11. CONVERTIBLE DEBT OBLIGATIONS

Activity related to the Company’s convertible notes is summarized below:

SCHEDULE OF CONVERTIBLE NOTES 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

New Convertible Note

Between August 25, 2020 and September 2, 2020, the Company sold unsecured convertible promissory notes (“New Convertible Notes”) in an aggregate amount of $1,259,000 to accredited investors with a substantive pre-existing relationship with the Company. The New Convertible Notes matured on December 31, 2020 and bore interest at 7% per annum. Pursuant to the terms of the New Convertible Notes, principal and interest outstanding under the New Convertible Notes would automatically convert into Units at a conversion price of $5.10 per Unit at such time when the Company had sufficient shares of common stock authorized. On September 2, 2020, the Company increased the number of authorized shares and issued an aggregate of 247,123 Units to accredited investors upon the automatic conversion of principal and interest of $1,259,000 and $1,314, respectively, outstanding under the New Convertible Notes. The Company incurred total interest expense of $1,314 related to the New Convertible Notes during the year ended December 31, 2020.

Convertible Notes

During the year ended December 31, 2020, the Company sold unsecured convertible promissory notes (“Convertible Notes”) in an aggregate amount of $1,962,919 to accredited investors with a substantive pre-existing relationship with the Company. The Convertible Notes matured on December 31, 2020 and bore interest at 7% per annum. Principal and interest outstanding under the Convertible Notes were convertible (i) automatically upon the closing of a firm commitment underwritten public offering registered pursuant to the Securities Act of 1933, as amended (a “Public Offering”, at a conversion price equal to 85% of the price per share of the Company’s common stock sold in the Public Offering (the “Mandatory Conversion Option”), or (ii) at the option of the holder at any time prior to the Public Offering at a conversion price equal to the closing price of the Company’s common stock on the day prior to conversion (the “Holder’s Conversion Option”). On October 1, 2020, the Company converted all its remaining Convertible Notes into Units at a price of $5.10 per Unit, such that the Company issued an aggregate of 395,136 Units to accredited investors upon the automatic conversion of principal and interest of $1,962,919 and $52,164, respectively, outstanding under the New Convertible Notes. The Company accounted for the transaction as a debt extinguishment and, a result, recognized a loss on extinguishment of debt in the amount of $355,602 during the year ended December 31, 2020. The Company incurred total interest expense of $52,164 related to the Convertible Notes during the year ended December 31, 2020.

GGH Convertible Notes

On November 3, 2021, the Company sold senior secured convertible notes of the Company, in the aggregate original principal amount of $6,480,000 (the “GGH Notes”), for gross proceeds of $6,000,000. The GGH Notes are due and payable on the first anniversary of the issuance date, bear interest at 7% per annum and are convertible into shares of common stock of the Company at a conversion price of $3.50 (subject to adjustment for standard anti-dilution events). Interest is payable in cash quarterly in arrears. Holders of GGH Notes may convert any portion of outstanding and unpaid principal and interest at any time, subject to a 4.99% beneficial ownership limitation.

The GGH Notes include several embedded features that require bifurcation.  However, management has determined that the value of these bifurcated derivatives is de minimis as of November 3, 2021 (date of the agreement ) and December 31, 2021.

The GGH Notes rank senior to all outstanding and future indebtedness of the Company and its subsidiaries and are secured by all existing and future assets of the Company, as well as shares of common stock and certain options to purchase common stock of the Company owned by the President and CEO of the Company.

Holders of GGH Notes are entitled to certain registration rights, pursuant to a registration rights agreement between the holders of the GGH Notes and the Company, dated November 9, 2021.

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Upon the issuance of the GGH Notes, the Company recorded a debt discount at issuance in the aggregate amount $950,813, consisting of (i) the $480,000 difference between the aggregate principal amount of the GGH Notes and the cash proceeds received, and (ii) financing costs in the aggregate amount of $446,813. The debt discount is being amortized using the effective interest method over the term of the GGH Notes. The Company incurred total interest expense of $264,681 related to the Convertible Notes during the year ended December 31, 2021, including $199,161 of amortization of debt discount.