NOTE 6 - FINANCING RECEIVABLES

Financing receivables include notes and sales-type lease receivables from the sale of the Company’s products and services. Financing receivables consist of the following:

	December 31,		September 30,
	2014		2015

Notes receivable	$	27,000	$	7,000
Sales-type lease receivable		5,943,000		5,031,000
Less: Allowance for credit losses		-		-
		5,970,000		5,038,000

Less: Current portion
Notes receivable		25,000		7,000
Sales-type lease receivable		1,873,000		1,835,000
		1,898,000		1,842,000

Financing receivables - less current portion	$	4,072,000	$	3,196,000

Notes receivable relate to product financing arrangements that exceed one year and bear interest at approximately 8% - 10%. The notes receivable are collateralized by the equipment being financed. Amounts collected on the notes receivable are included in net cash provided by operating activities in the Condensed Consolidated Statements of Cash Flows. Unearned interest income is amortized to interest income over the life of the notes using the effective-interest method. There were no sales of notes receivable during the nine-month periods ended September 30, 2014 and 2015.

The present value of net investment in sales-type lease receivable is principally for three to five-year leases of the Company’s products and is reflected net of unearned income of $565,000 and $473,000 at December 31, 2014 and September 30, 2015, respectively, discounted at 1% - 26%.

The allowance for doubtful accounts represents the Company’s best estimate of the amount of credit losses in the Company’s existing notes and sales-type lease receivable. The allowance for doubtful accounts is determined on an individual note and lease basis if it is probable that the Company will not collect all principal and interest contractually due. The Company considers its customers’ financial condition and historical payment patterns in determining the customers’ probability of default. The impairment is measured based on the present value of expected future cash flows discounted at the note’s effective interest rate. There were no impairment losses recognized for the three- and nine-month-periods ended September 30, 2014 and 2015. The Company does not accrue interest when a note or lease is considered impaired. When the ultimate collectability of the principal balance of the impaired note or lease is in doubt, all cash receipts on impaired notes or leases are applied to reduce the principal amount of such notes or leases until the principal has been recovered and are recognized as interest income thereafter. Impairment losses are charged against the allowance and increases in the allowance are charged to bad debt expense. Notes and leases are written off against the allowance when all possible means of collection have been exhausted and the potential for recovery is considered remote. The Company resumes accrual of interest when it is probable that the Company will collect the remaining principal and interest of an impaired note or lease. Notes and leases become past due based on how recently payments have been received.

Scheduled maturities of sales-type lease minimum lease payments outstanding as of September 30, 2015 are as follows:

Year ending December 31:

October - December 2015	$	474,000
2016		1,788,000
2017		1,466,000
2018		912,000
2019		316,000
Thereafter		75,000

		5,031,000
Less: Current portion		1,835,000

Sales-type lease receivable - less current portion	$	3,196,000