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Note 11 - Notes Receivable

3 Months Ended

Mar. 31, 2023

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note 11 - Notes Receivable

Notes from Franchisees

Several franchisees borrowed funds from us primarily to finance the initial purchase price of office assets, including intangible assets.

Notes outstanding, net of allowance for losses, were approximately $5.2 million and $2.4 million as of March 31, 2023 and December 31, 2022, respectively. Notes receivable generally bear interest at a fixed rate between 6.0% and 10.0%. Notes receivable are generally secured by the assets of each office and the ownership interests in the franchise. We report interest income on notes receivable as interest income in our consolidated statements of income. Interest income was approximately $46 thousand and $93 thousand during the three months ended March 31, 2023 and March 31, 2022, respectively.

We estimate the allowance for credit losses for franchisees separately from the allowance for credit losses from non-franchisees because of the level of detailed sales information available to us with respect to our franchisees. Based on our review of available collateral historical information, current conditions, and reasonable and supportable forecasts, we have established an allowance of approximately $260 thousand as of March 31, 2023 and December 31, 2022 for credit losses from franchisees.

The following table summarizes our notes receivable balance to franchisees (in thousands):

	*March 31, 2023*			*December 31, 2022*
Note receivable	$	5,590		$	3,752
Allowance for losses		(260	)		(260	)
Notes receivable, net	$	5,330		$	3,492

Notes from Non-Franchisees

During 2020, the California licensee experienced significant economic hardships due to the impacts of COVID-19 and the related government mandates in the state. As a result, we restructured a portion of their note payable to the Company in an effort to increase the probability of repayment. We granted near-term payment concessions in 2021 to help the debtor attempt to improve its financial condition so it may eventually be able to repay the amount due. After reviewing the potential outcomes, we recorded an additional impairment of approximately $233 thousand in June 2022. In August 2022 we provided a third forbearance agreement to avoid foreclosure action. As part of the forbearance we forgave additional payments due on the notes and agreed to a short-term payment schedule to collect a net total of $71 thousand resulting in total charge-offs of approximately $1.6 million.

We received and recognized interest income of approximately $-0- and $41 thousand during the three months ended March 31, 2023 or March 31, 2022. There was no balance due from non-franchisees at March 31, 2023 or December 31, 2022.