NOTE 13. Notes Payable

Notes payable consisted of the following as of the dates presented (in thousands):

	September 30, 2018 (unaudited)			December 31, 2017 (audited)
Class B promissory notes	$	—		$	100
Class C promissory notes		—			333
10% promissory note due on demand		—			500
8% convertible promissory note due March 2019		250			250
8% secured promissory notes due July/August 2018 in default		600			1,350
0% promissory notes due January and March 2018		—			715
0% promissory notes due May 2018 in default		218			261
8% promissory notes in default		—			200
8% promissory notes due March 2019		—			1,776
8% secured promissory notes due March 2019		—			3,455
0% convertible notes due January 2021		275			—
4% promissory note due April 2021		1,000			—
0% promissory note due November 2018		789			—
0% promissory note due April 2019		868			—
8% promissory note due March 2021		2,107			—
Total face amount		6,107			8,940
Unamortized discount		(60	)		(26	)
Total carrying value		6,047			8,914
Amount classified as current		3,059			3,374
Amount classified as long-term	$	2,988		$	5,540

On August 15, 2018, as described in Note 14, the Company entered into debt exchange agreements with a number of holders of promissory notes then outstanding, which resulted in an extinguishment of the related debt by conversion into common stock of the Company at market value of the securities with no gain or loss recognized. Unamortized discount of $163,000 related to $725,000 face value of the 0% convertible notes due January 2021 that was included in the exchange was recorded as accretion expense during the period and is included in interest expense for the period.

On December 22, 2016, the Company issued a $250,000 note payable bearing interest of 8% per annum and maturing on the earlier of June 22, 2017 or the closing of a financing in which the Company receives gross proceeds of at least $2,000,000 (a “Qualified Financing”). The note is convertible at the issuance price upon a Qualified Financing, at the holder’s option, into securities sold in the Qualified Financing. In February 2018, this note was extended from its original maturity date to March 31, 2019. No other terms of the note were changed and the extension was treated as a modification of the note rather than an extinguishment.

The 8% secured promissory notes were assumed in the October 2017 OneClick Acquisitions described in Note 21. The notes, which are secured by the assets of OneClick International and OneClick License pursuant to a security agreement, were in default at September 30, 2018, but were repaid in November 2018.

The 0% promissory notes due in May 2018 were assumed in the October 2017 OneClick License Acquisition described in Note 21. The notes were in default at September 30, 2018, but were repaid in November 2018.

In January 2018, the Company issued an aggregate of $1,000,000 of 3-year 0% convertible notes and warrants. The notes are convertible into an aggregate of 570,287 shares of common stock of the Company and the warrants are exercisable for 570,287 shares of common stock of the Company at an exercise price of $9.15 per share. The Company valued the debt and the warrants in accordance with ASC 470-20-25-2 using a binomial option pricing model for the warrants, and the conversion feature, which was determined to be a Beneficial Conversion Feature, was recorded at fair value based on the difference between the closing market price of the Company’s stock on the date of the transaction and the implied conversion price in the fair value of the debt. The valuation assumed a 105% volatility rate of the Company’s common stock, a risk-free interest rate of 2.20% and a credit spread of 7.70%. The warrants were assigned a value of $127,000 and the conversion feature was assigned a value of $144,000. The remaining value of $729,000 was assigned to the debt. The aggregate discount of $271,000 is being amortized to interest expense over the 3-year life of the notes on a straight-line basis. In connection with the debt exchange on August 15, 2018, holders of an aggregate principal amount of $725,000 of the notes converted their notes to common stock, leaving a principal balance of $275,000 outstanding. The unamortized discount related to the converted notes amounted to $163,000, which amount was recorded as accretion expense in the period. Excluding this amount, accretion of the discount for the nine months ended September 30, 2018 amounted to $39,000.

In April 2018, the Company issued a $1,000,000 installment note bearing interest at 4.02% per annum due April 30, 2021. The note specifies varying monthly payments of principal and interest with annual principal payments of $159,000, $296,000, $359,000 and $186,000 in 2018 through 2021.

In July 2018, the Company issued a 0% promissory note in the amount of $1,439,000 to one of its vendors to consolidate accounts payable owed to the vendor. The note calls for five specified payments in varying amounts due through November 2018. As of September 30, 2018, the Company had repaid $650,000 of the amount due, leaving $789,000 outstanding, payable $350,000 on October 31, 2018 and $389,000 on November 30, 2018.

In August 2018, in connection with the Unitron acquisition described in Note 24, the Company assumed the remaining balance of $868,000 on 0% promissory notes with $450,000 paid in October 2018 and $418,000 due in April 2019.

In September 2018, the Company entered into a Note Consolidation Agreement with a lender in which 12 promissory notes and associated accrued interest were consolidated into single unsecured 8% promissory note in the principal amount of $2,107,000. The note is due in a lump sum on March 31, 2021. Interest compounds annually. Because the present value of the cash flows under the terms of the new debt instrument was less than 10% different from the present value of the aggregate remaining cash flows under the terms of the original instruments, the debt instruments were not considered to be substantially different and the transaction was not considered a debt extinguishment.