4. Accounts Receivable and Due to Factor

12 Months Ended

Dec. 31, 2014

Notes to Financial Statements

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.   The performance of all obligations and payments to the factoring company is personally guaranteed by John C. Lawrence, the Company’s President and Chairman of the Board of Directors.  Selected trade receivables are submitted to the factor, and the Company receives 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 the amount potentially due to the Factor is presented as a secured financing in current liabilities.

Accounts Receivble	December 31, 2014			December 31, 2013
Accounts receivable - non factored	$	445,391		$	402,351
Accounts receivable - factored with recourse		13,314			177,701
less allowance for doubtful accounts		(4,031	)		(4,031	)
Accounts receivable - net	$	454,674		$	576,021

Factoring fees paid by the Company during the years ended December 31, 2014, 2013 and 2012 were $49,364, $71,772, and $78,100, respectively.  For the years ended December 31, 2014, 2013, and 2012, net accounts receivable of approximately $2.30 million, $3.28 million, and $3.80 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.