Secured Borrowings and Pledged Receivables

6 Months Ended

Jun. 30, 2012

Secured Borrowings and Pledged Receivables

Secured Borrowings and Pledged Receivables

4.  Secured Borrowings and Pledged Receivables

Pursant to an agreement entered into on April 23, 2012 with The Receivables Exchange ("TRE"), an unrelated third party, we have transferred certain accounts receivable to buyers which are accounted for as secured borrowings. The transferred receivables are classified as pledged receivables and our obligation to repurchase the transferred receivables is presented as secured borrowings on the consolidated balance sheet. The carrying value of each secured borrowing approximates 85% of each associated pledged receivable and takes into consideration a 15% holdback provision per the TRE agreement.  The customers’ payment of the pledged receivables constitutes the repayment of the related amounts borrowed. The weighted average interest rate on the secured borrowings was .85% at June 30, 2012.

With our approval, TRE establishes arrangements with buyers providing for borrowings that are secured by our accounts receivable, and for which recourse exists against us. We can be required to repurchase the receivables under certain circumstances in case of specific defaults by our customers as set forth in the program terms.  TRE acts as the servicing agent for receivables transferred to buyers.  TRE collects the pledged receivables from our customers and makes the repayment to the buyers on our behalf once the receivables are collected.

At June 30, 2012 and 2011, receivables totaling $1,009,430 and $-0-, respectively, were transferred to buyer, remain uncollected and are subject to repurchase. The secured borrowings totaled $852,948 and $-0- as of June 30, 2012 and 2011, respectively. We recognized $58,735 and $-0-  of interest expense associated with the secured borrowings for the six-months ended June 30, 2012 and 2011, respectively.  Proceeds from the transfer of receivables are included in cash provided by operating activities in the consolidated statements of cash flows.  Proceeds from the transfer of pledged receivables were $3,894,609 for the three and six months ended June 30, 2012.  TRE collected $3,041,661 of pledged receivables in the three and six months ended June 30, 2012, which thereby reduced our repurchase obligation and were accounted for as reductions of pledged receivables and secured borrowings on the consolidated balance sheet.  No pledged receivables were repurchased by the Company in the three and six months ended June 30, 2012.