4. Accounts Receivable and Due to Factor

12 Months Ended

Dec. 31, 2012

Accounts Receivable And Due To Factor

4. Accounts Receivable and Due to Factor

The Company factors designated trade receivables pursuant to a factoring agreement with LSC Funding Group L.C., an unrelated factor (the “Factor”).  The agreement specifies that eligible trade receivables are factored with recourse. Selected trade receivables are submitted to the factor, and receive 85% of the face value of the receivable by wire transfer. Upon payment by the customer, the remainder of the amount due is received from the factor, less a one-time servicing fee of 2% for the receivables factored.  This servicing fee is recorded on the consolidated statement of operations in the period of sale to the factor.  

Trade receivables assigned to the Factor are carried at the original invoice amount less an estimate made for doubtful accounts.  Under the terms of the recourse provision, the Company is required to reimburse the Factor, upon demand, for factored receivables that are not paid on time.  Accordingly, these receivables are accounted for as a secured financing arrangement and not as a sale of financial assets.  

Receivables, net of allowances, are presented as current assets and we present the amount potentially due to the Factor as a secured financing in current liabilities.

Accounts Receivble	December 31, 2012			December 31, 2011
Accounts receivable - non factored	$	432,500		$	1,299,575
Accounts receivable - factored with recourse		27,690			146,589
less allowance for doubtful accounts		(4,031	)		(7,600	)
Accounts receivable - net	$	456,159		$	1,438,564

The factoring agreement requires the Company to pay a financing fee equal to 2% of the face amount of receivables sold.  Factoring fees paid by the Company during the years ended December 31, 2012, 2011 and 2010 were $78,100, $154,206, and $119,107, respectively.  For the years ended December 31, 2012, 2011, and 2010, net accounts receivable of approximately $ 3.80 million, $7.39 million, and $5.96 million, respectively, were sold under the agreement.

Proceeds from the sales were used to fund inventory purchases and operating expenses.  The agreement is for a term of one year with automatic renewal for additional one-year terms.