Sale Of Accounts Receivable

9 Months Ended

Sep. 30, 2012

Sale Of Accounts Receivable

2. SALE OF ACCOUNTS RECEIVABLE

On February 24, 2011, two subsidiaries of the Company, namely CEDC International Sp. z o.o. (“CEDC International”) and Polmos Białystok S.A. (“Polmos Bialystok”), entered into factoring arrangements (“Factoring Agreements”) with ING Commercial Finance Polska (“ING Polska”) for the sale up to 290.0 million Polish zlotys (approximately $91.3 million) of receivables. On January 1, 2012, the total limit under the Factoring Agreements was reduced from 290.0 million Polish zlotys ($91.3 million) to 250.0 million Polish zlotys ($78.7 million) and from March 1, 2012 it was further reduced to 220.0 million Polish zlotys ($69.2 million). The Factoring Agreements were to mature on April 30, 2012, however on April 25, 2012 the Company extended these agreements until September 30, 2012 with further decrease of the total limit to 200.0 million Polish zlotys (approximately $62.9 million). On September 28, 2012 the Company further extended these agreements until December 31, 2012 with decrease of the total limit to 170.0 million Polish zlotys (approximately $53.5 million).

As of September 30, 2012, the total balance of receivables under factoring amounted to 95.9 million Polish zlotys (approximately $30.2 million) of the 170.0 million Polish zlotys limit available.

For the three and nine months ended September 30, 2012, the Company sold receivables in the amount of 282.3 million Polish zlotys ($88.8 million) and 979.7 million Polish zlotys ($308.3 million), respectively and recognized a loss on the sale in the statement of operations and comprehensive income in the amount of 2.8 million Polish zlotys ($0.8 million) and 9.1 million Polish zlotys ($2.7 million), respectively in respect of the non-recourse factoring.

Furthermore, the Company signed in June 2011 and in January 2012 factoring agreements with ING Polska and with Bank Handlowy w Warszawie Spółka Akcyjna (“Bank Handlowy”), respectively. These agreements allow the Company to sale to the banks receivable of three Company’s distributors named in these agreements. There is no financing limit in any of the two agreements. As a result of the agreement with ING Polska, in three and nine month periods ended September 30, 2012 the Company sold receivables in the amount of 20.9 million Polish zlotys ($6.6 million) and 76.6 million Polish zlotys ($24.1 million), respectively and recognized a loss on the sale in the statement of operations and comprehensive income in the amount of 0.14 million Polish zlotys ($0.04 million) and 0.50 million Polish zlotys ($0.15 million). As a result of the agreement with Bank Handlowy, in three and nine month periods ended September 30, 2012 the Company sold receivables in the amount of 21.1 million Polish zlotys ($6.6 million) and 65.3 million Polish zlotys ($20.5 million), respectively and recognized a loss on the sale in the statement of operations and comprehensive income in the amount of 0.10 million Polish zlotys ($0.03 million) and 0.3 million Polish zlotys ($0.09 million).

Additionally, in August 2012, the Company signed agreements with its distributor and Bank Zachodni WBK S.A. for non-recourse factoring of the receivables from the distributor and its related parties. There is no financing limit fixed in these agreements. As a result of these agreement, in the three and nine month period ended September 30, 2012 the Company sold receivables in the amount of 129.9 million Polish zlotys ($40.9 million) and recognized a loss on the sale in the statement of operations and comprehensive income in the amount of 1.3 million Polish zlotys ($0.4 million). The Company has no continuing involvement with the sold non-recourse receivables.

As of September 30, 2012, the liabilities from factoring with recourse amounted to $1.7 million and are included in the short term bank loans in the balance sheet. Corresponding receivables from factoring with recourse are presented under accounts receivable in the balance sheet.