Financing Arrangements

9 Months Ended

Sep. 30, 2013

Financing Arrangements

Financing Arrangements

NOTE 12 — FINANCING ARRANGEMENTS

The Company has a variety of debt and credit facilities to satisfy the financing requirements of its operations and the countries within which it operates. These arrangements are tabulated below.

Lines of credit	September 30, 2013			December 31, 2012
Lloyds TSB Commercial Finance		885			37
FACTOCIC		85			964
Bridge Bank		-			121
Lines of credit	$	970		$	1,122
Long-term debt	September 30, 2013				December 31, 2012
Lloyds TSB term loan		755			928
Lloyds Mortgage		2,224				_
Promissory notes payable		2,277			2,877
Capital leases obligations		117			170
		5,373			3,975
Current portion of long-term debt		(991	)		(942	)
Long-term debt	$	4,382		$	3,033

All amounts are in $ thousands

Details of the borrowings set out in the table above are explained below.

Lloyds TSB Commercial Finance

On August 31, 2010, two of the Company’s UK subsidiaries, Pascall and XCEL, each entered into a Receivables Finance Agreement with Lloyds TSB Commercial Finance (“Lloyds”) (each, a “Receivables Finance Agreement” and, collectively, the “Receivables Finance Agreements”), pursuant to which Lloyds agreed to provide Pascall and XCEL a credit facility to support their UK operations in the aggregate principal amount of £2.75 million ($4.2 million based on the exchange rate on September 30, 2013), in each case at an advance rate of 88%, a discount charge of 2.5% above the base rate, and a service fee of 0.2%. The Receivables Finance Agreement between Pascall and Lloyds is secured by the All Assets Debenture, dated August 31, 2010, given by Pascall in favor of Lloyds (the “Pascall Debenture”) and the Receivables Finance Agreement between XCEL and Lloyds is secured by the All Assets Debenture, dated August 31, 2010, given by XCEL in favor of Lloyds (the “XCEL Debenture”). The Receivables Finance Agreements bear interest at the prevailing London interbank lending rate (0.5% at September 30, 2013) plus 2.5% on the outstanding balance which is paid monthly. As of September 30, 2013, outstanding borrowings under the Receivable Finance Agreements were $885,000.

The agreement is renewable annually and was last renewed at September 30, 2013 for a further twelve months.

FACTOCIC

On September 20, 2010, the Company’s French subsidiary, CXR AJ, entered into an accounts receivable financing arrangement with FACTOCIC S.A., a subsidiary of CIC Group (“CIC”) (the “CIC Agreement”), pursuant to which CIC agreed to provide CXR AJ a financing arrangement to support its French operations at an advance rate of 90% of presented receivables. The CIC Agreement bears interest at the three month EURIBOR (currently 0.5%) plus 1.4%. There is no renewal date but three months notice is required on either side to vary or terminate the agreement. As of September 30, 2013, CXR AJ had $85,000 of outstanding borrowings under the CIC Agreement.

Bridge Bank

On November 15, 2010, CXR Larus and Bridge Bank, National Association (“Bridge Bank”) executed a Business Financing Agreement, dated as of October 22, 2010 (the “Business Financing Agreement”), pursuant to which Bridge Bank agreed to provide to CXR Larus up to $800,000 of advance on trade accounts receivable at an advance rate of 80% with interest at the Prime Rate (currently 3.25%) plus 3.25%. To secure Bridge Bank’s obligations, Bridge Bank was granted continuing security interest in certain collateral of CXR Larus. The Company guaranteed the obligations of CXR Larus under the Business Financing Agreement pursuant to a Guaranty, dated as of October 22, 2010 and effective as of November 15, 2010. As of September 30, 2013, CXR Larus had no borrowings under the Business Financing Agreement. The Company closed its facility with Bridge Bank as at September 30, 2013.

Lloyds TSB Term Loan

On August 2, 2011, EMRISE Electronics Limited (“EEL”), a wholly-owned subsidiary of the Company, entered into a term loan with Lloyds TSB Bank plc (“Lloyds Bank”) in the amount of £750,000 (“Lloyds Term Loan”). As a condition to issuing the Lloyds Term Loan, each of the two operating subsidiaries of EEL, Pascall and XCEL, were required to provide £125,000 to an escrow account in each subsidiary’s name. The funds were to be held in escrow through to September 2012 at which time, Lloyds Bank could review and either renew or release the funds. Since the timing of release of the restricted funds was uncertain and Lloyds Bank was allowed to renew the restriction annually for the term of the loan, the total amount of £250,000 ($405,000 based on the exchange rate at December 31, 2012) was included in the accompanying balance sheet as a non-current asset at December 31, 2012. Since that date the sum has been released and was utilized as partial payment for the purchase of a freehold property housing the production and administrative facility of Pascall. The Lloyds Term Loan bears interest at a fixed rate of 4.75% over the rate quoted by the Lloyds Bank Wholesale Markets division at or about the time of borrowing, per annum. Principal and interest are payable monthly over 60 months commencing one month after the date of borrowing. Monthly repayments of Principal are £12,500 ($20,000 per month based on the exchange rate prevailing at September 30, 2013). The Lloyds Term Loan is subject to a financial covenant requiring a minimum net worth at EEL from and after December 31, 2012 of not less than £4,400,000 and shall increase annually by not less than £200,000. The Lloyds Term Loan was funded on August 30, 2011 and will be fully paid-off by August 30, 2016. As of September 30, 2013, £467,000 (or $755,000 based on the exchange rate at September 30, 2013) was outstanding under the Lloyds Term Loan.

Lloyds Bank Mortgage

On March 4, 2013, the Company entered into a mortgage with Lloyds Bank for the sum of £1.4 million (approximately $2.1 million at the rate of exchange on September 30, 2013) to purchase the property occupied by Pascall. This mortgage is repayable over 20 years. Interest is fixed at an annual rate of 4.8% for 15 years. Thereafter the interest reverts to a rate linked to the London Inter-bank lending rate. The loan is secured by a fixed lien over the property and any fixed plant and machinery within the building. The loan agreement contains financial covenants requiring the loan to value ratio to be a minimum of 80%, the net worth of EEL, the immediate parent company of Pascall, to be at least £4,776,000 and annual retained profits not to fall below £300,000 (approximately $7.3 million and $0.5 million using the exchange rate at September 30, 2013). At December 31, 2012, the net worth of EEL, as defined by the loan agreement, was £5.1 million and the profit for the year ended December 31, 2012 was £1 million. As at September 30, 2013, the loan balance outstanding was $2.2 million. The carrying cost of the property is $3.1 million.

Promissory Notes Payable

The promissory notes are subordinated contingent promissory notes, which were originally issued to the formers owners of ACC in May 2008 and were originally scheduled to mature on August 31, 2013. The notes are subordinated to the term loan from Lloyds TSB described above. Since the notes were issued there have been various amendments, most recently, effective November 1, 2012 (the “Amended Subordinated Contingent Notes”). The Amended Subordinated Contingent Notes bear interest at the prime rate as reported in The Wall Street Journal ( 3.25% at September 30, 2013) plus 4% (previously prime rate plus 1%) and mature on December 15, 2014 (the ’‘Maturity Date’’) (previously August 31, 2013). Interest is payable quarterly through to the Maturity Date. Principal payments commenced on January 15, 2013 in the amount of $0.3 million and a further sum of $0.3 million was paid on September 15, 2013. Further payments of principal amounting to $0.3 million are payable on each of March 15, 2014, and September 15, 2014. The outstanding principal balance of $1.7 million is due at the Maturity Date. As of September 30, 2013, the outstanding principal balance under the Amended Subordinated Contingent Notes was $2,277,000.

Capital Leases Obligations

The Company has capital leases relating to capital equipment. The leases generally contain purchase options and expire at various dates through December 31, 2016. Capitalized lease obligations are calculated using interest rates appropriate at the inception of the lease and range from 6% to 18%. Leases are amortized over the lease term using the effective interest method. At September 30, 2013, the obligations under capital leases were $117,000 ($170,000 at December 31, 2012).