REAL ESTATE HELD FOR SALE, NET AND PROPERTY AND EQUIPMENT, NET

6 Months Ended

Jun. 30, 2021

REAL ESTATE HELD FOR SALE, NET AND PROPERTY AND EQUIPMENT, NET

NOTE 6 - REAL ESTATE HELD FOR SALE, NET AND PROPERTY AND EQUIPMENT, NET

NOTE 6 – REAL ESTATE HELD FOR SALE, NET AND PROPERTY AND EQUIPMENT, NET

Real estate held for sale consists of the following:

	June 30		December 31
	2021		2020
Real estate held for sale, located in Calabasas, California	$	-	$	10,202,676
Accumulated depreciation and amortization		-		(1,867,659	)
Real estate held for sale, net	$	-	$	8,335,017

Property and equipment consist of the following:

	June 30			December 31
	2021			2020
Furniture, fixtures, equipment		2,188,132			2,191,411
Computer software		2,720,639			467,275
Accumulated depreciation and amortization		(2,682,785	)		(2,423,617	)
Computer software under development		-			1,803,346
Property and equipment, net	$	2,225,986		$	2,038,415

On February 12, 2021, the Company, through Crusader, completed the sale of the Company’s headquarters at 26050 Mureau Road, Calabasas, California 91302 (the “Calabasas Building”), for approximately $12,695,000 (the “Sale”) to Mureau Road, LLC (“Mureau Road”), a subsidiary of Alliant Capital, Ltd. (“Alliant”). Mureau Road and Alliant do not have any material relationship with the Company or its subsidiaries, other than through the Sale and the Lease (as defined below) transactions. The Company recognized a gain of $3,693,858 on the sale of the Calabasas Building.

On February 12, 2021, the Standard-Multi Tenant Office Lease – Net, dated January 28, 2021 (the “Lease”), by and between Crusader and Mureau Road became effective in connection with the completion of the Sale. The Company has agreed to a lease, which expires on January 31, 2022, with Alliant for the second floor of the Calabasas Building with an initial base rent of approximately $52,637 per month, where the Company will continue to operate its corporate headquarters.

Through the date of the real estate listing, depreciation on the Calabasas Building, owned by Crusader, is computed using the straight line method over 39 years. Depreciation on furniture, fixtures, and equipment in the Calabasas Building is computed using the straight line method over 3 to 15 years. Amortization of leasehold improvements in the Calabasas Building is being 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 and six months ended June 30, 2021, was $146,548 and $268,275, respectively, and for the three and six months ended June 30, 2020, was $188,638 and $376,723, respectively.

For the three and six months ended June 30, 2021, the Calabasas Building has generated rental revenue from non-affiliated tenants in the amount of $0 and $13,806, respectively, and for the three and six months ended June 30, 2020, rental revenue from non-affiliated tenants in the amount of $36,070 and $89,360, respectively, which is included in “Other income” from insurance company operation in the Company’s Condensed Consolidated Statements of Operations.

For the three and six months ended June 30, 2021, the Calabasas Building incurred operating expenses (including depreciation) in the amount of $2,741 and $98,705, respectively, and, for the three and six months ended June 30, 2020, it incurred operating expenses (including depreciation) of $182,937 and $373,034, respectively, which are included in “Other operating expenses” in the Company’s Condensed Consolidated Statements of Operations.

The Company capitalizes certain computer software costs purchased from outside vendors for internal use or incurred internally to upgrade the existing systems. 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 are not depreciated until the software is placed into production.

In 2018, the Company determined that the cost to replace its legacy IT system would be between $4,000,000 and $8,000,000, and the installation of such a system would take between two to four years. After weighing the time and expense involved against the anticipated benefit from such an investment, the Company opted for what it then perceived to be a less expensive upgrade to its legacy system to an IBM platform. While initially expected to be completed by the end of 2019, at a cost of approximately $300,000, excluding costs of Unico’s employees involved in the upgrade, the system upgrade was completed at the end of the first quarter of 2021 at a cost of approximately $1,500,000, excluding costs of Unico’s employees involved in the upgrade, due to unexpected technical challenges. As the system upgrade was completed at the end of the first quarter, the Company started depreciating the associated capitalized costs, including the costs of Unico’s employees involved in the upgrade, during the second quarter of 2021.