costs increased $ 0.8 million , which was primarily attributable to higher bad debt expense , partially offset by a decrease in workers ' compensation claims . depreciation increased in 2015 , as compared to 2014 , due primarily to higher utility plant in service balances . 58 amortization of regulatory assets/ ( liabilities ) , net reflects the absence of the refund of the doe proceeds to customers in 2014 as well as energy and energy related costs and amortizations that can fluctuate period to period based on timing of costs incurred and related rate story_separator_special_tag 13 million ) , the recovery of higher lbr related to 2015 energy efficiency programs , an increase in transmission earnings due primarily to a higher transmission rate base and lower reserves associated with the ferc roe complaint proceedings recorded in 2015 compared to 2014 , and higher retail sales volumes . these favorable earnings impacts were partially offset by an increase in employee-related expenses and higher depreciation expense . story_separator_special_tag net reflects an increase in the deferral to expense of energy supply costs and other amortizations for 2015 , as compared to 2014. fluctuations in these costs are recovered from customers in rates and have no impact on earnings . taxes other than income taxes increased in 2015 , as compared to 2014 , due primarily to an increase in property taxes as a result of an increase in utility plant balances . earnings summary psnh 's earnings increased $ 0.5 million in 2015 compared to 2014 , driven by higher distribution revenues due primarily to the impact of the distribution rate increase effective july 1 , 2015 and higher retail sales volumes , and an increase in transmission earnings due primarily to a higher transmission rate base and lower reserves associated with the ferc roe complaint proceedings recorded in 2015 compared to 2014. these favorable earnings impacts were offset by a $ 5 million contribution to create a clean energy fund recorded in 2015 in connection with the generation divestiture agreement , which is not recoverable from customers , higher property tax expense , higher depreciation expense and an increase in operations and maintenance costs . liquidity psnh had cash flows provided by operating activities of $ 274.5 million in 2015 , as compared to $ 248 million in 2014. the increase in operating cash flows was due primarily to the timing of payments related to fuel , materials and supplies as well as an increase in recoveries from customers in 2015 , compared to 2014 , and the timing of collections and payments related to our working capital items , including accounts receivable and accounts payable . partially offsetting these favorable impacts were doe damages proceeds received from the yankee companies of $ 1 million in 2015 , compared to $ 14.5 million in 2014 . 57 results of operations – western massachusetts electric company the following provides the amounts and variances in operating revenues and expense line items in the statements of income for wmeco for the years ended december 31 , 2015 and 2014 included in this annual report on form 10-k : replace_table_token_31_th operating revenues wmeco 's operating revenues increased by $ 24.7 million in 2015 compared to 2014. fluctuations in wmeco 's sales volumes have no impact on total operating revenues or earnings , as wmeco 's revenues are decoupled from sales volumes . fluctuations in the overall level of operating revenues are primarily related to tracked revenues . tracked revenues consist of certain costs that are recovered from customers in rates through dpu-approved cost tracking mechanisms and therefore have no impact on earnings . costs recovered through cost tracking mechanisms include energy supply costs , transmission related costs , energy efficiency programs , low income assistance programs , and restructuring and stranded costs as a result of deregulation . tracked revenues increased due primarily to an increase in energy supply costs ( $ 20.3 million ) driven by increased average retail rates . the increase in operating revenues was partially offset by a $ 3.9 million decrease in revenues that impacts earnings due to the absence of a 2014 wholesale billing adjustment . transmission revenues increased by $ 8.7 million due primarily to higher revenue requirements associated with ongoing investments in our transmission infrastructure and the impact of a lower ferc roe complaint proceedings reserve recorded in 2015 as compared to 2014. purchased power and transmission expense includes costs associated with purchasing electricity on behalf of wmeco 's customers . these energy supply costs are recovered from customers in dpu-approved cost tracking mechanisms , which have no impact on earnings ( tracked costs ) . purchased power and transmission increased in 2015 , as compared to 2014 , due primarily to the following : ( millions of dollars ) increase/ ( decrease ) purchased power costs $ 18.1 transmission costs ( 13.8 ) total purchased power and transmission $ 4.3 included in purchased power are the costs associated with wmeco 's basic service charge and deferred energy supply costs . the basic service charge recovers energy-related costs incurred as a result of providing electric generation service supply to all customers that have not migrated to competitive energy suppliers . the increase in purchased power costs was due primarily to higher prices associated with the procurement of energy supply . the decrease in transmission costs was as a result of a decrease in the retail transmission cost deferral , which reflects the actual costs of transmission service compared to estimated amounts billed to customers . operations and maintenance expense includes tracked costs and costs that are part of base distribution rates with changes impacting earnings ( non-tracked costs ) . operations and maintenance decreased in 2015 , as compared to 2014 , driven by $ 3.9 million reduction in tracked costs , which have no earnings impact , that was primarily attributable to lower employee-related expenses , partially offset by higher tracked bad debt expense . non-tracked costs increased $ 0.8 million , which was primarily attributable to higher bad debt expense , partially offset by a decrease in workers ' compensation claims . depreciation increased in 2015 , as compared to 2014 , due primarily to higher utility plant in service balances . 58 amortization of regulatory assets/ ( liabilities ) , net reflects the absence of the refund of the doe proceeds to customers in 2014 as well as energy and energy related costs and amortizations that can fluctuate period to period based on timing of costs incurred and related rate

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liquidity nstar electric had cash flows provided by operating activities of $ 657 million in 2015 , compared with $ 533 million in 2014. the improved operating cash flows were due primarily to a $ 110 million decrease in pension and pbop plan cash contributions in 2015 compared to 2014 , the $ 236.9 million favorable impact of receiving net income tax refunds in 2015 compared with making net income tax payments in 2014 due to the extension of the accelerated depreciation deduction . these favorable cash flow impacts were partially offset by the impact of the timing of regulatory recoveries resulting from the increase in purchased power costs and the timing of collections and payments related to our working capital items , including affiliated company receivables , accounts receivable and accounts payable . accounts receivable increased due primarily to an increase in basic service rates effective january 1 , 2015. also offsetting the favorable impacts were doe damages proceeds received from the yankee companies of $ 0.8 million in 2015 , compared to $ 30.2 million in 2014. nstar electric has a five-year $ 450 million revolving credit facility . on october 26 , 2015 , this revolving credit facility was amended and restated and the termination date was extended to september 4 , 2020. this facility serves to backstop nstar electric 's existing $ 450 million commercial paper program . as of december 31 , 2015 and 2014 , nstar electric had $ 62.5 million and $ 302 million , respectively , in short-term borrowings outstanding under its commercial paper program , leaving $ 387.5 million and $ 148 million of available borrowing capacity as of december 31 , 2015 and 2014 , respectively . the weighted-average interest rate on these borrowings as of december 31 , 2015 and 2014 was 0.40 percent and 0.27 percent , respectively .

we also have an active bone marrow transplantation ( bmt ) program . the current emphasis is in three particular areas , as follows : ● critical limb ischemia ( cli ) – we received fda approval on june 12 , 2015 for an investigational device exemption ( “ ide ” ) for our pivotal clinical trial ( the “ clirst iii ” study ) to evaluate our surgwerks - cli system for the treatment of patients with late-stage , no option , critical limb ischemia . cli is the last progressive phase of peripheral artery disease , where the leg is so deprived of blood flow and oxygen , that it has visible signs of gangrenous ulceration . we have supported or completed two prior feasibility studies in cli , one delivering a cesca platform prepared autologous bone marrow cell dose into the afflicted leg artery of 13 human subjects and the other delivering a similar cesca platform produced cell dose into the afflicted limb muscles of 17 human subjects . we submitted an ide supplement in may 2016 which proposed a change in the primary efficacy endpoint from amputation free survival to change in transcutaneous oxygen pressure ( tcpo2 ) . subsequently , the fda approved commencement of the phase iii pivotal trial as amended , but requires additional validation of tcpo2 as a surrogate to support subsequent pma approval . we are currently engaged in an active dialog with the fda regarding our options to move forward with this trial . 30 ● acute myocardial infarction ( ami ) – the surgwerks tm – ami system has been designed to facilitate an adjunct treatment for patients who have suffered an acute st-elevated myocardial infarction ( “ stemi ” ) , a particular and most threatening type of heart attack . therapies delivered using the surgwerks-ami system are intended to minimize the adverse remodeling of the heart post-stemi . the entire 4-step bedside treatment is designed to take less than 120 minutes to complete , in a single surgical procedure , in the heart catheterization laboratory of a hospital . ● bone marrow transplant ( bmt ) – we have two initiatives within our bmt program : development of the cellwerks technology platform for clinical and intra-laboratory use , and the delivery of bmt laboratory services through the our totipotentrx subsidiary in india . the cellwerks platform is designed for optimal laboratory preparation of hematopoietic stem cells used in bmt and bio-banking . the technology platform includes a “ smart vision ” control module , a corresponding disposable for processing blood and bone marrow sourced tissue and sample tracking software enabling gmp compliance . cell analytics for laboratory and point of care use are under development and will complete the cellwerks offering . totipotentrx laboratory services , a collaboration with fortis healthcare , are aimed at serving the indian clinical market for cell therapy under good tissue practices compliance . products our product offerings include : ● the surgwerks system ( in development ) - a proprietary system comprised of the surgwerks processing platform , including devices and analytics , and indication-specific surgwerks procedure kits for use in regenerative stem cell therapy at the point of care for vascular and orthopedic diseases . ● the cellwerks system ( in development ) - a proprietary cell processing system with associated analytics for intra-laboratory preparation of adult stem cells from bone marrow or blood . ● the autoxpress ® system ( axp ® ) - a proprietary automated device and companion sterile disposable for concentrating hematopoietic stem cells from cord blood . ● the marrowxpress system ( mxp ) - a derivative product of the axp and its accompanying sterile disposable for the isolation and concentration of hematopoietic stem cells from bone marrow . ● the bioarchive® system - an automated cryogenic device used by cord blood banks for the cryopreservation and storage of cord blood stem cell concentrate for future use . ● manual disposables - bag sets for use in the processing and cryogenic storage of cord blood . results of operations the following is management 's discussion and analysis of certain significant factors which have affected our financial condition and results of operations during the periods included in the accompanying consolidated financial statements . 31 results of operations for the fiscal year ended june 30 , 2016 versus the fiscal year ended june 30 , 2015 net revenues net revenues for 2016 were $ 11,929 compared to $ 16,042 for 2015 , a decrease of $ 4,113. primary contributors to the decline were bioarchive devices as we shipped ten fewer devices during the year ended june 30 , 2016 versus the year ended june 30 , 2015 , and res-q as a result of reduced purchase from our largest distributor following our decision to withdraw the product from the united states market . the decision to withdraw res-q from the united states market was made in 2015 in accordance with a settlement agreement reached with harvest technologies corp. related to a long-standing intellectual property dispute . the following represents our revenues by product platform for the years ended : replace_table_token_2_th gross profit gross profit was $ 2,744 or 23 % of revenues for 2016 compared to $ 4,749 or 30 % of revenues for 2015. our gross profit declined primarily due to changes in the mix of products sold and increases in inventory reserves primarily associated with the bioarchive product line . we expect gross margin to return to normal levels in fiscal 2017. sales and marketing expenses sales and marketing expenses include costs primarily associated with generating revenues from the sale of cord blood and bone marrow disposables and bioarchive devices . story_separator_special_tag if the quantitative assessment determines that the fair value is less than the carrying amount , an impairment loss equal to the difference would be recorded . 35 revenue recognition revenues from the sale of our products are recognized when persuasive evidence of an arrangement exists , delivery has occurred ( or services have been rendered ) , the price is fixed or determinable , and collectability is reasonably assured . we generally ship products f.o.b . shipping point . there is no conditional evaluation on any product sold and recognized as revenue . amounts billed in excess of revenue recognized are recorded as deferred revenue on the consolidated balance sheet . there is no right of return provided for distributors or customers . for sales of products made to distributors , we consider a number of factors in determining whether revenue is recognized upon transfer of title to the distributor , or when payment is received . these factors include , but are not limited to , whether the payment terms offered to the distributor are considered to be non-standard , the distributor history of adhering to the terms of its contractual arrangements with us , the level of inventories maintained by the distributor , whether we have a pattern of granting concessions for the benefit of the distributor , and whether there are other conditions that may indicate that the sale to the distributor is not substantive . we currently recognize revenue primarily on the sell-in method with our distributors . revenue arrangements with multiple deliverables are divided into units of accounting if certain criteria are met , including whether the deliverable item ( s ) has ( have ) value to the customer on a stand-alone basis . revenue for each unit of accounting is recognized as the unit of accounting is delivered . arrangement consideration is allocated to each unit of accounting based upon the relative estimated selling prices of the separate units of accounting contained within an arrangement containing multiple deliverables . estimated selling prices are determined using vendor specific objective evidence ( vsoe ) , when available , or an estimate of selling price when vsoe is not available for a given unit of accounting . significant inputs for the estimates of the selling price of separate units of accounting include market and pricing trends and a customer 's geographic location . we account for training and installation , and service agreements and the collection , processing and testing of the umbilical cord blood and the storage as separate units of accounting . service revenue generated from contracts for providing maintenance of equipment is amortized over the life of the agreement . revenue generated from storage contracts is deferred and recorded ratably over the life of the agreement , up to 21 years . all other service revenue is recognized at the time the service is completed . revenues are net of normal discounts . shipping and handling fees billed to customers are included in net revenues , while the related costs are included in cost of revenues . stock-based compensation we use the black-scholes-merton option-pricing formula in determining the fair value of our options at the grant date and apply judgment in estimating the key assumptions that are critical to the model such as the expected term , volatility and forfeiture rate of an option . our estimate of these key assumptions is based on historical information and judgment regarding market factors and trends . if any of the key assumptions change significantly , stock-based compensation expense for new awards may differ materially in the future from that recorded in the current period . the compensation expense is then amortized over the vesting period . 36 income taxes our estimates of income taxes and the significant items resulting in the recognition of deferred tax assets and liabilities reflect our assessment of future tax consequences of transactions that have been reflected in the financial statements or tax returns for each taxing jurisdiction in which we operate . we base our provision for income taxes on our current period results of operations , changes in deferred income tax assets and liabilities , income tax rates , and changes in estimates of uncertain tax positions in the jurisdictions in which we operate . we recognize deferred tax assets and liabilities when there are temporary differences between the financial reporting basis and tax basis of assets and liabilities and for the expected benefits of using net operating loss and tax credit loss carryforwards . we establish valuation allowances when necessary to reduce the carrying amount of deferred income tax assets to the amounts that we believe are more likely than not to be realized . we evaluate the need to retain all or a portion of the valuation allowance on recorded deferred tax assets . when a change in the tax rate or tax law has an impact on deferred taxes , we apply the change based on the years in which the temporary differences are expected to reverse . as we operate in more than one state , changes in the state apportionment factors , based on operational results , may affect future effective tax rates and the value of recorded deferred tax assets and liabilities . we record a change in tax rates in the consolidated financial statements in the period of enactment . income tax consequences that arise in connection with a business combination include identifying the tax basis of assets and liabilities acquired and any contingencies associated with uncertain tax positions assumed or resulting from the business combination . deferred tax assets and liabilities related to temporary differences of an acquired entity are recorded as of the date of the business combination and are based on our estimate of the appropriate tax basis that will be accepted by the various taxing authorities and its determination as to whether any of the acquired deferred tax liabilities could be a source of taxable income to

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liquidity and capital resources at june 30 , 2016 , we had cash and cash equivalents of $ 5,835 and working capital of $ 7,301. this compared to cash and cash equivalents of $ 3,357 and working capital of $ 5,305 at june 30 , 2015. we have primarily financed operations through private and public placement of equity and convertible debt securities . our net cash used in operating activities for the year ended june 30 , 2016 was $ 9,625 compared to $ 10,649 for the year ended june 30 , 2015. the decrease was primarily due to savings realized from our september 2015 restructuring , the settlement of certain patent litigation cases and deferral of the start of the clirst iii trial . 33 in february 2016 in exchange for aggregate proceeds of $ 15 million , the company sold and issued to boyalife investment inc. and boyalife ( hong kong ) limited ( i ) 735,294 shares of common stock at a purchase price of $ 3.40 per share ( the “ stock price ” ) for gross proceeds of $ 2.5 million , ( ii ) secured convertible debentures for $ 12.5 million ( the “ debentures ” ) convertible into 3,676,471 shares of common stock and ( iii ) warrants to purchase 3,529,412 additional shares of common stock at an exercise price of $ 8.00 per share for a period of five years .

as of december 31 , 2020 , veritiv had cash and cash equivalents of $ 120.6 million and also had $ 341.9 million in available additional borrowing capacity under the abl facility . in april 2020 , veritiv refinanced and extended the maturity date of the abl facility to april 2025. the current circumstances are dynamic and the impacts of the covid-19 pandemic on the company 's business operations , including the duration and impact on overall customer demand , can not be reasonably estimated at this time . the extent to which the covid-19 pandemic impacts the company 's business , results of operations , access to sources of liquidity 26 and financial condition will depend on future developments . these developments , which are highly uncertain and can not be predicted , include , but are not limited to , the duration , spread and severity of the covid-19 pandemic , the effects of the covid-19 pandemic on the company 's employees , customers , suppliers and vendors and the remedial actions and stimulus measures adopted by local and federal governments , the availability , adoption and effectiveness of a vaccine and to what extent normal economic and operating conditions can resume and be sustained . even after the covid-19 pandemic has subsided , the company may experience an impact to its business as a result of any economic recession , downturn or volatility that has occurred or may occur in the future . see part i , item 1a , risk factors , for additional information on risks related to the covid-19 pandemic . other recent events 2020 restructuring plan during the second quarter of 2020 , the company initiated a restructuring plan in response to the impact of the covid-19 pandemic on its business operations and the ongoing secular changes in its print and publishing segments . during the fourth quarter of 2020 , the company expanded the initial plan to further align its cost structure with ongoing business needs as the company executes on its stated corporate strategy . the initial and expansion activities are collectively referred to as the `` 2020 restructuring plan . `` the 2020 restructuring plan will result in ( i ) the reduction of the company 's u.s. salaried workforce by approximately 15 % across all business segments and corporate functions , ( ii ) the closure of certain warehouse facilities and retail stores , ( iii ) adjustments to various compensation plans , ( iv ) repositioning of inventory to expand the company 's service radius and ( v ) other actions . the company estimates it will now incur total restructuring charges of between $ 77 million and $ 101 million in connection with the 2020 restructuring plan . these costs will consist of approximately ( i ) $ 52 million to $ 54 million in employee termination and other one-time compensation costs , ( ii ) $ 11 million to $ 29 million in real estate exit costs , ( iii ) $ 10 million in inventory related costs and ( iv ) $ 4 million to $ 8 million in other exit costs . in addition , the company expects to incur approximately $ 4 million of inventory related costs to be reported in cost of products sold . the company expects to substantially complete the 2020 restructuring plan by the end of 2021. initial charges were incurred and recorded in june 2020. see note 4 of the notes to consolidated financial statements for information related to the company 's restructuring efforts . supply chain restructuring on march 13 , 2020 , veritiv announced that its board of directors authorized company management to evaluate alternatives to restructure the company 's integrated supply chain in an effort to facilitate better alignment with the supply chain needs of the company 's customers by segment , with a view towards reducing complexity and lowering overall supply chain costs . each of the company 's reportable segments has different market dynamics and business and service needs . as a result , the company is investigating whether an alternative supply chain structure would be more economically or operationally desirable . moreover , to address the ongoing and rapid secular decline of the paper industry , management continues to explore opportunities to adapt the cost structure necessary to support the print segment . in an effort to ensure all aspects of the company can operate most effectively , the company intends to review and evaluate restructuring options and what the optimal path forward will be . the company plans to proceed with this review in a timely manner , but no decision has been made to pursue any specific course of action , and there can be no assurance as to what form the restructuring may take or whether this evaluation will result in any restructuring . additionally , any restructuring may result in a significant charge to earnings in any given financial reporting period or periods . business overview veritiv is a leading north american business-to-business full-service provider of value-added packaging products and services , as well as facility solutions , print and publishing products and services . additionally , veritiv provides logistics and supply chain management solutions to its customers . on august 31 , 2017 , veritiv completed its acquisition of 100 % of the equity interest in various all american containers entities ( collectively , `` aac `` ) . aac was a family owned and operated distributor of rigid packaging products , including plastic , glass and metal containers , caps , closures and plastic pouches . the company operates from 125 distribution centers primarily throughout the united states ( `` u.s. `` ) , canada and mexico . 27 veritiv 's business is organized under four reportable segments : packaging , facility solutions , print , and publishing and print management ( `` publishing `` ) . story_separator_special_tag additionally , continued unfavorable impacts from the covid-19 pandemic have had a negative impact on the company 's financial results during the year ended december 31 , 2020. the negative impact on the company 's financial and operating results and other one-time costs further influence volatility . see further discussion of the covid-19 pandemic impacts in the executive overview section above . see note 7 of the notes to consolidated financial statements for additional information related to the company 's income taxes . segment results adjusted ebitda ( earnings before interest , income taxes , depreciation and amortization , restructuring charges , net , integration and acquisition expenses and other similar charges including any severance costs , costs associated with warehouse and office openings or closings , consolidation , and relocation and other business optimization expenses , stock-based compensation expense , changes in the lifo reserve , non-restructuring asset impairment charges , non-restructuring severance charges , non-restructuring pension charges , net , fair value adjustments related to contingent liabilities assumed in mergers and acquisitions and certain other adjustments ) is the primary financial performance measure veritiv uses to manage its businesses , to monitor its results of operations , to measure its performance against the abl facility and to incentivize its management . veritiv believes investors commonly use adjusted ebitda as a key financial metric for valuing companies . in addition , the credit agreement governing the abl facility permits the company to exclude these and other charges in calculating consolidated ebitda , as defined in the abl facility . this common metric is intended to align shareholders , debt holders and management . adjusted ebitda is a non-gaap financial measure and is not an alternative to net income , operating income or any other measure prescribed by u.s. generally accepted accounting principles ( `` u.s. gaap `` ) . adjusted ebitda has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of veritiv 's results as reported under u.s. gaap . for example , adjusted ebitda : does not reflect the company 's income tax expenses or the cash requirements to pay its taxes ; and although depreciation and amortization charges are non-cash charges , it does not reflect that the assets being depreciated and amortized will often have to be replaced in the future , and the foregoing metric does not reflect any cash requirements for such replacements . other companies in the industry may calculate adjusted ebitda differently than veritiv does , limiting its usefulness as a comparative measure . because of these limitations , adjusted ebitda should not be considered as a measure of discretionary cash available to veritiv to invest in the growth of its business . veritiv compensates for these limitations by relying both on the company 's u.s. gaap results and by using adjusted ebitda for supplemental purposes . additionally , adjusted ebitda is not an alternative measure of financial performance under u.s. gaap and therefore should be considered in conjunction with net income and other performance measures such as operating income or net cash provided by operating activities and not as an alternative to such u.s. gaap measures . due to the shared nature of the distribution network to support the packaging , facility solutions and print segments , distribution expenses are not a specific charge to each segment , but are instead allocated to each segment based primarily on operational metrics that correlate with changes in volume . accordingly , distribution expenses allocated to each segment are highly interdependent on the results of other segments . lower volume in any segment that is not offset by a reduction in 32 distribution expenses can result in the other segments absorbing a larger share of distribution expenses . conversely , higher volume in any segment can result in the other segments absorbing a smaller share of distribution expenses . the impact of this at the segment level is that the changes in distribution expense trends may not correspond with volume trends within a particular segment . the company sells thousands of products . in the packaging and facility solutions segments , veritiv is unable to compute the impact of changes in sales volume based on changes in sales of each individual product . rather , the company assumes that the margin stays constant and estimates the volume impact based on changes in cost of products sold as a proxy for the change in sales volume . after any other significant sales variances are identified , the remaining sales variance is attributed to price/mix . the company approximates foreign currency effects by applying the foreign currency exchange rate for the prior period to the local currency results for the current period . we believe the elimination of the foreign currency translation impact provides better year-to-year comparability without the distortion of foreign currency fluctuations . the company believes that the decline in the demand for paper and related products is due to the widespread use of electronic media and permanent product substitution , more e-commerce , less print advertising , fewer catalogs and a reduced volume of direct mail , among other factors . this trend , which may have been accelerated by the covid-19 pandemic , is expected to continue and will place continued pressure on the company 's revenues and profit margins and make it more difficult to maintain or grow adjusted ebitda within the print and publishing segments . included in the following table are net sales and adjusted ebitda for each of the reportable segments and corporate & other : replace_table_token_6_th * - not meaningful see note 16 of the notes to consolidated financial statements for a reconciliation of net income ( loss ) as reflected on the consolidated statements of operations to adjusted ebitda for the reportable segments . 33 packaging the table below presents selected data with respect to the packaging segment : replace_table_token_7_th the table below presents the components

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liquidity and capital resources the cash requirements of the company are provided by cash flows from operations and borrowings under the abl facility . see note 6 of the notes to consolidated financial statements for additional information regarding the company 's debt position . the following table sets forth a summary of cash flows : replace_table_token_16_th 38 analysis of cash flows 2020 cash flows the company ended 2020 with $ 120.6 million in cash and cash equivalents , an increase of $ 82.6 million over the prior year-end balance . cash flow from operations was $ 289.2 million in 2020 compared with $ 281.0 million in 2019. net cash provided by operating activities increased by $ 8.2 million as compared to the prior year , primarily as a result of improvements in operating results partially offset by lower cash flows from operating assets and liabilities as decreases in cash flows from inventory , accounts receivable and supplier purchase incentives were offset by improvements in cash flows from accounts payable , deferred payroll taxes and restructuring accruals . the decrease in working capital was driven by the decline in net sales primarily due to the covid-19 pandemic and the continued secular decline in the paper industry . the factors driving cash flow from operating activities in 2020 were : ( i ) an $ 89.7 million decrease in inventories , ( ii ) a $ 56.5 million decrease in accounts receivable and related party receivable and ( iii ) net income of $ 34.2 million . net cash used for investing activities decreased by $ 28.3 million as compared to the prior year , due to cash proceeds received from the sale of two properties and lower capital expenditures .

consolidated net income attributable to common stockholders decreased $ 282.8 million , or 54 % , to $ 236.8 million for twelve months 2018 from $ 519.6 million for twelve months 2017. the decrease was driven by the absence of a $ 177.0 million one-time benefit related to the reduction of net deferred tax liabilities following the enactment of the u.s. tax cuts and jobs act ( the “ tcja ” ) in 2017 , an increase in net realized losses on investments and higher expenses related to the twg acquisition . these decreases were partially offset by the impact of a lower effective tax rate , net operating income from twg and lower reportable catastrophes ( reportable catastrophe losses , net of reinsurance and client profit sharing adjustments , and including reinstatement and other premiums ) . global housing net income increased $ 53.4 million , or 55 % , to $ 150.8 million for twelve months 2018 from $ 97.4 million for twelve months 2017 , primarily due to a lower effective tax rate and lower reportable catastrophes . segment net income for twelve months 2018 included $ 169.7 million of after-tax reportable catastrophes compared to $ 190.5 million of after-tax reportable catastrophes for twelve months 2017. reportable catastrophes for twelve months 2018 reflect a corporate tax rate of 21 % as compared to 35 % in 2017 as a result of the enactment of the tcja . excluding the lower effective tax rate 40 and reportable catastrophes , segment net income decreased due to a lower contribution from our lender-placed insurance business primarily due to less favorable non-catastrophe loss experience , the ongoing declines in placement rates and lower reo volumes . this decrease was partially offset by growth in multifamily housing and a lower net loss from our mortgage solutions business , which was sold on august 1 , 2018. global housing net earned premiums , fees and other income decreased $ 85.8 million to $ 2.09 billion for twelve months 2018 compared with $ 2.18 billion for twelve months 2017 , primarily due to the sale of mortgage solutions . excluding mortgage solutions , net earned premiums , fees and other income increased approximately 3 % due to growth from specialty property offerings , including commercial property and multifamily housing . these increases were partially offset by lower volumes from our reo lender-placed insurance product and the ongoing declines in placement rates in our lender-placed insurance business . global lifestyle net income increased $ 119.7 million , or 67 % , to $ 297.7 million for twelve months 2018 from $ 178.0 million for twelve months 2017. the increase was primarily driven by $ 74.7 million of net operating income contribution from twg and the impact of a lower effective tax rate . excluding the impact of these items , segment net income increased primarily due to increased income from our connected living business , which was driven by growth from recently launched mobile programs and continued growth in existing mobile programs , partially offset by continued declines in global financial services , primarily from expected discontinued partnerships , and unfavorable foreign exchange . global lifestyle net earned premiums , fees and other income increased $ 1.79 billion to $ 5.18 billion for the twelve months 2018 compared with $ 3.40 billion for twelve months 2017 , primarily due to the addition of $ 1.47 billion of net earned premiums and fee income from twg . excluding twg , net earned premiums , fees and other income increased 9 % due to increased revenue from our connected living business , due to growth from existing and recently launched mobile programs , as well as growth from our global automotive business . these increases were partially offset by lower earned premiums and fees from our international extended service contracts and global financial services business due to unfavorable foreign exchange . global preneed net income increased $ 18.1 million , or 46 % , to $ 57.7 million for twelve months 2018 from $ 39.6 million for twelve months 2017. this increase was primarily due to the lower effective tax rate . excluding the impact of a lower effective tax rate , segment net income increased due to higher investment income and the absence of $ 5.0 million in after-tax software impairment recorded in 2017. global preneed net earned premiums , fees and other income increased $ 8.5 million to $ 189.5 million for twelve months 2018 compared with $ 181.0 million for twelve months 2017 primarily due to growth in pre-funded funeral policies in the u.s. and canada , as well as prior period sales of the final need product . critical factors affecting results our results depend on , among other things , the appropriateness of our product pricing , underwriting , the accuracy of our reserving methodology for future policyholder benefits and claims , the frequency and severity of reportable and non-reportable catastrophes , returns on and values of invested assets and our ability to manage our expenses and achieve expense savings . our results will also depend on our ability to profitably grow our connected living , multifamily housing and global automotive businesses , and manage the pace of declines in placement rates in our lender-placed insurance business and the u.s. credit insurance business in global financial services . in addition , our results will be impacted by our ability to integrate twg and achieve benefits and synergies from the acquisition . factors affecting these items , including , but not limited to , conditions in financial markets , the global economy and the markets in which we operate , fluctuations in exchange rates and inflation , may have a material adverse effect on our results of operations or financial condition . for more information on these and other factors that could affect our results , see “ item 1a – risk factors . story_separator_special_tag disposed and runoff long duration lines risks related to the reserves recorded for certain discontinued individual life , annuity , and long-term care insurance policies have been fully ceded via reinsurance . while we have not been released from our contractual obligation to the policyholders , changes in and deviations from economic , mortality , morbidity , and withdrawal assumptions used in the calculation of these reserves will not directly affect our results of operations unless there is a default by the assuming reinsurer . 45 deferred acquisition costs ( “ dac ” ) and value of business acquired ( “ voba ” ) only direct incremental costs associated with the successful acquisition of new or renewal insurance contracts are deferred to the extent that such costs are deemed recoverable from future premiums or gross profits . acquisition costs primarily consist of commissions and premium taxes . certain direct response advertising expenses are deferred when the primary purpose of the advertising is to elicit sales to customers who can be shown to have specifically responded to the advertising and the direct response advertising results in probable future benefits . premium deficiency testing is performed annually and generally reviewed quarterly . such testing involves the use of best estimate assumptions including the anticipation of investment income to determine if anticipated future policy premiums are adequate to recover all dac and related claims , benefits and expenses . to the extent a premium deficiency exists , it is recognized immediately by a charge to the consolidated statement of operations and a corresponding reduction in dac . if the premium deficiency is greater than unamortized dac , a loss ( and related liability ) is recorded for the excess deficiency . long duration contracts acquisition costs for pre-funded funeral ( “ preneed ” ) life insurance policies issued prior to 2009 and certain life insurance policies no longer offered are deferred and amortized in proportion to anticipated premiums over the premium-paying period . these acquisition costs consist primarily of first year commissions paid to agents . for preneed investment-type annuities , preneed life insurance policies with discretionary death benefit growth issued after january 1 , 2009 , universal life insurance policies and investment-type annuities no longer offered , dac is amortized in proportion to the present value of estimated gross profits from investment , mortality , expense margins and surrender charges over the estimated life of the policy or contract . estimated gross profits include the impact of unrealized gains or losses on investments as if these gains or losses had been realized , with corresponding credits or charges included in accumulated other comprehensive income ( “ aoci ” ) . the assumptions used for the estimates are consistent with those used in computing the policy or contract liabilities . short duration contracts acquisition costs relating to extended service contracts , vehicle service contracts , mobile device protection , credit insurance , lender-placed homeowners insurance and flood , multifamily housing and manufactured housing are amortized over the term of the contracts in relation to premiums earned . these acquisition costs consist primarily of advance commissions paid to agents . acquisition costs relating to disposed lines of business ( group term life , group disability , group dental and group vision ) consist primarily of compensation to sales representatives . such costs are deferred and amortized over the estimated terms of the underlying contracts . voba as part of the acquisition of businesses that sell long-term extended service contracts , such as warranty contracts sold by twg , and long-duration insurance contracts , such as life products , we establish an intangible asset related to voba , which represents the fair value of the expected future profits in unearned premium for insurance contracts acquired . for vehicle service contracts and extended service contracts such as those purchased in connection with the twg acquisition , the amount is determined using estimates , for premium earnings patterns , paid loss development patterns , expense loads , and discount rates applied to cash flows that include a provision for credit risk . for vehicle service contracts and extended service contracts , voba is amortized consistent with the premium earning patterns of the underlying in-force contracts . for limited payment policies , preneed life insurance policies , universal life policies and annuities , the valuation of voba at the time of acquisition is derived from similar assumptions to those used to establish the associated claim or benefit reserves and is amortized over the expected life of the policies . investments we regularly monitor our investment portfolio to ensure that investments that may be other-than-temporarily impaired are timely identified , properly valued and charged against earnings in the proper period . the determination that a security has incurred an other-than-temporary decline in value requires the judgment of management . assessment factors include , but are not limited to , the length of time and the extent to which the market value has been less than cost , the financial condition and rating of the issuer , whether any collateral is held , our intent and ability to retain the investment for a period of time sufficient to allow for recovery and our intent to sell or whether it is more likely than not that we will be required to sell for fixed maturity securities . inherently , there are risks and uncertainties involved in making these judgments . changes in circumstances and critical assumptions such as a continued weak economy , a more pronounced economic downturn or unforeseen events that affect one or more companies , industry sectors , or countries could result in additional impairments in future periods for other-than-temporary declines in value . 46 the impairment of a fixed maturity security that we have the intent to sell or that we will more likely than not be required to sell is deemed other-than-temporary and is written down to its market value at the balance sheet date with

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net cash provided by operating activities was $ 656.7 million and $ 530.4 million for twelve months 2018 and twelve months 2017 , respectively . the increase in net cash provided by operating activities was primarily due to the absence of an $ 85.0 million payment made during twelve months 2017 related to lender-placed market conduct examination settlement agreements . the increase was also due to higher cash from operations due to growth of our connected living business and $ 26.7 million of cash from the settlement of a series of derivative transactions exercised in connection with acquisition-related 66 financing . these increases were partially offset by a $ 41.5 million payment of an accrued indemnification liability related to the previous sale of our general agency business and claim payments made , net of reinsurance , related to losses from 2017 reportable catastrophes . net cash provided by operating activities was $ 530.4 million and $ 108.6 million for twelve months 2017 and twelve months 2016 , respectively . the increase in net cash provided by operating activities was primarily due to prior year activity as assurant health was paying significant claims without a corresponding collection of premiums while in run-off . also contributing to the increase was the timing of payments in the normal course of business . these items were partially offset by changes in the premium stabilization program receivables related to assurant health and an $ 85.0 million payment during twelve months 2017 related to the lender-placed market conduct examination settlement agreements . see note 26 to the consolidated financial statements included elsewhere in this report for additional information . investing activities : net cash used in investing activities was $ 2.20 billion and $ 541.2 million for twelve months 2018 and twelve months 2017 , respectively . the change in net cash ( used in ) provided by investing activities is primarily due to cash used for the twg acquisition .

gross profit as a percent of net sales increased 30 basis points in 2013 as compared to 2012 due to higher volume , better price realization and lower material costs offset partially by unfavorable mix , new product ramp-up and operation reconfiguration costs to meet changing market demand . selling and administrative expenses selling and administrative expenses increased 7.0 percent in 2014 and 1.1 percent in 2013 . the increase in 2014 was due to volume related expenses , increased freight costs due to carrier capacity constraints , investments in selling and growth initiatives , increased group medical costs , higher incentive-based compensation and costs associated with an acquisition . the increase in 2013 was due to volume related expenses , investments in selling and growth initiatives and higher incentive-based compensation . selling and administrative expenses include freight expense for shipments to customers , product development costs and amortization expense of intangible assets . refer to summary of significant accounting policies and goodwill and other intangible assets in the notes to consolidated financial statements for further information regarding the comparative expense levels for these items . gain/loss on sale of assets the corporation realized gains totaling $ 10.7 million on the sale of two facilities and california air emission credits in 2014. the - 23 - corporation realized a $ 2.5 million loss on the sale of a non-core office furniture business in 2013. restructuring and impairment charges during 2014 , the corporation made decisions to close three office furniture manufacturing facilities located in florence , alabama , chicago , illinois and nalagarh , india and consolidate production into existing office furniture manufacturing facilities . in connection with these decisions the corporation recorded $ 8.8 million of pre-tax charges which included $ 5.2 million of accelerated depreciation on machinery and equipment recorded in cost of sales and $ 3.6 million of severance and facility exit costs which were recorded as restructuring charges during the year . the closure and consolidation of these facilities is expected to be substantially completed by the first quarter of 2015. the corporation anticipates additional restructuring costs of approximately $ 1 million related to these closures during 2015. during 2011 , the corporation made the decision to transition out of its lithia springs , georgia office furniture distribution center and the transition was completed in the fourth quarter of 2012. in addition , during 2011 , the corporation made the decision to consolidate some office furniture manufacturing production from its hickory , north carolina facility into its wayland , new york facility . during 2012 , the corporation recorded current period charges which included $ 0.3 million of accelerated depreciation of machinery and equipment recorded in cost of sales and $ 1.5 million of severance and facility exit costs recorded as restructuring costs . these included impairment of leasehold improvements of $ 0.2 million which was a non-cash transaction . during 2010 , the corporation completed the shutdown of an office furniture facility in south gate , california and consolidated production into existing office furniture manufacturing facilities . during 2012 and 2013 , the corporation incurred $ 0.4 million and $ 0.3 million of current period charges due to ongoing costs related to a vacant building recorded as restructuring costs , respectively . the corporation recorded $ 29.4 million of goodwill and intangible impairments in 2014 related to two recently acquired reporting units in the office furniture segment due to current and projected market conditions and costs associated with product and operational transformation . operating income operating income increased $ 6.9 million to $ 112.8 million in 2014 , compared to $ 106.0 million in 2013 . the increase was due to higher volume , better price realization , strong operational performance and gains on sale of assets . these were offset partially by investments in operations , unfavorable product mix , increased warranty costs , higher freight costs due to carrier capacity constraints , increased group medical costs , higher incentive-based compensation and restructuring , impairment and transition costs . operating income increased $ 18.4 million to $ 106.0 million in 2013 , compared to $ 87.6 million in 2012 . the increase was due to higher volume , better price realization , lower material costs and distribution network realignment savings and lower restructuring costs . these were offset partially by new product ramp-up , facility reconfiguration to meet changing market demands , selling , marketing and product initiatives , higher incentive-based compensation and a loss on the sale of a small non-core business . income taxes the provision for income taxes reflect an effective tax rate of 41.7 percent , 34.5 percent and 37.7 percent for 2014 , 2013 and 2012 , respectively . the current year increase in the effective tax rate was primarily driven by the non-deductibility of goodwill impairment . on december 19 , 2014 the tax increase prevention act of 2014 was signed into law which extended several expired tax incentives including the research tax credit and bonus depreciation . the impact of this legislation , resulting in a benefit of $ 2.6 million , was recorded in the fourth quarter of 2014. the decrease in 2013 was primarily driven by the federal research and development credit extension which was effective from january 2 , 2013 , resulting in both the 2012 and 2013 related credits of $ 1.3 million each being recognized in fiscal 2013. net income attributable to hni corporation net income attributable to hni corporation decreased 3.5 percent to $ 61.5 million in 2014 compared to $ 63.7 million in 2013 and $ 49.0 million in 2012 . net income per diluted share decreased 2.9 percent to $ 1.35 in 2014 compared to $ 1.39 in 2013 and $ 1.07 in 2012 . - 24 - office furniture office furniture comprised 78 percent , 82 percent and 84 percent of consolidated net sales for 2014 , 2013 and 2012 , respectively . story_separator_special_tag allowance for doubtful accounts receivable – the allowance for doubtful accounts receivable is based on several factors , including overall customer credit quality , historical write-off experience , the length of time a receivable has been outstanding and specific account analysis that projects the ultimate collectability of the account . as such , these factors may change over time causing the corporation to adjust the reserve level accordingly . when the corporation determines a customer is unlikely to pay , a charge is recorded to bad debt expense in the income statement and the allowance for doubtful accounts is increased . when the corporation is reasonably certain the customer can not pay , the receivable is written off by removing the accounts receivable amount and reducing the allowance for doubtful accounts accordingly . as of january 3 , 2015 , there was approximately $ 245 million in outstanding accounts receivable and $ 5 million recorded in the allowance for doubtful accounts to cover potential future customer non-payments . however , if economic conditions deteriorate significantly or one of the corporation 's large customers declares bankruptcy , a larger allowance for doubtful accounts might be necessary . the allowance for doubtful accounts was approximately $ 6 million at year-end 2013 . inventory valuation – inventories are stated at the lower of cost or market . cost is principally determined using the last-in , first-out ( `` lifo `` ) method . the value of inventories on the lifo basis represented about 71 % and 74 % of total inventories at january 3 , 2015 and december 28 , 2013 , respectively . if the first-in , first-out ( `` fifo `` ) method had been in use , inventories would have been $ 28.0 million and $ 27.7 million higher than reported at january 3 , 2015 and december 28 , 2013 , respectively . long-lived assets - the corporation reviews long-lived assets for impairment as events or changes in circumstances occur indicating the amount of the asset reflected in the corporation 's balance sheet may not be recoverable . the corporation compares an estimate of undiscounted cash flows produced by the asset , or the appropriate group of assets , to the carrying value to determine whether impairment exists . the estimates of future cash flows involve considerable management judgment and are based upon the corporation 's assumptions about future operating performance . the actual cash flows could differ from management 's estimates due to changes in business conditions , operating performance and economic conditions . asset impairment charges associated with the corporation 's restructuring activities are discussed in restructuring related and impairment charges in the notes to consolidated financial statements . the corporation 's continuous focus on improving the manufacturing process tends to increase the likelihood of assets being replaced ; therefore , the corporation is regularly evaluating the expected useful lives of its equipment which can result in accelerated depreciation . goodwill and other intangibles – the corporation evaluates its goodwill for impairment on an annual basis during the fourth quarter or whenever indicators of impairment exist . the corporation had nine reporting units within its office furniture and hearth products operating segments , which contained goodwill during the fourth quarter analysis . these reporting units constitute components for which discrete financial information is available and regularly reviewed by segment management . the accounting standards for goodwill permit entities to first assess qualitative factors to determine whether it is more likely than not the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a two-step goodwill - 29 - impairment test . the corporation did not elect to use the qualitative assessment in 2014. the corporation performed a two-step goodwill impairment test for all reporting units . in estimating the fair value of its reporting units , the corporation relied on an average of the income approach and the market approach . in the income approach , the estimate of fair value of each reporting unit is based on management 's projection of revenues , gross margin , operating costs and cash flows considering historical and estimated future results , general economic and market conditions as well as the impact of planned business and operational strategies . the valuations employ present value techniques to measure fair value and consider market factors . in the market approach , the corporation utilized the guideline company method , which involved calculating valuation multiples based on operating data from guideline publicly-traded companies . these multiples were then applied to the operating data for the reporting units and adjusted for factors similar to those used in the discounted cash flow analysis . management believes the assumptions used for the impairment test are consistent with those utilized by a market participant in performing similar valuations of its reporting units . management bases its fair value estimates on assumptions they believe to be reasonable at the time , but such assumptions are subject to inherent uncertainty . actual results may differ from those estimates . if the fair value of the reporting unit is less than its carrying value , an additional step is required to determine the implied fair value of goodwill associated with that reporting unit . the implied fair value of goodwill is determined by first allocating the fair value of the reporting unit to all of its assets and liabilities and then computing the excess of the reporting unit 's fair value over the amounts assigned to the assets and liabilities . if the carrying value of goodwill exceeds the implied fair value of goodwill , such excess represents the amount of goodwill impairment and , accordingly , such impairment is recognized . the decision to close a facility and exit a product line as well as lower expected growth than projected at one of the corporation 's recently acquired reporting units in the office furniture segment

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cash generated from operating activities in 2014 totaled $ 167.8 million compared to $ 165.0 million generated in 2013 . changes in working capital balances resulted in a $ 3.7 million use of cash in 2014 compared to $ 11.5 million source of cash in the prior year . cash generated from operating activities in 2012 totaled $ 144.8 million and changes in working capital balances resulted in a $ 32.9 million source of cash . the use of cash related to working capital balance in 2014 was primarily driven from higher inventory of $ 23.4 million due to strategic initiatives , impact of west coast port congestion and timing of shipments . this use of cash was offset partially by an $ 8.6 million decrease in trade receivables due to strong collection efforts and timing and a $ 15.7 million increase in current liabilities . the increase in current liabilities is comprised of a $ 15.0 million increase in trade accounts payable , an $ 11.9 million increase in other accruals , namely compensation , benefit and marketing accruals offset by an $ 11.2 million decrease in tax related accruals . the source of cash related to working capital balances in 2013 was primarily driven from lower inventory of $ 1.6 million and increased current liabilities of $ 30.4 million .

blackbaud peer-to-peer fundraising powered by justgiving continues to gain traction . since the u.s. launch in early 2019 , over 1,000 customers have signed up to use the solution and roughly half of these organizations are net new customers to blackbaud . 2. drive sales effectiveness we have been investing in sales and marketing to better address our market opportunity with a focus on adding additional sales headcount , improving productivity and putting a greater focus on adding net new logos . one way we are equipping our growing salesforce to be more effective is by investing in the necessary technology and resources to efficiently drive an increased number of quality leads and better cover our large addressable market . we have grown our lead generation teams , which we call business development representatives , to support our growing sales teams . we have simultaneously increased the productivity of our business development representatives with the implementation of a leading sales engagement technology platform , enabling our teams to generate more prospects , and convert those prospects into sales opportunities . we are entering 2020 with an improved ratio of business development representatives to account executives , and the lead generation from the team has increased substantially as a result of these changes . we have also implemented software tools to enhance our digital footprint and drive lead generation across the company . for the first time ever , we are taking a multi-touch attribution approach to measuring the effectiveness of our marketing campaigns to drive efficiency in our go-to-market efforts and improve returns on our marketing dollars . this is just one of many examples of how we are optimizing our structure , tools and processes to better address our large vertical market opportunities . we have made significant strides in laying the foundation to develop a highly productive and scalable operating model , which included significant organizational structure changes as we centralized many back-office functions and aligned our go-to-market efforts by vertical . this transformation is now behind us , putting us in a position to drive improved productivity across our vertical sales teams . 3. expand tam in january 2019 , we acquired yourcause , which positions us as a global leader in corporate social responsibility and employee engagement technology . one third of fortune 500 companies trust blackbaud as their csr technology partner , and in 2019 alone , yourcause solutions processed over $ 1 billion dollars in donations and grants which benefited over 170,000 social good organizations . in the year since the acquisition , we have fully integrated yourcause 's administrative functions into our global centers of excellence and expanded the sales team to fuel what is already a fast-growing business within the company . our tam now stands at over $ 10 billion , and we remain active in the evaluation of opportunities to further expand our addressable market through acquisitions and internal product development . 4. improve operating efficiency we are also focused on operational efficiency to strengthen the business and position us for long-term success . during 2019 , we continued executing a comprehensive workplace strategy to better align our organizational objectives with our geographic footprint . we designated charleston , south carolina , austin , texas , london , u.k. and sydney , australia as our hub locations , and we have leveraged a more flexible office strategy to replace and upgrade some of our former offices and expand our footprint into new locations for customer-facing roles . most recently , we moved our london offices into a new flexible workspace marking a significant milestone in the integration of our blackbaud europe and justgiving teams . in 2019 , we largely completed this optimization effort , and we will continue to evaluate our footprint in alignment with our global workplace strategy . our aim is optimizing our office utilization , improving our geographic sales coverage and enhancing our employees ' daily experience to improve productivity and effectiveness . replace_table_token_33_th blackbaud , inc. total revenue ( $ m ) income from operations ( $ m ) yoy growth ( % ) yoy growth ( % ) total revenue increased by $ 51.8 million during 2019 , driven largely by the following : + growth in recurring revenue related to positive demand from customers across our portfolio of cloud solutions and , to a lesser extent , the inclusion of yourcause , an increase in services embedded in our renewable cloud solution contracts and increased sales of subscription-based contracts for retained professional services - decline in one-time services and other revenue from our continued shift in focus towards selling cloud subscription solutions . in general , our cloud solutions include integrated analytics , training and payment services , and require little to no customization services . as a result , we expect that one-time services and other revenue will continue to decline and total revenue growth will continue to be negatively impacted . income from operations decreased by $ 32.3 million during 2019 , driven largely by the following : + growth in total revenue , as described above - increased investments we have made in our sales organization and innovation - increase in stock-based compensation of $ 10.4 million , due to increases in the grant date fair values of our annual equity awards granted to employees over the last three years as our headcount has grown - increase in hosting and data center costs of $ 5.4 million as we are migrating our cloud infrastructure to leading public cloud service providers - increase in amortization of software development costs of $ 4.1 million due to investments made on innovation , quality and the integration of our cloud solutions - increase in amortization of intangible assets from business combinations of $ 3.0 million - increase in employee severance of $ 2.2 million related to the elimination of certain roles within the company , most of which occurred during the first quarter of story_separator_special_tag ( 2 ) upon adoption of asu 2016-02 at january 1 , 2019 , we reduced our operating lease rou assets recognized at transition by the carrying amounts of the restructuring liabilities for certain leased office spaces that we ceased using prior to december 31 , 2018. replace_table_token_42_th interest expense increased during 2019 , when compared to 2018 , primarily due to an increase in our average daily borrowings related to our acquisition of yourcause in january 2019. deferred revenue the table below compares the components of deferred revenue from our consolidated balance sheets : replace_table_token_43_th ( 1 ) the individual amounts for each year may not sum to total deferred revenue or current portion of deferred revenue due to rounding . to the extent that our customers are billed for our solutions and services in advance of delivery , we record such amounts in deferred revenue . our recurring revenue contracts are generally for a term of three years at contract inception with one to three-year renewals thereafter , billed annually in advance and non-cancelable . we generally invoice our customers with recurring revenue contracts in annual cycles 30 days prior to the end of the contract term . deferred revenue from recurring revenue contracts increased during 2019 , primarily due to new subscription sales of our cloud solutions . our acquisition of yourcause on january 2 , 2019 also modestly contributed to the increase in recurring deferred revenue since december 31 , 2018. we also sold more subscription-based contracts for retained professional services . we have acquired businesses whose net tangible assets include deferred revenue . in accordance with gaap reporting requirements , we recorded write-downs of deferred revenue from customer arrangements predating the acquisition to fair value , which resulted in lower recorded deferred revenue as of the acquisition date than the actual amounts paid in advance for solutions and services under those customer arrangements . therefore , our deferred revenue after an acquisition replace_table_token_44_th blackbaud , inc. will not reflect the full amount of deferred revenue that would have been reported if the acquired deferred revenue was not written down to fair value . further explanation of this impact is included below under the caption `` non-gaap financial measures `` . income tax benefit our income tax benefit and effective income tax rates , including the effects of period-specific events , were : replace_table_token_45_th our effective income tax rate may fluctuate quarterly as a result of factors , including changes in tax law in jurisdictions where we conduct business , transactions entered into , changes in the geographic distribution of our earnings or losses , and our assessment of certain tax contingencies and valuation allowances . we have deferred tax assets for federal , state , and international net operating loss carryforwards and tax credits . the federal and state net operating loss carryforwards are subject to various internal revenue code limitations and applicable state tax laws . a portion of the foreign and state net operating loss carryforwards and a portion of state tax credits have a valuation reserve due to the uncertainty of realizing such carryforwards and credits in the future . we file income tax returns in the u.s. for federal and various state jurisdictions as well as in foreign jurisdictions including canada , the u.k. , australia , ireland and costa rica . we are generally subject to u.s. federal income tax examination for calendar tax years ending 2016 through 2019 , as well as state and foreign income tax examinations for various years depending on statute of limitations of those jurisdictions . we have taken federal and state tax positions for which it is reasonably possible that the total amount of unrecognized tax benefits may decrease within the next twelve months . the possible decrease could result from the expiration of statutes of limitations . the reasonably possible decrease at december 31 , 2019 was $ 1.4 million . we recognize accrued interest and penalties , if any , related to unrecognized tax benefits as a component of income tax expense . the decrease in our effective income tax rate in 2019 , when compared to 2018 , was primarily due to the heightened impact of research credit generation net of section 162 ( m ) nondeductible compensation . furthermore , the 2019 effective tax rate was favorably impacted by other state tax credits net of an overall increase to uncertain tax positions . lastly , the effective tax rate was negatively impacted by global intangible low-tax income ( `` gilti `` ) , net of foreign-derived intangible income ( `` fdii `` ) benefit , resulting from an increase in non-us earnings . the reduced base further magnified the impact of other nondeductible items . the total amount of unrecognized tax benefit that , if recognized , would favorably affect the effective income tax rate , was $ 3.9 million and $ 3.3 million at december 31 , 2019 and december 31 , 2018 , respectively . non-gaap financial measures the operating results analyzed below are presented on a non-gaap basis . we use non-gaap revenue , non-gaap gross profit , non-gaap gross margin , non-gaap income from operations , non-gaap operating margin , non-gaap net income and non-gaap diluted earnings per share internally in analyzing our operational performance . accordingly , we believe these non-gaap measures are useful to investors , as a supplement to gaap measures , in evaluating our ongoing operational performance . while we believe these non-gaap measures provide useful supplemental information , non-gaap financial measures should not be considered in isolation from , or as a substitute for , financial information prepared in accordance with gaap . in addition , these non-gaap financial measures may not be completely comparable to similarly titled measures of other companies due to potential differences in the exact method of calculation between companies . replace_table_token_46_th blackbaud , inc. we have acquired businesses whose net tangible assets include deferred revenue .

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net cash used in investing activities of $ 167.2 million increased by $ 69.4 million during 2019 , when compared to 2018 . during 2019 , we used net cash of $ 109.4 million , for our acquisition of yourcause , while we spent $ 44.9 million on investments in acquired companies in 2018 . we used $ 46.9 million for software development costs , which was up $ 9.2 million from cash spent during 2018 . the increase in cash outlays for software development costs was primarily related to our innovative cloud solutions as well as development activities for blackbaud sky , our modern cloud platform . we also spent $ 11.5 million of cash for purchases of property and equipment during 2019 , which was down $ 3.2 million from cash spent in 2018 . the higher cash outlays for property and equipment during 2018 was primarily driven by leasehold improvements for our new headquarters facility in charleston , south carolina . during 2020 , we expect our total capital expenditures to increase when compared to 2019 , which includes purchases of property and equipment and estimated cash outlays for capitalized software development costs . refer to the commitments and contingencies subsection below for future minimum commitments related to purchase obligations . financing cash flow during 2019 , we had a net increase in borrowings of $ 79.5 million , which was primarily attributable to our acquisition of yourcause , compared to a net decrease in borrowings of $ 51.6 million in 2018 .

the trial will include patients 60 years of age and older who have an intermediate or adverse genetic risk profile . it will also include patients between 18 and 60 years old who have an adverse genetic risk profile . patients will be randomized 1:1 to receive dstat in combination with standard cytarabine plus anthracycline ( 7+3 ) induction and cytarabine consolidation chemotheraphy or will receive standard of care ( 7+3 ) induct 49 ion and consolidation chemotherapy alone . patients with flt-3 mutations will be allowed in the study and will be eligible to receive midostaurin . the primary endpoint of the proposed trial will be overall survival ( os ) . in addition , the fda has indicated that event-free survival ( efs ) using complete response with hematologic recovery to define induction success ( cr ) , is acceptable as an endpoint for regulatory approval . other endpoints to be evaluated in the proposed trial include : minimal residual disease ( mrd ) , relapse-free survival ( rfs ) , time to hematologic recovery , and induction response . in order to supplement the previously reported data from pilot and phase 2 studies and provide additional evidence of dstat 's mechanism of action , the proposed phase 3 trial includes an early assessment of comparative cr and mrd rates among the first 80 evaluable patients . this data is expected to be unblinded , reported publicly , and available for ongoing analysis of later endpoints . prior to potential unblinding , this data will be reviewed by an independent data monitoring committee ( dmc ) . the dmc will have the discretion to maintain blinding of the data from this early assessment in the event the dstat arm shows exceptional advantages to the control arm on cr and or mrd , at certain pre-specified thresholds , which would allow inclusion of these patients in the final analysis . we expect to incur approximately $ 15 million in clinical trial expenses up to and including this early assessment . bcv oral treatment for smallpox in january , we presented data in support of bcv as a potential treatment for smallpox at the 2020 american society for microbiology ( asm ) biothreats meeting in arlington , virginia . the presentations highlighted independent experiments performed in two lethal animal models of smallpox . in these studies , either rabbits or mice were inoculated with rabbitpox or ectromelia virus , respectively , to determine the survival benefit of bcv in animals acutely infected with these orthopoxviruses . animals were randomized to receive either placebo or bcv treatment at varying intervals post infection . in both studies , animals that received bcv , regardless of time post-infection , demonstrated a statistically significant survival advantage relative to placebo . data from these studies are intended to address the requirement under the fda animal efficacy rule for two different animal models of efficacy . this rule allows for testing of investigational drugs in animal models to support the effectiveness of the drug in diseases for which human clinical studies are not ethical or feasible . we are collaborating with the biomedical advanced research and development authority ( barda ) for the development of bcv as a potential medical countermeasure for smallpox the company intends to submit marketing applications for bcv as a medical countermeasure against smallpox in mid-2020 . appointment of dr. pratik multani to board of directors on february 21 , 2020 , the board appointed pratik s. multani , m.d . , to serve as a class ii director of the company . dr. multani currently serves as chief medical officer of oric pharmaceuticals and brings more than 20 years of experience advancing oncology products from the clinic through regulatory approval . prior to joining oric pharmaceuticals , dr. multani served as chief medical officer of ignyta , which was acquired by roche in 2017. before joining ignyta , dr. multani was chief medical officer of fate therapeutics , and prior to that held multiple leadership positions at kalypsys , kanisa , and salmedix . dr. multani started his biotech career at biogen idec , where he was involved with the development of both zevalin and rituxan for treatment of non-hodgkin lymphoma . earlier in his career , dr. multani held academic and clinical positions at harvard medical school and at massachusetts general hospital . his postdoctoral training included a fellowship in hematology and oncology at dana-farber cancer institute and an internship and residency in internal medicine at massachusetts general hospital . dr. multani received an m.d . from harvard medical school and an m.s . in clinical epidemiology from harvard school of public health . on february 21 , 2020 , james m. daly notified chimerix of his resignation as a member of the board and as a member of all committees of the board on which he serves , effective immediately . business development review in addition to our recently completed transaction with cantex , management is continuing to conduct a review and assessment of potential transaction opportunities with the goal of building our product candidate pipeline , including , but not limited to , licensing , merger or acquisition transactions , issuing or transferring shares of common stock , or the license , purchase or sale of specific assets , in addition to other potential actions aimed at maximizing stockholder value . there can be no assurance that this review will result in the identification or consummation of any additional transaction . 50 financial overview revenues to date , we have not generated any revenue from product sales . all of our revenue to date has been derived from a government grant and contract and the receipt of up-front proceeds under our collaboration and license agreements . story_separator_special_tag our research and development prepaids and accruals are dependent upon the timely and accurate reporting of contract research organizations and other third-party vendors . acquired in-process research and development ( ipr & d ) expense we have acquired and may continue to acquire the rights to develop and commercialize new drug candidates . in accordance with accounting standards codification , or asc , subtopic 730-10-25 , accounting for research and development costs , the up-front payments to acquire a new drug compound , as well as future milestone payments when paid or payable , are immediately expensed as acquired ipr & d in transactions other than a business combination provided that the drug has not achieved regulatory approval for marketing and , absent obtaining such approval , has no alternative future use . upon obtaining regulatory approval for marketing , any subsequent milestone payments may be capitalized and amortized over the life of the asset . investments investments consist primarily of commercial paper , corporate bonds , u.s. treasury securities and stock of a u.s. corporation . we invest in high-credit quality investments in accordance with our investment policy which minimizes the probability of loss . available-for-sale debt securities are carried at fair value as determined by quoted market prices , with the unrealized gains and losses , net of tax , reported as a separate component of stockholders ' deficit . realized gains and losses are determined using the specific identification method and transactions are recorded on a settlement date basis in interest income ( expense ) and other , net . investments with original maturities beyond three months at the date of purchase and which mature on , or less than twelve months from , the balance sheet date are classified as short-term . investments with a maturity beyond twelve months from the balance sheet date are classified as long-term . we periodically review available-for-sale debt securities for other-than-temporary declines 54 in fair value below the cost basis and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . we evaluate , among other things , the duration and extent to which the fair value of a security is less than its cost ; the financial condition of the issuer and any changes thereto ; and our intent to sell , or whether we will more likely than not be required to sell , the security before recovery of our amortized cost basis . any such declines in value judged to be other-than-temporary on available-for-sale securities are reported in other-than-temporary impairment of investment . prior to the fourth quarter of 2017 , unrealized gains and losses in equity investments were reported as a separate component of stockholders ' equity . for the year ended december 31 , 2017 , we determined the decline in value for our investment in contravir common stock to be other-than temporary . as such , during the fourth quarter of 2017 , we reclassified a loss of $ 1.2 million from accumulated other comprehensive loss , net in the consolidated balance sheets to interest income and other , net in the consolidated statements of operations and comprehensive loss . during 2018 and 2019 , changes in the fair value of equity investments were recorded to interest income and other , net in the consolidated statements of operations and comprehensive loss . valuation of share-based compensation we record the fair value of share-based awards issued as of the grant date as compensation expense . we recognize compensation expense over the requisite service period , which is equal to the vesting period . share-based compensation expense includes stock options , rsus and employee stock purchase plan purchase rights and has been reported in our consolidated statements of operations and comprehensive loss as follows ( in thousands ) : replace_table_token_3_th rsu compensation expense is based on the grant-date fair value of our common stock . we calculate the fair value of share-based compensation awards using the black-scholes option-pricing model . the black-scholes option-pricing model requires the use of subjective assumptions , including volatility of our common stock , the expected term of our stock options , the risk-free interest rate for a period that approximates the expected term of our stock options and the fair value of the underlying common stock on the date of grant . in applying these assumptions , we considered the following factors : we use historical volatility data to estimate the volatility of our common stock price . we use historical exercise data to estimate expected term . we determine the risk-free interest rate by reference to implied yields available from u.s. treasury securities with a remaining term equal to the expected life assumed at the date of grant . the assumed dividend yield is based on our expectation of not paying dividends for the foreseeable future . we estimate forfeitures based on our historical analysis of actual stock option forfeitures . the assumptions used in the black-scholes option-pricing model for the years ended december 31 , 2019 , 2018 , and 2017 are set forth below : stock options replace_table_token_4_th 55 employee stock purchase plan replace_table_token_5_th utilization of net operating loss carryforwards at december 31 , 2019 , we had net operating loss carryforwards for federal , state tax purposes of approximately $ 508.1 million and $ 384.3 million , respectively . at december 31 , 2018 , we had net operating loss carryforwards for federal , state , and foreign tax purposes of approximately $ 465.3 million , $ 353.8 million , and $ 0.4 million , respectively . in addition , we had tax credit carryforwards for federal tax purposes of approximately $ 19.6 million as of december 31 , 2019 , which begin to expire in 2022. the future utilization of net operating loss and tax credit carryforwards may be limited due to changes in ownership . in general , if we experience a greater than 50 percent

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net cash used in operating activities of $ 75.2 million for the year ended december 31 , 2019 was primarily the result of our $ 112.6 million net loss and the change in operating assets and liabilities , offset by the add-back of non-cash expenses . the change in operating assets and liabilities includes a decrease in accounts payable and accrued liabilities of $ 4.3 million , an increase of $ 0.9 million in accounts receivable and an increase in prepaid expenses and other assets of $ 0.8 million . non-cash expenses included add-backs of $ 34.9 million for the fair value of common stock issued in relation to the cantex license agreement , $ 9.5 million 59 for stock based compensation , $ 0.6 million of depreciation of property and equipment , $ 0.3 million for the loss on disposal of assets , offset by $ 1.8 million of amortization of discount/premium on investments . net cash used in operating activities of $ 53.7 million for the year ended december 31 , 2018 was primarily the result of our $ 69.5 million net loss , offset by the change in operating assets and liabilities and the add-back of non-cash expenses . non-cash expenses included add-backs of $ 13.1 million for stock-based compensation , $ 0.9 million of depreciation of property and equipment , $ 0.4 million for a loss on the sale of investments , and $ 0.3 million for a loss on equity investment , offset by $ 0.9 million of amortization of discount/premium on investments . the change in operating assets and liabilities includes a decrease in prepaid expenses and other assets of $ 0.6 million and a decrease of $ 1.4 million in accounts receivable .

on march 15 , 2013 , we completed submission of our pma application to the fda for our orbital atherectomy system to treat calcified coronary arteries . as of june 30 , 2013 , we had an accumulated deficit of $ 203.3 million . we expect our losses to continue as we invest in sales , marketing , medical education , clinical studies and product research and development for our next phase of growth in the peripheral market and preparation for a potential coronary application . to date , we have financed our operations primarily from the issuance of common and preferred stock , convertible promissory notes , and debt . 32 financial overview revenues . we derive substantially all of our revenues from the sale of pad systems and other ancillary products . the pad systems each use a disposable , single-use , low-profile catheter that travels over our proprietary viperwire guidewire . the electric powered stealth 360° pad system uses a saline infusion pump as a power supply for the operation of the catheter , while the air powered diamondback 360° and predator 360° pad systems use an external control unit that powers the system . our ancillary products include the viperslide lubricant and vipertrack radiopaque tape . we also have an exclusive distribution agreement with asahi to market its peripheral guide wire line in the united states . cost of goods sold . we assemble the single-use catheter with components purchased from third-party suppliers , as well as with components manufactured in-house . the infusion pump and guidewires are purchased from third-party suppliers . our cost of goods sold consists primarily of raw materials , direct labor , and manufacturing overhead . selling , general and administrative expenses . selling , general and administrative expenses include compensation for executive , sales , marketing , finance , information technology , human resources and administrative personnel , including stock-based compensation . other significant expenses include travel and marketing costs and professional fees . research and development expenses . research and development expenses include costs associated with the design , development , testing , enhancement and regulatory approval of our products . research and development expenses include employee compensation including stock-based compensation , supplies and materials , patent expenses , consulting expenses , travel and facilities overhead . we also incur significant expenses to operate clinical trials , including trial design , third-party fees , clinical site reimbursement , data management and travel expenses . all research and development expenses are expensed as incurred . approved patent applications are capitalized and amortized using the straight-line method over their remaining estimated lives . patent amortization begins at the time of patent application approval , and does not exceed 20 years . interest and other income ( expense ) . interest and other income ( expense ) primarily includes interest expense ( including premium and discount amortization ) , interest income , change in the fair value of the debt conversion option , debt refinancing costs , and net write-offs upon debt conversion ( option and unamortized premium or discount ) . interest expense ( including premium and discount amortization ) . interest expense results from outstanding debt balances , and debt premium and discount amortization . interest income . interest income is attributed to interest earned on deposits in investments that consist of money market funds . change in fair value of debt conversion option . change in fair value of debt conversion option represents the period to period change in fair value of the debt conversion option associated with outstanding convertible debt . net write-offs upon debt conversion ( option and unamortized premium or discount ) . net write-offs upon debt conversion ( option and unamortized premium ) are the result of the conversion of convertible debt , and include the write-off of the related debt conversion option and any unamortized debt premium or discount . other . other consists of miscellaneous non-operating expenses , including state taxes . net operating loss carryforwards . we have established valuation allowances to fully offset our deferred tax assets due to the uncertainty about our ability to generate the future taxable income necessary to realize these deferred assets , particularly in light of our historical losses . the future use of net operating loss carryforwards is dependent on us attaining profitable operations and will be limited in any one year under internal revenue code section 382 due to significant ownership changes ( as defined in section 382 ) resulting from our equity financings . at june 30 , 2013 , we had net operating loss carryforwards for federal and state income tax reporting purposes of approximatel y $ 150.4 million , which will expire at various dates through fiscal 2033 . 33 critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of our consolidated financial statements requires us to make estimates , assumptions and judgments that affect amounts reported in those statements . our estimates , assumptions and judgments , including those related to revenue recognition , allowance for doubtful accounts , excess and obsolete inventory , the debt conversion option , and stock-based compensation are updated as appropriate at least quarterly . we use authoritative pronouncements , our technical accounting knowledge , cumulative business experience , valuation specialists , judgment and other factors in the selection and application of our accounting policies . while we believe that the estimates , assumptions and judgments that we use in preparing our consolidated financial statements are appropriate , these estimates , assumptions and judgments are subject to factors and uncertainties regarding their outcome . therefore , actual results may materially differ from these estimates . story_separator_special_tag use and economic substance of non-gaap financial measures used and usefulness of such non-gaap financial measures to investors we use adjusted ebitda as a supplemental measure of performance and believe this measure facilitates operating performance comparisons from period to period and company to company by factoring out potential differences caused by depreciation and amortization expense and non-cash charges such as stock-based compensation . our management uses adjusted ebitda to analyze the underlying trends in our business , assess the performance of our core operations , establish operational goals and forecasts that are used to allocate resources and evaluate our performance period over period and in relation to our competitors ' operating results . we believe that presenting adjusted ebitda provides investors greater transparency to the information used by our management for its financial and operational decision-making and allows investors to see our results “ through the eyes ” of management . we also believe that providing this information better enables our investors to understand our operating performance and evaluate the methodology used by our management to evaluate and measure such performance . adjusted ebitda is also used to measure performance in our financial covenants as required by silicon valley bank and partners for growth . the following is an explanation of each of the items that management excluded from adjusted ebitda and the reasons for excluding each of these individual items : stock-based compensation . we exclude stock-based compensation expense from our non-gaap financial measures primarily because such expense , while constituting an ongoing and recurring expense , is not an expense that requires cash settlement . our management also believes that excluding this item from our non-gaap results is useful to investors to understand its impact on our operational performance , liquidity and ability to make additional investments in the company , and it allows for greater transparency to certain line items in our financial statements . depreciation and amortization expense . we exclude depreciation and amortization expense from our non-gaap financial measures primarily because such expenses , while constituting ongoing and recurring expenses , are not expenses that require cash settlement and are not used by our management to assess the core profitability of our business operations . our management also believes that excluding these items from our non-gaap results is useful to investors to understand our operational performance , liquidity and ability to make additional investments in the company . material limitations associated with the use of non-gaap financial measures and manner in which we compensate for these limitations non-gaap financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for our financial results prepared in accordance with gaap . some of the limitations associated with our use of these non-gaap financial measures are : 38 items such as stock-based compensation do not directly affect our cash flow position ; however , such items reflect economic costs to us and are not reflected in our adjusted ebitda and therefore these non-gaap measures do not reflect the full economic effect of these items . non-gaap financial measures are not based on any comprehensive set of accounting rules or principles and therefore other companies may calculate similarly titled non-gaap financial measures differently than we do , limiting the usefulness of those measures for comparative purposes . our management exercises judgment in determining which types of charges or other items should be excluded from the non-gaap financial measures we use . we compensate for these limitations by relying primarily upon our gaap results and using non-gaap financial measures only supplementally . liquidity and capital resources we had cash and cash equivalents of $ 67.9 million and $ 35.5 million at june 30 , 2013 and 2012 , respectively . during the year ended june 30 , 2013 , net cash used in operations amounted to $ 10.8 million . as of june 30 , 2013 , we had an accumulated deficit of $ 203.3 million . we have historically funded our operating losses primarily from the issuance of common and preferred stock , convertible promissory notes , debt , and the merger with replidyne in february 2009. loan and security agreement with silicon valley bank on march 29 , 2010 , we entered into an amended and restated loan and security agreement with silicon valley bank . the agreement was amended on december 27 , 2011 to increase outstanding borrowings , and subsequently amended on june 29 , 2012 to modify financial covenants and reduce the interest rate and other fees , and on may 10 , 2013 to modify financial covenants . the agreement , as amended , includes a $ 12.0 million term loan and a $ 15.0 million line of credit . the terms of each of these loans are as follows : the $ 12.0 million term loan has an initial interest rate of 8.0 % , which can be reduced to 7.0 % based on the achievement of positive ebitda for the trailing six month period . the term loan has a 36 month maturity , with repayment terms that include interest only payments during the first six months , followed by 30 equal principal payments of $ 400,000 plus interest , and a final payment of $ 100,000 due at maturity . this term loan also includes an acceleration provision that requires us to pay the entire outstanding balance , plus a penalty ranging from 1.0 % to 3.0 % of the commitment amount , upon the occurrence and continuance of an event of default . the balance outstanding on the term loan at june 30 , 2013 , was $ 7.0 million net of the unamortized discount associated with warrants issued to silicon valley bank in connection with the loan . the unamortized discount associated with warrants and other fees paid to the lender are being amortized over the 36 month maturity period . the $ 15.0 million line of credit expires on june 30

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net cash used in operating activities was $ ( 10.8 ) million , $ ( 11.3 ) million , and $ ( 8.4 ) million for the years ended june 30 , 2013 , 2012 , and 2011 , respectively . for the years ended june 30 , 2013 , 2012 , and 2011 , we had a net loss of $ ( 24.0 ) million , $ ( 16.8 ) million , and $ ( 11.1 ) million , respectively . changes in working capital accounts also contributed to the net cash used in the years ended june 30 , 2013 , 2012 , and 2011 . significant changes in working capital during these periods included : cash used in accounts receivable of $ ( 1.3 ) million , $ ( 391,000 ) , and $ ( 3.7 ) million during the years ended june 30 , 2013 , 2012 , and 2011 respectively . cash used in accounts receivable is due to higher receivable balances from revenue growth which was greater in fiscal year 2013 as compared to fiscal year 2012 and 2011. cash provided by ( used in ) inventories of $ 818,000 , $ ( 1.2 ) million , and $ ( 1.5 ) million during the years ended june 30 , 2013 , 2012 , and 2011 , respectively . cash provided by ( used in ) inventories was primarily due to the timing of inventory purchases and sales . cash provided by ( used in ) prepaid expenses and other current assets of $ 925,000 , $ ( 379,000 ) , and $ 323,000 during the years ended june 30 , 2013 , 2012 , and 2011 respectively . cash provided by ( used in ) prepaid expenses and other current assets was primarily due to payment timing of vendor deposits and other expenditures . cash provided by accounts payable of $ 1.5 million , $ 269,000 , and $ 1.8 million during the years ended june 30 , 2013 , 2012 , and 2011 , respectively . cash provided by accounts payable was primarily due to timing of purchases and vendor payments .

the company further concluded that including the oklahoma owners in its 2011 financial statements was not material to such consolidated financial statements and therefore no adjustments have been made to the previously issued 2011 financial statements . note 14 , variable interest entities , in the consolidated financial statements included in part ii , item 8. , `` financial statements and supplementary data , `` includes summarized financial statements of the oklahoma owners for 2011 that are included in the company 's 2011 consolidated financial statements . liquidity for the year ended and as of december 31 , 2013 , we had a net loss of $ 13.4 million and negative working capital of $ 15.6 million . at december 31 , 2013 , we had $ 19.4 million in cash and cash equivalents and $ 160.3 million in indebtedness , including current maturities and discontinued operations , of which $ 32.2 million is current debt ( including the company 's outstanding convertible promissory notes with a principal amount in the aggregate of $ 4.5 million and $ 6.9 million , which mature march 31 , 2014 and august 29 , 2014 , respectively , and approximately $ 6.0 million of mortgage notes included in liabilities of variable interest entity held for sale ) . our ability to achieve profitable operations is dependent on continued growth in revenue and controlling costs . we anticipate that scheduled debt service ( excluding approximately $ 6.4 million of bullet maturities due july 2014 that the company believes will be refinanced on a longer term basis and $ 6.9 million in outstanding convertible promissory notes that mature august 29 , 2014 but including principal and interest ) , will total approximately $ 21.4 million and cash outlays for 32 capital expenditures , dividends on our series a preferred stock and income taxes will total approximately $ 6.5 million for the year ending december 31 , 2014 . we routinely have ongoing discussions with existing and potential new lenders to refinance current debt on a longer term basis and , in recent periods , have refinanced shorter term acquisition debt , including seller notes , with traditional longer term mortgage notes , some of which have been executed under government guaranteed lending programs . we anticipate the conversion to common stock of $ 4.0 million of the company 's outstanding convertible promissory notes that mature august 29 , 2014 , which excludes subordinated convertible promissory notes with a principal amount in the aggregate of $ 2.9 million that were converted into shares of common stock of the company in january 2014 ( see note 20 - subsequent events , of the consolidated financial statements included in part ii , item 8. , `` financial statements and supplementary data ) . these promissory notes are convertible into shares of common stock of the company at $ 3.73 per share . the closing price of the common stock exceeded $ 4.00 per share from january 1 , 2014 through march 21 , 2014. as discussed further below , if we were unable to refinance the $ 6.4 million of bullet maturities due july 2014 or were required to pay the $ 4.0 million of outstanding convertible promissory notes in cash , then the company may be required to restructure its outstanding indebtedness , implement further cost reduction initiatives , sell assets , or delay , modify , or abandon its expansion plans due to our limited liquidity in such an event . we estimate that cash flow from operations and other working capital changes will be approximately $ 15.4 million for the year ending december 31 , 2014 . during february and march 2014 , the company issued 693,761 shares of its common stock to holders of the company 's warrants dated september 30 , 2010 upon conversion at an exercise price of $ 3.57 per share . the company received proceeds of approximately $ 2.3 million , net of broker commissions of approximately $ 0.1 million ( see note 20 - subsequent events , of the consolidated financial statements included in part ii , item 8. , `` financial statements and supplementary data ) . based on existing cash balances , anticipated cash flows for the year ending december 31 , 2014 , the anticipated refinancing of $ 6.4 million of bullet maturities due july 2014 , the expected conversion of $ 4.0 million of convertible promissory notes due august 29 , 2014 into shares of the company 's common stock , the net proceeds of approximately $ 6.3 million from the issuance and sale of the company 's 10 % subordinated convertible notes due april 30 , 2015 that were received on march 28 , 2014 ( see note 20 - subsequent events ) , and anticipated new sources of capital , we believe there will be sufficient funds for our operations , scheduled debt service , and capital expenditures at least through the next 12 months . on a longer term basis , at december 31 , 2013 we have approximately $ 73.9 million of debt payments and maturities due between 2015 and 2017 , excluding convertible promissory notes which are convertible into shares of the company 's common stock . we have been successful in recent years in raising new equity capital and believe , based on recent discussions , that these markets will continue to be available to us for raising capital in 2014 . we believe our long-term liquidity needs will be satisfied by these same sources , as well as borrowings as required to refinance indebtedness . story_separator_special_tag the company further concluded that including the oklahoma owners in its 2011 financial statements was not material to such consolidated financial statements and therefore no adjustments have been made to the previously issued 2011 financial statements subsequent to that date . revenue recognition the company recognizes revenue when the following four conditions have been met : ( i ) there is persuasive evidence that an arrangement exists ; ( ii ) delivery has occurred or service has been rendered ; ( iii ) the price is fixed or determinable ; and ( iv ) collection is reasonably assured . the company 's revenue is derived primarily from providing healthcare services to residents and is recognized on the date services are provided at amounts billable to the individual . for reimbursement arrangements with third-party payors , including medicaid , medicare and private insurers , revenue is recorded based on contractually agreed-upon amounts on a per patient , daily basis . revenue from the medicaid and medicare programs accounted for 84 % of our revenue for each of the years ended december 31 , 2013 and 2012 . the company records revenue from these governmental and managed care programs as services are performed at their expected net realizable amounts under these programs . the company 's revenue from governmental and managed care programs is subject to audit and retroactive adjustment by governmental and third-party agencies . consistent with healthcare industry accounting practices , any changes to these governmental revenue estimates are recorded in the period the change or adjustment becomes known based on final settlement . we recorded retroactive adjustments to revenue which were not material to our consolidated revenue for the years ended december 31 , 2013 and 2012 . accounts receivable and allowance for doubtful accounts accounts receivable consist primarily of amounts due from medicaid and medicare programs , other government programs , managed care health plans and private payor sources . estimated provisions for doubtful accounts are recorded to the extent it is probable that a portion or all of a particular account will not be collected . accounts receivable are reported net of allowances for doubtful accounts . the administrators and managers of our facilities evaluate the collectibility of accounts ; corporate management reviews the adequacy of the allowance for doubtful accounts on a monthly basis , and adjustments are made if necessary . asset impairment the company reviews the carrying value of long-lived assets that are held and used in our operations for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of these assets is determined based upon expected undiscounted future net cash flows from the operations to which the assets relate , utilizing management 's best estimate , appropriate assumptions , and projections at the time . if the carrying value is determined to be unrecoverable from future operating cash flows , the asset is deemed impaired and an impairment loss would be recognized to the extent the carrying value exceeded the estimated fair value of the asset . we estimate the fair value of assets based on the estimated future discounted cash flows of the asset . management has evaluated its long-lived assets and has not identified any asset impairment during the year ended december 31 , 2013 and 2012 . the company tests indefinite-lived intangible assets for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable . goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations . goodwill is subject to annual testing for impairment . in addition , goodwill is tested for impairment if events occur or circumstances change that would reduce the fair value of a facility below its carrying amount . the company performs its annual test for impairment during the fourth quarter of each year . during 2013 , the company recognized a goodwill impairment charge of approximately $ 0.8 million on a facility located in tulsa , oklahoma acquired in 2012 which is reflected in loss from continuing operations . the impairment charge was a result of the required goodwill impairment test that requires 38 the goodwill to be written down to the estimate of the implied fair value ( see note 6 to our consolidated financial statements included in part ii , item 8. , `` financial statements and supplementary data. `` ) . the company 's asset impairment analysis is consistent with the fair value measurements described in asc topic 820 , fair value measurements and disclosures . in 2012 , the company recognized impairment charges totaling $ 0.5 million related to its former corporate office building in springfield , ohio and an administrative office building in rogers , arkansas . both of these office buildings were held for sale at december 31 , 2012. in 2013 , the company completed the sale of its former springfield , ohio corporate office building which was sold for the approximate net book value . during 2013 , the company recognized a $ 0.5 million impairment charge to write down the carrying value of certain lease rights , equipment , and leasehold improvement values of a facility located in thomasville , georgia and an impairment charge of $ 0.7 million to write down the carrying value of certain lease rights , equipment , and leasehold improvement values related to two facilities in tybee island , georgia ( see note 10 to our consolidated financial statements included in part ii , item 8. , `` financial statements and supplementary data `` ) . the impairment charge represents a change in fair value from the carrying value . self-insurance accruals as of october 1 , 2012 , the company is self-insured for employee medical claims ( in all states except for oklahoma , where the company participates in the oklahoma

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convertible debt subordinated convertible notes issued in 2010 ( the `` 2010 notes '' ) on october 26 , 2010 , the company entered into a securities purchase agreement with certain accredited investors to sell and issue to them an aggregate of $ 11.1 million in principal amount of the company 's subordinated convertible notes , bearing 10 % interest per annum payable quarterly in cash in arrears beginning december 31 , 2010. on october 29 , 2010 , the company entered into an amendment and joinder agreement to effectuate the sale of an additional $ 0.8 million in principal amount of the 2010 notes . the initial sale of $ 11.1 million in principal amount of the 2010 notes occurred on october 26 , 2010 , and the subsequent sale of $ 0.8 million in principal amount of the 2010 notes occurred on october 29 , 2010. the 2010 notes had an original maturity date of october 26 , 2013. the 2010 notes were convertible at the option of the holder into shares of common stock of the company at a current conversion price of $ 3.73 ( adjusted for a 5 % stock dividends paid on october 14 , 2011 and october 22 , 2012 , as further discussed in note 12 of the consolidated financial statements included in part ii , item 8. , `` financial statements and supplementary data '' , and subject to adjustment for stock dividends , stock splits , combination of shares , recapitalization and other similar events ) that were subject to future reductions if the company issued equity instruments at a lower price .

to help mitigate the spread of the virus and in response to health advisories and governmental actions and regulations , the company has modified its business practices and has implemented health and safety measures that are designed to protect employees and represented talent . the company 's revenues are heavily dependent on the level of economic activity in the united states and the united kingdom , particularly in the fashion , advertising and publishing industries , all of which have been negatively impacted by the pandemic and may not recover as quickly as other sectors of the economy . there have been mandates from federal , state , and local authorities requiring forced closures of non-essential businesses . as a result , beginning in march 2020 , the company saw a significant reduction in customer bookings , resulting in a negative impact to revenue and earnings . during the second half of 2020 , bookings increased from the preceding months , but remained significantly below pre-pandemic levels . 11 in addition to reduced revenue , business operations have been adversely affected by reductions in productivity , limitations on the ability of customers to make timely payments , disruptions in talents ' ability to travel to needed locations , and supply chain disruptions impeding clothing or footwear wardrobe from reaching destinations for photoshoots and other bookings . many of the company 's customers are large retail and fashion companies , some of which have had to close stores in the united states and internationally due to the spread of covid-19 . some of these customers have filed for bankruptcy in 2020 and others may be unable to pay amounts already owed to the company , resulting in increased current and future bad debt expense . these customers also may not emerge from the pandemic with the financial ability , or need , to purchase wilhelmina 's services to the extent that they did in previous years . some model talent have been quarantined with family far from the major cities where wilhelmina 's offices are located , and also away from where most modeling jobs take place . many u.s. and international airlines have decreased their flight schedules which , as economic activities resumes and clients increase booking requests , may make it difficult for talent to be available when and where they are needed . the b.1.1.7 variant of the covid-19 virus , which is believed to spread easily and quickly , has particularly impacted the united kingdom in recent months , resulting in renewed strict lockdowns that have impacted wilhelmina 's london operations and are continuing into 2021. while these disruptions are currently expected to be temporary , there continues to be uncertainty around the duration . postponed and cancelled bookings related to the pandemic contributed significantly to reduced revenues and increased operating losses during 2020. although some clients increased activity and bookings during the second half of 2020 , rising covid-19 infection rates in cities where wilhelmina operates could lead to a slower economic recovery in those markets , and possible additional business closings or local mandates that could slow the recovery in operations there . since wilhelmina extends customary payment terms to its clients , even as bookings resume , there is likely to be a lag before significant cash collections return . in the meantime , the company continues to have significant employee , office rent , and other expenses . reduced outstanding accounts receivable available as collateral under the company 's credit agreement with amegy bank has limited its access to additional financing . net losses in recent periods have also impacted compliance with the financial covenants under the amegy bank credit agreement , further impeding the company 's ability to obtain additional financing . since the pandemic began , many stock markets , including nasdaq capital market where wilhelmina 's common stock is listed , have been volatile . a further decline in the company 's stock price would reduce its market capitalization and could require additional goodwill or intangible asset impairment writedowns . the company has taken the following actions to address the impact of covid-19 and the current recessionary environment , in order to efficiently manage the business and maintain adequate liquidity and maximum flexibility : - in april 2020 , obtained approximately $ 2.0 million in loans under the paycheck protection program ( the “ ppp ” ) of the coronavirus aid , relief , and economic security act ( the “ cares act ” ) administered by the u.s. small business administration ( “ sba ” ) . - eliminated discretionary travel and entertainment expenses . - suspended share repurchases . the terms of the company 's ppp loans restrict share repurchases until 12 months have passed after full repayment . - did not renew the leases on three new york city model apartments when the terms ended in june and august , 2020 . - did not renew the lease on the company 's new york city office , and required all new york based staff to work remotely . - suspended efforts to fill two highly compensated executive roles following the resignation of the company 's chief executive officer and vice president in early 2020 . - negotiated discounts with various vendors and service providers . - effective july 1 , 2020 , implemented layoffs of approximately 36 % of its staff , including employees at each of the company 's five offices , and effected temporary salary reductions for the remaining staff . if the quarantines and limitations on non-essential work are re-implemented , or persist for an extended period , the company may need to implement additional cost savings measures . story_separator_special_tag in the event all or any portion of the ppp loans is forgiven , the amount forgiven is applied to outstanding principal , and would be recorded as forgiveness of debt income . as of december 31 , 2020 , a total of $ 2.0 million was outstanding on the ppp loans . off-balance sheet arrangements as of december 31 , 2020 , the company had outstanding a $ 0.2 million irrevocable standby letter of credit under the company 's revolving credit facility with amegy bank . the letter of credit served as security under the lease relating to the company 's office space in new york city that expired on february 28 , 2021 . 16 effect of inflation inflation has not been a material factor affecting the company 's business . general operating expenses , such as salaries , employee benefits , insurance and occupancy costs , are subject to normal inflationary pressures . critical accounting policies and estimates the consolidated financial statements of the company are prepared in accordance with generally accepted accounting practices in the united states of america ( “ u.s . gaap ” ) . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , costs , and expenses and related disclosures . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . in many instances , we could have reasonably used different accounting estimates , and in other instances , changes in the accounting estimates are reasonably likely to occur from period to period . accordingly , actual results could differ significantly from the estimates made by our management . to the extent that there are material differences between these estimates and actual results , our future financial statement presentation , financial condition , results of operations and cash flows may be affected . the following items require significant estimation or judgement . for additional information about our accounting policies , refer to “ note 2 , summary of significant accounting policies ” in the audited financial statements included herewith . revenue recognition the company has adopted the requirements of accounting standards update ( “ asu ” ) no . 2014-09 , revenue from contracts with customers ( topic 606 ) ( “ asc 606 ” ) . asc 606 establishes a principle for recognizing revenue upon the transfer of promised goods or services to customers , in an amount that reflects the expected consideration received in exchange for those goods or services . our revenues are derived primarily from fashion model bookings , and representation of social media influencers and actors for commercials , film , and television . our performance obligations are primarily satisfied at a point in time when the talent has completed the contractual requirements . a contract 's transaction price is allocated to each distinct performance obligation and recognized as revenue when , or as , the performance obligation is satisfied . the performance obligations for most of the company 's core modeling bookings are satisfied on the day of the event , and the “ day rate ” total fee is agreed in advance when the customer books the model for a particular date . for contracts with multiple performance obligations , we allocate the contract 's transaction price to each performance obligation based on the estimated relative standalone selling price . model costs model costs include amounts owed to talent , including taxes required to be withheld and remitted directly to taxing authorities , commissions owed to other agencies , and related costs such as those paid for photography . costs are accrued in the period in which the event takes place consistent with when the revenue is recognized . the company typically enters into contractual agreements with models under which the company is obligated to pay talent upon collection of fees from the customer . share based compensation share-based compensation expense is estimated at the grant date based on the award 's fair value as calculated by the black-scholes option pricing model and is recognized on a straight line basis as an expense over the requisite service period , which is generally the vesting period . the determination of the fair value of share-based awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables . these variables include the estimated volatility over the expected term of the awards , actual and projected employee stock option exercise behaviors , risk-free interest rates , estimated forfeitures and expected dividends . income taxes we are subject to income taxes in the united states , the united kingdom , and numerous local jurisdictions . deferred tax assets are recognized for unused tax losses , unused tax credits , and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used . unused tax loss carry-forwards are reviewed at each reporting date and a valuation allowance is established if it is doubtful we will generate sufficient future taxable income to utilize the loss carry-forwards . 17 in determining the amount of current and deferred income tax , we take into account whether additional taxes , interest , or penalties may be due . although we believe that we have adequately reserved for our income taxes , we can provide no assurance that the final tax outcome will not be materially different . to the extent that the final tax outcome is different than the amounts recorded , such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on our financial condition and operating results . accounts receivable and allowance for doubtful accounts accounts receivable are accounted for

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liquidity and capital resources the company 's cash balance decreased to $ 5.6 million at december 31 , 2020 from $ 7.0 million at december 31 , 2019. the cash balance decreased primarily as a result of $ 2.0 million net cash used by operating activities and $ 0.2 million cash used in investing activities , partially offset by $ 0.6 million cash provided by financing activities , as well as $ 0.1 million foreign currency effect on cash flow . net cash used in operating activities of $ 2.0 million was primarily the result of net loss and decreases in amounts due to models , accounts payable and accrued liabilities , and lease liabilities , partially offset by decreases in accounts receivable and right of use assets . the $ 0.2 million cash used in investing activities was attributable to purchases of property and equipment , including software and computer equipment . the $ 0.6 million of cash used in financing activities was primarily attributable to receipt of $ 2.0 million of ppp loans , partially offset by $ 1.3 million principal payments on the company 's amegy bank term loans , and payments on finance leases . the company 's primary liquidity needs are for working capital associated with performing services under its client contracts and servicing its remaining term loan . generally , the company incurs significant operating expenses with payment terms shorter than its average collections on billings . the covid-19 pandemic has had an impact on the company 's cash flows during the year ended december 31 , 2020 , primarily due to reduced bookings and modeling jobs and delayed payments from customers . the company has taken actions to address the impact of covid-19 by reducing expenses and has the ability to implement more significant cost savings measures if the current limitations on non-essential work persist for an extended period . based on 2021 budgeted and year-to-date cash flow information , management believes that the company has sufficient liquidity to meet its projected operational expenses and capital expenditure requirements for the next twelve months .

as a result of anticipated commercial effectiveness , the company expects increased working capital to support growth , especially of na/hme mobility and seating products , which would include investments in demonstration units and the working capital needed to support the extended quote-to-cash process for power wheelchairs . also , the company will make additional restructuring and capital investments as it continues to reshape the business over the course of 2018. the company expects spending on capital expenditures to increase from recent low levels to approximately $ 20,000,000 to $ 25,000,000 in 2018. as a result , the company anticipates its cash flow usage for 2018 will be similar to the cash used in 2017 , including consideration of seasonality of cash flow usage during the year . as noted previously , the company is gradually applying the transformation to the europe segment , which may slightly reduce the segment 's net sales as it begins to shift its product mix toward more clinically valued , higher-margin products . regarding the ipg segment , the company expects its new strategic selling approach in the capital selling environment to continue to take time to yield growth . in its pursuit of increased shareholder value , the company continues to prioritize its emphasis on a culture of quality excellence and achieving its long-term earnings potential . favorable long-term demand ultimately , demand for the company 's products and services is based on the need to provide care for people with certain conditions . the company 's medical devices provide solutions for end-users and caregivers . therefore , the demand for the company 's medical equipment is largely driven by population growth and the incidence of certain conditions where treatment may be supplemented by the company 's devices . the company also provides solutions to help equipment providers and residential care operators deliver cost-effective and high-quality care . the company believes that its commercial team , customer relationships , products and solutions , supply chain infrastructure , and strong research and development pipeline will create favorable business potential . 36 part ii management discussion & analysis results of operations results of operations the company has completed various divestitures over the past few years as part of its focus on other lines of business where the company 's resources can best generate returns . the most recent divested operations are explained below . on september 30 , 2016 , the company completed the sale of its subsidiary , garden city medical inc. for approximately $ 13,829,000 in cash ( `` gcm `` ) , to compass health brands . gcm , doing business as pmi and pinnacle medsource , sourced and distributed primarily single-use products under the brand probasics by pmi . gcm was part of the north america/home medical equipment ( na/hme ) segment . the net proceeds from the transaction were $ 12,729,000 , net of expenses . the company recorded a pre-tax gain of $ 7,386,000 in the third quarter of 2016 , which represented the excess of the net sales price over the book value of the assets and liabilities of gcm . the sale of gcm was dilutive to the company 's results . the company determined that the sale of gcm did not meet the criteria for classification as a discontinued operation in accordance with asu 2014-08 but the `` held for sale `` criteria of asc 360-10-45-9 were met and thus gcm was treated as held for sale for purposes of the consolidated balance sheets as of december 31 , 2015. as such , the results of the rentals businesses are included in the results from continuing operations discussion below . on july 2 , 2015 , the company sold its rentals businesses to joerns healthcare parent , llc , for approximately $ 15,500,000 in cash , which was subject to final post-closing adjustments . the rentals businesses had been operated on a stand-alone basis and reported as part of the ipg segment of the company . the company recorded a pre-tax gain of approximately $ 24,000 in the third quarter of 2015 , which represented the excess of the net sales price over the book value of the assets and liabilities of the rentals businesses , as of the date of completion of the disposition . the sale of the rentals businesses was not dilutive to the company 's results . the company determined that the sale of the rentals businesses did not meet the criteria for classification as a discontinued operation in accordance with asu 2014-08. the rentals businesses were treated as held for sale as of june 30 , 2015 until sold on july 2 , 2015 . as such , the results of the rentals businesses are included in the results from continuing operations . reclassifications & other changes - during the first quarter of 2017 , a subsidiary , formerly included in the europe segment , was transferred to the na/hme segment as the subsidiary is managed by the na/hme segment manager effective january 1 , 2017. segment results for 2016 and 2015 have been changed accordingly . in 2016 , the company redefined the measure by which it evaluates segment profit or loss to be segment operating profit ( loss ) . the previous performance measure was earnings before income taxes . all prior periods presented were restated to reflect the new measure . 37 part ii management discussion & analysis net sales net sales 2017 versus 2016 replace_table_token_5_th the table above provides net sales change as reported and as adjusted to exclude the impact of foreign exchange translation ( constant currency net sales ) as well as net sales further adjusted to exclude the impact of the sale of gcm , which was sold in september 2016 and not deemed a discontinued operation from an external reporting perspective . story_separator_special_tag % , excluding the impact of the divested gcm business and foreign currency translation , sg & a expense decreased $ 7,998,000 , or 6.0 % , compared to 2016 driven primarily by decreased employment , legal and product liability costs partially offset by unfavorable foreign currency transactions . ipg - sg & a expenses for ipg decreased by 7.1 % , or $ 826,000 , in 2017 compared to 2016 . excluding the impact of foreign currency translation , sg & a expenses decrease d by $ 835,000 , or 7.2 % , primarily related to lower employment costs . asia/pacific - asia/pacific sg & a expenses decreased 2.9 % , or $ 459,000 , in 2017 compared to 2016 . foreign currency translation increased expense by $ 286,000 or 1.8 % . excluding the foreign currency translation impact , sg & a expenses decrease d $ 745,000 , or 4.7 % , principally related to lower employment costs and favorable foreign currency transactions . other - sg & a expenses related to the other segment increased by 10.7 % or $ 2,151,000 in 2017 as compared to 2016 primarily related to increased employment costs . 44 part ii management discussion & analysis sg & a 2016 versus 2015 replace_table_token_12_th consolidated sg & a expenses as a percentage of net sales were 29.0 % in 2016 and 27.9 % in 2015. the overall dollar decrease was $ 14,865,000 , or 4.7 % , with foreign currency translation decreasing expense by $ 4,226,000 or 1.4 % . excluding the impact of foreign currency translation , sg & a expenses decreased $ 10,639,000 , or 3.3 % . excluding the impacts of all the divested businesses and foreign currency translation , sg & a expense increased $ 2,212,000 , or 0.7 % , compared to 2015 , primarily related to increased product liability and employment costs . the sg & a expense in 2015 included a write-off of costs related to a canceled legacy software program based on a change in the na/hme it strategy . europe - european sg & a expenses increased by 2.4 % , or $ 2,810,000 , in 2016 compared to 2015. foreign currency translation decreased expense by approximately $ 3,224,000 or 2.7 % . excluding the foreign currency translation impact , sg & a expenses increased by $ 6,034,000 , or 5.1 % , principally related to increased employment costs . na/hme - sg & a expenses for na/hme decreased 3.1 % , or $ 4,334,000 , in 2016 compared to 2015 with foreign currency translation decreasing expense by $ 722,000 or 0.5 % . excluding the foreign currency translation , sg & a expense decreased $ 3,612,000 , or 2.6 % , principally as a result of reduced regulatory costs in 2016 , a $ 4,031,000 write-off of costs for a canceled legacy software program in 2015 , and a reduction in expense in 2016 resulting from the gcm divestiture . ipg - sg & a expenses for ipg decreased by 50.7 % , or $ 11,949,000 , in 2016 compared to 2015. excluding the impact of foreign currency translation , sg & a expenses decreased by $ 11,927,000 , or 50.6 % , primarily related to a reduction in expense for the rentals business divestiture ( $ 11,239,000 ) and employment costs . asia/pacific - asia/pacific sg & a expenses decreased 6.1 % , or $ 1,018,000 , in 2016 compared to 2015. foreign currency translation decreased expense by $ 258,000 or 1.6 % . excluding the foreign currency translation impact , sg & a expenses decreased $ 760,000 , or 4.5 % , principally as a result of favorable foreign currency transactions and reduced employment costs . other - sg & a expenses related to the other segment decreased by 1.8 % or $ 374,000 in 2016 as compared to 2015 primarily related to decreased legal expense in 2016 . 45 part ii management discussion & analysis operating income operating income ( loss ) replace_table_token_13_th 2017 versus 2016 consolidated operating loss increased by $ 24,944,000 to a loss of $ 40,159,000 in 2017 from a loss of $ 15,215,000 in 2016 . excluding a $ 7,386,000 gain on sale of the gcm business in 2016 , the loss increased by $ 17,558,000 compared to 2016 primarily due to increased restructuring costs of $ 9,827,000 and lower net sales . europe - operating income decrease d in 2017 compared to 2016 primarily related to unfavorable manufacturing costs , including unfavorable foreign exchange , and increased information technology , r & d and employment costs , partially offset by increased constant currency net sales , favorable net sales mix and reduced warranty expense . na/hme - operating loss increased in 2017 compared to 2016 primarily related to net sales declines partially offset by favorable sales mix and reduced freight , employment , product liability , warranty , legal and r & d expenses . in addition , 2016 included $ 1,969,000 in operating income for gcm . ipg - operating income increased in 2017 compared to 2016 primarily related to reduced sg & a , related to employment costs , and favorable product mix principally offset by net sales declines . asia/pacific - operating loss decreased in 2017 compared to 2016 primarily related to increased constant currency net sales , favorable sales mix , reduced r & d expense , and favorable foreign exchange . all other - operating loss increased in 2017 compared to 2016 due to increased employment costs . gain on sale of business as a result of the sale of gcm on september 30 , 2016 , the company recorded a gain in 2016 of $ 7,386,000 on the sale , which represents the excess of the net sales price over the book value of the net assets of gcm . charge related to restructuring activities the company 's restructuring charges were primarily originally necessitated by continued declines in medicare

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liquidity and capital resources the company continues to maintain an adequate liquidity position through its cash balances and unused bank lines of credit ( see long-term debt in the notes to the consolidated financial statements included in this report ) as described below . key balances on the company 's balance sheet and related metrics : replace_table_token_17_th ( 1 ) current assets less current liabilities . ( 2 ) long-term debt and total debt include debt issuance costs recognized as a deduction from the carrying amount of debt liability and debt discounts classified as debt or equity . ( 3 ) reflects the combined availability of the company 's north american and european asset-based revolving credit facilities . the change is borrowing availability is due to changes in the calculated borrowing base . the company 's cash and cash equivalents were $ 176,528,000 and $ 124,234,000 at december 31 , 2017 and december 31 , 2016 , respectively . the increase in cash balances at december 31 , 2017 compared to december 31 , 2016 was primarily the result of the net proceeds received from the issuance of the 2022 notes in the second quarter of 2017 partially offset by cash utilized for normal operations and by the february 2 , 2017 repurchase of all the outstanding principal amount of convertible senior subordinated debentures due 2027 ( the `` debentures '' ) totaling $ 13,350,000 as the holders exercised their february 1 , 2017 right to require the company to repurchase their debentures . debt repayments , acquisitions , divestitures , the timing of vendor payments , the timing of customer rebate payments , the granting of extended payment terms to significant national accounts and other activity can have a significant impact on the company 's cash flow and borrowings outstanding such that the cash reported at the end of a given period may be materially different than cash levels during a given period .

( 3 ) net interest spread represents average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities . 17 index replace_table_token_6_th ( 1 ) includes nonaccrual loans . ( 2 ) net interest margin is computed by dividing net interest income by total average earning assets . ( 3 ) net interest spread represents average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities . the table below sets forth the relative impact on net interest income of changes in the volume of earning assets and interest-bearing liabilities and changes in rates earned and paid by the company on such assets and liabilities . for purposes of this table , nonaccrual loans have been included in the average loan balances . replace_table_token_7_th ( 1 ) changes due to both volume and rate have been allocated to volume changes . 18 index comparison of interest income , interest expense and net interest margin the company 's primary source of revenue is interest income . interest income for the year ended december 31 , 2017 was $ 37.4 million , an increase from $ 32.2 million and $ 30.2 million , respectively , for the years ended december 31 , 2016 and 2015. the interest income was positively impacted by increased average earning assets , primarily loans , in 2017. average loans for the year increased 20.5 % over 2016 and 34.4 % over 2015. average earning asset yields declined for 2017 as competition for new quality loans continued to further compress the interest rates and the margin . in 2016 the margin benefited by 8 basis points from the payoff of one large nonaccrual loan relationship . interest expense for the year ended december 31 , 2017 increased by $ 1.6 million compared to 2016 and increased by $ 2.2 million compared to 2015 , respectively , to $ 4.7 million . the increase for 2017 compared to 2016 was mostly the result of the increased volume of deposits and increased rates . average interest-bearing deposits increased 3.7 % in 2017 compared to 2016. the average cost on interest-bearing deposits also increased to 42 basis points in 2017 compared to 37 basis points in 2016. the net impact of the changes in yields on interest-earning assets and the rates paid on interest-bearing liabilities was to decrease the margin for 2017 compared to 2016. the net interest margin was 4.34 % for 2017 compared to 4.60 % for 2016 and 4.80 % in 2015. net interest income increased by $ 3.6 million for 2017 compared to 2016 and $ 5.0 million , compared to 2015. total interest income increased by $ 3.6 million to $ 32.2 million in 2016 compared to 2015. the interest income was negatively impacted by decreased yields on earning assets in 2016 which decreased to 5.09 % compared to 5.23 % for 2015. the average yield on loans decreased to 5.43 % for 2016 compared to 5.67 % for 2015 as the company benefited from 22 basis points from the payoff of two large nonaccrual loan relationships in 2015. total interest expense increased by $ 0.6 million in 2016 compared to 2015. this increase was primarily due to increased total cost of funds which include non-interest bearing deposits from 49 basis points for 2015 to 54 basis points for 2016. net interest income increased by $ 1.4 million for 2016 compared to 2015 . 19 index provision for loan losses the provision for loan losses in each period is reflected as a charge against earnings in that period . the provision for loan losses is equal to the amount required to maintain the allowance for loan losses at a level that is adequate to absorb probable losses inherent in the loan portfolio . the provision ( credit ) for loan losses was $ 0.4 million in 2017 compared to ( $ 48,000 ) in 2016 and ( $ 2.3 ) million in 2015. the provision for loan losses for 2017 resulted primarily from loan growth and change in loan portfolio mix . the credit to provision for 2016 resulted from $ 0.6 million net recoveries , reduced historical loss factors partially offset by loan growth . as a result of improvements in credit quality , decreased historical loss rates , and net recoveries for the year , the ratio of the allowance for loan losses to loans held for investment decreased to 1.24 % at december 31 , 2017 from 1.31 % at december 31 , 2016. additional information regarding improved credit quality can be found beginning on page 27. the following table summarizes the provision ( credit ) , charge-offs ( recoveries ) by loan category for the year ended december 31 , 2017 , 2016 and 2015 : replace_table_token_8_th the percentage of net non-accrual loans ( net of government guarantees ) to the total loan portfolio increased to 0.61 % as of december 31 , 2017 from 0.38 % at december 31 , 2016 primarily due to the addition of one large commercial loan relationship . the allowance for loan losses compared to net non-accrual loans decreased to 188 % as of december 31 , 2017 from 314 % as of december 31 , 2016. total past due loans remained at $ 0.2 million as of december 31 , 2017 compared to december 31 , 2016 . 20 index non-interest income the company earned non-interest income primarily through fees related to services provided to loan and deposit customers . the following tables present a summary of non-interest income for the periods presented : replace_table_token_9_th total non-interest income increased $ 0.7 million for 2017 compared to 2016. the increase was mostly from higher loan origination and document processing fees due to loan growth . also contributing to the increase , was a $ 0.1 million increase in income from interest only strip fair market adjustments . these increases were partially offset by decreased loan servicing fees . story_separator_special_tag the following table presents total gross loans based on remaining scheduled contractual repayments of principal as of the periods indicated : replace_table_token_14_th concentrations of lending activities the company 's lending activities are primarily driven by the customers served in the market areas where the company has branch offices in the central coast of california . the company monitors concentrations within selected categories such as geography and product . the company makes manufactured housing , commercial , sba , construction , commercial real estate and consumer loans to customers through branch offices located in the company 's primary markets . the company 's business is concentrated in these areas and the loan portfolio includes significant credit exposure to the manufactured housing and commercial real estate markets of these areas . as of december 31 , 2017 and 2016 , manufactured housing loans comprised 30.3 % and 30.8 % , of total loans , respectively . as of december 31 , 2017 and 2016 , commercial real estate loans accounted for approximately 48.2 % and 43.1 % of total loans , respectively . approximately 33.9 % and 32.3 % of these commercial real estate loans were owner occupied at december 31 , 2017 and 2016 , respectively . substantially all of these loans are secured by first liens with an average loan to value ratios of 55.0 % and 54.6 % at december 31 , 2017 and 2016 , respectively . the company was within established policy limits at december 31 , 2017 and 2016 . 26 index interest reserves interest reserves are generally established at the time of the loan origination as an expense item in the budget for a construction and land development loan . the company 's practice is to monitor the construction , sales and or leasing progress to determine the feasibility of ongoing construction and development projects . if , at any time during the life of the loan , the project is determined not to be viable , the company discontinues the use of the interest reserve and may take appropriate action to protect its collateral position via renegotiation and or legal action as deemed appropriate . at december 31 , 2017 , the company had 18 loans with an outstanding balance of $ 45.7 million with available interest reserves of $ 3.9 million . total construction and land loans are approximately 8 % and 5 % of the company 's loan portfolio and december 31 , 2017 and 2016. impaired loans a loan is considered impaired when , based on current information , it is probable that the company will be unable to collect the scheduled payments of principal and or interest under the contractual terms of the loan agreement . factors considered by management in determining impairment include payment status , collateral value and the probability of collecting scheduled principal and or interest payments . loans that experience insignificant payment delays or payment shortfalls generally are not classified as impaired . management determines the significance of payment delays or payment shortfalls on a case-by-case basis . when determining the possibility of impairment , management considers the circumstances surrounding the loan and the borrower , including the length of the delay , the reasons for the delay , the borrower 's prior payment record and the amount of the shortfall in relation to the principal and interest owed . for collateral-dependent loans , the company uses the fair value of collateral method to measure impairment . all other loans are measured for impairment based on the present value of future cash flows . impairment is measured on a loan-by-loan basis for all impaired loans in the portfolio . a loan is considered a troubled debt restructured loan ( “ tdr ” ) when concessions have been made to the borrower and the borrower is in financial difficulty . these concessions include but are not limited to term extensions , rate reductions and principal reductions . forgiveness of principal is rarely granted and modifications for all classes of loans are predominantly term extensions . tdr loans are also considered impaired . the recorded investment in loans that are considered impaired is as follows : replace_table_token_15_th the following schedule summarizes impaired loans and specific reserves by loan class as of the periods indicated : replace_table_token_16_th $ 2.6 million of the above impaired loans are government guaranteed . 27 index replace_table_token_17_th $ 1.0 million of the above impaired loans are government guaranteed . total impaired loans increased by $ 3.1 million at december 31 , 2017 compared to december 31 , 2016. the manufactured housing impaired loans decreased by $ 0.9 million and commercial real estate impaired loans decreased by $ 0.6 million in 2017 compared to 2016. both the sba and heloc impaired loans decreased by $ 0.2 million each in 2017 compared to 2016. offsetting these decreases was an increase of $ 4.8 million in commercial impaired loans . impaired manufactured housing loans decreased mainly due to pay-offs and pay-downs . additionally , $ 0.2 million in manufactured housing loans were transferred to other foreclosed assets during 2017. the number of impaired manufactured housing loans decreased , with approximately 134 impaired manufactured housing loans at december 31 , 2017 compared to 142 at december 31 , 2016. offsetting the decreases , 11 new manufactured housing loans were added in 2017. impaired commercial loans increased in 2017 compared to 2016 primarily due to the addition of two large loan relationships partially offset by payments on existing loans and one small pay-off . impaired commercial real estate loans decreased from the pay-off of a $ 0.5 million loan and pay-downs on existing loans . the following schedule reflects recorded investment in certain types of loans at the dates indicated : replace_table_token_18_th the accrual of interest is discontinued when substantial doubt exists as to collectibility of the loan ; generally at the time the loan is 90 days delinquent . any unpaid but accrued interest is reversed at that

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capital resources the federal reserve has adopted capital adequacy guidelines that are used to assess the adequacy of capital in supervising a bank holding company . in july 2013 , the federal banking agencies approved the final rules ( “ final rules ” ) to establish a new comprehensive regulatory capital framework with a phase-in period beginning january 1 , 2015 and ending january 1 , 2019. the final rules implement the third installment of the basel accords ( “ basel iii ” ) regulatory capital reforms and changes required by the dodd-frank wall street reform and consumer protection act ( “ dodd-frank act ” ) and substantially amend the regulatory risk-based capital rules applicable to the company . basel iii redefines the regulatory capital elements and minimum capital ratios , introduces regulatory capital buffers above those minimums , revises rules for calculating risk-weighted assets and adds a new component of tier 1 capital called common equity tier 1 , which includes common equity and retained earnings and excludes preferred equity . the following tables illustrates the bank 's regulatory ratios and the federal reserve 's current adequacy guidelines as of december 31 , 2017 and 2016. the federal reserve 's fully phased-in guidelines applicable on january 1 , 2019 are also summarized . replace_table_token_29_th 34 index contractual obligations and off-balance sheet arrangements the company enters into contracts for services in the ordinary course of business that may require payment for services to be provided in the future and may contain penalty clauses for early termination of the contracts . to meet the financing needs of customers , the company has financial instruments with off-balance sheet risk , including commitments to extend credit and standby letters of credit . the company does not believe that these off-balance sheet arrangements have or are reasonably likely to have a material effect on its financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures , or capital resources . however , there can be no assurance that such arrangements will not have a future effect .

deferred tax asset at december 31 , 2012 ; · consolidated investment yield ( on an annualized basis ) of 3.8 % in 2013 compared to 4.1 % in 2012 ; · in the first quarter of 2013 , ihc 's ownership in amic increased to 80.6 % as a result of amic 's share repurchases . in october 2013 , ihc further increased its ownership of amic to 90.0 % with the acquisition of 762,640 shares of amic common stock as a result of a public tender offer for such shares ; · in the second quarter of 2013 , madison national life entered into a coinsurance agreement with an unaffiliated reinsurer , effective may 31 , 2013 , to cede approximately $ 218.6 million of life 27 and annuity reserves . net realized investment gains were $ 19.8 million for the year ended december 31 , 2013 , of which a significant portion resulted from sales of invested assets in connection with the transfer of assets in accordance with the terms of such coinsurance agreement . in addition , the company wrote-off $ 9.3 million of deferred acquisition costs as a result of this coinsurance agreement , which was more than offset by the net realized investment gains in the period ; and · book value of $ 15.22 per common share at december 31 , 2013 compared to $ 15.93 at december 31 , 2012. the following is a summary of key performance information by segment : · the medical stop-loss segment reported income before taxes of $ 12.7 million and $ 15.8 million for the years ended december 31 , 2013 and 2012 , respectively . the decrease is primarily due to higher loss ratios in 2013 ; o premiums earned increased $ 26.6 million for the year ended december 31 , 2013 when compared to 2012. the increase in premiums earned is primarily due to increased volume . o underwriting experience for the medical stop-loss segment , as indicated by its u.s. gaap combined ratios , is as follows for the years indicated ( in thousands ) : replace_table_token_7_th o the company recorded an increase in the loss ratio in the medical stop-loss line of business for 2013 due to an unfavorable reserve development related to business written with a certain producer . we have ceased writing new business with this producer . there was also adverse development on two non-owned mgu programs , both of which have been terminated , one effective september 30 , 2013 and the other december 31 , 2013 . ( a ) loss ratio represents insurance benefits claims and reserves divided by premiums earned . ( b ) expense ratio represents net commissions , administrative fees , premium taxes and other underwriting expenses divided by premiums earned . ( c ) the combined ratio is equal to the sum of the loss ratio and the expenses ratio . · the fully insured health segment reported $ 0.8 million of income before taxes for the year ended december 31 , 2013 as compared to $ 4.4 million for the year ended december 31 , 2012. the decrease is primarily due to higher loss ratios in 2013 ; o premiums earned increased $ 107.3 million for the year ended december 31 , 2013 over the comparable period in 2012 primarily due to premiums generated by new lines of business ( pet and international lines ) combined with increased volume and retentions in certain other lines of the business ; 28 o underwriting experience , as indicated by its u.s. gaap combined ratios , for the fully insured segment are as follows for the years indicated ( in thousands ) : replace_table_token_8_th o the increase in the loss ratio was primarily attributable to an increase in the claims experience on major medical business for individuals and families and small group major medical principally due to unfavorable development on business that is produced by certain non-owned third party administrators which we attribute in large part to changes brought on by health care reform , and to a reserve adjustment for a potential lawsuit related to business written through an mgu that was previously terminated . these losses will be reduced in 2014 as a result of exiting the imm market in 2013 . · income before taxes from the group disability , life , annuities and dbl segment in 2013 was comparable to prior year results ; · income before taxes from the individual life , annuities and other segment decreased $ 11.3 million for the year ended december 31 , 2013 compared to the prior year primarily due to the write-off of $ 9.3 million of deferred acquisition costs in connection with a coinsurance agreement during the second quarter of 2013 ; · income before taxes from the corporate segment increased $ 1.5 million for the year ended december 31 , 2013 compared to the prior year primarily due to a decrease in corporate expenses ; · net realized investment gains were $ 19.8 million for the year ended december 31 , 2013 compared to $ 5.1 million in 2012. a significant portion of the net realized investment gains in 2013 resulted from sales of invested assets in connection with the transfer of assets in accordance with the terms of a coinsurance agreement ; and 29 · premiums by principal product for the years indicated are as follows ( in thousands ) : replace_table_token_9_th replace_table_token_10_th information pertaining to the company 's business segments is provided in note 16 of notes to consolidated financial statements included in item 8. critical accounting policies the accounting and reporting policies of the company conform to u.s. gaap . the preparation of the consolidated financial statements in conformity with u.s. gaap requires the company 's management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes . actual results could differ from those estimates . story_separator_special_tag these costs are principally broker fees , agent commissions , and the purchase prices of the acquired blocks of insurance policies and investment type policies . dac is amortized to expense and reported separately in the consolidated statements of income . all dac within a particular product type is amortized on the same basis using the following methods : for traditional life insurance and other premium paying policies , amortization of dac is charged to expense over the related premium revenue recognition period . assumptions used in the amortization of dac are determined based upon the conditions as of the date of policy issue or assumption and are not generally revised during the life of the policy . for long duration type contracts , such as annuities and universal life business , amortization of dac is charged to expense over the life of the underlying contracts based on the present value of the estimated gross profits ( `` egps `` ) expected to be realized over the life of the book of contracts . egps consist of margins based on expected mortality rates , persistency rates , interest rate spreads , and other revenues and expenses . the company regularly evaluates its egps to determine if actual experience or other evidence suggests that earlier estimates should be revised . if the company determines that the current assumptions underlying the egps are no longer the best estimate for the future due to changes in 35 actual versus expected mortality rates , persistency rates , interest rate spreads , or other revenues and expenses , the future egps are updated using the new assumptions and prospective unlocking occurs . these updated egps are utilized for future amortization calculations . the total amortization recorded to date is adjusted through a current charge or credit to the consolidated statements of income . internal replacements of insurance and investment contracts determined to result in a replacement contract that is substantially changed from the original contract will be accounted for as an extinguishment of the original contract , resulting in a release of the unamortized deferred acquisition costs , unearned revenue , and deferral of sales inducements associated with the replaced contract . investments the company has classified all of its investments as either available-for-sale or trading securities . these investments are carried at fair value with unrealized gains and losses reported through other comprehensive income ( loss ) for available-for-sale securities or as unrealized gains or losses in the consolidated statements of income for trading securities . fixed maturities and equity securities available-for-sale totaled $ 554.1 million and $ 735.2 million at december 31 , 2013 and 2012 , respectively . premiums and discounts on debt securities purchased at other than par value are amortized and accreted , respectively , to interest income in the consolidated statements of income , using the constant yield method over the period to maturity . net realized gains and losses on investments are computed using the specific identification method and are reported in the consolidated statements of income on the trade date . fair value is determined using quoted market prices when available . in some cases , we use quoted market prices for similar instruments in active markets and or model-derived valuations where inputs are observable in active markets . when there are limited or inactive trading markets , we use industry-standard pricing methodologies , including discounted cash flow models , whose inputs are based on management assumptions and available current market information . further , we retain independent pricing vendors to assist in valuing certain instruments . most of the securities in our portfolio are classified in either level 1 or level 2 of the fair value hierarchy . the company periodically reviews and assesses the vendor 's qualifications and the design and appropriateness of its pricing methodologies . management will on occasion challenge pricing information on certain individual securities and , through communications with the vendor , obtain information about the assumptions , inputs and methodologies used in pricing those securities , and corroborate it against documented pricing methodologies . validation procedures are in place to determine completeness and accuracy of pricing information , including , but not limited to : ( i ) review of exception reports that ( a ) identify any zero or un-priced securities ; ( b ) identify securities with no price change ; and ( c ) identify securities with significant price changes ; ( ii ) performance of trend analyses ; ( iii ) periodic comparison of pricing to alternative pricing sources ; and ( iv ) comparison of pricing changes to expectations based on rating changes , benchmarks or control groups . in certain circumstances , pricing is unavailable from the vendor and broker pricing information is used to determine fair value . in these instances , management will assess the quality of the data sources , the underlying assumptions and the reasonableness of the broker quotes based on the current market information available . to determine if an exception represents an error , management will often have to exercise judgment . procedures to resolve an exception vary depending on the significance of the security and its related class , the frequency of the exception , the risk of material misstatement , and the availability of information for the security . these procedures include , but are not limited to : ( i ) a price challenge process with the vendor ; ( ii ) pricing from a different vendor ; ( iii ) a reasonableness review ; and ( iv ) a change in price based on better information , such as an actual market trade , among other things . management considers all facts and relevant information obtained during the above procedures to determine the proper classification of each security in the fair value hierarchy . 36 declines in value of securities available-for-sale that are judged to be other-than-temporary are determined based on the specific identification

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cash flows the company had $ 24.2 million and $ 23.9 million of cash and cash equivalents as of december 30 , 2013 and december 31 , 2012 , respectively . for the year ended december 31 , 2013 , operating activities of the company utilized $ 162.3 million of cash , whereas $ 181.7 million of cash was provided by investing activities . in the second quarter of 2013 , the company liquidated investments to fund a $ 215.1 million payment to an unaffiliated reinsurer in accordance with the terms of a coinsurance agreement causing the increase in investing activities and corresponding decrease in operating activities . financing activities , which utilized $ 19.1 million for the period , includes a $ 2.0 million debt repayment , $ 3.6 million utilized by ihc to acquire treasury shares , and $ 8.8 million utilized to purchase shares of amic common stock from noncontrolling interests . the company has $ 525.2 million of liabilities for future policy benefits and liabilities for policy benefits and claims that it expects to ultimately pay out of current assets and cash flows from future business . if necessary , the company could utilize the cash received from maturities and repayments of its fixed maturity investments if the timing of claim payments associated with the company 's insurance resources does not coincide with future cash flows . for year ended december 31 , 2013 , cash received from the maturities and other repayments of fixed maturities was $ 57.1 million . the company believes it has sufficient cash to meet its currently anticipated business requirements over the next twelve months including working capital requirements and capital investments .

health and safety of employees and consumers from the beginning of the covid-19 pandemic , the company 's priority has been the safety of employees and customers . on march 16 , 2020 , the company temporarily closed its 26 u.s. company operated stores . these company operated stores reopened during second quarter 2020. additionally , the company opened four new company operated stores in second quarter 2020 and one new company operated store in third quarter 2020. these new company operated stores were already planned and construction underway prior to the start of the covid-19 pandemic . in response to the covid-19 pandemic , the company has implemented extra precautions in its company operated stores , offices and distribution centers . these precautions were developed in line with guidance from global , federal and state health authorities , including work from home policies , social distancing , thermal scanning and partitions in all facilities . customer demand the ecommerce channel experienced a decline in customer demand in first quarter 2020 , which rebounded in second quarter 2020 and continued to be strong the remainder of the year . consequently , fiscal 2020 ecommerce revenue increased compared to prior year . fiscal 2020 revenue in the outfitters and retail channels was lower than in fiscal 2019 due to the reduction in customer demand caused by the covid-19 pandemic . retail revenue also declined due to lengthy store closures . the ultimate timing and impact of customer demand levels will depend on the duration and scope of the covid-19 pandemic , overall economic conditions and consumer preferences . supply chain the company has not experienced significant supply chain disruptions related to the covid-19 pandemic . the company continues to place a priority on business continuity and contingency planning . the company may experience disruptions in the supply chain as the covid-19 pandemic continues , though the company can not reasonably estimate the potential impact or timing of those events , and the company may not be able to mitigate such impact . expense reduction beginning in first quarter 2020 , the company took the following actions to reduce overall expenses as a response to decreased customer demand due to the covid-19 pandemic : temporarily reduced base salaries , including a reduction of 50 % in the base salary of its chief executive officer , 20 % reductions in the base salaries of the company 's other senior management members and scaled salary reductions throughout the company . all salaries were reinstated during third quarter 2020. furloughed approximately 70 % of corporate employees from march 28 , 2020 to april 13 , 2020. as work demand increased , the remaining workforce returned to work on an as needed basis with all furloughs ending by mid-second quarter 2020. when the company operated stores temporarily closed nearly 100 % of company operated store employees were furloughed until reopening . 29 f iscal 2020 merit increases were eliminated . the board of directors compensation was temporarily reduced . this compensation was reinstated in third quarter 2020. the company 's 401 ( k ) matching contribution was suspended from april 16 , 2020 until january 30 , 2021. other discretionary operating expenses were significantly reduced . in response to the covid-19 pandemic , the company 's planned c apital expenditures for fiscal 2020 were significantly reduced . goodwill and indefinite-lived intangible asset the company considered the covid-19 pandemic to be a triggering event in first quarter 2020 for its outfitters and japan ecommerce reporting units and therefore completed an interim test for impairment of goodwill for these reporting units as of may 1 , 2020. this testing resulted in no impairment of the company 's outfitters reporting unit and full impairment of the $ 3.3 million of goodwill allocated to the company 's japan ecommerce reporting unit recorded in the first quarter 2020. there were no triggering events or impairment charges for any reporting unit in the remainder of fiscal 2020. corporate restructuring the company reduced approximately 10 % of corporate positions during the second quarter 2020. the company incurred total severance costs of approximately $ 2.9 million related to the reduction of corporate positions which was recorded in other operating expense ( income ) , net in the consolidated statements of operations . as of january 29 , 2021 , approximately $ 0.2 million of the severance costs had yet to be paid . in fiscal 2019 , the company closed five school uniform showrooms . basis of presentation the consolidated financial statements have been prepared in accordance with gaap and include the accounts of lands ' end , inc. and its subsidiaries . all intercompany transactions and balances have been eliminated . related party following the separation , we began operating as a separate , publicly traded company , independent from sears holdings . at the time of the separation , esl beneficially owned significant portions of both the company 's and sears holdings ' outstanding shares of common stock and therefore , sears holdings , the company 's former parent company , was considered a related party both prior to and after the separation . on february 11 , 2019 , transform holdco acquired from sears holdings substantially all of the go-forward retail footprint and other assets and component businesses of sears holdings as a going concern . we believe that esl holds a significant portion of the membership interests of transform holdco and therefore consider that entity to be a related party as well . seasonality we experience seasonal fluctuations in our net revenue and operating results and historically have realized a significant portion of our net revenue and earnings for the year during our fourth fiscal quarter . we generated 37.7 % and 37.9 % of our net revenue in the fourth fiscal quarter of fiscal 2020 and fiscal 2019 respectively . story_separator_special_tag the abl facility includes ( i ) commitment fees which range from 0.25 % to 0.375 % based upon the average daily unused commitment ( aggregate commitment less loans and letters of credit outstanding ) under the abl facility for the preceding fiscal quarter and ( ii ) customary letter of credit fees . customary agency fees are payable in respect of the debt facilities . representations and warranties ; covenant s subject to specified exceptions , the debt facilities contain various representations and warranties and restrictive covenants that , among other things , restrict the ability of the company and its subsidiaries ability to incur indebtedness ( including guarantees ) , grant liens , make investments , make dividends or distributions with respect to capital stock , make prepayments on other indebtedness , engage in mergers or change the nature of their business . the current term loan facility contains certain financial covenants , including a quarterly maximum total leverage ratio test , a weekly minimum liquidity test and an annual maximum capital expenditure amount . if excess availability under the abl facility falls below the greater of 10 % of the loan cap amount or $ 15.0 million , the company will be required to comply with a minimum fixed charge coverage ratio of 1.0 to 1.0. the abl facility also has a cash maintenance provision , which applies a limit of $ 75 million on the amount of cash and cash equivalents ( subject to certain exceptions ) that the company may hold when outstanding loans under the abl facility are equal to or exceed $ 125 million . the debt facilities contain certain affirmative covenants , including reporting requirements such as delivery of financial statements , certificates and notices of certain events , maintaining insurance and providing additional guarantees and collateral in certain circumstances . as of january 29 , 2021 , the company was in compliance with all covenants related to the debt facilities . events of default the debt facilities include customary events of default including non-payment of principal , interest or fees , violation of covenants , inaccuracy of representations or warranties , cross defaults related to certain other material indebtedness , bankruptcy and insolvency events , invalidity or impairment of guarantees or security interests and material judgments and change of control . story_separator_special_tag as such , the company did not record a goodwill impairment charge . goodwill impairment charges may be recognized in future periods to the extent changes in factors or circumstances occur , including deterioration in the macroeconomic environment , retail industry or in the equity markets , deterioration in our performance or our future projections , or changes in our plans for the reporting unit . indefinite-lived intangible asset impairment assessments the company 's indefinite-lived intangible asset is the lands ' end trade name . the company reviews the trade name for impairment on an annual basis during our fourth fiscal quarter or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable . the fair value of the trade name indefinite-lived intangible asset is estimated using the relief-from-royalty valuation method . the relief from royalty method of the income approach was most appropriate for analyzing the company 's indefinite-lived asset . this method is based on the assumption that , in lieu of ownership , a firm would be willing to pay a royalty in order to exploit the related benefits of this asset class . the relief from royalty method involves two steps : ( 1 ) estimation of reasonable royalty rates for the assets and ( 2 ) the application of these royalty rates to a forecasted net revenue stream and discounting the resulting cash flows to determine a present value . the company multiplied the selected royalty rate by the forecasted net revenue stream to calculate the cost savings ( relief from royalty payment ) associated with the asset . the cash flows are then discounted to present value using the selected discount rate and compared to the carrying value of the asset . in fiscal 2020 the company performed the annual testing of the indefinite-lived intangible asset , the lands ' end trade name . the fair value exceeded the carrying value by 61.2 % and as such , no trade name impairment charges were recorded in fiscal 2020. the fair value of the lands ' end trade name exceeded its carrying value by 19.1 % in fiscal 2019 and as such , no trade name impairment charges were recorded . see note 2 , summary of significant accounting policies , and note 8 , goodwill and indefinite-lived intangible assets , of the notes to consolidated financial statements in this annual report on form 10-k for more information about these assets and the related impairment charges . 39 revenue recognition while revenue recognition for the company does not involve significant judgment , it represents an important accounting policy . for sales shipped from our distribution centers , we recognize revenue and the related cost of goods sold at the time the products are expected to be received by the customers . for sales transacted at stores , revenue is recognized when the customer receives and pays for the merchandise at the register . we record an allowance for estimated returns based on our historical return patterns and various other assumptions that management believes to be reasonable . we do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our sales return allowance . however , if the actual rate of sales returns increases significantly , our operating results could be adversely affected . we have not made any material changes in the accounting methodology used to estimate future sales returns in the past three fiscal years . provision for income taxes we record a valuation allowance against our deferred tax assets when it is

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cash flows from operating activities operating activities generated net cash of $ 91.6 million and $ 27.3 million in fiscal 2020 and fiscal 2019 , respectively . our primary source of operating cash flows is the sale of merchandise goods and services to customers , while the primary use of cash in operations is the purchase of merchandise inventories . in fiscal 2020 , net cash provided by operating activities increased $ 64.3 million compared to fiscal 2019 primarily due to a reduction in accounts receivable balances related to the timing of the american airlines launch in fiscal 2019 , higher deferred revenue and the timing of expense accruals . 36 cash flows from investing activities net cash used in investing activities was $ 30.1 million and $ 38.0 million for fiscal 2020 and fiscal 2019 , respectively . cash used in investing activities for all periods was primarily used in investing in information technology infrastructure , company operated stores and property and equipment . for fiscal 2021 , we plan to invest approximately $ 26 million in capital expenditures for strategic investments and infrastructure , primarily in technology and general corporate needs . cash flows from financing activities net cash used in financing activities was $ 103.1 million and $ 105.9 million for fiscal 2020 and fiscal 2019 , respectively . the financing activities in fiscal 2020 resulted in the current term loan facility which was approximately $ 100 million less than the former term loan facility . the financing activities in fiscal 2019 consisted primarily of a $ 100 million voluntary prepayment of the former term loan facility . contractual obligations and off-balance-sheet arrangements we have no material off-balance-sheet arrangements other than the guarantees and contractual obligations that are discussed below . information concerning our obligations and commitments to make future payments under contracts such as lease agreements , and other contingent commitments , as of january 29 , 2021 , is aggregated in the following table : replace_table_token_9_th ( 1 ) operating lease obligations consist primarily of future minimum lease commitments related to the company 's operating leases ( refer to note 4 , leases , of the consolidated financial statements for further details ) .

we and teva have developed a clinical development plan under which the following three phase 3 clinical trials have been initiated : the synergy trial : the phase 3 clinical trial to evaluate a survival benefit for custirsen in combination with first-line docetaxel treatment in patients with castrate resistant prostate cancer , or crpc . during discussions with the u.s. food and drug administration , or fda , the fda informed us that an application supported primarily by the results of synergy alone would be acceptable for submission for market approval . synergy patient enrollment was completed in the fourth quarter of 2012. over 1,000 men were enrolled in order to show a survival benefit with 90 % power based on a hazard ratio of 0.75 with a critical hazard ratio of 0.84 the pre-specified number of death events required for final analysis has been reached and study data are being reviewed and prepared for final analysis . overall survival results will remain blinded until all study data have been thoroughly reviewed and prepared for final analysis . final survival results are expected to be announced by mid-2014 . the affinity trial : the phase 3 clinical trial to evaluate a survival benefit for custirsen in combination with cabazitaxel treatment as second-line chemotherapy in patients with crpc . we expect to enroll approximately 630 patients to show a survival benefit with 85 % power based on a hazard ratio of 0.75. we initiated this phase 3 clinical trial in august 2012 and expect to complete enrollment by the end of 2014. the enspirit trial : the phase 3 clinical trial to evaluate a survival benefit for custirsen in combination with docetaxel treatment as second-line chemotherapy in patients with non-small cell lung cancer , or nsclc . we expect to enroll approximately 1,100 patients in order to show a survival benefit with 90 % power based on a hazard ratio of 0.80. this trial was initiated by teva in september 2012. two formal interim futility analyses are planned , which may result in early termination of the trial if there is inadequate evidence of clinical benefit or futility . we expect to evaluate both progression-free survival , or pfs ( pfs rate at 14 weeks in 170 patients ) , and overall survival , or os ( os at 100 events ) , during the first interim futility analysis . if both endpoints meet the predefined criteria for inadequate pfs clinical benefit and os futility , the trial would be stopped . the second interim futility analysis is based an os futility determination only . the trial will not be stopped early in order to claim efficacy . the first interim futility analysis will be in 2014. for detailed information regarding our relationship with teva and the collaboration agreement , refer to the discussion in part i , item 1 under the heading “business—license and collaboration agreements—teva pharmaceutical industries ltd.” 55 custirsen has received fast track designation from the fda for the treatment of progressive metastatic prostate cancer in combination with docetaxel . the fda has also agreed on the design of the synergy trial through the special protocol assessment process . custirsen has also received fast track designation from the fda for the second-line treatment of advanced nsclc when combined with docetaxel in patients with disease progression following treatment with a first-line , platinum-based chemotherapy doublet regimen . we have also received written , scientific advice from the european medicines agency , or ema , on our development plan for custirsen for treating patients with crpc in combination with docetaxel , which aligned with our development plan regarding the proposed preclinical studies and both the study design and analyses for the phase 3 synergy trial . in addition , the committee for medicinal products for human use agreed that the intended safety database would enable a sufficient qualified risk-benefit assessment for market approval . we and collaborating investigators have conducted five phase 2 clinical trials to evaluate the ability of custirsen to enhance the effects of therapy in patients with prostate , non-small cell lung and breast cancers . results have been presented for each of these phase 2 trials . our phase 3 registration trials have been designed based on our phase 2 clinical trials . data from these phase 2 studies demonstrate the potential benefit of adding custirsen , a second generation antisense molecule , to existing cancer therapies . refer to the discussions in part i , item 1 under the headings “our product candidates—custirsen—current custirsen development activities” and “our product candidates—custirsen—summary of results of custirsen phase 2 clinical trials” for further details . product candidate apatorsen apatorsen is our product candidate designed to inhibit production of heat shock protein 27 , or hsp27 , a cell-survival protein expressed in many types of cancers including bladder , non-small cell lung , pancreatic , prostate and breast cancers . hsp27 expression is stress-induced , including by many anti-cancer therapies . overexpression of hsp27 is thought to be an important factor leading to the development of treatment resistance and is associated with metastasis , negative clinical outcomes in patients with various tumor types . in 2013 , we initiated the “orca” ( o n-going studies evaluating treatment r esistance in ca ncer ) program which encompasses clinical studies designed to evaluate whether inhibition of hsp27 can lead to improved prognosis and treatment outcomes for cancer patients . our goal is to advance cancer treatment by conducting clinical trials for apatorsen across multiple cancer indications including bladder , lung , pancreatic and prostate cancers . we are conducting parallel clinical trials to evaluate apatorsen in several cancer indications and treatment combinations to accelerate the development of apatorsen . as part of this strategy , we are supporting specific investigator-sponsored trials to allow assessment of a broader range of clinical indications for future oncogenex-sponsored trials and possible market approval . story_separator_special_tag 62 our future capital requirements will depend on many factors , including : success of custirsen , apatorsen and our other product candidates , including receipt of milestone and royalty payments ; timing , costs and results of clinical trials , preclinical development and regulatory approvals ; maintaining our relationship with teva and teva 's ongoing level of focus and efforts to develop custirsen ; timing , costs and results of drug discovery and r & d entering into new collaborative or product license agreements for products in our pipeline ; our ability to obtain additional funding through a partnership or collaboration agreement with a third party or licenses of certain of our product candidates , or through private or public offerings of our equity or debt ; and costs related to obtaining , defending and enforcing patents . contractual obligations the following table summarizes our contractual obligations as of december 31 , 2013 ( in thousands ) : replace_table_token_5_th ( 1 ) this operating lease , which commenced in 2007 , is for a 10-year term and includes two five-year option renewals . ( 2 ) this operating lease expires in 2014 . ( 3 ) we are obligated to pay an annual license maintenance fee of cad $ 8,000 to ubc , which has been converted to us dollars based on the december 31 , 2013 exchange rate of us $ 1.00 = cad $ 1.0636 , and rounded to the nearest $ 1,000. off-balance sheet arrangements we do not have any off-balance sheet financing arrangements at december 31 , 2013. inflation we do not believe that inflation has had a material effect on our business and results of operations during the periods presented . material changes in financial condition replace_table_token_6_th 63 the decrease in assets at december 31 , 2013 compared with december 31 , 2012 primarily relates to decreased cash , cash equivalents and marketable securities as these assets have been used to fund operations . the increase in liabilities at december 31 , 2013 compared with december 31 , 2012 is primarily due to higher clinical trial accruals associated with patient enrollment and treatment in the affinity and borealis-1 trials . critical accounting policies and estimates use of estimates the preparation of consolidated financial statements in conformity with united states generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and notes thereto . actual results could differ from these estimates . estimates and assumptions principally relate to estimates of the fair value of our warrant liability and excess lease facility liability , the initial fair value and forfeiture rates of stock options issued to employees and consultants , the estimated compensation cost on performance restricted stock unit awards and clinical trial and manufacturing accruals . cash equivalents we consider all highly liquid investments with an original maturity of three months or less to be cash equivalents , which we consider as available for sale and carry at fair value , with unrealized gains and losses , if any , reported as accumulated other comprehensive income or loss , which is a separate component of stockholders ' equity . short-term investments short-term investments consist of financial instruments purchased with an original maturity of greater than three months and less than one year . we consider our short-term investments as available-for-sale and carry them at fair value , with unrealized gains and losses except other than temporary losses , if any , reported as accumulated other comprehensive income or loss , which is a separate component of stockholders ' equity . realized gains and losses on the sale of these securities are recognized in net income or loss . the cost of investments sold is based on the specific identification method . fair value of financial instruments the fair value of our cash equivalents and marketable securities is based on quoted market prices and trade data for comparable securities . we determine the fair value of our warrant liability based on the black-scholes pricing model and using considerable judgment , including estimating stock price volatility and expected warrant life . other financial instruments including amounts receivable , accounts payable , accrued liabilities , and accrued compensation are carried at cost , which we believe approximates fair value because of the short-term maturities of these instruments . intellectual property the costs of acquiring intellectual property rights to be used in the research and development process , including licensing fees and milestone payments , are charged to research and development expense as incurred in situations where we have not identified an alternative future use for the acquired rights , and are capitalized in situations where we have identified an alternative future use . no costs associated with acquiring intellectual property rights have been capitalized to date . costs of maintaining intellectual property rights are expensed as incurred . revenue recognition revenue recognized to date is attributable to the upfront payment we received in the fourth quarter of 2009 pursuant to our collaboration agreement with teva , as well as cash reimbursements from teva for costs incurred by us under our clinical development plan . under the collaboration agreement , we and teva share certain custirsen-related 64 development costs . we have spent the required $ 30 million in direct and indirect development costs , such as full-time equivalent ( fte ) reimbursement for time incurred by our personnel for the benefit of the custirsen development plan . teva is funding all other expenses under the collaboration agreement including the three phase 3 clinical trials under the clinical development plan . on a quarterly basis teva reimburses all development expenses incurred in accordance with our clinical development plan . our policy is to account for these reimbursements as collaboration revenue . for a summary description of the collaboration agreement with teva , see note 4 to notes to consolidated financial statements included elsewhere in this annual report on

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liquidity and capital resources we have incurred an accumulated deficit of $ 133.7 million through december 31 , 2013 , and we expect to incur substantial additional losses in the future as we expand our r & d activities and other operations , as more fully described below . we have not generated any revenue from product sales to date , and we may not generate product sales revenue in the near future , if ever . in june 2013 , we entered into an at-the-market issuance sales agreement , or sales agreement , with mlv , under which we may offer and sell shares of our common stock having aggregate sales proceeds of up to $ 25,000,000 from time to time through mlv as our sales agent . sales of our common stock through mlv , if any , will be made by any method permitted that is deemed an “at the market” offering as defined in rule 415 under the securities act of 1933 , as amended , including by means of ordinary brokers ' transactions on the nasdaq capital market or otherwise at market prices prevailing at the time of sale , in block transactions , or as otherwise agreed upon by us and mlv . mlv will use commercially reasonable efforts to sell our common stock 60 from time to time , based upon instructions from us ( including any price , time or size limits or other customary parameters or conditions we may impose ) . we will pay mlv a commission of up to 3.0 % of the gross sales proceeds of any shares of common stock sold through mlv under the sales agreement . to date , no shares have been sold under the sales agreement . in march 2012 we completed a public offering of 4,789,750 shares of our common stock at a purchase price of $ 12.00 per share .

the domestic environmental services segment underwent an internal restructuring of management to target more recurring and predictable higher volume customers . customers were selected by a newly established sales team . the internal restructuring also placed an increased focus on a full integration of legacy acquisitions and cross-selling . the domestic environmental services segment may not be able to properly integrate past or future acquisitions . sprint . sprint segment results are primarily driven by oil prices . lower oil prices lead producers to slow down or halt activity , resulting in fewer revenue generating opportunities for sprint segment services . for example in the latter portion of fiscal year 2016 , crude oil prices rebounded leading to increased exploration and production activity and improvement in sprint segment financial results . we anticipate that the addition of new waste disposal facilities will diversify our sprint segment offerings and will likely make it more resistant to future crude oil price downturns . domestic standby services . demand for domestic standby services is less impacted by macroeconomic conditions than our other reportable segments . domestic standby services segment results are primarily driven by the following factors : ● unplanned incidents . increases or decreases in the number of unplanned incidents will have a direct impact on demand for domestic standby services . the modest revenue growth in the domestic standby services segment for fiscal year 2017 was driven by three major incidents , including hurricane harvey , hurricane irma and the transcanada pipeline spill in south dakota , as well as the entry into new markets and increased tolling fees . ● increased ship activity . domestic standby services revenues are positively impacted as ship activity increases . an increase in ship activity often results in an increase in tolling fees paid . ● retainer fees . domestic standby services customers are under long-term or evergreen contracts that pay annual retainer fees to access required certifications , specialized assets and trained personnel . ● subcontractor usage . the domestic standby services segment utilizes subcontractors to supplement our internal capabilities when an emergency response event occurs . the domestic standby services segment must navigate labor prices and demand in order to effectively manage costs and maximize profitability . international services . international services segment results are primarily driven by commodity prices and market activity . demand is driven by corporate compliance and not regulatory compliance . volatility in the price of oil or a decline in the global energy markets results in less corporate spending and lower demand for our international services . currently a large portion of our international services activity is located in the north sea , which is known for its challenging conditions . results of operations—years ended december 31 , 2018 , 2017 and 2016 results of operations — 2018 versus 2017 our total operating revenues for 2018 increased 29.7 % to $ 360.2 million , compared with $ 277.6 million in 2017. increases in total operating revenues were primarily related to increases in operating revenues in our domestic environmental services and sprint segments . operating revenues in our sprint segment increased $ 30.1 million in 2018 as compared to 2017 primarily attributable to increased contribution on both waste disposal and environmental services as well as the acquisition of quail run in october 2018. operating revenues recorded by our domestic environmental services segment increased $ 55.4 million in 2018 as compared to 2017 primarily due to a $ 32.1 million increase from the acquisition of sws in may 2018 , $ 15.8 million increase from an increase in project management revenue , and a $ 7.8 million increase in emergency response activity . operating revenue in the international segment increased $ 6.7 primarily due to the acquisition of clean line in march 2018. these increases were partially offset by a decrease in total operating revenues in our domestic standby services segment due to decreased emergency response activity , partially offset by increased retainer revenue from the our tolling based pricing program . 34 our loss from operations in 2018 was $ 21.5 million , compared with an income from operations of $ 20.6 million in 2017. this decrease is primarily due to $ 52.3 million of acquisition expenses related to costs associated with the business combination , the combination of nrc and sprint and the acquisitions of sws , clean line and quail run during 2018 , partially offset by net increases in the segment income for operations discussed above . we reported net loss in 2018 of $ 47.3 million , compared to a net income of $ 5.7 million in 2017. results of operations — 2017 versus 2016 our total operating revenues for 2017 increased 19.8 % to $ 277.6 million , compared with $ 231.7 million in 2016. increases in total operating revenues were primarily related to our domestic standby services and domestic environmental services segments . operating revenues in our sprint segment increased $ 31.0 million in 2017 as compared to 2016 primarily attributable to having a full year of revenues for landfill operations in 2017 as the sprint segment began providing landfill services during 2016 , a higher demand for services driven by improved oil prices in 2017 and an expansion of operations by opening two new locations in 2017. operating revenues in our domestic standby services segment increased $ 14.2 million in 2017 compared with 2016 due to increased retainer revenue and an uptick in emergency response activity . operating revenues recorded by our domestic environmental services segment increased $ 6.5 million in 2017 as compared to 2016 primarily due to incremental operating revenues generated from an acquisition in 2016. these increases were partially offset by a decrease in total operating revenues in our international services segment of $ 5.8 million primarily due to decreased services related to a reduction in demand primarily from lower oil prices . story_separator_special_tag to 2016. as a percentage of revenues , costs decreased for the year ended december 31 , 2017 due to higher revenues with lower percentage of incremental costs in 2017. corporate items replace_table_token_15_th corporate items general and administrative expenses for the year ended december 31 , 2018 increased $ 1.2 million from $ 7.3 million , or 17 % , in the comparable period in 2017 to support the growth of the business exhibited in 2018 including the support of the various acquisitions . corporate items general and administrative expenses for the year ended december 31 , 2017 remained relatively consistent with the comparable period in 2016. other consolidated expenses depreciation and amortization replace_table_token_16_th depreciation and amortization for the year ended december 31 , 2018 increased $ 4.1 million , or 16 % , from the comparable period in 2017 primarily attributable to an increase in depreciation expense for the sprint segment of $ 2.7 million due to increased capital expenditures . this increase is also due to $ 1.3 and $ 0.3 million of depreciation expense for sws and clean line , respectively , which were acquired during 2018. the increase is also due to $ 0.3 and $ 0.1 million of intangible amortization expense for sws and clean line , respectively . 40 depreciation and amortization for the year ended december 31 , 2017 decreased $ 31.2 million , or 9 % , from the comparable period in 2016 primarily attributable to the impairment expense of goodwill and intangible assets of $ 24.9 million recorded in 2016 , a decrease of approximately $ 4.3 million in amortization of permits/licenses as certain of these assets are fully amortized , a decrease of approximately $ 2.0 million in depreciation expense related to machinery and equipment and trailers due to the disposition of certain old and underutilized assets and as certain of these assets are fully depreciated , and a decrease in intangible asset amortization due to a lower balance of intangible assets resulting from the impairment of certain intangible assets in 2016. other operating expenses replace_table_token_17_th management fees for the year ended december 31 , 2018 decreased $ 0.4 million , or 24 % , from the comparable period in 2017 as we no longer paid management fees to jfl partners after the business combination in october 2018. acquisition expenses for the year ended december 31 , 2018 increased $ 51.8 million , or 10,706 % , from the comparable period in 2017 , which is primarily attributable to $ 44.6 million for the business combination and $ 1.1 million , $ 3.8 million and $ 0.8 million , respectively , for the acquisitions of clean line , sws and quail run , with the remainder attributable to the business combination of nrc and sprint and the related recapitalization . change in fair value of contingent consideration decreased $ 1.3 million for the year ended december 31 , 2018 from the comparable period in 2017 , resulting from a decrease of $ 2.3 million for the fair value of the contingent consideration relating to the enpro acquisition , partially offset by an increase of $ 1.0 million for the fair value of the contingent consideration relating to the clean line acquisition . other expense , net remained relatively consistent for the year ended december 31 , 2018 as compared to 2017. management fees for the year ended december 31 , 2017 remained relatively consistent as compared with the comparable period in 2016. acquisition expenses for the year ended december 31 , 2017 decreased $ 5.7 million , or 92 % , from the comparable period in 2016 , which is primarily attributable to the acquisition and integration of enpro , which was completed during 2016. other expense , net for the year ended december 31 , 2017 decreased $ 6.0 million , or 63 % , from the comparable period in 2016 due to approximately $ 2.5 million of transition costs to begin landfill operations in the sprint segment that were recorded in 2016 and costs associated with a management restructure in the domestic environmental services segment during 2016. other income ( expenses ) replace_table_token_18_th total other expenses , net for the year ended december 31 , 2018 increased $ 11.0 million , or 76 % , from the comparable period in 2017 , primarily due to the increase in interest expense of $ 8.1 million due to higher debt balances and higher interest rates in the 2018 period as a result of the combination of nrc and sprint , and the $ 3.6 million loss on debt extinguishment related to the $ 2.7 million loss on debt extinguishment of pre-existing debt and the subsequent borrowings under the new credit facility ( as defined below ) and the $ 0.9 million loss on debt extinguishment from the repayment and subsequent re-borrowing of one lenders portion of the term loan . 41 total other expenses , net for the year ended december 31 , 2017 increased $ 1.1 million , or 8 % , from the comparable period in 2016 primarily due to changes in variable interest rates and foreign currency fluctuations and a 2016 loss from equipment sales . income tax expense ( benefit ) replace_table_token_19_th income tax expense ( benefit ) for the years ended december 31 , 2018 , 2017 and 2016 was $ 0.3 million , $ 0.4 million and $ ( 3.2 ) million , respectively . story_separator_special_tag serif ; font-size : 10pt `` > working capital at december 31 , 2018 , cash and cash equivalents totaled $ 18.4 million , compared to $ 10.6 million of cash and cash equivalents and restricted cash at december 31 , 2017. at december 31 , 2018 , the net working capital balance was $ 63.1 million , compared to $ 44.3 million at december 31 , 2017. the increase is primarily attributable to an increase in cash balances due to the incremental term loan ( as defined

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liquidity and capital resources at december 31 , 2018 , net cash totaled $ 18.4 million , compared to $ 10.6 million at december 31 , 2017. at december 31 , 2018 , the net working capital balance was $ 63.1 million , compared to $ 44.3 million at december 31 , 2017. our principal capital requirements are to fund capital expenditures , make interest and principal payments on indebtedness , make dividend payments on the series a convertible preferred stock , make investments in line with our business strategy , and to fund working capital needs . we calculate working capital as current assets less current liabilities . our principal sources of liquidity are existing cash and cash equivalents , cash flows from operations and financing activities , including borrowings under our new credit facility . in addition , as a public company , we may from time to time access the capital markets through the offering and sale of our securities . we believe that future operating cash flows , together with cash on hand and availability of borrowings under our new credit facility , will be sufficient to meet our future operating and capital expenditure cash requirements for the next twelve months and the foreseeable future .

overview mfc presently generates revenues from two business segments : real estate and medical . the real estate segment consists of various parcels of real estate , held for future development and sale , in which co-investors also have interests , and a mortgage note receivable on a property that was previously sold . revenues in the real estate division vary substantially from period to period depending on when a particular transaction closes and depending on whether the closed transaction is recognized for accounting purposes as a sale or reflected as a financing or is deferred to a future period . in february 2003 , the company was released from a rental obligation arising from the sale of real estate in a prior period . as a result of the termination of the contingent obligation , the company recorded a gain of $ 850,000 during the year ended february 28 , 2003. in august 2001 , the company entered into an agreement with a debtor regarding an outstanding mortgage receivable and debenture ( together the `` goshen receivables `` ) on property located in goshen , new york . under the terms of the agreement , the debtor satisfied the goshen receivables by payments of principal and accrued interest of $ 167,500 in august 2001 and $ 1,507,500 in november 2001. as a result of this agreement , the company realized $ 745,000 of deferred income related to the original sale of the property . the medical segment consists of three limited liability companies which act as service organizations for providers of medical services and a wholly-owned subsidiary , medical financial corp. , which purchases medical insurance claims receivable , paying cash to the medical provider in return for a negotiated fee . critical accounting policies management 's discussion and analysis of its financial position 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 of america . the preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . actual results could differ from those estimates . management believes that the critical accounting policies and areas that require the most significant judgments and estimates to be used in the preparation of the consolidated financial statements are allowance for doubtful accounts and the valuation allowance against its deferred tax asset . allowance for doubtful accounts mortgage and note receivable : the company evaluates the credit positions on its notes receivable and the value of the related collateral on an ongoing basis . the company estimates that all of its notes receivable are fully collectible and the value of the collateral is in excess of the related receivables . the company continually evaluates its notes receivable that are past due as to the collectibility of principal and interest . the company considers the financial condition of the debtor , the outlook of the debtor 's industry , decrease in the ratio of collateral values to loans and any prior write downs on loans . the above considerations are all used in determining whether the company should suspend recording interest income on any notes receivable or provide for any loss reserves . finance and management receivables : management 's periodic evaluation of the adequacy of the allowance for loan losses is based on the company 's past loan loss experience , known and inherent risks in the portfolio , adverse situations that may affect the customer 's ability to repay , the estimated value of any underlying collateral , the outlook of the debtor 's industry and current economic conditions . when the company estimates that it may be probable that a specific customer account may be uncollectible , that balance is included in the reserve calculation . actual results could differ from these estimates under different assumptions . deferred tax assets : the company records a valuation allowance to reduce the carrying value of its deferred tax assets to an amount that is more likely than not to be realized . while the company has considered future taxable income and prudent and feasible tax planning strategies in assessing the need for the valuation allowance , should the company determine that it would not be able to realize all or part of its net deferred tax assets in the future , an adjustment to the valuation allowance would be charged to income in the period in which such determination was made . a reduction in the valuation allowance and corresponding credit to income may be required if the likelihood of realizing existing deferred tax assets were to increase . results of operations year ended february 28 , 2003 compared to year ended february 28 , 2002 the company 's revenues from operations for the year ended february 28 , 2003 ( `` 2003 `` ) were $ 5,260,000 , an increase of $ 1,094,000 or 26 % as compared to the year ended february 28 , 2002 ( `` 2002 `` ) . the increase was a result of increase in the medical division , offset by a decrease in the real estate division . revenue in the real estate division decreased in 2003 by $ 79,000 , to $ 1,037,000. the decrease was due to ( i ) a $ 68,000 decrease in interest income from the goshen mortgage , ( ii ) lack of real estate sales in 2003 as compared to 2002 , when the company sold the land for eight un-built condominium units for $ 50,000 , offset by ( iii ) an increase of story_separator_special_tag in 2003 , the company generated taxable income and estimated that it would derive minimum future tax savings of $ 90,000 from these nol 's , and recorded a valuation allowance of $ 1,471,000 against the remainder of the deferred tax asset . for the reasons described above , the company recorded net income from operations of $ 965,000 in 2003 , an increase of $ 157,000 ( 19 % ) from $ 808,000 in 2002. year ended february 28 , 2002 compared to year ended february 28 , 2001 the company 's revenues from continuing operations for the year ended february 28 , 2002 ( `` 2002 `` ) was $ 4,166,000 , an increase of $ 1,807,000 or 77 % as compared to the year ended february 28 , 2001 ( `` 2001 `` ) . the increase was a result of increases in both the real estate and medical divisions . revenue in the real estate division increased in 2002 by $ 812,000 , to $ 1,116,000. the increase was due to the settlement of the goshen receivables , which resulted in the realization of $ 745,000 of deferred income from real estate that was sold in prior periods and an increase in interest from mortgages . the increase in interest from mortgages of $ 61,000 in 2002 was attributable to an increase in accrued interest income on the mortgage receivable from the property located in goshen , ny . the accrual of interest on this mortgage had been suspended during the period from december 1 , 1999 through may 31 , 2001 because the annual interest payments that were due in february 2000 and 2001 were not paid until august 2001. the $ 995,000 increase in revenues in the medical division was due to an increase in both income from the purchase and collection of medical claims and management fees . the 43 % increase in income from the purchase and collection of medical claims of $ 488,000 in 2002 was due to ( i ) additional collections services that are now being provided to existing clients and ( ii ) $ 120,000 due to the change in the accounting estimate related to the timing of revenue as set forth in note 3. the increase in management fees of $ 507,000 ( 55 % ) in 2002 , was a result of the increase in management services that the company provides to two of its finance clients . the company operates an mri facility that provides management services to a finance client 's radiology practice . management fees were also generated from the management of a finance client 's physical therapy practice . these fees are net of billing adjustments of $ 83,000. management service fees are billed monthly according to the cost of services rendered to the client . if the assets of the management client , which is also a finance client , are not enough to satisfy the billed fees , an allowance for billing adjustments is recorded to reduce the company 's net receivables to an amount that is equal to the assets of the client that are available for payment . costs and expenses from continuing operations increased by $ 17,000 ( 1 % ) to $ 3,294,000 in 2002. the increase was due to increases of $ 227,000 in the medical division and $ 22,000 in depreciation and amortization , offset by decreases of $ 182,000 in the real estate division and $ 50,000 in corporate expenses and other . the decrease in costs and expenses in the real estate division in 2002 were due to a decrease in the amount of properties sold in 2002 , which results in a decrease in the cost of sales . the decrease was also due to a reduction of operating expenses in 2002 , after a portion of the hunter property was sold during the first quarter of the current fiscal year . the increase in costs and expenses in the medical division was due to an increase in expenses of $ 266,000 that are related to the management of two finance client 's medical practices , offset by a decrease of $ 39,000 in medical receivable expenses . the 27 % increase in medical management expenses in 2002 are related to the 55 % increase in revenues for the same period . the 3 % decrease in medical receivable expenses in 2002 as compared to its increase in revenues was primarily due to the cost of increasing the infrastructure in 2001 in anticipation of the new clients that were eventually obtained . the company now has an improved infrastructure , which includes better trained employees , computer systems and office facilities that can handle further increases of revenue without substantial increases in expenses . in addition , the company has also been more selective in the bill purchasing process , which results in a minimal amount of bad debt losses . the company may incur a bad debt loss when the portion of a medical claim collected does not exceed the advance ( including the fee charged ) given to the client . the company also has other contractual rights to help minimize its risk of loss . the company continually monitors the aging of the uncollected medical claims as it relates to its advances and establishes a reserve deemed adequate to cover potential losses . the decrease in corporate expenses and other of $ 50,000 in 2002 is primarily due to reductions in professional fees , reallocations of a greater portion of executive salaries to the medical division and a reduction in shareholder reporting expenses . the increase in depreciation and amortization of $ 22,000 in 2002 is attributable to increased capital expenditures in the medical financing division . interest expense in 2002 was $ 62,000 , an increase of $ 29,000 from 2001. the increase was attributable to the debt that was incurred to finance the purchase of additional

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liquidity and capital resources the company 's two business activities during the year ended february 28 , 2003 resulted in a decrease of cash in the amount of $ 1,091,000. the company expects continued growth of its medical division based on its ongoing negotiations with prospective new clients , which are expected to be obtained in the next few months . these prospective clients will result in an increase in the amount of cash needed to purchase their medical insurance claims receivable . the funds for those needs are expected to be provided from existing cash and an additional $ 175,000 of series a bonds that were issued after the year end . additional funds may be provided by additional asset-based borrowing facilities , refinancing of assets under capital leases and the sale of real estate assets . the real estate division is not expected to be a significant user of cash flow from operations , due to the elimination of carrying costs on the real estate that was sold during the two years ended february 28 , 2002. the company 's real estate assets in hunter , ny are owned free and clear of mortgages , except for the construction loan that is being used to finance the current property renovation .

as part of our strategy , we plan to continue to make investments behind fast-growing markets and channels to grow market share . during 2014 , the economic and political uncertainty and financial market volatility taking place in certain european countries and the middle east did not have a significant impact on our business , and at this time we do not believe it will have a significant impact on our business for the foreseeable future . however , if the degree of uncertainty or volatility worsens or is prolonged , then there will likely be a negative effect on ongoing consumer confidence , demand and spending and as a result , our business . currently , we believe general economic , political and other uncertainties still exist in select markets in which we do business and we continue to monitor global economic and political uncertainties and other risks that may affect our business . our reported net sales are impacted by changes in foreign currency exchange rates . a strong u.s. dollar has a negative impact on our net sales . however , earnings are positively affected by a strong dollar , because approximately 40 % of net sales of our european operations are denominated in u.s. dollars , while almost all costs of our european operations are incurred in euro . our company addresses certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments . we primarily enter into foreign currency forward exchange contracts to reduce the effects of fluctuating foreign currency exchange rates . recent important events burberry burberry exercised its option to buy-out the license rights effective december 31 , 2012. in october 2012 , the company and burberry entered into a transition agreement that provided for certain license rights and obligations to continue through march 31 , 2013. the company continued to operate certain aspects of the business for the brand including product development , testing , and distribution . the transition agreement provided for non-exclusivity for manufacturing , a cap on sales of burberry products , a reduced advertising requirement and no minimum royalty amounts . 35 abercrombie & fitch and hollister in december 2014 , the company entered into a 7-year exclusive worldwide license to create , produce and distribute new perfumes and fragrance related products under the abercrombie & fitch and hollister brand names . the company will distribute these fragrances internationally in specialty retailers , high-end department stores and duty free shops , and in the u.s. , in duty free shops and potentially in abercrombie & fitch and hollister retail stores . the agreement is subject to certain minimum sales , advertising expenditures and royalty payments as are customary in our industry . new men 's and women 's scents are planned for both abercrombie & fitch and hollister for 2016. discussion of critical accounting policies we make estimates and assumptions in the preparation of our financial statements in conformity with accounting principles generally accepted in the united states of america . actual results could differ significantly from those estimates under different assumptions and conditions . we believe the following discussion addresses our most critical accounting policies , which are those that are most important to the portrayal of our financial condition and results of operations . these accounting policies generally require our management 's most difficult and subjective judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . management of the company has discussed the selection of significant accounting policies and the effect of estimates with the audit committee of the board of directors . revenue recognition we sell our products to department stores , perfumeries , specialty retailers , mass market retailers , supermarkets and domestic and international wholesalers and distributors . sales of such products by our domestic subsidiaries are denominated in u.s. dollars and sales of such products by our foreign subsidiaries are primarily denominated in either euro or u.s. dollars . we recognize revenues when merchandise is shipped and the risk of loss passes to the customer . net sales are comprised of gross revenues less returns , trade discounts and allowances . accounts receivable accounts receivable represent payments due to the company for previously recognized net sales , reduced by allowances for sales returns and doubtful accounts . accounts receivable balances are written-off against the allowance for doubtful accounts when they become uncollectible . recoveries of accounts receivable previously recorded against the allowance are recorded in the consolidated statement of income when received . we generally grant credit based upon our analysis of the customer 's financial position as well as previously established buying patterns . 36 sales returns generally , we do not permit customers to return their unsold products . however , for u.s. distribution of our prestige products , we allow returns if properly requested , authorized and approved . we regularly review and revise , as deemed necessary , our estimate of reserves for future sales returns based primarily upon historic trends and relevant current data , including information provided by retailers regarding their inventory levels . in addition , as necessary , specific accruals may be established for significant future known or anticipated events . the types of known or anticipated events that we have considered , and will continue to consider , include , but are not limited to , the financial condition of our customers , store closings by retailers , changes in the retail environment and our decision to continue to support new and existing products . we record estimated reserves for sales returns as a reduction of sales , cost of sales and accounts receivable . returned products are recorded as inventories and are valued based upon estimated realizable value . the physical condition and marketability of returned products are the major factors we consider in estimating realizable value . story_separator_special_tag although reserves were established in 2012 and used in 2013 to cover losses on the disposition of inventory , the sale of certain inventory to burberry at cost , resulted in a lower gross margin . in addition , the discontinuance of burberry product sales , which were sold at higher margins than ongoing brand sales , had a negative effect on margins . for u.s. operations , gross profit margin was 48 % in 2014 and 46 % for both 2013 and 2012. sales growth for our u.s. operations has primarily come from higher margin prestige product licenses while sales of lower margin specialty retail and mass market products have been in a decline . 42 we carefully watch movements in foreign currency exchange rates as approximately 40 % of our european-based operations net sales are denominated in dollars , while our costs are incurred in euro . from a profit standpoint , a stronger u.s. dollar has a positive effect on our gross margin while a weak dollar has a negative effect . the average dollar/euro exchange rate was 1.33 in both 2014 and 2013. as such , there was no discernable effect on gross margin in 2014 from changes in currency exchange rates . however , first quarter 2015 dollar/euro exchange rates have averaged approximately 1.15 or 14 % below that of 2014. although this is expected to have a significant negative impact on 2015 reported sales , we expect to see an increase in our gross margin as over 40 % of net sales of our european operations are denominated in u.s. dollars , while almost all costs of our european operations are incurred in euro . costs relating to purchase with purchase and gift with purchase promotions are reflected in cost of sales and aggregated $ 24.4 million , $ 25.7 million and $ 46.5 million in 2014 , 2013 and 2012 , respectively , and represented 4.9 % , 4.6 % and 7.1 % of net sales , respectively . the decline in 2014 and 2013 is the result of the discontinuance of burberry product sales . generally , we do not bill customers for shipping and handling costs and such costs , which aggregated $ 5.2 million , $ 6.1 million and $ 8.4 million in 2014 , 2013 and 2012 , respectively , are included in selling , general and administrative expenses in the consolidated statements of income . as such , our company 's gross margins may not be comparable to other companies , which may include these expenses as a component of cost of goods sold . selling , general & administrative expenses replace_table_token_11_th selling , general and administrative expenses decreased 7 % in 2014 as compared to 2013 and decreased 23 % in 2013 as compared to 2012. as a percentage of sales , selling , general and administrative expenses were 47 % , 44 % and 50 % in 2014 , 2013 and 2012 , respectively . for european operations , selling , general and administrative expenses decreased 9 % in 2014 , as compared to 2013 and represented 50 % of sales in 2014 as compared to 47 % in 2013. a significant portion of the expenses associated with the burberry brand were variable in nature . however , with only limited reorganization measures employed , the company is attempting to absorb its fixed costs through increased sales of other brands in our prestige fragrance portfolio as well as with the sale of products of recently licensed new brands . for u.s. operations , selling , general and administrative expenses increased 11 % in 2014 and represented 36 % of sales , as compared to 34 % in 2013. promotion and advertising included in selling , general and administrative expenses aggregated $ 86.7 million , $ 94.0 million and $ 132.7 million in 2014 , 2013 and 2012 , respectively . promotion and advertising as a percentage of sales represented 17.4 % , 16.7 % and 20.3 % of net sales in 2014 , 2013 and 2012 , respectively . in 2013 , pursuant to the requirements of the transition agreement with burberry , advertising requirements were reduced . almost all promotional spending in 2013 was for continuing brands and represented approximately 22 % of continuing brand sales . as planned , we invested heavily in promotional spending in the latter part of 2013 to support new product launches and continued worldwide building of brand awareness of our brand portfolio . 43 royalty expense included in selling , general and administrative expenses aggregated $ 35.6 million , $ 40.5 million and $ 58.8 million in 2014 , 2013 and 2012 , respectively . royalty expense as a percentage of sales represented 7.1 % , 7.2 % and 9.0 % of net sales in 2014 , 2013 and 2012 , respectively . royalty expense in 2014 includes a $ 2.3 million increase to the estimated royalty liability due to burberry . without this adjustment , royalty expense would have represented 6.7 % of net sales in 2014 , with the decline directly related to the termination of the burberry license . in addition , service fees , which are fees paid to third parties relating to the activities of our distribution subsidiaries , aggregated $ 11.1 million , $ 15.1 million and $ 26.3 million in 2014 , 2013 and 2012 , respectively . the declines in both 2014 and 2013 are directly related to the termination of the burberry license and related discontinuation of our united kingdom distribution subsidiary . the impairment loss in 2012 related to our nickel business . in december 2013 , we sold our nickel brand and trademarks for $ 3.5 million , which was approximately equal to the then current book value of the goodwill and trademark ; therefore , there was no material gain or loss as a result of the sale . see information regarding regulation s-k item 10 (

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liquidity and capital resources the company 's financial position remains strong . at december 31 , 2014 , working capital aggregated $ 383 million and we had a working capital ratio of 4.7 to 1. cash and cash equivalents and short-term investments aggregated $ 280 million most of which is held in euro by our european operations and is readily convertible into u.s. dollars . we have not had any liquidity issues to date , and do not expect any liquidity issues relating to such cash and cash equivalents and short-term investments held by our european operations . approximately 88 % of the company 's total assets are held by european operations . in addition to the cash and cash equivalents and short-term investments referred to above , approximately $ 87 million of trademarks , licenses and other intangible assets are held by european operations . the company hopes to benefit from its substantial resources to potentially acquire one or more brands , either on a proprietary basis or as a licensee . opportunities for external growth continue to be examined , with the priority of maintaining the quality and homogeneous nature of our portfolio . however , we can not assure you that any new license or acquisition agreements will be consummated . cash provided by operating activities aggregated $ 36.6 million , $ 49.2 million and $ 60.6 million in 2014 , 2013 and 2012 , respectively .

as permitted by jobs act , so long as it qualifies as an egc , the company will take advantage of some of the reduced regulatory and reporting requirements that are available to it , including , but not limited to , not being required to comply with the auditor attestation requirements of section 404 ( b ) of the sarbanes-oxley act , reduced disclosure obligations regarding executive compensation , and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments . discussion on the results of operations for the years ended december 31 , 2017 , december 31 , 2016 and december 31 , 2015 net income for the year ended december 31 , 2017 , net income was $ 12.4 million , an increase of $ 7.4 million or 146.7 % from $ 5.0 million for the year ended december 31 , 2016. the increase was due to an increase in net interest income after provision for loan losses of $ 15.0 million , primarily driven by higher volume of loans combined with higher yield on loans , and an increase in non-interest income of $ 5.9 million , primarily driven by an increase in service charges and fees . these increases were offset by an increase of $ 5.4 million in non-interest expense , driven by the growth of the business , and an increase of $ 8.2 million in income tax expense , which is a result of higher pretax net income in 2017 and a one-time u.s. tax expense of $ 1.6 million resulting from the tax act , which the u.s. government enacted on december 22 , 2017. net income increased $ 744,000 , or 17.4 % , to $ 5.0 million for the year ended december 31 , 2016 from $ 4.3 million for the year ended december 31 , 2015. the increase was due to an increase in net interest income and debit card income . the increase in net interest income was caused by an increase in interest and fees on loans , which increased $ 11.3 million , or 36.1 % for the year ended december 31 , 2016. this increase was due to the bank 's continued success in growing its loans . 46 net interest income analysis net interest income is the difference between interest earned on assets and interest incurred on liabilities . the following table presents an analysis of net interest income by each major category of interest-earning assets and interest-bearing liabilities for the years ended december 31 , 2017 , 2016 and 2015 ( dollars in thousands ) : replace_table_token_2_th ​ ( 1 ) represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities . ​ ( 2 ) represents total interest-earning assets less total interest-bearing liabilities . ​ ( 3 ) represents net interest income divided by total interest-earning assets . ​ rate/volume analysis the following table presents the effects of changing rates and volumes on net interest income for the periods indicated . the rate column shows the effects attributable to changes in rate ( changes in rate multiplied by prior volume ) . the volume column shows the effects attributable to changes in volume 47 ( changes in volume multiplied by prior rate ) . the net column represents the sum of the prior columns . for purposes of this table , changes attributable to both rate and volume , which can not be segregated , have been allocated proportionately , based on the changes due to rate and the changes due to volume . dollars are in thousands . ​ ​ ​ at december 31 , ​ ​ ​ ​ 2017 over 2016 ​ ​ 2016 over 2015 ​ ​ ​ ​ increase ( decrease ) due to ​ ​ total increase ( decrease ) ​ ​ increase ( decrease ) due to ​ ​ total increase ( decrease ) ​ ​ ​ ​ volume ​ ​ rate ​ ​ volume ​ ​ rate ​ interest-earning assets : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ loans ​ ​ ​ $ 14,457 ​ ​ ​ ​ $ 258 ​ ​ ​ ​ $ 14,715 ​ ​ ​ ​ $ 10,235 ​ ​ ​ ​ $ 1,017 ​ ​ ​ ​ $ 11,252 ​ ​ available-for-sale securities ​ ​ ​ ​ ( 82 ) ​ ​ ​ ​ ​ ( 40 ) ​ ​ ​ ​ ​ ( 122 ) ​ ​ ​ ​ ​ ( 213 ) ​ ​ ​ ​ ​ 9 ​ ​ ​ ​ ​ ( 204 ) ​ ​ held-to-maturity securities ​ ​ ​ ​ ( 2 ) ​ ​ ​ ​ ​ 4 ​ ​ ​ ​ ​ 2 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ other interest-earning assets ​ ​ ​ ​ 1,502 ​ ​ ​ ​ ​ 501 ​ ​ ​ ​ ​ 2,003 ​ ​ ​ ​ ​ 216 ​ ​ ​ ​ ​ 209 ​ ​ ​ ​ ​ 425 ​ ​ total interest-earning assets ​ ​ ​ $ 15,875 ​ ​ ​ ​ $ 723 ​ ​ ​ ​ $ 16,598 ​ ​ ​ ​ $ 10,238 ​ ​ ​ ​ $ 1,235 ​ ​ ​ ​ $ 11,473 ​ ​ interest-bearing liabilities : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ money market and savings accounts ​ ​ ​ $ 469 ​ ​ ​ ​ $ 697 ​ ​ ​ ​ $ 1,166 ​ ​ ​ ​ $ 760 ​ ​ ​ ​ $ 235 ​ story_separator_special_tag ​ ​ ​ ​ ​ 2.27 ​ ​ total securities available-for-sale ​ ​ ​ $ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ $ 1,581 ​ ​ ​ ​ ​ 1.47 % ​ ​ ​ ​ $ 17,036 ​ ​ ​ ​ ​ 2.17 % ​ ​ ​ ​ $ 11,727 ​ ​ ​ ​ ​ 2.23 % ​ ​ ​ ​ $ 32,504 ​ ​ ​ ​ $ 32,157 ​ ​ ​ ​ ​ 2.10 % ​ ​ held-to-maturity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ residential mortgage-backed securities ​ ​ ​ $ — ​ ​ ​ ​ ​ — % ​ ​ ​ ​ $ — ​ ​ ​ ​ ​ — % ​ ​ ​ ​ $ — ​ ​ ​ ​ ​ — % ​ ​ ​ ​ $ 5,403 ​ ​ ​ ​ ​ 2.06 % ​ ​ ​ ​ $ 5,403 ​ ​ ​ ​ $ 5,305 ​ ​ ​ ​ ​ 2.06 % ​ ​ foreign government securities ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 25 ​ ​ ​ ​ ​ 1.83 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 25 ​ ​ ​ ​ ​ 25 ​ ​ ​ ​ ​ 1.83 ​ ​ total securities held-to-maturity ​ ​ ​ $ — ​ ​ ​ ​ ​ — % ​ ​ ​ ​ $ 25 ​ ​ ​ ​ ​ 1.83 % ​ ​ ​ ​ $ — ​ ​ ​ ​ ​ — % ​ ​ ​ ​ $ 5,403 ​ ​ ​ ​ ​ 2.06 % ​ ​ ​ ​ $ 5,428 ​ ​ ​ ​ $ 5,330 ​ ​ ​ ​ ​ 2.06 % ​ ​ ​ ​ ( 1 ) cra mutual funds do not have a stated maturity . ​ at december 31 , 2017 , 2016 and 2015 , the company 's securities portfolio primarily consisted of investment grade mortgage-backed securities and collateralized mortgage obligations issued by government agencies . other-than-temporary impairment each reporting period , the bank evaluates all securities with a decline in fair value below the amortized cost of the investment to determine whether or not the impairment is deemed to be other-than-temporary . other-than-temporary impairment ( “ otti ” ) is required to be recognized if ( 1 ) it intends to sell the security ; ( 2 ) it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis ; or ( 3 ) for debt securities , the present value of expected cash flows is not sufficient to recover the entire amortized cost basis . marketable equity securities are evaluated for otti based on the severity and duration of the impairment and , if deemed to be other than temporary , the declines in fair value are reflected in earnings as realized losses . for impaired debt securities that the bank intends to sell , or more likely than not will be required to sell , the full amount of the depreciation is recognized as otti , resulting in a realized loss that is a charged to earnings through a reduction in noninterest income . for all other impaired debt securities , credit-related otti is recognized through earnings and non-credit related otti is recognized in other comprehensive income/loss , net of applicable taxes . the company did not recognize any otti during the years ended december 31 , 2017 , 2016 and 2015. loans loans are the bank 's primary interest-earning asset . the following tables set forth certain information about the loan portfolio and asset quality . the following table sets forth the composition of the loan portfolio , by type of loan at the dates indicated ( dollars in thousands ) : 51 ​ ​ ​ at december 31 , ​ ​ ​ ​ 2017 ​ ​ 2016 ​ ​ 2015 ​ ​ 2014 ​ ​ 2013 ​ ​ ​ ​ loan balance ​ ​ % of total loans ​ ​ loan balance ​ ​ % of total loans ​ ​ loan balance ​ ​ % of total loans ​ ​ loan balance ​ ​ % of total loans ​ ​ loan balance ​ ​ % of total loans ​ real estate : ​ commercial ​ ​ ​ $ 783,745 ​ ​ ​ ​ ​ 55.15 % ​ ​ ​ ​ $ 547,711 ​ ​ ​ ​ ​ 51.88 % ​ ​ ​ ​ $ 364,802 ​ ​ ​ ​ ​ 44.40 % ​ ​ ​ ​ $ 295,347 ​ ​ ​ ​ ​ 46.52 % ​ ​ ​ ​ $ 284,187 ​ ​ ​ ​ ​ 56.58 % ​ ​ construction ​ ​ ​ ​ 36,960 ​ ​ ​ ​ ​ 2.60 ​ ​ ​ ​ ​ 29,447 ​ ​ ​ ​ ​ 2.79 ​ ​ ​ ​ ​ 38,447 ​ ​ ​ ​ ​ 4.68 ​ ​ ​ ​ ​ 18,923 ​ ​ ​ ​ ​ 2.98 ​ ​ ​ ​ ​ 9,563 ​ ​ ​ ​ ​ 1.90 ​ ​ multifamily ​ ​ ​ ​ 190,097 ​ ​ ​ ​ ​ 13.38 ​ ​ ​ ​ ​ 117,373 ​ ​ ​ ​ ​ 11.12 ​ ​ ​ ​ ​ 118,367 ​ ​ ​ ​ ​ 14.41 ​ ​ ​ ​ ​ 93,054 ​ ​ ​ ​ ​ 14.66 ​ ​ ​ ​ ​ 58,921 ​ ​ ​ ​ ​ 11.73 ​ ​ one-to-four family ​ ​ ​ ​ 25,568 ​ ​

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liquidity and capital resources liquidity is the ability to meet current and future financial obligations of a short-term nature . the company 's primary sources of funds consist of deposit inflows , loan repayments and maturities and sales of securities . while maturities and scheduled amortization of loans and securities are predictable sources of funds , deposit flows and mortgage prepayments are greatly influenced by general interest rates , economic conditions and competition . the bank regularly reviews the need to adjust investments in liquid assets based upon an assessment of : ( 1 ) expected loan demand , ( 2 ) expected deposit flows , ( 3 ) yields available on interest earning deposits and securities , and ( 4 ) the objectives of the alco program . excess liquid assets are invested generally in interest earning deposits and short- and intermediate-term securities . the bank 's most liquid assets are cash and cash equivalents . the levels of these assets are dependent on operating , financing , lending and investing activities during any given period . at december 31 , 2017 and december 31 , 2016 , cash and cash equivalents totaled $ 261.2 million and $ 82.9 million , respectively . securities classified as available-for-sale , which provide additional sources of liquidity , totaled $ 32.2 million at december 31 , 2017 and $ 37.3 million at december 31 , 2016. at december 31 , 2017 , the bank had the ability to borrow a total of $ 263.4 million from the fhlbny , subject to pledging additional collateral . it also had an available line of credit with the frbny discount window of $ 92.9 million . at december 31 , 2016 , the bank had the ability to borrow a total of $ 204.4 million from the fhlbny . it also had an available line of credit with the frbny discount window of $ 67.9 million . the bank has no material commitments or demands that are likely to affect its liquidity other than set forth below .

at december 31 , 2020 , our investment portfolio , including cash and cash equivalents , was $ 1.2 billion and produced net investment income of $ 29.4 million in 2020 , $ 32.5 million in 2019 and $ 30.5 million in 2018. the use of reinsurance is an important component of our business strategy . we purchase reinsurance to reduce our net liability on individual risks and to protect against catastrophic losses . our reinsurance program for 2021 includes 15 reinsurers that provide coverage to us in excess of a certain specified loss amount , or retention level . our 2021 reinsurance program provides us with reinsurance coverage for each loss occurrence up to $ 70.0 million , subject to applicable limitations , deductibles , retentions and aggregate limits . however , for any loss occurrence involving only one claimant , our reinsurance coverage is limited to $ 10.0 million , subject to applicable deductibles , retentions and aggregate limits . losses in the layer between $ 2.0 million and $ 10.0 million are ceded to a multi-year reinsurance treaty with an aggregate annual deductible of approximately $ 9.1 million and an aggregate limit of coverage of approximately $ 27.3 million for 2021. as losses are incurred and recorded , we record amounts recoverable from reinsurers for the portion of the losses ceded to our reinsurers . our most significant balance sheet liability is our reserve for loss and loss adjustment expenses . we record reserves for estimated losses under insurance policies that we write and for loss adjustment expenses related to the investigation and settlement of claims . our reserves for loss and loss adjustment expenses represent the estimated cost of all reported and unreported loss and loss adjustment expenses incurred and unpaid at any given point in time based on known facts and circumstances . reserves are based on estimates of the most likely ultimate cost of individual claims . these estimates are inherently uncertain . in addition , there are no policy limits on the liability for workers ' compensation claims as there are for other forms of insurance . therefore , estimating reserves for workers ' compensation claims may be more uncertain than estimating reserves for other types of insurance claims with shorter or more definite periods between occurrence of the claim and final determination of the loss and with policy limits on liability for claim amounts . 38 our focus on providing workers ' compensation insurance to employers engaged in hazardous industries results in our receiving relatively fewer but more severe claims than many other workers ' compensation insurance companies . severe claims , which we define as claims having an estimated ultimate cost of more than $ 1.0 million , usually have a material effect on each accident year 's loss reserves ( and our reported results of operations ) as a result of both the number of severe claims reported in any year and the timing of claims in the year . as a result of our focus on higher severity , lower frequency business , our reserve for loss and loss adjustment expenses may have greater volatility than other workers ' compensation insurance companies . for example , for the five-year period ended december 31 , 2020 we had recorded 77 severe claims , or an average of 15 severe claims per year for accident years 2016 through 2020. the number of severe claims in any one accident year in this five-year period ranged from a low of 13 in 2016 to a high of 18 in 2020. the average reported case severity for these claims ranged from $ 2.3 million for the 2018 accident year to $ 3.1 million for the 2019 accident year . for the five accident years , the case incurred for these severe claims accounted for an average of 13.0 percentage points of our overall loss and loss adjustment expense , or lae , ratio , measured at december 31 , 2020. further , the ultimate cost of severe claims is more difficult to estimate , principally due to uncertainties as to medical treatment and outcome and the length and degree of disability . because of these uncertainties , the estimate of the ultimate cost of severe claims can vary significantly as more information becomes available . as a result , at year end , the case reserve for a severe claim reported early in the year may be more accurate than the case reserve established for a severe claim reported late in the year . a key assumption used by management in establishing loss reserves is that average per claim case incurred loss and loss adjustment expenses will increase year over year . we believe this increase primarily reflects medical and wage inflation and utilization . however , changes in per average claim case incurred loss and loss adjustment expenses can also be affected by frequency of severe claims in the applicable accident years . as more fully described in “ business—loss reserves ” in item 1 of this report , the estimate for loss and loss adjustment expenses is established based upon management 's analysis of historical data , and factors and trends derived from that data , including claims reported , average claim amount incurred , case development , duration , severity and payment patterns , as well as subjective assumptions . this analysis includes reviews of case reserves for individual open severe claims in the current and prior years . management reviews the outcomes from actuarial analyses to confirm the reasonableness of its reserve estimate . substantial judgment is required to determine the relevance of our historical experience and industry information under current facts and circumstances . story_separator_special_tag in assessing whether our deferred tax assets will be realized , management considers whether it is more likely than not that we will generate future taxable income during the periods in which those temporary differences become deductible . management considers the scheduled reversal of deferred tax liabilities , tax planning strategies and projected future taxable income in making this assessment . if necessary , we establish a valuation allowance to reduce the deferred tax assets to the amounts that are more likely than not to be realized . 42 credit losses on investment securities . investment securities are recorded on the balance sheet as assets net of an allowance for credit losses . for held-to-maturity fixed income securities , the allowance is based on historical default and recovery rates as published by moody 's analytics for corporate bonds , municipal bonds , and other types of fixed income securities . for available-for-sale fixed income securities , a credit allowance is established if the expected discounted future cash flows no longer exceed the book value of the security . in determining the amount of the credit loss to establish , the company consider s the following factors : the extent to which the fair value is less than the amortized cost basis adverse conditions in the security , industry , or geography , including : changes in technology discontinuation of a segment of business that may affect future earnings changes in the quality of the credit enhancement , if any changes in the payment structure of debt security failure of the issuer to make scheduled interest or principal payments any changes to the rating of the security by a rating agency share-based compensation . in accordance with financial accounting standards board ( fasb ) accounting standards codification ( asc ) topic 718 , compensation-stock compensation , we recognize compensation costs for restricted stock , performance-based stock and stock option awards over the applicable vesting periods . 43 results of operations the table below summarizes certain operating results and key measures we use in monitoring and evaluating our operations . replace_table_token_14_th replace_table_token_15_th ( 1 ) includes policy acquisition expenses , and other general and administrative expenses , excluding commissions and salaries and benefits , related to insurance operations and corporate operating expenses . ( 2 ) we adopted asu 2016-13 , financial instruments – credit losses ( topic 326 ) , in the first quarter of 2020. we elected the modified retrospective approach . therefore , prior comparative periods are not adjusted 44 ( 3 ) the current accident year loss ratio is calculated by dividing loss and loss adjustment expenses incurred for the current accident year by the current year 's net premiums earned . ( 4 ) the prior accident year loss ratio is calculated by dividing the change in loss and loss adjustment expenses incurred for prior accident years by the current year 's net premiums earned . ( 5 ) the net underwriting expense ratio is calculated by dividing underwriting and certain other operating costs , commissions and salaries , and benefits by the current year 's net premiums earned . ( 6 ) the net dividend ratio is calculated by dividing policyholder dividends by the current year 's net premiums earned . ( 7 ) the net combined ratio is the sum of the net loss ratio , the net underwriting expense ratio and the net dividend ratio . ( 8 ) we adopted asu 2016-02 , leases ( topic 842 ) , in the first quarter of 2019. we elected the new transition method under the transition guidance within the new standard . therefore , prior comparative periods are not adjusted . overview of operating results year ended december 31 , 2020 compared to year ended december 31 , 2019 gross premiums written . gross premiums written for 2020 were $ 303.1 million , compared to $ 333.5 million for 2019 , a decrease of 9.1 % . the decrease was attributable to a $ 23.6 million decrease in annual premiums on voluntary policies written during the period , a $ 5.9 million decrease in premiums resulting from payroll audits and related premium adjustments for policies written in previous periods , and a $ 0.9 million decrease in annual premiums on assigned risk policies written during the period . related premium adjustments in 2020 include a $ 2.2 million decrease in “ earned but unbilled ” , or ebub , premium . net premiums written . net premiums written for 2020 were $ 292.8 million , compared to $ 324.5 million for 2019 , a decrease of 9.8 % . the decrease was primarily attributable to the decrease in gross premiums written . as a percentage of gross premiums earned , ceded premiums were 3.3 % for 2020 compared to 2.6 % for 2019. the increase in ceded premiums as a percentage of gross premiums earned is due to increased pricing for our 2020 reinsurance program . for additional information , see item 1 , “ business—reinsurance ” . net premiums earned . net premiums earned for 2020 were $ 304.4 million , compared to $ 332.9 million for 2019 , a decrease of 8.5 % . the decrease was attributable to the decrease in net premiums written during the period . net investment income . net investment income in 2020 was $ 29.4 million , a decrease of 9.6 % from the $ 32.5 million reported in 2019. the decrease was due to lower interest rates on fixed income securities in 2020 compared with 2019. the pre-tax investment yield on our investment portfolio was 2.5 % per annum for 2020 versus 2.8 % per annum for 2019. the tax-equivalent yield on our investment portfolio was 2.9 % per annum for 2020 , compared to 3.1 % per annum for 2019. the tax-equivalent yield is calculated using the effective interest rate and the appropriate marginal tax rate . average invested assets , including cash and cash

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liquidity and capital resources our principal sources of operating funds are premiums , investment income , and proceeds from maturities of investments . our primary uses of operating funds include payments for claims and operating expenses . we pay claims , operating expenses and shareholder dividends using cash flow from operations and invest our excess cash in fixed maturity and equity securities . we expect that our projected cash flow from operations will provide us sufficient liquidity to fund future operations , including payment of claims and operating expenses and other holding company expenses , for at least the next 18 months . we forecast claim payments based on our historical trends . we seek to manage the funding of claim payments by actively managing available cash and forecasting cash flows on a short- and long-term basis . cash payments , net of reinsurance , for claims 47 were $ 179.9 million in 2020 , $ 190.0 million in 2019 and $ 200.7 million in 2018 . we fund claim payments out of cash flow from operations , principally premiums , net of amounts ceded to our reinsurers , and net investment income . our investment portfolio at december 31 , 2020 was $ 1.2 billion . as discussed above under “ overview , ” we purchase reinsurance to reduce our net liability on individual risks and to protect against catastrophic losses .

our consolidated net loss for the year ended december 31 , 2011 included $ 2.6 million of transaction costs associated with the acquisition of dnag and $ 7.9 million of clinical trial spending related to our oraquick ® in-home hiv test . 48 cash used in operating activities for the year ended december 31 , 2012 was $ 5.4 million , compared to $ 3.0 million used during the year ended december 31 , 2011. as of december 31 , 2012 , we had $ 87.9 million in cash and cash equivalents compared to $ 23.9 million at december 31 , 2011. during 2012 , we completed a public offering of 6,100,000 shares of our common stock and received $ 70.2 million in proceeds , net of offering expenses . on july 30 , 2012 , we repaid the $ 7.1 million principal balance outstanding under our $ 10.0 million credit facility with comerica bank . during 2011 , we used $ 53.0 million of our cash to fund the dnag acquisition and related transaction expenses . 2012 developments oraquick ® in-home hiv test on july 3 , 2012 , the fda issued a pre-market approval of our oraquick ® in-home hiv test for sale directly to consumers in the otc market , making it the first and only rapid hiv otc test approved in the u.s. the oraquick ® in-home hiv test can detect antibodies to both hiv-1 and hiv-2 with an oral swab with results in as little as 20 minutes , providing a confidential in-home testing option to consumers . it is the first rapid diagnostic test for any infectious disease that has been approved by the fda for sale over the counter . this test was approved following extensive clinical trials conducted during the past several years . the oraquick ® in-home hiv test has been available for purchase by consumers since september 2012 throughout the country , at retailers such as cvs , walgreens , rite aid , wal-mart and kroger . the product is also available for purchase on-line through certain retailers and our website , www.oraquick.com . we began our national public relations and advertising campaign in connection with the september product launch . these activities substantially increased our sales and marketing expenses during the fourth quarter of 2012 and are expected to continue to substantially increase sales and marketing expenses in 2013. to support individuals that purchase and use our test , we have established a toll-free customer support center that operates on a 24/7 , 365-day per year basis . through this center , consumers will have access to highly trained , bi-lingual representatives who can answer questions about hiv/aids and the use of our test , and refer consumers to appropriate resources for follow-up confirmatory testing , counseling and medical treatment . our revenue recognition practices with respect to the oraquick ® in-home hiv test initially will be different than those customarily used in the consumer package goods industry . because this is a new product for which we do not have a historical record of returns , we will initially recognize revenue only upon the consummation of a sale to the retail customer either in a store or over the internet . public offering of common stock on july 11 , 2012 , we completed a public offering of 6,100,000 shares of our common stock , at a price of $ 12.30 per share , resulting in total proceeds of $ 75.0 million before expenses of the offering . in connection with the offering , we paid $ 4.5 million in underwriting discounts and commissions and incurred $ 282,000 in additional offering expenses . economic outlook current unfavorable economic conditions may continue for the foreseeable future and could intensify . these conditions have adversely affected and could continue to adversely affect our financial performance and condition or those of our customers and suppliers . many of our customers rely on public funding provided by federal , state and local governments , and this funding has been and may continue to be reduced or deferred as a result of current economic conditions or sequestration . these circumstances may adversely impact our customers and suppliers , which , in turn , could adversely affect their ability to purchase our products or supply us with necessary equipment , raw materials or components . in addition , these circumstances could adversely affect our access to liquidity that may be needed to conduct or expand our business , conduct future acquisitions or make other discretionary investments . 49 in recent years , there have been numerous initiatives on the federal and state levels for comprehensive reforms affecting the payment for , the availability of and reimbursement for healthcare services in the united states . one example is the affordable care act , the federal healthcare reform law enacted in 2010. the affordable care act imposes a 2.3 % excise tax on certain transactions , including u.s. sales of many medical devices , which will include domestic non-retail sales of some of our products . this new tax became effective in january 2013 and will have a negative impact on our gross margin . also , on august 2 , 2011 , president obama signed into law the budget control act of 2011 , which was designed to reduce federal spending over the next 10 years by $ 2.5 trillion . under that law , a select committee of congress was tasked with identifying and recommending $ 1.2 trillion in spending cuts by late november 2011. because the committee did not agree on spending cuts within that time frame , certain automatic cuts to discretionary , national defense and medicare spending became effective on march 1 , 2013. although the full impact is uncertain , the spending cuts implemented under this new law could adversely affect our customers ' ability to purchase our products . story_separator_special_tag the income tax benefit for the current year was negatively impacted by a $ 428,000 adjustment to dnag 's deferred tax liability recorded in the second quarter of 2012 to reflect a change in the enacted canadian provincial tax rates . the canadian income tax benefit is considered realizable based upon the scheduled reversal of the deferred tax liabilities recorded in connection with the acquisition of dnag . 55 year ended december 31 , 2011 compared to december 31 , 2010 consolidated net revenues the table below shows the total net product revenues ( dollars in thousands ) generated by each of our business segments and net revenues generated by licensing and product development activities . replace_table_token_9_th consolidated net revenues increased 9 % to $ 81.9 million ( including $ 6.2 million attributable to operations of dnag ) in 2011 from $ 75.0 million in 2010. excluding revenue attributable to dnag , our net product revenues increased 5 % during the year ended december 31 , 2011 when compared to the year ended december 31 , 2010. increased sales of our infectious disease testing , substance abuse testing and cryosurgical systems products were partially offset by lower sales of our insurance risk assessment products . the higher net product revenues were partially offset by a $ 2.6 million reduction in licensing and product development revenues during 2011 as compared to 2010. consolidated net revenues derived from products sold to customers outside the united states were $ 14.2 million and $ 11.5 million or 17 % and 15 % of total revenues for the years ended december 31 , 2011 and 2010 , respectively . because the majority of our international sales are denominated in u.s. dollars , the impact of fluctuating foreign currencies was not material to our operating results . revenues by segment osur segment the table below shows the amount of total net revenues ( dollars in thousands ) generated by our osur segment in each of our principal markets . replace_table_token_10_th infectious disease testing market sales to the infectious disease testing market increased 7 % to $ 44.7 million in 2011. oraquick ® sales totaled $ 43.3 million and $ 40.1 million for the years ended december 31 , 2011 and 2010 , respectively . 56 the table below shows a breakdown of our total net oraquick ® revenues ( dollars in thousands ) during 2011 and 2010. replace_table_token_11_th domestic oraquick ® hiv sales remained relatively flat at $ 38.7 million for the twelve months ended december 31 , 2011 compared to $ 38.2 million for the twelve months ended december 31 , 2010. international sales of our oraquick ® hiv test increased 67 % to $ 3.0 million for the year ended december 31 , 2011 from $ 1.8 million for the year ended december 31 , 2010. this increase was largely the result of an improved funding environment as certain private and government customers were able to fund purchases . oraquick ® net revenues for 2011 included $ 1.6 million of sales of our oraquick ® hcv test , compared to $ 165,000 in 2010. we received a clia waiver for this product in november 2011 , enabling us to sell our hcv product to many other non-clia certified customers , such as outreach clinics , community-based organizations and physician offices . sales of our orasure ® oral fluid collection device decreased 23 % from $ 1.6 million in 2010 to $ 1.2 million in 2011. some customers who have purchased our orasure ® device for laboratory hiv-1 testing in the past are now electing to purchase our oraquick advance ® test . we believe this is the result of customers recognizing the benefits of rapid hiv testing , especially with oral fluid . substance abuse testing market sales to the substance abuse testing market increased 7 % from $ 11.7 million in 2010 to $ 12.5 million in 2011 , as a result of higher domestic sales of our intercept ® drug testing system . the table below shows a breakdown of our total net intercept ® revenues ( dollars in thousands ) generated in each market during 2011 and 2010. replace_table_token_12_th domestic intercept ® sales increased 10 % from $ 7.3 million in 2010 to $ 8.0 million in 2011. this increase was largely the result of increased interest in oral fluid testing as well as growth achieved in the workplace market as hiring conditions began to improve when compared to 2010. cryosurgical systems market sales of our products in the cryosurgical systems market ( which includes both the physicians ' office and otc markets ) remained flat at $ 12.0 million for the years ended december 31 , 2011 and 2010 . 57 the table below shows a breakdown of our total net cryosurgical revenues ( dollars in thousands ) generated in each market during 2011 and 2010. replace_table_token_13_th sales of our histofreezer ® product to physicians ' offices in the united states increased 14 % to $ 6.8 million in 2011 , compared to $ 6.0 million in 2010 , as a result of higher market penetration resulting from the continued efforts of our manufacturers ' sales representatives , improved focus by our distributors and an increase in sales to governmental entities . in early 2010 , we signed agreements with two manufacturers ' sales representative organizations to support sales of our histofreezer ® product in the u.s. under these agreements , over 40 additional sales representatives have been working with our physicians ' office distributors throughout the unites states . sales of histofreezer ® in the international market remained flat at $ 1.4 million in 2011 and 2010. during the year ended december 31 , 2011 , our otc cryosurgical sales decreased 16 % primarily due to a decline in sales to our latin american distributor , genomma . genomma had purchases totaling $ 1.0 million in 2011 , compared to $ 2.0 million in 2010. in late 2010 ,

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cash $ 87,888 $ 23,878 working capital 103,483 30,860 our cash increased $ 64.0 million to $ 87.9 million at december 31 , 2012 from $ 23.9 million at december 31 , 2011 , primarily due to receipt of $ 70.2 million in net proceeds from a secondary public offering of our common stock completed during the third quarter of 2012. our working capital also increased to $ 103.5 million at december 31 , 2012 from $ 30.9 million at december 31 , 2011. during 2012 , we used $ 5.4 million in cash to finance our operating activities . our net loss of $ 15.1 million and deferred income tax benefit of $ 1.4 million were partially offset by non-cash stock-based compensation expense of $ 5.2 million and depreciation and amortization of $ 7.2 million . additional uses of cash in operating activities included a $ 296,000 increase in accounts receivable , a $ 3.1 million increase in inventory largely due to the stocking of our oraquick ® in-home hiv tests and a $ 791,000 decrease in accounts payable . accrued expenses decreased $ 1.2 million due to lower year-end accruals for management incentive bonuses , professional fees and other miscellaneous expenses .

excluding the revenue related to the contract buy-out fee , 2006 revenue decreased $ 5.0 million or 9.7 % from 2005. the custom folding cartons product line had sales of $ 29.0 million in 2006 , up $ 5.3 million , or 22.6 % from $ 23.6 million in 2005. the company 's ability to provide short run , highly variable print at competitive prices continues to attract new customers as well as increased sales from existing customers . approximately 57 % of this increase came from new customers , while 43 % came from higher volumes with existing customers . the stock box product line had net sales of $ 10.8 million in 2006 , up $ 1.0 million , or 10.4 % from $ 9.8 million in 2005. stock boxes are primarily sold to confectioners , which drove most of this growth in 2006. the commercial print-on-demand product line had sales of $ 1.4 million in 2006 , down $ 13.0 million , or 90.0 % from $ 14.4 million in 2005. until the fourth quarter of 2005 , commercial print product sales were , for the most part , to vistaprint . sales within this product line are primarily the result of the relationships formed in 2006 with nationwide print distributors . the personalized print line had sales of $ 4.8 million in 2006 , up $ 1.4 million , or 41.4 % from $ 3.4 million in 2005. sales growth in the personalized print line was mainly the result of web-based sales from partnerships and other internet stores . 2005 compared with 2004 for fiscal 2005 , revenue was $ 71.2 million compared with $ 50.3 million in 2004 , an increase of $ 20.9 million or 41.6 % . included in 2005 and 2004 revenue was $ 19.6 million and $ 2.4 million , respectively , associated with the contract buy-out fee received from our former customer . excluding the revenue related to the contract buy-out fee , 11 2005 revenue was $ 51.6 million compared with $ 47.8 million in 2004. the custom folding cartons product line had sales of $ 23.6 million in 2005 , up $ 5.8 million , or 32.7 % , from $ 17.8 million in 2004. approximately 58 % of this increase came from new customers , while 42 % came from higher volumes with existing customers . commercial print-on-demand product line sales were down $ 2.1 million , or 12.8 % , to $ 14.4 million in 2005 from $ 16.5 million in 2004. during the first eight months of 2004 , mod-pac 's contract with vistaprint was based on a long-term cost recovery approach with the terms of the agreement stretching until april 2011. vistaprint was billed for the costs in our plant that were dedicated to their production requirements plus a one-third mark-up on product fulfillment . on september 1 , 2004 , this arrangement was revised to a more traditional customer/vendor supply arrangement with the definitive term of the agreement changed to one year , through august 31 , 2005. the pricing structure was changed as well to a units-based approach . as a part of the restructuring of the agreement , mod-pac received payment of $ 22 million from vistaprint as a buy-out fee for the remaining years of the original contract . this fee was to be amortized over a 36-month period , which was defined by the 12-month definitive term of the new agreement that was effective september 1 , 2004 and the 24-month period for which a pricing framework was described in this agreement relative to any subsequent agreements . on april 15 , 2005 , mod-pac agreed to an amendment of the supply agreement that was effective september 1 , 2005 , which modified the exclusivity provision regarding the north american market . as a result of the amendment , vistaprint was allowed to produce and ship product to its north american customers from its windsor , ontario plant prior to august 31 , 2005 , the expiration of the supply agreement . in exchange , mod-pac received payments that approximated mod-pac 's fixed costs and mark-up on such costs for the actual products vistaprint shipped . during the period april 15 , 2005 through the termination of the supply agreement at august 31 , 2005 , mod-pac received $ 2.2 million in payments from vistaprint . simultaneously , the company executed a supply agreement with vistaprint for the 12-month period ending august 30 , 2006. this agreement established unit pricing for volumes above $ 750,000 per month , while for volumes below that threshold , a low volume surcharge was put into place . vistaprint , however , was not obligated to purchase printed products from mod-pac under this agreement . during the fourth quarter of 2005 , given the conclusion that the company did not anticipate any future sales to vistaprint , the remaining $ 14.1 million of the unamortized portion of the contract buy-out fee was recognized as revenue . 2005 net sales in mod-pac 's stock box product line remained flat year-over-year at $ 9.8 million , while the personalized print product line realized a slight increase of $ 0.1 million in net sales to $ 3.4 million in 2005 , from $ 3.3 million in 2004. cost of products sold as a percentage of revenue , the cost of products sold were 90.7 % , 60.3 % , and 73.6 % for the years 2006 , 2005 , and 2004 , respectively . excluding the amortization of the contract buy-out fee , the cost of products sold were 83.2 % and 77.4 % for the years 2005 and 2004 respectively . story_separator_special_tag the company bought back no shares in 2006. the dilutive earnings per share calculation for 2005 excludes 119,077 stock options that were anti-dilutive at december 31 , 2005. in the fourth quarter of 2004 , the company repurchased 100,328 shares of common stock , which was approximately 3 % of shares outstanding at the beginning of the first quarter of 2005. these repurchases had a $ 0.08 per share favorable effect on 2005 basic and diluted earnings per share . in the first quarter of 2005 , the company repurchased 2,555 shares of common stock . the purchase of this stock did not affect the results of the basic and diluted eps calculations . in the third quarter of 2005 , the company repurchased 290,232 shares of its common stock , which was approximately 8 % of the shares outstanding at the beginning of the third quarter . these repurchases had an $ 0.08 per share favorable affect on the 2005 basic eps and a $ 0.07 per share favorable affect on the diluted eps . 13 the diluted earnings per share calculation for 2004 exclude 24,094 stock options that were anti-dilutive at december 31 , 2004. although the company repurchased 133,829 shares of its common stock in 2004 , 100,328 of the shares repurchased occurred in december 2004 and as a result , the 2004 repurchases did not affect the results of basic and diluted eps calculations for 2004. story_separator_special_tag end of the lease . relationship with vistaprint limited the company performed printing and order fulfillment services for vistaprint limited that resulted in no revenue in 2006 and revenue of $ 12,012,000 in 2005 , and $ 16,467,000 in 2004. there were no outstanding receivables from vistaprint as of december 31 , 2006. in 2005 and 2004 , the company also recognized $ 19,556,000 and $ 2,443,000 of revenue attributable to the amortization of the $ 22 million contract buy-out fee received on september 1 , 2004 in connection with the new supply agreement . robert s. keane is a shareholder in and chief executive officer of vistaprint limited and is the son of kevin t. keane , the chairman of the board of directors of mod-pac . mod-pac had a supply agreement with vistaprint limited pursuant to which they were vistaprint limited 's exclusive north american supplier of printed products through august 30 , 2005. this agreement , which was effective july 2004 , set prices on a price per unit basis and provided a framework for pricing products covered by any renewals or extensions through august 2007. the unit prices were arrived at by reference to mod-pac 's fully burdened costs for products subject to the agreement , plus a 25 % mark-up . the $ 22 million buyout fee that vistaprint paid mod-pac on august 31 , 2004 was negotiated between the two companies . the buyout fee was primarily associated with providing mod-pac cost recovery and profit on the production resources developed or acquired which were dedicated to the fulfillment of vistaprint 's business in north america through 2011. this agreement replaced a previous supply agreement that extended to 2011 , and whereby mod-pac charged vistaprint on a cost plus one-third mark-up basis . on april 15 , 2005 , the company agreed to an amendment of the supply agreement with vistaprint , which modified the exclusivity provision regarding the north american market . as a result , vistaprint was allowed to produce and ship product to its customers in north america from its windsor , ontario plant prior to august 31 , 2005 , the expiration of the supply agreement , in exchange for payments to mod-pac that approximated mod-pac 's fixed costs and mark-up on such costs for the actual products vistaprint ships . these payments totaled $ 2,154,000 in 2005. simultaneously , the company executed a supply agreement with vistaprint for the 12 month period ending august 30 , 2006. this agreement established unit pricing for volumes above $ 750,000 per month , and for volumes below that threshold , a low volume surcharge was put into place . however , vistaprint is not obligated to purchase printed products from mod-pac under this agreement . during the fourth quarter of 2005 , given the final conclusion that the company no longer expects to have sales to vistaprint , the remaining $ 14.1 unamortized portion of the contract buy-out fee was recognized as revenue . recently issued accounting standards 15 during the first quarter of 2006 , the company adopted sfas 123 ( r ) , “share-based payment , ” applying the modified prospective method . this statement requires all equity-based payments to employees , including grants of employee stock options , to be recognized in the statement of earnings based on the grant date fair value of the award . under the modified prospective method , the company is required to record equity-based compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards outstanding as of the date of adoption . the company uses a straight-line method of attributing the value of stock-based compensation expense , subject to minimum levels of expense , based on vesting . stock compensation expense recognized during the period is based on the value of the portion of shared-based payment awards that is ultimately expected to vest during the period . stock compensation expense was $ 378,000 in 2006. no stock compensation expense was recognized prior to 2006. in june 2006 , the fasb issued fasb interpretation no . 48 , “accounting for uncertainty in income taxes” ( fin 48 ) . fin 48 clarifies the accounting and reporting for income taxes recognized in accordance with sfas no . 109 , “accounting for income taxes.” fin 48 prescribes a comprehensive model for the financial statement recognition , measurement , presentation and disclosure of uncertain tax positions taken or expected to be taken on income tax returns .

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liquidity and capital resources in 2006 , cash provided by operating activities was $ 0.8 million , $ 3.6 million more than the $ 2.8 million in cash used in 2005. this increase is mainly the result of $ 7.5 million of income taxes paid in 2005 related to the receipt of $ 22.0 million advance payment from vistaprint in 2004. this was partially offset by lower net loss in 2005 , exclusive of the impact of the contract buy-out fee , and by higher 2005 cash flows from other working capital accounts and higher depreciation and amortization expense . in 2005 , cash used in operating activities was $ 33.5 million less than the $ 30.6 million in cash generated in 2004. this decrease is primarily due to the receipt of the $ 22.0 million advance payment from vistaprint in 2004 and the $ 7.5 million of income taxes paid in 2005 related to the receipt of this payment . in addition , lower net income , excluding the impact of the buy-out fee , contributed to the decrease in cash provided by operations in 2005. capital expenditures in 2006 were $ 1.0 million compared to $ 4.7 million in 2005 and $ 6.3 million in 2004. expenditures in 2006 were primarily related to building improvements ; certain productivity improvement equipment ; and software , used for on-line proofing , order fulfillment and warehouse management . expenditures in 2005 of $ 4.7 million primarily related to additional production equipment and , to a lesser extent , additional production facilities .

destruction of neuronal synapses , accelerated nerve cell death , and dysfunction of the brain support cells , are all widely believed to be a direct consequence of misfolded proteins .  historically , the drug industry has attempted to treat alzheimer 's disease by developing drugs that block the synthesis of , or remove or dis-aggregate , beta amyloid and , more recently , tau . essentially , the prevailing doctrine said that amyloid must be cleared out of the brain . this scientific approach – known as the amyloid hypothesis - has been repeatedly tested by our competitors in late stage clinical trials using a variety of antibody backbones , epitopes , target conformations , biomarkers and in various stages of disease . such studies have all failed to yield therapeutic benefit for patients with alzheimer 's disease . more recently , experimental efforts have been proposed to ramp up the brain 's immune system in people with alzheimer 's disease to remove amyloid or tau , an approach known as immunotherapy . current attempts to use immunotherapy to treat alzheimer 's disease may yet work , but for over 20 years this approach has also consistently failed due to lack of efficacy and or for safety reasons . for example , older adults who receive active immunotherapy treatment often show reduced responsiveness of the immune system , and patients who do improve sometimes develop a life-threatening brain inflammation 60 called aseptic meningitis . more generally , even when active or passive immunization against amyloid beta has reduced the brain 's amyloid load , such effects resulted in no therapeutic benefit to patients with alzheimer 's disease .  since drug innovation is a trial-and-error process , clinical failures represent important learning opportunities . in the case of alzheimer 's disease , we believe the biopharmaceutical industry 's track record of persistent failure reflects a need to consider more recent and innovative approaches regarding the neurobiology of alzheimer 's disease . we believe such scientific approaches may broaden the range of possible treatment approaches .  over the last ten years , we have developed a new and promising scientific approach for the treatment and diagnosis of neurodegeneration , particularly alzheimer 's disease .  importantly , we do not seek to clear amyloid out of the brain . our approach is to stabilize a critical protein in the brain .  “ proteopathy ” refers to a disease in which a protein becomes structurally abnormal , assembles and aggregates , and therefore loses its normal function and disrupts or injures the function of surrounding cells , tissues and organs . through years of basic research , we have identified a structurally altered protein in the brain . we believe our experimental evidence demonstrates that this proteopathy plays a critical role in the development of neurodegenerative diseases , including the neurodegeneration observed in alzheimer 's disease . using scientific insight and advanced tools in biochemistry , bioinformatics and imaging , we have elucidated this protein dysfunction . we have engineered a family of high-affinity small molecules to target the structurally altered protein and restore the protein to its normal shape and function . this family of small molecules , including pti-125 , was designed in-house and characterized by our academic collaborators .  the target of pti-125 is an altered form of a scaffolding protein called filamin a ( “ flna ” ) . altered flna causes a cascade of toxic effects in the brain . altered flna is a proteopathy , which means that this protein is no longer capable of executing a stable , beneficial and protective role and instead becomes harmful and destructive to the brain . by reversing the alteration of flna , its pathology ceases to adversely affect surrounding cells in the brain . in animal models of disease , restoring normal flna resulted in a multitude of therapeutic effects , including normalizing neurotransmission , decreasing neuroinflammation and restoring memory and cognition . by restoring function to multiple receptors and exerting powerful anti-inflammatory effects , we believe our approach has potential to slow the progression of neurodegeneration in humans . thus , we have designed product candidates , such as pti-125 , with the goal of slowing or , potentially , even reversing the deterioration of brain cells . we believe the ability to simultaneously improve many vital functions in the brain represents a new , different and crucial approach to address neurodegeneration .  importantly , since pti-125 has a unique mechanism of action , we believe its potential therapeutic effects m ay be additive or synergistic with that of other therapeutic candidates aimed at the treatment of neurodegeneration .  our mission is to detect and treat alzheimer 's disease .  our lead therapeutic product candidate , called pti-125 , is initially aimed at alzheimer 's disease . pti-125 is a small molecule drug with a novel mechanism of action . this drug candidate has demonstrated both cognitive improvement and slowing of disease progression in animal models of disease . pti-125 is in phase ii clinical stage of development , with substantial support from the national institute on aging ( “ nia ” ) , a division of the nih .  the target of pti-125 is an altered form of filamin a ( “ flna ” ) . flna is a scaffold protein that is widely found throughout the body . the function of a scaffold protein is to bring multiple other proteins together for them to interact . however , an altered , and highly toxic , form of flna is found in the alzheimer 's brain . altered flna contributes to alzheimer 's disease by disrupting the normal function of neurons , leading to neurodegeneration and brain inflammation . story_separator_special_tag 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 .  recent accounting pronouncements  in february 2016 , the fasb issued asu no . 2016-02 , leases ( topic 842 ) . the core principle of topic 842 is that a lessee should recognize the assets and liabilities that arise from leases . for operating leases , a lessee is required to recognize a right-of-use asset and a lease liability , initially measured at the present value of the lease payments , in the statement of financial position . this asu is effective for fiscal years beginning after december 15 , 2018 , including interim periods within those fiscal years . the company is evaluating the effect that the adoption of this asu will have on its financial statements . the company currently expects that its operating lease commitment for its office space will be subject to the new standard and recognized as right-of-use asset and operating lease liability upon adoption of asu 2016-02 , which will increase the total assets and total liabilities that it reports relative to such amounts prior to adoption .  in august 2018 , the fasb issued asu no . 2018-13 , fair value measurement ( topic 820 ) - disclosure framework - changes to the disclosure requirements for fair value measurement ( “ asu 2018-13 ” ) , which is designed to improve the effectiveness of disclosures by removing , modifying and adding disclosures related to fair value measurements . asu 2018-13 is effective for fiscal years beginning after december 15 , 2019 , including interim periods within those fiscal years . the company is currently evaluating the impact of asu 2018-13 on its consolidated financial statements . 64  results of operations  research and development expense  research and development expense consist primarily of costs of drug development work associated with our product candidates , including :  · preclinical testing ,  · clinical trials ,  · clinical supplies and related formulation and design costs , and  · compensation and other personnel-related expenses .  research and development expenses decreased to $ 3.0 million in 2018 from $ 7.6 million in 2017 , representing a 61 % decrease . this was due primarily to decreases in remoxy related expenses , a product candidate that we are no longer developing . we also received reimbursements of $ 3.0 million from research grants in 2018 from the nih that we recorded as a reduction to our research and development expense compared to $ 1.4 million in 2017. grant reimbursement increased from the prior year as additional grant awards have been received from the nih .  research and development expenses included non-cash stock-related compensation expenses of $ 1.0 million in 2018 compared to $ 1.2 million in reimbursements from research grants in 2017 .  we expect research and development expense to fluctuate in future periods as we continue our development efforts . we expect our development efforts to result in our product 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 .  general and administrative expense  general and administrative expenses consist of personnel costs , allocated expenses and other expenses for outside professional services , including legal , human resources , audit and accounting services . personnel costs consist of salaries , bonus , benefits and stock-based compensation . allocated expenses consist primarily of facility costs . we incur expenses associated with operating as a public company , including expenses related to compliance with the rules and regulations of the sec and nasdaq , additional insurance expenses , additional audit expenses , investor relations activities , s ox compliance expenses and other administrative expenses and professional services . general and administrative expense decreased to $ 3.7 million in 2018 from $ 4.3 million in 2017 , representing a 15 % decrease . this was due primarily to decreases in non-cash stock-based compensation expenses as well as outside professional fees .  general and administrative expenses included non-cash stock-based compensation expenses of $ 1.4 million in 2018 compared to $ 1.8 million in 2017. we expect other general and administrative expense for 2019 will be consistent with 2018 .  interest income  interest and other income , net , was $ 105,000 in 2018 compared to $ 38,000 in 2017. the increase was due primarily to higher cash balances from our august 2018 stock offering as well as an increase in interest rates . we expect interest income to increase in 2019 compared to 2018 due to our higher cash and cash equivalent balances as well as a higher interest rate environment .  story_separator_special_tag 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 assets with a valuation

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liquidity and capital resources  since inception , we have financed our operations primarily through public and private stock offerings , payments received under collaborative agreements and interest earned on our investments . we intend to continue to use our capital resources to 65 fund research and development activities , capital expenditures , working capital requirements and other general corporate purposes . as of december 31 , 2018 , cash and cash equivalents totaled $ 19.8 million .  2018 registered direct offering  on august 17 , 2018 , we completed a common stock offering pursuant to which certain investors purchased 8,860,778 shares of common stock at a price of $ 1.15 per share . we also issued warrants to purchase shares of common stock at a price of $ 0.125 per warrant share in the offering . net proceeds of the offering were approximately $ 10.2 million after deducting offering expenses . the warrants are exercisable for 8,860,778 shares of common stock at $ 1.25 per share . subject to certain ownership limitations described in the warrants , the warrants were immediately exercisable and will remain exercisable until the 2.5-year anniversary of their date of issuance . the warrants will be exercisable on a “ cashless ” basis in certain circumstances , including while there is no effective registration statement registering the shares of common stock issuable upon exercise of the warrants at any time until the expiry of the warrants .

beginning in may 2020 and continuing through december , casinos began to reopen at limited capacity and nearly all of our customers ' casino properties in the united states and canada were partially open as of december 31 , 2020 under limited operations . as of december 31 , 2020 , in mexico , approximately half of our customers ' casinos were partially open under capacity limitations . as a result of the temporary closures of our casino customers , there has been a decrease in the amount of money spent by consumers on our revenue shared installed base and the amount of daily fees of our participation egms and a slow down in the expansion of existing casinos or development of new casinos . specifically , gaming operations revenue and equipment sales have decreased compared to the prior year period as a result of the temporary closures of our casino customers . similarly , our egm and table products segment operating results have been disrupted because each segment 's activities including design , development , acquisition , manufacturing , marketing , distribution , installation and servicing of its products lines have been temporarily halted or significantly reduced . in addition , each segment 's revenue from leasing , licensing and selling products has been adversely impacted due to the temporary closures of our casino customers . as a result , the company has taken several actions to adapt to the severity of the covid-19 crisis . among other things , the company implemented short-term furloughs with retained benefits , company-wide salary reductions , and reduced its workforce by over 10 % . our non-employee directors have also agreed to reduce their fees by 50 % . some of the company 's customers have reopened at limited capacity , some have reopened and then been required to close again due to local conditions and regulations relating to the spread of the coronavirus , and there are also customers who still remain closed . depending on the number and length of casino closures , the company will consider additional reductions to payroll and related expenses through additional employee furloughs in order to conserve liquidity . our expenses are impacted by the following key factors : fluctuations in the cost of labor relating to productivity ; overtime and training ; fluctuations in the price of components for gaming equipment ; fluctuations in energy prices ; changes in the cost of obtaining and maintaining gaming licenses ; fluctuations in the level of maintenance expense required on gaming equipment ; and tariff increases . variations in our selling , general and administrative expenses and research and development are primarily due to changes in employment and salaries and related fringe benefits . acquisitions and divestitures we have made several strategic acquisitions over the past two years . in bet gaming ii during the quarter ended september 30 , 2019 , we acquired certain intangible assets related to table game intellectual property from in bet gaming , inc ( “ in bet ii ” ) . the acquisition was accounted for as an acquisition of a business and the assets acquired were measured based on our estimates of their fair values at the acquisition date . we attribute the goodwill recognized to our ability to commercialize the products over our distribution and sales network , opportunities for synergies , and other strategic benefits . the consideration of $ 4.0 million was allocated primarily to tax deductible goodwill for $ 1.2 million and intangible assets of $ 2.8 million . integrity during the quarter ended march 31 , 2019 , we acquired all of the equity of integrity gaming corp. ( “ integrity ” ) , a regional slot route operator with over 2,500 gaming machines in operation across over 33 casinos in oklahoma and texas . the acquisition was accounted for as an acquisition of a business and the assets acquired and liabilities assumed were measured based on our estimates of their fair values at the acquisition date . we attribute the goodwill recognized to our ability to utilize integrity 's installed base to maximize revenue of the combined product portfolio and the synergies we can obtain through the reduction in our combined service and overhead costs . the total consideration for this acquisition was $ 52.6 million . the consideration was allocated primarily to non-tax deductible goodwill for $ 11.4 million , property and equipment of $ 12.7 million and intangible assets of $ 30.6 million . ags igaming during the quarter ended june 30 , 2018 , the company acquired all of the equity of gameiom , a licensed gaming aggregator and content provider to online gaming operators for real money gaming ( “ rmg ” ) . the total consideration for this acquisition was $ 5.0 million , which included cash paid of $ 4.5 million and $ 0.5 million of deferred consideration that was paid within 18 months of the acquisition date . the consideration was preliminarily allocated primarily to non-tax deductible goodwill for $ 3.7 million and intangible assets of $ 2.1 million . 28 results of operations year ended december 31 , 2020 compared to the year ended december 31 , 2019 the following tables set forth certain selected audited consolidated financial data for the periods indicated ( in thousands ) : replace_table_token_2_th revenues gaming operations . gaming operations revenue decreased $ 81.4 million primarily due to a decrease in our egm and table products segments . egm revenue per day ( `` rpd `` ) decreased by 36.1 % compared to the prior year and tables average lease price decreased by 35.2 % due to the temporary casino closures that began in march 2020 caused by the covid-19 pandemic . story_separator_special_tag ( 2 ) adjustments to cost of gaming operation include non-cash stock compensation expense and non-cash charges on capitalized installation and delivery . ( 3 ) adjustments to selling , general and administrative expense include non-cash stock compensation expense , acquisitions and integration related costs including restructuring and severance , initial public offering costs and secondary offering costs , legal and litigation expenses including settlement payments and other adjustments . ( 4 ) adjustments to research and development costs include non-cash stock compensation expense and acquisitions and integration related costs including restructuring and severance . 33 gaming operations revenue the decrease in table products gaming operations revenue is attributable to the decrease in average monthly lease price as we suspended billing our customers when they closed due to the covid-19 pandemic in the current year period . nearly all of the company 's customers were closed during april 2020 and a limited number began to reopen at reduced capacity in late-may through december 2020. the success of our progressives such as super 4 , blackjack match , royal 9 as well as the success of the dex s , are the primary drivers of the increase in the table products installed base compared to the prior year period . equipment sales the decrease in equipment sales is primarily due to lower sales in the current period due to the closures of the company 's customers due to the covid-19 pandemic in the current year period . tables products adjusted ebitda table products adjusted ebitda includes the revenues and operating expenses from the table products segment adjusted for depreciation , amortization , write-downs and other charges , as well as other costs . see item 15 . “ exhibits and financial statement schedules . ” note 14 for further explanation of adjustments . the decrease in table products adjusted ebitda is attributable to the decreases in gaming operations revenue and by decreased revenue from equipment sales described above , offset by the related decrease in operating expenses resulted from management 's actions taken to decrease spending in response to the covid-19 crisis . interactive year ended december 31 , 2020 compared to year ended december 31 , 2019 replace_table_token_5_th ( 1 ) exclusive of depreciation and amortization . ( 2 ) adjustments to selling , general and administrative expense include non-cash stock compensation expense , acquisitions and integration related costs including restructuring and severance , legal and litigation expenses including settlement payments and other adjustments . ( 3 ) adjustments to research and development costs include non-cash stock compensation expense and acquisitions and integration related costs including restructuring and severance . total interactive revenue the increase in revenue is attributable to an increase of $ 2.2 million in rmg revenue in the current period primarily due to an increase in the number of customers and games year over year as well as the addition of our land-based content on the axsys games marketplace platform . we have also entered the state of new jersey and the state of pennsylvania markets with our land-based content . interactive adjusted ebitda interactive adjusted ebitda includes the revenues and operating expenses from the interactive segment adjusted for depreciation , amortization , write-downs and other charges , as well as other costs . see item 15 . “ exhibits and financial statement schedules . ” note 14 for further explanation of adjustments . the increase in interactive adjusted ebitda is primarily attributable to an increase in revenues as described above and a decrease in operating costs including salary and benefit related expenses and professional fees resulted from management 's actions taken to decrease spending in response to the covid-19 crisis . . 34 we have provided total adjusted ebitda in this form 10-k because we believe such measure provides investors with additional information to measure our performance . we believe that the presentation of total adjusted ebitda is appropriate to provide additional information to investors about certain material non-cash items that we do not expect to continue at the same level in the future , as well as other items we do not consider indicative of our ongoing operating performance . further , we believe total adjusted ebitda provides a meaningful measure of operating profitability because we use it for evaluating our business performance , making budgeting decisions , and comparing our performance against that of other peer companies using similar measures . it also provides management and investors with additional information to estimate our value . total adjusted ebitda is not a presentation made in accordance with gaap . our use of the term total adjusted ebitda may vary from others in our industry . total adjusted ebitda should not be considered as an alternative to operating income or net income . total adjusted ebitda has important limitations as an analytical tool , and you should not consider it in isolation or as a substitute for the analysis of our results as reported under gaap . our definition of adjusted ebitda allows us to add back certain non-cash charges that are deducted in calculating net income and to deduct certain gains that are included in calculating net income . however , these expenses and gains vary greatly , and are difficult to predict . they can represent the effect of long-term strategies as opposed to short-term results . in addition , in the case of charges or expenses , these items can represent the reduction of cash that could be used for other corporate purposes . due to these limitations , we rely primarily on our gaap results , such as net ( loss ) income , income from operations , egm adjusted ebitda , table products adjusted ebitda or interactive adjusted ebitda and use total adjusted ebitda only supplementally . the following tables reconcile net loss attributable to playags , inc. to total adjusted ebitda ( amounts in thousands ) : year ended december 31 , 2020 compared to the year ended december 31

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liquidity and capital resources we expect that primary ongoing liquidity requirements for the year ending december 31 , 2021 will be for operating capital expenditures , working capital , debt servicing , game development and other customer acquisition activities . we expect to finance these liquidity requirements through a combination of cash on hand , additional financing , and cash flows from operating activities . part of our overall strategy includes consideration of expansion opportunities , underserved markets and acquisition and other strategic opportunities that may arise periodically . we may require additional funds in order to execute on such strategic growth , and may incur additional debt or issue additional equity to finance any such transactions . we can not assure you that we will be able to obtain such debt or issue any such additional equity on acceptable terms or at all . 35 due to the business disruption caused by the rapid nationwide spread of the coronavirus and the actions by state and tribal governments and businesses to contain the virus , almost all of the company 's customers closed their operations during the months of march and april 2020 and their respective markets have been significantly and adversely impacted . beginning in may 2020 and continuing through december 31 , 2020 , casinos began to reopen at limited capacity and nearly all of our customers ' casino properties in the united states and canada were partially open as of december 31 , 2020 under limited operations . as of december 31 , 2020 , in mexico , approximately half of our customers ' casinos were partially open under capacity limitations . as a result of the temporary closures of our casino customers , there has been a decrease in the amount of money spent by consumers on our revenue shared installed base and the amount of daily fees of our participation egms and a slow down in the expansion of existing casinos or development of new casinos . specifically , gaming operations revenue and equipment sales have decreased compared to the prior year period as a result of the temporary closures of our casino customers .

we incurred net losses of $ 352.9 million , $ 160.0 million and $ 84.5 million for the years ended december 31 , 2015 , 2014 and 2013 , respectively , and had cash , cash equivalents and available-for-sale securities totaling $ 528.6 million at december 31 , 2015. we expect to incur significant losses for the foreseeable future , as we advance our product candidates through clinical development to seek regulatory approval and , if approved , commercialize such product candidates . based on our current estimates , we believe that our cash , cash equivalents and available-for-sale securities will allow us to fund activities through the next 12 months ; however , we expect that we will need to raise capital during 2016 in order to fully implement our business plan to further the development and commercialization of our product candidates , as well as to fund our other operating expenses , milestone payments to licensors and capital expenditures . we expect to finance future cash needs through a combination of public or private equity or debt offerings , collaborations , strategic alliances or other similar licensing arrangements . adequate additional financing may not be available to us on acceptable terms , or at all . our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy . we will need to generate significant revenues to achieve profitability , and we may never do so . in july 2015 , the company sold 4,054,487 shares of its common stock in a public offering at $ 78.00 per share . the net proceeds to the company from the offering were $ 298.5 million , after deducting underwriting discounts and commissions and offering expenses . in july 2015 , the company submitted a new drug application ( “ nda ” ) regulatory filing and a marketing authorization application ( “ maa ” ) for rociletinib to the u.s. food and drug administration ( “ fda ” ) and the european medicines agency ( “ ema ” ) , respectively . both the fda and ema subsequently accepted the respective filings , and they are currently under active review . in december 2015 , the fda extended the prescription drug user fee act goal date for the rociletinib nda by three months to june 28 , 2016 to allow additional time for review of additional clinical data submitted by the company in a major amendment in november 2015. the fda has scheduled the nda for rociletinib for discussion by the oncologic drugs advisory committee ( “ odac ” ) on april 12 , 2016. the odac reviews and evaluates data concerning the safety and effectiveness of marketed and investigational human drug products used in the treatment of cancer and makes recommendations to the fda . 49 product license agreements rociletinib in may 2010 , we entered into an exclusive worldwide license agreement with avila therapeutics , inc. ( now celgene avilomics research inc. , part of celgene corporation ( “ celgene ” ) ) to discover , develop and commercialize a covalent inhibitor of mutant forms of the egfr gene product . as a result of the collaboration contemplated by the agreement , rociletinib was identified as the lead inhibitor candidate , which we are developing under the terms of the license agreement . under the agreement , we are required to use commercially reasonable efforts to develop and commercialize rociletinib , and we are responsible for all non-clinical , clinical , regulatory and other activities necessary to develop and commercialize rociletinib . we made an upfront payment of $ 2.0 million upon execution of the license agreement , a $ 4.0 million milestone payment in the first quarter of 2012 upon the acceptance by the fda of our investigational new drug ( “ ind ” ) application for rociletinib and a $ 5.0 million milestone payment in the first quarter of 2014 upon the initiation of the phase ii study for rociletinib . in the third quarter of 2015 , we made milestone payments totaling $ 12.0 million upon acceptance of the nda and maa for rociletinib by the fda and ema , respectively . we recognized all payments prior to commercial approval as acquired in-process research and development expense . when and if commercial sales of rociletinib commence , we will pay celgene tiered royalties at percentage rates ranging from mid-single digits to low teens based on annual net sales achieved . we are required to pay up to an additional aggregate of $ 98.0 million in development and regulatory milestone payments if certain clinical study objectives and regulatory filings , acceptances and approvals are achieved , including $ 15.0 million upon the first approval of an nda by the fda and $ 15.0 million upon the first approval of an maa by the ema . in addition , we are required to pay up to an aggregate of $ 120.0 million in sales milestone payments if certain annual sales targets are achieved , the majority of which relate to annual sales targets of $ 500.0 million and above . in january 2013 , the company entered into an exclusive license agreement with gatekeeper pharmaceuticals , inc. ( “ gatekeeper ” ) to acquire exclusive rights under patent applications associated with mutant egfr inhibitors and methods of treatment . pursuant to the terms of the license agreement , the company made an upfront payment of $ 0.25 million upon execution of the agreement , which was recognized as acquired in-process research and development expense . if rociletinib is approved for commercial sale , the company will pay royalties to gatekeeper on future net sales . rucaparib in june 2011 , we entered into a license agreement with pfizer inc. to obtain the exclusive global rights to develop and commercialize rucaparib . story_separator_special_tag the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows . there may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense . 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 , enrollment of patients , number of sites activated 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 or prepaid accordingly . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period . based on the amount of accrued research and development expenses as of december 31 , 2015 , if our estimates of our net accrued liabilities are too high or too low by 5 % , this could increase or decrease our research and development expenses by approximately $ 2.7 million . share-based compensation determining the amount of share-based compensation to be recorded requires us to develop estimates of the fair value of stock options as of their grant date . compensation expense is recognized over the vesting period of the award . calculating the fair value of share-based awards requires that we make highly subjective assumptions . we use the black-scholes option pricing model to value our stock option awards . use of this valuation methodology requires that we make assumptions as to the expected dividend yield , price volatility of our common stock , the risk-free interest rate for a period that approximates the expected term of our stock options and the expected term of our stock options . we utilize a dividend yield of zero based on the fact that we have never paid cash dividends and have no current intention to pay cash dividends . 54 the fair value of stock options for the years ended december 31 , 201 5 , 201 4 and 201 3 was estimated at the g rant date using the following weighted average assumptions for the respective periods : replace_table_token_5_th ( a ) volatility : the expected volatility was estimated using peer data of companies in the biopharmaceutical industry with similar equity plans . ( b ) risk-free interest rate : the rate is based on the yield on the grant date of a zero-coupon u.s. treasury bond whose maturity period approximates the option 's expected term . ( c ) expected term : the expected term of the award was estimated using peer data of companies in the biopharmaceutical industry with similar equity plans . we recognized share-based compensation expense of approximately $ 40.4 million , $ 21.5 million and $ 9.5 million for the years ended december 31 , 2015 , 2014 and 2013 , respectively . as of december 31 , 2015 , we had $ 88.6 million in total unrecognized share-based compensation expense , net of related forfeiture estimates , which is expected to be recognized over a weighted-average remaining vesting period of 2.7 years . we expect our share-based compensation to continue to grow in future periods due to the potential increases in the value of our common stock and headcount . we are required to estimate the level of forfeitures expected to occur and record compensation expense only for those awards that we ultimately expect will vest . due to the lack of historical forfeiture activity of our plan , we estimated our forfeiture rate based on peer company data with characteristics similar to our company . valuation of contingent consideration resulting from a business combination contingent consideration resulting from a business combination is reported at its fair value on the acquisition date . each subsequent reporting period , the contingent consideration obligations are revalued and changes in fair value are recorded to change in fair value of contingent purchase consideration and foreign currency gains ( losses ) for changes in the foreign currency translation rate on the consolidated statements of operations . changes to contingent consideration obligations can result from adjustments to discount rates and time periods , updates in the assumed achievement or timing of any development milestone or changes in the probability of certain clinical events and regulatory approvals . the assumptions related to determining the value of contingent consideration require significant judgment and changes to the assumptions may have a material impact on the amount of expense recorded in any given period . the acquisition of eos resulted in the recognition of a contingent consideration liability , based on assumptions related to potential future payout amounts , estimated discount rate , probability of success for each milestone achievement and the estimated timing of the milestone payments to the former eos shareholders . intangible assets the ipr & d intangible assets are treated as indefinite-lived intangible assets and are not amortized . amortization of these assets will commence upon completion of the related research and development activities . ipr & d intangible assets are evaluated for impairment at least annually in the fourth quarter or more frequently if impairment indicators exist and any reduction in fair value would be recorded as impairment of intangible asset on the consolidated statements of operations . revenue recognition revenue is recognized from milestone payments when the following criteria have been met : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred or services have been rendered ; ( 3 ) the price

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liquidity and capital resources to date , we have funded our operations through the public offering of our common stock and the private placement of convertible debt securities and preferred stock . as of december 31 , 2015 , we had cash , cash equivalents and available-for-sale securities totaling $ 528.6 million . the following table sets forth the primary sources and uses of cash for each of the periods set forth below : replace_table_token_10_th operating activities net cash used in operating activities for all periods resulted primarily from our net losses adjusted for non-cash charges and changes in components of working capital . net cash used in operating activities increased $ 136.0 million for the year ended december 31 , 2015 compared to 2014 driven by higher rociletinib and rucaparib research and development costs associated with the expansion of the clinical trials , as well as the preparation for the potential commercial launch of rociletinib , and higher salaries , benefits and personnel-related costs resulting from increased headcount to support the expanded development activities and commercial planning for our product candidates . during the third quarter of 2015 , we made milestone payments totaling $ 12.0 million to celgene upon acceptance of the nda and maa for rociletinib by the fda and ema , respectively . during the year ended december 31 , 2015 , we also paid $ 7.3 million in interest related to the convertible senior notes . the net loss for the year ended december 31 , 2014 was partially offset by a $ 13.6 million milestone revenue payment received from servier .

when comparing the clinical benefit of iluvien to existing therapies ( amelioration du service medical rendu or asmr ) , the ct rated the product at `` level iv `` which will be used in considering the price and any reimbursement conditions for iluvien in france . in september 2013 , we submitted an application to the medicines and healthcare products regulatory agency ( mhra ) in the united kingdom , as the reference member state , for ten additional european union ( eu ) country approvals through the mutual recognition procedure . we submitted a new drug application ( nda ) in june 2010 for iluvien in the u.s. with the fda . we resubmitted our nda in may 2011 and april 2013 to address matters raised in the fda 's complete response letters ( crls ) relating to the nda . in october 2013 , we received a third crl from the fda stating that the nda could not be approved in its current form . in the third crl , the fda identified clinical and statistical deficiencies and indicated that the benefits of iluvien did not outweigh its risks . further , the fda also indicated that results from a new clinical trial would need to be submitted , together with at least 12 months of follow-up data for all enrolled patients , to support certain indications previously discussed with the fda . the fda suggested that a meeting with the dermatologic and ophthalmic drugs advisory committee may be of assistance in addressing the deficiencies identified above and providing advice whether a patient population can be identified in which the benefits of the drug product might outweigh the risks . we were notified of a january 2014 meeting of the advisory committee shortly after the issuance of the third crl . in a subsequent communication with the fda , we believe we clarified that the purpose of the advisory committee meeting was to consider the benefits and risks of iluvien based on existing data available from our two completed phase 3 pivotal clinical trials ( collectively , our fame study ) . further discussion with the fda in preparation for the advisory committee resulted in labeling discussions for iluvien , and we and the fda agreed that the advisory committee was no longer necessary . we intend to submit a response to the third crl in the first quarter of 2014 to include a new proposed label , address concerns the fda raised regarding the facility at which iluvien is manufactured , and provide a safety update on iluvien , which will include data from iluvien patients and from physician experience with the iluvien applicator in the united kingdom and germany , where iluvien is currently commercially available . the fda has indicated that we will not be required to conduct any new clinical trials in connection with the fda 's review of this submission . in the third crl , the fda referenced deficiencies in the methods and controls used for iluvien at the facility where it is manufactured . we do not believe that these deficiencies will affect our european commercial supply of iluvien . we and our third-party manufacturer are in the process of resolving these deficiencies . we commenced operations in june 2003. since our inception we have incurred significant losses . as of december 31 , 2013 , we have accumulated a deficit of $ 277.3 million . we expect to incur substantial losses through the projected commercialization of iluvien as we : complete the clinical development and registration of iluvien ; continue the commercialization of iluvien in the eu ; continue to seek regulatory approval of iluvien in the u.s. and other jurisdictions ; evaluate the use of iluvien for the treatment of other diseases ; and advance the clinical development of any future products or product candidates either currently in our pipeline , or that we may license or acquire in the future . as of december 31 , 2013 , we had approximately $ 12.6 million in cash and cash equivalents . in january 2014 , we completed a private placement of our common stock providing gross proceeds of $ 37.5 million . we launched iluvien in the united kingdom and germany , in april and may of 2013 , respectively , and currently plan to launch iluvien in france in 2014. based on our current plans , we believe our cash and cash equivalents will be sufficient to fund our operations beyond the projected commercialization of iluvien in the united kingdom , france and germany and the expected generation of positive cash flow in late 2014 , at the earliest , if at all . however , the actual amount of funds that we will need will be determined by many factors , some of which are beyond our control , and we may need funds sooner than currently anticipated . if iluvien is not approved in additional jurisdictions or does not generate sufficient revenue , we may adjust our commercial plans so that we can continue to operate with our existing cash resources or seek to raise additional financing . our agreement with psivida us , inc. 48 we entered into an agreement with psivida us , inc. ( psivida ) for the use of fluocinolone acetonide ( fac ) in psivida 's proprietary delivery device in february 2005 , which was subsequently amended and restated in 2008. psivida is a global drug delivery company committed to the biomedical sector and the development of drug delivery products . our agreement with psivida provides us with a worldwide exclusive license to develop and sell iluvien , which consists of a tiny polyimide tube with membrane caps that is filled with fac in a polyvinyl alcohol matrix for delivery to the back of the eye for the treatment and prevention of eye diseases in humans ( other than uveitis ) . story_separator_special_tag our expenses related to clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and cros that conduct and manage clinical trials on our behalf . the financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows . generally , these agreements set forth the scope of work to be performed at a fixed fee or unit price . payments under the contracts depend on factors such as the successful enrollment of patients or the completion of clinical trial milestones . expenses related to clinical trials generally are accrued based on contracted amounts applied to the level of patient enrollment and activity according to the protocol . if timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed , we modify our estimates of accrued expenses accordingly on a prospective basis . our only commercial product is iluvien , which has received marketing authorization in the united kingdom , austria , france , germany , portugal , and spain , and has been recommended for marketing authorization in italy , for the treatment of vision impairment associated with chronic dme considered insufficiently responsive to available therapies . iluvien has not been approved in the u.s. by the fda or in any jurisdiction other than as set forth above . in order to grant marketing approval , a health authority such as the fda or foreign regulatory agencies must conclude that clinical and preclinical data establish the safety and efficacy of iluvien or any future products or product candidates with an appropriate benefit to risk profile relevant to a particular indication , and that the product can be manufactured under current good manufacturing practice ( cgmp ) in a reproducible manner to deliver the product 's intended performance in terms of its stability , quality , purity and potency . until our submissions are reviewed by health authorities , there is no way to predict the outcome of their review . even if the clinical studies meet their predetermined primary endpoints , and a registration dossier is accepted for filing , a health authority could still determine that an appropriate benefit to risk relationship does not exist for the indication that we are seeking . we can not forecast with any degree of certainty which of iluvien or any future products or product candidates will be subject to future collaborations or how such arrangements would affect our development plan or capital requirements . as a result of the uncertainties discussed above , we are unable to determine the duration and completion costs of our development projects or when and to what extent we will receive cash inflows from the commercialization and sale of an approved product candidate . general and administrative expenses general and administrative expenses consist primarily of compensation for employees in executive and administrative functions , including finance , accounting , information technology and human resources . other significant costs include facilities costs and professional fees for accounting and legal services , including legal services associated with obtaining and maintaining patents . we expect to continue to incur significant costs to comply with the corporate governance , internal control and similar requirements applicable to public companies . sales and marketing expenses sales and marketing expenses consist primarily of professional fees and compensation for employees for the assessment of the commercial opportunity of , the development of market awareness for , the pursuit of market reimbursement and the execution of launch plans for iluvien . other costs include professional fees associated with developing plans for iluvien or any future products or product candidates and maintaining public relations . we launched iluvien in the united kingdom and germany , in the second quarter of 2013 and currently plan to launch iluvien in france in 2014. we expect significant increases in our marketing and selling expenses as we continue the commercialization of iluvien in these countries . we have hired a european management team and , through outsourced third party providers , are developing a commercial infrastructure of approximately 30 people in the united kingdom , germany and france , in management and the field combined including sales representatives and market access personnel . in november 2012 , we entered into an agreement with quintiles commercial europe limited . under the agreement , quintiles commercial europe limited and its affiliates ( collectively , quintiles commercial ) will provide certain services to us in relation to the commercialization of iluvien , in certain countries in europe under subsequent project orders . such services may include marketing , brand management , sales promotion and detailing , market access , pricing and reimbursement support , regulatory , medical science liaison and communications and or other advisory services . as of december 31 , 2013 , we had entered into eight project orders with quintiles commercial for the provision of sales , marketing , management , market access and medical science personnel in germany , the united kingdom and france . under these project orders , quintiles commercial , 52 as of december 31 , 2013 , employed 24 persons fully dedicated to alimera . quintiles commercial also employed six persons partially dedicated to alimera in germany , the united kingdom and france , as of december 31 , 2013. in accordance with the terms of these project orders , we expect to incur approximately $ 31.1 million in costs with quintiles commercial through 2015. for the years ended december 31 , 2013 and 2012 , respectively , we incurred $ 7.5 million and $ 1.3 million of expense associated with this agreement . at december 31 , 2013 , $ 520,000 is included in outsourced services payable and $ 2.6 million is included in prepaid expenses and other current assets in our accompanying consolidated financial statements in association with these project orders .

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liquidity and capital resources to date we have incurred recurring losses , negative cash flow from operations , and have accumulated a deficit of $ 277.3 million from our inception through december 31 , 2013. we have funded our operations through the public and private placement of common stock , preferred stock , warrants and convertible debt , the sale of certain assets of the non-prescription business in which we were previously engaged , and certain debt facilities . on january 31 , 2014 , we issued an aggregate of 6,250,000 shares of our common stock for aggregate gross proceeds of approximately $ 37.5 million , prior to the payment of approximately $ 2.3 million of related issuance costs and placement agent fees . on october 2 , 2012 , we closed a preferred stock financing in which we sold units consisting of 1,000,000 shares of series a convertible preferred stock and warrants to purchase 300,000 shares of series a convertible preferred stock for gross proceeds of $ 40.0 million , prior to the payment of approximately $ 460,000 of related issuance costs . as of december 31 , 2013 , we had approximately $ 12.6 million in cash and cash equivalents . we launched iluvien in the united kingdom and germany , in april and may of 2013 , respectively , and currently plan to launch iluvien in france in 2014. based on our current plans , we believe our cash and cash equivalents will be sufficient to fund our operations beyond the projected commercialization of iluvien in the united kingdom , france and germany and the expected generation of positive cash flow from operations in late 2014 , at the earliest , if at all . however , the actual amount of funds that we will need will be determined by many factors , some of which are beyond our control , and we may need funds sooner than currently anticipated .

the following table sets forth oil and natural gas price data per bloomberg for the last three years : replace_table_token_9_th operating revenues and earnings ( losses ) from unconsolidated affiliates in 2013 totaled $ 6.2 billion , representing a decrease of $ 402.3 million , or 6 % , over 2012. adjusted income derived from operating activities and net income ( loss ) from continuing operations for 2013 totaled $ 558.2 million and $ 158.3 million ( $ 0.51/per diluted share ) , respectively , representing decreases of 39 % and 32 % when compared to 2012. operating revenues and earnings ( losses ) from unconsolidated affiliates for 2012 totaled $ 6.6 billion , representing an increase of $ 455.4 million , or 7 % , over 2011. adjusted income derived from operating activities for 2012 totaled $ 908.6 million , representing an increase of 5 % over 2011 , while net income ( loss ) from continuing operations for 2012 totaled $ 233.0 million ( $ 0.79/per diluted share ) , representing a decrease of 33 % over 2011. during 2013 , our income ( loss ) from continuing operations was negatively impacted primarily by the $ 208.2 million loss recognized when we repurchased $ 785.4 million aggregate principal amount of the 9.25 % senior notes in september . excluding this , our operating results in north american drilling and completion operations decreased due to the industry-wide decrease in land drilling activity and overcapacity in the pressure pumping markets . our international operations increased significantly resulting from the deployment of additional rigs under long-term contracts and the renewal of existing contracts at current market rates . during 2012 , our income ( loss ) from continuing operations was negatively impacted by impairments and other charges , including full-cost ceiling test writedowns from sabine totaling $ 283.4 million , representing our proportionate share of the writedowns , a $ 75.0 million impairment of an intangible asset related to the superior trade name , a provision for the retirement of long-lived assets totaling $ 138.7 million in multiple operating segments , a $ 50.4 million impairment of some coil-tubing rigs and a goodwill impairment totaling $ 26.3 million . partially offsetting these charges were $ 160 million of asset gains , primarily relating to selling our interest in sabine at the end of 2012. excluding these items , our operating results improved as a result of increased demand for our services and products due to increased drilling activity in oil- and liquids-rich shale plays and increased well-servicing activity in the u.s. and canada . this increase in activity has more than offset the drop in demand from gas-related plays . during 2011 , operating results improved as compared to 2010 primarily due to the incremental revenue and positive operating results from the addition of our completion services operating segment beginning in september 2010 , increased drilling activity in oil- and liquids-rich shale plays in our drilling operations in both our u.s. lower 48 states and canada drilling operations and increased well-servicing activity in the u.s. and canada . however , our operating results and activity levels were negatively impacted in our u.s. offshore operations in response to uncertainty in the regulatory 29 environment in the gulf of mexico , our alaskan operations due to key customers ' spending constraints , and in saudi arabia due to downtime and reduced rates on several jackup rigs . the following tables set forth certain information with respect to our reportable segments and rig activity : replace_table_token_10_th 30 replace_table_token_11_th ( 1 ) all periods present the operating activities of our wholly owned oil and gas businesses , our previously held equity interests in oil and gas joint ventures in canada and colombia and aircraft logistics operations and construction services as discontinued operations . ( 2 ) includes our drilling technology and top drive manufacturing , directional drilling , rig instrumentation and software services . these services represent our other companies that are not aggregated into a reportable operating segment . ( 3 ) includes earnings ( losses ) , net from unconsolidated affiliates , accounted for using the equity method , of ( $ 0.4 ) million and ( $ 3.1 ) million for the years ended december 31 , 2013 and 2011 , respectively . ( 4 ) includes earnings ( losses ) , net from unconsolidated affiliates , accounted for using the equity method , of $ 0.4 million and $ 0.5 million for the years ended december 31 , 2013 and 2012 , respectively . 31 ( 5 ) represents the elimination of inter-segment transactions and earnings ( losses ) , net from the u.s. unconsolidated oil and gas joint venture , accounted for using the equity method until sold in december 2012 , of ( $ 289.2 ) million and $ 88.5 million for the years ended december 31 , 2012 and 2011 , respectively . ( 6 ) adjusted income ( loss ) derived from operating activities is computed by subtracting the sum of direct costs , general and administrative expenses , depreciation and amortization and earnings ( losses ) from the u.s. oil and gas joint venture from the sum of operating revenues and earnings ( losses ) from unconsolidated affiliates . these amounts should not be used as a substitute for the amounts reported in accordance with gaap . however , management evaluates the performance of our business units and the consolidated company based on several criteria , including adjusted income ( loss ) derived from operating activities , because it believes that these financial measures accurately reflect our ongoing profitability . a reconciliation of this non-gaap measure to income ( loss ) from continuing operations before income taxes , which is a gaap measure , is provided in the above table . ( 7 ) represents the elimination of inter-segment transactions and unallocated corporate expenses . story_separator_special_tag the election of mr. isenberg to forego triggering the potential payment , offset by the charitable contributions described above , was recorded as a capital contribution during the first quarter of 2012. intangible asset impairment during 2012 , we recorded impairment of the superior trade name totaling $ 75.0 million . the superior trade name was initially classified as a ten-year intangible asset at the date of acquisition in september 2010. the impairment is a result of the decision to cease using the superior trade name to reduce confusion in the marketplace and enhance the nabors brand . there were no intangible asset impairment in 2013 or 2011. goodwill impairment during 2012 , we recognized the impairment of goodwill associated with our operations in the u.s. and international drilling operations . the impairments were deemed necessary due to the prolonged uncertainty of utilization of some of our rigs as a result of changes in our customers ' plans for future drilling operations in the gulf of mexico and our international markets . a prolonged period of lower natural gas prices or changes in laws and regulations could continue to adversely affect the demand for and prices of our services , which could result in future goodwill impairment charges for other reporting units due to the potential impact on our estimate of future operating results . there were no goodwill impairment in 2013 or 2011. income tax rate replace_table_token_16_th 38 the changes in our effective tax rate from 2012 to 2013 resulted mainly from the proportion of income generated in the united states versus other countries where we operate and settlements of tax disputes . in general , the effective tax rate reflects the proportion of income generated in the united states versus other countries where we operate . income generated in the united states is generally taxed at a higher rate than other jurisdictions . the changes in our effective tax rate from 2011 to 2012 resulted mainly from the proportion of income generated in the united states versus other countries where we operate . income generated in the united states is generally taxed at a higher rate than other jurisdictions . we are subject to income taxes in the united states and numerous other jurisdictions . significant judgment is required in determining our worldwide provision for income taxes . one of the most volatile factors in this determination is the relative proportion of our income or loss being recognized in high-versus low-tax jurisdictions . in the ordinary course of our business , there are many transactions and calculations for which the ultimate tax determination is uncertain . we are regularly audited by tax authorities . although we believe our tax estimates are reasonable , the final outcome of tax audits and any related litigation could be materially different than what is reflected in our income tax provisions and accruals . the results of an audit or litigation could materially affect our financial position , income tax provision , net income , or cash flows . various bills have been introduced in congress that could reduce or eliminate the tax benefits associated with our 2002 reorganization as a bermuda company . legislation enacted by the u.s. congress in 2004 provides that a corporation reorganizing in a foreign jurisdiction on or after march 4 , 2003 be treated as a domestic corporation for u.s. federal income tax purposes . there has been and we expect that there may continue to be legislation proposed by congress from time to time which , if enacted , could limit or eliminate the tax benefits associated with our reorganization . because we can not predict whether legislation will ultimately be adopted , no assurance can be given that the tax benefits associated with our reorganization will ultimately accrue to the benefit of the company and its shareholders . it is possible that future changes to the tax laws ( including tax treaties ) could impact our ability to realize the tax savings recorded to date as well as future tax savings resulting from our reorganization . assets held-for-sale december 31 , 2013 2012 ( in thousands ) oil and gas $ 239,936 $ 377,625 rig services 3,328 6,232 ​ ​ ​ ​ ​ ​ ​ ​ $ 243,264 $ 383,857 ​ ​ ​ ​ ​ ​ ​ ​ oil and gas properties the carrying value of our assets held for sale represents the lower of carrying value or fair value less costs to sell . we continue to market these properties at prices that are reasonable compared to current fair value . we have contracts with pipeline companies to pay specified fees based on committed volumes for gas transport and processing . in december 2013 we entered into agreements to restructure these contracts , assigning a portion of the obligation to third parties and reducing our future payment commitments . at december 31 , 2013 , our undiscounted contractual commitments for these contracts 39 approximated $ 171.2 million , and we had liabilities of $ 113.6 million , $ 64.4 million of which were classified as current and are included in accrued liabilities . at december 31 , 2012 , we had liabilities of $ 206 million , $ 69 million of which were classified as current and included in accrued liabilities . the amounts at december 31 , 2012 represented our best estimate of the fair value of the excess capacity of the pipeline commitments calculated using a discounted cash flow model , when considering our disposal plan , current production levels , natural gas prices and expected utilization of the pipeline over the remaining contractual term . discontinued operations our condensed statements of income ( loss ) from discontinued operations for each operating segment were as follows : replace_table_token_17_th oil and gas ( 1 ) includes approximately $ 83 million of equity in earnings during 2011 for our proportionate share of remora 's net income , inclusive of the gains recognized for asset

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cash flows our cash flows depend , to a large degree , on the level of spending by oil and gas companies for exploration , development and production activities . sustained increases or decreases in the price of oil or natural gas could have a material impact on these activities , and could also materially affect our cash flows . certain sources and uses of cash , such as the level of discretionary capital expenditures or acquisitions , purchases and sales of investments , issuances and repurchases of debt and of our common shares are within our control and are adjusted as necessary based on market conditions . we discuss our 2013 and 2012 cash flows below . operating activities . net cash provided by operating activities totaled $ 1.4 billion during 2013 , compared to net cash provided by operating activities of $ 1.6 billion during 2012. net cash provided by operating activities ( `` operating cash flows '' ) is our primary source of capital and liquidity . factors affecting changes in operating cash flows are largely the same as those that impact net earnings , with the exception of non-cash expenses such as depreciation and amortization , depletion , impairments , share-based compensation , deferred income taxes and our proportionate share of earnings or losses from unconsolidated affiliates . net income ( loss ) adjusted for non-cash components was approximately $ 1.4 billion and $ 1.6 billion in 2013 and 2012 , respectively . additionally , changes in working capital items such as collection of receivables can be a significant component of operating cash flows . changes in working capital items provided $ 2.9 million and used $ 61.1 million , respectively , in cash flows during 2013 and 2012. investing activities . net cash used for investing activities totaled $ 815.5 million during 2013 compared to net cash used for investing activities of $ 1.2 billion in 2012. our primary use of cash for investing activities is for capital expenditures related to rig-related enhancements , new construction and equipment , as well as sustaining capital expenditures . during 2013 and 2012 , we used cash for capital expenditures totaling $ 1.2 billion and $ 1.5 billion , respectively .

we currently generate a majority of our revenue through subscription services from our streaming radio and music services , and to a lesser extent through advertising and licensing across our music platform . beginning in the fourth quarter of our fiscal year ended march 31 , 2020 , we began generating ticketing , sponsorship , and promotion-related revenue from live music events through our february 2020 acquisition of react presents , llc ( “ react presents ” ) , a leading live entertainment and promoter of electronic dance music ( “ edm ” ) festivals and events . for the fiscal years ended march 31 , 2020 and 2019 , we reported revenue of $ 38.7 million and $ 33.7 million , respectively . for the years ended march 31 , 2020 and 2019 , one customer accounted for 60 % and 41 % of our consolidated revenues , respectively . fiscal 2020 significant transactions on july 25 , 2019 , in a registered direct public offering , the company entered into securities purchase agreements with certain institutional investors pursuant to which the company sold a total of 5,000,000 shares of the its common stock at a price per share of $ 2.10. the gross proceeds to the company were $ 10.5 million . the net proceeds of the offering to the company were $ 9.5 million , after deducting placement agent fees and other offering expenses totaling $ 1.0 million paid by the company . on january 31 , 2020 , the company modified certain financial liquidity covenants in its debentures . the amendment went effective retroactive to december 31 , 2019. in addition , the company issued 400,000 shares of its common stock to the holders of debentures in exchange for the debentures in the principal amount of $ 10,000 , originally issued by the company on june 29 , 2018 , as sole consideration for the shares , sufficient to qualify for an exemption under section 5 of the securities act pursuant to section 3 ( a ) ( 9 ) thereof and accompanying removal of applicable restrictions under rule 144 promulgated under the securities act . any sale of such shares shall be subject to a percentage limitation of the daily trading volume . in february 2020 , the company acquired react presents for $ 2.0 million in subordinated convertible debt . react presents is a leading live entertainment and promoter of edm festivals and events , including the spring awakening festival and hundreds of club shows located in and around the city of chicago , illinois . the convertible note bears annual interest of 8 % , has a conversion price of $ 4.50 per share and is payable in two years from the acquisition date . the company ended fiscal year march 31 , 2020 with approximately 850,000 paid subscribers on the company 's music platform , up from approximately 680,000 at march 31 , 2019 , representing 25 % year-over-year growth since march 31 , 2019 , with approximately 1.0 million , maus . for the fiscal year ended march 31 , 2020 , the company successfully produced and livestreamed forty-two ( 42 ) live festivals and events , generating over 69 million views , 230 artists livestreamed and 275 hours of live programming . 60 basis of presentation the consolidated financial statements have been prepared on the same basis as the company 's audited consolidated financial statements for the fiscal year ended march 31 , 2019 , and include all adjustments , which include only normal recurring adjustments , necessary for the fair presentation of the company 's consolidated financial statements for the year ended march 31 , 2020. the presented financial information for the fiscal year ended march 31 , 2020 includes the financial information and activities of livexlive ( 365 days ) and react presents for the period from february 5 , 2020 to march 31 , 2020 ( 56 days ) . opportunities , challenges and risks in 2020 , we derived the majority of our revenue through music subscription services , and secondarily from advertising and ticketing . for our fiscal year ended march 31 , 2020 ( “ fiscal year 2020 ” ) , approximately 10 % and 90 % of our revenue was from advertising and paid customers ' subscriptions , respectively . subsequent to march 31 , 2020 , we ( i ) agreed to acquire podcastone , ( ii ) accelerated the number of live events digitally live streamed across our platform , ( iii ) substantially increased our sponsorship revenue from live events when compared to prior fiscal years and ( iv ) successfully launched our pay per view ( “ ppv ” ) platform , allowing us to charge customers directly to access and watch certain live events digitally on our music platform . conversely , the covid-19 pandemic adversely impacted our on-premise live events , concerts and festivals through react presents and our programmatic advertising as more fully discussed below . when we aggregate the combined impact of all of these events post march 31 , 2020 , we expect the percentage mix of advertising versus subscription revenue to be substantially higher beginning in the three months ended september 30 , 2020 and throughout the remainder of our fiscal year ended march 31 , 2021 ( “ fiscal year 2021 ” ) versus fiscal year 2020. until the impact of covid-19 eases around the world , we do not expect to produce on-premise live music events and generate revenue through co-promotion fees , sponsorships , food and beverage and ticket sales of on-premise live events in the near term . we believe there is substantial near and long-term value in our live music content . story_separator_special_tag fluctuations in our sales and marketing expenses are generally the result of our efforts to support the growth in our businesses , including expenses required to support the expansion of our direct sales force . we currently anticipate that our sales and marketing expenses will continue to increase throughout fiscal year 2021 , most notably in the second quarter of fiscal year 2021 with the expected acquisition of podcastone and fluctuate as a percent of revenue when compared to 2020 , as we continue to grow our advertising and sponsorship base , invest in new subscriber growth initiatives and sales and marketing organizations and invest in marketing activities to support the growth of our businesses . product development product development expenses consist primarily of expenses incurred in our software engineering , product development and app and web portal design activities and related personnel costs . fluctuations in our product development expenses are generally the result of hiring personnel to support and develop our music platform , new music product offerings and network operations . we currently anticipate that our product development expenses will increase in the near term and more significantly in 2021 , as we also continue to hire more product development personnel and further develop our products and offerings to support the growth of our business . we expect our fiscal year 2021 product development expense as a percentage of revenue to fluctuate accordingly when compared to fiscal year 2020. general and administrative general and administrative expenses consist primarily of personnel costs from our executive , legal , finance , human resources and information technology organizations and facilities related expenditures , as well as third party professional fees , insurance and bad debt expenses . professional fees are largely comprised of outside legal , accounting , audit , information technology consulting and legal settlements . with the full year of react presents expenses in fiscal year 2021 versus partial year in fiscal year 2020 , coupled with the expected addition of new personnel from podcastone to support our planned growth in fiscal year 2021 and beyond , we anticipate general and administrative expenses to increase overall in fiscal year 2021 as compared to fiscal year 2020. amortization of intangibles we determine the appropriate useful life of intangible assets by performing an analysis of expected cash flows based on our historical experience of intangible assets of similar quality and value . we expect amortization expense to increase in the near term as a result of the react presents acquisition made in the fourth quarter of fiscal year ended march 31 , 2020 and podcastone acquisition expected to close in the second quarter of fiscal year ending march 31 , 2021 , respectively . amortization as a percentage of revenue will depend upon a variety of factors , such as the amounts and mix of our identifiable intangible assets acquired in business combinations . 65 stock-based compensation included in our operating expenses are expenses associated with stock-based compensation , which are allocated and included in costs of sales , sales and marketing , product development and general and administrative expenses as necessary . stock-based compensation expense is largely comprised of costs associated with stock options and restricted stock units granted to employees and certain non-employees including directors and consultants . we record the fair value of these equity-based awards and expense at their cost ratably over related vesting periods . in addition , stock-based compensation expense includes the cost of warrants to purchase common stock issued to certain non-employees . as of march 31 , 2020 , we had approximately $ 7.8 million of unrecognized employee related stock-based compensation , which we expect to recognize over a weighted-average period of approximately 2.6 years . stock-based compensation expense is expected to increase throughout fiscal year 2021 compared to fiscal year 2020 as a result of our existing unrecognized stock-based compensation and as we issue additional stock-based awards to continue to attract and retain employees and non-employee directors . other income ( expense ) other income ( expense ) principally consists of changes in the fair value of our derivative financial instruments , interest on outstanding debt associated with our notes payable , convertible notes and loans , gain on bargain purchase and certain unrealized transaction gains and losses on foreign currency denominated assets and liabilities . we typically invest our available cash balances in money market funds and short-term united states treasury obligations . provision for income taxes since our inception , we have been subject to income taxes principally in the united states . we anticipate that as we continue to expand our operations outside the united states , we will become subject to taxation based on the foreign statutory rates and our effective tax rate could fluctuate accordingly . income taxes are computed using the asset and liability method , under which deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized . as of march 31 , 2020 , we had approximately $ 89.0 million of federal and $ 72.7 million of state net operating losses ( “ nols ” ) . these nol carryforwards are available to us to offset future taxable income which expire in varying amounts beginning in 2024 if unused . we obtained $ 136.0 million and $ 2.6 million of federal nol and federal tax credit carryforwards , respectively , through the acquisition of slacker in december 2017. utilization of these losses and tax credits is limited by section 382 of the internal revenue code ( the “ code ” ) in fiscal year end march 31 , 2018 and each taxable year thereafter . we have estimated a limitation and revalued the

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liquidity and capital resources current financial condition as of march 31 , 2020 , our principal sources of liquidity were our cash and cash equivalents , including restricted cash balances in the amount of $ 12.4 million , which primarily are invested in cash in banking institutions in the u.s. in july 2019 , we completed a registered public offering of our common stock , selling an aggregate 5,000,000 shares of our common stock and raising net proceeds of approximately $ 9.5 million . in june 2018 and february 2019 , we issued $ 10.6 million and $ 3.2 million , respectively of debentures raising aggregate net proceeds of $ 12.5 million after issuance costs . the vast majority of our cash proceeds were received as a result of the issuance of our convertible notes since 2014 , public offerings , bank debt financing in fiscal year 2018 and the debentures financing in june 2018 and february 2019. as of march 31 , 2020 , we had notes payable balance of $ 0.3 million , $ 10.1 million in aggregate principal amount of debentures and unsecured convertible notes with aggregate principal balances of $ 6.5 million . as reflected in our consolidated financial statements included elsewhere in this annual report , we have a history of losses and incurred a net loss of $ 38.9 million and utilized cash of $ 4.9 million in operating activities for the year ended march 31 , 2020 and had a working capital deficiency of $ 30.0 million as of march 31 , 2020. these factors , among others , raise substantial doubt about our ability to continue as a going concern within one year from the date that the financial statements are issued . our consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern .

23 revenue and earnings recognition for construction contracts revenue and earnings on construction contracts , including construction joint ventures , are recognized under the percentage of completion method using the ratio of costs incurred to estimated total costs . revenue from unapproved change orders is recognized to the extent the related costs have been incurred , the amount can be reliably estimated and recovery is probable . on certain projects we have submitted and have pending unresolved contract modifications and affirmative claims ( “ affirmative claims ” ) to recover additional costs to which the company believes it is entitled under the terms of contracts with customers , subcontractors , vendors or others . the owners or their authorized representatives and or other third parties may be in partial or full agreement with the modifications or affirmative claims , or may have rejected or disagree entirely or partially as to such entitlement . revenue related to affirmative claims with customers is recognized to the extent of costs incurred when it is probable that a claim settlement with a customer will result in additional revenue and the amount can be reasonably estimated . a reduction to costs related to affirmative claims with non-customers with whom we have a contractual arrangement ( “ back charges ” ) is recognized when the estimated recovery is probable and the amount can be reasonably estimated . except for contractual back charges , a reduction to cost related to affirmative claims against non-customers is recognized when the claims are settled . recognizing affirmative claims and back charge recoveries requires significant judgments of certain factors including , but not limited to , dispute resolution developments and outcomes , anticipated negotiation results , and the cost of resolving such matters and estimates . provisions are recognized in the consolidated statements of operations for the full amount of estimated losses on uncompleted contracts whenever evidence indicates that the estimated total cost of a contract exceeds its estimated total revenue . all contract costs , including those associated with affirmative claims , change orders and back charges , are recorded as incurred and revisions to estimated total costs are reflected as soon as the obligation to perform is determined . contract costs consist of direct costs on contracts , including labor and materials , amounts payable to subcontractors , direct overhead costs and equipment expense ( primarily depreciation , fuel , maintenance and repairs ) . all state and federal government contracts and many of our other contracts provide for termination of the contract at the convenience of the party contracting with us , with provisions to pay us for work performed through the date of termination . pre-contract costs are expensed as incurred . the accuracy of our revenue and profit recognition in a given period depends on the accuracy of our estimates of the cost to complete each project . cost estimates for all of our projects use a detailed “ bottom up ” approach and we believe our experience allows us to create materially reliable estimates . there are a number of factors that can contribute to changes in estimates of contract cost and profitability . the most significant of these include : the completeness and accuracy of the original bid ; costs associated with scope changes ; changes in costs of labor and or materials ; extended overhead and other costs due to owner , weather and other delays ; subcontractor performance issues ; changes in productivity expectations ; site conditions that differ from those assumed in the original bid ; changes from original design on design-build projects ; the availability and skill level of workers in the geographic location of the project ; a change in the availability and proximity of equipment and materials ; our ability to fully and promptly recover on affirmative claims and back charges for additional contract costs ; and the customer 's ability to properly administer the contract . the foregoing factors , as well as the stage of completion of contracts in process and the mix of contracts at different margins may cause fluctuations in gross profit and gross profit margin from period to period . significant changes in cost estimates , particularly in our larger , more complex projects have had , and can in future periods have , a significant effect on our profitability . 24 goodwill as of december 31 , 2017 and 2016 , we had five reporting units in which goodwill was recorded as follows : kenny group construction kenny group large project construction northwest group construction northwest group construction materials california group construction the most significant goodwill balances reside in the reporting units associated with the kenny group . see note 9 of “ notes to the consolidated financial statements ” for balances by reportable segment . we perform impairment tests annually as of november 1 and more frequently when events and circumstances occur that indicate a possible impairment of goodwill . in addition , we evaluate goodwill for impairment if events or circumstances change between annual tests indicating a possible impairment . examples of such events or circumstances include the following : a significant adverse change in legal factors or in the business climate ; an adverse action or assessment by a regulator ; a more likely than not expectation that a segment or a significant portion thereof will be sold ; or the testing for recoverability of a significant asset group within the segment . we elected to only perform the quantitative goodwill impairment tests for the 2017 annual test . in performing the quantitative goodwill impairment tests , we calculate the estimated fair value of the reporting unit in which the goodwill is recorded using the discounted cash flows and market multiple methods . judgments inherent in these methods include the determination of appropriate discount rates , the amount and timing of expected future cash flows and growth rates , and appropriate benchmark companies . story_separator_special_tag other general and administrative expenses include travel and entertainment , outside services , information technology , depreciation , occupancy , training , office supplies , changes in the fair market value of our non-qualified deferred compensation plan liability and other miscellaneous expenses , none of which individually exceeded 10 % of total general and administrative expenses . total general and administrative expenses for 2017 increased $ 3.8 million , or 2.4 % , compared to 2016 , primarily due to an increase in salaries and related expenses from an increase in employee benefits and compensation . these increases were partially offset by decreases in other general and administrative expenses primarily due to a write-off of capitalized software during 2016 . 32 other ( income ) expense the following table presents the components of other ( income ) expense for the respective periods : replace_table_token_17_th interest income for 2017 increased $ 1.5 million when compared to 2016 primarily due to an increase in interest rates associated with our marketable securities and cash equivalents . interest expense for 2017 decreased $ 1.6 million when compared to 2016 primarily due to a reduction of the principal balance of our 2019 notes ( as defined in the senior notes payable section below ) from a payment made in late 2016. other income , net for 2017 decreased $ 1.3 million primarily due to changes in the fair market values of our non-qualified deferred compensation plan assets and a gain associated with a consolidated real estate entity during 2016. income taxes the following table presents the provision for income taxes for the respective periods : replace_table_token_18_th our 2017 tax rate decreased by 3.9 % from 31.3 % to 27.4 % when compared to 2016 primarily due to the revaluation of our deferred tax assets and liabilities as a result of the recently enacted u.s. tax cuts and jobs act of 2017. on december 22 , 2017 the u.s. tax cuts and jobs act of 2017 ( “ tax reform ” ) was signed into law . as a result of tax reform , the u.s. statutory tax rate was lowered from 35 % to 21 % effective january 1 , 2018 , among other changes . asc topic 740 , accounting for income taxes , requires companies to recognize the effect of tax law changes in the period of enactment ; therefore , we were required to revalue our deferred tax assets and liabilities at december 31 , 2017 at the new rate . the securities and exchange commission issued staff accounting bulletin no . 118 ( “ sab 118 ” ) to address the application of u.s. gaap in situations when a registrant does not have the necessary information available , prepared , or analyzed ( including computations ) in reasonable detail to complete the accounting for certain tax effects of tax reform . the company has recognized a $ 3.7 million provisional benefit for the tax impacts of tax reform in its consolidated financial statements for the year ended december 31 , 2017. the majority of the provisional benefit is related to the revaluation of deferred tax assets and liabilities at december 31 , 2017 as a result of tax reform . the ultimate impact may differ from this provisional amount , possibly materially , as a result of additional analysis , changes in interpretations and assumptions the company has made , additional regulatory guidance that may be issued , and actions the company may take as a result of tax reform . the accounting is expected to be complete when the 2017 u.s. corporate income tax return is filed in 2018. amount attributable to non-controlling interests the following table presents the amount attributable to non-controlling interests in consolidated subsidiaries for the respective periods : replace_table_token_19_th the amount attributable to non-controlling interests represents the non-controlling owners ' share of the income or loss of our consolidated construction joint ventures . the decrease for 2017 when compared to 2016 was primarily due to a decrease in the estimated recovery from back charge claims in 2016 offset by the income from consolidated construction joint ventures awarded in the third quarter of 2016 . 33 prior years revenue : construction revenue for the year ended december 31 , 2016 increased by $ 102.5 million , or 8.1 % , compared to the year ended december 31 , 2015 primarily due to increased volumes from entering the year with greater contract backlog in the northwest and kenny public sectors , as well as from an improved success rate on bidding activity for solar work in the california private sector . the increases were partially offset by declines in the northwest and kenny private sectors as well as a decline in the california public sector from the completion of projects in 2016 coupled with lower beginning contract backlog and a decline in the volume of awarded work during 2016. large project construction revenue for the year ended december 31 , 2016 increased by $ 75.5 million , or 9.3 % , compared to the year ended december 31 , 2015 , primarily due to progress on new projects in the california operating group , heavy civil operating group and kenny public sector . these increases were partially offset by decreases in the northwest operating group and kenny private sector from completion of projects in late 2015 and early 2016 coupled with lower beginning contract backlog in the kenny private sector . construction materials revenue for the year ended december 31 , 2016 decreased $ 34.4 million , or 11.6 % , when compared to the year ended december 31 , 2015 primarily due to a net decline in sales volume across most of our markets in california with demand shifting to increased internal ( construction segment ) use in 2016. contract backlog : construction contract backlog of $ 1.0 billion at december 31 , 2016 was $ 169.8 million , or 19.7 % , higher than at december

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cash flows replace_table_token_21_th as a large construction and heavy civil contractor and construction materials producer , our operating cash flows are subject to seasonal cycles , as well as the cycles associated with winning , performing and completing projects . additionally , operating cash flows are impacted by the timing related to funding construction joint ventures and the resolution of uncertainties inherent in the complex nature of the work that we perform , including affirmative claims settlements . our working capital assets result from both public and private sector projects . customers in the private sector can be slower paying than those in the public sector ; however , private sector projects generally have higher gross profit as a percentage of revenue . we manage our combined accounts receivable , net , costs and estimated earnings in excess of billings and billings in excess of costs and estimated earnings balances , our primary working capital assets , using day 's sales outstanding ( “ dso ” ) . we calculate dso by dividing net dso receivables by net dso revenue for the current quarter multiplied by 90 days , as presented below : replace_table_token_22_th dso decreased 2 days to 48 days as of december 31 , 2017 when compared to 50 days at december 31 , 2016 . we manage our accounts payable and accrued expenses and other current liabilities balances , our primary working capital liabilities , using day 's payables outstanding ( “ dpo ” ) . we calculate dpo by dividing net dpo payables by net dpo expenses for the current quarter multiplied by 90 days , as presented below : replace_table_token_23_th 36 accrued expenses and other current liabilities typically include items such as accruals for salaries and related benefits , insurance and sales , use and property tax , some of which are not scalable to our cost volume . dpo remained flat at 56 days as of december 31 , 2017 when compared to december 31 , 2016. cash provided by operating activities of $ 146.2 million during 2017 increased $ 73.0 million when compared to 2016 .

20 summary of operations transitioning to a lower risk business model during 2019 , the company migrated from a 90 % franchised business model to one that is 96 % franchised . changes in restaurant counts are as follows : replace_table_token_8_th the sale of 113 company restaurants in 2019 and 2018 with attached development commitments created an opportunity for development-focused franchisees to expand their businesses . in addition to stimulating domestic restaurant development , this transition yielded a smaller portfolio of higher volume company restaurants . the smaller number of company restaurants will require lower remodel and maintenance-related capital expenditures and general and administrative support costs . further , we expect to benefit from reduced exposure to volatility in costs of company restaurant sales along with greater stability in royalties and fees from restaurants operated by our franchisees . we generated approximately $ 119.0 million of cash proceeds from the sale of company restaurants in 2019. growing and revitalizing the brand over the last five years , our growth initiatives have led to 194 new restaurant openings . during 2019 , our franchisees opened 30 restaurants of which 14 are international franchised locations including three each in canada , the philippines , and the united arab emirates . our goal is to increase net restaurant growth through both domestic and international avenues . domestic growth will focus on markets in which we have modest penetration . development agreements related to the sale of 113 of our company restaurants during 2018 and 2019 and recently enhanced development agreements in canada and the philippines are expected to stimulate both domestic and international growth over the next several years . our current standard franchise agreement includes a royalty rate of up to the current rate of 4.5 % . approximately 66 % of our franchised restaurants were operating under this agreement as of december 25 , 2019 , and we expect over 75 % to be operating under this agreement by the end of 2020. we anticipate that existing franchisees will elect to migrate to the new fee structure over the next decade as incentives under previous franchise agreements expire . due to the long-term migration of existing franchisees , we will not see the full benefit of the higher royalty rate for some time . for 2019 , our average contractual domestic royalty rate was approximately 4.18 % , compared to 4.17 % for 2018 and 4.14 % for 2017. a total of 144 remodels were completed during 2019 , comprised of 141 at franchised restaurants and three at company restaurants . these remodels were in our heritage image , which we launched in late 2013. this updated look reflects a more contemporary diner feel to further reinforce our america 's diner positioning . as of the end of 2019 , approximately 89 % of the restaurants in the system have been remodeled to the most current image . 21 consistently growing same-store sales during 2019 , we achieved domestic system-wide same-store sales ( 1 ) growth of 2.0 % , comprised of a 1.9 % increase at company restaurants and a 2.0 % increase at domestic franchised restaurants , marking the ninth consecutive year of positive domestic system-wide same-store sales . balancing the use of cash we are focused on balancing the use of cash between reinvesting in our base of company restaurants , growing and strengthening the brand and returning cash to shareholders . during 2019 , cash capital expenditures were $ 25.3 million , comprised of $ 14.0 million in capital expenditures and real estate acquisition costs of $ 11.3 million . our real estate strategy is to redeploy proceeds from the sale of certain pieces of our owned real estate to acquire higher quality real estate underlying company and franchised restaurants . to date , we have generated $ 10.7 million of cash proceeds from the sale of real estate , the majority of which qualified for like-kind exchange treatment related to real estate acquired . during 2019 , including shares delivered under a previous accelerated share repurchase agreement , we repurchased a total of 5.3 million shares of our common stock for $ 103.0 million . since initiating our share repurchase programs in november 2010 , we have repurchased a total of 52.3 million shares of our common stock for $ 519.8 million . in december 2019 , the board approved a new share repurchase authorization for $ 250 million . as of december 25 , 2019 , there was $ 282.2 million remaining under current repurchase authorizations . factors impacting comparability impact of new leases standard effective december 27 , 2018 , the first day of fiscal 2019 , we adopted accounting standards update ( “ asu ” ) 2016-02 , “ leases ( topic 842 ) ” and all subsequent asus that modified topic 842. upon adoption of topic 842 , we recorded operating lease liabilities of $ 101.3 million and right-of-use ( “ rou ” ) assets of $ 94.2 million related to existing operating leases . in addition , we recorded a cumulative effect adjustment increasing opening deficit by $ 0.4 million and deferred tax assets by $ 0.1 million . the lease liabilities were based on the present value of remaining rental payments under current leasing standards for existing operating leases primarily related to real estate leases . exit cost and straight-line lease liabilities that existed at the adoption date were reclassified against the rou assets upon adoption . the amount recorded to opening deficit represents the initial impairment of rou assets , net of the deferred tax impact . we elected to apply the modified retrospective transition approach as of the effective date as the date of initial application without restating comparative period financial statements ( the “ effective date method ” ) . story_separator_special_tag net cash flows provided by operating activities were $ 73.7 million for the year ended december 26 , 2018 compared to $ 78.3 million for the year ended december 27 , 2017. the decrease in cash flows provided by operating activities was primarily due to the timing of receiving credit card receivables . we believe that our estimated cash flows from operations for 2020 , combined with our capacity for additional borrowings under our credit facility , will enable us to meet our anticipated cash requirements and fund capital expenditures over the next twelve months . story_separator_special_tag > the credit facility is available for working capital , capital expenditures and other general corporate purposes . the credit facility is guaranteed by denny 's and its material subsidiaries and is secured by assets of denny 's and its subsidiaries , including the stock of its subsidiaries ( other than our insurance captive subsidiary ) . it includes negative covenants that are usual for facilities and transactions of this type . the credit facility also includes certain financial covenants with respect to a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio . we were in compliance with all financial covenants as of december 25 , 2019 . 30 interest rate hedges we have interest rate swaps to hedge a portion of the forecasted cash flows of our floating rate debt . see part ii item 7a . quantitative and qualitative disclosures about market risk for details on our interest rate swaps . contractual obligations our future contractual obligations and commitments at december 25 , 2019 consisted of the following : replace_table_token_19_th ( a ) interest obligations represent payments related to our long-term debt outstanding at december 25 , 2019 . for long-term debt with variable rates , we have used the rate applicable at december 25 , 2019 to project interest over the periods presented in the table above , taking into consideration the impact of the interest rate swaps for the applicable periods . the finance lease obligation amounts above are inclusive of interest . ( b ) purchase obligations include amounts payable under purchase contracts for food and non-food products . many of these agreements do not obligate us to purchase any specific volumes and include provisions that would allow us to cancel such agreements with appropriate notice . for agreements with cancellation provisions , amounts included in the table above represent our estimate of purchase obligations during the periods presented if we were to cancel these contracts with appropriate notice . ( c ) unrecognized tax benefits are related to uncertain tax positions . as we are not able to reasonably estimate the timing or amount of these payments , the related balances have not been reflected in this table . off-balance sheet arrangements we do not have any off-balance sheet arrangements . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with 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 , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates , including those related to self-insurance liabilities , impairment of long-lived assets and income taxes . 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 ; however , we believe that our estimates , including those for the above-described items , are reasonable . our significant accounting policies , including the critical accounting policies listed below , are fully described in note 2 to our consolidated financial statements included in part ii , item 8 of this report . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements : 31 self-insurance liabilities . we are self-insured for a portion of our losses related to certain medical plans , workers ' compensation , general , product and automobile insurance liability . in estimating these liabilities , we utilize independent actuarial estimates of expected losses , which are based on statistical analysis of historical data . our estimates of expected losses are adjusted over time based on changes to the actual costs of the underlying claims , which could result in additional expense or reversal of expense previously recorded . impairment of long-lived assets . we evaluate our long-lived assets for impairment at the restaurant level on a quarterly basis , when assets are identified as held for sale or whenever changes or events indicate that the carrying value may not be recoverable . for assets identified as held for sale , we use the market approach and consider proceeds from similar asset sales . we assess impairment of restaurant-level assets based on the operating cash flows of the restaurant , expected proceeds from the sale of assets and our plans for restaurant closings . generally , all restaurants with negative cash flows from operations for the most recent twelve months at each quarter end are included in our assessment . for underperforming assets , we use the income approach to determine both the recoverability and estimated fair value of the assets . to estimate future cash flows , we make certain assumptions about expected future operating performance , such as revenue growth , operating margins , risk-adjusted discount rates , and future economic and market conditions . if the long-lived assets of a restaurant are not recoverable based upon estimated future , undiscounted cash

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net cash flows provided by investing activities were $ 105.0 million for the year ended december 25 , 2019 . these cash flows are primarily comprised of $ 129.7 million of proceeds from the sale of assets , including $ 119.0 million from the sale of 105 restaurants and $ 10.7 million from the sale of real estate . these cash flows are offset by capital expenditures of $ 14.0 million and acquisitions of real estate of $ 11.3 million . net cash flows used in investing activities were $ 32.0 million for the year ended december 26 , 2018. these cash flows are primarily comprised of capital expenditures of $ 22.0 million and acquisitions of restaurants and real estate of $ 10.4 million . cash flows for acquisitions include $ 8.1 million for the reacquisition of six franchised restaurants , $ 1.8 million for real estate and $ 0.5 million related to a prior year acquisition . net cash flows used in investing activities were $ 27.1 million for the year ended december 27 , 2017. these cash flows are primarily comprised of capital expenditures of $ 18.8 million and acquisitions of restaurants and real estate of $ 12.4 million . 29 our principal capital requirements have been largely associated with the following : replace_table_token_18_th capital expenditures for fiscal 2020 are expected to be between $ 28 million and $ 33 million , including between $ 13 million and $ 18 million of anticipated real estate acquisitions through like-kind exchanges .

federal corporate tax rates and implementing a territorial tax system . effective january 1 , 2018 , the tax act reduced the u.s. federal corporate tax rate from 35.0 % to 21.0 % . for our fiscal year ending april 28 , 2018 , we utilized a blended rate of approximately 30.5 % . for fiscal 2018 , these impacts resulted in a provisional discrete net tax benefit of $ 76.6 million , which included provisional amounts of $ 81.9 million of tax benefit on u.s. deferred tax assets and liabilities , $ 4.0 million of tax expense for a one-time transition tax on unremitted foreign earnings and $ 1.2 million in withholding taxes paid on current year distributions . receivables securitization program . on july 24 , 2018 , we entered into a receivables purchase agreement with mufg bank , ltd. ( `` mufg `` ) . under this agreement , mufg acts as an agent to facilitate the sale of certain patterson receivables ( the “ receivables ” ) to certain unaffiliated financial institutions ( the “ purchasers ” ) . the proceeds from the sale of these receivables comprise a combination of cash and a deferred purchase price ( “ dpp ” ) receivable . the initial transaction was a sale of $ 237.6 million of net receivables . from this sale , we received $ 171.0 million of cash and a dpp receivable with a fair value of $ 65.9 million . in addition , we recorded a loss of $ 0.7 million as a result of this transaction . the proceeds from the initial sale were primarily used to reduce debt . 38 the dpp receivable is ultimately realized by patterson following the collection of the underlying receivables sold to the purchasers . the collection of the dpp receivable is recognized as an increase to net cash provided by investing activities within the consolidated statements of cash flows , with a corresponding reduction to net cash provided by operating activities within the consolidated statements of cash flows . legal reserve . in september 2018 , we signed an agreement to settle the litigation entitled in re dental supplies antitrust litigation . under the terms of the settlement , we paid $ 28.3 million into escrow upon preliminary court approval . such funds are to be released to the settlement fund administrator upon final court approval of the settlement , which was granted at the fairness hearing held on june 24 , 2019. we established a pre-tax reserve of $ 28.3 million ( `` legal reserve `` ) during the first quarter of fiscal 2019 to account for the settlement of this matter . results of operations the following table summarizes our results as a percent of net sales : replace_table_token_5_th fiscal 2019 compared to fiscal 2018 net sales . consolidated net sales in fiscal 2019 were $ 5,574.5 million , an increase of 2.0 % from $ 5,465.7 million in fiscal 2018 . foreign exchange rate changes had an unfavorable impact of 0.4 % on fiscal 2019 sales . dental segment sales decreased 0.2 % to $ 2,191.8 million in fiscal 2019 from $ 2,196.1 million in fiscal 2018 . foreign exchange rate changes had an unfavorable impact of 0.2 % on fiscal 2019 sales . sales of consumables decreased 2.9 % , sales of equipment and software increased 5.2 % , and sales of other services and products decreased 0.7 % in fiscal 2019 . the decrease in sales of consumables was mainly due to changes in our sales force and disruptions resulting from our erp system initiatives . animal health segment sales grew 3.5 % to $ 3,354.5 million in fiscal 2019 from $ 3,242.6 million in fiscal 2018 . foreign exchange rate changes had an unfavorable impact of 0.6 % on fiscal 2019 sales . sales of certain products previously recognized on a gross basis were recognized on a net basis during fiscal 2019 , resulting in an estimated 0.3 % unfavorable impact to sales . gross profit . consolidated gross profit margin decreased 50 basis points from the prior year to 21.4 % . gross profit margin rates decreased in both the dental and animal health segment . a greater percentage of sales came from our lower margin animal health segment during fiscal 2019 , resulting in a lower consolidated gross profit margin rate . unfavorable sales mix , pricing pressure at the point of sale and inventory adjustments in both our dental and animal health segment also contributed to the decline in the consolidated gross profit margin rate . operating expenses . consolidated operating expenses for fiscal 2019 were $ 1,053.1 million , a 7.5 % increase from the prior year of $ 979.5 million . we incurred higher operating expenses during fiscal 2019 primarily as a result of the $ 28.3 million legal reserve , higher personnel costs and higher professional services expenses . the consolidated operating expense ratio of 18.9 % increased 100 basis points from the prior year due to these same factors . 39 operating income from continuing operations . operating income from continuing operations was $ 137.7 million , or 2.5 % of net sales , in fiscal 2019 , compared to $ 219.9 million , or 4.0 % of sales , in fiscal 2018 . the decrease in operating income from continuing operations was primarily driven by higher operating expenses . the decrease in operating income from continuing operations as a percent of net sales was also driven by higher operating expenses . in addition , a greater percentage of sales came from our lower margin animal health segment during fiscal 2019 , which reduced operating income from continuing operations as a percent of net sales . dental segment operating income was $ 179.2 million for fiscal 2019 , a decrease of $ 50.0 million from fiscal 2018 . story_separator_special_tag we recognize the expected breakage amount as revenue in proportion to the pattern of rights exercised by the customer , and we recognize the estimated value of unused patterson advantage dollars as redemptions occur . breakage recognized was immaterial to all periods presented . inventory and reserves – inventory consists primarily of merchandise held for sale and is stated at the lower of cost or market . cost is determined using the last-in , first-out ( `` lifo `` ) method for all inventories , except for foreign inventories and manufactured inventories , which are valued using the first-in , first-out ( `` fifo `` ) method . we continually assess the valuation of inventories and reduce the carrying value of those inventories that are obsolete or in excess of forecasted usage to estimated realizable value . estimates are made of the net realizable value of such inventories based on analyses and assumptions including , but not limited to , historical usage , future demand and market requirements . goodwill and other indefinite-lived intangible assets – goodwill represents the excess of cost over the fair value of identifiable net assets of businesses acquired . we have two reporting units as of april 27 , 2019 ; dental and animal health . our corporate reportable segment 's assets and liabilities , and net sales and expenses , are allocated to the two reporting units . our indefinite-lived intangible asset is a trade name . 43 we assess goodwill for impairment annually and whenever an event occurs or circumstances change that would indicate that the carrying amount may be impaired . if we determine that the fair value of the reporting unit may be less than its carrying amount , we evaluate goodwill using a two-step impairment test . otherwise , we conclude that no impairment is indicated and we do not perform the two-step impairment test . in fiscal 2019 , we determined it was appropriate to perform a two-step impairment test . the first step of the goodwill impairment test compares the book value of a reporting unit , including goodwill , to its fair value . if the book value of a reporting unit exceeds its fair value , the second step of the impairment test is performed to determine the amount of goodwill impairment loss to be recorded . the determination of fair value involves uncertainties because it requires management to make assumptions and to apply judgment to estimate industry and economic factors and the profitability of future business strategies . patterson conducts impairment testing based on current business strategy in light of present industry and economic conditions , as well as future expectations . additionally , in assessing goodwill for impairment , the reasonableness of the implied control premium is considered based on market capitalizations and recent market transactions . other indefinite-lived intangible assets are assessed for impairment by comparing the carrying value of an asset with its fair value . if the carrying value exceeds fair value , an impairment loss is recognized in an amount equal to the excess . the determination of fair value involves assumptions , including projected revenues and gross profit levels , as well as consideration of any factors that may indicate potential impairment . in the fourth quarter of fiscal 2019 , management completed its annual goodwill and other indefinite-lived intangible asset impairment tests using the beginning of our fiscal 2019 fourth quarter as the valuation date , and determined there was no impairment , and that our dental reporting unit was not at risk of failing step 1. the animal health reporting unit has a higher level of sensitivity to impairment as management currently assesses the various estimates and assumptions used to conduct these tests . adverse changes to one or more of these estimates or assumptions could cause us to recognize a material impairment charge on this reporting unit . at the beginning of the fourth quarter of fiscal 2019 , the estimated fair value of the animal health reporting unit exceeded its book value by approximately 10 % . long-lived assets – long-lived assets , including definite-lived intangible assets , are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows derived from such assets . our definite-lived intangible assets primarily consist of customer relationships , trade names and trademarks . when impairment exists , the related assets are written down to fair value using level 3 inputs , as discussed further in note 10 to the consolidated financial statements . in fiscal 2017 , we recorded a non-cash impairment charge of $ 36.3 million related to a distribution agreement intangible asset . refer to note 4 to the consolidated financial statements for more information . related party transactions – we have interests in a number of entities that are accounted for using the equity method . during fiscal 2019 , 2018 and 2017 we made purchases of $ 87.9 million , $ 84.2 million and $ 55.2 million from these entities , respectively . during fiscal 2019 and 2018 , we recorded net sales of $ 74.5 million and $ 19.7 million to these entities , respectively . no sales to these entities were recorded in fiscal 2017 . income taxes – we are subject to income taxes in the u.s. and numerous foreign jurisdictions . significant judgments are required in determining the consolidated provision for income taxes . changes in interpretation of the tax act could create potential added uncertainties . during the ordinary course of business , there are many transactions and calculations for which the ultimate tax determination is uncertain . as a result , we recognize tax liabilities based on estimates of whether additional taxes and interest will be due . these tax liabilities are recognized when , despite our belief that our tax return position is supportable , we believe that certain positions

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liquidity and capital resources patterson 's operating cash flow has been a source of liquidity in the last three fiscal years . during each of these fiscal years , we used our revolving credit facility as a source of liquidity in addition to operating cash flow . net cash provided by operating activities was $ 48.2 million in fiscal 2019 , compared to $ 178.9 million in fiscal 2018 and $ 162.7 million in fiscal 2017 . the net cash provided by operating activities in fiscal 2019 was primarily driven by a reduction in working capital , partially offset by the impact of our receivables securitization program . in fiscal 2018 and 2017 , our cash flows from operating activities were primarily driven by net income from continuing operations . net cash flows provided by investing activities were $ 340.7 million in fiscal 2019 , compared to net cash flows provided by investing activities of $ 17.0 million in fiscal 2018 and net cash flows used in investing activities of $ 1.2 million in fiscal 2017 . collections of deferred purchase price receivables were $ 402.4 million , $ 49.7 million and $ 51.4 million in fiscal 2019 , 2018 and 2017 , respectively . capital expenditures were $ 60.7 million , $ 43.3 million and $ 47.0 million in fiscal 2019 , 2018 and 2017 , respectively . capital expenditures in fiscal 2019 included a $ 14.9 million investment to convert leased property into owned property .

in 2013 , 2012 and 2011 , we recognized revenues from storm restoration services of approximately $ 14.6 million , $ 41.3 million and $ 31.1 million , respectively , which represented approximately 1.6 % , 4.1 % and 4.0 % of our annual consolidated revenues , respectively . measured by revenues in our t & d segment , we provided 55.4 % , 42.0 % and 49.1 % of our t & d services under fixed-price contracts during the years ended december 31 , 2013 , 2012 and 2011 , respectively . we also provide many services to our customers under multi-year maintenance service agreements and other variable service agreements . commercial and industrial segment . the c & i segment provides services such as the design , installation , maintenance and repair of commercial and industrial wiring , installation of traffic networks and the installation of bridge , roadway and tunnel lighting . in our c & i segment , we generally provide our electric construction and maintenance services as a subcontractor to general contractors in the c & i industry as well as to facility owners . our c & i operations are primarily focused on the arizona and colorado regional markets where we have sufficient scale to deploy the level of resources necessary to achieve significant market share . we concentrate our efforts on projects where our technical and project management expertise are critical to successful and timely execution . the majority of c & i contracts cover electrical contracting services for airports , hospitals , data centers , hotels , stadiums , convention centers , manufacturing plants , processing facilities , waste-water treatment facilities , mining facilities and transportation control and management systems . for the year ended december 31 , 2013 , our c & i revenues were $ 180.3 million or 20.0 % of our consolidated revenue , compared to $ 170.2 million or 17.0 % of our consolidated revenue for the year ended december 31 , 2012 and $ 158.4 million or 20.3 % of our consolidated revenue for the year ended december 31 , 2011. material and subcontractor cost in our c & i segment comprised approximately 44 % , 48 % , and 52 % , of c & i segment costs for the years ended december 31 , 2013 , 2012 and 2011 , respectively . measured by revenues in our c & i segment , we provided 45.9 % , 49.9 % and 55.2 % of our services under fixed-price contracts for the years ended december 31 , 2013 , 2012 and 2011 , respectively . overview—revenue and gross margins revenue recognition . we recognize revenue on a percentage-of-completion method of accounting , which is commonly used in the construction industry . the percentage-of-completion accounting method results in recognizing contract revenues and earnings ratably over the contract term in proportion to our incurrence of contract costs ( excluding uninstalled direct materials ) . the profits or losses recognized on individual contracts are based on estimates of contract revenues , costs and profitability . contract losses are recognized in full when determined , and contract profit estimates are adjusted based on ongoing reviews of contract profitability . changes in job performance , labor costs , equipment costs , job conditions , weather , estimated profitability and final contract settlements may result in revisions to costs and income and their effects are recognized in the period in which the revisions are determined . we record adjustments to estimated costs of contracts when we believe the change in estimate is probable and the amounts can be reasonably estimated . these adjustments could result in either increases or decreases in profit margins . the gross margins we record in the current period may not be indicative of margins in future periods . gross margins . our gross margin can vary between periods as a result of many factors , some of which are beyond our control . these factors include : the mix of revenue derived from the industries we 36 serve , the mix of business conducted in different parts of the country , the mix in service and maintenance work compared to new construction work , the amount of work that we subcontract , the amount of material we supply , changes in labor , equipment or insurance costs , seasonal weather patterns , changes in fleet utilization , pricing pressures due to competition , efficiency of work performance , fluctuations in commodity prices of materials , delays in the timing of projects and other factors . overview—economic , industry and market factors we operate in competitive markets , which can result in pricing pressures for the services we provide . work is often awarded through a bidding and selection process , where price is always a principal factor . we generally focus on managing our profitability by : selecting projects that we believe will provide attractive margins ; actively monitoring the costs of completing our projects ; holding customers accountable for costs related to changes to contract specifications ; and rewarding our employees for keeping costs under budget . the demand for construction and maintenance services from our customers has been , and will likely continue to be , cyclical in nature and vulnerable to downturns in the industries we serve as well as the economy in general . the financial condition of our customers and their access to capital , variations in the margins of projects performed during any particular period , and regional and national economic conditions may materially affect results . project schedules , particularly in connection with larger , multi-year projects , can also create fluctuations in our revenues . other market and industry factors , such as changes to our customers ' capital spending plans or delays in regulatory approvals can affect project schedules . story_separator_special_tag we typically derive approximately 10 % to 25 % of our revenue from maintenance and repair work that is performed under pre-established or negotiated prices or cost-plus pricing arrangements which generally allow us a set margin above our costs . thus , the mix between new construction work , at fixed-price , and maintenance and repair work , at cost-plus , in a given period will impact gross margin in that period . subcontract work . projects that include a greater amount of subcontractor cost can experience lower overall project gross margins as we typically add less mark up to subcontractor cost in our bids than what we would to our labor and equipment cost . in addition , successful completion of our contracts may depend on whether our subcontractors successfully fulfill their contractual obligations . if our subcontractors fail to satisfactorily perform their contractual obligations as a result of financial or other difficulties , we may be required to incur additional costs and provide additional services in order to make up such shortfalls . materials versus labor . projects that include a greater amount of material cost can experience lower overall project gross margins as we typically add less mark up to material cost in our bids than what we would to our labor and equipment cost . insurance . gross margins could be impacted by fluctuations in insurance accruals related to our deductibles in the period in which such adjustments are made . as of december 31 , 2013 , we carried insurance policies , which were subject to certain deductibles , for workers ' compensation , general liability , automobile liability and other coverages . losses up to the deductible amounts are accrued based upon estimates of the ultimate liability for claims reported and an estimate of claims incurred but not yet reported . estimated insurance losses are determined by our insurance carrier and the appropriateness of those estimates are reviewed by management and updated quarterly . fleet utilization , estimation , and bidding . we operate a centrally-managed fleet in an effort to achieve the highest equipment utilization . we also develop internal equipment rates which provide our business units with appropriate cost information to estimate bids for new projects . availability of equipment for a particular contract is determined by our internal fleet ordering process which is designed to optimize the use of internal fleet assets and allocate equipment costs to individual 41 contracts . we believe these processes allow us to utilize our equipment efficiently , which leads to improved gross margins . our team of trained estimators helps us to determine potential costs and revenues and make informed decisions on whether to bid for a project and , if bid , the rates to use in estimating the costs for that bid . the ability to accurately estimate labor , equipment , subcontracting and material costs in connection with a new project may affect the gross margins achieved for the project . selling , general and administrative expenses selling , general and administrative expenses consist primarily of compensation and related benefits to management , administrative salaries and benefits , marketing , office rent and utilities , communications , professional fees and bad debt expense . not all industry participants define selling , general and administrative expenses and contract costs the same way . this can make comparisons between industry participants more difficult . consolidated results of operations the following table sets forth selected statements of operations data and such data as a percentage of revenues for the years indicated : replace_table_token_9_th year ended december 31 , 2013 compared to the year ended december 31 , 2012 revenues . revenues declined $ 96.3 million , or 9.6 % , to $ 902.7 million for the year ended december 31 , 2013 from $ 999.0 million for the year ended december 31 , 2012. the decline was mainly attributable to lower material and subcontractor costs associated with several transmission projects . material and subcontractor cost comprised approximately 31 % of total contract cost in the year ended december 31 , 2013 , compared to approximately 43 % in the year ended december 31 , 2012. revenues from storm work declined $ 26.7 million to $ 14.6 million in year ended december 31 , 2013 from $ 41.3 million in the year ended december 31 , 2012 . 42 gross profit . gross profit increased $ 6.2 million , or 5.2 % , to $ 124.9 million for the year ended december 31 , 2013 from $ 118.7 million for the year ended december 31 , 2012. gross margin increased to 13.8 % in the year ended december 31 , 2013 from 11.9 % in the year ended december 31 , 2012. the increase in gross margin was largely due to better project execution , higher equipment utilization and the underlying mix of contract cost components , which included less material and subcontractor cost and more of the company 's labor and equipment cost , on a relative basis . approximately 0.8 % of the gross margin of 13.8 % was due to improved contract margins on several large transmission projects as a result of increased productivity levels , cost efficiencies , additional work and effective contract management . selling , general and administrative expenses . selling , general and administrative expenses increased approximately $ 6.2 million , or 9.8 % , to $ 69.8 million for the year ended december 31 , 2013 from $ 63.6 million for the year ended december 31 , 2012. the majority of the increase in selling , general and administrative expenses was due to increased legal reserves and expenses of $ 3.6 million pertaining to ongoing litigation . the remaining increase in selling , general and administrative expenses was primarily attributable to an increase in employee compensation and fringe benefits related to the increased number of personnel to support operations . as a percentage of revenues , selling ,

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liquidity and capital resources as of december 31 , 2013 , we had cash and cash equivalents of $ 76.5 million and working capital of $ 119.6 million . during the year ended december 31 , 2013 , consolidated operating activities of our business resulted in net cash flow from operations of $ 95.1 million compared to $ 30.0 million for the year ended december 31 , 2012. cash flow from operations is primarily influenced by demand for our services , operating margins and the type of services we provide our customers . we used net cash in investing activities of $ 41.6 million , including $ 42.7 million used for capital expenditures offset by approximately $ 1.1 million of proceeds from the sale of property and equipment . financing activities provided cash of $ 3.1 million , primarily related to the exercise of stock options and the related tax benefits . the changes in various working capital accounts ( such as : accounts receivable , including retention ; costs and estimated earnings in excess of billings on uncompleted contracts ; accounts payable ; and billings in excess of costs and estimated earnings on uncompleted contracts ) are due to normal timing fluctuations in our operating activities . in particular , the gross amount of accounts receivable , costs and estimated earnings in excess of billings on uncompleted contracts , accounts payable and billings in excess of costs and estimated earnings on uncompleted contracts provided cash of $ 30.1 million in 2013 , compared to using cash of $ 39.7 million in 2012 , largely due to the substantial completion of several large transmission projects . we typically experience higher working capital needs in the early stages of projects , when cash is being used for personnel , equipment , supplies and other project costs prior to cash flow being received from the customer . as the project progresses , the working capital needs typically stabilize or decrease as cash flow from customers begins to meet or exceed cash outlaid for operating expenses .

as such , the company expects that its revenues will continue to be closely tied to changes in consumer sentiment . the company has organized its operations into three categories , or segments : consumer floral , bloomnet wire service and gourmet foods & gift baskets , reflecting the way the company evaluates its business performance and manages its operations . on may 30 , 2017 , the company completed the sale of the outstanding equity of fannie may confections brands , inc. , including its subsidiaries , fannie may confections , inc. and harry london candies , inc. ( “ fannie may ” ) to ferrero international s.a. , a luxembourg corporation ( “ ferrero ” ) . the company and ferrero also entered into a transition services agreement whereby the company will provide certain post-closing services to ferrero and fannie may related to the business of fannie may and a commercial agreement with respect to the distribution of certain ferrero and fannie may products . on september 30 , 2014 , the company completed its acquisition of harry & david holdings , inc. ( “ harry & david ” ) , a leading multi-channel specialty retailer and producer of branded premium gift-quality fruit , gourmet food products and other gifts marketed under the harry & david® , wolferman 's® and cushman's® brands . during fiscal 2017 , the company was able to achieve a number of operational and financial milestones : ● continued i mproved operating results – overall revenues were $ 1.194 billion , an increase of 1.8 % in comparison to fiscal 2016 ( up 3.1 % after adjusting for several issues affecting year over year comparability , discussed in more detail below within results of operations ) . income from operations improved from $ 43.3 million in fiscal 2016 to $ 46.4 million in fiscal 2017 , while adjusted ebitda improved from $ 85.7 million in fiscal 2016 to $ 87.2 million in fiscal 2017. these results were driven by revenue growth and improved operating performance within the consumer floral and bloomnet wire service segments , despite the competitive and promotional environment in which these businesses operate . these favorable results were partially offset by underperformance within the gourmet foods & gift baskets segment , primarily reflecting revenue declines within the harry & david brand during the december 2016 holiday season . ● strength ened balance sheet - throughout fiscal 2017 , the company continued its responsible stewardship of shareholders ' capital . on may 30 , 2017 , the company completed the sale of its fannie may and harry london brands , at a price of $ 115.0 million , which , when adjusted for a seasonal working capital reduction of $ 11.4 million , resulted in a gain of $ 14.6 million , while adding approximately $ 103.6 million of cash to its balance sheet . when combined with the company 's improved operating results and amended credit facility , which in december 2016 was extended by approximately two years , to december 23 , 2021 , the company believes that its strong balance sheet , and growing cash flows , provide it with significant liquidity and flexibility to invest and enhance future growth , both organically , as well as through potential acquisitions . ● investment in business operations – in fiscal 2017 , the company continued to invest in the key areas that will allow for accelerated growth in the future , including : ( i ) manufacturing , production and distribution - expanded production capacity for cheryl 's , harry & david orchard plantings and manufacturing , as well as fulfillment technology upgrades , ( ii ) technology – improved multi-brand website functionality and industry award winning mobile transactional platforms , and ( iii ) business intelligence – customer database mining to effectively market and target key demographics ● multi-brand customer ini ti atives - the company continued to expand its multi-brand customer initiatives , a key ingredient in our strategy to enhance customer engagement and facilitate long-term growth . the multi-brand website provides the customer with an enriched shopping experience using cross-brand marketing and merchandising programs and through the use of the company 's celebrations suite of services , including celebrations passport free shipping , rewards and reminders membership programs . ● innovation and positioning for emerging technologies – the company has built a reputation as an innovator and an early adopter of new technologies . this was illustrated by the company 's initiatives in conversational commerce , including : ( i ) floral industry-first applications on facebook 's messenger platform ( ii ) voice enabled skill on amazon 's alexa platform ( iii ) our own , artificial intelligence ( “ a.i . ” ) -powered gift concierge “ gwyn ” – which leverages ibm 's watson platform to help us engage customers in a natural-language conversation to help guide them to the perfect gift across all of our brands . 21 recognizing the need to balance the company 's short and long-term operating and financial objectives , a key tenet of the company 's fiscal 2018 strategy , now that the sale of fannie may has been completed , is to refocus efforts to grow revenues in the gourmet foods & gift baskets segment , with specific emphasis on re-invigorating growth within harry & david , while continuing to extend the 1-800-flowers brand 's market leadership position . reflecting the sale of the fannie may business in fiscal 2017 , the company expects fiscal 2018 consolidated revenues to be in a range of $ 1.14 billion - to - $ 1.16 billion . in terms of bottom-line results , the company expects eps in a range of $ 0.46 - to - $ 0.48 ( anticipating a normalized effective tax rate of 35 percent ) , and ebitda in a range of $ 90 million - to - $ 93 million . story_separator_special_tag the 1-800-flowers.com consumer floral segment includes the operations of the 1-800-flowers.com brand , which derives revenue from the sale of consumer floral products through its e-commerce sales channels ( telephonic and online sales ) and royalties from its franchise operations , as well as iflorist , a uk based e-commerce retailer of floral products ( through the date of its disposition in october 2015 ) , and fine stationery , an e-commerce retailer of stationery products ( through the date of its disposition in june 2015 ) . net revenues during the fiscal year ended july 2 , 2017 increased 4.5 % , as a result of increased order demand throughout the year , and during the valentine 's day holiday in particular , when the company was able to leverage the holiday 's tuesday date placement , in comparison to the prior year when valentine 's day fell on a sunday . the brand was successful at growing its “ everyday ” business , including birthdays , anniversaries , sympathy and `` just because , `` due to expanded merchandise assortments , including the flirty feline® floral arrangement , and efforts to capitalize on its same day/next day delivery capabilities . these increases were partially offset by the impact of the 53 rd week fiscal 2016 , reflecting the company 's retail calendar . on a comparable basis , adjusting fiscal 2016 gaap revenues to remove the 53rd week ( $ 4.8 million ) , fiscal 2017 net revenues increased 5.7 % in comparison to fiscal 2016. net revenues during the fiscal year ended july 3 , 2016 decreased 0.9 % as a result of lower order volume resulting from the sunday date placement of valentine 's day , and the dispositions of iflorist and fine stationery , partially offset by organic growth by the 1-800-flowers.com brand and the impact of the 53 rd week . on a comparable basis , adjusting fiscal year 2016 gaap revenues to remove the 53rd week ( $ 4.8 million ) and adjust fiscal year 2015 gaap revenues to remove fine stationery and iflorist revenues ( $ 12.1 million ) , fiscal 2016 net revenues increased 0.8 % in comparison to fiscal 2015 . 27 the bloomnet wire service segment includes revenues from membership fees as well as other product and service offerings to florists . net revenues during the fiscal year ended july 2 , 2017 increased 2.6 % in comparison to the prior year , due to an increase in order volume processed through the network , driven primarily by the increase in 1-800-flowers volume noted above , which enabled bloomnet to generate increased membership , transaction and ancillary revenue improvements . these improvements were partially offset by lower wholesale product revenue as a result of decreased demand and network shop count . net revenues during the fiscal year ended july 3 , 2016 decreased 0.6 % due to lower transaction and ancillary fee revenues as a result of unfavorable shop to shop order volume sent through the network due in part to the sunday date placement of valentine 's day , partially offset by increased revenue as a result of bloomnet initiatives including the annualization of a florist transaction program implemented in the 3rd quarter of fiscal 2015. the gourmet food & gift baskets segment includes the operations of harry & david , wolferman 's , stockyards , cheryl 's , fannie may ( through the date of its disposition in may 2017 ) , the popcorn factory and 1-800-baskets/designpac . revenue is derived from the sale of gourmet fruits , cookies , baked gifts , premium chocolates and confections , gourmet popcorn , gift baskets , and prime steaks and chops through the company 's e-commerce sales channels ( telephonic and online sales ) and company-owned and operated retail stores under the harry & david , cheryl 's and fannie may ( through the date of its disposition in may 2017 ) brand names , as well as wholesale operations . net revenue during the fiscal year ended july 2 , 2017 was consistent with fiscal 2016 , as revenue growth within the popcorn factory , 1-800-baskets/designpac , fannie may and cheryl 's brands was offset by a decline in harry & david revenues , due to the closure of a number of underperforming retail locations , and a reduction in e-commerce demand , primarily during the christmas holiday selling season , and the timing of certain factors including : ( i ) the company 's sale of the fannie may confection brands business on may 30 , 2017 , ( ii ) a 52-week fiscal year in fiscal 2017 versus 53-week fiscal year in fiscal 2016 , reflecting the company 's retail calendar , and ( iii ) the shift of harry & david 's fruit of the month club® cherries shipment out of the company 's fiscal fourth quarter in fiscal 2017 , due to a late harvest , into the first quarter of fiscal 2018. on a comparable basis , adjusting fiscal year 2016 gaap revenues to remove : ( i ) the 53rd week ( $ 3.2 million ) , ( ii ) fannie may 's june 2016 revenues ( $ 4.8 million ) and ( iii ) the june 2016 harry & david fruit of the month club® cherry shipment ( $ 2.4 million ) , net revenues during fiscal 2017 increased 1.6 % in comparison to fiscal 2016. net revenue during the fiscal year ended july 3 , 2016 increased 9.2 % in comparison to the prior year , as a result of the incremental revenue generated by harry & david , which was acquired on september 30 , 2014 , and the impact on prior year revenues of the thanksgiving day fannie may warehouse fire , organic growth of cheryl 's and 1-800-baskets wholesale gift business , and the impact of the 53rd week . on a comparable basis , adjusting fiscal

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cash flows at july 2 , 2017 , the company had working capital of $ 132.2 million , including cash and cash equivalents of $ 149.7 million , compared to working capital of 45.8 million , including cash and cash equivalents of $ 27.8 million at july 3 , 2016. net cash provided b y operating activities of $ 61.0 million for the fiscal year ended july 2 , 2017 was primarily related to net income , adjusted for non-cash charges for depreciation and amortization , stock-based compensation , deferred income taxes , bad debt expense and the gain on the sale of fannie may , partially offset by working capital changes primarily related to timing of collection of trade receivables , accelerated inventory production to mitigate the impact of labor shortages experienced during the prior holiday season , partially offset by decreases in accounts payable and accrued expenses as a result of the timing of the inventory build . net cash provided by investing activities of $ 78.3 million was attributable to the proceeds from the sale of fannie may , partially offset by capital expenditures related to the company 's technology infrastructure and gourmet foods & gift baskets production equipment .

in addition , our satellite-powered community and urban wi-fi hotspot services are now available within walking distance to more than one million people living and working in thousands of rural , suburban and urban mexican communities . in-flight services , including our flagship viasat in-flight internet , w-ife and aviation software services . as of march 31 , 2019 , 1,312 commercial aircraft were in service receiving our in-flight services through our ifc systems . mobile broadband services , which provide global network management and high-speed internet connectivity services for customers using airborne , maritime and ground-mobile satellite systems . 42 we also offer a variety of other broadband services and capabilities , including live on-line event streaming and oil and natural gas data gathering services . commercial networks our commercial networks segment develops and produces a variety of advanced satellite and wireless products , systems and solutions that enable the provision of high-speed fixed and mobile broadband services . our products , systems and solutions include an array of satellite-based and wireless broadband platforms , networking equipment , space hardware , radio frequency and advanced microwave solutions , space-to-earth connectivity systems , cpe , satellite modems and antenna technologies , as well as satellite payload development and asic chip design . our products , systems and solutions are generally developed through a combination of customer and discretionary internal r & d funding , are utilized to provide services through our satellite services segment and are also sold to commercial networks customers ( with sales of complementary products , systems and solutions to government customers included in our government systems segment ) . the primary products , systems , solutions and services offered by our commercial networks segment are comprised of : mobile broadband satellite communication systems , designed for use in aircraft and seagoing vessels . fixed satellite networks , including next-generation satellite network infrastructure and ground terminals to access ka-band broadband services on high-capacity satellites . antenna systems specializing in earth imaging , remote sensing , mobile satellite communication , ka-band earth stations and other multi-band antennas . satellite networking development , including specialized design and technology services covering all aspects of satellite communication system architecture and technology , including satellite and ground systems , fabless semiconductor design for asic and mmic chips and network function virtualization , as well as modules and subsystems for various commercial , military and space uses and radio frequency and advanced microwave solutions . space systems . we design and develop high-capacity ka-band satellites for our own satellite fleet and for third parties , including development and production of the associated satellite payload technologies . government systems our government systems segment provides global mobile broadband services to military and government users , and develops and produces network-centric ip-based fixed and mobile secure communications products and solutions . our government systems products and solutions are designed to enable the collection and dissemination of secure real-time digital information and intelligence between individuals on the tactical edge , in command centers , leveraging strategic communications nodes , and those individuals on the ground , in the air or on a maritime platform . customers of our government systems segment include the dod , those serving the fvey intelligence alliance ( australia , canada , new zealand , the united kingdom and the united states ) , allied foreign governments , allied armed forces , public safety first-responders and remote government employees . the primary products and services of our government systems segment include : government mobile broadband products and services , which provide military and government users with high-speed , real-time , broadband and multimedia connectivity in key regions of the world , as well as los and blos isr missions . government satellite communication systems , which comprise an array of portable , mobile and fixed broadband modems , terminals , network access control systems and antenna systems using a range of satellite frequency bands for c2 missions , satellite networking services and network management systems for wi-fi and other internet access networks , and include products designed for manpacks , aircraft , uavs , seagoing vessels , ground-mobile vehicles and fixed applications . cybersecurity and information assurance products , which provide advanced , high-speed ip-based “ type 1 ” and haipe-compliant encryption solutions that enable military and government users to communicate information securely over networks , and that protect the integrity of data stored on computers and storage devices . tactical data links , including our bats-d an/prc-161 handheld link 16 radios , our stt kor-24a 2-channel radios for manned and unmanned applications , “ disposable ” defense data links , our mids terminals for military fighter jets and their successor , mids-jtrs terminals . 43 sources of revenues our satellite services segment revenues are primarily derived from our fixed broadband services , in-flight services ( including services using our ifc systems and w-ife platform ) and worldwide managed network services . revenues in our commercial networks and government systems segments are primarily derived from three types of contracts : fixed-price , cost-reimbursement and time-and-materials contracts . fixed-price contracts ( which require us to provide products and services under a contract at a specified price ) comprised approximately 90 % , 88 % and 87 % of our total revenues for these segments for fiscal years 2019 , 2018 and 2017 , respectively . the remainder of our revenues in these segments for such periods was derived primarily from cost-reimbursement contracts ( under which we are reimbursed for all actual costs incurred in performing the contract to the extent such costs are within the contract ceiling and allowable under the terms of the contract , plus a fee or profit ) and from time-and-materials contracts ( which reimburse us for the number of labor hours expended at an established hourly rate negotiated in the contract , plus the cost of materials utilized in providing such products or services ) . story_separator_special_tag we own three satellites in service : viasat-2 ( our second-generation high-capacity ka-band spot-beam satellite , which was placed into service in the fourth quarter of fiscal year 2018 ) , viasat-1 ( our first-generation high-capacity ka-band spot-beam satellite , which was placed into service in january 2012 ) and wildblue-1 ( which was placed into service in march 2007 ) . we also have two third-generation viasat-3 class satellites that have entered the phase of full construction , and in january 2019 we signed an agreement to proceed for a third viasat-3 class satellite . in addition , we have an exclusive prepaid lifetime capital lease of ka-band capacity over the contiguous united states on telesat canada 's anik f2 satellite ( which was placed into service in april 2005 ) and own related earth stations and networking equipment for all of our satellites . property and equipment also includes the cpe units leased to subscribers under a retail leasing program as part of our satellite services segment . impairment of long-lived and other long-term assets ( property , equipment and satellites , and other assets , including goodwill ) in accordance with the authoritative guidance for impairment or disposal of long-lived assets ( asc 360 ) , we assess potential impairments to our long-lived assets , including property , equipment and satellites and other assets , when there is evidence that events or changes in circumstances indicate that the carrying value may not be recoverable . we periodically review the remaining estimated useful life of the satellite to determine if revisions to the estimated life are necessary . we recognize an impairment loss when the undiscounted cash flows expected to be generated by an asset ( or group of assets ) are less than the asset 's carrying value . any required impairment loss would be measured as the amount by which the asset 's carrying value exceeds its fair value , and would be recorded as a reduction in the carrying value of the related asset and charged to results of operations . no material impairments were recorded by us for fiscal years 2019 , 2018 and 2017. we account for our goodwill under the authoritative guidance for goodwill and other intangible assets ( asc 350 ) and the provisions of asu 2011-08 , testing goodwill for impairment , which simplifies how we test goodwill for impairment . current authoritative guidance allows us to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test . if , after completing the qualitative assessment , we determine that it is more likely than not that the estimated fair value is greater than the carrying value , we conclude that no impairment exists . if it is more likely than not that the carrying value of the reporting unit exceeds its estimated fair value , we compare the fair value of the reporting unit to its carrying value . if the estimated fair value of the reporting unit is less than the carrying value , a second step is performed in which the implied fair value of goodwill is compared to its carrying value . if the implied fair value of goodwill is less than its carrying value , goodwill must be written down to its implied fair value , resulting in goodwill impairment . we test goodwill for impairment during the fourth quarter every fiscal year and when an event occurs or circumstances change such that it is reasonably possible that an impairment may exist . the qualitative analysis includes assessing the impact of changes in certain factors including : ( 1 ) changes in forecasted operating results and comparing actual results to projections , ( 2 ) changes in the industry or our competitive environment since the acquisition date , ( 3 ) changes in the overall economy , our market share and market interest rates since the acquisition date , ( 4 ) trends in the stock price and related market capitalization and enterprise values , ( 5 ) trends in peer companies total enterprise value metrics , and ( 6 ) additional factors such as management turnover , changes in regulation and changes in litigation matters . based on our qualitative assessment performed during the fourth quarter of fiscal year 2019 , we concluded that it was more likely than not that the estimated fair value of our reporting units exceeded their carrying value as of march 31 , 2019 and , therefore , determined it was not necessary to perform the two-step goodwill impairment test . income taxes and valuation allowance on deferred tax assets management evaluates the realizability of our deferred tax assets and assesses the need for a valuation allowance on a quarterly basis to determine if the weight of available evidence suggests that an additional valuation allowance is needed . in accordance with the authoritative guidance for income taxes ( asc 740 ) , net deferred tax assets are reduced by a valuation allowance if , based on all the available evidence , it is more likely than not that some or all of the deferred tax assets will not be realized . in the event that our estimate of taxable income is less than that required to utilize the full amount of any deferred tax asset , a valuation allowance is established which would cause a decrease to income in the period such determination is made . our valuation allowance against deferred tax assets increased from $ 29.0 million at march 31 , 2018 to $ 33.5 million at march 31 , 2019. the valuation allowance relates to state and foreign net operating loss carryforwards , state r & d tax credit carryforwards and foreign tax credit carryforwards . 47 our analysis of the need for a valuation allowance on deferred tax assets considered historical as well as forecasted future operating results . in addition , our evaluation considered other factors , including

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cash flows cash provided by operating activities for fiscal year 2019 was $ 327.6 million compared to cash provided by operating activities of $ 358.6 million for fiscal year 2018. this $ 31.1 million decrease was primarily driven by a $ 110.0 million year-over-year increase in cash used to fund net operating assets , partially offset by our operating results ( net loss adjusted for depreciation , amortization and other non-cash changes ) which resulted in $ 78.9 million of higher cash provided by operating activities year-over-year . the increase in cash used to fund net operating assets during fiscal year 2019 when compared to fiscal year 2018 was primarily due to a decrease in cash inflows year-over-year from the long-term portion of deferred revenues included in other liabilities in our satellite services segment as well as higher increase year-over-year of combined billed and unbilled accounts , receivable , net , attributable to the timing of billings in our satellite services segment . cash used in investing activities for fiscal year 2019 was $ 489.4 million compared to $ 584.5 million for fiscal year 2018. this $ 95.1 million decrease in cash used in investing activities year-over year reflects approximately $ 185.7 million of cash receipts related to viasat-2 satellite insurance claim proceeds received during fiscal year 2019 , a decrease of $ 30.6 million year-over-year in cash used for capital software development , a decrease of $ 20.6 million in cash used for the construction of earth stations and network operation systems and $ 14.0 million of cash proceeds from sales of real property during the second quarter of fiscal year 2019 , partially offset by an increase of $ 101.4 million in capital expenditures used for property and other general purpose equipment and $ 44.4 million in cash used for satellite construction . 57 cash provided by financing activities for fiscal year 2019 was $ 354.6 million compared to $ 165.8 million for fiscal year 2018 .

we estimate that we have the largest installed base of weighing instruments in the world . in addition to traditional repair and maintenance , our service offerings continue to expand into value-added services for a range of market needs , including regulatory compliance . expanding emerging markets . emerging markets , comprising asia ( excluding japan ) , eastern europe , latin america , the middle east and africa , account for approximately 28 % of our total net sales . we have a two-pronged strategy in emerging markets : first , to capitalize on growth opportunities in these markets and second , to leverage our low-cost manufacturing operations in china . we have over a 20-year track record in china , and our sales in asia have grown more than 15 % on a compound annual growth basis in local currency since 1999. we have broadened our product offering to the asian markets and are benefiting as multinational customers shift production to china . we are pleased with our accomplishments in china and in recent years have expanded our territory coverage with new branch offices , additional dealers and more service professionals . india has also been a source of emerging market sales growth in past years due to increased life science research activities . local currency sales declined in emerging markets by 7 % during 2009 versus the prior year related to weak global economic conditions . sales declines were experienced in most countries , especially in eastern europe . our chinese industrial business also declined during 2009 due to reduced demand in domestic and export markets . local currency sales growth in emerging markets improved during the fourth quarter of 2009 and we anticipate future sales will continue to improve as compared to 2009 absent a further deterioration in global economic conditions . to reduce costs , we also continue to shift more of our manufacturing to china where our three facilities manufacture for the local markets as well as for export . extending our technology lead . we continue to focus on product innovation . in the last three years , we spent approximately 5.2 % of net sales on research and development . we seek to drive shorter product life cycles , as well as improve our product offerings and their capabilities with additional integrated technologies and software . in addition , we aim to create value for our customers by having an intimate knowledge of their processes via our significant installed product base . we recently introduced quantos , our new automated powder dosing solution for small sample sizes , which is controlled and monitored by the laboratory balance . 25 maintaining cost leadership . in response to the global economic slowdown we initiated a global cost reduction program which has resulted in annualized savings of approximately $ 100 million . these savings are the result of reduced spending levels in most cost categories and also include workforce reductions ( including employees and temporary personnel ) of approximately 1,000 or 10 % of our total workforce . we also continue to strive to improve our margins by reducing our cost structure . as previously mentioned , shifting production to china has been an important component of our cost savings initiatives . we have also implemented global procurement and supply chain management programs over the last several years aimed at lowering supply costs . our cost leadership initiatives are also focused on continuously improving our invested capital efficiency , such as reducing our working capital levels and ensuring appropriate returns on our expenditures . pursuing strategic acquisitions . while we have not completed a significant acquisition since 2001 , acquisitions remain part of our growth strategy . we seek to pursue acquisitions that may leverage our global sales and service network , respected brand , extensive distribution channels and technological leadership . we have identified life sciences , product inspection and process analytics as three key areas for acquisitions . we also continue to pursue “bolt-on” acquisitions . for example , during the first quarter of 2010 , we acquired our pipette distributor in the united kingdom and during the fourth quarter of 2009 , we also acquired a leader of vision inspection technology that we will integrate with our end-of-line packaging inspection systems product offering . results of operations — consolidated net sales net sales were $ 1,728.9 million for the year ended december 31 , 2009 , compared to $ 1,973.3 million in 2008 and $ 1,793.7 million in 2007. in u.s. dollars , this represents a decrease in 2009 of 12 % and an increase in 2008 of 10 % . in local currencies , net sales decreased 10 % in 2009 and increased 6 % in 2008. in 2009 , our net sales by geographic destination decreased in local currencies by 11 % in the americas , 14 % in europe and 2 % in asia/rest of world . a discussion of sales by operating segment is included below . as described in note 17 to our audited consolidated financial statements , our net sales comprise product sales of precision instruments and related services . service revenues are primarily derived from repair and other services , including regulatory compliance qualification , calibration , certification , preventative maintenance and spare parts . net sales of products decreased by 15 % in 2009 in u.s. dollars and increased by 10 % in 2008. in local currencies , net sales of products decreased by 13 % in 2009 and increased by 7 % in 2008. service revenue ( including spare parts ) decreased in 2009 by 4 % and increased in 2008 by 8 % in u.s. dollars . story_separator_special_tag repurchases will be made through open market transactions and the timing will depend on the level of acquisition activity , business and market conditions , the stock price , trading restrictions and other factors . in light of the economic downturn and instability in the financial markets , we have taken a more conservative posture towards the utilization of our cash flow and capital structure . this included the suspension of our share repurchase program in october 2008 , which was re-started in december 2009. we have purchased 15.3 million shares since the inception of the program through december 31 , 2009. during the years ended december 31 , 2009 and 2008 , we spent $ 6.0 million and $ 224.5 million on the repurchase of 58,800 shares and 2,232,188 shares at an average price per share of $ 101.82 and $ 100.55 , respectively . in addition , $ 5.2 million relating to the settlement of shares repurchased as of december 31 , 2007 were cash settled during 2008. we reissued 263,750 shares and 139,780 shares held in treasury for the exercise of stock options during 2009 and 2008 , respectively . we also reissued 6,467 shares and 16,760 shares held in treasury during 2009 and 2008 , respectively , pursuant to our 2007 share plan , which extends certain eligible employees the option to receive a percentage of their annual bonus in shares of the company 's stock . 33 off-balance sheet arrangements currently , we have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that is material . effect of currency on results of operations because we conduct operations in many countries , our operating income can be significantly affected by fluctuations in currency exchange rates . swiss franc-denominated expenses represent a much greater percentage of our total operating expenses than swiss franc-denominated sales represent of our total net sales . in part , this is because most of our manufacturing costs in switzerland relate to products that are sold outside switzerland . moreover , a substantial percentage of our research and development expenses and general and administrative expenses are incurred in switzerland . therefore , if the swiss franc strengthens against all or most of our major trading currencies ( e.g . , the u.s. dollar , the euro , other major european currencies , the chinese yuan and the japanese yen ) , our operating profit is reduced . we also have significantly more sales in european currencies ( other than the swiss franc ) than we have expenses in those currencies . therefore , when european currencies weaken against the u.s. dollar and the swiss franc , it also decreases our operating profits . accordingly , the swiss franc exchange rate to the euro is an important cross-rate that we monitor . in recent years , we have seen higher volatility in exchange rates generally than in the past , and the swiss franc has strengthened against the euro . we estimate that a 1 % strengthening of the swiss franc against the euro would result in a decrease in our earnings before tax of $ 1.1 million to $ 1.4 million on an annual basis . in addition to the swiss franc and major european currencies , we also conduct business in many geographies throughout the world , including asia pacific , eastern europe , latin america and canada . fluctuations in these currency exchange rates against the u.s. dollar can also affect our operating results . in addition to the effects of exchange rate movements on operating profits , our debt levels can fluctuate due to changes in exchange rates , particularly between the u.s. dollar and the swiss franc . based on our outstanding debt at december 31 , 2009 , we estimate that a 10 % weakening of the u.s. dollar against the currencies in which our debt is denominated would result in an increase of approximately $ 7.1 million in the reported u.s. dollar value of the debt . taxes we are subject to taxation in many jurisdictions throughout the world . our effective tax rate and tax liability will be affected by a number of factors , such as the amount of taxable income in particular jurisdictions , the tax rates in such jurisdictions , tax treaties between jurisdictions , the extent to which we transfer funds between jurisdictions , earnings repatriations between jurisdictions and changes in law . generally , the tax liability for each taxpayer within the group is determined either ( i ) on a non-consolidated/non-combined basis or ( ii ) on a consolidated/combined basis only with other eligible entities subject to tax in the same jurisdiction , in either case without regard to the taxable losses of non-consolidated/non-combined affiliated legal entities . environmental matters we are subject to environmental laws and regulations in the jurisdictions in which we operate . we own or lease a number of properties and manufacturing facilities around the world . like many of our competitors , we have incurred , and will continue to incur , capital and operating expenditures and other costs in complying with such laws and regulations . we are currently involved in , or have potential liability with respect to , the remediation of past contamination in certain of our facilities in both the united states and abroad . our former subsidiary , hi-speed , was one of two private parties ordered to perform certain ground water contamination monitoring under an administrative consent order that njdep signed on june 13 , 1988 with respect to certain property in landing , new jersey . gei is the other ordered party . gei has failed to fulfill its obligations under the njdep consent order , and njdep has agreed with hi-speed that the

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liquidity and capital resources liquidity is our ability to generate sufficient cash flows from operating activities to meet our obligations and commitments . in addition , liquidity includes the ability to obtain appropriate financing . currently , our financing requirements are primarily driven by working capital requirements , capital expenditures , share repurchases and acquisitions . in light of the economic downturn and instability in the financial markets , we have taken a more conservative posture towards the utilization of our cash flow and capital structure . this included the suspension of our share repurchase program in october 2008 , which was re-started in december 2009. global economic conditions continue to be uncertain and our ability to generate cash flows may be reduced by a prolonged global economic slowdown . cash provided by operating activities totaled $ 232.6 million in 2009 , compared to $ 223.1 million in 2008 and $ 227.7 million in 2007. the increase in 2009 resulted principally from decreased incentive payments of $ 15.4 million related to 2008 performance-related compensation incentives ( bonus payments ) and reduced accounts receivable and inventory balances , offset in part by lower net earnings and cash payments of $ 22.2 million related to our restructuring program . the decrease in 2008 resulted principally from reduced accounts payable balances of $ 15.9 million from the beginning of the year versus increased balances of $ 26.4 million during the previous year which was largely attributable to strong december 2007 business activity . the decrease in 2008 cash provided by operating activities was also attributable to higher payments of approximately $ 10.9 million related to 2007 performance-related compensation incentives ( bonus payments ) that were paid during 2008 and the timing of tax disbursements of $ 21.9 million . these items were offset in part by higher net earnings of $ 24.3 million compared to the corresponding period in 2007. we also made $ 11.5 million , $ 5.0 million and $ 7.7 million of voluntary incremental pension contributions in 2009 , 2008 and 2007 , respectively . capital expenditures are made primarily for investments in information systems and technology , machinery , equipment and the purchase and expansion of facilities .

there were no unrecognized income tax benefits as of december 31 , 2018 and 2017. the company recognizes the interest and penalties accrued related to unrecognized tax benefits in income tax expense . the company did not recognize any expenses any interest and penalties as of december 31 , 2018 and 2017 , respectively . all tax years since inception are open for examination by taxing authorities . f- 10 note 7 – related party transactions on january 1 , 2017 , pursuant to the terms of an executive management agreement , the company granted 200,000 shares of common stock to mr. sandor miklos , president and member of the board of directors . the shares were issued at $ 1.00 per share for a total non-cash expense of $ 200,000 . on january 1 , 2017 , pursuant to the terms of an executive and consulting agreement , the company granted 200,000 shares of common stock to mr. simon smith , chief technology officer . the shares were issued at $ 1.00 per share for a total non-cash expense of $ 200,000 . on january 1 , 2018 , the company amended the january 1 , 2015 executive and consulting agreement with sandor miklos , president and member of the board of directors for services rendered . the amended agreement calls for annual compensation of 450,000 common shares of the company fully earned immediately to be assigned and registered fully as at the end of the fiscal year . as of december 31 , 2018 , 450,000 shares valued at $ 1.00 per share for a total of $ 450,500 was accrued as compensation for sandor miklos . on november 20 , 2018 , the company received a loan payable in the amount of $ 2,781 from a more than 5 % shareholder for the payment of company expenses . this loan is unsecured , non-interest bearing , and has no specific terms for repayment . as of december 31 , 2018 , the company had a loan payable of $ 2,781 to the same party . note 8 – subsequent events the company 's management evaluated subsequent events through the date the financial statements were issued and there were no subsequent events to report . f- 11 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . team 360 sport inc. ( registrant ) date : april 1 , 2019 by : sandor miklos sandor miklos president , chief executive officer chairman of the board of directors ( principal executive officer ) date : april 1 , 2019 by : sandor miklos sandor miklos chief financial officer ( principal financial officer and principal accounting officer ) pursuant to the requirements of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized . team 360 sports inc. dated : april 1 , 2019 by : sandor miklos sandor miklos president , chief executive officer , chairman of the board of directors ( principal executive officer ) dated : april 1 , 2019 by : sandor miklos sandor miklos chief financial officer ( principal financial officer and principal accounting officer ) 23 story_separator_special_tag of operations . this discussion summarizes the significant factors affecting the operating results , financial condition , liquidity and cash flows of the company for the fiscal years ended december 31 , 2018 and 2017. the discussion and analysis that follows should be read together with our financial statements and the notes to the financial statements included elsewhere in this annual report on form 10-k. except for historical information , the matters discussed in this section are forward looking statements that involve risks and uncertainties and are based upon judgments concerning various factors that are beyond the company 's control . consequently , and because forward-looking statements are inherently subject to risks and uncertainties , the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements . you are urged to carefully review and consider the various disclosures made by us in this report . overview we were incorporated in nevada on february 26 , 2013 , and on april 4 , 2016 , amended the articles of incorporation to change the name of the company to team 360 sports inc. the company provides amateur sports clubs , leagues and teams with easy to use robust digital administration management systems . the company has had minimal revenues as the company has been developing its technology and platform . the trend in the market place is to provide services to teams versus large organizations such as leagues and clubs . the company is planning to move into that market place , however there can be no assurances that it will succeed . results of operations comparison of twelve-month periods ended december 31 , 2018 and 2017 13 revenue we have generated $ 2,557 and $ 2,557 in revenues for the year ended december 31 , 2018 and 2017 , respectively . expenses general and administration expenses for the year ended december 31 , 2018 , amounted to $ 26,532 , compared to $ 34,313 during the year ended december 31 , 2017. the decrease is due to decreased technical support fees incurred in 2018 and reduced legal fees , which were incurred in 2017 for the s-1 preparation . compensation expenses for the year ended december 31 , 2018 , amounted to $ 450,000 compared to $ 725,000 during the year ended december 31 , 2017. the decrease is primarily attributable to the company paying $ 450,000 in share based compensation to its chief executive officer in 2018 , versus $ 300,000 in share based compensation being paid to a third party , story_separator_special_tag there were no unrecognized income tax benefits as of december 31 , 2018 and 2017. the company recognizes the interest and penalties accrued related to unrecognized tax benefits in income tax expense . the company did not recognize any expenses any interest and penalties as of december 31 , 2018 and 2017 , respectively . all tax years since inception are open for examination by taxing authorities . f- 10 note 7 – related party transactions on january 1 , 2017 , pursuant to the terms of an executive management agreement , the company granted 200,000 shares of common stock to mr. sandor miklos , president and member of the board of directors . the shares were issued at $ 1.00 per share for a total non-cash expense of $ 200,000 . on january 1 , 2017 , pursuant to the terms of an executive and consulting agreement , the company granted 200,000 shares of common stock to mr. simon smith , chief technology officer . the shares were issued at $ 1.00 per share for a total non-cash expense of $ 200,000 . on january 1 , 2018 , the company amended the january 1 , 2015 executive and consulting agreement with sandor miklos , president and member of the board of directors for services rendered . the amended agreement calls for annual compensation of 450,000 common shares of the company fully earned immediately to be assigned and registered fully as at the end of the fiscal year . as of december 31 , 2018 , 450,000 shares valued at $ 1.00 per share for a total of $ 450,500 was accrued as compensation for sandor miklos . on november 20 , 2018 , the company received a loan payable in the amount of $ 2,781 from a more than 5 % shareholder for the payment of company expenses . this loan is unsecured , non-interest bearing , and has no specific terms for repayment . as of december 31 , 2018 , the company had a loan payable of $ 2,781 to the same party . note 8 – subsequent events the company 's management evaluated subsequent events through the date the financial statements were issued and there were no subsequent events to report . f- 11 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . team 360 sport inc. ( registrant ) date : april 1 , 2019 by : sandor miklos sandor miklos president , chief executive officer chairman of the board of directors ( principal executive officer ) date : april 1 , 2019 by : sandor miklos sandor miklos chief financial officer ( principal financial officer and principal accounting officer ) pursuant to the requirements of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized . team 360 sports inc. dated : april 1 , 2019 by : sandor miklos sandor miklos president , chief executive officer , chairman of the board of directors ( principal executive officer ) dated : april 1 , 2019 by : sandor miklos sandor miklos chief financial officer ( principal financial officer and principal accounting officer ) 23 story_separator_special_tag of operations . this discussion summarizes the significant factors affecting the operating results , financial condition , liquidity and cash flows of the company for the fiscal years ended december 31 , 2018 and 2017. the discussion and analysis that follows should be read together with our financial statements and the notes to the financial statements included elsewhere in this annual report on form 10-k. except for historical information , the matters discussed in this section are forward looking statements that involve risks and uncertainties and are based upon judgments concerning various factors that are beyond the company 's control . consequently , and because forward-looking statements are inherently subject to risks and uncertainties , the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements . you are urged to carefully review and consider the various disclosures made by us in this report . overview we were incorporated in nevada on february 26 , 2013 , and on april 4 , 2016 , amended the articles of incorporation to change the name of the company to team 360 sports inc. the company provides amateur sports clubs , leagues and teams with easy to use robust digital administration management systems . the company has had minimal revenues as the company has been developing its technology and platform . the trend in the market place is to provide services to teams versus large organizations such as leagues and clubs . the company is planning to move into that market place , however there can be no assurances that it will succeed . results of operations comparison of twelve-month periods ended december 31 , 2018 and 2017 13 revenue we have generated $ 2,557 and $ 2,557 in revenues for the year ended december 31 , 2018 and 2017 , respectively . expenses general and administration expenses for the year ended december 31 , 2018 , amounted to $ 26,532 , compared to $ 34,313 during the year ended december 31 , 2017. the decrease is due to decreased technical support fees incurred in 2018 and reduced legal fees , which were incurred in 2017 for the s-1 preparation . compensation expenses for the year ended december 31 , 2018 , amounted to $ 450,000 compared to $ 725,000 during the year ended december 31 , 2017. the decrease is primarily attributable to the company paying $ 450,000 in share based compensation to its chief executive officer in 2018 , versus $ 300,000 in share based compensation being paid to a third party ,

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liquidity and capital resources as of december 31 , 2018 , we have $ 214 in current assets and $ 510,432 in current liabilities . our total assets were $ 214 and our total liabilities were $ 510,432. we had $ 214 in cash and our working capital deficit was $ 510,218. cash flows : replace_table_token_1_th 14 off-balance sheet arrangements we have no off-balance sheet arrangements . critical accounting policies and estimates the preparation of financial statements in conformity with generally accepted accounting principles of the united states ( gaap ) 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 revenues and expenses during the year . the more significant areas requiring the use of estimates include asset impairment , stock-based compensation , and future income tax amounts . management bases its estimates on historical experience and on other assumptions considered to be reasonable under the circumstances . however , actual results may differ from theestimates .

in january 2013 , congress enacted the american taxpayer relief act of 2012. it addressed a number of tax code provisions and certain spending issues but left in place the sequester ( although delaying its implementation to march 1 , 2013 ) and did not address other fiscal matters such as the debt ceiling . although debate on budget reductions continued through the first two months of 2013 , no resolution was reached prior to the march 1 , 2013 sequester deadline . as a result , the president was required by law to issue an order canceling $ 85 billion in budgetary resources across the u.s. government for the remainder of fy 2013. the office of management and budget ( “ omb ” ) in its report to congress of march 1 , 2013 , entitled “ omb report to the congress on the joint committee sequestration , ” calculated that , over the course of the fiscal year , the order required a 7.8 percent reduction in non-exempt defense discretionary funding and a 5.0 percent reduction in non-exempt non-defense discretionary funding . the sequestration also required reductions of 7.9 percent to non-exempt defense mandatory programs . the sequestration report provided calculations of the amounts and percentages by which various budgetary resources are required to be reduced , and a listing of the reductions required for each non-exempt budget account . federal agencies were directed to apply the same percentage reduction to all programs , projects , and activities within a budget account , as required by section 256 ( k ) ( 2 ) of balanced budget and emergency deficit control act , as amended ( “ bbedca ” ) , and to operate in a manner that is consistent with guidance provided by omb in memorandum 13-03 , planning for uncertainty with respect to fiscal year 2013 budgetary resources and memorandum 13-05 , agency responsibilities for implementation of potential joint committee sequestration . on april 10 , 2013 , the president delivered his proposed fiscal year ( `` fy `` ) 2014 budget to congress . the president 's $ 527 billion fy 2014 defense budget is slightly lower than final defense appropriations for fy 2013. while it largely reflects defense spending plans in the fy 2013 budget , it does not reflect the reductions mandated by part ii of the budget control act . on october 17 , 2013 , hr . 2775 the “ continuing appropriations act of 2014 ” was signed into law by the president , extending the debt ceiling through february 7 , 2014 and temporarily restoring funding for government agencies . the legislation funds federal agencies only until january 15 , 2014 , and at the fy 2013 enacted levels , which reflect the first sequestration cuts that took effect in march and a discretionary funding level of $ 986 billion , the amount available to the appropriators to fund fy 2014 federal government programs . on december 19 , 2013 , congress passed the bipartisan budget act of 2013 ( the `` bipartisan budget `` ) . the bipartisan budget is a two-year plan that sets spending for the pentagon and other federal agencies at $ 1.012 trillion for fiscal 2014. for fiscal 2015 , overall spending would increase only slightly to $ 1.014 trillion . the plan calls for extending part of the sequester into 2022 and 2023 to get an additional $ 23 billion in planned savings . on february 15 , 2014 legislation was signed which raises the u.s. debt limit through march 2015. in addition , appropriators passed legislation that offsets a significant portion of the sequester cuts . this does translate to a better outlook for the defense industry than what was generally expected for both this year and next . however , we still expect some lower or delayed awards on some of our programs with a related negative impact on our revenues , earnings and cash flows . current reporting segments we operate in two principal reportable segments : kratos government solutions and public safety & security . we organize our reportable segments based on the nature of the services offered . transactions between segments are generally negotiated and accounted for under terms and conditions similar to other government and commercial contracts and these intercompany transactions are eliminated in consolidation . the consolidated financial statements in this annual report are presented in a manner consistent with our operating structure . for additional information regarding our reportable segments , see note 14 of notes to consolidated financial statements contained within this annual report . from a customer and solutions perspective , we view our business as an integrated whole , leveraging skills and assets wherever possible . 40 kratos government solutions segment our kgs segment provides c5isr products , solutions and services primarily for strategic mission critical national security programs and priorities . our primary end customers in the kgs segment are u.s. government agencies , including the department of defense ( `` dod `` ) , classified agencies , intelligence agencies , civilian agencies , other national security agencies and homeland security related agencies . our work includes electronic warfare/attack and intelligence , reconnaissance and surveillance ; satellite command and control , satellite communications support , signal monitoring , interference detection and geolocation ; unmanned aerial systems and unmanned ground systems ; ballistic missile defense test and evaluation ; cyber and it ; learning , performance and training solutions ; missile range operations and technical services ; weapon systems lifecycle sustainment , support and extension ; manufacturing of specialized tactical combat products , shelters and enclosures for c5isr systems , uavs , modular data centers and critical infrastructure shelters , weapons systems and warfighters . public safety & security segment our pss segment provides independent integrated security solutions for homeland security , public safety , critical infrastructure , and strategic assets for government , industrial and commercial customers . story_separator_special_tag an increase in product sales primarily related to the acquisition of cei , was offset by reduced orders and timing on shipments in our ground equipment and electronic warfare businesses . service revenues decreased by $ 6.4 million from $ 450.0 million for the year ended december 30 , 2012 to $ 443.6 million for the year ended december 29 , 2013 . the decrease was primarily related to the reductions in service revenue in other business units in the kgs segment as discussed above . as described in our “ critical accounting principles and estimates ” below and in the notes to consolidated financial statements contained within this annual report , we utilize both the cost-to-cost and units delivered measures under the percentage-of-completion method of accounting for recognizing revenue as provided for in topic 605 . when revenue is calculated using the percentage-of-completion method , total costs incurred to date are compared to total estimated costs to complete the contract . these estimates are reviewed monthly on a contract-by-contract basis , and are revised periodically throughout the life of the contract such that adjustments to profit resulting from revisions are made cumulative to the date of the revision . significant management judgments and estimates , including the estimated costs to complete projects , which determine the project 's percentage of completion , must be made and used in connection with the revenue recognized in any accounting period . material differences may result in the amount and timing of our revenue for any period if management makes different judgments or utilizes different estimates . during the reporting periods contained herein , we did experience revenue and margin adjustments on certain projects based on the aforementioned factors , but the effect of such adjustments , both positive and negative , when evaluated in total were determined to be immaterial to our consolidated financial statements . cost of revenues . cost of revenues decreased from $ 712.0 million for the year ended december 30 , 2012 to $ 710.6 million for the year ended december 29 , 2013 . the $ 1.4 million decrease in cost of revenues was primarily a result of an 44 increase resulting from our 2012 acquisition of cei offset by reductions in cost of revenues in our kgs segment as a result of decreased revenue as discussed above . gross margin declined from 26.5 % for the year ended december 30 , 2012 compared to 25.2 % for the year ended december 29 , 2013 . margins on services increased from 22.0 % for the year ended december 30 , 2012 to 24.4 % for the year ended december 29 , 2013 , primarily reflecting the impact of cost reduction actions we have taken . margins on products decreased for the year ended december 30 , 2012 as compared to december 29 , 2013 from 30.4 % to 26.0 % , respectively , as a result of a change in mix of products sold . margins in the kgs segment decreased from 26.5 % for the year ended december 30 , 2012 to 25.1 % for the year ended december 29 , 2013 primarily as a result of change in mix of products sold as well as due in part to contract design retrofit costs of approximately $ 7.6 million recorded in 2013 as a result of an unsuccessful flight test failure of one of our aerial targets . margins in the pss segment decreased from 26.5 % for the year ended december 30 , 2012 to 25.8 % for the year ended december 29 , 2013 as a result of the mix of revenue and due to the impact of certain larger projects that were awarded at more competitive margins . selling , general and administrative expenses . selling , general and administrative expenses ( “ sg & a ” ) decreased $ 0.1 million from $ 193.1 million for the year ended december 30 , 2012 to $ 193.0 million for the year ended december 29 , 2013 . the decrease was primarily a result of the additional sg & a expenses associated with the cei business offset in part by cost reduction actions we have made . as a percentage of revenues , sg & a increased from 19.9 % for fiscal 2012 to 20.3 % for fiscal 2013 . excluding amortization of intangibles of $ 43.9 million for the year ended december 30 , 2012 and amortization of intangibles of $ 36.2 million for the year ended december 29 , 2013 , sg & a increased as a percentage of revenues from 15.4 % to 16.5 % for the year ended december 30 , 2012 and december 29 , 2013 , respectively , primarily reflecting a full year of the sg & a of our acquisition of cei , which currently operates at a higher sg & a infrastructure support than our other businesses . merger and acquisition related items . merger and acquisition expenses decreased $ 1.1 million from $ 2.7 million to a benefit of $ 3.8 million for the years ended december 30 , 2012 and december 29 , 2013 , respectively . acquisition expenses related to our acquisitions of the critical infrastructure business and cei in 2012 were offset by a reduction in liabilities of $ 4.5 million as a result of reaching an agreement over previously disputed fees , a change in estimate of our indemnity obligations related to former directors and officers of integral as a result of the settlement of the matter against one of the officers in november 2012 and an adjustment to the estimated contingent acquisition consideration owed to southside container & trailer , llc ( `` sct `` ) . see notes 3 and 15 of the notes to the consolidated financial statements for a further discussion of contingent consideration and our indemnity obligations . the benefit of $ 3.8 million in 2013 was due to the reduction in a $ 3.1 million

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debt acquired in acquisition of herley we assumed a $ 10.0 million ten-year term loan with a bank in israel that herley entered into on september 16 , 2008 in connection with the acquisition of one of its wholly owned subsidiaries . the balance as of december 29 , 2013 was $ 4.8 million , and the loan is payable in quarterly installments of $ 0.3 million plus interest at libor plus a margin of 1.5 % . the loan agreement contains various covenants including a minimum net equity covenant as defined in the loan agreement . we were in compliance with the financial covenants of the loan agreement as of december 29 , 2013 . payments in connection with acquisitions in connection with our business acquisitions , we agreed to make additional future payments to sellers based on final purchase price adjustments and the expiration of certain indemnification obligations . pursuant to the provisions of topic 805 , such amounts are recorded at fair value on the acquisition date . the agreement and plan of merger entered into in connection with our acquisition of secureinfo provided that upon achievement of certain cash receipts , revenue and ebitda in 2011 , we were obligated to pay the former stockholders of secureinfo additional cash contingent consideration . in march 2012 , we paid $ 1.5 million related to this contingent consideration . pursuant to the terms of the agreement and plan of merger with dei services corporation entered into on august 9 , 2010 ( “ the dei agreement ” ) , upon achievement of certain cash receipts , revenue , ebitda and backlog amounts in 2010 , 2011 and 2012 , we were obligated to pay certain additional contingent consideration ( the “ dei contingent consideration ” ) . we have paid $ 5.0 million related to the dei contingent consideration , of which $ 2.5 million and $ 2.1 million was paid in april 2012 and april 2013 , respectively . the sct agreement provided that upon achievement of certain ebitda amounts in 2011 , 2012 and 2013 , we would have had to pay the former stockholders of sct certain additional performance-based consideration .

fully-taxable equivalent net interest income was $ 124.2 million in 2018 , an increase of $ 8.4 million , or 7 % , compared to 2017. this reflected the impact of 8 % growth in average interest-earning assets , partially offset by a three-basis point decline in the net interest margin to 3.18 % . the provision for loan losses decreased $ 4.4 million , or 33 % , from 2017 as our allowance for loan losses reflects the release of reserves due to favorable asset quality trends and qualitative factors . net charge-offs increased $ 69 thousand from the prior year to $ 9.7 million in 2018. net charge-offs were an annualized 0.33 % of average loans in the current year compared to 0.38 % in 2017. in addition , non-performing loans decreased $ 5.4 million compared to a year ago to $ 7.1 million , or 0.23 % of total loans . - 37 - management 's discussion and analysis noninterest income totaled $ 36.5 million for the full year 2018 , an increase of $ 1.7 million or 5 % when compared to the prior year . investment advisory income increased by $ 2.0 million to $ 8.1 million during the current year reflecting higher assets under management driven by the acquisition of hnp capital . income from investments in limited partnerships increased to $ 1.2 million in 2018 from $ 110 thousand in the prior year . income from these investments fluctuates based on the maturity and performance of the underlying investments . income from derivative instruments , net increased to $ 972 thousand in 2018 from $ 131 thousand in the prior year . income from derivative instruments , net primarily consists of income associated with interest rate swap products offered to commercial loan customers and is based on the number and value of transactions executed . the bank i mplemented this program in the third quarter of 2017. in addition , the net gain ( loss ) on investment securities was a loss of $ 127 thousand in 2018 , compared to a gain of $ 1.3 million in 2017. during 2017 , we recognized a non-cash fair value adjustment of the contingent consideration liability related to the sdn acquisition that resulted in noninterest income of $ 1.2 million . the fair value of the contingent consideration liability was recorded at the time of the sdn acquisition as a component of the purchase price . noninterest expense for the full year 2018 totaled $ 100.9 million , a $ 10.4 million increase compared to $ 90.5 million in the prior year . salaries and benefits expense increased $ 6.0 million year-over-year , primarily as a result of investments in bank personnel , the 2018 acquisition of hnp capital , compensation to employees not covered by existing incentive programs , and nonrecurring expense incurred in connection with employee retirements and severance . also contributing to the increase were higher occupancy and equipment expense , higher advertising and promotions expense and a higher goodwill impairment charge related to sdn . income tax expense for the year was $ 10.0 million , representing an effective tax rate of 20.2 % compared to an effective tax rate of 22.9 % in 2017. lower corporate tax rates were in effect for 2018 as a result of the tcj act . effective tax rates are impacted by items of income and expense not subject to federal or state taxation . the company 's effective tax rates differ from statutory rates primarily because of interest income from tax-exempt securities , earnings on company owned life insurance , the non-cash fair value adjustment of the contingent consideration liability associated with the sdn acquisition and non-cash goodwill impairment charges related to sdn and the impact of the tcj act as described previously . total assets were $ 4.31 billion at december 31 , 2018 , up $ 206.5 million from $ 4.11 billion at december 31 , 2017. the increase was largely the result of loan growth funded by deposit growth and proceeds from investment securities . total loans were $ 3.09 billion at december 31 , 2018 , up $ 351.6 million , or 13 % , from december 31 , 2017. commercial mortgage loans totaled $ 958.2 million , an increase of $ 149.3 million , or 19 % , from december 31 , 2017. commercial business loans totaled $ 557.9 million , an increase of $ 107.5 million , or 24 % , from december 31 , 2017. residential real estate loans totaled $ 524.2 million , an increase of $ 58.9 million , or 13 % , from december 31 , 2017. consumer indirect loans totaled $ 919.9 million , an increase of $ 43.3 million , or 5 % , from december 31 , 2017. total deposits were $ 3.37 billion at december 31 , 2018 , an increase of $ 156.7 million from december 31 , 2017 , which was primarily the result of successful business development efforts . short-term borrowings were $ 469.5 million at december 31 , 2018 , up $ 23.3 million from december 31 , 2017. shareholders ' equity was $ 396.3 million at december 31 , 2018 , compared to $ 381.2 million at december 31 , 2017. common book value per share was $ 23.79 at december 31 , 2018 , an increase of $ 0.94 or 4 % from $ 22.85 at december 31 , 2017. the increase in shareholders ' equity as compared to december 31 , 2017 , is attributable to net income less dividends paid , net of the change in accumulated other comprehensive income ( loss ) . story_separator_special_tag - 44 - management 's discussion and analysis results of operations for the years ended december 31 , 2017 and december 31 , 2016 net interest income and net interest margin net interest income was $ 112.6 million in 2017 , compared to $ 102.7 million in 2016. the taxable equivalent adjustments of $ 3.2 million for 2017 and 2016 resulted in fully taxable equivalent net interest income of $ 115.8 million in 2017 and $ 105.9 million in 2016. net interest income on a taxable equivalent basis for 2017 increased $ 9.9 million or 9 % , compared to 2016. the increase was due to an increase in average interest-earning assets of $ 339.5 million or 10 % compared to 2016. the net interest margin of 3.21 % for 2017 declined three-basis points compared to 3.24 % in 2016. this decrease was a function of a five-basis point decrease in interest rate spread to 3.08 % during 2017 , partially offset by a two-basis point higher contribution from net free funds . the lower interest rate spread was a net result of a seven-basis point increase in the yield on earning assets and a 12-basis point increase in the cost of interest-bearing liabilities . for the year ended december 31 , 2017 , the yield on average earning assets of 3.69 % was seven-basis points higher than 2016. loan yields increased four-basis points during 2017 to 4.22 % . the yield on investment securities increased three-basis points during 2017 to 2.48 % . overall , the earning asset rate changes increased interest income by $ 1.2 million during 2017 and a favorable volume variance increased interest income by $ 13.7 million , which collectively drove a $ 14.9 million increase in interest income . average interest-earning assets were $ 3.61 billion for 2017 , an increase of $ 339.5 million or 10 % from the prior year , with average loans up $ 312.5 million , average securities up $ 23.1 million and average federal funds sold and other interest-earning deposits up $ 3.9 million . average loans were $ 2.52 billion for 2017 , an increase of $ 312.5 million or 14 % from the prior year . the growth in average loans reflected increases in most loan categories , which in turn reflects the impact of our growth strategy , with commercial loans up $ 169.1 million , residential real estate loans up $ 34.1 million , and consumer loans up $ 115.1 million , partially offset by a $ 5.8 million decrease in residential real estate lines . loans comprised 69.7 % of average interest-earning assets during 2017 compared to 67.4 % during 2016. loans generally have significantly higher yields compared to securities and federal funds sold and interest-bearing deposits and , as such , have a more positive effect on the net interest margin . the yield on average loans was 4.22 % for 2017 , an increase of four basis points compared to 4.18 % for 2016. the increase in the volume of average loans resulted in a $ 13.2 million increase in interest income , in addition to a $ 830 thousand increase due to the favorable rate variance . average securities were $ 1.09 billion for 2017 , an increase of $ 23.1 million or 2 % from the prior year . securities comprised 30.1 % of average interest-earning assets in 2017 compared to 32.5 % in 2016. the taxable equivalent yield on average securities was 2.48 % in 2017 compared to 2.45 % in 2016. the increase in the volume of average securities resulted in a $ 531 thousand increase in interest income , in addition to a $ 295 thousand increase due to the favorable rate variance . for the year ended december 31 , 2017 , the cost of average interest-bearing liabilities of 0.61 % was 12-basis points higher than 2016. the cost of average interest-bearing deposits increased eight-basis points to 0.45 % , the cost of short-term borrowings increased 51-basis points to 1.16 % in 2017 compared to 2016 and the cost of long-term borrowings decreased one-basis point to 6.32 % . overall , interest-bearing liability rate and volume increases resulted in $ 5.0 million of higher interest expense . average interest-bearing liabilities of $ 2.85 billion in 2017 were $ 278.8 million or 11 % higher than 2016. on average , interest-bearing deposits grew $ 189.3 million , while noninterest-bearing demand deposits ( a principal component of net free funds ) were up $ 41.5 million . the increase in average deposits was due to successful business development efforts . overall , interest-bearing deposit rate and volume changes resulted in $ 2.6 million of higher interest expense during 2017. average short-term and long-term borrowings were $ 377.5 million in 2017 , $ 89.5 million higher than in 2016. overall , short and long-term borrowing rate and volume changes resulted in $ 2.3 million of higher interest expense during 2017. provision for loan losses the provision for loan losses was $ 13.4 million for the year ended december 31 , 2017 compared with $ 9.6 million for 2016. the increase was primarily the result of growth in the loan portfolios . noninterest income insurance income decreased by $ 130 thousand , or 2 % , to $ 5.3 million during 2017. the decrease was primarily the result of commercial account non-renewals . these non-renewals have been partially replaced with several new , but smaller , commercial and personal accounts . investment advisory income increased to $ 6.1 million in 2017 , compared to $ 5.2 million in 2016 , reflecting higher assets under management driven by the acquisition of the assets of robshaw & julian and favorable market conditions . - 45 - management 's discussion and analysis company owned life insurance decreased by $ 1.0 million or 37 % in 2017. the decrease was primarily due to $ 911 thousand of non-recurring death benefit proceeds received by

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liquidity and capital resources the objective of maintaining adequate liquidity is to ensure that we meet our financial obligations . these obligations include the withdrawal of deposits on demand or at their contractual maturity , the repayment of matured borrowings , the ability to fund new and existing loan commitments and the ability to take advantage of new business opportunities . we achieve liquidity by maintaining a strong base of core customer funds , maturing short-term assets , our ability to sell or pledge securities , lines-of-credit , and access to the financial and capital markets . - 54 - management 's discussion and analysis liquidity for the bank is managed through the monitoring of anticipated changes in loans , the investment portfolio , core deposits and wholesale funds . the strength of the bank 's liquidity position is a result of its base of core customer deposits . these core deposits are supplemented by wholesale funding sources that include credit lines with the other banking institutions , the fhlb and the frb . the primary sources of liquidity for fii are dividends from the bank and access to financial and capital markets . dividends from the bank are limited by various regulatory requirements related to capital adequacy and earnings trends . the bank relies on cash flows from operations , core deposits , borrowings and short-term liquid assets .

with our interest rate hedging arrangements ; risk associated to uncertainty related to determination of libor ; our potential failure to qualify as a reit ; our legal obligation to make distributions to our shareholders ; legislative or regulatory actions that could adversely affect our shareholders ; our dependence on distributions from the operating partnership to meet our financial obligations , including dividends ; the risk of a cyber-attack or an act of cyber-terrorism . 39 we qualify all of our forward-looking statements by these cautionary statements . the forward-looking statements in this annual report on form 10-k are only predictions . we have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business , financial condition and results of operations . because forward-looking statements are inherently subject to risks and uncertainties , some of which can not be predicted or quantified , you should not rely on these forward-looking statements as predictions of future events . the events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements . except as required by applicable law , we do not plan to publicly update or revise any forward-looking statements contained herein , whether as a result of any new information , future events , changed circumstances or otherwise . for a further discussion of the risks relating to our business , see “ item 1a-risk factors ” in part i of this annual report on form 10-k. the following discussion should be read in conjunction with the consolidated financial statements appearing elsewhere in this report . historical results and percentage relationships set forth in the consolidated statements of operations , including trends which might appear , are not necessarily indicative of future operations . general overview as of december 31 , 2020 , we had 31 consolidated outlet centers in 19 states totaling 11.9 million square feet . we also had 7 unconsolidated outlet centers totaling 2.2 million square feet , including 3 outlet centers in canada . the table below details our acquisitions , new developments , expansions and dispositions of consolidated and unconsolidated outlet centers that significantly impacted our results of operations and liquidity from january 1 , 2018 to december 31 , 2020 : replace_table_token_16_th 40 leasing activity the following table provides information for our consolidated outlet centers related to leases for new stores that opened or renewals that commenced during the years ended december 31 , 2020 and 2019 , respectively : replace_table_token_17_th ( 1 ) rent includes both minimum base rents and common area maintenance ( `` cam `` ) rents . excludes license agreements , temporary tenants , and month-to-month leases . ( 2 ) excludes the terrell outlet center sold in august 2020 . ( 3 ) excludes outlet centers sold in march 2019 ( nags head , ocean city , park city , and williamsburg outlet centers ) . ( 4 ) net average annual straight-line base rent is calculated by dividing the average tenant allowance costs per square foot by the average initial term and subtracting this calculated number from the average straight-line rent per year amount . the average annual straight-line rent disclosed in the table above includes all concessions , abatements and reimbursements of rent to tenants . the average tenant allowance disclosed in the table above includes other landlord costs . 41 covid-19 pandemic the current covid-19 pandemic has had , and will continue to have , repercussions across local , national and global economies and financial markets . covid-19 has impacted all states where our tenants operate their businesses or where our properties are located and measures taken to prevent or remediate covid-19 , including “ shelter-in-place ” or “ stay-at-home ” orders or other quarantine mandates issued by local , state or federal authorities , have had an adverse effect on our business and the businesses of our tenants . the full extent of the adverse impact on our results of operations , liquidity ( including our ability to access capital markets ) , the possibility of future impairments of long-lived assets or our investments in unconsolidated joint ventures , our compliance with debt covenants , our ability to collect rent under our existing leases , our ability to renew and re - lease our leased space , the outlook for the retail environment , bankruptcies and potential further bankruptcies or other store closings and our ability to develop , acquire , dispose or lease properties for our portfolio , is unknown and will depend on future developments , which are highly uncertain and can not be predicted . our results of operations , liquidity and cash flows have been and may continue to be in the future materially affected . many of our tenants operate in industries that depend on in-person interactions with their customers to be profitable and to fund their obligations under lease agreements with us . measures taken to prevent or remediate covid-19 , including “ shelter-in-place ” or “ stay-at-home ” orders or other quarantine mandates , with respect to virtually all of our tenants , has ( i ) prevented our tenants from being able to open their stores and conduct business or limited the hours in which they may conduct business , ( ii ) decreased or prevented our tenants ' customers ' willingness or ability to frequent their businesses , and or ( iii ) impacted supply chains from local , national and international suppliers or otherwise delayed the delivery of inventory or other materials necessary for our tenants ' operations , all of which have adversely affected , and are likely to continue to adversely affect , their ability to maintain profitability and make rental payments to us under their leases . story_separator_special_tag these reductions were partially offset by approximately $ 573,000 in compensation cost related to a voluntary retirement plan offer which required eligible participants to give notice of acceptance by december 1 , 2020 for an effective retirement date of march 31 , 2021 and higher expenses related to legal and professional fees . impairment charges we recorded $ 67.2 million and $ 37.6 million in impairment charges in the 2020 and 2019 periods , respectively , related to our mashantucket ( foxwoods ) , ct outlet center and jeffersonville , oh properties in 2020 and our jeffersonville , oh property in 2019. depreciation and amortization depreciation and amortization expense decreased $ 6.2 million in the 2020 period compared to the 2019 period . the following table sets forth the changes in various components of depreciation and amortization ( in thousands ) : replace_table_token_23_th depreciation and amortization decreased at our existing properties primarily due to the lower basis of our foxwoods and jeffersonville properties as a result of impairment charges recognized in 2020 and 2019 , respectively . interest expense interest expense increased $ 1.5 million in the 2020 period compared to the 2019 period as a result higher debt outstanding during the 2020 period due to of our borrowing approximately $ 599.8 million under our lines of credit at the onset of the covid-19 pandemic in march 2020 to increase liquidity and preserve financial flexibility . beginning in june 2020 through august 2020 , we repaid the entire $ 599.8 million outstanding balance bringing the outstanding balance to zero as of december 31 , 2020. gain on sale of assets in august 2020 , we sold a non-core outlet center in terrell , texas for net proceeds of $ 7.6 million , which resulted in a gain on sale of assets of $ 2.3 million . the proceeds from the sale of this unencumbered asset were used to pay down balances , which were outstanding under our unsecured lines of credit at that time . in march 2019 , we sold four outlet centers for net proceeds of approximately $ 128.2 million , which resulted in a gain on sale of assets of $ 43.4 million . the proceeds from the sale of these unencumbered assets were used to pay down balances outstanding under our unsecured lines of credit . equity in earnings of unconsolidated joint ventures equity in earnings of unconsolidated joint ventures decreased approximately $ 6.7 million in the 2020 period compared to the 2019 period . the following table sets forth the changes in various components of equity in earnings of unconsolidated joint ventures ( in thousands ) : replace_table_token_24_th 47 equity in earnings from existing properties includes our share of an impairment charge totaling $ 3.1 million in 2020 related to the saint-sauveur , quebec outlet center in our canadian joint venture . the impairment charge was primarily driven by deterioration of net operating income caused by market competition and the covid-19 pandemic . equity in earnings of unconsolidated joint ventures from existing properties also decreased due to the impact of covid-19 on the properties . information set forth above for properties disposed includes the riocan joint venture 's bromont outlet center , which was sold in may 2019 . 2019 compared to 2018 for a discussion of our results of operations for the year ended december 31 , 2018 , including a year-to-year comparison between 2019 and 2018 , refer to part ii , item 7 , `` management 's discussion and analysis of financial condition and results of operations `` in our annual report form 10-k for the year ended december 31 , 2019 . 48 liquidity and capital resources of the company in this “ liquidity and capital resources of the company ” section , the term , the `` company `` , refers only to tanger factory outlet centers , inc. on an unconsolidated basis , excluding the operating partnership . the company 's business is operated primarily through the operating partnership . the company issues public equity from time to time , but does not otherwise generate any capital itself or conduct any business itself , other than incurring certain expenses in operating as a public company , which are fully reimbursed by the operating partnership . the company does not hold any indebtedness , and its only material asset is its ownership of partnership interests of the operating partnership . the company 's principal funding requirement is the payment of dividends on its common shares . the company 's principal source of funding for its dividend payments is distributions it receives from the operating partnership . through its ownership of the sole general partner of the operating partnership , the company has the full , exclusive and complete responsibility for the operating partnership 's day-to-day management and control . the company causes the operating partnership to distribute all , or such portion as the company may in its discretion determine , of its available cash in the manner provided in the operating partnership 's partnership agreement . the company receives proceeds from equity issuances from time to time , but is required by the operating partnership 's partnership agreement to contribute the proceeds from its equity issuances to the operating partnership in exchange for partnership units of the operating partnership . we are a well-known seasoned issuer with a shelf registration which expires in march 2021 that allows the company to register various unspecified classes of equity securities and the operating partnership to register various unspecified classes of debt securities . we expect to file a new joint shelf registration statement on form s-3 prior to the expiration of the current registration statement . . as circumstances warrant , the company may issue equity from time to time on an opportunistic basis , dependent upon market conditions and available pricing . the operating partnership may use the proceeds to repay debt , including borrowings under its lines of credit ,

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debt of unconsolidated joint ventures the following table details information regarding the outstanding debt of the unconsolidated joint ventures and guarantees of such debt provided by us as of december 31 , 2020 ( dollars in millions ) : replace_table_token_30_th ( 1 ) in december 2020 , the columbus joint venture amended the mortgage loan to extend the maturity to november 2022 , which required a reduction in principal balance from $ 85.0 million to $ 71.0 million . the amendment also changed the interest rate from libor + 1.65 % to libor + 1.85 % . in addition , the mortgage loan guarantee by us was increased from $ 6.4 million to $ 11.9 million . we are providing property management , marketing and leasing services to the joint venture . ( 2 ) in june 2020 , in response to the covid-19 impact on the property , the galveston/houston joint venture amended its mortgage loan . the loan modification amended the first one-year extension option to provide for two six-month options ( the “ first extension ” and “ second extension ” , respectively ) . under the loan modification , the joint venture is prohibited from making partner distributions during the term of the first extension . if the joint venture exercises all available options , the loan would mature in july 2022. the joint venture exercised its first extension option to extend the mortgage loan for six months to january 2021. in december 2020 , the partnership further extended this maturity to february 15 , 2021 while it works with the existing lenders on a modification of this loan . in february 2021 , the galveston/houston joint venture amended the mortgage loan to extend the maturity to july 2023 , which required a reduction in principal balance from $ 80.0 million to $ 64.5 million the amendment also changed the interest rate from libor + 1.65 % to libor + 1.85 % . our joint ventures are generally subject to buy-sell provisions which are customary for joint venture agreements in the real estate industry .

( 2 ) for fiscal 2011 , the charge associated with the asset write-downs was related to the reconfiguration of three flagship stores and a small write-off related to a cancelled flagship project . 28 ( 3 ) for fiscal 2011 , the charges for store closures and lease exits were associated with lease buyouts and other lease obligations related to stores closing prior to natural lease expirations , other lease terminations , and other incidental costs associated with store closures . ( 4 ) for fiscal 2011 , the charge was related to legal settlements during the fourth quarter . ( 5 ) for fiscal 2011 , the charge associated with the ars was related to a change in intent with regard to the company 's auction rate securities portfolio , which resulted in recognition of an other-than-temporary impairment . net cash provided by operating activities , the company 's primary source of liquidity , was $ 684.2 million for fiscal 2012 . this source of cash was primarily driven by a change in inventories partially offset by a change in accounts payable . the company used $ 339.9 million of cash for capital expenditures partially offset by cash proceeds of $ 102.0 million from the sale of marketable securities . the company also repurchased $ 321.7 million of common stock and paid dividends totaling $ 57.6 million . as of february 2 , 2013 , the company had $ 643.5 million in cash and equivalents , no outstanding debt aside from that related to landlord financing obligations , and immaterial stand-by letters of credit . the following data represents the amounts shown in the company 's consolidated statements of operations and comprehensive income for the last three fiscal years , expressed as a percentage of net sales : replace_table_token_7_th 29 financial summary the following summarized financial and statistical data compares fiscal 2012 , fiscal 2011 and fiscal 2010 : replace_table_token_8_th * beginning with 2012 , comparable sales were reported including comparable direct-to-consumer sales . prior year figures were not restated . a store is included in comparable sales when it has been open as the same brand 12 months or more and its square footage has not been expanded or reduced by more than 20 % within the past year . the fiscal 2012 retail year included a fifty-third week and , therefore , fiscal 2012 comparable sales are compared to the fifty-three week period ended february 4 , 2012 . * * net sales for the year-to-date periods ended february 2 , 2013 , january 28 , 2012 and january 29 , 2011 reflect the activity of 27 , 21 and 19 stores , respectively . 30 current trends and outlook our results for fiscal 2012 included an 8 % increase in net sales and a 78 % increase in diluted earnings per share compared to last year . we have made progress in our operating income the past couple of years , including improvement in gross margin in fiscal 2012 driven by a reduction in average unit cost . however , our operating margins remain well below historical levels , despite our highly profitable international business , which presents opportunities in two specific areas . first , we will be revisiting our operating model and identifying processes and investments we make in our business that may have had a return in the past but no longer do today . we have established a cross-functional team to simplify processes , eliminate low value added components of our model , increase efficiencies and lower expenses . second , we will be seeking to identify ways to increase our average unit retail , particularly in the u.s. stores and u.s. direct-to-consumer operations . growth in our average unit retail will help our gross margins and contribute to expense leverage . beyond the two initiatives above , our focus remains on key strategic initiatives with regard to merchandising , inventory productivity , expense and average unit cost , insight and intelligence , customer engagement and targeted closure of under-performing u.s. stores . we are confident that our focus on these initiatives , allied with our iconic brands and continued judicious use of shareholder capital , will drive significant long-term value . with regard to real estate plans for fiscal 2013 , we expect to open abercrombie & fitch flagship locations in seoul and shanghai and approximately 20 international hollister stores . the hollister openings will include our first stores in australia , our first store in the middle east in dubai through a joint venture and entry into the japanese market for hollister . additionally , we are contemplating opening international mall-based abercrombie & fitch stores within the next 12 months . we expect capital expenditures to be approximately $ 200 million for the year , with estimated store pre-opening costs of around $ 30 million . we are confident that we are on track in regard to our long-term strategy of leveraging the international appeal of our brands to build a highly profitable , sustainable , global business . we continue to target annual eps growth of approximately 15 % . as in the past , our earnings are sensitive to changes in comparable sales trends . our capital allocation philosophy continues to be highly disciplined in allocating capital to where it will derive the greatest return on a risk-adjusted basis . after allocating capital to new stores and other internal projects that provide superior returns , we continue to expect to return excess cash to shareholders . story_separator_special_tag the valuation allowance in japan was established as the result of changes to the business configuration of operations in japan , as well as tax law changes . the realization of the net deferred tax assets not subject to a valuation allowance is dependent upon the future generation of sufficient profits in japan . while the company believes it is more likely than not that the net deferred tax assets will be realized , it is not certain . should circumstances change , some or all of the net deferred tax assets not currently subject to a valuation allowance may become so in the future . any increase in the valuation allowance would result in additional tax expense . income from discontinued operations , net of tax the company completed the closure of its ruehl branded stores and related direct-to-consumer operations in the fourth quarter of fiscal 2009. accordingly , the after-tax operating results appear in income ( loss ) from discontinued operations , net of tax on the consolidated statements of operations and comprehensive income . results from discontinued operations , net of tax , were immaterial for fiscal 2010. refer to note 19 , “ discontinued operations , ” of the notes to consolidated financial statements included in “ item 8. financial statements and supplementary data ” of this annual report on form 10-k for further discussion . net income and net income per diluted share net income for fiscal 2011 was $ 143.9 million compared to $ 155.7 million for fiscal 2010 . net income per diluted share for fiscal 2011 was $ 1.61 compared to $ 1.73 for fiscal 2010 . net income per diluted share for fiscal 2011 included store-related asset impairment charges of approximately $ 0.49 per diluted share , asset write-down charges of approximately $ 0.10 per diluted share , store closure and exit charges of approximately $ 0.13 per diluted share , legal charges of approximately $ 0.07 per diluted share , and other-than-temporary impairment charges of approximately $ 0.09 per diluted share related to a change in intent regarding the company 's ars portfolio . net income per diluted share for fiscal 2010 included store-related asset impairment charges of approximately $ 0.34 per diluted share and store exit charges of approximately $ 0.03 per diluted share . financial condition 35 story_separator_special_tag proceeds . the company is not dependent on dividends from its foreign subsidiaries to fund its u.s. operations or make distributions to a & f 's shareholders . unremitted earnings from foreign subsidiaries , which are considered to be invested indefinitely , would become subject to income tax if they were remitted as dividends or were lent to a & f or a u.s. affiliate . off-balance sheet arrangements as of february 2 , 2013 , the company did not have any off-balance sheet arrangements . contractual obligations replace_table_token_9_th ( 1 ) includes leasehold financing obligations of $ 71.7 million and related interest . refer to note 17 , `` leasehold financing obligations , `` of the notes to consolidated financial statements for additional reference . operating lease obligations consist primarily of non-cancelable future minimum lease commitments related to store operating leases . see note 12 , “ leased facilities , ” of the notes to consolidated financial statements included in “ item 8. financial statements and supplementary data ” of this annual report on form 10-k , for further discussion . excluded from the obligations above are amounts related to portions of lease terms that are currently cancelable at the company 's discretion . while included in the obligations above , in many instances , the company has options to terminate certain leases if stated sales volume levels are not met or the company ceases operations in a given country . operating lease obligations do not include common area maintenance ( “ cam ” ) , insurance , marketing or tax payments for which the company is also obligated . total expense related to cam , insurance , marketing and taxes was $ 168.6 million in fiscal 2012. the purchase obligations category represents purchase orders for merchandise to be delivered during fiscal 2013 and commitments for fabric expected to be used during upcoming seasons . other obligations consist primarily of asset retirement obligations and information technology contracts . due to uncertainty as to the amounts and timing of future payments , the contractual obligations table above does not include tax ( including accrued interest and penalties ) of $ 16.0 million related to uncertain tax positions at february 2 , 2013 . deferred taxes are also not included in the preceding table . for further discussion , see note 15 , “ income taxes , ” of the notes to consolidated financial statements included in “ item 8. financial statements and supplementary data ” of this annual report on form 10-k. the table above does not include estimated future retirement payments under the chief executive officer supplemental executive retirement plan ( the “ serp ” ) for the company 's chairman and chief executive officer with a present value of $ 18.5 million at february 2 , 2013 . see note 20 , “ retirement benefits , ” of the notes to consolidated financial statements included in “ item 8. financial statements and supplementary data ” of this annual report on form 10-k and the description of the serp to be included in the text under the caption “ executive officer compensation ” in a & f 's definitive proxy statement for the annual meeting of stockholders to be held on june 20 , 2013 , incorporated by reference in “ item 11. executive compensation ” of this annual report on form 10-k. 37 a & f has historically paid quarterly dividends on its common stock . there are no amounts included in the above table related to dividends due to the fact that dividends are subject to determination and approval by a & f 's board of directors

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liquidity and capital resources historical sources and uses of cash seasonality of cash flows the retail business has two principal selling seasons : the spring season which includes the first and second fiscal quarters ( “ spring ” ) and the fall season which includes the third and fourth fiscal quarters ( “ fall ” ) . as is typical in the apparel industry , the company experiences its greatest sales activity during the fall season due to back-to-school and holiday sales periods , particularly in the u.s. the company relies on excess operating cash flows , which are largely generated in the fall season , to fund operating expenses throughout the year and to reinvest in the business to support future growth . the company also has a credit facility and the term loan agreement available as sources of additional funding . credit agreements on july 28 , 2011 , the company entered into an unsecured amended and restated credit agreement ( the “ amended and restated credit agreement ” ) under which up to $ 350 million is available . the amended and restated credit agreement served to amend and restate , in its entirety , the credit agreement dated april 15 , 2008 as previously amended ( the “ prior credit agreement ” ) . the primary reasons for entering into the amended and restated credit agreement were to extend the termination date from april 12 , 2013 to july 27 , 2016 and to reduce fees and interest rates . as of march 22 , 2013 , the company had approximately $ 350 million available under the amended and restated credit agreement . the company had no borrowings outstanding under the amended and restated credit agreement on february 2 , 2013. on february 24 , 2012 , the company entered into a $ 300 million term loan agreement to increase its flexibility and liquidity .

70 table of content s in may 2020 , efficacy and safety data from the phase 3 hero study were simultaneously published online in the new england journal of medicine and presented at the american society of clinical oncology ( “ asco ” ) 's asco20 virtual scientific program . uterine fibroids ( liberty program ) in may 2020 , we submitted a new drug application ( “ nda ” ) to the fda for relugolix combination tablet for the treatment of women with heavy menstrual bleeding associated with uterine fibroids , which has been accepted by the fda with a target action date of june 1 , 2021. if approved , we and pfizer expect to launch relugolix combination tablet for the treatment of uterine fibroids in the u.s. in june 2021. on september 14 , 2020 , we announced one-year data on bone mineral density from the phase 3 liberty program and from a prospective observational study of women with uterine fibroids . on october 21 , 2020 , we presented one-year efficacy and safety data from the liberty long-term extension study at the american society for reproductive medicine ( “ asrm ” ) 2020 virtual congress . in february 2021 , we and our collaboration partner , pfizer , announced publication in the new england journal of medicine of the phase 3 liberty 1 and liberty 2 studies of investigational once-daily relugolix combination therapy in women with uterine fibroids . on march 24 , 2021 , we and pfizer announced positive safety and efficacy data from the liberty randomized withdrawal study . endometriosis ( spirit program ) on april 22 , 2020 and june 23 , 2020 , we announced positive top-line results from the spirit 2 and spirit 1 studies , respectively . on october 20 , 2020 , data from the phase 3 spirit studies were presented at the asrm 2020 virtual congress and the presentation was named the prize paper by the endometriosis special interest group . on january 26 , 2021 , we and pfizer announced positive one-year safety and efficacy data from the phase 3 spirit long-term extension study . prevention of pregnancy ( serene program ) on april 12 , 2021 , we and pfizer announced that the first patient has been dosed in the phase 3 single-arm , open-label serene study evaluating the contraceptive efficacy of relugolix combination tablet in healthy women ages 18-35 years who are at risk for pregnancy . strategic partnerships in december 2020 , we entered into a collaboration agreement with pfizer under which we and pfizer will jointly develop and commercialize relugolix in oncology and women 's health and equally share profits and certain expenses , in the u.s. and canada ( the “ co-promotion territory ” ) . in december 2020 , we received a $ 650.0 million upfront payment and we are eligible to receive up to $ 3.7 billion of additional milestone payments , including two regulatory milestones of $ 100.0 million upon each fda approval for relugolix combination tablet in uterine fibroids and endometriosis ( $ 200.0 million in the aggregate ) , and tiered sales milestones of up to $ 3.5 billion upon reaching certain thresholds of annual net sales for oncology and the combined women 's health indications in the co-promotion territory . we granted pfizer an exclusive option to acquire development and commercialization rights to relugolix in oncology outside of the co-promotion territory ( excluding certain asian markets ) . if pfizer exercises this option , we will receive an additional $ 50.0 million payment and will be eligible to receive double-digit royalties on net sales . pfizer 's decision is expected in mid-calendar year 2021. in august 2020 , we entered into a three-year commercial collaboration agreement with sunovion pharmaceuticals inc. ( “ sunovion ” ) . under the agreement , sunovion will provide certain third-party logistics , trade and retail distribution , contract operations , and market access account management services , and other services to us and , sunovion will become a non-exclusive distributor of relugolix for prostate cancer and the exclusive distributor of relugolix combination tablet for uterine fibroids and endometriosis in the u.s. 71 table of content s corporate on january 4 , 2021 , we announced the appointment of david marek as chief executive officer of myovant sciences , inc. concurrent with this appointment , mr. marek was also appointed as principal executive officer of myovant sciences ltd. and as a member of our board of directors . mr. marek succeeds dr. lynn seely , who previously held these positions . on april 5 , 2021 , we announced the appointment of lauren merendino as chief commercial officer of myovant sciences , inc. as of march 31 , 2021 , we had cash , cash equivalents and marketable securities of approximately $ 684.9 million . we currently believe that our existing cash , cash equivalents , and marketable securities will be sufficient to fund our anticipated operating expenses and capital expenditure requirements for at least the next 12 months from the date of issuance of this annual report on form 10-k. see note 2 to our audited consolidated financial statements included elsewhere in this annual report on form 10-k. expected upcoming clinical and regulatory milestones in this section , we summarize certain of our expected upcoming clinical and regulatory milestones . fda decision for relugolix combination tablet for the treatment of uterine fibroids expected by the june 1 , 2021 target action date . if approved , we and pfizer expect to launch relugolix combination tablet for the treatment of uterine fibroids in the u.s. in june 2021. upon approval , we will receive a $ 100.0 million regulatory milestone payment from pfizer pursuant to the pfizer collaboration and license agreement . story_separator_special_tag net from sales of orgovyx was $ 3.6 million for the year ended march 31 , 2021. there were no such amounts recognized for the year ended march 31 , 2020. product revenue is recorded net of estimated discounts , chargebacks , rebates , product returns , and other gross-to-net revenue deductions . collaboration revenue for the year ended march 31 , 2021 represents the partial amortization of the upfront payment received from pfizer pursuant to the terms of the pfizer collaboration and license agreement . there were no such amounts recognized for the year ended march 31 , 2020. license and milestone revenue for the year ended march 31 , 2021 represents the partial recognition of previously deferred revenue associated with upfront and regulatory milestone payments we received from richter pursuant to the terms of the richter development and commercialization agreement . there were no such amounts recognized for the year ended march 31 , 2020. cost of product revenue for the year ended march 31 , 2021 , our cost of product revenue was $ 0.3 million , which includes the cost of goods sold and royalty expense payable to takeda pursuant to the takeda license agreement ( see note 14 ( d ) to our audited consolidated financial statements included elsewhere in this annual report on form 10-k ) . in connection with the fda approval of orgovyx on december 18 , 2020 , we subsequently began capitalizing the cost of inventory manufactured or purchased after this date . prior to december 18 , 2020 , costs to manufacture orgovyx were expensed as incurred as r & d expenses . as a result , minimal cost of goods sold has been recorded for quantities of orgovyx 76 table of content s sold during for the year ended march 31 , 2021 as these costs were previously recorded as r & d expenses . we expect our cost of goods sold to increase in future periods as quantities of zero-cost orgovyx inventory are depleted from our inventory stock . collaboration expense to pfizer for the year ended march 31 , 2021 , our collaboration expense to pfizer was $ 1.7 million and represents pfizer 's 50 % share of net profits from the sales of orgovyx in the u.s. pursuant to the terms of the pfizer collaboration and license agreement ( see note 13 ( b ) to our audited consolidated financial statements included elsewhere in this annual report on form 10-k ) . research and development expenses for the years ended march 31 , 2021 and 2020 , our r & d expenses consisted of the following ( in thousands ) : replace_table_token_1_th r & d expenses decreased by $ 55.8 million , to $ 136.7 million , in the year ended march 31 , 2021 compared to $ 192.6 million in the year ended march 31 , 2020. the decrease reflects a reduction in clinical study costs as a result of the wind down of our phase 3 liberty , hero , and spirit studies and cost reimbursements from pfizer for certain r & d expenses ( see note 13 ( b ) to our audited consolidated financial statements included elsewhere in this annual report on form 10-k ) . this decrease was partially offset by an increase in personnel expenses mainly driven by the continued expansion of our medical affairs organization in preparation for the u.s. commercial launch of orgovyx and the potential u.s. commercial launches of relugolix combination tablet , if approved , as well as regulatory expenses and submission fees . r & d expenses for the year ended march 31 , 2021 consisted primarily of program-specific costs composed of cro , drug supply and other study , regulatory , and manufacturing related costs of $ 60.1 million , which includes fees related to our nda submissions for orgovyx and relugolix combination tablet for uterine fibroids of $ 5.8 million , personnel expenses of $ 48.5 million , share-based compensation expense of $ 14.0 million , and other r & d costs of $ 14.1 million , which primarily includes contractors , consultants , and information technology costs and other unallocated nonclinical research costs . r & d expenses for the year ended march 31 , 2021 are presented net of approximately $ 13.9 million of cost share reimbursement from pfizer . r & d expenses for the year ended march 31 , 2020 consisted primarily of program-specific costs composed of cro , drug supply , regulatory , and manufacturing related costs of $ 133.4 million , personnel expenses of $ 32.7 million , share-based compensation expense of $ 14.5 million , and other r & d costs of $ 11.9 million , which primarily includes contractors , consultants , and information technology costs . the share-based compensation expense includes $ 1.8 million related to the accelerated vesting of certain equity awards as a result of a change in control of myovant in connection with the closing of the sumitomo-roivant transaction ( see note 6 ( a ) to our audited consolidated financial statements included elsewhere in this annual report on form 10-k ) . selling , general and administrative expenses sg & a expenses increased by $ 99.1 million , to $ 181.4 million , in the year ended march 31 , 2021 compared to $ 82.3 million in the year ended march 31 , 2020 , primarily due to higher expenses related to commercial activities to support the orgovyx u.s. commercial launch and the potential u.s. commercial launches of relugolix combination tablet as well as higher personnel-related expenses primarily due to the hiring of our commercial operations , marketing , and market access teams , and our oncology sales force , higher share-based compensation expense primarily as a result of the acceleration , modification , and remeasurement of our former principal executive officer 's equity awards ( see note 10 ( h ) to our audited consolidated financial statements included elsewhere

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cash flows the following table sets forth a summary of our cash flows for the years ended march 31 , 2021 and 2020 ( in thousands ) : replace_table_token_2_th operating activities for the year ended march 31 , 2021 , $ 370.6 million of cash was provided by operating activities , which was primarily driven by a net increase in deferred revenue of $ 457.9 million and a net increase in cost share advance from collaboration partner of $ 121.2 million , both of which were largely driven by the upfront payment received from pfizer in december 2020 discussed previously . for the year ended march 31 , 2021 , net cash provided by operating activities also included an increase in accrued expenses and other current liabilities of $ 15.6 million ( primarily due to an increase in accrued commercial and compensation-related expenses partially offset by a decrease in accrued r & d expenses ) , as well as $ 53.7 million of non-cash share-based 80 table of content s compensation expense ( which includes approximately $ 25.7 million related to the acceleration , modification and remeasurement of our former principal executive officer 's equity awards ) . these items were partially offset by a net loss for the period of $ 255.1 million primarily due to our ongoing development and clinical studies , and activities related to our preparation for potential regulatory approvals and commercialization of our product candidates , and the expansion of our company , and a non-cash foreign currency transaction gain of $ 16.2 million primarily related to amounts outstanding under the sumitomo dainippon pharma agreement . for the year ended march 31 , 2020 , we used $ 221.2 million of cash in operating activities primarily due to our ongoing clinical studies , activities related to our preparation for potential regulatory approvals and commercialization of our product candidates , and the expansion of our company .

other factors that could cause actual results to differ materially from those indicated by forward-looking statements include , but are not limited to , the following : general economic conditions , either globally , nationally , in the state of texas , or in the specific markets in which we operate , including , without limitation , the deterioration of the commercial real estate , residential real estate , construction and development , energy , oil and gas , credit and liquidity markets , which could cause an adverse change in our net interest margin , or a decline in the value of our assets , which could result in realized losses ; current or future legislation , regulatory changes or changes in monetary or fiscal policy that adversely affect the businesses in which we are engaged , including the impact of the dodd-frank wall street reform and consumer protection act of 2010 ( “ dodd-frank act ” ) , the federal reserve 's actions with respect to interest rates , the capital requirements promulgated by the basel committee on banking supervision ( “ basel committee ” ) and other regulatory responses to economic conditions ; adverse changes in the status or financial condition of the government-sponsored enterprises ( the “ gses ” ) which impact the gses ' guarantees or ability to pay or issue debt ; adverse changes in the credit portfolio of other u.s. financial institutions relative to the performance of certain of our investment securities ; economic or other disruptions caused by acts of terrorism in the united states , europe or other areas ; changes in the interest rate yield curve such as flat , inverted or steep yield curves , or changes in the interest rate environment that impact interest margins and may impact prepayments on our mortgage-backed securities ( “ mbs ” ) portfolio ; increases in our nonperforming assets ; our ability to maintain adequate liquidity to fund operations and growth ; any applicable regulatory limits or other restrictions on southside bank 's ability to pay dividends to us ; the failure of our assumptions underlying allowance for loan losses and other estimates ; the effectiveness of our derivative financial instruments and hedging activities to manage risk ; unexpected outcomes of , and the costs associated with , existing or new litigation involving us ; changes impacting our balance sheet and leverage strategy ; risks related to actual mortgage prepayments diverging from projections ; risks related to actual u.s. agency mbs prepayments exceeding projected prepayment levels ; 31 risks related to u.s. agency mbs prepayments increasing due to u.s. government programs designed to assist homeowners to refinance their mortgage that might not otherwise have qualified ; our ability to monitor interest rate risk ; risks related to the price per barrel of crude oil ; significant increases in competition in the banking and financial services industry ; changes in consumer spending , borrowing and saving habits ; technological changes , including potential cyber-security incidents ; execution of future acquisition , reorganization or disposition transactions , including the risk that the anticipated benefits of such transactions are not realized ; our ability to increase market share and control expenses ; our ability to develop competitive new products and services in a timely manner and the acceptance of such products and services by our customers ; the effect of changes in federal or state tax laws ; the effect of compliance with legislation or regulatory changes ; the effect of changes in accounting policies and practices ; credit risks of borrowers , including any increase in those risks due to changing economic conditions ; risks related to loans secured by real estate , including the risk that the value and marketability of collateral could decline ; and the risks identified in “ part i - item 1a . risk factors – risks related to our business ” in this report . all written or oral forward-looking statements made by us or attributable to us are expressly qualified by this cautionary notice . we disclaim any obligation to update any factors or to announce publicly the result of revisions to any of the forward-looking statements included herein to reflect future events or developments , unless otherwise required by law . critical accounting estimates our accounting and reporting estimates conform with u.s. generally accepted accounting principles ( “ gaap ” ) and general practices within the financial services industry . the preparation of financial statements in conformity with gaap requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes . actual results could differ from those estimates . we consider our critical accounting policies to include the following : allowance for losses on loans . the allowance for losses on loans represents our best estimate of probable losses inherent in the existing loan portfolio . the allowance for losses on loans is increased by the provision for losses on loans charged to expense and reduced by loans charged-off , net of recoveries . the provision for losses on loans is determined based on our assessment of several factors : reviews and evaluations of specific loans , changes in the nature and volume of the loan portfolio , current economic conditions and the related impact on specific borrowers and industry groups , historical loan loss experience , the level of classified and nonperforming loans and the results of regulatory examinations . the allowance for loan loss is based on the most current review of the loan portfolio and is a result of multiple processes . the servicing officer has the primary responsibility for updating significant changes in a customer 's financial position . each officer prepares status updates on any credit deemed to be experiencing repayment difficulties which , in the officer 's opinion , would place the collection of principal or interest in doubt . story_separator_special_tag 35 financial condition our total assets increase d $ 934.3 million , or 16.8 % , to $ 6.50 billion at december 31 , 2017 from $ 5.56 billion at december 31 , 2016 primarily due to the acquisition of diboll on november 30 , 2017. see “ note 2 - acquisition . ” the acquisition increase d both our loan and investment and mortgage-backed securities ( “ mbs ” ) portfolios . loans increased $ 737.8 million , or 28.9 % , to $ 3.29 billion compared to $ 2.56 billion at december 31 , 2016 , with approximately $ 621.3 million of the increase resulting from the consummation of the diboll merger in the fourth quarter . the net increase in our loans was comprised of increase s of $ 319.2 million of commercial real estate loans , $ 168.1 million of 1-4 family residential loans , $ 95.7 million of construction loans , $ 89.2 million of commercial loans , $ 47.2 million of municipal loans , and $ 18.5 million of loans to individuals . our securities portfolio increase d by $ 31.2 million , or 1.3 % , to $ 2.45 billion compared to $ 2.42 billion at december 31 , 2016 . the increase in our securities was attributable to approximately $ 32.5 million of investment securities , comprised primarily of u.s. government agency debentures , which was partially offset by a decrease in mbs of $ 1.3 million story_separator_special_tag style= `` font-family : inherit ; font-size:10pt ; `` > determining the appropriate size of the balance sheet is one of the critical decisions any bank makes . our balance sheet is not merely the result of a series of micro-decisions , but rather the size is controlled based on the economics of assets compared to the economics of funding . the relatively low , but currently increasing interest rate environment and economic landscape requires that we monitor the interest rate sensitivity of the assets driving our growth and closely align alco objectives accordingly . the management of our securities portfolio as a percentage of earning assets is guided by the current economics associated with increasing the securities portfolio , changes in our overall loan and deposit levels and changes in our wholesale funding levels . if adequate quality loan growth is not available to achieve our goal of enhancing profitability by maximizing the use of capital , as described above , then we may purchase additional securities , if appropriate , which may cause securities as a percentage of earning assets to increase . should we determine that increasing the securities portfolio or replacing the current securities maturities and principal payments is not an efficient use of capital , we may decrease the level of securities through proceeds from maturities , principal payments on mbs or sales . our balance sheet strategy is designed such that our securities portfolio should help mitigate financial performance associated with potential business cycles that include slower loan growth and higher credit costs . during the year ended december 31 , 2017 , we sold u.s. agency cmos , u.s. agency cmbs , u.s. agency pass-throughs , texas municipal securities , u.s. government agency debentures and u.s. treasury securities that resulted in an overall gain on the sale of afs securities of $ 625,000 . we sold selected long-term cmbs and lower yielding , low balance cmos . in addition , we primarily sold lower yielding texas municipal securities and short duration , low yielding u.s. government agency debentures . these security sales were designed to address risks from a flattening yield curve where short-term rates were rising and long-term rates were gradually decreasing . also , we wanted to alleviate margin compression brought on by the federal reserve raising interest rates three times since december 2016 , by selling lower yielding fixed rate securities . some of the securities sold were acquired in the diboll acquisition and were sold because they did not fit within our balance sheet strategy or alco objectives . most of the longer duration sales of securities occurred during august and september as long-term rates fell , including the 10-year treasury dropping below 2.05 % in early september . during the year ended december 31 , 2017 , sales of securities were partially offset by additional purchases of premium u.s. agency cmos , u.s. agency cmbs , and texas municipal securities with favorable expected returns and defensive risk profiles and the securities acquired . in addition , we impaired $ 109 million of u.s. agency debentures that we had the intent to sell during january 2018 and recorded an impairment charge of $ 234,000 in the fourth quarter of 2017. our investment securities and u.s. agency mbs increase d from $ 2.42 billion at december 31 , 2016 to $ 2.45 billion at december 31 , 2017 . the increase was due to increased securities acquired as a result of the acquisition of diboll . at december 31 , 2017 , securities as a percentage of assets decreased to 37.7 % , compared to 43.4 % at december 31 , 2016 as a result of the acquisition of diboll and diboll 's large percentage of loans to assets . our balance sheet management strategy is 37 dynamic and will be continually reevaluated as market conditions warrant . as interest rates , yield curves , mbs prepayments , funding costs , security spreads and loan and deposit portfolios change , our determination of the proper types , amount and maturities of securities to own as well as funding needs and funding sources will continue to be reevaluated . should the economics of purchasing securities decrease , we may allow this part of the balance sheet to shrink through run-off or security sales . however , should the economics become more attractive , we may strategically increase the securities portfolio and the balance sheet . with respect to liabilities , we continue to utilize a

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. cash and cash equivalents increase d $ 29.0 million , or 17.1 % , to $ 198.7 million , compared to $ 169.7 million at december 31 , 2016 . our nonperforming assets at december 31 , 2017 decrease d to $ 10.5 million , and represented 0.16 % of total assets , compared to $ 15.1 million , or 0.27 % of total assets at december 31 , 2016 due to the payoff of several nonaccrual commercial loans during 2017 . nonaccruing loans decrease d $ 5.3 million to $ 2.9 million , and the ratio of nonaccruing loans to total loans decrease d to 0.09 % at december 31 , 2017 compared to 0.32 % at december 31 , 2016 . restructured loans at december 31 , 2017 decrease d to $ 5.8 million compared to $ 6.4 million at december 31 , 2016 . other real estate owned ( “ oreo ” ) increase d to $ 1.6 million at december 31 , 2017 from $ 339,000 at december 31 , 2016 primarily due to the oreo acquired with the acquisition of diboll . repossessed assets increase d to $ 154,000 at december 31 , 2017 from $ 49,000 at december 31 , 2016 . our deposits increase d $ 982.4 million to $ 4.52 billion at december 31 , 2017 from $ 3.53 billion at december 31 , 2016 . the increase in our deposits during 2017 was primarily due to $ 899.3 million of deposits assumed with the diboll merger and to a lesser extent an increase in our public fund deposits . our noninterest bearing deposits increased $ 333.4 million and interest bearing deposits increased $ 649.0 million . our public fund deposits increase d $ 87.9 million and our brokered deposits increase d $ 26.2 million during 2017 . total fhlb borrowings decrease d $ 292.3 million to $ 1.02 billion at december 31 , 2017 , from $ 1.31 billion at december 31 , 2016 . on september 19 , 2016 , the company issued $ 100.0 million aggregate principal amount of fixed-to-floating rate subordinated notes .

the beef segment experienced a loss driven by lower availability of fed cattle supplies , higher fed cattle costs , export market disruptions , and reduced demand for premium beef products due to the relative value of competing proteins . mexico – we recorded a $ 161 million pre-tax gain as a result of the sale of our mexico operation in the fourth quarter of fiscal 2015. the gain is reflected in other for segment reporting and included in cost of sales in the consolidated statements of income . china impairment – following the sale of our mexico and brazil chicken production operations , we have continued to review our strategies and outlook for the remaining international businesses , which operations include our chicken production operations in china . despite our belief in the potential for this business , our chinese operations have not achieved profitability . given the ongoing losses being generated in this business , recent changes in the strategy and management of the business , and the depressed economic outlook for china , we assessed our chinese operations for potential impairment in the fourth quarter of fiscal 2015. as a result of this evaluation , during the fourth quarter of fiscal 2015 , we recorded a $ 169 million impairment charge . the impairment was comprised of $ 126 million of property , plant and equipment , $ 23 million of goodwill and $ 20 million of other assets . the china operation is included in other for segment reporting and the impairment is included in cost of sales in the consolidated statements of income . 23 margins – our total operating margin was 5.2 % in fiscal 2015 . operating margins by segment were as follows : chicken – 12.0 % beef – ( 0.4 ) % ( included $ 12 million closure and impairment charges related to the ceasing of beef operations at our denison facility ) pork – 7.2 % prepared foods – 7.5 % ( included $ 8 million in net insurance proceeds related to a legacy hillshire brands plant fire , $ 10 million in merger and integration costs and $ 59 million in prepared foods network optimization impairment charges ) liquidity – during fiscal 2015 , we generated $ 2.6 billion of operating cash flows . we repurchased 11.0 million shares of our class a common stock for $ 455 million under our share repurchase program in fiscal 2015 . at october 3 , 2015 , we had $ 1.9 billion of liquidity , which included the availability under our revolving credit facility and $ 688 million of cash and cash equivalents . replace_table_token_8_th 2015 – included the following items : $ 169 million , or ( $ 0.41 ) per diluted share , related to an impairment charge in china . $ 59 million , or ( $ 0.09 ) per diluted share , related to prepared foods network optimization impairment charges . $ 57 million , or ( $ 0.09 ) per diluted share , related to merger and integration costs . $ 12 million , or ( $ 0.02 ) per diluted share , related to closure and impairment charges related to the ceasing of beef operations at our denison facility . $ 161 million , or $ 0.24 per diluted share , related to a gain on sale of the mexico operation . $ 39 million , or $ 0.06 per diluted share , related to the additional week in fiscal 2015 . $ 26 million , or $ 0.06 per diluted share , related to recognition of previously unrecognized tax benefits . $ 21 million , or $ 0.03 per diluted share , related to a gain on sale of equity securities . $ 8 million , or $ 0.02 per diluted share , of insurance proceeds ( net of costs ) related to a legacy hillshire brands plant fire . 2014 – included the following items ( fiscal 2014 per diluted share adjustments utilized a weighted average shares outstanding amount of 356 million ) : $ 197 million , or ( $ 0.37 ) per diluted share , related to the hillshire brands acquisition , integration and costs associated with our prepared foods improvement plan . $ 42 million , or ( $ 0.16 ) per diluted share , related to an impairment in our brazil operation and mexico undistributed earnings tax . $ 40 million , or ( $ 0.07 ) per diluted share , related to the hillshire brands post-closing results , purchase price accounting adjustments and costs related to a legacy hillshire brands plant fire . $ 27 million , or ( $ 0.12 ) per diluted share , related to the hillshire brands acquisition financing incremental interest costs and share dilution . $ 52 million , or $ 0.15 per diluted share , related to a gain from previously unrecognized tax benefits . 2013 – included the following item : $ 19 million , or $ 0.05 per diluted share , related to recognized currency translation adjustment gain . 24 summary of results replace_table_token_9_th 2015 vs. 2014 – sales volume – sales were positively impacted by higher sales volume , which accounted for an increase of $ 2.4 billion . the chicken segment had an increase in sales volume primarily due to an extra week in fiscal 2015 , and the prepared foods segment had an increase in sales volume primarily due to the acquisition and consolidation of hillshire brands in our final month of fiscal 2014 in addition to an extra week in fiscal 2015. the increase in sales volume was partially offset by a decrease in the beef and pork segments along with the divestitures of the mexico and brazil chicken operations in fiscal 2015. average sales price – sales were positively impacted by higher average sales prices , which accounted for an increase of $ 1.4 billion . story_separator_special_tag as of october 3 , 2015 , 21.1 million shares remain authorized for repurchases . the timing and extent to which we repurchase shares will depend upon , among other things , our working capital needs , market conditions , liquidity targets , our debt obligations and regulatory requirements . subsequent to october 3 , 2015 , we have repurchased $ 257 million , or approximately 5.7 million shares , of our common stock under our share repurchase program . liquidity in millions commitments expiration date facility amount outstanding letters of credit under revolving credit facility ( no draw downs ) amount borrowed amount available cash and cash equivalents $ 688 short-term investments 2 revolving credit facility september 2019 $ 1,250 $ 6 $ — 1,244 total liquidity $ 1,934 the revolving credit facility supports our short-term funding needs and letters of credit . the letters of credit issued under this facility are primarily in support of leasing obligations and workers ' compensation insurance programs . our maximum borrowing under the revolving credit facility during fiscal 2015 was $ 450 million . at october 3 , 2015 , we had current debt of $ 715 million , which we intend to repay with cash generated from our operating activities and other liquidity sources . we expect net interest expense will approximate $ 255 million for fiscal 2016. at october 3 , 2015 , approximately $ 270 million of our cash was held in the international accounts of our foreign subsidiaries . generally , we do not rely on the foreign cash as a source of funds to support our ongoing domestic liquidity needs . rather , we manage our worldwide cash requirements by reviewing available funds among our foreign subsidiaries and the cost effectiveness with which those funds can be accessed . the repatriation of cash balances from certain of our foreign subsidiaries could have adverse tax consequences or be subject to regulatory capital requirements ; however , those balances are generally available without legal restrictions to fund ordinary business operations . united states income taxes , net of applicable foreign tax credits , have not been provided on undistributed earnings of foreign subsidiaries . our intention is to reinvest the cash held by foreign subsidiaries permanently or to repatriate the cash only when it is tax efficient to do so . our current ratio was 1.52 to 1 and 1.64 to 1 at october 3 , 2015 , and september 27 , 2014 , respectively . 33 capital resources credit facility cash flows from operating activities and current cash on hand are our primary sources of liquidity for funding debt service , capital expenditures , dividends and share repurchases . we also have a revolving credit facility , with a committed capacity of $ 1.25 billion , to provide additional liquidity for working capital needs , letters of credit and a source of financing for growth opportunities . as of october 3 , 2015 , we had outstanding letters of credit totaling $ 6 million issued under this facility , none of which were drawn upon , which left $ 1,244 million available for borrowing . our revolving credit facility is funded by a syndicate of 42 banks , with commitments ranging from $ 0.3 million to $ 85 million per bank . the syndicate includes bank holding companies that are required to be adequately capitalized under federal bank regulatory agency requirements . capitalization to monitor our credit ratings and our capacity for long-term financing , we consider various qualitative and quantitative factors . we monitor the ratio of our net debt to ebitda as support for our long-term financing decisions . at october 3 , 2015 , and september 27 , 2014 , the ratio of our net debt to ebitda was 2.1x and 4.1x , respectively . refer to part ii , item 6 , selected financial data , for an explanation and reconciliation to comparable gaap measures . the decrease in this ratio for fiscal 2015 is due to increased ebitda and the approximate $ 1.7 billion net debt reduction during fiscal 2015. credit ratings 2016 notes on february 11 , 2013 , standard & poor 's ratings services ( s & p ) , upgraded the credit rating of the 2016 notes from `` bbb- `` to `` bbb . `` this upgrade did not impact the interest rate on the 2016 notes . on june 7 , 2012 , moody 's investors service , inc. ( moody 's ) upgraded the credit rating of the 2016 notes from `` ba1 `` to `` baa3 . `` this upgrade decreased the interest rate on the 2016 notes from 6.85 % to 6.60 % , effective beginning with the six-month interest payment due october 1 , 2012. a one-notch downgrade by moody 's would increase the interest rates on the 2016 notes by 0.25 % . a two-notch downgrade from s & p would increase the interest rates on the 2016 notes by 0.25 % . revolving credit facility s & p 's corporate credit rating for tyson foods , inc. is `` bbb . `` moody 's senior , unsecured , subsidiary guaranteed long-term debt rating for tyson foods , inc. is `` baa3 . `` fitch ratings ' ( fitch ) , issuer default rating for tyson foods , inc. is `` bbb . `` the below table outlines the fees paid on the unused portion of the facility ( facility fee rate ) and letter of credit fees ( undrawn letter of credit fee and borrowing spread ) depending on the rating levels of tyson foods , inc. from s & p , moody 's and fitch . replace_table_token_25_th in the event the rating levels are split , the applicable fees and spread will be based upon the rating level in effect for two of the rating agencies , or , if all three rating agencies have different rating levels , the applicable

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liquidity and capital resources our cash needs for working capital , capital expenditures , growth opportunities , the repurchases of senior notes , repayment of term loans and share repurchases are expected to be met with current cash on hand , cash flows provided by operating activities , or short-term borrowings . based on our current expectations , we believe our liquidity and capital resources will be sufficient to operate our business . however , we may take advantage of opportunities to generate additional liquidity or refinance existing debt through capital market transactions . the amount , nature and timing of any capital market transactions will depend on our operating performance and other circumstances ; our then-current commitments and obligations ; the amount , nature and timing of our capital requirements ; any limitations imposed by our current credit arrangements ; and overall market conditions . replace_table_token_22_th operating cash outflow associated with the convertible debt discount related to the initial debt discount of $ 92 million on our 3.25 % convertible notes issued in 2008 , which matured on october 15 , 2013 , and were retired in fiscal 2014. impairment of assets in fiscal 2015 included $ 59 million of impairment charges related to our prepared foods network optimization and $ 169 million of impairments related to our china operation . for further description regarding these charges refer to part ii , item 8 , notes to consolidated financial statements , note 3 : acquisitions and dispositions and note 10 : other income and charges . other , net increase in fiscal 2015 is primarily driven by non-cash pension expense . cash flows associated with changes in operating assets and liabilities : 2015 – increased primarily due to the decrease in inventory and accounts receivable balances and an increase in taxes payable , partially offset by the decrease in accounts payable . the decreased inventory , accounts receivable and accounts payable balances were largely due to decreased raw material costs and timing of sales and payments .

year 2013 , 2012 and 2011 net interest margin excluding accretion of fair value discount on acquired loans and amortization of fair value premium on assumed time deposits related to the acquisition ; 52 management believes that showing these amounts and measures excluding these items is useful for investors because it better reflects our core operating results and provides useful information by which to evaluate the company 's operating performance on an ongoing basis from period to period . the following table presents a reconciliation of the calculation of fiscal 2011 diluted earnings per share available to common shareholders excluding bargain purchase gain and transaction expenses related to the acquisition : for the twelve months ended june 30 , 2011 diluted earnings per share available to common stockholders $ 5.12 less : impact of excluding bargain purchase gain , net of transaction expenses , related to the acquisition , net of tax 1.92 diluted earnings per share available to common stockholders - excluding bargain purchase gain , net of tax and transaction expenses , related to the acquisition $ 3.20 the following table presents a reconciliation of the calculation of net income available to common stockholders , excluding accretion of fair value discount on acquired loans , amortization of premium on acquired time deposits , and bargain purchase gain , net of transaction expenses , related to the acquisition , net of tax : for the twelve months ended ( dollars in thousands ) june 30 , 2013 june 30 , 2012 june 30 , 2011 net income available to common stockholders $ 9,722 $ 9,580 $ 10,958 less : impact of excluding accretion of fair value discount on acquired loans and amortization of fair value premium on acquired time deposits , and bargain purchase gain , net of transaction expenses , related to the acquisition , net of tax 873 2,446 5,435 net income available to common shareholders - excluding accretion of fair value discount on acquired loans and amortization of fair value premium on acquired time deposits , and bargain purchase gain , net of transaction expenses , related to the acquisition , net of tax $ 8,849 $ 7,134 $ 5,523 the following table presents a reconciliation of the calculation of return on average assets , excluding accretion of fair value discount on acquired loans , amortization of premium on acquired time deposits , and bargain purchase gain , net of transaction expenses , related to the acquisition , net of tax : for the twelve months ended june 30 , 2013 june 30 , 2012 june 30 , 2011 return on average assets 1.32 % 1.37 % 1.81 % less : impact of excluding accretion of fair value discount on acquired loans and amortization of fair value premium on acquired time deposits , and bargain purchase gain , net of transaction expenses , related to the acquisition , net of tax 0.12 % 0.33 % 0.86 % return on average assets - excluding accretion of fair value discount on acquired loans and amortization of fair value premium on acquired time deposits , and bargain purchase gain , net of transaction expenses , related to the acquisition , net of tax 1.20 % 1.04 % 0.95 % 53 the following table presents a reconciliation of the calculation of return on average common equity , excluding accretion of fair value discount on acquired loans , amortization of premium on acquired time deposits , and bargain purchase gain , net of transaction expenses , related to the acquisition , net of tax : for the twelve months ended june 30 , 2013 june 30 , 2012 june 30 , 2011 return on average common equity 12.34 % 15.15 % 27.08 % less : impact of excluding accretion of fair value discount on acquired loans and amortization of fair value premium on acquired time deposits , and bargain purchase gain , net of transaction expenses , related to the acquisition , net of tax 1.11 % 3.87 % 13.43 % return on average common equity - excluding accretion of fair value discount on acquired loans and amortization of fair value premium on acquired time deposits , and bargain purchase gain , net of transaction expenses , related to the acquisition , net of tax 11.23 % 11.28 % 13.65 % the following table presents a reconciliation of the calculation of net interest margin , excluding accretion of fair value discount on acquired loans and amortization of premium on acquired time deposits related to the acquisition : replace_table_token_25_th the non-gaap disclosures contained herein should not be viewed as substitutes for the results determined to be in accordance with gaap , nor are they necessarily comparable to non-gaap performance measures that may be presented by other companies . 54 critical accounting policies the company has established various accounting policies , which govern the application of accounting principles generally accepted in the united states of america in the preparation of our financial statements . our significant accounting policies are described in item 8 under the notes to the consolidated financial statements . certain accounting policies involve significant judgments and assumptions by management that have a material impact on the carrying value of certain assets and liabilities ; management considers such accounting policies to be critical accounting policies . the judgments and assumptions used by management are based on historical experience and other factors , which are believed to be reasonable under the circumstances . because of the nature of the judgments and assumptions made by management , actual results could differ from these judgments and estimates that could have a material impact on the carrying values of assets and liabilities and the results of operations of the company . the allowance for losses on loans represents management 's best estimate of probable losses in the existing loan portfolio . story_separator_special_tag accretion of fair value discount on loans and amortization of fair value premium on time deposits , resulting from the acquisition , increased from $ 2.1 million in fiscal 2011 to $ 3.9 million in fiscal 2012. the change in this component increased net interest 59 income by $ 1.8 million and net interest margin by 25 basis points for fiscal 2012 , as compared to fiscal 2011. the company expects the impact of the fair value discount accretion will decline , over time , as the assets acquired at a discount continue to mature or prepay . for fiscal 2012 , the net interest margin was 4.12 % , compared to 3.92 % for fiscal year 2011. at june 30 , 2012 , the net interest margin was 4.23 % . interest income . interest income for fiscal 2012 was $ 39.0 million , an increase of $ 3.9 million , or 11.2 % , when compared to the prior fiscal year . the increase was due to the $ 98.3 million increase in the average balance of interest-earning assets , partially offset by a 25 basis point decline in the average yield earned on interest-earning assets , from 5.78 % in fiscal 2011 to 5.53 % in fiscal 2012. interest income on loans receivable for fiscal 2012 was $ 36.3 million , an increase of $ 4.1 million , or 12.7 % , when compared to the prior fiscal year . the increase was due to a $ 55.9 million increase in the average balance of loans receivable , combined with a nine basis point increase in the average yield earned on loans receivable . the increase in average balances was attributed to both organic growth and the acquisition . the increase in the average yield was attributable to the acquisition and the resulting fair value discount on the loan portfolio accreted to income . interest income on the investment portfolio and other interest-earning assets was $ 2.6 million for fiscal 2012 , a decrease of $ 166,000 , or 6.0 % , when compared to the prior fiscal year . the decrease was due to a 90 basis point decrease in the average yield earned on these assets , partially offset by a $ 42.5 million increase in the average balance of these assets . the decreased yield was attributed to a higher percentage of these assets held in lower-yielding cash equivalents , as well as lower available yields on investment securities , reflecting the low interest rate environment . interest expense . interest expense was $ 9.9 million for fiscal 2012 , a decrease of $ 1.3 million , or 11.9 % , when compared to the prior fiscal year . the decrease was due to a 45 basis point decrease in the average rate paid on interest-bearing liabilities , from 2.07 % in fiscal 2011 to 1.63 % in fiscal 2012 , partially offset by the $ 66.9 million increase in the average balance of interest-bearing liabilities . interest expense on deposits was $ 8.2 million for fiscal 2012 , a decrease of $ 1.0 million , or 10.5 % , when compared to the prior fiscal year . the decrease was due to a 45 basis point decrease in the average rate paid on deposits outstanding , reflecting the decrease in market rates , partially offset by a $ 75.7 million increase in the average balance of interest-bearing deposits . interest expense on fhlb advances was $ 1.2 million for fiscal 2012 , a decrease of $ 321,000 , or 20.7 % , when compared to the prior fiscal year . the decrease was due to a $ 6.5 million decrease in the average balance of fhlb advances , combined with a 16 basis point decrease in the average rate paid on advances , reflecting the repayment of advances which carried higher rates than the average of the advances that remain outstanding . provision for loan losses . a provision for loan losses is charged to earnings to bring the total allowance for loan losses to a level considered adequate by management to provide for probable loan losses based on prior loss experience , type and amount of loans in the portfolio , adverse situations that may affect the borrower 's ability to repay , the estimated value of any underlying collateral , and current economic conditions . management also considers other factors relating to the collectability of the loan portfolio . the provision for loan losses was $ 1.8 million for fiscal 2012 , compared to $ 2.4 million for the prior fiscal year . the decrease in provision was attributed to management 's analysis of the loan portfolio , which noted slower loan growth and relatively stable credit quality throughout the fiscal year . in fiscal 2012 , net charge offs were $ 731,000 , compared to $ 455,000 for the prior fiscal year . at june 30 , 2012 , classified loans totaled $ 9.2 million , or 1.55 % of gross loans , as compared to $ 8.5 million , or 1.52 % of gross loans at june 30 , 2011. classified loans were comprised primarily of commercial real estate loans and commercial loans . all loans so designated were classified due to concerns as to the borrowers ' ability to continue to generate sufficient cash flows to service the debt . the above provision was made based on management 's analysis of the various factors which affect the loan portfolio and management 's desire to maintain the allowance at a level considered adequate . management performed a detailed analysis of the loan portfolio , including types of loans , the charge-off history , and an analysis of the allowance for loan losses . management also considered the continued origination of loans secured by commercial businesses and commercial and agricultural real estate , which bear an inherently higher level of credit risk . while management believes the allowance for loan

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cash and equivalents . cash equivalents and time deposits were down $ 20.9 million , or 60.3 % , as compared to june 30 , 2012 , as growth in loans and investments outpaced increases in deposit balances . loans . loans , net of the allowance for loan losses , increased $ 63.7 million , or 10.9 % , to $ 647.2 million at june 30 , 2013 , as compared to $ 583.5 million at june 30 , 2012. increases in commercial , agricultural , and residential real estate lending were partially offset by decreases in commercial business and agricultural operating and equipment loan balances . residential real estate loan growth was primarily attributable to loans secured by multi-family housing . allowance for loan losses . the allowance for loan losses increased $ 900,000 , or 11.9 % , to $ 8.4 million at june 30 , 2013 , from $ 7.5 million at june 30 , 2012. the allowance represented 1.28 % of gross loans receivable at june 30 , 2013 , as compared to 1.27 % of gross loans receivable at june 30 , 2012. at june 30 , 2013 , nonperforming loans , which included loans past due greater than 90 days and nonaccruing loans , were $ 1.4 million , compared to $ 2.4 million at june 30 , 2012. see also , provision for loan losses , under comparison of operating results for the years ended june 30 , 2013 and 2012. in its quarterly evaluation of the adequacy of its allowance for loan losses , the company employs historical data , including past due percentages , charge offs , and recoveries for the previous one to five years for each loan category . average net charge offs are calculated as net charge offs for the period by portfolio type as a percentage of the average balance of the respective portfolio type over the same period . as the company and industry have seen increases in loan defaults in the past several years , the company believes that it is prudent to emphasize more recent historical factors in the allowance evaluation .

on february 27 , 2016 our publicly traded warrants expired and approximately 1.4 million shares of our common stock were forfeited in connection with the expiration of all the publicly traded warrants . the year ended december 31 , 2014 included derivative income of $ 3.9 million related to the contingent payment associated with the potential exercise of our 31 publicly traded warrants and a loss from discontinued operations of $ ( 1.5 ) million . the loss from discontinued operations reflects our exiting of non-strategic and underperforming units during these periods and includes the closing of the tenjune concept in 2014 and the closing of the bagatelle unit in las vegas , the termination of the management agreement with the palms hotel in las vegas for the heraea concept and the termination of the lease with the palms hotel in las vegas for the xi shi concept in 2013. on march 13 , 2015 , after hotel renovations and additional work required due to water damage were completed , we re-opened stk miami beach in the new 1 hotel & homes ( formerly known as the perry hotel ) building located in miami beach , florida . the company filed a claim with its insurance carrier of approximately $ 1.5 million , which included claims of approximately $ 500,000 for property damages and approximately $ 1.0 million for expense reimbursement and business interruption , these claims were fully satisfied at december 31 , 2015. at december 31 , 2014 , the company wrote-off approximately $ 500,000 of damaged leasehold improvements and recorded a gain on insurance recoveries as a direct off-set to the associated values of the damages written off , these amounts are included in other income , net in the consolidated statements of operations and comprehensive income ( loss ) . on july 9 , 2015 we announced that we entered into an agreement with sbeeg holdings , llc ( `` sbe `` ) , holding company of the sls , rebury and hyde hotel brands , to purchase the katsuya and cleo restaurant brands and establish a strategic relationship to seek to open katsuya , cleo and other the one group restaurants at new sls , redbury and hyde hotels . on october 21 , 2015 , we and sbe announced that it was in our mutual interest to terminate the agreements relating to the acquisition of the katsuya and cleo brands and entered into a termination and mutual release agreement , dated as of october 21 , 2015. on january 19 , 2016 , we commenced a rights offering ( the `` rights offering `` ) of non-transferrable subscription rights to holders of record of its common stock as of january 15 , 2016 to purchase up to 1,454,545 shares of our common stock at a price of $ 2.75 per share . the rights offering closed on february 9 , 2016 and we received net proceeds of approximately $ 3.8 million . we expect to utilize the net proceeds of the rights offering to primarily fund the planned development of our future stk restaurants . our growth strategies and outlook our growth model is comprised of the following four primary drivers : expansion of stk . we have identified up to 50 additional major metropolitan markets globally where we could grow our stk brand over time . we expect to open as many as two to three stks annually in the next three years and to target approximately 25 % annual unit growth thereafter provided that we have enough capital , acceptable locations and quality restaurant managers available to support that pace of growth . however , there can be no assurance that we will be able to open new stks at the rate we currently expect or that our pipeline of planned offerings will be fully realized . expansion through new f & b hospitality projects . we believe we are well positioned to leverage the strength of our brands and the relationships we have developed with global hospitality providers to drive the continued growth of our food and beverage hospitality projects , which traditionally have provided fee income with minimal capital expenditures . we continue to receive significant inbound inquiries regarding new services in new hospitality opportunities globally and to work with existing hospitality clients to identify and develop additional opportunities in their venues . going forward , we expect to target at least one to two new f & b hospitality projects every 12 months . however , we can not control the timing and number of acceptable opportunities that will be offered to us for our consideration . expand our non-stk concepts and services . we believe our existing restaurant concepts and food and beverage hospitality services have significant room to grow and that our presence , brand recognition and operating performance from our continuing operations provide us with the ability to expand these concepts in the north american and international markets , with near term focus on europe and in the longer term , asia and the middle east . increase our operating efficiency . in addition to expanding into new cities and hospitality venues , we intend to increase revenue and profits in our existing operations , and we believe that we have adequate capital and resources available to allocate towards operational initiatives . we expect to grow same store sales by approximately 0 % to 1 % annually as a result of our renewed focus on this aspect of our growth plan . we also expect operating margin improvements as our restaurants and services mature . however , there can be no assurances that any increases in same store sales or operating margins will be achieved . furthermore , as our footprint continues to increase in scale , we expect to benefit by leveraging system-wide operating efficiencies and best practices . story_separator_special_tag owned unit net revenues for stks increased $ 12.7 million , or 32.1 % , from $ 39.5 million for the year ended december 31 , 2014 to $ 52.2 million for the year ended december 31 , 2015. this increase was primarily due to the reopening of our stk in miami and the opening of our stks in los angeles , california , and chicago , illinois . comparable owned stk unit sales decreased $ 205,000 or 0.7 % from $ 31.3 million for the year ended december 31 , 2014 to $ 31.1 million for the year ended december 31 , 2015. owned unit net revenues in our other segment decreased $ 577,000 , or 59.2 % , from $ 1.0 million for the year ended december 31 , 2014 to $ 397,000 for the year ended december 31 , 2015. this decrease was primarily due to a decrease in sales at cucina asellina in atlanta and a decrease in revenue from off-site super bowl related catering events . management and incentive fee revenue . management and incentive fee revenues decreased $ 902,000 , or 10.2 % , from $ 8.8 million for the year ended december 31 , 2014 to $ 7.9 million for the year ended december 31 , 2015. this was the result of a decline in management fee revenues and incentive fees from our uk operations which included a decline in exchange rates compared to 2014 and was partially offset by an increase in our management and incentive fee revenue for our stk in las vegas . 41 revenue generated from these restaurants , lounges , and food and beverage services at hospitality venues impacts the amount of management and incentive fees earned . for the year ended december 31 , 2015 , comparable unit sales of owned or managed stk units increased 0.5 % as compared to the year ended december 31 , 2014. on june 19 , 2014 , we received a notice from the perry hotel ( currently rebranded as `` 1 hotel & homes `` ) terminating our services agreement to operate the food and beverage services for the perry hotel . in connection with this termination , the perry hotel made a one-time payment to the company of $ 2.0 million on july 28 , 2014. pursuant to a transfer agreement between the company and a minority stockholder of wsatog ( miami ) , llc dated october 23 , 2013 , the company agreed to pay the minority stockholder 40 % of any termination fees received by the company in connection with the perry hotel . as a result of this transfer agreement , the company received a net payment , which is included in other income at december 31 , 2014 , of $ 1.2 million from the perry hotel and $ 800,000 was paid to the minority stockholder . cost and expenses food and beverage costs . food and beverage costs for stks increased $ 2.9 million to $ 13.1 million for the year ended december 31 , 2015 from $ 10.2 million for the year ended december 31 , 2014. this increase was primarily due to the opening of additional stks in miami , los angeles and chicago for which we incurred food and beverage costs as compared to the prior year . as a percentage of stk owned unit net revenues , food and beverage costs decreased to 25.1 % for the year ended december 31 , 2015 from 25.8 % for the year ended december 31 , 2014. the decrease in the percentage of food and beverage costs was related primarily to management 's improvements in increasing profit margins through improved operating efficiencies . food revenues as a percentage of total food and beverage revenues were approximately 61 % and 59 % for the years ended december 31 , 2015 and 2014 , respectively . food cost as a percentage of food revenues are typically higher than beverage cost as a percentage of beverage revenues . food and beverage costs in our other segment decreased $ 138,000 , or 58.0 % , to $ 100,000 for the year ended december 31 , 2015 from $ 239,000 for the year ended december 31 , 2014. as a percentage of other owned unit net revenues food and beverage costs increased to 25.2 % for the year ended december 31 , 2015 from 24.5 % for the year ended december 31 , 2014. unit operating expenses . unit operating expenses for stks increased $ 9.9 million , or 41.3 % , to $ 33.8 million for the year ended december 31 , 2015 from $ 23.9 million for the year ended december 31 , 2014. the increase in operating expenses was primarily due to the a full year of operations of our stk which opened in washington , d.c. in april 2014 , as well as the opening of our stks in miami , los angeles , and chicago . included in unit operating costs at december 31 , 2015 and 2014 , was deferred rent expense of approximately $ 1.2 million and $ 289,000 , respectively . as a percentage of stk owned unit net revenues , unit operating expenses increased to 64.7 % for the year ended december 31 , 2015 from 60.5 % for the year ended december 31 , 2014. this increase was due to the opening of three new stks in 2015 and the higher operating expenses that are typically incurred in the first year of operations as well as the increase in the deferred rent expense . unit operating costs in our other segment increased $ 55,000 , or ( 12.4 ) % , from $ 445,000 at december 31 , 2014 to $ 500,000 at december 31 , 2015. general and administrative . general and administrative costs increased $ 2.0 million to $ 10.7 million , or 23.3 % , during the year ended december 31 , 2015 from $

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cash flows the following table summarizes the statement of cash flows for the fiscal years ended december 31 , 2015 and december 31 , 2014 : 44 replace_table_token_11_th operating activities for the year ended december 31 , 2015 , cash flows provided by operating activities were $ 2.0 million , consisting of net income of $ 7.1 million , which included a loss from discontinued operations of $ 2,476 and adjustments for depreciation , amortization , deferred rent and other non-cash charges totaling $ 6.4 million , a non-cash derivative income of $ 6.1 million , non-cash impairment loss of $ 3.0 million , non-cash deferred tax benefit of $ 10.1 million and non-cash stock-based compensation of $ 812,000. net cash outflow of operating assets and liabilities totaled $ 1.5 million and included decreases in accounts receivable of $ 343,000 , increases in inventory of $ 13,000 , increases in prepaid expenses of $ 1.0 million and deferred revenue of $ 1.1 million , decrease in other assets of $ 101,000 and an increase of $ 1.7 million in accounts payable and accrued expenses . for the year ended december 31 , 2014 , cash flows provided by operating activities were $ 1.0 million , consisting of net income of $ 5.0 million , which included a loss from discontinued operations of $ 1.5 million and adjustments for depreciation , amortization , deferred rent and other non-cash charges totaling $ 726,000 , a non-cash derivative income of $ 3.9 million and non-cash stock-based compensation of $ 539,000. net cash outflow of operating assets and liabilities totaled $ 4.8 million and included increases in accounts receivable of $ 800,000 , increases in inventory of $ 161,000 , increases in prepaid expenses of $ 1.8 million , decreases in other assets of $ 540,000 and a decrease of $ 388,000 in accounts payable and accrued expenses .

pursuant to the technology license agreement , we granted a nontransferable , non-sublicensable , irrevocable , and exclusive right and license to patented and non-patented manufacturing technologies involved in the manufacture of certain products for the china jv . in the fourth quarter of 2019 , we completed technology transfer for eksovest ( but not transfer of patented technologies ) . in 2019 , we booked a total of 98 eksogt and eksonr units , 17 of which were rental units and 25 of which were previously rented units that were converted to sales . in february 2020 , we announced the worldwide launch of our upgraded eksopulse platform , an innovative cloud-based information technology platform that measures and analyzes progress using the eksonr robotic exoskeleton . the improved analytics system provides an easy-to-use dashboard to chart activity in rehabilitation sessions , enhancing the clinician , institutional , and patient experience of the most clinically used exoskeleton . 2019 financing activities in january 2019 , and in connection with the china jv , one of the joint venture partner affiliates purchased an aggregate of 3,067,485 shares of our common stock at a price per share equal to $ 1.63 , for aggregate proceeds to us of $ 5.0 million . in may 2019 , we sold 6,666,667 shares of our common stock and warrants to purchase up to 6,666,667 shares of our common stock , or may 2019 warrants , at a combined public offering price of $ 1.50 per share for proceeds , net of expenses and underwriting discount and commission , of $ 9.0 million . in december 2019 , we sold 11,111,116 shares of our common stock and warrants to purchase up to 8,333,337 shares of our common stock , or december 2019 warrants , at a combined price of $ 0.45 per share for proceeds , net of placement agent fees and expenses , of $ 4.2 million . additional details discussed in note 13 in the notes to our consolidated financial statements , which appear under item 8 in this annual report on form 10-k , under the caption capitalization and equity structure – warrants . 38 since inception to december 31 , 2019 , we have sold 4.2 million shares of our common stock under our “ at the market offering ” program at an average price of $ 1.86 per share , for aggregate proceeds of $ 7.2 million , net of commission and issuance costs , to us . business we design , develop and sell exoskeleton technology to augment human strength , endurance and mobility . our exoskeleton technology serves multiple markets and can be used both by able-bodied persons as well as by persons with physical disabilities . we have sold or leased devices that ( i ) enable individuals with neurological conditions affecting gait ( stroke and spinal cord injury ) to rehabilitate , and in some cases , to walk again , ( ii ) assist individuals with a broad range of upper extremity impairments , and ( iii ) allow industrial workers to perform difficult repetitive work for extended periods . we believe that the commercial opportunity for exoskeleton technology adoption is accelerating as a result of recent advancements in material technologies , electronic and electrical engineering , control technologies , and sensor and software development . taken individually , many of these advancements have become ubiquitous in peoples ' everyday lives . we believe that we have learned how to integrate these existing technologies and wrap the result around a human being efficiently , elegantly and safely , supported by an industry leading intellectual property portfolio . we further believe that we can do so across a broad spectrum of applications , from persons with lower limb paralysis to able-bodied users . eksohealth today , the focus of our healthcare business is on rehabilitation robotics . we are leveraging our patented exoskeleton technology to develop and market products intended to enable patients with some form of lower limb impairment to rehabilitate earlier and with better outcomes than the current standard of care . our latest product , the eksonr , is a wearable bionic suit that allows our hospital and rehabilitation customers to provide in-patients and out-patients with sci and hemiplegia due to stroke the ability to stand and walk over ground with a full weight-bearing , reciprocal gait using a cane , crutches or a walker under the supervision of a physical therapist . walking is achieved by a user shifting their weight , balancing to walk as an unimpaired person would and initiating steps when safe to progress forward . if needed , some patients utilize sensors in the device which in turn initiate steps . battery-powered motors drive the legs , detecting the deficient neuromuscular function and providing the level of assistance necessary for a user to complete their step . users can expect to walk with aid from the device the first time they put on the eksonr exoskeleton ( after passing an assessment ) . physical therapists can transfer patients to or from their wheelchair and don or remove the eksonr in less than ten minutes . the eksonr is used by customers in both in-patient and out-patient settings . our customers believe that for patients with some motor ability preserved ( for example , after a stroke or an incomplete sci ) , the eksonr exoskeleton offers unique benefits to help therapists teach proper step patterns and weight shifts , allowing patients to potentially mobilize earlier and ultimately to walk again . story_separator_special_tag operating expenses sales and marketing expenses decreased $ 2.4 million , or 18 % , for the year ended december 31 , 2019 , compared to the same period of 2018 , primarily due to the absence of severance and related expenses in the comparable period of 2018 associated with the departure of the former president of our eksoworks business unit , our chief marketing officer and other marketing employees , a decrease in advertising and trade show activities , a decrease in clinical trial activities , and the absence of amortization expense related to intangible assets as intangible assets were fully amortized by december 31 , 2018. the decrease in sales and marketing expenses were partially offset by an increase in commissions associated with the higher level of sales in 2019. research and development expenses decreased $ 1.3 million , or 21 % , for the year ended december 31 , 2019 , compared to the same period of 2018 , primarily due to lower employee compensation expense from decreased headcount in the eksoworks business unit . 42 general and administrative expenses decreased $ 4.3 million , or 36 % , for the year ended december 31 , 2019 , compared to the same period of 2018 , primarily due to the absence of severance and related expenses in the comparable period of 2018 associated with former executive officers , lower external consulting costs associated with our business development activities in china , lower compensation expense from decreased headcount , and lower legal expenses . other income , net gain on revaluation of warrant liabilities of $ 6.4 million for the year ended december 31 , 2019 , related to warrants issued in 2019 and 2015. gain on revaluation of warrant liabilities of $ 1.1 million for the year ended december 31 , 2018 , related to warrants issued in 2015. gains and losses on revaluation of warrants are primarily driven by changes in our stock price . loss on modification of warrants of $ 0.3 million for the year ended december 31 , 2019 , was due to the reduction of the exercise price of the 2015 warrants ( refer to note 13. capitalization and equity structure in the notes to our consolidated financial statements ) . there was no comparable amount during the same period in 2018 . warrant issuance expense of $ 1.1 million for the year ended december 31 , 2019 was recorded in connection with our underwritten common stock and warrant financing in may 2019 and december 2019. we incurred $ 1.7 million in direct financing costs , which were allocated on a relative fair value basis between the common stock and warrant issuances , of which $ 1.1 million was allocated to warrants and expensed immediately . there was no comparable amount of warrant issuance expense for the same period in 2018 . other expense , net decreased $ 0.3 million , or 69 % , for the year ended december 31 , 2019 , compared to the same period of 2018 , due to unrealized gains and losses on foreign currency revaluations of our inter-company monetary assets and liabilities . financial condition , liquidity and capital resources since our inception , we have devoted substantially all of our efforts toward the development of exoskeletons for the medical and industrial markets , toward the commercialization of medical exoskeletons to rehabilitation centers and toward raising capital . we have financed our operations primarily through the issuance and sale of equity securities for cash consideration and through bank debt . liquidity and capital resources at december 31 , 2019 , we had working capital of $ 11.0 million , compared to working capital of $ 4.9 million at december 31 , 2018 . the increase in working capital is primarily due to higher cash balance from equity financings and an increase in accounts receivable due to an increase in sales . our cash and cash equivalents as of december 31 , 2019 consisted of bank deposits with third party financial institutions . as of december 31 , 2019 , of our $ 10.9 million of cash , $ 10.2 million was held domestically while $ 0.7 million was held by foreign subsidiaries . as of december 31 , 2019 , we had an accumulated deficit of $ 183.3 million and cash on hand of $ 10.9 million . largely as a result of significant research and development activities related to our advanced technology and commercialization of this technology into our medical device business , we have incurred significant operating losses and negative cash flows from operations since inception . we have incurred net losses of $ 12.1 million and $ 27.0 million for the years ended december 31 , 2019 and 2018 , respectively ( with gains from a decrease on common stock purchase warrant liabilities due to a drop in our stock price accounting for a $ 6.4 million decrease in net losses as of december 31 , 2019 ) . in the year ended december 31 , 2019 , we used $ 15.8 million of cash in our operations . as noted in note 9 in the notes to our consolidated financial statements under the caption long-term debt , borrowings under our long-term debt agreement have a requirement of minimum cash on hand equivalent to three months of cash burn . as of december 31 , 2019 , the most recent determination of this restriction , $ 3.6 million of cash must remain as unrestricted , with such amounts to be re-computed at each month end . after considering cash restrictions , effective unrestricted cash as of december 31 , 2019 is estimated to be $ 7.3 million . based on current forecasted amounts , our cash on hand will not be sufficient to satisfy our operations for the next twelve months from the date of issuance of these consolidated financial statements , which raises substantial doubt about our ability to continue as

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cash and cash equivalents the following table summarizes the sources and uses of cash for the periods stated ( in thousands ) : replace_table_token_4_th net cash used in operating activities net cash used in operations decreased $ 6.4 million , or 29 % , for the year ended december 31 , 2019 , compared to the same period of 2018 , primarily due to a decrease in employee-related costs as a result of lower average headcount , lower legal costs , a reduction in inventory , and a decrease in advertising , trade show , and clinical trial activities . net cash used in investing activities net cash used in investing activities decreased $ 0.1 million , or 54 % , during the year ended december 31 , 2019 , compared to the same period of 2018 , primarily due to lower hardware and software purchases due to lower headcount . net cash provided by financing activities net cash provided by financing activities of $ 19.0 million for the year ended december 31 , 2019 was from the sale of common stock and warrants for net proceeds of $ 9.0 million in connection with the equity financing in may 2019 , net proceeds of $ 4.2 million with the equity financing in december 2019 , net proceeds of $ 2.8 million from our “ at the market offering ” program , net proceeds of $ 5.0 million from equity investors associated with the jv agreement , and proceeds of $ 0.2 million from the exercise of stock options , partially offset by aggregate principal payments of $ 2.4 million against our term loan net cash provided by financing activities of $ 2.3 million

our mass-market brands are targeted primarily for the nintendo wii , ps2 and ds platforms . we plan to publish some of our licensed brands , such as wwe and disney pixar across all viable platforms . software development . the new generation consoles have increased functionality ( e.g . , realistic environments and artificial intelligence ) over their legacy counterparts . the increased functionality delivers a more exciting gaming experience but adds complexity to the development of video games for these new consoles . this complexity increases the overall cost to develop these games and accordingly , during fiscal 2008 , we expect our average software development costs to increase as we develop more games for these new consoles . products . in order to increase revenues while facing higher development costs , we believe that it is more important than ever in our industry to have a robust and diversified product portfolio . in recent years , we have focused our efforts on growing both our owned intellectual properties and our licensed brands . as a result of these efforts , we believe that we can continue to grow our revenues at or above the market growth rate in our industry . international growth . over the past few years , sales of video games outside of the united states have grown significantly . in fiscal 2007 , international sales growth drove approximately $ 110.1 million of our overall net sales increase of $ 220.3 million . the international installed base of video game platforms continues to increase and we are focused on expanding our international presence by identifying territories where we see opportunity and establishing a direct sales presence to seize such opportunities . in addition to our sales force presence , we are focused on releasing and aggressively marketing titles with international appeal . we continue to evaluate new business opportunities in the asia pacific region . incremental revenue opportunities . digital content creation and distribution is an emerging revenue source in our industry . we expect several of our games in fiscal 2008 to include in-game advertising . in fiscal 2007 , we began offering our first pc titles via digital distribution channels and provided digital downloads of new content after shipping saints row . we are focused on growing these sources of incremental revenue in the future . additionally , we re-positioned our wireless business for future growth , adding new brands and development capabilities to the business . critical accounting estimates the management 's discussion and analysis of financial condition and results of operations discusses our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period . the estimates discussed below are considered by management to be critical because they are both important to the portrayal of our financial condition and results of operations and because their application places the most significant demands on management 's judgment , with financial reporting results relying on estimates about the effect of matters that are inherently uncertain . specific risks for these critical accounting estimates are described in the following paragraphs . for all of these estimates , management cautions that actual results may differ materially from these estimates under different assumptions or conditions . accounts receivable allowances . we derive revenue from sales of packaged software for video game systems and personal computers and sales of content and services for wireless devices . product revenue is recognized net of allowances for price protection and returns and various customer discounts . we typically only allow returns for our personal computer products ; however , we may decide to provide price protection or allow returns for our video game systems or personal computer products after we analyze : ( 1 ) inventory remaining in the retail channel , ( 2 ) the rate of inventory sell-through in the retail channel , 26 and ( 3 ) our remaining inventory on hand . we maintain a policy of giving credits for price protection and returns , but do not give cash refunds . included in our accounts receivable allowances is our allowance for co-operative advertising that we engage in with our retail channel partners . our co-operative advertising allowance is based upon specific contractual commitments and does not involve estimates made by management . we establish sales allowances based on estimates of future price protection and returns with respect to current period product revenue . we analyze historical price protection granted , historical returns , current sell-through of retailer and distributor inventory of our products , current trends in the video game market and the overall economy , changes in customer demand and acceptance of our products , and other related factors when evaluating the adequacy of the price protection and returns allowance . in addition , management monitors the volume of our sales to retailers and distributors and their inventories , because slow-moving inventory in the distribution channel can result in the requirement for price protection or returns in subsequent periods . in the past , actual price protection and returns have not generally exceeded our reserves . however , actual price protection and returns in any future period are uncertain . while management believes it can make reliable estimates for these matters , if we changed our assumptions and estimates , our price protection and returns reserves would change , which would impact the net revenue we report . in addition , if actual price protection and returns were significantly greater than the reserves we have established , the actual results of our reported net sales would decrease . story_separator_special_tag sab 108 states that both a balance sheet ( iron curtain ) approach and an income statement ( rollover ) approach should be used when quantifying and evaluating the materiality of a misstatement . sab 108 contains guidance on correcting errors under the dual approach and provides transition guidance for correcting errors existing in prior years . sab 108 is effective for fiscal years beginning after november 15 , 2006 , which will be our fiscal year 2008. we do not expect the adoption of this statement to have material impact on our results of operations , financial position or cash flows . in september 2006 , the fasb issued sfas no . 157 , “fair value measurement” ( “fas 157” ) . fas 157 provides a single definition of fair value , together with a framework for measuring it , and requires additional disclosure about the use of fair value to measure assets and liabilities . fas 157 emphasizes that fair value is a market-based measurement , not an entity-specific measurement , and sets out a fair value hierarchy with the highest priority being quoted prices in active markets . fas 157 is effective for fiscal years beginning after november 15 , 2007 , which will be our fiscal year 2009. we are evaluating the impact , if any , the adoption of this statement will have on our results of operations , financial position or cash flows . in february 2007 , the fasb issued sfas no . 159 , “the fair value option for financial assets and financial liabilities—including an amendment of fasb statement no . 115” ( “fas 159” ) . fas 159 permits an entity to choose to measure many financial instruments and certain other items at fair value at specified election dates . subsequent unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings . fas 159 is effective for fiscal years beginning after november 15 , 2007 , which will be our fiscal year 2009. we are evaluating the impact , if any , the adoption of this statement will have on our results of operations , financial position or cash flows . results of operations comparison of fiscal 2007 to fiscal 2006 net income from continuing operations for fiscal 2007 was $ 65.0 million , or $ 0.96 per diluted share , compared to net income from continuing operations of $ 32.1 million , or $ 0.49 per diluted share , for fiscal 2006. net income for fiscal 2007 was $ 68.0 million , or $ 1.01 per diluted share , and included a $ 3.1 million gain on sale of discontinued operations . net sales we derive revenue principally from sales of packaged interactive software games designed for play on video game consoles , handheld devices and personal computers . we also derive revenue through downloads by mobile phone users of our wireless content . 31 the following table details our net sales by territory for fiscal 2007 and 2006 ( in thousands ) : replace_table_token_8_th north america and international net sales in fiscal 2007 were primarily driven by the release of cars , from the disney pixar franchise , wwe smackdown vs. raw 2007 , and the successful launch of saints row , a new internally developed and owned intellectual property . net sales in fiscal 2007 increased 27 % over fiscal 2006 , from $ 806.6 million to $ 1,026.9 million . the increase in net sales was primarily due to the following : · growth in sales from games from our disneypixar license , led by the release of cars , which shipped nearly eight million units in the fiscal 2007. sales of cars outperformed sales of the incredibles : rise of the underminer , which was released in fiscal 2006 and was a sequel to the incredibles , which was released in fiscal 2005 ; · sales of wwe smackdown vs. raw 2007 , which shipped four million units in fiscal 2007 , outperforming sales of wwe smackdown vs. raw 2006 in fiscal 2006 ; · growth in sales of games from our nickelodeon license , which increased by approximately 22 % over sales from this license in fiscal 2006 ; and · sales of saints row , a new internally developed and owned intellectual property . in fiscal 2007 , our north american sales increased by 22.5 % over fiscal 2006. our international sales increased by $ 110.1 million , or 35 % in fiscal 2007 due to marketing and sales expansion in the international markets as well as the release of games with increased international appeal . while we expect net sales in north america to continue to constitute the largest portion of our consolidated net sales in fiscal 2008 , we expect net sales for north america as a percentage of total sales to decrease slightly as we continue to expand our international direct sales and product mix . we will continue to focus on growing sales internationally in fiscal 2008 as we expand our product portfolio and direct sales forces in the international markets . in fiscal 2007 , we established sales offices in italy and mexico . in fiscal 2008 we will look to expand our direct sales force into eastern europe , and we continue to explore opportunities in asia , especially china . changes in foreign currency rates increased reported international net sales by $ 25.2 million or 6 % in fiscal 2007 , as compared to fiscal 2006. excluding the impacts of foreign exchange rates , international net sales increased by 22 % in fiscal 2007 . 32 net sales by platform our worldwide net sales by platform for fiscal 2007 and fiscal 2006 are as follows ( in thousands ) : replace_table_token_9_th console platforms net sales for console platforms increased by 20 % in fiscal 2007 to $ 549.7 million from $ 458.2 million in fiscal 2006. in

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cash flow from financing activities . cash provided by financing activities increased by approximately $ 3.2 million in fiscal 2007 as compared to fiscal 2006 , primarily due to an increase in proceeds from exercise of stock options , partially offset by common stock repurchases . we had $ 13.6 million of stock repurchases in fiscal 2007 and no repurchases in fiscal 2006. in fiscal 2008 , we expect to generate more cash than we did in fiscal 2007. the increase in the generation of cash is expected to be primarily attributable to higher net income . key balance sheet accounts accounts receivable . accounts receivable decreased $ 11.3 million in fiscal 2007 , from $ 78.9 million at march 31 , 2006 to $ 67.6 million at march 31 , 2007. the decrease in net accounts receivable is primarily due to improved collection cycles and the timing of our fourth quarter product releases . accounts receivable allowances were $ 80.5 million as of march 31 , 2007 , a $ 22.7 million increase from march 31 , 2006. allowances for price protection and returns as a percentage of trailing nine month net sales were 8 % as of march 31 , 2007 and 2006. we believe our current reserves are adequate based on historical experience , inventory remaining in the retail channel and the rate of inventory sell-through in the retail channel . 47 inventory . inventory decreased $ 1.2 million in fiscal 2007 , from $ 28.6 million at march 31 , 2006 to $ 27.4 million at march 31 , 2007. the decrease in inventory is primarily due to increased focus on inventory processes and an increase in catalog sales . inventory turns on a rolling twelve month basis were 10 at march 31 , 2007 and 2006 , respectively . licenses .

negotiations related to certain individual contracts are ongoing . under the procurement jv framework agreement , the parties formed a joint venture to make recommendations for sourcing , evaluating and negotiating joint procurement opportunities . each party is making final sourcing decisions for various components and other purchases to be made by the procurement jv . in november 2017 , we completed the refinancing of and amendments to certain debt instruments included for our manufacturing operations . we issued $ 1.1 billion aggregate principal amount of 6.625 % senior notes due 2025 ( “ 2025 notes ” ) with a maturity date of november 1 , 2025. to effect the retirement of the senior notes , we commenced a tender offer for the outstanding senior notes which achieved 72.50 % participation . the proceeds from the issuance of the 2025 notes were used to retire the tendered portion of our then-outstanding senior notes and pay accrued and unpaid interest thereon , and pay the associated prepayment premiums , and certain transaction fees and expenses incurred in connection with the new 2025 notes . we also entered into the term loan credit agreement , which provides for a seven-year senior secured term loan credit facility in an aggregate principal amount of $ 1.6 billion . a portion of the proceeds were used to repay all outstanding loans under ni 's existing term loan , redeem the remaining untendered senior notes at a redemption price equal to 100 % of the aggregate principal amount , and pay certain fees and expenses incurred in connection with the term loan credit agreement and the 2025 notes . the remainder of the proceeds will be used for ongoing working capital purposes and general corporate purposes . in addition , we amended certain provisions of our tax exempt bonds to , among other things , permit the company to incur secured debt up to $ 1.7 billion , in exchange for a coupon increase from 6.50 % to 6.75 % and the grant of a junior priority lien on certain collateral securing the company 's term loan credit agreement . 28 we remain committed to product investment to increase customer value and to focus on our core markets . in february 2017 , we announced our new international® a26 diesel engine . the a26 is an all-new 12.4l engine design which we believe offers improved fuel economy and will deliver the uptime that our customers demand . in april 2017 , we launched the international® rh series , our new class 8 regional haul tractor powered by the new international® a26 engine . the rh series is designed to deliver further improvements in uptime and productivity for the driver . in july 2017 , we fulfilled customer shipments of our first on-highway vehicles powered by the international® a26 diesel engine . in september 2017 , we introduced the international® hv series , our new class 8 severe service truck powered by the new international® a26 diesel engine ; and we announced the launch of an electric medium-duty truck in north america by late 2019 with our strategic partner vw t & b . we also expect to launch an ic electric bus as early as 2019. the ic electric bus charge was unveiled in late 2017. we will continue to announce a new or redesigned product , on average , every four to six months through 2018. by the end of 2018 , we expect our entire portfolio will consist of newly designed trucks . we continue to seek new sources of revenue . in march 2017 , we announced that navistar defense , llc , was awarded two foreign military contracts by the u.s. army contracting command . the first is to produce and support maxxpro® dash dxm mrap vehicles for pakistan . the second is to reset , upgrade and support maxxpro® mrap excess defense article vehicles for the u.a.e .. the majority of the work will take place at our west point , mississippi assembly plant . delivery is planned to be completed for pakistan in calendar year 2017 and for u.a.e . in calendar year 2018. in july 2017 , we made our oncommand® connection telematics solution available for purchase . it offers truck and bus drivers and fleets a comprehensive , one-price solution that can help cut the cost of vehicle maintenance , while managing federal and state compliance needs . we continue to drive operational excellence by focusing on business in our core markets . during the second quarter of 2017 , we implemented a shift in market mix for our used trucks to include an increase in volume to certain export markets , which have a lower price point as compared to sales through our domestic channels , and lower domestic pricing to enable higher sales velocity . we reduced our gross used truck inventory balances and inventory reserves as a result of the shift in market mix and change in pricing strategy . we continue to seek alternative channels to sell our used trucks . in may 2017 , we completed the sale of a business line included in our parts segment . in july 2017 , we committed to a plan to cease engine production at the melrose park facility in the third quarter of fiscal 2018. in august 2017 , we also sold our fabrication business in conway , arkansas . 2017 financial summary continuing operations results continuing operations results — consolidated net sales and revenues were $ 8.6 billion in 2017 , an increase of 6 % compared to 2016 . the increase primarily reflects higher volumes from our truck segment . in 2017 , we earned income from continuing operations before income taxes of $ 64 million , compared to a loss from continuing operations of $ 32 million in 2016 . story_separator_special_tag selling , general and administrative expenses in 2017 , our sg & a expenses increased by $ 76 million compared to 2016 primarily due to an increase in employee compensation expense and charges related to egr product litigation . for more information on our legal proceedings , see note 10 , commitments and contingencies , to the accompanying consolidated financial statements . interest expense in 2017 , our interest expense increased by $ 24 million compared to 2016 primarily driven by the january 2017 issuance of additional senior notes , increased amortization of debt issuance costs , and an increase in average borrowing rates , partially offset by the impact of the lower interest rate related to the february 2017 refinancing of our term loan and lower average borrowing levels for finance receivables funding . other income , net we recognized other income of $ 21 million in 2017 , compared to $ 76 million in the prior year . the decrease in other income in 2017 is primarily due to a one-time $ 15 million fee received from a third party in the first quarter of 2016 , deferred income for an ip license of $ 19 million in the second quarter of 2016 , $ 13 million of ip license income in the third quarter of 2016 , and unfavorable movements in foreign currency exchange rates , partially offset by the sale of a business line and machinery and equipment in 2017 . 33 income tax expense in 2017 , we recognized income tax expense from continuing operations of $ 10 million , compared to $ 33 million in the prior year . the decline in income tax expense is primarily driven by a $ 28 million intraperiod allocation benefit in domestic continuing operations due to certain post retirement plan remeasurement gains and a release of various state uncertain tax position liabilities of $ 14 million , partially offset by an increase in foreign taxes in canada and mexico and the non-recurring benefit of $ 13 million from the release of the valuation allowance on u.s. amt credits due to the u.s. enactment of the protecting americans from tax hikes act of 2015 recorded in the first quarter of 2016. net income attributable to non-controlling interests net income attributable to non-controlling interests is the result of our consolidation of subsidiaries that we do not wholly own . substantially all of our net income attributable to non-controlling interests in 2017 and 2016 relates to ford 's non-controlling interest in bdp . segment results of continuing operations for 2017 as compared to 2016 we operate in four reporting segments : truck , parts , global operations , and financial services . we define segment profit ( loss ) as net income ( loss ) from continuing operations attributable to nic excluding income tax benefit ( expense ) . the following sections analyze operating results as they relate to our four segments and do not include intersegment eliminations . for additional information concerning our segments , see note 14 , segment reporting , to the accompanying consolidated financial statements . truck segment replace_table_token_8_th segment sales in 2017 , our truck segment net sales increased by $ 406 million , or 8 % , primarily due to higher volumes in our core markets , an increase in mexico truck volumes , an increase in sales of gm-branded units manufactured for gm , and higher used truck sales . chargeouts from our core markets were up 8 % , which is reflective of an improvement in our class 8 volumes and market share . the improvement represents a 17 % increase in class 6 and 7 medium trucks , a 3 % increase in class 8 heavy trucks , a 9 % increase in class 8 severe service trucks and a 1 % increase in buses . segment loss in 2017 , our truck segment loss decreased by $ 183 million , or 97 % , primarily driven by the impact of higher volumes in our core markets and mexico , a decrease in used truck losses , lower adjustments to pre-existing warranties , improved material costs , partially offset by market pressures , charges related to the maxxforce engine egr product litigation of $ 31 million , and a decrease in other income . in 2017 , we recorded charges in our truck segment for our used truck reserve of $ 111 million compared to charges of $ 187 million in the respective prior year period . during the second quarter of 2017 , we implemented a shift in market mix to include an increase in volume to certain export markets , which have a lower price point as compared to sales through our domestic channels , and lower domestic pricing to enable higher sales velocity . in 2017 , we recorded charges in our truck segment for adjustments to pre-existing warranties of $ 8 million compared to charges of $ 78 million in the prior year . the decline in charges is primarily due to the reduction in claim frequency across both the medium duty and big bore engine families in our truck segment . the impact decreased the reserve for our standard warranty obligations . additionally , the decline in other income during 2017 is due to a one-time $ 15 million fee received from a third party in the first quarter of 2016 , deferred income for an ip license of $ 19 million in the second quarter of 2016 , $ 13 million of ip license income in the third quarter of 2016 , and an overall decline in the allocable share base of access fees from our parts segment as a result of lower engineering and product development costs in recent years . 34 parts segment replace_table_token_9_th segment sales in 2017 , our parts segment net sales decreased by $ 35 million , or 1 % , primarily due to lower bdp sales and lower north america

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debt , to the accompanying consolidated financial statements . in february 2017 , we consummated our previously announced strategic alliance with vw t & b . pursuant to the stock purchase agreement , we issued and vw t & b purchased 16.2 million shares of our common stock for an aggregate purchase price of $ 256 million at $ 15.76 per share ( a 19.9 % stake in the company ( 16.6 % on a fully diluted basis ) ) . the proceeds are being used for general corporate purposes . in june 2017 , nfsc issued $ 250 million of two-year investor notes secured by assets of the wholesale note owner trust . proceeds were used , in part , to replace the $ 250 million of investor notes that matured in june 2017. in august 2017 , we amended and extended our amended and restated asset-based credit facility which was originally due in may 2018. the 2017 amendment extended the maturity date to august 2022 and reduced the revolving facility from $ 175 million to $ 125 million . our borrowing capacity under the amended facility was previously subject to a $ 35 million liquidity block and is now subject to a $ 13 million liquidity block , less outstanding standby letters of credit issued under this facility , and is impacted by inventory levels at certain aftermarket parts inventory locations . as of october 31 , 2017 , we had no borrowings but did have availability to borrow under the amended and restated asset-based credit facility . additionally , we maintain capacity under our various debt arrangements to incur incremental debt . on november 6 , 2017 , we issued $ 1.1 billion aggregate principal amount of 6.625 % senior notes due 2025 ( “ 2025 notes ” ) .