Gaucho Group Holdings, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

STOCKHOLDERS' EQUITY

STOCKHOLDERS' EQUITY

9 Months Ended

Sep. 30, 2014

Stockholders' Equity Note [Abstract]

Shareholders' Equity and Share-based Payments [Text Block]

13.

STOCKHOLDERS’ EQUITY

Convertible Preferred Stock

The Company issued 2,130,734 shares of Series A Preferred at $2.30 per share to accredited investors in a private placement transaction for gross proceeds of $4,900,677, and convertible debt obligations aggregating $876,908 were converted to 476,792 shares of Series A Preferred during the nine months ended September 30, 2014.

Status as a Reporting Company and Preferred Stock Conversion

On July 14, 2014, the Company’s Registration Statement on Form 10 filed on May 14, 2014, as amended on July 3, 2014 and August 13, 2014, with the SEC became effective with the result that the Company became subject to the reporting requirements under Section 13 of the Securities Exchange Act of 1934. As a result, the 9,479,069 outstanding shares of Series A Preferred were automatically converted into 9,479,069 aggregate shares of common stock. Upon conversion, the investors are no longer eligible for dividends payments and all liquidation preferences were extinguished.

Common Stock

In January 2014, the Company issued 10,485 shares of common stock to settle certain accounts payable for $23,591 or an average of $2.25 per share of common stock.

In February 2014, the Company issued 166,305 shares of common stock to settle cashless exercised options to purchase 566,946 shares of common stock at an exercise price of $1.59 per share and 31,421 shares of common stock to settle an exercised option for a purchase price of $49,959 or $1.59 per share of common stock.

In March 2014, the Company issued 21,454 shares of common stock at $2.25 per share to settle its 2013 obligation (an aggregate of $48,272 representing the combination of employee contributions and Company matching contributions) to the Company’s 401(k) profit-sharing plan.

On April 9, 2014, the Company engaged a financial advisor for a six month term (subject to immediate termination by either party) for consideration comprised of a $15,000 cash fee ($7,500 expense for the three months ended September 30, 2014) and the issuance of 50,000 shares of common stock.

Accumulated Other Comprehensive Loss

The Company recorded foreign currency translation adjustments of $159,745 and $1,682,730 during the three and nine months ended September 30, 2014 and $758,378 and $1,728,335 during the three and nine months ended September 30, 2013, respectively, as accumulated other comprehensive loss.

Warrants

The Company issued five-year warrants for the purchase of 154 and 237,618 shares of Series A Preferred during the three and nine months ended September 30, 2014 and five year warrants for the purchase of 44,830 and 133,251 shares of Series A Preferred during the three and nine months ended September 30, 2013, to its subsidiary DPEC Capital, Inc., who acted as placement agent in connection with the sale of Series A Preferred. The warrants had an exercise price of $2.30 per share. DPEC Capital, Inc., in turn, awarded such warrants to its registered representatives and recorded $0 and $198,997, of stock-based compensation expense for three and nine months ended September 30, 2014 and $37,724 and $119,248 for three and nine months ended September 30, 2013, respectively, within general and administrative expense in the condensed consolidated statements of operations.

A summary of warrants activity during nine months ended September 30, 2014 is presented below:

				Weighted
		Weighted		Average
		Average		Remaining
	Number of	Exercise		Life	Intrinsic
	Warrants	Price		In Years	Value
Outstanding, December 31, 2013	899,156	$	2.54
Issued	237,618	$	2.30
Exercised	-		-
Expired	(178,926)	$	3.70
Outstanding, September 30, 2014	957,848	$	2.27	3.6	$	18,913

Exercisable, September 30, 2014	957,848	$	2.27	3.6	$	18,913

Warrants, continued

A summary of outstanding and exercisable warrants as of September 30, 2014 is presented below:

Warrants Outstanding				Warrants Exercisable
				Weighted
			Outstanding	Average	Exercisable
Exercise		Exercisable	Number of	Remaining Life	Number of
Price		Into	Warrants	In Years	Warrants
$	1.59	Common Stock	46,130	0.8	46,130
$	2.30	Common Stock	911,718	3.7	911,718
		Total	957,848	3.6	957,848

Stock Options

The Company has computed the fair value of options granted using the Black-Scholes option pricing model. There is currently no public trading market for the shares of AWLD common stock underlying the Company’s 2008 Equity Incentive Plan (the “2008 Plan”). Accordingly, the fair value of the AWLD common stock was estimated by management based on observations of the cash sales prices of AWLD equity securities. Forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period. This estimate will be adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate, when it is material. The expected term of options granted to consultants represents the contractual term, whereas the expected term of options granted to employees and directors was estimated based upon the “simplified” method for “plain-vanilla” options. Given that the Company’s shares are not publicly traded, the Company developed an expected volatility figure based on a review of the historical volatilities, over a period of time, of similarly positioned public companies within its industry. The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the options.

On August 27, 2014, the Company granted five-year options to purchase an aggregate of 2,649,000 shares of common stock at an exercise price of $2.48 to employees, officers, directors and consultants of the Company, pursuant to the 2008 Plan. The options vest as follows: (i) 550,000 shares vest over a five year period with one-fourth vesting on August 27, 2015 and the remainder vesting quarterly thereafter; (ii) 1,115,000 shares vest over a four year period with one-fourth vesting on August 27, 2015 and the remainder vesting quarterly thereafter; (iii) 1,000 shares vest over a four year period with one-fourth vesting on August 27, 2015 and the remainder vesting yearly thereafter; (iv) 483,000 shares vest over a one year period with one-fourth vesting on August 27, 2015 and the remainder vesting yearly thereafter; and (v) 500,000 shares vest over a four year period with one-sixteenth vesting on November 27, 2014 and the remainder vesting quarterly thereafter.

The options had an aggregate grant date value of $1,489,951, measured under the Black-Scholes option pricing model, using the following weighted average assumptions:

	For the Three Months Ended		For the Nine Months Ended
	September 30,		September 30,
	2014	2013	2014	2013
Risk free interest rate	1.11%	n/a	1.11%	0.71%
Expected term (years)	3.43	n/a	3.43	3.09
Expected volatility	46.4%	n/a	46.4%	48.4%
Expected dividends	0%	n/a	0%	0%
Forfeiture rate	5.0%	5.0%	5.0%	5.0%

Options granted to employees, officers and directors had an aggregate grant date fair value of $1,191,308, which will be recognized ratably over the vesting period. The consultant options had an aggregate grant date value of $298,643 which will be re-measured on financial reporting dates and vesting dates until the service period is complete.

The weighted average estimated fair value of the stock options granted during the three and nine months ended September 30, 2014 was $0.56 per share. There were no stock options granted during the three months ended September 30, 2013. The weighted average estimated fair value of the stock options granted during the nine months ended September 30, 2013 was $0.67 per share.

During the three and nine months ended September 30, 2014, the Company recorded stock-based compensation expense related to stock option grants of $144,163 and $371,064, respectively, and $122,304 and $2,439,927 during the three and nine months ended September 30, 2013, respectively, which is reflected as general and administrative expenses in the condensed consolidated statements of operations. As of September 30, 2014, there was $1,719,645 of unrecognized stock-based compensation expense related to stock option grants that will be amortized over a weighted average period of 3.2 years, of which $307,000 of unrecognized expense is subject to non-employee mark-to-market adjustments.

A summary of options activity during the nine months ended September 30, 2014 is presented below:

		Weighted		Weighted
		Average		Average
	Number of	Exercise		Remaining Life	Intrinsic
	Options	Price		(in years)	Value
Outstanding, December 31, 2013	7,136,236	$	2.85
Granted	2,649,000		2.48
Exercised	(598,367)		1.59
Expired	(784,965)		2.67
Forfeited	(595,068)		2.79
Outstanding, September 30, 2014	7,806,836	$	2.85	3.4	$	144,827

Exercisable, September 30, 2014	4,735,606	$	2.96	2.7	$	156,610

The following table presents information related to stock options at September 30, 2014:

		Options Outstanding			Options Exercisable
		Weighted			Weighted		Weighted
Range of		Average		Outstanding	Average		Average	Exercisable
Exercise		Exercise		Number of	Exercise		Remaining Life	Number of
Price		Price		Options	Price		In Years	Options
	$1.59 - $2.00	$	1.59	381,975	$	1.59	0.4	381,975
	$2.01 - $2.50	$	2.48	5,279,000	$	2.48	3.8	2,661,250
	$2.51 - $3.50	$	2.72	251,232	$	2.72	0.7	251,232
	$3.51 - $4.50	$	3.85	1,859,000	$	3.85	1.8	1,436,770
	$4.51 - $9.50	$	8.03	19,868	$	8.03	0.6	19,868
	$9.51 - $41.78	$	33.94	15,761	$	33.94	0.6	15,761
	$1.59 - $41.78	$	3.04	7,806,836	$	2.96	2.7	4,766,856