10. CONVERTIBLE DEBT OBLIGATIONS

Convertible debt obligations consist of the following:

  SCHEDULE OF CONVERTIBLE NOTES

2023 Senior Secured Convertible Note

Effective February 5, 2024, 3i, LP (“3i”) elected to increase the cap on its beneficial ownership of the Company from 4.99% to 9.99% effective on the sixty-first day after such notice was delivered to the Company, pursuant to the terms of the 2023 Senior Secured Convertible Note (the “2023 Note”).

The 2023 Note is convertible at the Event of Default conversion price, equal to the lesser of (a) $134.00; (b) 80% of the volume-weighted average price on the day preceding receipt of the conversion notice; or (c) 80% of the average of the three lowest volume-weighted average prices over the fifteen trading days which precede receipt of the conversion notice, all subject to a floor price of $4.00. If the conversion price in effect on the date of conversion is less than $4.00, the Investor is entitled to a cash true up payment equal to the difference between the conversion dollar amount and the value of shares issued upon conversion. As of September 30, 2024 and December 31, 2023, the Company has accrued $1,484,677 of cash true up payments as the result of 2023 Note principal and interest converted at the floor price in effect at the date of conversion.

On February 21, 2024, the Company received an Event of Default Redemption Notice from 3i, demanding immediate payment of principal, interest and redemptions premiums owed under the 2023 Note equal to a minimum of $3,437,646. On February 28, 2024, the Company received a second Event of Default Redemption Notice from 3i providing notice of an additional Event of Default in connection with the 2023 Note demanding immediate payment of principal interest and redemption premiums equal to a minimum of $3,450,711. On March 6, 2024, the Company received an Event of Default notice from 3i demanding immediate payment of principal, interest and redemptions premiums owed under the 2023 Note equal to a minimum of $3,460,510.

See Note 15, Commitment and Contingencies. Legal Matters, regarding the Company’s litigation with 3i in the 2023 Note.

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Derivative Liability in Connection with 2023 Note

The Event of Default Conversion Price on the 2023 Note represents a redemption feature, which was bifurcated from the 2023 Note host and recorded as a derivative liability. During the three and nine months ended September 30, 2024, the Company recorded expense of $75,861 and $231,488, respectively, in connection with the change in fair value of the derivative liability, which represents the difference between shares issuable upon conversion with no event of default, and the value of shares issuable upon conversion of debt at the Event of Default Conversion Price.

The following table sets forth a summary of the changes in the fair value of the derivative liability that are measured at fair value on a recurring basis:

 SUMMARY OF THE CHANGES IN THE FAIR VALUE OF DERIVATIVE LIABILITIES

Interest Expense on 2023 Note

The Company incurred total interest expense of approximately $72,347 and $1,118,849 related to its 2023 Note during the three months ended September 30, 2024 and 2023, respectively. Interest expense during the three months ended September 30, 2024 and 2023 consisted of (i) $28,135 and $93,496, respectively, of interest and make-whole interest accrued at stated interest rates and (ii) $44,212 and $0, respectively, of incremental default interest, and (iii) $0 and $1,025,353, respectively, of amortization of debt discount.

The Company incurred total interest expense of approximately $502,950 and $2,671,922 related to its 2023 Note obligations during the nine months ended September 30, 2024 and 2023, respectively. Interest expense during the nine months ended September 30, 2024 and 2023 consisted of approximately (i) $96,479 and $449,149 of interest and make-whole interest accrued at stated interest rates and (ii) $131,676 and $118,389, respectively, of incremental default interest, and (iii) $274,795 and $2,104,384 of amortization of debt discount.

Convertible 8.5% Preferred Promissory Notes

During the period from May 2024 through August 6, 2024, the Company issued 120-day convertible preferred promissory notes (the “Preferred Share Convertible Notes”) in the aggregate amount of $2,306,425 for cash proceeds of $2,299,700. The notes bear interest at 8.5% per annum. All principal and $21,243 of interest owed in connection with the Preferred Share Convertible Notes automatically converted into Senior Convertible Preferred Stock at a conversion price of $100.00 per share on August 16, 2024, upon stockholder approval for the issuance of the Senior Convertible Preferred Stock.

The Company recorded $6,725 of original issue discount in connection with two Preferred Share Convertible Notes which were issued on May 1, 2024, which was amortized over the 120-day term, using the effective interest method.

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Convertible 8.5% Preferred Promissory Notes - Related Party

During the period from May 2024 through June 2024, the Company issued 120-day Preferred Share Convertible Notes in exchange for cash aggregate amount of $1,000,000, to a holder of greater than 10% of the Company’s common stock (the Related Party Convertible Notes, and together with the Preferred Share Convertible Notes, the “Preferred Promissory Notes”). The Related Party Convertible Notes bear interest at 8.5% per annum. All principal owed in connection with the Related Party Convertible Notes automatically converted into Senior Convertible Preferred Stock at a conversion price of $100.00 per share on August 16, 2024, upon stockholder approval for the issuance of the Senior Convertible Preferred Stock.

Interest Expense on Preferred Promissory Notes

The Company incurred total interest expense of approximately $23,990 and $0 related to its Preferred Promissory Notes during the three months ended September 30, 2024 and 2023, respectively. Interest expense during the three months ended September 30, 2024 and 2023 consisted of (i) $21,912 and $0, respectively, of interest accrued at stated interest rates and (ii) $2,078 and $0, respectively, of amortization of debt discount.

The Company incurred total interest expense of approximately $48,121 and $0 related to its Preferred Promissory Notes during the nine months ended September 30, 2024 and 2023, respectively. Interest expense during the nine months ended September 30, 2024 and 2023 consisted of approximately (i) $41,396 and $0 of interest accrued at stated interest rates and (ii) $6,725 and $0, respectively, of amortization of debt discount.