For the year ended December 31, 2013, the Company had income before taxes of $1,240,775 compared to income before taxes of $2,855,036 for the year ended December 31, 2012, a decrease of $1,614,261 (57%). The decrease in income before taxes was primarily due to a decrease of $1,195,977 in investment income and a decrease of $455,853 in net premium earned.
Receivables, net - The carrying amounts reported at cost in the balance sheet approximate their fair values given the short-term nature of these instruments.
The Company completed a cost segregation study to identify Section 1245 and Section 1250 property and to establish appropriate cost recovery periods for the capital expenditures related to the acquisition of the 26050 Mureau Road office building, located in Calabasas, California. The engagement was completed in February 2014. By determining that certain components of the facility are Section 1245 property, with a recovery period of less than 39 years, Crusader will depreciate those items over the 5-year, 15-year and 39-year recovery periods. Other property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using straight line methods over 3 to 7 years. Leasehold improvements are amortized over the shorter of the useful life of the assets or the life of the associated lease.
At each balance sheet date, management assesses the need to establish a valuation allowance that reduces deferred tax assets when it is more-likely-than-not, that any portion of the deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon generating sufficient taxable income of the appropriate character within the carryback and carryforward periods available under the tax law. Management considers the reversal of deferred tax liabilities, projected future taxable income of an appropriate nature, and tax-planning strategies in making this assessment. Although realization is not assured, management believes that it is more likely-than-not that the Company’s net deferred tax assets will be realized.
In 2013 and 2012, 100% of Crusader’s gross premium written was derived from California. In 2013, approximately 36% of the $1,233,324 commission income from the Company’s health insurance program was from Guardian Life Insurance Company of America (GLIC) dental and group life plan programs. In 2012, approximately 39% of the $1,157,700 commission income from the Company’s health insurance program was from Guardian Life Insurance Company of America (GLIC) dental and group life plan programs.
One of the Company’s agents that was appointed in 2008 to assist the Company in implementing its Trucking Program, failed to pay the net premium and policy fees due Unifax, the exclusive general agent for Crusader. The agent was initially late in paying its February 2009 production that was due to Unifax on April 15, 2009. In May 2009, as a result of the agent’s failure to timely pay its balance due to Unifax, the Company terminated its agency agreement and assumed ownership and control of that agent’s policy expirations written with the Company. The Company subsequently commenced legal proceedings against the agent corporation, its three principals (who personally guaranteed the agent’s obligations), and another individual for the recovery of the balance due and any related recovery costs incurred. All related recovery costs have been expensed as incurred. The agent corporation and two of its principals filed bankruptcy. The corporation was adjudicated bankrupt. The Company obtained judgments, non-dischargeable in bankruptcy, for the full amount due from the two principals who filed bankruptcy. The other principal stipulated to a judgment of $1,200,000. The claim against the other individual was resolved.
The Company recognized stock-based compensation expense in the amount of $23,104, $23,104 and $30,676 for all awards issued under the Company’s 2011 Stock Option plan in the salaries and employee benefits line item in the consolidated statements of operations in the year ended December 31, 2013, 2012 and 2011, respectively. As of December 31, 2013, there was $182,226 of total unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested stock-based payments which are expected to be recognized over a weighted average remaining period of 7.72 years.