Quarterly report pursuant to Section 13 or 15(d)

Temporary Equity and Stockholders' Deficiency

v3.20.2
Temporary Equity and Stockholders' Deficiency
9 Months Ended
Sep. 30, 2020
Equity [Abstract]  
Temporary Equity and Stockholders' Deficiency

12. TEMPORARY EQUITY AND STOCKHOLDERS’ DEFICIENCY

 

Authorized Shares

 

On September 3, 2020, the Company filed a Certificate of Amendment of Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock to 150,000,000.

 

Units

 

On September 2, 2020, the Company issued 3,706,805 Units upon the conversion of the New Convertible Notes. (See Note 9 – Convertible Debt Obligations).

 

During the three and nine months ended September 30, 2020, the Company sold 3,532,941 Units to accredited investors with a substantive pre-existing relationship with the Company for aggregate proceeds of $1,201,200 and issued an aggregate of 413,530 Units to accredited investors in exchange for subscriptions receivable in the aggregate amount of $140,600. All subscriptions receivable were collected in full during October 2020.

 

Series B Preferred Stock

 

On March 29, 2020, the Company’s Board of Directors as well as the holders of the Series B Convertible Preferred Stock approved an Amendment to the Certificate of Designation of the Series B Convertible Preferred Stock (the “Third Amendment”) which extends the period in which holders of the Series B Shares may voluntarily elect to convert such shares into shares of common stock of the Company to December 31, 2020. In addition, the Series B Amendment extends the date upon which the Company shall redeem all then-outstanding Series B Shares and all unpaid accrued and accumulated dividends to December 31, 2020.

 

On February 18, 2020, GGH repurchased 1,600 shares of the Series B Preferred Stock from a shareholder at $10 per share and paid accrued dividends of $2,451.

 

The Series B stockholders are entitled to cumulative cash dividends at an annual rate of 8% of the Series B liquidation value (equal to face value of $10 per share), as defined, payable when, as and if declared by the Board of Directors. Dividends earned by the Series B stockholders were $181,281 and $540,217 for the three and nine months ended September 30, 2020, respectively, and were $181,746 and $539,311 for the three and nine months ended September 30, 2019, respectively. Dividends payable of $82,772 are included in the current portion of other liabilities at September 30, 2020. Cumulative unpaid and undeclared dividends in arrears related to the Series B totaled $1,804,578 and $1,264,361 as of September 30, 2020 and December 31, 2019, respectively. (See Note 16 – Subsequent Events)

 

Accumulated Other Comprehensive Income

 

For three and nine months ended September 30, 2020, the Company recorded a gain (loss) of $(17,837) and $400,686, respectively, of foreign currency translation adjustments as accumulated other comprehensive income, and for the three and nine months ended September 30, 2019, the Company recorded a gain of $365,350 and $730,767, respectively, primarily related to fluctuations in the Argentine peso to United States dollar exchange rates (see Note 3 – Summary of Significant Accounting Policies, Highly Inflationary Status in Argentina).

 

Warrants

 

During the nine months ended September 30, 2020, the Company issued one-year warrants for the purchase of 7,653,276 shares of its common stock, together with shares of common stock, as part of the Units sold or issued upon the conversion of convertible debt during the period. (See Note 9, Convertible Debt Obligations). The warrants are exercisable at $0.34 per share.

 

A summary of warrants activity during the nine months ended September 30, 2020 is presented below:

 

    Number of Warrants     Weighted Average Exercise Price     Weighted Average Remaining Life in Years     Intrinsic Value  
                         
Outstanding, January 1, 2020     566,742     $ 2.11                  
Issued     7,653,276       0.34                  
Exercised     -       -                  
Cancelled     -       -                  
Expired     (158,791 )     0.84                  
Outstanding, September 30, 2020     8,061,227     $ 0.43       0.9     $ -  
                                 
Exercisable, September 30, 2020     8,061,227     $ 0.43       0.9     $ -  

 

A summary of outstanding and exercisable warrants as of September 30, 2020 is presented below:

 

Warrants Outstanding     Warrants Exercisable  
Exercise Price     Exercisable Into   Outstanding Number of Warrants     Weighted Average Remaining Life in Years     Exercisable Number of Warrants  
                         
$ 0.34     Common Stock     7,653,276       1.0       7,653,276  
$ 2.00     Common Stock     281,660       0.9       281,660  
$ 2.50     Common Stock     126,291       0.5       126,291  
        Total     8,061,227               8,061,227  

 

Stock Options

 

On September 28, 2020, the Company granted five-year options for the purchase of 1,535,000 shares of the Company’s common stock under the 2018 Plan, of which options for the purchase of 1,135,000 shares of the Company’s common stock were granted to certain employees of the Company, options for the purchase of 300,000 shares of the Company’s common stock were granted to certain members of the Board of Directors and options for the purchase of 100,000 shares of the Company’s common stock were granted to consultants. The options had an exercise price of $0.605 per share and vest 25% at the first anniversary of date of grant, with the remaining shares vesting ratably on a quarterly basis over the following three years. The options had an aggregate grant date fair value of $263,642, which will be recognized ratably over the vesting period.

 

The Company has computed the fair value of options granted using the Black-Scholes option pricing model. Assumptions used in applying the Black-Scholes option pricing model during the nine months ended September 30, 2020 are as follows:

 

    For the Nine Months Ended  
    September 30,  
    2020     2019  
             
Risk free interest rate     0.16 - 0.26 %     1.84 - 2.43 %
Expected term (years)     3.6 - 5.0       3.6 - 5.0  
Expected volatility     58.00 %     52.00 %
Expected dividends     0.00 %     0.00 %

 

The weighted average estimated fair value of the stock options granted during the nine months ended September 30, 2020 was approximately $0.17 per share. The weighted average estimated fair value of the stock options granted during the nine months ended September 30, 2019 was approximately $0.13 per share.

 

During the three and nine months ended September 30, 2020, the Company recorded stock-based compensation expense of $56,413 and $262,670, respectively, and during the three and nine months ended September 30, 2019, the Company recorded stock-based compensation expense of $105,178 and $331,680, respectively related to the amortization of stock option grants, and which is reflected in general and administrative expenses in the accompanying condensed consolidated statements of operations. As of September 30, 2020, there was $862,823 of unrecognized stock-based compensation expense related to stock option grants that will be amortized over a weighted average period of 2.66 years.

 

A summary of GGH stock options activity during the nine months ended September 30, 2020 is presented below:

 

    Number of Options     Weighted Average Exercise Price     Weighted Average Remaining Life in Years     Intrinsic Value  
                         
Outstanding, January 1, 2020     9,550,640     $ 0.78                  
Granted     1,535,000       0.61                  
Exercised     -       -                  
Expired     (1,287,625 )     1.19                  
Forfeited     (588,429 )     0.59                  
Outstanding, September 30, 2020     9,209,586     $ 0.70       3.3     $             -  
                                 
Exercisable, September 30, 2020     3,839,088     $ 0.95       2.5     $ -  

 

The following table presents information related to GGH stock options at September 30, 2020:

 

Options Outstanding     Options Exercisable  
Exercise Price     Outstanding Number of Options     Weighted Average Remaining Life in Years     Exercisable Number of Options  
                     
$ 0.385       3,539,890       3.6       997,474  
$ 0.539       1,290,000       3.0       645,012  
$ 0.605       1,535,000       -       -  
$ 0.770       1,199,690       2.4       807,818  
$ 1.100       945,006       2.1       688,784  
$ 2.200       700,000       1.0       700,000  
          9,209,586       2.5       3,839,088  

 

Gaucho Group, Inc. Stock Options

 

As of September 30, 2020, options to purchase 2,280,000 shares of GGI common stock are outstanding under the 2018 Gaucho Plan.