Property and Equipment (Net of Accumulated Depreciation)

3 Months Ended

Mar. 31, 2015

Notes to Financial Statements

Property and Equipmentr (Net of Accumulated Depreciation)

NOTE 6 – PROPERTY AND EQUIPMENT, NET

Property and equipment consist of the following:

		March 31			December 31
		2015			2014
Building located in Calabasas, California	$	7,289,224		$	7,269,449
Furniture, fixtures, leasehold improvements, computer and office equipment located in Woodland Hills, California		2,633,536			2,633,536
Accumulated depreciation and amortization		(2,755,417	)		(2,637,966	)
Land located in Calabasas, California		1,787,485			1,787,485
Computer software under development		1,623,314			1,457,802
Property and equipment, net	$	10,578,142		$	10,510,306

Depreciation on the Calabasas, California, building is computed using the straight line methods over 39 years. Depreciation on other property and equipment located in the Calabasas building is computed using the straight line methods over 3 to 15 years. Amortization of leasehold improvements on the property is being computed using the shorter of the useful life of the leasehold improvements or the remaining years of the lease.

Depreciation on property and equipment located in Woodland Hills, California, is computed using the straight line methods over 3 to 7 years. Amortization of leasehold improvements on property located in Woodland Hills is computed using the shorter of the useful life of the leasehold improvements or the remaining years of the lease.

Depreciation and amortization expense on all property and equipment for the three months ended March 31, 2015 and 2014, was $117,451 and $138,186, respectively.

For the three months ended March 31, 2015 and 2014, the Calabasas building has generated rental revenue in the amount of $49,857 and $229,847 and incurred operating expenses in the amount of $178,079 and $202,319 which included depreciation, respectively. These amounts are included in other income from insurance company revenues and other operating expenses, respectively, in the Company’s Consolidated Statements of Operations.

On September 7, 2014, a lease from a single tenant occupying approximately 32,403 square feet of the Calabasas building ended, and the tenant has vacated the premises. The Company intends to occupy most of this recently vacated space as its new home office and is currently in the process of planning and implementing the steps necessary to modify the space to fit its operational needs with a targeted move in date in mid-2015. The Company’s current home office located in Woodland Hills, California, will be vacated, and the month-to-month lease for this office will be terminated upon the completion of the move to the Calabasas building.

As of March 31, 2015, 8,442 square feet of the 46,884 rentable square feet at the Calabasas building was leased to non-affiliated entities.

The Company capitalizes certain computer software costs purchased from outside vendors for internal use. These costs also include configuration and customization activities, coding, testing and installation. Training costs and maintenance are expensed as incurred, while upgrade and enhancements are capitalized if it is probable that such expenditure will result in additional functionality. The capitalized costs will not be depreciated until the software is placed into production.