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NOTE 6 - NOTES PAYABLE AND DERIVATIVE LIABILITY | 9 Months Ended
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Sep. 30, 2013
Debt Disclosure [Abstract] |
Debt Disclosure [Text Block] | NOTE 6 – NOTES PAYABLE AND DERIVATIVE LIABILITY The following table summarizes our outstanding debt as of the dates indicated:
Notes Payable |  | Maturity |  | Stated Interest Rate |  |  | Balance as of September 30, 2013 |  |  | Balance as of December 31,2012
Subordinated notes payable: ADI - Acquisition Note |  | 10/1/2014 |  |  | 0.16 | % |  | $ | 767 |  |  | $ | 693 |
Subordinated notes payable: Legiant Acquisition - Note # 2 |  | 10/1/2014 |  |  | 5.00 | % |  |  | - |  |  |  | 186 |
Subordinated notes payable: Legiant – Acquisition – Note #3 |  | 10/1/2014 |  |  | 0.20 | % |  |  | - |  |  |  | 1,510 |
Subordinated Convertible Notes Payable – 9% Notes |  | 9/30/2014 |  |  | 9.00 | % |  |  | 327 |  |  |  | 311 |
Subordinated Notes Payable – 15% Notes |  | 9/30/2014 |  |  | 15.00 | % |  |  | - |  |  |  | 800 |
Subordinated Notes Payable: PeopleCube Acquisition Note |  | 10/31/2014 |  |  | 10.00 | % |  |  | 2,153 |  |  |  | 2,499 |
Senior Note Payable |  | 7/01/2016 |  |  | 11.50 | % |  |  | 13,411 |  |  |  | 14,138 |
Total Notes Payable |  |  |  |  |  |  |  | $ | 16,658 |  |  | $ | 20,137 |
Short-term notes payable |  |  |  |  |  |  |  | $ | 1,965 |  |  | $ | 3,450 |
Long-term notes payable |  |  |  |  |  |  |  | $ | 14,693 |  |  | $ | 16,687 |
The following table summarizes the future principal payments related to our outstanding debt, including the impact of the amendment to the Senior Note Payable discussed below:
Twelve Months Ended |  | Gross Amount |  |  | Unamortized Original Issue Discount |  |  | Total Notes Payable |
December 31, 2013 (remaining) |  | $ | 362 |  |  |  |  |  |  |  |  |
December 31, 2014 |  |  | 5,360 |  |  |  |  |  |  |  |  |
December 31, 2015 |  |  | 1,700 |  |  |  |  |  |  |  |  |
December 31, 2016 |  |  | 9,648 |  |  |  |  |  |  |  |  |
|  | $ | 17,070 |  |  | $ | 412 |  |  | $ | 16,658 |
Subordinated Notes Payable: ADI - Acquisition Note In conjunction with the acquisition of the assets of ADI in October 2011, our wholly-owned subsidiary issued a $1,095 note payable to the seller. This note bears interest at an annual rate of 0.16%, will mature on October 1, 2014 and is guaranteed by us. We recorded the note at fair value using a discount rate of 9%, which resulted in an original issue discount of $244, which will accrete up the note to its aggregate principal amount over the course of the life of the loan using the effective interest method. We made a principal payment of $245 in July 2012. This note was paid in full in October 2013, less a 5% discount for early payment. Subordinated Notes Payable: Legiant Acquisition In conjunction with the acquisition of Legiant, our wholly-owned subsidiary issued three separate promissory notes to the seller. We guaranteed all three promissory notes, which are subordinated to our senior note payable discussed below. The details of each of the notes are as follows: Legiant Acquisition - Note #1 Legiant Acquisition - Note #1 was for an aggregate principal amount of $250, bore interest at an annual rate of 0.20% and matured in February 2012. We paid this note in full in 2012. Legiant Acquisition - Note #2 Legiant Acquisition - Note #2 is for the principal amount of $478, bears interest at an annual rate of 5.00% and required monthly payments of $10 until June 2012. Asure made a principal payment for $235 in July 2012. No further cash interest or principal is payable until the maturity date of October 1, 2014. We paid this note in full on September 30, 2013, less a 15% discount for early payment, in connection with the additional borrowing under our Senior Note Payable, as described below. Legiant Acquisition - Note #3 Legiant Acquisition - Note #3 is for an aggregate principal amount of $1,761, bears interest at an annual rate of 0.20%, and is due in a single lump sum on October 1, 2014. We recorded the note at fair value using a discount rate of 9%, resulting in an original issue discount of $382, which will accrete up the note to its aggregate principal amount over the course of the life of the loan using the effective interest method. We paid this note in full on September 30, 2013, less a 15% discount for early payment, in connection with the additional borrowing under our Senior Note Payable, as described below. Subordinated Convertible Notes Payable - 9% Notes In September 2011, we sold $1,500 of our 9% subordinated convertible notes (“9% Notes”) in a private placement to accredited investors to finance the ADI acquisition. The 9% Notes - As Originally Issued The 9% Notes pay interest on each of March 31, June 30, September 30 and December 31, beginning on December 31, 2011, at a rate of 9% per year. The 9% Notes will mature on September 30, 2014. The 9% Notes are secured by all of our assets, but are subordinated to our obligations under the senior note payable and the 15% Notes discussed below. Beginning 12 months from the date of issuance, each note holder may convert the 9% Notes into shares of our common stock at a conversion price of $5.00 per share, subject to adjustments for stock dividends and splits and certain other events. Additionally, if we subsequently issue common stock at a price below the then current conversion price, the conversion price will be reset to the greater of $3.27 per share (the closing price of our common stock on September 30, 2011) or such lower price. In the event that a holder of a 9% Note elects to convert the 9% Note into equity, and we determine that such conversion would jeopardize our federal tax loss carryforward benefits, we may elect to prepay any or all of such 9% Notes prior to conversion, subject to certain limitations, at a purchase price equal to the product of the number of shares into which the 9% Note is convertible and the volume weighted average closing price during the 20 day trading period beginning on the 10th day before the conversion notice is received by us, multiplied by the Premium Rate. The Premium Rate is 1.1 if a holder notifies us of an intention to convert the 9% Note into equity prior to the date that is 90 days before the maturity date and 1.5 if such notification is made within 90 days of the maturity date. The 9% Notes also contain customary terms of default. We also agreed that if we issue common stock below $3.25 per share, each holder of the 9% Notes outstanding at that time will have the right to purchase such holder’s pro rata portion of the new stock issuance. The 9% Notes contained embedded derivative instruments related to the conversion feature that Asure accounted for separately. Asure has re-measured the fair values of these instruments for each reporting period and recorded a gain or loss for the change in fair value. At inception, we valued the conversion feature at $274, resulting in an original issue discount on the convertible debt accreting up the 9% Notes to their aggregate principal amount over the course of the life of the loan using the effective interest method. We recognized amortization of the original issue discount of $21 during 2011. We used a Monte Carlo simulation in a risk-neutral framework to simulate our market capitalization outcomes, including considerations of our projected share price volatility, to estimate the fair value of the embedded derivative. The fair value of the conversion feature was $835 at December 31, 2011, with $561 being recorded in the income statement for the mark-to-market impact. This amount of $561 was recorded in interest expense – amortization of OID and derivative mark-to-market in our Consolidated Statements of Comprehensive Income (Loss). The 9% Notes - Amendments In March 2012, we amended the terms of the 9% Notes to eliminate the embedded derivative features resulting in a settlement or extinguishment of the derivative liability. Under the terms of the amendment, each holder of 9% Notes was permitted to convert the outstanding principal balance due thereunder into shares of our common stock at the conversion price originally set forth in the 9% Notes ($5.00 per share of common stock) on or before March 15, 2012. As consideration for agreeing to the terms of the amendment, we made a one-time cash payment in such amount as follows: (i) $211 for holders of 9% Notes who elected to convert their 9% Notes into common stock prior to March 16, 2012, an amount equal to 80% of the interest that such holder would have received by holding the 9% Note to maturity and (ii) $11 for holders of 9% Notes who did not elect to convert their 9% Notes into common stock prior to March 16, 2012, an amount equal to 3% of the outstanding principal amount of each 9% Note. In each case, the holders of the 9% Notes agreed to the removal of the dilution protection provision to reset the conversion price below $5.00 per share upon certain issuances of our common stock below $5.00 per share. Holders of approximately $1,150 of the total $1,500 of principal amount of 9% Notes converted their 9% Notes to common stock. The amendment to the 9% Notes eliminated the derivative liability. Effective on March 10, 2012, we no longer accounted for the derivatives on a separate basis. Therefore, we no longer re-measure the value of the derivatives after the amendment date. The fair value of the conversion feature was $1,300 at March 10, 2012, with $465 recorded in the income statement for the mark-to-market impact. We recorded this amount in interest expense – amortization of OID and derivative mark-to-market in the Consolidated Statements of Comprehensive Income (Loss). The conversion of the 9% Notes and elimination of the derivative liability resulted in a loss on debt conversion of $198, a reduction in the carrying value of the 9% Notes to $296 at March 31, 2012 and an increase in additional paid in capital of $2,244 for the issuance of 345 shares of common stock issued upon conversion. Mr. Goepel, our Chief Executive Officer, purchased $200 of the 9% Notes. Red Oak Fund, LP purchased $600 of the 9% Notes. Mr. Sandberg, our Chairman, is the controlling member of Red Oak Partners, LLC, which manages the Red Oak Fund. Both parties subsequently converted the 9% Notes under the terms of the amendment. Subordinated Notes Payable - 15% Notes In September 2011, we sold $1,700 of our 15% subordinated notes (“15% Notes”) in a private placement to accredited investors. The 15% Notes pay interest on each of March 31, June 30, September 30 and December 31, beginning on December 31, 2011, at a rate of 15% per year. The 15% Notes have a maturity date of September 30, 2014. On July 1, 2012, Asure prepaid $900 from proceeds of the senior note payable. Mr. Goepel, our Chief Executive Officer, originally purchased $500 of the 15% Notes. Pinnacle Fund, LLLP originally purchased $300 of the 15% Notes. Mr. Sandberg, our Chairman, is the controlling member of Red Oak Partners, LLC, which owns 50% of Pinnacle Partners, LLC, the general partner of the Pinnacle Fund, LLLP. Red Oak Partners, LLC is also the manager of the Pinnacle Fund, LLLP. We expensed $115 of fees for this transaction during 2012. The 15% Notes are secured by all of our assets, but are subordinated to our obligations to the senior note payable discussed below. The 15% Notes also contain customary terms of default. We paid these notes in full on September 30, 2013, in connection with the additional borrowing under our senior note payable, as described below. Subordinated Notes Payable: PeopleCube Acquisition – Note In July 2012, we issued a $3,000 Note to the seller in the PeopleCube stock acquisition. The note is due October 31, 2014, subject to offset of any amounts owed by the seller to us under the indemnification provisions of the stock purchase agreement. We recorded the note at fair value using a discount rate of 10%, which resulted in an original issue discount of $622, which will accrete up the note to its aggregate principal amount over the course of the life of the loan using the effective interest method. In the third quarter of 2013, we reached an agreement to settle our post-closing working capital adjustment dispute with PeopleCube Holding B.V. and Meeting Maker Holding B.V., the sellers of the capital stock of Meeting Maker – United States, Inc. (dba PeopleCube). The parties agreed to a post-closing adjustment due to us of $496, with accrued interest of $44, totaling $540. The parties agreed to reduce the original $3,000 deferred purchase payment by the post-closing adjustment amount of $540. This also had the effect of reducing our Note by a like amount. The remaining deferred purchase price balance under the Subordinated Notes Payable: PeopleCube Acquisition Note is now $2,460. Senior note payable In July 2012, we and our wholly-owned subsidiaries entered into a loan agreement with Deerpath Funding, LP, a Delaware limited partnership, as lender, administrative agent and collateral agent (“Deerpath”). Under the loan agreement, we borrowed $14,500 to (i) finance the cash purchase consideration for the acquisition of PeopleCube, (ii) pay outstanding indebtedness under the 15% Notes (including partial interest and subordination consent payments of $134 to Mr. Goepel, our Chief Executive Officer, and $81 to Pinnacle Fund, which is controlled by David Sandberg, our Chairman) and our bank line of credit, and (iii) pay transaction costs and expenses of the term loan and the acquisition of PeopleCube. The loan agreement also provides for a conditional commitment of additional single advance senior secured term loans from time to time in an aggregate amount not to exceed $10,000 to be used for refinancing certain other indebtedness, funding permitted acquisitions or other growth initiatives, and paying fees and expenses of the term loans and permitted acquisitions. On September 30, 2013, we entered into a third amendment to our loan agreement. Under this amendment and as part of the conditional term loan commitment, we borrowed an additional $2,500 on September 30, 2013 and obtained a commitment from Deerpath to lend us an additional $1,500 on or before December 31, 2013. The third amendment increases the amount outstanding under our senior notes payable to $13,411. The senior note payable bears interest at a floating annual rate equal to LIBOR plus 8.00%, subject to a LIBOR floor of 9.5%, or a minimum of 11.5%. It requires monthly payments of interest only and quarterly principal payments of $362 from October 1, 2012 October 1, 2013. With the additional borrowing in September 2013and beginning January 1, 2014, the quarterly principal payments will be $425 with any remaining principal due on July 1, 2016. The first amendment in March 2013 required an additional $2,000 principal payment by October 31, 2013 which we paid in May 2013. In addition, in connection with the first amendment, we paid a $240 loan amendment fee, of which $52 was recorded to interest expense and $188 was recorded as a prepaid expense that we amortizing to interest expense over the term of the note payable. In connection with the third amendment in September 2013, we recorded $110 of loan amendment fees as a prepaid expense and are amortizing this amount to interest expense over the term of the note payable. There were no fees associated with the second amendment. We may prepay all or a portion of the principal amount outstanding at any time, subject to a premium ranging from 1% to 5% of the principal amount being prepaid depending on if the prepayment occurs on or before the first, second or third anniversary of the third amendment date. The term loan requires annual mandatory prepayments beginning December 31, 2012 of outstanding principal with 75% of excess cash flow as defined in the loan agreement (such percentage to be reduced to 50% if we achieve a specified senior debt-to-EBITDA ratio) and, at Deerpath’s election, with proceeds from certain events, including 100% of the net proceeds of any asset sales and issuance of equity securities. The senior note payable is secured by a first priority lien on all of our and our subsidiaries’ assets and pledges of 100% of the equity interests in Asure’s domestic subsidiaries and 65% of the equity interests in Asure’s foreign subsidiaries. The loan agreement contains customary covenants, which were amended effective September 30, 2013, including but not limited to limitations with respect to debt, liens, mergers and acquisitions, sale of assets, loans or advances to and investments in others, dividends or other distributions, capital expenditures and management compensation. Deerpath may designate one representative to attend all meetings of our board of directors as a non-voting observer. We used the net proceeds from the third amendment to pay the two Legiant Acquisition Notes totaling $1,700, as well as the two related party 15% Notes totaling $800. These loans were all due in October 2014. Under the latest amendment, we also changed certain financial covenants. Beginning with September 30, 2013, our Total Debt to EBITDA Ratio may not exceed 4.75 to 1.00 (an increase from the previous requirement of 3.50 to 1.00), with levels stepping down thereafter. Our Senior Debt to EBITDA Ratio may not exceed 3.85 to 1.00 at September 30, 2013 (an increase from the previous requirement of 2.50 to 1.00), with levels stepping down thereafter. Our Fixed Charge Coverage Ratio may not be less than 0.8 to 1.00 as of September 30, 2013 (a decrease from the previous requirement of 1.00 to 1.00), with levels stepping up thereafter. We were in compliance with the amended covenant requirements as of September 30, 2013 and expect to be in compliance or be able to obtain compliance through debt repayments with the available cash on hand or as expected to be generated from operations over the subsequent twelve month period. The loan agreement contains customary events of default, including, among others, (i) payment defaults, (ii) covenant defaults, (iii) incorrect representations or warranties, (iv) bankruptcy and insolvency events, (v) certain cross defaults and cross accelerations, (vi) certain change of control or change of management events and (vii) certain material adverse events. In some cases, the defaults are subject to customary notice and grace period provisions. We made principal payments of $362 on the senior note payable on each of October 1, 2012, January 1, 2013, April 1, 2013 and July 1, 2013. We paid the required $2,000 principal payment in May 2013. Line of Credit In September 2011, we entered into a credit agreement with JPMorgan Chase Bank N.A. (“Bank”), providing for a $500 line of credit (the “Line of Credit”), which we fully utilized as of December 31, 2011. As originally issued, the Line of Credit bore interest at a rate of 1.5% above the CB Floating Rate and matured on September 28, 2012. The CB Floating rate is defined as the Bank’s prime rate, as announced from time to time, provided that the CB Floating Rate may not be less than the adjusted one month LIBOR rate. The aggregate principal amount of advances outstanding at any one time under the Line of Credit may not exceed 80% of eligible trade accounts and accounts receivable or the maximum principal amount then available, whichever is less. We repaid the $500 outstanding under the line of credit in full in July 2012. This line expired as of December 31, 2012.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21475-112644 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 19, 20, 22 -Article 5 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.19,20,22) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 + Details
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