Financing Arrangements

3 Months Ended

Mar. 31, 2014

Debt Disclosure [Abstract]

Debt

NOTE 11 — 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.

All amounts are in $ thousands

	March 31, 2014		December 31, 2013
Lines of credit
Lloyds TSB Commercial Finance		1,893		443
FACTOCIC		780		753
Lines of credit	$	2,673	$	1,196

	March 31, 2014			December 31, 2013
Long-term debt
Lloyds term loan		654			711
Lloyds Mortgage		2,254			2,255
BPIFrance loan		275			-
Promissory Notes payable		1,977			2,277
Capital lease obligations		482			93
		5,642			5,336
Current portion of long-term debt		(2,444	)		(2,672	)
Long-term debt	$	3,198		$	2,664

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 March 31, 2014), 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 (currently 0.5%) plus 2.5% on the outstanding balance which is paid monthly. As of March 31, 2014, outstanding borrowings under the Receivable Finance Agreements were $1,894,000.

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%. As of March 31, 2014, CXR AJ had $780,000 of outstanding borrowings under the CIC Agreement.

Promissory Notes Payable

The promissory notes were amended 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 a term loan from Lloyds Bank described below. Since the date of issuance, the terms of the notes were 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). Subsequent to December 31, 2013, 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.

Lloyds TSB 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 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 March 31, 2014, the balance outstanding under the loan was $654,000. 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 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.

BPIFrance Loan

In March 2014, CXR AJ, the Company’s French operating subsidiary, was granted an innovation loan by BPIFrance. The loan is for 200,000 euros (approximately $275,000 using the exchange rate at March 31, 2014) and is specifically for the development of new products and processes. The loan is repayable in 20 quarterly instalments of $13,750 starting in December 2016. The loan is interest free.

Lloyds Bank Loan and Mortgage

On March 4, 2013, the Company entered into a loan agreement with Lloyds Bank for the sum of £1.4 million (approximately $2.3 million at the rate of exchange on March 31, 2014) to purchase the property occupied by Pascall. This loan, which is secured by a mortgage over the property, 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 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 $7,950,000 and $500,000 using the exchange rate at March 31, 2014). At December 31, 2013, the net worth of EEL, as defined by the loan agreement, was £6,100,000 and the profit for the year ended December 31, 2013 was £685,000 (approximately $1.1 million using the exchange rate at March 31, 2014). The loan is secured by a fixed lien over the property and any fixed plant and machinery within the building. As of March 31, 2014, the loan balance outstanding was $2.25 million and the property has a carrying value of $3.2 million. At December 31, 2013, the loan balance was $2.3 million and the carrying value of the property was $3.1 million.

Capital Leases

The Company has capital leases relating to capital equipment. The leases generally contain purchase options and expire at various dates through January 31, 2019. 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.