SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period endedMarch 31,June 30, 2016or

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File No.0-3978

UNICO AMERICAN CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

             Nevada                                                                     95-2583928

(State or Other Jurisdiction of                                            (I.R.S. Employee

Incorporation or Organization)                                               Identification No.)

26050 Mureau Road, Calabasas, California 91302

(Address of Principal Executive Offices) (Zip Code)

(818) 591-9800

(Registrant's Telephone Number, Including Area Code)

No Change

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesX No __ 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YesX No__ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer__ Accelerated filer__

Non-accelerated filer__ Smaller reporting companyX

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

PART 1 - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

UNICO AMERICAN CORPORATION

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See condensed notes to unaudited consolidated financial statements.

UNICO AMERICAN CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

See condensed notes to unaudited consolidated financial statements.

UNICO AMERICAN CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSINCOME (LOSS)

(UNAUDITED)

See condensed notes to unaudited consolidated financial statements.

UNICO AMERICAN CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

See condensed notes to unaudited consolidated financial statements.

UNICO AMERICAN CORPORATION

AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31,JUNE 30, 2016

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Unico American Corporation (the “Company” or “Unico”) is an insurance holding company that underwrites property and casualty insurance through its insurance company subsidiary; provides property, casualty, and health insurance through its agency subsidiaries; and provides insurance premium financing and membership association services through its other subsidiaries. References to Unico American Corporation is referred to herein asor the "Company" or "Unico" and such referencesCompany include both the corporation and its subsidiaries, all of which are wholly owned. Unico was incorporated under the laws of Nevada in 1969.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Unico American Corporation and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X for smaller reporting companies. Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six months ended March 31,June 30, 2016, are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. Quarterly financial statements should be read in conjunction with the consolidated financial statements and related notes in the Company’s 2015 Annual Report on Form 10-K as filed with the Securities and Exchange Commission. Certain reclassifications have been made to prior period amounts to conform to the current quarterquarter’s presentation.

Use of Estimates in the Preparation of the Financial Statements

The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect its reported amounts of assets and liabilities and its disclosure of any contingent assets and liabilities at the date of its financial statements, as well as its reported amounts of revenues and expenses during the reporting period. The most significant assumptions in the preparation of these consolidated financial statements relate to losses and loss adjustment expenses. While every effort is made to ensure the integrity of such estimates, actual results may differ.

Fair Value of Financial Instruments

The Company employs a fair value hierarchy that prioritizes the inputs for valuation techniques used to measure fair value. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). Financial assets and financial liabilities recorded on the Consolidated Balance Sheets at fair value are categorized based on the reliability of inputs for the valuation techniques. (See Note 8.)

The Company has used the following methods and assumptions in estimating its fair value disclosures:

• Fixed maturities:

• Cash and short-term investments – The carrying amounts reported in the Consolidated Balance Sheets approximate their fair values given the short- termshort-term nature of these instruments.

• Receivables, net – The carrying amounts reported in the Consolidated Balance Sheets approximate their fair values given the short-term nature of these instruments.

• Accrued expenses and other liabilities – The carrying amounts reported in the Consolidated Balance Sheets approximate the fair values given the short-term nature of these instruments.

NOTE 2 – REPURCHASE OF COMMON STOCK – EFFECTS ON STOCKHOLDERS’ EQUITY

On December 19, 2008, the Board of Directors authorized a stock repurchase program to acquire from time to time up to an aggregate of 500,000 shares of the Company’s common stock. This program has no expiration date and may be terminated by the Board of Directors at any time. As of March 31,June 30, 2016, and December 31, 2015, the Company had remaining authority under the 2008 program to repurchase up to an aggregate of 188,655 and 197,467 shares of its common stock, respectively. The 2008 program is the only program under which there is authority to repurchase shares of the Company’s common stock. The Company did not repurchase any stock during the three months ended June 30, 2016. The Company repurchased 8,812 shares of stock during the threesix months ended March 31,June 30, 2016, in unsolicited transactions at a cost of $89,582 of which $4,331 was allocated to capital and $85,251 was allocated to retained earnings. The Company did not repurchase anyrepurchased 2,204 shares of stock during the three and six months ended March 31, 2015.June 30, 2015, in unsolicited transactions at a cost of $23,490 of which $1,083 was allocated to capital and $22,407 was allocated to retained earnings. The Company has or will retire all stock repurchased.repurchased stock.

NOTE 3 – LOSSEARNINGS (LOSS) PER SHARE

The following table represents the reconciliation of the Company's basic lossearnings (loss) per share and diluted lossearnings (loss) per share computations reported on the Consolidated Statements of Operations for the three and six months ended March 31,June 30, 2016 and 2015:

Basic earnings per share exclude the impact of common share equivalents and are based upon the weighted average common shares outstanding. Diluted earnings per share utilize the average market price per share when applying the treasury stock method in determining common share dilution. When outstanding stock options are dilutive, they are treated as common share equivalents for purposes of computing diluted earnings per share and represent the difference between basic and diluted weighted average shares outstanding. In loss periods, stock options are excluded from the calculation of diluted loss(loss) per share, as the inclusion of stock options would have an anti-dilutive effect. As of March 31,June 30, 2016 and 2015, the Company had 0684 and 7,4935,523 common share equivalents, whichrespectively, that were excluded in the six months diluted loss(loss) per share calculation, respectively.calculation.

NOTE 4 – RECENTLY ISSUED ACCOUNTING STANDARDS

During the three months ended March 31,

In June 2016, the Financial Accounting Standards Board (“FASB”) has not issued any accounting standards that areAccounting Standard Update (“ASU”) 2016-13 “Measurement of Credit Losses on Financial Instruments.”  ASU 2016-13 replaces the current incurred loss methodology for recognizing credit losses with a current expected tocredit loss model, which requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13 also requires enhanced disclosures for better understanding of significant estimates and judgments used in estimating credit losses. The Company is currently evaluating the effect ASU 2016-13 will have a material impact on the Company’sCompany's consolidated financial statements.statements, but expects the primary changes to be the use of the expected credit loss model for its premium receivables and reinsurance recoverables and the presentation of credit losses within the available-for-sale fixed maturities portfolio through an allowance method rather than as a direct write-down. ASU 2016-13 will become effective for fiscal years beginning after December 31, 2019.

In May 2015, FASB issued Accounting Standards Update (“ASU”)ASU 2015-09 “Disclosures About Short-Duration Contracts.” The objective of this ASU is to increase transparency about significant estimates in unpaid losses and loss adjustment expenses and provide additional information about amount, timing and uncertainty of cash flows related to unpaid losses and loss adjustment expenses. ASU 2015-09 is not expected to have any impact on the Company’s consolidated financial statements. The disclosure mandated by ASU 2015-09 will become effective for annual and quarterly reporting periods ended on and after December 31, 2016.

NOTE 5 – ACCOUNTING FOR INCOME TAXES

The Company and its wholly owned subsidiaries file consolidated federal and state income tax returns. Pursuant to the tax allocation agreement, Crusader Insurance Company (“Crusader”) and American Acceptance Corporation (“AAC”), wholly owned subsidiaries of the Company, are allocated taxes or tax credits, in the case of losses, at current corporate rates based on their own taxable income or loss. The Company files income tax returns under U.S. federal and various state jurisdictions. The Company is subject to examination by U.S. federal income tax authorities for tax returns filed starting at taxable year 2012 and California state income tax authorities for tax returns filed starting at taxable year 2011. There are no ongoing examinations of income tax returns by federal or state tax authorities.

As of March 31,June 30, 2016, and December 31, 2015, the Company had no unrecognized tax benefits or liabilities and, therefore,liabilities. In addition, the Company had not accrued interest and penalties related to unrecognized tax benefits or liabilities. However, if interest and penalties would need to be accrued related to unrecognized tax benefits or liabilities, such amounts would be recognized as a component of federal income tax expense.

As a California insurance company, Crusader is obligated to pay a premium tax on gross premiums written in all states thatin which Crusader is admitted. Premium taxes are deferred and amortized as the related premiums are earned. The premium tax is in lieu of state franchise taxes and is not included in the provision for state taxes.

NOTE 6 – PROPERTY AND EQUIPMENT, NET

Property and equipment consist of the following:

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 March 31,June 30, 2016, was $124,631 and $239,914, respectively, and for the three and six months ended June 30, 2015, was $115,283$116,894 and $117,451,$234,345, respectively.

For the three months ended March 31, 2016 and 2015, theThe Calabasas building has generated rental revenue from non-affiliated tenants in the amount of $59,406$56,628 and $49,857 which$116,034 for the three and six months ended June 30, 2016, respectively, and $39,109 and $88,966 for the three and six months ended June 30, 2015, respectively. This rental revenue is included in “Other income” from insurance company operation in the Company’s Consolidated Statements of Operations.

.

For the three months ended March 31, 2016 and 2015, theThe Calabasas building has incurred operating expenses (including depreciation) in the amount of $171,877$164,360 and $178,079 which$336,237 for the three and six months ended June 30, 2016, respectively, and $165,125 and $344,204 for the three and six months ended June 30, 2015, respectively. These operating expenses are included in “Other operating expenses” in the Company’s Consolidated Statements of Operations.

The total square footage of the Calabasas building is 46,884, including common areas. As of March 31,June 30, 2016, 10,292 square feet of the Calabasas building was leased to non-affiliated entities and 4,189 square feet was vacant and available to be 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 are not depreciated until the software is placed into production.

NOTE 7 – SEGMENT REPORTING

ASC Topic 280, “Segment Reporting,” establishes standards for the way information about operating segments is reported in financial statements. The Company has identified its insurance company operation as its primary reporting segment. Revenues from this segment comprised 92% and 91% of consolidatedtotal revenues for the three and six months ended March 31,June 30, 2016, compared to 91% of total revenues for the three and 2015, respectively.six months ended June 30, 2015. The Company’s remaining operations constitute a variety of specialty insurance services, each with unique characteristics and individually insignificant to consolidatedtotal revenues.

Revenues, income (loss) before income taxes, and assets by segment are as follows:

NOTE 8 – FAIR VALUE OF FINANCIAL INSTRUMENTS

In determining the fair value of its financial instruments, the Company employs a fair value hierarchy that prioritizes the inputs for the valuation techniques used to measure fair value. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). Financial assets and financial liabilities recorded on the Consolidated Balance Sheets at fair value are categorized based on the reliability of inputs for the valuation techniques as follows:

Level 1 – Financial assets and financial liabilities whose values are based on unadjusted quoted prices in active markets for identical assets or liabilities as of the reporting date.

Level 2 – Financial assets and financial liabilities whose values are based on quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in non-active markets; or valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability as of the reporting date.

Level 3 – Financial assets and financial liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect the Company’s estimates of the assumptions that market participants would use in valuing the financial assets and financial liabilities as of the reporting date.

The hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy level within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Thus, a Level 3 fair value measurement may include inputs that are observable (Level 1 or Level 2) or unobservable (Level 3). The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

The following table presents information about the Company’s consolidated financial instruments and their estimated fair values, which are measured on a recurring basis and are allocated among the three levels within the fair value hierarchy as of March 31,June 30, 2016, and December 31, 2015:

Fair value measurements are not adjusted for transaction costs. The Company recognizes transfers between levels at either the actual date of the event or a change in circumstances that caused the transfer. The Company did not have any transfers between Levels 1, 2 and 3 of the fair value hierarchy during the three and six months ended March 31,June 30, 2016 and 2015.

NOTE 9 – INVESTMENTS

A summary of total investment income and net realized losses is as follows:

The amortized cost and estimated fair values of investments in fixed maturities by category are as follows:

A summary of the unrealized gains (losses) on investments in fixed maturities carried at fair value and the applicable deferred federal income taxes are shown below:

At March 31, 2016, the Company had two fixed maturity investments with a combined unrealized loss of $4,667 for a continuous period of less than 12 months and one fixed maturity investment with an unrealized loss of $147 for a continuous period of more than 12 months. At December 31, 2015, the Company had three fixed maturity investments with a combinedgross unrealized losslosses of $38,509 for a continuous period of less than 12 months and two fixed maturity investments with a combinedgross unrealized losslosses of $6,115 for a continuous period of more than 12 months.

The Company closely monitors its investments. If an unrealized loss is determined to be other-than-temporary, it is written off as a realized loss through the Consolidated Statements of Operations. The Company’s methodology of assessing other-than-temporary impairments is based on security-specific analysis as of the balance sheet date and considers various factors including the length of time to maturity and the extent to which the fair value has been less than the cost, the financial condition and the near-term prospects of the issuer, and whether the debtor is current on its contractually obligated interest and principal payments. The unrealized losses on the U.S. treasury securities as of March 31, 2016, and December 31, 2015, were determined to be temporary.

Although the Company does not intend to sell its fixed maturity investments prior to maturity, the Company may sell investment securities from time to time in response to cash flow requirements, economic and/or market conditions. During the three months ended March 31, 2016, theThe Company sold three certificates of deposit.deposit during the six months ended June 30, 2016. These securities had an amortized cost of $746,000. The Company realized an investment loss of $1,278 on the sale. The Company did not sell any fixed maturity investments during the three months ended March 31, 2015. Thereand there were no realized investment gains or losses during the three months ended March 31,June 30, 2016, nor during the three and six months ended June 30, 2015. The unrealized gains or losses from fixed maturities are reported as “Accumulated other comprehensive income,” which is a separate component of stockholders’ equity, net of any deferred tax effect.

The Company’s investment in certificates of deposit included $56,681,000$61,675,000 and $57,527,000 of brokered certificates of deposit as of March 31,June 30, 2016, and December 31, 2015, respectively. Brokered certificates of deposit provide the safety and security of a certificate of deposit combined with the convenience gained by one-stop shopping for rates at various institutions. This allows the Company to spread its investments across multiple institutions so that all of its certificatecertificates of deposit investments are insured by the Federal Deposit Insurance Corporation (“FDIC”). Brokered certificates of deposit are purchased through UnionBanc Investment Services, LLC, a registered broker-dealer, investment advisor, member of FINRA/SIPC, and a subsidiary of MUFG Union Bank, N.A. Brokered certificates of deposit are a direct obligation of the issuing depository institution, are bank products of the issuing depository institution, are held in the name of Union Bank as Custodianby UnionBank Global Custody Services for the benefit of the Company, and are FDIC insured within permissible limits. All the Company’s brokered certificates of deposit are within the FDIC insured permissible limits. As of March 31,June 30, 2016, and December 31, 2015, the Company’s remaining certificates of deposit totaling $600,000 are from four different banks and represent statutory deposits that are assigned to and are held by the California State Treasurer and the Insurance Commissioner of the State of Nevada. These deposits are required for writing certain lines of business in California and for admission in the state of Nevada. All the Company’s brokered and non-brokered certificates of deposit are within the FDIC insured permissible limits.

Short-term investments have an initial maturity of one year or less and consist of the following:

NOTE 10 – CONTINGENCIES

The Company, by virtue of the nature of the business conducted by it, becomes involved in numerous legal proceedings as either plaintiff or defendant. From time to time, the Company is required toresort to legal proceedings against vendors providing services to the Company or againstcustomers or their agents to enforce collection of premiums, commissions, or fees. These routine items of litigation do not materially affect the Company and are handled on a routine basis by the Company through its counsel.

The Company establishes reserves for lawsuits, regulatory actions, and other contingencies for which the Company is able to estimate its potential exposure and believes a loss is probable. For loss contingencies believed to be reasonably possible, the Company discloses the nature of the loss contingency, an estimate of the possible loss, a range of loss, or a statement that such an estimate cannot be made.

Likewise, the Company is sometimes named as a cross-defendant in litigation, which is principally directed against an insured who was issued a policy of insurance directly or indirectly through the Company. Incidental actions related to disputes concerning the issuance or non-issuance of individual policies are sometimes brought by customers or others. These items are also handled on a routine basis by counsel, and they do not generally affect the operations of the Company. Management is confident that the ultimate outcome of pending litigation should not have an adverse effect on the Company's consolidated results of operations or financial position. The Company vigorously defends itself unless a reasonable settlement appears appropriate.

In December 2015, a judgment was finalized on a Crusader policy liability claim. Crusader is appealing the judgment. As a part of the appeal, Crusader deposited $7,924,178 in cash in lieu of an appeal bond with the Los Angeles Superior Court on December 28, 2015. This cash deposit was required to appeal the judgment. In March 2016, an additional judgment for plaintiff’s attorney fees and costs on this Crusader policy liability claim was finalized. The Company is also appealing this additional judgment. That additional appeal required an additional cash deposit in lieu of an appeal bond of $5,449,615. The additional cash deposit was made on March 21, 2016. These cash deposits for the appeals represent 150% of the judgments. The cash deposits in lieu of an appeal bond of $13,373,793 and $7,924,178 were included in “Other assets” in the Consolidated Balance Sheets as of March 31,June 30, 2016, and December 31, 2015, respectively. Management believes the ultimate outcome of this litigation will be covered by Crusader’s reinsurance, subject to retention and participation. Since this litigation was related to a Crusader claim in its normal course of business, management’s best estimate for ultimate liability related to this litigation was included in Crusader’s IBNR as of March 31,June 30, 2016, and December 31, 2015.

One of the Company’s agents, which 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 other individual paid the Company to settle the claim against him. The Company collected $0 during the three and six months ended March 31,June 30, 2016 and 2015. As of March 31,June 30, 2016, and December 31, 2015, the agent’s balance due to Unifax was $1,181,272. As of March 31,June 30, 2016, and December 31, 2015, the Company’s bad debt reserve associated with this matter was $1,181,272, which represents 100% of the balance due to Unifax. Although the receivable is fully reserved for financial reporting purposes at March 31,June 30, 2016, the Company continues to pursue collection of the judgments from the three principals.

On October 9, 2015, the Company filed a lawsuit in the Superior Court for the State of California, County of Los Angeles, Central District against a software vendor, Insurance Systems, Inc. (“ISI”). The lawsuit sought an unspecified amount in monetary damages plus punitive damages against ISI. Causes of action stated in the lawsuit included fraudulent inducement and intentional misrepresentation, negligent misrepresentation, negligence, violation of business and professional code, breach of implied warranty of merchantability, breach of implied warranty of fitness, breach of contract and breach of implied covenant of good faith and fair dealings. Subsequently, the lawsuit was removed to the United States District Court for the Central District of California and all causes of action have been disallowed by the court except for breach of contract. On May 16, 2016, ISI filed a countersuit against the Company for $1,792,398 for unpaid invoices plus damages for alleged breach of the contract related to implementation of the ISI computer software by the Company. The Company is vigorously defending the countersuit and believes it to be without merit. The Company has asserted various affirmative defenses in opposition to the ISI countersuit including defenses of fraud in inducement, fraudulent concealment, and negligent misrepresentation.

IITEMTEM 2 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

Unico American Corporation, referred to herein as the "Company” or “Unico," is an insurance holding company that underwrites property and casualty insurance through its insurance company subsidiary; provides property, casualty, health and life insurance through its agency subsidiaries; provides insurance premium financing; and provides membership association services.

Total revenues for the three months ended March 31,June 30, 2016, was $8,529,678were $8,722,632 compared to $7,832,199$8,313,691 for the three months ended March 31,June 30, 2015, an increase of $697,479 (9%$408,941 (5%). Total revenues for the six months ended June 30, 2016, were $17,252,310 compared to $16,145,890 for the six months ended June 30, 2015, an increase of $1,106,420 (7%). The Company had net lossincome of $198,987$151,030 for the three months ended March 31,June 30, 2016, compared to net lossincome of $396,785$112,381 for the three months ended March 31,June 30, 2015, an increase of $38,649 (34%). The Company had a net loss of $47,957 for the six months ended June 30, 2016, compared to a net loss of $284,404 for the six months ended June 30, 2015, a decrease of $197,798.$236,447 (83%).

This overview discusses some of the relevant factors that management considers in evaluating the Company's performance, prospects and risks. It is not all inclusive and is meant to be read in conjunction with the entirety of the management discussion and analysis, the Company's consolidated financial statements and notes thereto, and all other items contained within the Company’s 2015 Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

Revenue and Income Generation

The Company receives its revenues primarily from earned premium derived from the insurance company operations,operation, commission and fee income generated from the insurance agency operations, finance charges andoperation, fee income from the premium finance operations,operation, and investment income from cash generated primarily from the insurance company operation. The insurance company operation generated approximately 92% and 91% ofconsolidatedoftotal revenues for the three and six months ended March 31,June 30, 2016, compared to 91% of total revenues for the three and 2015, respectively.six months ended June 30, 2015. The Company’s remaining operations constitute a variety of specialty insurance services, each with unique characteristics and individually not material to consolidatedtotal revenues.

Insurance Company Operation

As of March 31,June 30, 2016, Crusader Insurance Company (“Crusader”), a wholly owned subsidiary of the Company, was licensed as an admitted insurance carrier in the states of Arizona, California, Nevada, Oregon, and Washington. SinceFrom 2004 until June 2014, all of Crusader’s business was written in the state of California untilCalifornia. In June 2014, when Crusader also began writing business in the state of Arizona. During the three and six months ended March 31,June 30, 2016, 99.3% and 99.4% of Crusader’s total direct written premium (before premium ceded to reinsurers) was produced in California, respectively, compared to 99.6% and 99.5% for the three and six months ended June 30, 2015, respectively. 98% and 99% of Crusader’s business was commercial multi-peril policies.policies for the three and six months ended June 30, 2016, respectively, compared to 98% and 99% for the three and six months ended June 30, 2015, respectively. In October of 2015, A.M. Best Company reaffirmed Crusader’s financial strength rating of A- (Excellent) and a rating outlook of “stable.” In addition, A.M. Best Company assigned Crusader was assigned an Issuer Credit Rating of a- (Excellent).

The property and casualty insurance business is cyclical in nature, and the previous years have been characterized as a “soft market.” The conditions of a soft market include premium rates that are stable or falling and insurance is readily available. Contrarily, “hard market” conditions occur during periods in which premium rates rise and coverage may be more difficult to find. The Company believes that the California property and casualty insurance market is intensely competitive but relatively stable.

Written premium is a non-GAAP financial measure whichthat is defined under statutory accounting principles as the contractually determined amount charged by the Companyinsurance company to the policyholder for the effective period of the contract based on the expectation of risk, policy benefits, and expenses associated with the coverage provided by the terms of the policies. Written premium is a required statutory measure. Written premium is not defined under U.S. generally accepted accounting principles (“GAAP”). Earned premium, the most directly comparable GAAP measure, represents the portion of written premium that is recognized as income in the financial statements for the period presented and earned on a pro-rata basis over the terms of the policies.

The following is a reconciliation of net written premium to net earned premium (after premium ceded to reinsurers):

For the three months ended March 31,June 30, 2016, direct written premium, (before premium ceded to reinsurers) as reported on Crusader’s statutory financial statements, was $9,182,555$10,270,811 compared to $8,872,962$9,706,609 for the three months ended March 31,June 30, 2015, an increase of $309,593 (3%$564,202 (6%). For the six months ended June 30, 2016, direct written premium, as reported on Crusader’s statutory financial statements, was $19,453,366 compared to $18,579,571 for the six months ended June 30, 2015, an increase of $873,795 (5%).

The Company’s insurance operationscompany operation underwriting profitability is defined by pre-tax underwriting profit, which is calculated as net earned premium less losses and loss adjustment expenses and policy acquisition costs.

Crusader’s underwriting profit before income taxes is as follows:

The following table provides an analysis of the losses and loss adjustment expenses:

Losses and loss adjustment expenses were 63% and 65% of net earned premium for the three and six months ended June 30, 2016, respectively, compared to 63% and 67% of net earned premium for the three and six months ended March 31, 2016, compared to 70% of net earned premium for the three months ended March 31, 2015.June 30, 2015, respectively.

Revenues from Other Insurance Operations

The Company’s revenues from other insurance operations consist of commissions, fees, investment and other income. Excluding investment and other income, these operations accounted for approximately 8% of total revenues in the three and six months ended June 30, 2016, compared to approximately 9% of total revenues in the three and six months ended March 31, 2016 and 2015, respectively.June 30, 2015.

Investments and Liquidity

The Company generatesgenerated revenues from its total invested assets of $92,650,402$93,318,135 (at amortized cost) and $106,664,843$106,148,997 (at amortized cost) as of March 31,June 30, 2016 and 2015, respectively. These assets do not includerespectively, and from two cash deposits by Crusader, in lieu of appeal bonds, placed with the Los Angeles Superior Court. These deposits, totaling $13,373,793, were made in December 2015 and March 2016 and were included in “Other assets” in the Consolidated Balance Sheet as of March 31,June 30, 2016. Investment income included in insurance company operation and other insurance operations revenue increased $124,683 (143%$114,515 (117%) and $239,198 (129%) to $212,091$212,450 and $424,541 for the three and six months ended March 31,June 30, 2016, respectively, compared to $87,408$97,935 and $185,343 for the three and six months ended March 31, 2015.June 30, 2015, respectively. The increase in investment income was primarily a result of an increase in the Company’s annualized yield on average invested assets to 0.9% for the three and six months ended March 31,June 30, 2016, from 0.4% and 0.3% for the three and six months ended March 31, 2015.June 30, 2015, respectively. The increase in the annualized yield on average invested assets is primarily a result of a decrease in lower yielding short-term investments and an increase in higher yielding fixed maturity investments. Due to the current interest rate and financial market environment, management believes it is prudent to purchase fixed maturity investments with maturities of 5 years or less and with minimal credit risk. As of March 31,June 30, 2016, all of the Company’s investments are in U.S. treasury securities, FDIC insured certificates of deposit, money market funds and a savings account. The Company’s investments in U.S treasury securities and money market funds are readily marketable. As of March 31,June 30, 2016, the weighted average maturity of the Company’s investments is approximately 1.31.1 years.

Liquidity and Capital Resources

Crusader generates a significant amount of cash as a result of its holdings of unearned premium reserves, its reserves for loss and loss adjustment expense payments, and its capital and surplus. Crusader's loss and loss adjustment expense payments are the most significant cash flow requirement of the Company. These payments are continually monitored and projected to ensure that the Company has the liquidity to cover these payments without the need to liquidate its investments. Cash and investments (at amortized cost) of the Company at March 31,June 30, 2016, were $92,983,127$93,707,825 compared to $98,178,025 at December 31, 2015. Crusader's cash and investments were 99% of the total cash and investments (at amortized cost) held by the Company as of March 31,June 30, 2016, and December 31, 2015.

As of March 31,June 30, 2016, the Company hadinvested $81,361,011$86,359,294 (at amortized cost) or 88%93% of its total invested assets in fixed maturity obligations, which included $24,080,011 (30%$24,084,294 (28% of fixed maturity investments) in U.S. treasury notes and $57,281,000 (70%$62,275,000 (72% of fixed maturity investments) in long-term certificates of deposit.As of December 31, 2015, the Company hadinvested $82,202,727 (at amortized cost) or 84% of its total invested assets in fixed maturity obligations, whichincluded $24,075,727 (29% of fixed maturity investments) in U.S. treasury notes and $58,127,000 (71% of fixed maturity investments) in long-term certificates of deposit.The remaining balance of the Company's investments are in short-term investments that include U.S. treasury bills, a U.S. treasury money market fund, certificates of deposit, bank money market accounts and a bank savings account that are all highly rated and redeemable within one year.

The Company is required to classify its investment securities into one of three categories: held-to-maturity, available-for-sale, or trading securities. Although all of the Company's investment in fixed maturity securities are classified as available-for-sale, and, while the Company may sell investment securities from time to time in response to economic and market conditions, its investment guidelines place primary emphasis on buying and holding high-quality investments to maturity.

The Company’s investment guidelines on equity securities limit investments in equity securities to an aggregate maximum of $2,000,000. The Company’s investment guidelines on fixed maturities limit those investments to high-grade obligations with a maximum term of 8 years. The maximum investment authorized in any one issuer is $2,000,000. This dollar limitation excludes bond premiums paid in excess of par value and U.S. government or U.S. government guaranteed issues. When the Company invests in fixed maturity municipal securities, preference is given to issues that are pre-refunded and secured by U.S. treasury securities. The short-term investments are either U.S. government obligations, FDIC insured, or are in an institution with a Moody's rating of at least P2 and/or a Standard & Poor's rating of A1. All of the Company's fixed maturity investment securities are rated, readily marketable, and could be liquidated without any materially adverse financial impact.

On December 19, 2008, the Board of Directors authorized a stock repurchase program to acquire from time to time up to an aggregate of 500,000 shares of the Company’s common stock. This program has no expiration date and may be terminated by the Board of Directors at any time. As of March 31,June 30, 2016, and December 31, 2015, the Company had remaining authority under the 2008 program to repurchase up to an aggregate of 188,655 and 197,467 shares of its common stock, respectively. The 2008 program is the only program under which there is authority to repurchase shares of the Company’s common stock. The Company did not repurchase any stock during the three months ended June 30, 2016. The Company repurchased 8,812 shares of stock during the threesix months ended March 31,June 30, 2016, in unsolicited transactions at a cost of $89,582 of which $4,331 was allocated to capital and $85,251 was allocated to retained earnings. The Company did not repurchase anyrepurchased 2,204 shares of stock during the three and six months ended March 31, 2015.June 30, 2015, in unsolicited transactions at a cost of $23,490 of which $1,083 was allocated to capital and $22,407 was allocated to retained earnings. The Company has or will retire all stock repurchased.repurchased stock.

The Company reported $4,757,823$3,866,720 net cash used by operating activities for the threesix months ended March 31,June 30, 2016, compared to $726,346$852,218 net cash used by operating activities for the threesix months ended March 31,June 30, 2015. The largest contributor to the use of cash for the threesix months ended March 31,June 30, 2016, was a $5,449,615 cash deposit by Crusader in lieu of an appeal bond placed with the Los Angeles Superior Court on March 21, 2016. This cash deposit was in addition to the$7,924,178 cash deposit by Crusader in lieu of an appeal bond placed with the Los Angeles Superior Court on December 28, 2015, to appeal two judgments on a Crusader policy liability claim.

Other fluctuations in cash flows from operating activities relate to the timing of the collection and the payment of insurance-related receivables and payables. The variability of the Company’s losses and loss adjustment expenses is due primarily due to its small claims population of claims which may result in greater fluctuations in claim frequency and/or severity. Although the Consolidated Statements of Cash Flows reflect net cash used by operating activities, the Company does not anticipate future liquidity problems, and it continues to be well capitalized and adequately reserved. 

Although material capital expenditures may also be funded through borrowings, the Company believes that its cash and short-term investments at March 31,June 30, 2016,net ofstatutory deposits of $700,000, and California insurance company statutory dividend restrictions applicable to Crusader, plus the cash to be generated from operations, should be sufficient to meet its operating requirements during the next 12 months without the necessity of borrowing funds. Since trust receivables were in excess of trust payables, there were no trust restrictions on cash and short-term investments at March 31,June 30, 2016.

Results of Operations

All comparisons made in this discussion are comparing the three and six months ended March 31,June 30, 2016, to the three and six months ended March 31,June 30, 2015, unless otherwise indicated.

For the three and six months ended March 31,June 30, 2016, total revenues were $8,529,678,$8,722,632 and $17,252,310, respectively, an increase of $697,479 (9%$408,941 (5%)and $1,106,420 (7%), compared to total revenues of $7,832,199$8,313,691 and $16,145,890 for the three and six months ended March 31, 2015.June 30, 2015, respectively. For the three and six months ended March 31,June 30, 2016, the Company had income before taxes of $208,594 and a loss before taxes of $270,026,$61,432, respectively, an increase of $25,921 (14%) and a decrease of $321,011 (54%$346,932 (85%), compared to income before taxes of $182,673 and a loss before taxes of $591,037$408,364 for the three and six months ended March 31, 2015.June 30, 2015, respectively. For the three and six months ended March 31,June 30, 2016, the Company had net income of $151,030 and a net loss of $198,987,$47,957, respectively, an increase of $38,649 (34%) and a decrease of $197,798 (50%$236,447 (83%), compared to net income of $112,381 and a net loss of $396,785$284,404 for the three and six months ended March 31, 2015.June 30, 2015, respectively.

The increase in revenues of $697,479 (9%$408,941 (5%) for the three months ended March 31,June 30, 2016, when compared to March 31,June 30, 2015, was due primarily due to an increase in net earned premium of $607,271 (9%$390,096 (5%). The increase in revenues of $1,106,420 (7%) for the six months ended June 30, 2016, compared to June 30, 2015, was due primarily to an increase in net earned premium of $997,367 (7%).

The decreaseincrease in lossincome before tax of $321,011$25,921 (14%) for the three months ended March 31,June 30, 2016, compared to the three months ended March 31,June 30, 2015, was due primarily to the increase in revenuesnet earned premium of $697,479$390,096 (5%) partially offset by increaseincreases in losses and loss adjustment expenses of $191,587$225,241 (5%) and in policy acquisition costs of $101,208 (6%). The decrease in loss before tax of $346,932 (85%) for the six months ended June 30, 2016, compared to the six months ended June 30, 2015, was due primarily to the increase in net earned premium of $997,367 (7%) partially offset by increases in losses and loss adjustment expenses of $416,828 (4%) and in policy acquisition costs of $308,038 (10%).

Written premiumis a required statutory measure. Direct written premium reported on Crusader’s statutory financial statements increased $309,593 (3%$564,202 (6%) and $873,795 (5%) to $9,182,555$10,270,811 and $19,453,366 for the three and six months ended March 31,June 30, 2016, respectively, compared to $8,872,962$9,706,609 and $18,579,571 for the three and six months ended March 31, 2015.June 30, 2015, respectively.

The property casualty insurance marketplace continues to be intensely competitive. While Crusader attempts to meet such competition with competitive prices, its emphasis is on service, promotion, and distribution. Crusader believes that rate adequacy is more important than premium growth and that underwriting profit (net earned premium less losses and loss adjustment expenses and policy acquisition costs) is its primary goal. Nonetheless, Crusader believes that it can grow its sales and profitability by continuing to focus upon four areas of its operations: (1) product development, (2) improved service to retail brokers, (3) appointment of captive and independent retail agents, and (4) geographical expansion. While the Company’s policy administration system continues to support the Company’s existing operations, the Company believes it would realize more competitive parity with respect to product and service by switching or upgrading to a more contemporary platform. The Company is currently evaluating its alternatives. Crusader does not intend to substantially increase its number of appointed retail agents until the Company replaces its policy administration system.

Earned premium(before reinsurance) increased $833,824 (10%$570,889 (7%) to $9,048,075$9,219,547 and $1,404,695 (8%) to $18,267,604 for the three and six months ended March 31,June 30, 2016, respectively, compared to $8,214,251$8,648,658 and $16,862,909 for the three and six months ended March 31, 2015.June 30, 2015, respectively. The Company writes annual policies and, therefore, earns written premium ratably over the one-year policy term.

Ceded earned premium increased $226,553 (18%$180,793 (14%) to $1,475,660$1,501,596 and $407,328 (16%) to $2,977,238 for the three and six months ended March 31,June 30, 2016, respectively, compared to $1,249,107$1,320,803 and $2,569,910 for the three and six months ended March 31, 2015.June 30, 2015, respectively. Ceded earned premium as a percentage of direct earned premium was 16% for the three and six months ended June 30, 2016, and 15% for the three and six months ended March 31, 2016 and 2015, respectively.June 30, 2015.

In calendar years 2016 and 2015, Crusader retained a participation in its excess of loss reinsurance treaties of 10% in its 1^st layer ($500,000 in excess of $500,000), 0% in its 2^nd layer ($2,000,000 in excess of $1,000,000) and 0% in its property and casualty clash treaty. In calendar year 2016, Crusader retained a participation in its Catastrophecatastrophe excess of loss reinsurance treaties of 5% in its 1^st layer ($9,000,000 in excess of $1,000,000) and 0% in its 2^nd layer ($36,000,000 in excess of $10,000,000). In calendar year 2015, Crusader retained a participation in its Catastrophecatastrophe excess of loss reinsurance treaties of 5% in its 1^st layer ($9,000,000 in excess of $1,000,000) and 0% in its 2^nd layer ($31,000,000 in excess of $10,000,000).

Crusader’s excess of loss reinsurance treaties provided for a contingent commission for accident years 2006, 2004 and 2003. Crusader’s 2006 1^st layer primary excess of loss reinsurance treaty provided for a contingent commission equal to 20% of the net profit, if any, accruing to the reinsurer. Crusader’s 2004 and 2003 1^st layer primary excess of loss reinsurance treaties provided for a contingent commission to the Company equal to 45% of the net profit, if any, accruing to the reinsurer. Any contingent commission received is subject to return based on future development of ceded losses and loss adjustment expenses.As of March 31,June 30, 2016, and December 31, 2015, the unearned contingent commission balance included in “Accrued expenses and other liabilities” in the Consolidated Balance Sheets was $0. The contingent commission (loss) recognized was $0 and $(31,806) for the three months ended March 31,June 30, 2016 and 2015, respectively, and $0 and $(31,806) for the six months ended June 30, 2016 and 2015, respectively.

The Company evaluates each of its ceded reinsurance contracts at its inception to determine if there is a sufficient risk transfer to allow the contract to be accounted for as reinsurance under current accounting literature.GAAP. As of March 31,June 30, 2016, all such ceded contracts are accounted for as risk transfer reinsurance.

Crusader’s direct, ceded and net earned premium are as follows:

Investment income,included in insurance company operation and other insurance operations revenues,increased $124,683 (143%$114,515 (117%) to $212,091$212,450 and $239,198 (129%) to $424,541 for the three and six months ended March 31,June 30, 2016, respectively, compared to $87,408$97,935 and $185,343 for the three and six months ended March 31, 2015. The Company had realized losses of $1,278 for the three months ended March 31, 2016 and no realized gains or losses for the three months ended March 31, 2015.June 30, 2015, respectively.

The increase in investment income was primarily a result of an increase in the Company’s annualized yield on average invested assets to 0.9% for the three and six months ended March 31,June 30, 2016, respectively, from 0.4% and 0.3% for the three and six months ended March 31,June 30, 2015. The increase in the annualized yield on average invested assets is primarily a result of a decrease in lower yielding short-term investments and an increase in higher yielding fixed maturity investments, which provide a higher yield.investments.

Investment income, excluding net realized investment losses, and average annualized yields on the Company’s average invested assets are as follows: