PROPERTY AND EQUIPMENT

3 Months Ended

Mar. 31, 2016

Property, Plant and Equipment [Abstract]

Detail of property and equipment is as follows (in thousands):



	December 31,			March 31,
	2015			2016
Land	$	377		$	377
Building	2,868			2,868
Machinery and equipment	35,284			36,945
Leasehold and building improvements	6,673			6,720
Construction in progress	1,496			1,531
	46,698			48,441
Less accumulated depreciation and amortization	(29,678		)	(30,680		)
Total property and equipment, net	$	17,020		$	17,761

The Company has utilized marketing programs whereby its instruments in inventory may be placed in a customer's location on a rental basis. The cost of these instruments is transferred to machinery and equipment or other long-term assets and depreciated, typically over a five to seven year period depending on the circumstance under which the instrument is placed with the customer. Total costs transferred from inventory were approximately $1.0 million for each of the three month periods ended March 31, 2015 and 2016.

The Company has sold certain customer rental contracts and underlying assets to a third party under the agreement that once the customer has met the customer obligations under the contract, ownership of the assets underlying the contract would be returned to the Company. The Company enters a debit to cash and a corresponding credit to deferred revenue at the time of these sales. These sales, all related to the Company's 54.6%-owned subsidiary, Heska Imaging, provided $42 thousand of cash which was reported in the "deferred revenue and other" line item of the Company's consolidated statements of cash flows for the three months ended March 31, 2015. There were no such sales during the three months ended March 31, 2016. As the Company anticipates it will regain ownership of the assets underlying these sales, it reports these assets as part of property and equipment and depreciates these assets per its depreciation policies. The Company had $2.2 million and $1.9 million of net property and equipment related to these transactions as of December 31, 2015 and March 31, 2016, respectively, all related to the Company's 54.6%-owned subsidiary, Heska Imaging.

Depreciation and amortization expense for property and equipment was $1.0 million and $1.1 million for the three months ended March 31, 2015 and 2016, respectively.

The Company capitalizes third-party software costs, where appropriate, and reports such costs, net of accumulated amortization, on the "property and equipment, net" line of its consolidated balance sheets. We had $0.4 million of such capitalized costs, net of accumulated amortization, on the "property and equipment, net" line on each of our consolidated balance sheets as of December 31, 2015 and March 31, 2016, respectively. Capitalized software costs in a given year are reported on the "purchases of property and equipment" line item of the Company's consolidated statements of cash flows. We had $35 thousand of capitalized software costs reported on the "purchases of property and equipment" line item of our consolidated statements of cash flows for the quarter ended March 31, 2015. There were no capitalized software costs incurred in the three months ended March 31, 2016.