Secured Borrowings and Pledged Receivables

3 Months Ended

Mar. 31, 2013

Secured Borrowings and Pledged Receivables

Secured Borrowings and Pledged Receivables

3.  Secured Borrowings and Pledged Receivables

Pursuant 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 interest rate on the secured borrowings was approximately 1.30% for every thirty days outstanding.

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 March 31, 2013 and December 31, 2012, receivables totaling $690,284 and $1,801,683, respectively, were transferred to buyer, remain uncollected and are subject to repurchase. The secured borrowings totaled $599,180 and $1,537,710 as of March 31, 2013 and December 31, 2012, respectively. We recognized $37,081 and $-0- of interest expense associated with the secured borrowings for the three -months ended March 31, 2013 and 2012, 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 $2,423,348 for the three-months ended March 31, 2013.  TRE collected $1,824,168 of pledged receivables in the three-months ended March 31, 2013, 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 months ended March 31, 2013.