Total derivative liability at September 30, 2018 and December 31, 2017 amounted to $16,366,644 and $3,953,369, respectively. The change in fair value included in earnings of $9,370,276 is due to substantially decreased conversion prices due to the effect of “Ratchet” provisions incorporated in convertible notes payable (see Note 10) coupled with an increase in the risk-free interest rate.
The following related party transactions have been presented on the balance sheet in Note Payable – related party. In connection with the Purchase Agreement of the Acquisition Companies (see Note 1) the Company executed a non-interest bearing note payable in the amount of $830,000 due to the former CEO of the Acquisition Companies. During the nine months ended September 30, 2018, the Company paid $38,000 related to this note payable. At September 30, 2018 and December 31, 2017 the balance of the note payable – related party amounted to $792,000 and $830,000, respectively.
At September 30, 2018 the Company recorded a liability related to current and certain unpaid payroll taxes of approximately $15,300, of which approximately $300 relates to current payroll taxes and $15,000 relates to certain unpaid payroll taxes and includes interest and penalties. Although the Company has not received any notices from the IRS related to the unpaid payroll taxes, the Company confirmed the outstanding balances with the IRS. At December 31, 2017 the Company had $135,000 recorded as a liability related to this matter. Such amounts are included in accrued expenses in the accompanying unaudited consolidated financial statements.
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