Debt

12 Months Ended

Dec. 31, 2013

Debt Disclosure [Abstract]

Debt

NOTE 10 - DEBT

Lloyds TSB Bank Term Loan

On August 2, 2011, EMRISE Electronics Limited (“EEL”), a wholly-owned subsidiary of the Company, entered into an agreement for 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, the two operating subsidiaries of EEL, being Pascall and XCEL, were required to provide the sterling equivalent of $202,500 to an escrow account in each subsidiary’s name. The agreement required the funds to be held in escrow. Since the timing of release of the restricted funds was uncertain and Lloyds Bank could 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. These sums were released from escrow during 2013. The Lloyds Term Loan bore interest at a fixed rate of the aggregate of 4.75% per annum and the rate quoted by the Lloyds Bank Wholesale Markets division at the time of borrowing. Principal and interest were payable monthly over 60 months commencing one month after the date of borrowing. The Lloyds Term Loan was subject to a financial covenant requiring a minimum net worth at EEL from and after December 31, 2011 of not less than £4,200,000 and was scheduled to increase annually by not less than £200,000. The Company was in compliance with this covenant at both December 31, 2013 and 2012. As of December 31, 2013, £431,000 ($711,000 based on the exchange rate at December 31, 2013) was outstanding under the Lloyds Term Loan. At December 31, 2012, £560,000 or $928,000 was outstanding, based on the exchange rate at December 31, 2012. On April 1, 2014, the Company replaced this loan with a new three year loan with Lloyds Bank of £1.1 million (approximately $1.8 million, using the exchange rate at March 31, 2014). The loan carries a fixed rate of interest of 6.6% per annum and includes a covenant which requires the net worth of the EEL, after deducting inter-company balances, to not fall below £2 million (approximately $3.3 million using the exchange rate at March 31, 2014). The value of this net worth covenant increases by approximately $400,000 each calendar year.

Lloyds TSB Mortgage

On March 4, 2013, the Company entered into a mortgage with Lloyds Bank for the sum of £1.4 million (approximately $2.3 million at the rate of exchange on December 31, 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 $7.9 million and $0.5 million respectively, using the exchange rate at December 31, 2013). At December 31, 2013, the consolidated net worth of EEL, as defined by the loan agreement, was £6.1 million and the profit for the year ended December 31, 2013 was £0.7 million. The Company met these covenants at December 31, 2013. As of December 31, 2013, the loan balance outstanding was $2.3 million. The carrying cost of the property is $3.1 million.

Promissory Notes payable

The promissory notes were subordinated contingent promissory notes, which were issued to former owners of ACC in May 2008 and were originally scheduled to mature on August 31, 2013. The notes were subordinated to the term loan from Lloyds TSB described above. Since the date of issuance the notes have been amended numerous times, most recently, effective November 1, 2012 (the “Amended Subordinated Contingent Notes”). The Amended Subordinated Contingent Notes bore interest at the prime rate as reported in The Wall Street Journal plus 4% (previously prime rate plus 1%) and were scheduled to mature on December 15, 2014 (the “Maturity Date”) (previously August 31, 2013). Interest was payable quarterly through to the Maturity Date. Principal payments of $300,000 were due on March 15, 2014, and September 15, 2014 with the outstanding principal balance of $1.7 million due at the Maturity Date. At December 31, 2013, the outstanding principal balance under the Amended Subordinated Contingent Notes was $2,277,000. Subsequent to the year end, the payment of principal of $300,000, due on March 15, 2014, was paid on schedule and the balance of the principal and accrued interest was paid on April 7, 2014.

Capital Leases

The Company has capital leases relating to capital equipment. The leases generally contain purchase options and expire at various dates through December 31, 2015. 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.

Principal maturities related to debt, as of December 31, 2013, were as follows (in thousands):

	Lloyds mortgage		Lloyds Term Loan		Promissory notes Payable		Capitalized Lease Obligations		Total
Year ending December 31,
2014	$	73	$	252	$	2,277	$	69	$	2,671
2015		76		269		-		24		369
2016		81		190		-		-		271
2017		85		-		-		-		85
2018		90								90
2019 and beyond		1,850		-		-		-		1,850
	$	2,255	$	711	$	2,277	$	93	$	5,336