Annual report pursuant to section 13 and 15(d)

5. Sale of Accounts Receivable

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5. Sale of Accounts Receivable
12 Months Ended
Dec. 31, 2012
Notes to Financial Statements  
5. Sale of Accounts Receivable

On September 12, 2011 the Company entered into a purchase and sale agreement with Prestige Capital Corporation (“Prestige”), whereby the Company sells certain of its accounts receivable to Prestige at a discount in order to improve the Company’s liquidity and cash flow. Under the terms of the purchase and sale agreement, Prestige pays the Company a percentage of the face amount of the receivables at the time of sale with the remainder, net of the discount, paid to the Company within three business days after Prestige receives payment on the receivables, which generally have 30 day terms. Outstanding accounts receivable sold to Prestige at December 31, 2012 and 2011 amounted to approximately $2.4 million and $1.4 million, respectively, and the Company recognized a loss on the sale of accounts receivable for the years ended December 31, 2012 and 2011 of approximately $335,000 and $52,000 (see note 16) in connection with the sale of accounts receivable. The transfer of accounts receivable to Prestige under this agreement meets the criteria for a sale of financial assets. As a result, such receivables have been derecognized from the Company’s consolidated balance sheet as of December 31, 2012 and 2011.

 

Prestige also provided the Company with a one-time advance of $208,382 during 2011 (see note 12). This advance was secured by a priority lien on the Company’s accounts receivable; however it is not attributable to a transfer of specific accounts receivable and is therefore reflected as a note payable to non-related parties in the accompanying consolidated balance sheet as of December 31, 2011. The proceeds from the advance were used to pay down other unrelated party indebtedness and for general corporate purposes. The outstanding balance on the advance was $103,073 at December 31, 2011, and this amount was repaid in full during 2012.