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14. Notes Receivable

12 Months Ended

Dec. 31, 2020

Accounts and Financing Receivable, after Allowance for Credit Loss [Abstract]

Some franchisees, as well as the purchaser of our previously owned California locations, have borrowed funds from us primarily to finance the initial purchase price of office assets. Notes outstanding net of allowance for losses were approximately $8.1 million and $11.4 million as of December 31, 2020 and December 31, 2019, respectively.

Notes receivable bear interest at a fixed rate between 6.0% and 10.0%. Notes are generally secured by the assets of each location and the ownership interests in the franchisee. Interest income on franchisee notes is reported in other miscellaneous income in our consolidated statements of operations and was approximately $712,000 and $280,000 in the years ended December 31, 2020 and December 31, 2019, respectively.

We estimate the allowance for losses for franchisees separately from the allowance for losses from non-franchisees because of the level of detailed sales information available to us with respect to the former.

Based on our review of the financial condition of the borrowers, the underlying collateral value, and the potential future impact of COVID-19 on certain borrowers’ economic performance and estimated future cash flows, we have established an allowance of approximately $1.6 million as of December 31, 2020 for potentially uncollectible notes receivable.

The following table summarizes changes in our notes receivable balance to franchisees:

	December 31, 2020			December 31, 2019
Note receivable	$	8,023,807		$	9,702,471
Allowance for losses		(405,313	)		-
Notes receivable, net	$	7,618,494		$	9,702,471

During 2019, one of our note holders experienced significant economic hardships due to the impacts of COVID-19. As a result, we restructured one note receivable in an effort to increase the probability of repayment. We granted near-term payment concessions to help the debtor attempt to improve its financial condition so it may eventually be able to repay the amount due. We received recognized interest income of approximately $174,000 and $46,000 during the years ended December 31, 2020 and December 31, 2019, respectively.

The following table summarizes changes in our notes receivable balance that have been deemed impaired:

	December 31, 2020			December 31, 2019
Note receivable	$	1,640,393		$	1,707,238
Allowance for losses		(1,193,359	)		-
Notes receivable, net	$	447,034		$	1,707,238