4. DERIVATIVE LIABILITY

6 Months Ended

Jun. 30, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

In connection with Secured Convertible Debentures, the convertible debentures, contain ratchet provisions regarding the conversion of debt into shares.

The Company entered into a 10% Secured Convertible Debenture entered into on November 21, 2014, for a term of 15 months. The debenture is in the amount of $225,000 with funding to be received in four tranches of $50,000. The note includes an Original Issue Discount in the amount of $20,000 and legal fees of $5,000. The original issue discount is prorated over the tranches and the legal fees are applied to the first tranche. The company has received one tranche as of the year ended December 31, 2014 which included $5,000 legal fees and other loan costs and $5,000 original issue discount for a total liability on the convertible note of $60,000 at year end plus accrued interest.

Conversion of the note is based on a comparison between a fixed conversion price and the lesser of the variable conversion price. The conversion of outstanding debt to shares of common stock is based on the market capitalization of the company’s common stock. The conversion price of the outstanding balance is fixed at $0.25 unless the market of capitalization of the company is less than $3,000,000. In the event the market capitalization is less than $3,000,000, the conversion factor is 70% of the three lowest closing prices in a the previous 20 trading days. The convertible debenture also includes a “True up” feature, whereas the conversion price is recalculated 20 trading days after the conversion. If the conversion amount on the true up date is less than the conversion amount on the previous conversion, then additional shares would be issued as if the true up conversion amount was applicable on the original conversion.

The Company assesses the fair value of the convertible debenture using the Black Scholes pricing model and records a derivative expense for the value. The Company then assesses the fair value of the warrants quarterly based on the Black Scholes Model and increases or decreases the liability to the new value, and records a corresponding gain or loss. The Company uses expected volatility based primarily on historical volatility using weekly pricing observations for recent periods that correspond to the expected life of the warrants. The risk-free interest rate is based on U.S. Treasury securities rates.

Due to the ratchet provisions, the Company treats the convertible debenture as a derivative liability in accordance with the provisions of ASC 815 “Derivatives and Hedging” (ASC 815). ASC 815 applies to any freestanding financial instruments or embedded features that have the characteristics of a derivative and to any freestanding financial instruments that potentially settle in an entity’s own common stock.

	June 30, 2015	December 31, 2014
Risk-free interest rate at grant date	.28%	.25%
Expected stock price volatility	226%	139%
Expected dividend payout	–	–
Expected option in life-years	.75	1.25

As of June 30, 2015, derivative liability for this note is $16,599 and the change of derivative liability for the six months ended June 30, 2015 was $21,607. An additional derivative liability was recognized for the warrants in connection with the note in the amount of $42,107 as on June 30, 2015.

The Company entered into a 7% Secured Convertible Debenture entered into on December 2, 2014, for a term of 3 years. The debenture is in the amount of $200,000 with funding to be received in two tranches of $100,000. Conversion of the note is based on a comparison between a fixed conversion price and the lesser of the variable conversion price. The conversion price of the outstanding balance is the lower of $0.15 or 40% of the 30 day trading average.

	June 30, 2015		December 31, 2014
Risk-free interest rate at grant date		1.01%		1.59%
Expected stock price volatility		226%		139%
Expected dividend payout		–		–
Expected option in life-years		2.5		3

As of June 30, 2015, total derivative liability for this note is $193,937 and the loss in change of derivative liability for the six months ended June 30, 2015 was $393,695.

The Company entered into a 12% Secured Convertible Debenture entered into on February 9, 2015, for a term of 9 months. The debenture is in the amount of $59,000. The conversion price for the amount to be converted of 52% of the average of the three lowest trading price for the previous 10 days at date of conversion.

	June 30, 2015
Risk-free interest rate at grant date		.64%
Expected stock price volatility		225%
Expected dividend payout		–
Expected option in life-years		.37

As of June 30, 2015, total derivative liability for this note is $79,870 and the derivative expense for the note was $133,577 for the six months ended June 30, 2015.

The Company entered into a 12% Secured Convertible Debenture entered into on March 9, 2015, for a term of 6 months. The debenture is in the amount of $50,000. Conversion of the note is based on a comparison between the lesser of two variable conversion prices. The conversion price of the outstanding balance is the lower of 45% of the lowest trading price for the previous 20 days at date of conversion or 45% of the lowest trading price for the previous 20 days before the date of the note.

	June 30, 2015
Risk-free interest rate at grant date		.01%
Expected stock price volatility		106%
Expected dividend payout		–
Expected option in life-years		.5

As of June 30, 2015, total derivative liability for this note is $4,148 and the derivative expense for the note was $227,997 for the six months ended June 30, 2015.

The Company entered into a 12% Secured Convertible Debenture entered into on March 25, 2015, for a term of 2 years. The debenture is in the amount of $250,000 which includes a $25,000 original issue discount. At closing the company received $25,000 and an original issue discount of $2,778 for a total liability of $27,778. Conversion of the note is based on a comparison between a fixed conversion price and the lesser of the variable conversion price. The conversion price of the outstanding balance is the lower of $0.087 or 60% of the lowest trading price for the previous 25 days at date of conversion.

	June 30, 2015
Risk-free interest rate at grant date		.64%
Expected stock price volatility		226%
Expected dividend payout		–
Expected option in life-years		1.75

As of June 30, 2015, total derivative liability for this note is $44,417 and the derivative expense for the note was $83,683 for the six months ended June 30, 2015.

The Company entered into an 8% Secured Convertible Debenture on May 20, 2015, for a term of 1 year. The debenture is in the amount of $31,500. The conversion price of the outstanding balance is the 55% of the lowest trading price for the previous 18 days at date of conversion.

	June 30, 2015
Risk-free interest rate at grant date		.28%
Expected stock price volatility		245%
Expected dividend payout		–
Expected option in life-years		.75

As of June 30, 2015, total derivative liability for this note is $82,505 and the derivative expense for the note was ($82,505) for the six months ended June 30, 2015.

The Company entered into a 10% Secured Convertible Debenture entered into on May 21, 2015, for a term of 9 months. The debenture is in the amount of $55,000. The conversion price of the outstanding balance is 50% of the average of the two lowest trading price for the previous 25 days at date of conversion.

	June 30, 2015
Risk-free interest rate at grant date		.28%
Expected stock price volatility		238%
Expected dividend payout		–
Expected option in life-years		1.0

As of June 30, 2015, total derivative liability for this note is $95,833 and the derivative expense for the note was ($95,833) for the six months ended June 30, 2015.

The Company entered into an 8% Secured Convertible Debenture entered into on May 25, 2015, for a term of 1 year. The debenture is in the amount of $55,000. The conversion price of the outstanding balance is 50% of the average of the three lowest trading price for the previous 20 days at date of conversion.

	June 30, 2015
Risk-free interest rate at grant date		.28%
Expected stock price volatility		238%
Expected dividend payout		–
Expected option in life-years		1.0

As of June 30, 2015, total derivative liability for this note is $49,437 and the derivative expense for the note was ($49,437) for the nine months ended June 30, 2015.

The Company entered into a 8% Secured Convertible Debenture entered into on June 3, 2015, for a term of 9 months. The debenture is in the amount of $43,500. The conversion price of the outstanding balance is 51% of the average of the three lowest trading price for the previous 15 days at date of conversion.

	June 30, 2015
Risk-free interest rate at grant date		.28%
Expected stock price volatility		240%
Expected dividend payout		–
Expected option in life-years		.68

As of June 30, 2015, total derivative liability for this note is $30,618 and the derivative expense for the note was ($30,618) for the six months ended June 30, 2015.

Apptigo International, Inc. 10-Q/A