10. TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY

Equity Incentive Plans

On August 26, 2021, the stockholders approved the amendment to the 2018 Equity Incentive Plan (the “2018 Plan”) thereby increasing the number of shares available for awards under the plan to 15% of the Company’s common stock outstanding on a fully diluted basis as of the date of stockholder approval, from 868,172 to 2,641,902. As of September 30, 2021, 2,204,885 shares remain available to be issued under the 2018 Plan.

Series B Preferred Stock

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.

Effective February 16, 2021, as a result of the listing of the Common Stock on Nasdaq, all outstanding shares of Series B preferred stock were converted into 600,713 shares of Common Stock. As of September 30, 2021, there were $0 of cumulative unpaid cash dividends.

Common Stock

Effective February 16, 2021, the Company filed an Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) with the Secretary of State of the State of Delaware to effect a reverse stock split of the Common Stock at a ratio of 15-for-1 (the “Reverse Split”).

There were no fractional shares issued as a result of the Reverse Split. All fractional shares as a result of the Reverse Split were rounded up to the nearest whole number. The total number of the Company’s authorized shares of Common Stock or preferred stock was not to be affected by the foregoing. As a result, after giving effect to the Reverse Split, the Company remains authorized to issue a total of 150,000,000 shares of Common Stock.

On July 6, 2021, the Company issued 8,254 shares of common stock at $4.79 per share with a fair value of $39,537 in settlement of its matching obligations for the year ended December 31, 2020 under the Company’s 401(k) profit sharing plan.

On July 2, 2021, the Company issued 274,500 shares of common stock upon exercise of warrants to purchase 274,500 shares of common stock with an exercise price of $6.00 per share and received aggregate proceeds of $1,647,000.

On July 21, 2021, the Company issued 30,000 shares of common stock at $3.53 per share with a fair value of $105,900 pursuant to a service agreement with TraDigital Marketing Group.

Units

See Note 7 – Debt Obligations for details of additional issuances of units.

On January 8, 2021, the Company issued an aggregate of 73,167 shares of common stock and warrants to purchase 73,167 shares of common stock at an exercise price of $6.00 per share to accredited investors with a substantive pre-existing relationship with the Company for aggregate gross proceeds of $439,000.

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Public Offering

On February 19, 2021, the Company closed an underwritten public offering of Units at an offering price of $6.00 per Unit. The Company sold and issued an aggregate of 1,333,334 shares of common stock and 1,533,333 warrants at an exercise price of $6.00 per share for approximate gross and net proceeds of $8.0 million and $6.6 million, respectively, which includes offering costs of $1.4 million that include underwriting discounts and commissions and other offering expenses. In connection with the public offering, the Company issued the representative of such underwriters a common stock purchase warrant exercisable for up to 15,333 shares of common stock at an exercise price of $7.50 per share.

Due to the successful closing of the public offering, 54,154 shares of the Company’s common stock previously issued to Kingswood Capital Markets, n/k/a EF Hutton, division of Benchmark Investments, Inc. became fully vested on February 19, 2021. As a result, the Company recognized the fair value of $268,064 as offering costs, which was recognized as a debit and credit to additional paid in capital.

Common Stock Purchase Agreement and Registration Rights Agreement

On May 6, 2021, the Company entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) and a Registration Rights Agreement (the “Registration Rights Agreement”) with Tumim Stone Capital LLC (“Tumim Stone Capital”). Pursuant to the Purchase Agreement, the Company has the right to sell to Tumim Stone Capital up to $50,000,000 (the “Total Commitment”) in shares of the Company’s common stock, subject to certain limitations and conditions set forth in the Purchase Agreement. The Company has the right, but not the obligation, from time to time at the Company’s sole discretion over a 36-month period from and after the commencement (the “Commencement Date”), to direct Tumim Stone Capital to purchase up to a fixed maximum amount of shares of Common Stock as set forth in the Purchase Agreement (each, a “Fixed Purchase”), on any trading day, so long as, in addition to other requirements set forth in the Purchase Agreement. In consideration for entering into the Purchase Agreement, the Company issued 120,337 shares of common stock (the “Commitment Shares”) to Tumim Stone Capital with an issuance date fair value of $500,000, which such issuance being recognized as a debit to additional paid-in capital.

Although the Purchase Agreement provides that the Company may sell up to an aggregate of $50,000,000 of the Company’s common stock to Tumim Stone Capital, only 1,494,404 shares of the Company’s common stock (representing the maximum number of shares the Company may issue and sell under the Purchase Agreement under the Exchange Cap limitation) have been registered for resale to-date, which includes the 120,337 Commitment Shares. If it becomes necessary for the Company to issue and sell to Tumim Stone Capital under the Purchase Agreement more shares than are being registered for resale under this prospectus in order to receive aggregate gross proceeds equal to the Total Commitment of $50,000,000 under the Purchase Agreement, the Company must first (i) obtain stockholder approval to issue shares of common stock in excess of the Exchange Cap under the Purchase Agreement in accordance with applicable Nasdaq rules, unless the average per share purchase price paid by Tumim Stone Capital for all shares of common stock sold under the Purchase Agreement equals or exceeds $4.002, in which case the Exchange Cap limitation will not apply under applicable Nasdaq rules, and (ii) file with the SEC one or more additional registration statements to register under the Securities Act the resale by Tumim Stone Capital of any such additional shares of the Company’s common stock the Company wishes to sell from time to time under the Purchase Agreement, which the SEC must declare effective, in each case before the Company may elect to sell any additional shares of the Company’s common stock to Tumim Stone Capital under the Purchase Agreement. The Purchase Agreement limits the sale of shares of the Company’s common stock to Tumim Stone Capital, and Tumim Stone Capital’s purchase or acquisition of common stock from the Company, to an amount of common stock that, when aggregated with all other shares of the Company’s common stock then beneficially owned by Tumim Stone Capital would result in Tumim Stone Capital having beneficial ownership, at any single point in time, of more than 4.99% of the then total outstanding shares of the Company’s common stock. On August 26, 2021, the stockholders approved the issuance of an additional 10,000,000 shares of the Company’s common stock.

The purchase price of the shares of common stock that the Company elects to sell to Tumim Stone Capital pursuant to a Fixed Purchase under the Purchase Agreement will be determined by reference to the market prices of the common stock during the applicable Fixed Purchase Valuation Period for such Fixed Purchase as set forth in the Purchase Agreement, less a fixed 7% discount. The purchase price of the shares of common stock that the Company elects to sell to Tumim Stone Capital pursuant to a VWAP Purchase under the Purchase Agreement will be determined by reference to the lowest daily volume weighted average price of the common stock during the three consecutive trading day-period immediately following the date on which we timely deliver the applicable VWAP Purchase notice for such VWAP Purchase to Tumim Stone Capital (the “VWAP Purchase Valuation Period”) as set forth in the Purchase Agreement, less a fixed 5% discount.

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

In connection with the Tumim Stone Capital transaction, the Company engaged Kingswood Capital Markets, n/k/a EF Hutton, division of Benchmark Investments, Inc. (“EF Hutton”), as a placement agent to help raise capital. The Company has agreed to pay EF Hutton a fee of 8% of the amount of the funds raised pursuant to the Purchase Agreement.

During the nine months ended September 30, 2021, the Company sold an aggregate of 872,400 shares of the Company’s common stock to Tumim Stone Capital for gross proceeds of $3,746,454, less cash offering costs of $346,710 and non-cash offering costs of $500,000 related to the Commitment Shares.

Warrants

See Note 7 – Debt Obligations and elsewhere in Note 10 – Temporary Equity and Stockholders’ Equity for details on the issuances and exercise of warrants.

A summary of warrants activity during the nine months ended September 30, 2021 is presented below:

 SCHEDULE OF WARRANTS

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

A summary of outstanding and exercisable warrants as of September 30, 2021 is presented below:

 SCHEDULE OF WARRANTS OUTSTANDING AND EXERCISABLE

Stock Options

During the three and nine months ended September 30, 2021, the Company recorded stock-based compensation expense of $112,664 and $427,376, respectively, and during the three and nine months ended September 30, 2020, the Company recorded stock-based compensation expense of $56,413 and $262,670, respectively related to the amortization of stock option grants, which is reflected in general and administrative expenses in the accompanying condensed consolidated statements of operations. As of September 30, 2021, there was $515,737 of unrecognized stock-based compensation expense related to stock option grants that will be amortized over a weighted average period of 2.13 years.