11. CONVERTIBLE DEBT OBLIGATIONS

Amounts owed pursuant to the Company’s convertible debt obligations are as follows:

 SCHEDULE OF 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 (the “Maturity Date”), bear interest at 7% per annum and were originally convertible into shares of common stock of the Company at a conversion price of $3.50 (subject to adjustment for standard anti-dilution events).

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.

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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.

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 GGH Notes include several embedded features that require bifurcation. However, management has determined that the value of these bifurcated derivatives was de minimis as of November 3, 2021 (date of the agreement), December 31, 2021 and June 30, 2022.

Pursuant to the original terms of the GGH Notes, beginning on February 7, 2022, the Company was to make nine monthly payments consisting of principal in the amount of $720,000, plus (i) accrued interest and (ii) a make-whole amount equal to the additional interest that would accrue if the entire GGH Notes principal remained outstanding through the Maturity Date. 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.

On February 22, 2022, the Company entered into an exchange agreement (the “Exchange Agreement”) with holders of GGH Notes. Pursuant to the Exchange Agreement, the Company was able to defer monthly principal payments until May 7, 2022 and will make six monthly payments in the amount of $1,080,000, plus accrued interest and make-whole amount. As consideration for entering into the Exchange Agreement, $300 of aggregate principal amount the GGH Notes was exchanged for three-year warrants (the GGH Warrants”) for the purchase of an aggregate of 750,000 shares of the Company’s common stock at an exercise price of $1.75 per share, which had an aggregate grant date value of $731,556. The Exchange Agreement was accounted for as a debt modification and the grant date value of the GGH Warrants was recorded as additional debt discount.

On May 2, 2022, the Company entered into a letter agreement with the holders of GGH Notes (the “Letter Agreement”). The Letter Agreement provided for the reduction of the conversion price for shares of the Company’s common stock from $3.50 to $1.35 between May 3, 2022 through May 13, 2022.

On May 12, 2022, the Company entered into a conversion agreement with the holders of GGH Notes (the “Conversion Agreement”) pursuant to which the parties agreed to reduce the Conversion Price to $0.95 and the holders of GGH Notes have committed to converting principal outstanding under the GGH Notes in an amount equal to 4.90% of the outstanding shares of common stock of the Company. The reduction in conversion price was accounted for as debt extinguishment. The Company recorded a loss on extinguishment of debt of $2,105,119, which consisted of (i) $421,272 to eliminate the debt discount related to the cancelled notes, plus (ii) $1,683,847, which represented the difference between the previous net carrying amount and the fair value of the modified debt instrument.

The fair value of the modified debt instrument at the extinguishment date was determined to be $7,831,248, which consisted of principal in the amount of $6,147,401 and the fair value of the embedded conversion option (“ECO”) of $1,682,445. The fair value of the ECO was determined using the Black Scholes Option Pricing Model (which is considered to be a Level 3 fair value measurement) with the following assumptions used: contractual term - 0.48 years; expected volatility – 61%; expected dividends – 0%. The fair value of the ECO was recorded as additional paid in capital.

During the period from May 3, 2022 through May 11, 2022, principal, interest and fees in the amount of $357,498 were converted into 264,813 shares of common stock at a conversion price of $1.35 per share. The Company recorded inducement expense in the amount of $198,096 as a result of the conversion of debt and interest pursuant to the Letter Agreement.

On May 13, 2022 principal, interest and fees in the amount of $1,165,099 were converted into 1,226,420 shares of common stock at conversion price of $0.95 per share, of which 596,165 shares had been previously issued as pre-delivery shares on November 9, 2021 and the remaining 630,255 shares were issued on May 13, 2022.

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The Company incurred total interest expense of $661,695 and $1,410,926 related to the GGH Notes during the three and six months ended June 30, 2022, respectively, including (i) $100,260 and $213,657, respectively, of interest accrued at 7% per annum; (ii) the make-whole amount of $50,940 and $135,333, respectively, and (iii) amortization of debt discount in the amount of $510,495 and $1,061,936, respectively. During the six months ended June 30, 2022, the Company paid interest in the amount of $166,320, and converted interest in the amount of $75,383 into shares of the Company’s common stock (see Note 15, Stockholders’ Equity), such that interest accrued on the GGH Notes is $172,807 and $65,520 as of June 30, 2022 and December 31, 2021, respectively.