Sales of Accounts Receivable

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements

Sales of Accounts Receivable

4. Sales of Accounts Receivable 

 The Company sells selected accounts receivable to a financing company pursuant to the terms of a factoring agreement. According to the terms of the agreement, the receivables are sold with full recourse and the Company assumes all risks of collectability. Accordingly, the Company's allowance for doubtful accounts is based upon the expected collectability of all trade receivables. The performance of all obligations and payments to the factoring company is personally guaranteed by John C. Lawrence, the Company's president and a director. As consideration for Mr. Lawrence's guarantee, the Company granted a mortgaged security interest to Mr. Lawrence collateralized by the Company's real and personal property. 

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, 2011, 2010 and 2009 were $154,206, $119,107 and $90,124, respectively. For the years ended December 31, 2011, 2010 and 2009, net accounts receivable of approximately $7.39 million, $5.96 million and $3.07 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.