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Debt

12 Months Ended

Dec. 31, 2014

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 of December 31, 2013, £431,000 ($711,000 based on the exchange rate at December 31, 2013) was outstanding under the Lloyds Term Loan. On April 1, 2014, the Company replaced this loan with a new three-year loan with Lloyds Bank of £1.1 million (approximately $1.7 million, using the exchange rate at December 31, 2014). The loan is repayable in monthly installments over the three year term. 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 $3.2 million using the exchange rate at December 31, 2014). The value of this net worth covenant increases by approximately $400,000 each calendar year. At December 31, 2014, the balance outstanding under the loan was $1,316,000. The Company was in compliance with the covenants as of December 31, 2014.

Lloyds TSB Property loan secured by Mortgage

On March 4, 2013, the Company entered into a mortgage with Lloyds Bank for the sum of £1.4 million (approximately $2.2 million at the rate of exchange on December 31, 2014) to purchase the property occupied by Pascall. This loan, which is secured by a fixed 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 is secured by a fixed lien over the property and any fixed plant and machinery within the building. The loan agreement contains financial covenants (assessed annually), 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 $7.5 million and $0.5 million using the exchange rate at December 31, 2014. At December 31, 2014, the Company was in compliance with these covenants as the net worth of EEL, as defined by the loan agreement, was £7.8 million (approximately $12.2 million using the exchange rate at December 31, 2014) and the profit for the year ended December 31, 2014 was £1,456,000 (approximately $2.3 million using the exchange rate at December 31, 2014). This compares with profits of $1.1 million in 2013. As of December 31, 2014, the loan balance outstanding was $2.1 million and the property had a carrying value of $3.0 million. At December 31, 2013, the loan balance was $2.3 million and the carrying value of the property was $3.1 million.

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 $243,000 using the exchange rate at December 31, 2014) and is specifically for the development of new products and processes. The loan is repayable in 20 quarterly installments of $13,000 starting in December 2016. The loan is interest free. As of December 31, 2014, CXR AJ had $243,000 of outstanding borrowings under this loan 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 the term loan from Lloyds Bank described above. Since the date of issuance, the terms of the notes were amended numerous times, most recently, with effect from 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. Under the terms of the agreement with the holders of the Amended Subordinated Contingent Notes, on the redemption of such notes, the holders are entitled to indemnification for additional tax paid if the rate of capital gains tax increased between the dates such notes were originally issued and the date of redemption. The rate of capital gains tax did increase from 15% to 20% with effect from January 1, 2013 and, in addition, a capital gains tax surcharge of 3.8% was introduced. The holders of the Amended Subordinated Contingent Notes were therefore entitled to indemnification by the Company for the additional tax payable on their gains. On September 30, 2014, the Company entered an agreement with the former holders of the Amended Subordinated Contingent Notes making a full and final settlement of $279,000 plus $10,000 of legal costs charging the settlement sum to other expenses in the Statement of Comprehensive Income. The amounts due were settled on that date. The former note holders have no further claim over the Company or its assets as a result of this agreement.

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 have 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 December 31, 2014, the present value of obligations under non-cancelable capital leases were $581,000 ($93,000 at December 31, 2013).

Principal maturities related to long-term debt, including the obligations under capital leases, as of December 31, 2014, were as follows (in thousands):

Year ending December 31,	Lloyds loan linked to mortgage		Lloyds Term Loan		BPI Loan		Capitalized Lease Obligations		Total

2015		72		561		-		143		776
2016		77		599		12		131		819
2017		80		156		49		126		411
2018 and beyond		1,828		-		182		181		2,191
	$	2,057	$	1,316	$	243	$	581	$	4,197

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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