5. Equipment Financing Receivables

3 Months Ended

Mar. 31, 2013

Equipment Financing Receivables

5. Equipment Financing Receivables

(5)           Equipment Financing Receivables

On April 1, 2012, we began renting our hosted telecommunication equipment (VoIP telephone devices) through leasing contracts that we classify as either operating leases or sale-type leases.  The two primary accounting provisions which we use to classify transactions as sales-type or operating leases are: 1) lease term to determine if it is equal to or greater than 75% of the economic life of the equipment and 2) the present value of the minimum lease payments to determine if they are equal to or greater than 90% of the fair market value of the equipment at the inception of the lease.  The economic life of most of our products is estimated to be three years, since this represents the most frequent contractual lease term for our products, and there is no residual value for used equipment. Residual values, if any, are established at lease inception using estimates of fair value at the end of the lease term.  The vast majority of our leases that qualify as sales-type leases are non-cancelable and include cancellation penalties approximately equal to the full value of the lease receivables.  Leases that do not meet the criteria for sales-type lease accounting are accounted for as operating leases.

Equipment finance receivables arising from the rental of our hosted equipment through sales-type leases, were as follows (in thousands):

	March 31,			December 31,
	2013			2012
Gross financing receivables	$	391		$	283
Less unearned income		(216	)		(159	)
Financing receivables, net		175			124
Less: Current portion of finance receivables not billed, net		38			28
Finance receivables due after one year	$	137		$	96

Equipment finance receivables are expected to be collected within the next thirty-six months.