19. TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY

Authorized Shares

The Company is authorized to issue up to 150,000,000 shares of common stock, $0.01 par value per share, pursuant to the Amended and Restated Certificate of Incorporation filed with the Secretary of State of Delaware on November 4, 2022.

On February 16, 2021, the Company effected a reverse stock split in the ratio of 1 share of common stock for 15 previously issued shares of common stock. On November 4, 2022, the Company effected a reverse stock split in the ratio of 1 share of common stock for 12 previously issued shares of common stock and filed an amended and restated certificate of incorporation (the “Amended and Restated Certificate of Incorporation”). There were 7,380 fractional shares issued as a result of the 2022 reverse stock split and no fractional shares issued as a result of the 2021 reverse stock split. All fractional shares as a result of the Reverse Split were rounded up to the nearest whole number.

As of December 31, 2022 and 2021, there were 3,653,401 and 823,496 shares of common stock issued, and 3,653,120 and 823,215 shares outstanding, respectively.

Effective September 16, 2022, the Company filed an Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to reflect the reduction in the number of authorized shares of preferred stock from 11,000,000 shares to 902,670 shares as a result of the previous conversion of the Series A Convertible Preferred into shares of common stock of the Company. There were no shares of preferred stock issued or outstanding at December 31, 2022 and 2021. The Board of Directors has the ability to issue blank check preferred stock under the Amended and Restated Certificate of Incorporation.

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.

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 August 30, 2022, the stockholders approved an increase of the number of shares authorized to be awarded under the 2018 Equity Incentive Plan to 25% of the Company’s common stock outstanding on a fully diluted basis as of the date of stockholder approval. As a result of the stockholder’s approval, the number of shares authorized to be awarded was 848,033 shares and the number of shares available for issuance under the 2018 Equity Incentive Plan was 767,280.

As of December 31, 2022, there were 6,141 shares available for issuance under the 2018 Equity Incentive Plan. On January 1, 2023, the 2.5% automatic increase to available shares provided for an additional 160,095 shares.

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, 2022 or 2021. As of December 31, 2022, there are 2,280,000 shares of GGI’s common stock available to be issued under the 2018 Gaucho Plan.

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.

Effective as of September 15, 2022, 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 reflect the reduction in the number of authorized shares of preferred stock from 11,000,000 shares to 902,670 shares as a result of the previous conversion of the Series A Convertible Preferred into shares of common stock of the Company.

Effective February 16, 2021, as a result of the listing of the Common Stock on Nasdaq, 901,070 shares of Series B preferred stock, representing all of the preferred shares outstanding, were converted into 50,059 shares of common stock.

Dividends earned by the Series B stockholders were $0 during the years ended December 31, 2022 and 2021. Dividends payable of $0 and $76,762 are included in other current liabilities at December 31, 2022 and 2021, respectively. Cumulative unpaid and undeclared dividends in arrears related to the Series B totaled $0 as of December 31, 2022 and 2021, respectively.

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Common Stock

On January 8, 2021, the Company issued an aggregate of 6,097 shares of common stock and one-year warrants to purchase 6,097 shares of common stock at an exercise price of $72.00 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 19,751 shares of common stock and one-year warrants to purchase 19,751 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 13 – Debt Obligations).

On July 2, 2021, the Company issued 22,875 shares of common stock upon exercise of warrants to purchase 22,875 shares of common stock with an exercise price of $72.00 per share and received aggregate proceeds of $1,647,000.

On July 6, 2021, the Company issued 688 shares of common stock at $57.48 per share with a fair value of approximately $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 21, 2021, the Company issued 2,500 shares of common stock at $42.36 per share with a fair value of $105,900 pursuant to a service agreement.

On February 3, 2022, the Company issued 1,250 shares of common stock and paid $34,999 cash as consideration for the purchase of the domain name Gaucho.com. The seller is entitled to additional shares if the closing price per share is less than $31.68 on August 14, 2022, such that the collective value of the total shares issued to the seller has a fair market value of $39,600. (See Note 7 - Intangible Assets). On August 14, 2022, the closing price per share was $4.32. As a result, the Company issued 7,364 additional shares to the seller of the domain name.

On February 3, 2022, the Company issued 106,952 shares of its common stock, valued at $2,194,653, to Hollywood Burger Holdings, Inc, a company with whom GGH shares common management, in exchange for a 100% ownership interest in Hollywood Burger Argentina S.R.L., now Gaucho Development S.R.L., The purpose of the acquisition was to acquire certain real property held by Gaucho Development S.R.L.

On March 28, 2022 the Company issued 1,040 shares of common stock at $26.76 per share with a fair value of approximately $27,821 in satisfaction of its matching obligations for the year ended December 31, 2021, in connection with its 401(k) profit-sharing plan.

On March 28, 2022, the Company issued 86,899 shares of its common stock, valued at $2,419,268, to the minority holders of GGI, in exchange for the remaining 21% non-controlling interest in GGI. The acquisition of the remaining shares of GGI resulted in a decrease of non-controlling interest to zero, and an adjustment to additional paid-in capital to reflect the Company’s increased ownership in GGI.

On June 7, 2022, the Company issued an aggregate of 54,214 immediately-vested shares of its common stock, with a grant date value of $525,000, as compensation to the non-executive members of its board of directors.

On June 22, 2022, the Company issued (i) 183,942 vested shares of its common stock valued at $1,379,568 and (ii) 26,278 restricted stock units valued at $197,081 (see Restricted Stock Units, below), in exchange for, and upon the cancellation of, options for the purchase of 5,502,500 shares of GGI common stock (the “GGI Stock Options”). As of the date of this exchange, the value of the cancelled GGI options approximated the value of the common stock and restricted stock units issued to the GGI Option holders.

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 $72.00 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 $72.00 per share. The Company sold and issued an aggregate of 111,111 shares of common stock and 127,778 warrants exercisable at $72.00 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 1,278 shares of common stock at an exercise price of $90 per share.

Due to the successful closing of the public offering, 4,513 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 10,028 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.

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 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.

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

During the year ended December 31, 2022, the Company sold an aggregate of 50,049 shares of the Company’s common stock to the Underwriter for gross proceeds of $555,811 less cash offering costs of $44,465 related to the Commitment Shares. During the year ended December 31, 2021, the Company sold an aggregate of 114,506 shares of the Company’s common stock for gross proceeds of $5,135,210 less cash offering costs of $457,810 and non-cash offering costs of $500,000 related to the Purchase Agreement.

On November 8, 2022, the parties terminated the Common Stock Purchase Agreement and Registration Rights Agreement by and between the Company and an underwriter (the Underwriter), dated May 6, 2021. On the same date, the parties entered into a new Common Stock Purchase Agreement and Registration Rights Agreement (the “New ELOC”) with the Underwriter. Under the New ELOC, the Company has the right to sell to the Underwriter up to the lesser of (i) $44,308,969 of newly issued shares of the Company’s common stock and (ii) the Exchange Cap, as defined, from time to time at a price equal to 95% of the lowest daily VWAP during the three consecutive trading days immediately following the date that the Company provides notice to the Underwriter, directing the Underwriter to purchase shares. The New ELOC expires on November 8, 2025. The Company’s registration statement required under the New ELOC was declared effective on December 27, 2022.

The Company has agreed to reimburse the Underwriter for reasonable out-of-pocket expenses (including legal fees and expenses), up to a maximum of $35,000. In connection with the New ELOC, 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.

On December 31, 2022, the Company sold 10,000 shares of the Company’s common stock to the Underwriter for net proceeds of $10,086, pursuant to the New ELOC.

Accumulated Other Comprehensive Loss

For years ended December 31, 2022 and 2021, the Company recorded a gain of $764,877 and $325,355, 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).

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Warrants

A summary of warrant activity during the year ended December 31, 2022 is presented below:

SUMMARY OF WARRANTS ACTIVITY

See (i) Common Stock and (ii) Public Offering in Note 19, above, and (iii) Note 14, Convertible Debt Obligations for details about the 2022 warrant issuances.

A summary of outstanding and exercisable warrants as of December 31, 2022 is presented below:

 SCHEDULE OF WARRANTS OUTSTANDING AND EXERCISABLE

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restricted Stock Units

During the years ended December 31, 2022 and 2021, the Company recorded stock-based compensation expense of $579,630 and $0, respectively, related to the amortization of RSUs.

A summary of RSU activity during the year ended December 31, 2022 is presented below:

SCHEDULE OF RESTRICTED STOCK UNITS AND WEIGHTED AVERAGE GRANT DATE FAIR VALUES

On June 22, 2022, the Company issued 26,278 restricted stock units (“RSUs”) with an aggregate grant date value of $197,081 upon the cancellation of, options for the purchase GGI common stock (see Note 2 – Summary of Significant Accounting Policies, Non-Controlling Interest). The restricted stock units vested equally on each of September 18, 2022 and December 18, 2022.

On August 11, 2022, the Company granted an aggregate of 23,238 restricted stock units with an aggregate grant date value of $108,737 to six non-executive members of the Board of Directors, which vested on December 31, 2022. On August 30, the terms of two directors expired and neither was re-elected at the Company’s annual stockholder meeting. As a result, the company issued a total of 2,568 shares to the two outgoing directors based on the pro rata vesting as of such date. The remaining 15,492 units vested on December 31, 2022.

On December 24, 2022, the Board approved the issuance of 767,280 RSUs pursuant to the 2018 Plan effective December 31, 2022. The RSUs were issued to certain employees, contractors, consultants and advisors in exchange for services performed in 2022. A third of the RSUs vested on December 31, 2022 and the remaining shares will vest equally on the next two anniversary dates of December 31, 2023 and 2024. There are 511,500 unvested RSUs outstanding as of December 31, 2022.

Stock Options

During the years ended December 31, 2022 and 2021, the Company recorded total stock-based compensation expense of $269,965 and $530,472, respectively, related to stock option grants, which is reflected as general and administrative expenses in the consolidated statements of operations. As of December 31, 2022, there was $169,595 of unrecognized stock-based compensation expense, all of which is related to GGH stock option grants that will be amortized over a weighted average period of 1.5 years. No stock options were granted during the years ended December 31, 2022 and 2021.

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Gaucho Group Holdings, Inc. Stock Options

During the years ended December 31, 2022 and 2021, the Company recorded stock-based compensation expense of $259,611 and $396,244, respectively, related to GGH stock option grants.

A summary of GGH stock options activity during the year ended December 31, 2022 is presented below:

SCHEDULE OF STOCK OPTION ACTIVITY

The following table presents information related to GGH stock options as of December 31, 2022:

SCHEDULE OF STOCK OPTION OUTSTANDING AND EXERCISABLE

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Gaucho Group, Inc. Stock Options

As the result of the Company’s issuance of common stock and RSUs upon the exchange of GGI Stock Options on June 22, 2022 (see Common Stock, above), no options to purchase shares of GGI common stock under the 2018 Gaucho Plan (the “GGI Stock Options”) remain outstanding as of December 31, 2022.

During the years ended December 31, 2022 and 2021, the Company recorded stock-based compensation expense of $10,354 and $134,228, respectively, related to GGI stock option grants.