16. TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY (DEFICIENCY)

Authorized Shares

The Company is authorized to issue up to 150,000,000 shares of common stock, $0.01 par value per share. 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 from 80,000,000 to 150,000,000.

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 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.

As of December 31, 2021 and 2020, there were 9,881,955 and 5,234,406 shares of common stock issued, and 9,878,586 and 5,231,037 shares outstanding, respectively.

The Company is authorized to issue up to 11,000,000 shares of preferred stock, $0.01 par value per share, of which 10,097,330 shares are designated as Series A convertible preferred stock, and 902,670 shares are designated as Series B convertible preferred stock. There were no shares of Series A preferred stock outstanding at December 31, 2021 or 2020, and no additional shares of Series A preferred stock are available to be issued.

As of December 31, 2020, there were 901,070 shares of Series B preferred stock outstanding, As of December 31, 2021, no shares of Series B preferred stock remained outstanding and no additional shares of Series B preferred stock are available to be issued.

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Equity Incentive Plans

On July 27, 2018, the Board of Directors adopted the 2018 Equity Incentive Plan (the “2018 Plan”), which was approved by the Company’s shareholders on September 28, 2018. The 2018 Plan provides for grants for the purchase of up to an aggregate of 100,000 shares, including incentive and non-qualified stock options, restricted and unrestricted stock, loans and grants, and performance awards. The number of shares available under the 2018 Plan will automatically increase on January 1 of each year by the amount equal to 2.5% of the total number of shares outstanding on such date, on a fully diluted basis. Further, any shares subject to an award issued under the 2018 Plan, the 2016 Stock Option Plan or the 2008 Stock Option Plan that are canceled, forfeited or expired shall be added to the total number of shares available under the 2018 Plan.

On July 8, 2019, the Board of Directors approved an increase in the number of shares available for awards under the 2018 Plan to 396,463, plus an increase every January 1 of each year by the amount equal to 2.5% of the total number of shares outstanding on such date, on a fully diluted basis. As of December 31, 2021, 2,204,885 shares remain available to be issued under the 2018 Plan.

Under the 2018 Plan, awards may be granted to employees, consultants, independent contractors, officers and directors or any affiliate of the Company as determined by the Board of Directors. The maximum term of any award granted under the 2018 shall be ten years from the date of grant, and the exercise price of any award shall not be less than the fair value of the Company’s stock on the date of grant, except that any incentive stock option granted under the 2018 Plan to a person owning more than 10% of the total combined voting power of the Company’s common stock must be exercisable at a price of no less than 110% of the fair market value per share on the date of grant.

On October 5, 2018, GGH, as the sole stockholder of GGI, and the Board of Directors of GGI approved the Gaucho 2018 Equity Incentive Plan (the “2018 Gaucho Plan”). The 2018 Gaucho Plan provides for grants for the purchase of up to an aggregate of 8,000,000 shares of GGI’s common stock, including incentive and non-qualified stock options, restricted stock, performance awards and other stock-based awards. No equity awards were granted pursuant to the 2018 Gaucho Plan during the years ended December 31, 2021 or 2020. As of December 31, 2021, there are 2,280,000 shares of GGI’s common stock available to be issued under the 2018 Gaucho Plan.

Series B Preferred Stock

On February 28, 2017, the Company filed a Certificate of Designation with the Secretary of State of the state of Delaware, designating 902,670 shares of the Company’s preferred stock as Series B Convertible Preferred Stock (“Series B”) at a par value of $0.01 per share. 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 in either cash or shares of common stock, when, as and if declared by the Board of Directors.

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.

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.

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Dividends earned by the Series B stockholders were $0 and $721,752 during the years ended December 31, 2021 and 2020, respectively. During the year ended December 31, 2020, the Company declared $1,626,306 of dividends on its Series B Preferred Stock and issued 183,700 shares of common stock valued at $8.36 per share to holders of Series B Preferred Stock, due to some holders waiving their right to receive the dividends. Dividends payable of $76,762 and $82,772 are included in other current liabilities at December 31, 2021 and 2020, respectively. Cumulative unpaid and undeclared dividends in arrears related to the Series B totaled $0 and $449,788 as of December 31, 2021 and 2020, respectively.

Common Stock

On October 3, 2020, the Company issued 9,509 shares of common stock at $5.55 per share to employees for the year ended December 31, 2019 of the 401(k) profit sharing plan.

On October 23, 2020, the Company issued 183,700 shares of common stock in satisfaction of preferred stock dividends (see Series B Preferred Stock above).

On October 29, 2020, the Company issued an aggregate of 8,334 shares of its common stock at $4.95 for consulting service received of $31,350 and to settle accounts payable of $12,000.

On October 30, 2020, the Company issued 67,693 shares of its common stock with an issuance date fair value of $335,080 to its placement agent for advisory services in connection with the Company’s capital raising efforts pursuant to an advisory agreement dated October 30, 2020. Of the shares issued, 20% of the shares were vested immediately (accordingly, $67,016 was recorded as deferred offering cost) and 80% vested upon the successful closing of a qualified offering within 180 days of the execution of the agreement (the shares vested on February 19, 2021; see Public Offering, below).

Units

On September 2, 2020, the Company issued 247,123 Units upon the conversion of the New Convertible Notes. (See Note 11 – Convertible Debt Obligations).

On October 1, 2020, the Company issued 395,136 Units upon the conversion of the Convertible Notes. (See Note 11 – Convertible Debt Obligations).

During the year ended December 31, 2020, the Company sold an aggregate of 301,441 Units to accredited investors with a substantive pre-existing relationship with the Company for aggregate proceeds of $1,571,801.

On January 8, 2021, the Company issued an aggregate of 73,167 shares of common stock and one-year 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.

On January 8, 2021, the Company issued 237,012 shares of common stock and one-year warrants to purchase 237,012 shares of common stock upon the exchange of $1,163,354 in principal and $258,714 in interest owed in connection with the 2017 Notes (see Note 10 – Debt Obligations).

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Public Offering

On February 19, 2021, the Company closed an underwritten public offering of units at an offering price of $6.00 per Unit (“Public Offering Units”) with each Public Offering Unit consisting of one share of common stock and one eighteen-month warrant for the purchase of common stock at $6.00 per share. 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 five-year 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 its placement agent 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 an underwriter (the “Underwriter”) Pursuant to the Purchase Agreement, the Company has the right to sell to the Underwriter 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 the Underwriter 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, 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 the Underwriter with an issuance date fair value of $500,000, which was 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 the Underwriter, 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 the Underwriter 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 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. On August 26, 2021, the stockholders approved the issuance of an additional 10,000,000 shares of the Company’s common stock.

The Purchase Agreement limits the sale of shares of the Company’s common stock to the Underwriter, and the Underwriter’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 the Underwriter would result in the Underwriter 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

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The purchase price of the shares of common stock that the Company elects to sell to the Underwriter 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 the Underwriter 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 the Underwriter (the “VWAP Purchase Valuation Period”) as set forth in the Purchase Agreement, less a fixed 5% discount.

In connection with this transaction, the Company engaged a placement agent to help raise capital. The Company has agreed to pay its placement agent a fee of 8% of the amount of the funds raised pursuant to the Purchase Agreement.

During the year ended December 31, 2021, the Company sold an aggregate of 1,374,067 shares of the Company’s common stock to for gross proceeds of $5,135,210 less cash offering costs of $346,710 and non-cash offering costs of $500,000 related to the Commitment Shares.

Accumulated Other Comprehensive Loss

For years ended December 31, 2021 and 2020, the Company recorded a gain of $325,355 and $467,032, respectively, of foreign currency translation adjustments as accumulated other comprehensive income, primarily related to fluctuations in the Argentine peso to United States dollar exchange rates (see Note 2 – Summary of Significant Accounting Policies, Highly Inflationary Status in Argentina).

Warrants

A summary of warrant activity during the year ended December 31, 2021 is presented below:

SUMMARY OF WARRANTS ACTIVITY

See (i) Units and (ii) Public Offering, above, for details about the 2021 warrant issuances.

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of outstanding and exercisable warrants as of December 31, 2021 is presented below:

 SCHEDULE OF WARRANTS OUTSTANDING AND EXERCISABLE

Stock Options

On September 28, 2020, the Company granted five-year options for the purchase of 102,346 shares of the Company’s common stock under the 2018 Plan, of which, options for the purchase of 75,678 shares of the Company’s common stock were granted to certain employees of the Company, options for the purchase of 20,001 shares of the Company’s common stock were granted to certain members of the Board of Directors and options for the purchase of 6,667 shares of the Company’s common stock were granted to consultants. The options had an exercise price of $9.08 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.

Between October 30, 2020 and December 18, 2020, the Company granted five-year options for the purchase of 13,335 shares of the Company’s common stock under the 2018 Plan to consultants. The options had an exercise price between $8.85 and 9.00 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 $56,797, 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. The weighted average grant date fair value per share of options granted by GGH during the year ended December 31, 2020 was $0.18. No stock options were granted during the year ended December 31, 2021. Assumptions used in applying the Black-Scholes option pricing model during year ended December 31, 2020 are as follows:

Black Scholes assumptions for 2020 option grants

 SCHEDULE OF FAIR VALUE ASSUMPTIONS OF STOCK OPTION

During the years ended December 31, 2021 and 2020, the Company recorded stock-based compensation expense of $530,472 and $361,253, respectively, related to stock option grants, which is reflected as general and administrative expenses (classified in the same manner as the grantees’ wage compensation) in the consolidated statements of operations. As of December 31, 2021, there was $418,541 of unrecognized stock-based compensation expense related to stock option grants that will be amortized over a weighted average period of 2.06 years.

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of GGH stock options activity during the year ended December 31, 2021 is presented below:

 SCHEDULE OF STOCK OPTION ACTIVITY

The following table presents information related to GGH stock options as of December 31, 2021:

 SCHEDULE OF STOCK OPTION OUTSTANDING AND EXERCISABLE

Gaucho Group, Inc. Stock Options

As of December 31, 2021, options to purchase 5,502,500 shares of GGI common stock are outstanding under the 2018 Gaucho Plan (the “GGI Stock Options”). The options are exercisable at $0.14 per share of GGI common stock and expire on December 18, 2023. There is $40,498 unrecognized stock-based compensation expense related to the GGI Stock Options that will be recognized during 2022.

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS