9. CONVERTIBLE DEBT OBLIGATIONS

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

SCHEDULE OF CONVERTIBLE NOTES

GGH Convertible Notes

On February 2, 2023, the Company and the holders of the remaining GGH Notes entered into a fourth letter agreement (“Letter Agreement #4). Pursuant to Letter Agreement #4, the parties agreed to reduce the conversion price of the GGH Notes to the lower of: (i) the closing sale price on the trading day immediately preceding the conversion date; and (ii) the average closing sale price of the common stock for the five trading days immediately preceding the conversion date. The conversion price is not subject to a floor price. Between February 3 and February 15, 2023, the holders elected to convert $1,571,553 in principal and interest, of which $1,335,439, $124,049, and $112,065 was principal, interest and premium paid on conversion, into 833,333 shares of common stock at prices ranging from $1.45 and $2.40. The premium paid on conversion of the GGH Notes was recorded as a loss on extinguishment.

On February 8, 2023, the Company and the holders of the remaining GGH Notes entered into a fifth letter agreement (“Letter Agreement #5). Pursuant to Letter Agreement #5, the parties agreed to extend the maturity date of the notes from February 9, 2023 to February 28, 2023.

On February 20, 2023, the Company entered into another exchange agreement (the “Exchange Agreement #4”) with the remaining holders of the GGH Notes, pursuant to which warrants for the purchase up to an aggregate of 150,000 shares of the Company’s common stock at an exercise price of $1.00 were issued as consideration for extending maturity date in connection with Letter Agreement #5. The warrants have a grant date fair value of $134,779 and expire on the second anniversary of the date of issuance. Because the value of the new warrants was deemed to be substantial as compared to the $662,470 remaining principal of the GGH Notes, the transaction was accounted for as an extinguishment of old notes which were replaced with the new note. The fair value of the warrants was recorded as a loss on extinguishment and is reflected under Other Expense (Income) in the accompanying condensed consolidated statement of operations.

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

On February 21, the Company redeemed the remaining GGH Notes for $905,428, which includes the $662,470 of principal, $118,909 of accrued interest and $124,049 of redemption premium, the latter of which was charged to extinguishment loss.

Securities Purchase Agreement

On February 21, 2023, the Company entered into a securities purchase agreement (the “SPA”) with an institutional investor (the “Investor”), pursuant to which the Company received proceeds of $5,000,000 in exchange for senior secured convertible notes of the Company in the aggregate original principal amount of $5,617,978 (the “2023 Notes”), and three-year common stock purchase warrants exercisable into an aggregate of 3,377,099 shares of common stock of the Company at an exercise price equal to $1.34 (the “2023 Note Warrants”).

Pursuant to the SPA, the exercise price of certain warrants for the purchase of 62,500 common shares exercisable at $21.00 per share and warrants for the purchase of 43,814 shares exercisable at $6.00 per share was reduced to $1.00 per share. The increase in the value of the warrants in the aggregate amount of $63,502 as a result of the reduction in exercise price was recorded as debt discount on the 2023 Notes.

The convertible notes (the “2023 Notes”) are convertible into shares of common stock of the Company at a conversion price equal to the lower of (i) $1.34 (subject to adjustment for standard anti-dilution events, the non-exempt issuance of common stock for less than $1.34 per share and the issuance of additional variable price securities); (ii) the trading price on the day immediately prior to conversion or (iii) the average trading price of the Company’s common stock for the 5 days preceding conversion (collectively the “Conversion Price”), subject to a floor price of $0.27. If the Conversion Price in effect on the date of conversion is less than $0.27, 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 (the “Cash True Up Provision”).

The 2023 Notes mature on the first anniversary of the issuance date (the “Maturity Date”) and bear interest at a rate of 7% per annum, which is payable either in cash monthly, or by way of inclusion in the accrued interest in the conversion amount on the conversion date. Interest includes a make-whole amount equal to the additional interest that would accrue if the entire 2023 Notes principal remained outstanding through the Maturity Date.

The 2023 Notes are redeemable at the Company’s election, so long as the Company is not in default, at the greater of (a) 115% of the conversion amount, or (b) the amount equal to the shares issuable upon conversion times the greatest closing price from the redemption notice date through the date the Company makes the redemption payment. The minimum redemption amount is $500,000 and the Company can only deliver one redemption notice in a 20-day period.

Upon an event of default, the 2023 Notes the Conversion Price is reduced to the lesser of (a) $1.34 (subject to adjustment as described above); (b) 80% of the volume-weighted average price on the day preceding receipt of the conversion notice; or (c) 80% of average of the three lowest volume-weighted average prices over the fifteen trading days which precede receipt of the conversion notice, subject to a floor price of $0.27. In addition, the Investor may require the Company to redeem the 2023 Notes using the same formula that would be used for a Company-initiated redemption, described above.

In addition to other terms, conditions and rights, both the Company and the institutional investor have the right to initiate additional closings for up to $5 million of cash for additional 2023 Notes and warrants.

Pursuant to the terms of the 2023 Notes, the Company must pay, convert or redeem one quarter of the initial principal, plus any outstanding interest and make-whole amount by each three-month anniversary of the issuance date.

During the three months ended March 31, 2023, the Company made redemption payments in the aggregate amount of $100,388 related to the 2023 Notes, which included principal repayments of $81,584, accrued interest of $5,710 and redemption premiums of $13,094.

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The Company incurred financing costs of $321,803 in connection with the SPA, of which $218,187 was allocated to the 2023 Notes and recorded as debt discount and $103,616 was allocated to the 2023 Note Warrants and charged against additional paid-in capital.

Upon the issuance of the 2023 Notes, the Company recorded a debt discount at issuance in the aggregate amount $2,509,601, consisting of (i) the $617,978 difference between the aggregate principal amount of the 2023 Notes and the cash proceeds received, (ii) financing costs in the aggregate amount of $218,187, (iii) value of warrant modification of $63,502, and (iv) the $1,609,935 relative fair value of the 2023 Note Warrants. The debt discount is being amortized using the effective interest method over the term of the 2023 Notes.

Interest Expense on Convertible Debt Obligations

The Company incurred total interest expense of $566,041, and $749,229 related to its convertible debt obligations during the three months ended March 31, 2023 and 2022, respectively. Interest expense during the three months ended March 31, 2023 and 2022 consists of (i) $117,336 and $113,396, respectively, of interest accrued at 7% per annum; (ii) make-whole amounts of $86,539 and $84,393, respectively, and (iii) amortization of debt discount in the amount of $362,166 and $551,440, respectively, during the three months ended March 31, 2023. During the three months ended March 31, 2023, accrued interest in the amount of $160,782 was paid in cash and accrued interest in the amount of $124,049 was converted into common stock, such that interest accrued on convertible debt is $0 as of March 31, 2023.