UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2021

 

OR

 

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____________ to ___________________.

 

Commission file number: 000-55209

 

Gaucho Group Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   52-2158952
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

1445 16th Street, Suite 403, Miami Beach, Florida

Miami Beach, FL 33139

(Address of principal executive offices)

 

212-739-7700

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol   Name of each exchange on which registered
Common Stock   VINO   The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated fi ler,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer [  ] Accelerated filer [  ]
  Non-accelerated filer [X] Smaller reporting company [X]
      Emerging growth company [X]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

As of May 14, 2021, there were 7,596,095 shares of common stock outstanding.

 

 

 

 

 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 

PART I  
  FINANCIAL INFORMATION  
  ITEM 1. Financial Statements  
    Condensed Consolidated Balance Sheets as of March 31, 2021 (unaudited) and December 31, 2020 1
    Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020 3
    Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2021 and 2020 4
    Unaudited Condensed Consolidated Statement of Changes in Temporary Equity and Stockholders’ Equity (Deficiency) for the Three Months Ended March 31, 2021 5
    Unaudited Condensed Consolidated Statement of Changes in Temporary Equity and Stockholders’ Deficiency for the Three Months Ended March 31, 2020 6
    Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 7
    Notes to Unaudited Condensed Consolidated Financial Statements 9
  ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 22
  ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 26
  ITEM 4. Controls and Procedures 26
PART II  
  OTHER INFORMATION  
  ITEM 1. Legal Proceedings 27
  ITEM 1A. Risk Factors 27
  ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 28
  ITEM 3. Defaults Upon Senior Securities 28
  ITEM 4. Mine Safety Disclosures 29
  ITEM 5. Other Information 29
  ITEM 6. Exhibits 30
  Signatures 31

 

 

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

    March 31,     December 31,  
    2021     2020  
    (unaudited)        
Assets                
Current Assets                
Cash   $ 5,467,448     $ 134,536  
Accounts receivable, net of allowance of $188,377 and $180,941
at each of March 31, 2021 and December 31, 2020, respectively
    232,054       255,720  
Accounts receivable - related parties, net of allowance of $339,503 and $332,130 each of March 31, 2021 and December 31, 2020, respectively     362,589       252,852  
Advances to employees     282,778       282,508  
Inventory     1,258,600       1,172,775  
Real estate lots held for sale     139,492       139,492  
Investment     48,499       53,066  
Deposits     15,269       35,854  
Prepaid expenses and other current assets     278,177       196,539  
Total Current Assets     8,084,906       2,523,342  
Long Term Assets                
Property and equipment, net     2,840,168       2,860,222  
Prepaid foreign taxes, net     534,954       519,499  
Investment - related parties     58       457  
Deferred offering costs     -       67,016  
Total Assets   $ 11,460,086     $ 5,970,536  
                 

 

See notes to the condensed consolidated financial statements.

 

1

 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

 

             
    March 31,     December 31,  
    2021     2020  
      (unaudited)          
Liabilities, Temporary Equity and Stockholders’ Equity (Deficiency)                
Current Liabilities                
Accounts payable   $ 783,532     $ 891,168  
Accrued expenses, current portion     629,826       1,401,402  
Deferred revenue     929,695       933,941  
Loans payable, current portion     328,853       437,731  
Debt obligations     107,000       1,270,354  
Investor deposits     29,950       29,950  
Other current liabilities     126,244       131,895  
Total Current Liabilities     2,935,100       5,096,441  
Long Term Liabilities                
Accrued expenses, non-current portion     148,519       169,678  
Loans payable, non-current portion     94,000       310,591  
Total Liabilities     3,177,619       5,576,710  
Commitments and Contingencies (Note 12)                
Series B convertible redeemable preferred stock, par value $0.01 per share;
902,670 shares authorized; 0 and 901,070 issued and outstanding at
March 31, 2021 and December 31, 2020, respectively.
    -       9,010,824  
Stockholders’ Equity (Deficiency)                
Preferred stock, 11,000,000 shares authorized:                
Series A convertible preferred stock, par value $0.01 per share;
10,097,330 shares authorized; no shares are available for issuance.
    -       -  
Common stock, par value $0.01 per share; 150,000,000 shares authorized;
7,478,632 and 5,234,406 shares issued and 7,475,263 and 5,231,037 shares
outstanding as of March 31, 2021 and December 31, 2020, respectively.
    74,786       52,344  
Additional paid-in capital     114,802,647       96,951,440  
Accumulated other comprehensive loss     (11,833,821 )     (11,932,801 )
Accumulated deficit     (94,647,679 )     (93,534,828 )
Treasury stock, at cost, 3,369 shares at March 31, 2021 and December 31, 2020     (46,355 )     (46,355 )
Total Gaucho Group Holdings, Inc. Stockholders’ Equity (Deficiency)     8,349,578       (8,510,200 )
Non-controlling interest     (67,111 )     (106,798 )
Total Stockholders’ Equity (Deficiency)     8,282,467       (8,616,998 )
Total Liabilities, Temporary Equity and Stockholders’ Equity (Deficiency)   $ 11,460,086     $ 5,970,536  

 

See notes to the condensed consolidated financial statements.

 

2

 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

    For the Three Months Ended  
    March 31,  
    2021     2020  
             
Sales   $ 275,039     $ 296,986  
Cost of sales     (159,466 )     (249,421 )
Gross profit     115,573       47,565  
Operating Expenses                
Selling and marketing     116,516       37,893  
General and administrative     1,357,997       1,229,235  
Depreciation and amortization     36,930       46,161  
Total operating expenses     1,511,443       1,313,289  
Loss from Operations     (1,395,870 )     (1,265,724 )
                 
Other Expense (Income)                
Interest expense, net     5,979       30,233  
Forgiveness of PPP Loan     (242,486 )     -  
Gains from foreign currency translation     (19,003 )     (465 )
Total other (income) expense     (255,510 )     29,768  
Net Loss     (1,140,360 )     (1,295,492 )
Net loss attributable to non-controlling interest     27,509       42,645  
Series B preferred stock dividends     -       (179,770 )
Net Loss Attributable to Common Stockholders   $ (1,112,851 )   $ (1,432,617 )
                 
Net Loss per Common Share   $ (0.18 )   $ (0.35 )
                 
Weighted Average Number of Common Shares Outstanding:                
Basic and Diluted     6,343,134       4,062,747  

 

See notes to the condensed consolidated financial statements.

 

3

 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(unaudited)

 

             
    For the Three Months Ended  
    March 31,  
    2021     2020  
             
Net loss   $ (1,140,360 )   $ (1,295,492 )
Other comprehensive income:                
Foreign currency translation adjustments     98,980       128,051  
Comprehensive loss     (1,041,380 )     (1,167,441 )
Comprehensive loss attributable to non-controlling interests     27,509       42,645  
Comprehensive loss attributable to controlling interests   $ (1,013,871 )   $ (1,124,796 )

 

See notes to the condensed consolidated financial statements.

 

4

 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN TEMPORARY EQUITY AND

STOCKHOLDERS’ (DEFICIENCY) EQUITY

 

FOR THE THREE MONTHS ENDED MARCH 31, 2021

(unaudited)

 

   

Series B Convertible Redeemable

Preferred Stock

  Common Stock   Treasury Stock   Additional Paid-In   Accumulated Other Comprehensive   Accumulated   Gaucho Group Holdings Stockholders’   Non-
controlling
  Total
Stockholders’
(Deficiency)
    Shares   Amount   Shares   Amount   Shares   Amount   Capital   Loss   Deficit   Deficiency   Interest   Equity
Balance - January 1, 2021     901,070     $ 9,010,824       5,234,406     $ 52,344       3,369     $ (46,355 )   $ 96,951,440     $ (11,932,801 )   $ (93,534,828 )   $ (8,510,200 )   $ (106,798 )   $ (8,616,998 )
Stock-based compensation:                                                                                                
Options and warrants     -       -       -       -       -       -       101,453       -       -       101,453       67,196       168,649  
Common stock and warrants issued for cash, in public offering, net of offering costs [1]     -       -       1,333,334       13,333       -       -       6,589,008       -       -       6,602,341       -       6,602,341  
 Common stock and warrants  issued for cash     -       -       73,167       732       -       -       438,268       -       -       439,000       -       439,000  
Common stock and warrants issued to underwriter in public offering     -       -       -       -       -       -       297,963       -       -       297,963       -       297,963  
Common stock and warrants issued upon exchange of debt and accrued interest     -       -       237,012       2,370       -       -       1,419,698       -       -       1,422,068       -       1,422,068  
Common stock issued upon conversion of Series B Convertible Preferred Stock     (901,070 )     (9,010,824 )     600,713       6,007       -       -       9,004,817       -       -       9,010,824       -       9,010,824  
Effect of reverse stock split     -       -       495       -       -       -       -       -       -       -       -       -  
Comprehensive loss:                                                                                                
Net loss     -       -       -       -       -       -       -       -       (1,112,851 )     (1,112,851 )     (27,509 )     (1,140,360 )
Other comprehensive income     -       -       -       -       -       -       -       98,980       -       98,980       -       98,980  
Balance - March 31, 2021     -     $ -       7,479,127     $ 74,786       3,369     $ (46,355 )   $ 114,802,647     $ (11,833,821 )   $ (94,647,679 )   $ 8,349,578     $ (67,111 )   $ 8,282,467  

 

[1] Includes gross proceeds of $8,002,004, less offering costs of $1,399,663 ($1,034,684 of cash and $364,979 of non-cash).

 

See notes to the condensed consolidated financial statements.

 

5

 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN TEMPORARY EQUITY AND

STOCKHOLDERS’ DEFICIENCY

FOR THE THREE MONTHS ENDED MARCH 31, 2020

(unaudited)

 

    Series B Convertible Redeemable           Additional   Accumulated Other       Gaucho Group
Holdings
  Non-   Total
    Preferred Stock   Common Stock   Treasury Stock   Paid-In   Comprehensive   Accumulated   Stockholders’   controlling   Stockholders’
    Shares   Amount   Shares   Amount   Shares   Amount   Capital   Loss   Deficit   Deficiency   Interest   Deficiency
Balance - January 1, 2020     902,670     $ 9,026,824       4,021,470     $ 40,215       3,369     $ (46,355 )   $ 91,238,518     $ (12,399,833 )   $ (87,886,307 )   $      (9,053,762 )   $ 26,364     $      (9,027,398 )
Options and warrants     -       -       -       -       -       -       103,581       -       -       103,581       -       103,581  
Comprehensive loss:                                                                                                
Net loss     -       -       -       -       -       -       -       -       (1,252,847 )     (1,252,847 )     (42,645 )     (1,295,492 )
Other comprehensive income     -       -       -       -       -       -       -       128,051       -       128,051       -       128,051  
Balance - March 31, 2020     902,670     $ 9,026,824       4,021,470     $ 40,215       3,369     $ (46,355 )   $ 91,342,099     $ (12,271,782 )   $ (89,139,154 )   $ (10,074,977 )   $ (16,281 )   $ (10,091,258 )

 

See notes to the condensed consolidated financial statements.

 

6

 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

    For the Three Months Ended
    March 31,
    2021   2020
                 
Cash Flows from Operating Activities                
Net loss   $ (1,140,360 )   $ (1,295,492 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Stock-based compensation:                
401(k) stock     16,462       8,507  
Options and warrants     168,649       103,581  
Gain on foreign currency translation     (19,003 )     (465 )
Unrealized investment losses     399       957  
Depreciation and amortization     36,930       46,161  
Amortization of right-of-use asset     -       55,717  
Amortization of debt discount     -       3,325  
(Recovery of) provision for uncollectible assets     (6,284 )     9,609  
Forgiveness of PPP Loan     (242,486 )     -  
Decrease (increase) in assets:                
Accounts receivable     (148,579 )     (16,115 )
Inventory     (85,825 )     (13,448 )
Deposits     20,585       -  
Prepaid expenses and other current assets     (59,836 )     (23,627 )
Increase (decrease) in liabilities:                
Accounts payable and accrued expenses     (605,840 )     110,573  
Operating lease liabilities     -       (59,185 )
Deferred revenue     (4,246 )     (2,712 )
Other liabilities     (5,651 )     12,617  
Total Adjustments     (934,725 )     235,495  
Net Cash Used in Operating Activities     (2,075,085 )     (1,059,997 )
Cash Flows from Investing Activities                
Purchase of property and equipment     (16,856 )     (16,789 )
Net Cash Used in Investing Activities     (16,856 )     (16,789 )
Cash Flows from Financing Activities                
Proceeds from loans payable     -       27,641  
Proceeds from loans payable - related parties     -       368,335  
Repayments of loans payable     (80,413 )     (20,677 )
Proceeds from convertible debt obligations     -       725,000  
Proceeds from underwritten public offering, net of offering costs [1]     7,287,004       -  
Payment of offering costs     (319,684 )     -  
Proceeds from sale of common stock and warrants     439,000       -  
Net Cash Provided by Financing Activities     7,325,907       1,100,299  
Effect of Exchange Rate Changes on Cash     98,946       128,051  
Net Increase in Cash     5,332,912       151,564  
Cash - Beginning of Period     134,536       40,378  
Cash - End of Period   $ 5,467,448     $ 191,942  

 

[1] Includes gross proceeds of $8,002,004, less offering costs of $715,000.

 

See notes to the condensed consolidated financial statements.

 

7

 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(unaudited)

 

    For the Three Months Ended
    March 31,
    2021   2020
Supplemental Disclosures of Cash Flow Information:        
Interest paid   $ 325,402     $ 58,147  
Income taxes paid   $ -     $ -  
                 
Non-Cash Investing and Financing Activity                
Common stock and warrants issued upon exchange of debt and accrued interest   $ 1,422,068     $ -  
Series B Preferred stock converted to common stock   $ 9,010,824     $ -  
Reclassification of deferred offering cost to additional paid in capital   $ 67,016     $ -  
Common stock and warrants issued to underwriter in public offering   $ 297,963     $ -  

 

See notes to the condensed consolidated financial statements.

 

8

 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

1. BUSINESS ORGANIZATION, NATURE OF OPERATIONS, RISKS AND UNCERTAINTIES AND REVERSE STOCK SPLIT

 

Organization and Operations

 

Through its subsidiaries, Gaucho Group Holdings, Inc. (“Company”, “GGH”), a Delaware corporation that was incorporated on April 5, 1999, currently invests in, develops, and operates a collection of luxury assets, including real estate development, fine wines, and a boutique hotel in Argentina, as well as an e-commerce platform for the sale of high-end fashion and accessories.

 

As wholly owned subsidiaries of GGH, InvestProperty Group, LLC (“IPG”) and Algodon Global Properties, LLC (“AGP”) operate as holding companies that invest in, develop and operate global real estate and other lifestyle businesses such as wine production and distribution, golf, tennis, and restaurants. GGH operates its properties through its ALGODON® brand. IPG and AGP have invested in two ALGODON® brand projects located in Argentina. The first project is Algodon Mansion, a Buenos Aires-based luxury boutique hotel property that opened in 2010 and is owned by the Company’s subsidiary, The Algodon – Recoleta, SRL (“TAR”). The second project is the redevelopment, expansion and repositioning of a Mendoza-based winery and golf resort property now called Algodon Wine Estates (“AWE”), the integration of adjoining wine producing properties, and the subdivision of a portion of this property for residential development. GGH also holds a 79% ownership interest in its subsidiary Gaucho Group, Inc. (“GGI”) which began operations in 2019 for the distribution and sale of high-end luxury fashion and accessories through an e-commerce platform.

 

Risks and Uncertainties

 

In December 2019, the 2019 novel coronavirus (“COVID-19”) surfaced in Wuhan, China. The World Health Organization declared the outbreak as a global pandemic in March 2020. Recently, we temporarily closed our corporate office, as well as our hotel, restaurant, winery operations, and golf and tennis operations. Further, the outsourced factories which Gaucho ordered products have closed, borders for importing product have been impacted and the Gaucho fulfillment center is also closed. In response, we have reduced costs by negotiating out of our New York lease, renegotiating with our vendors, and implementing salary reductions. We have also created an e-commerce platform for our wine sales in response to the pandemic. On October 19, 2020, we re-opened our winery and golf and tennis facilities with COVID-19 measures implemented. Most recently, we reopened the Algodon Mansion as of November 11, 2020 with COVID-19 measures implemented. Additionally, the construction on homes were temporarily halted from March to September but has resumed. The Company is continuing to monitor the outbreak of COVID-19 and the related business and travel restrictions, and changes to behavior intended to reduce its spread, and the related impact on the Company’s operations, financial position and cash flows, as well as the impact on its employees. Due to the rapid development and fluidity of this situation, the magnitude and duration of the pandemic and its impact on the Company’s future operations and liquidity is uncertain as of the date of this report. While there could ultimately be a material impact on operations and liquidity of the Company, at the time of issuance, the impact could not be determined.

 

Reverse Stock Split

 

A 15:1 reverse stock split of the Company’s common stock was effected on February 16, 2021 (the “Reverse Stock Split”). All share and per share information has been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented, unless otherwise indicated.

 

9

 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

There have been no material changes to the significant accounting policies included in the audited consolidated financial statements as of December 31, 2020 and 2019 and for the years then ended, which were included the Annual Report filed on Form 10-K on April 12, 2021, except as disclosed in this note.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company as of March 31, 2021 and for the three months ended March 31, 2021 and 2020. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the operating results for the full year. It is suggested that these unaudited condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission (“SEC”) on April 12, 2021.

 

Liquidity

 

As of March 31, 2021, the Company had cash and working capital of $5,467,448 and $5,149,806, respectively. During the three months ended March 31, 2021, the Company incurred a net loss of $1,140,360 and used cash in operating activities of $2,075,085.

 

See Note 13 - Subsequent Events for details associated with a common stock purchase agreement that the Company entered into with Tumum Stone Capital LLC.

 

The Company expects that its cash on hand, as well as the forecasted cash generated from operating activities which includes projected increases in revenues, will fund its operations for a least 12 months after the issuance date of these financial statements.

 

Since inception, the Company’s operations have primarily been funded through proceeds received in equity and debt financings. The Company believes it has access to capital resources and continues to evaluate additional financing opportunities. There is no assurance that the Company will be able to obtain funds on commercially acceptable terms, if at all. There is also no assurance that the amount of funds the Company might raise will enable the Company to complete its development initiatives or attain profitable operations.

 

The Company’s operating needs include the planned costs to operate its business, including amounts required to fund working capital and capital expenditures. The Company’s future capital requirements and the adequacy of its available funds will depend on many factors, including the Company’s ability to successfully commercialize its products and services, competing technological and market developments, and the need to enter into collaborations with other companies or acquire other companies or technologies to enhance or complement its product and service offerings.

 

Highly Inflationary Status in Argentina

 

During the three months ended March 31, 2021 and 2020, the Company recorded gains on foreign currency transactions of $19,003 and $465, respectively, as a result of the net monetary liability position of its Argentine subsidiaries.

 

10

 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Concentrations

 

The Company maintains cash with major financial institutions. Cash held in US bank institutions is currently insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 at each institution. No similar insurance or guarantee exists for cash held in Argentina bank accounts. There were aggregate uninsured cash balances of $5,164,181 and $54,681 at March 31, 2021 and December 31, 2020, respectively, of which, $246,647 and $54,681, respectively, represents cash held in Argentine bank accounts.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. ASC Topic 606 provides a single comprehensive model to use in accounting for revenue arising from contracts with customers, and gains and losses arising from transfers of non-financial assets including sales of property and equipment, real estate, and intangible assets.

 

The Company earns revenues from the sale of real estate lots and sales of food and wine as well as hospitality, food & beverage, other related services, and from the sale of clothing and accessories. The Company recognizes revenue when goods or services are transferred to customers in an amount that reflects the consideration which it expects to receive in exchange for those goods or services. In determining when and how revenue is recognized from contracts with customers, the Company performs the following five-step analysis: (i) identification of contract with customer; (ii) determination of performance obligations; (iii) measurement of the transaction price; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

 

The following table summarizes the revenue recognized in the Company’s condensed consolidated statements of operations:

 

    For The Three Months Ended
    March 31,
    2021   2020
         
Hotel rooms and events   $ 105,179     $ 206,255  
Restaurants     128,018       59,516  
Winemaking     18,665       1,043  
Golf, tennis and other     16,618       29,423  
Clothes and accessories     6,559       749  
Total revenues   $ 275,039     $ 296,986  

 

Revenue from the sale of food, wine, agricultural products, clothes and accessories is recorded when the customer obtains control of the goods purchased. Revenues from hospitality and other services are recognized as earned at the point in time that the related service is rendered, and the performance obligation has been satisfied. Revenues from gift card sales are recognized when the card is redeemed by the customer. The Company does not recognize revenue for the portion of gift card values that is not expected to be redeemed (“breakage”) due to the lack of historical data. Revenue from real estate lot sales is recorded when the lot is deeded, and legal ownership of the lot is transferred to the customer.

 

11

 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

The timing of the Company’s revenue recognition may differ from the timing of payment by its customers. A receivable is recorded when revenue is recognized prior to payment and the Company has an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, the Company records deferred revenue until the performance obligations are satisfied. Deferred revenues associated with real estate lot sale deposits are recognized as revenues (along with any outstanding balance) when the lot sale closes, and the deed is provided to the purchaser. Other deferred revenues primarily consist of deposits accepted by the Company in connection with agreements to sell barrels of wine, advance deposits received for grapes and other agricultural products, and hotel deposits. Wine barrel and agricultural product advance deposits are recognized as revenues (along with any outstanding balance) when the product is shipped to the purchaser. Hotel deposits are recognized as revenue upon occupancy of rooms, or the provision of services.

 

Contracts related to the sale of wine, agricultural products and hotel services have an original expected length of less than one year. The Company has elected not to disclose information about remaining performance obligations pertaining to contracts with an original expected length of one year or less, as permitted under the guidance.

 

As of March 31, 2021 and December 31, 2020, the Company had deferred revenue of $853,830 and $849,828, respectively, associated with real estate lot sale deposits and had $75,865 and $84,113, respectively, of deferred revenue related to hotel deposits. Sales taxes and value added (“VAT”) taxes collected from customers and remitted to governmental authorities are presented on a net basis within revenues in the condensed consolidated statements of operations.

 

Net Loss per Common Share

 

Basic loss per common share is computed by dividing net loss attributable to GGH common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding, plus the impact of common shares, if dilutive, resulting from the exercise of outstanding stock options and warrants and the conversion of convertible instruments.

 

The following securities are excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive:

 

    March 31,
    2021   2020
         
Options     601,263       622,126  
Warrants     2,824,840       35,889  
Series B convertible preferred stock     -       601,780  
Convertible debt     -       167,439  
Total potentially dilutive shares     3,426,103       1,427,234  

 

[1] As of March 31, 2020, certain of the convertible notes had variable conversion prices and the potentially dilutive shares were estimated based on market conditions.

 

New Accounting Pronouncements

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. The Company adopted ASU 2019-12 effective January 1, 2021, which did not have a material effect on the Company’s condensed consolidated financial statements.

 

12

 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. The update also requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share. The new guidance is effective for annual periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. This update can be adopted on either a fully retrospective or a modified retrospective basis. The Company adopted ASU 2020-06 effective January 1, 2021, which did not have a material effect on the Company’s condensed consolidated financial statements.

 

In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which updates various codification topics by clarifying or improving disclosure requirements to align with the SEC’s regulations. The guidance is effective for the Company beginning in the first quarter of fiscal year 2022 with early adoption permitted. The Company adopted ASU 2020-10 effective January 1, 2021, which did not have a material effect on the Company’s condensed consolidated financial statements.

 

3. INVENTORY

 

Inventory at March 31, 2021 and December 31, 2020 was comprised of the following:

 

    March 31,   December 31,
    2021   2020
         
Vineyard in process   $ 404,400     $ 286,491  
Wine in process     547,112       576,801  
Finished wine     35,571       39,549  
Clothes and accessories     210,892       215,951  
Other     60,625       53,983  
Total   $ 1,258,600     $ 1,172,775  

 

4. INVESTMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or developed by the Company. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

 

Level 1 - Valued based on quoted prices at the measurement date for identical assets or liabilities trading in active markets. Financial instruments in this category generally include actively traded equity securities.

 

Level 2 - Valued based on (a) quoted prices for similar assets or liabilities in active markets; (b) quoted prices for identical or similar assets or liabilities in markets that are not active; (c) inputs other than quoted prices that are observable for the asset or liability; or (d) from market corroborated inputs. Financial instruments in this category include certain corporate equities that are not actively traded or are otherwise restricted.

 

13

 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Level 3 - Valued based on valuation techniques in which one or more significant inputs is not readily observable. Included in this category are certain corporate debt instruments, certain private equity investments, and certain commitments and guarantees.

 

Investments at Fair Value:

 

As of March 31, 2021   Level 1   Level 2   Level 3   Total
                 
Warrants - Affiliates   $ -     $ -     $ 58     $ 58  
Government Bond     48,499       -       -       48,499  
                                 
As of December 31, 2020     Level 1       Level 2       Level 3       Total  
                                 
Warrants - Affiliates   $ -     $ -     $ 457     $ 457  
Government Bond     53,066       -       -       53,066  

 

A reconciliation of Level 3 assets is as follows:

 

    Warrants - Affiliates
     
Balance - January 1, 2021   $ 457  
Unrealized loss     (399 )
Balance - March 31, 2021   $ 58  

 

Investment at March 31, 2021, consisted of the Company’s investment in an Argentine government bond, purchased by the Company on December 3, 2019. The bond had an effective interest of 48% per annum and matured on December 31, 2020. There were no material unrealized gains or losses related to the Argentine government bond during the three months ended March 31, 2021. The bond was purchased to settle specific Argentine taxes with interest and penalties, of which majority of the amount was used on the date of purchase. As of March 31, 2021, the Company issued a legal claim with the government to seek a resolution to apply the remaining amount to another debt or to receive a refund.

 

Investment – related parties at March 31, 2021, consisted of retained certain affiliate warrants which are marked to market at each reporting date using the Black-Scholes option pricing model. The Company recorded unrealized losses on the affiliate warrants of $399 and $957 during the three months ended March 31, 2021 and 2020, respectively, which are included in revenues on the accompanying unaudited condensed consolidated statements of operations.

 

14

 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

5. ACCRUED EXPENSES

 

Accrued expenses were comprised of the following as of:

 

    March 31,   December 31,
    2021   2020
         
Accrued compensation and payroll taxes   $ 300,674     $ 169,164  
Accrued taxes payable - Argentina     240,915       201,704  
Accrued interest     37,079       609,725  
Other accrued expenses     51,158       420,809  
Accrued expenses, current     629,826       1,401,402  
Accrued payroll tax obligations, non-current     148,519       169,678  
Total accrued expenses   $ 778,345     $ 1,571,080  

 

6. LOANS PAYABLE

 

The Company’s loans payable are summarized below:

 

    March 31,   December 31,
    2021   2020
         
PPP Loan   $ -     $ 242,486  
EIDL     94,000       94,000  
2020 Demand Loan     13,480       14,749  
2018 Loan     301,559       301,559  
2017 Loan     13,814       15,115  
Land Loan     -       80,413  
Total loans payable     422,853       748,322  
Less: current portion     328,853       437,731  
Loans payable, non-current   $ 94,000     $ 310,591  

 

During the three months ended March 31, 2021, the Company paid off the Land Loan in full and obtained forgiveness of the PPP Loan, which was recognized as other income on the condensed consolidated statement of operations. The remaining decrease in principal balances on the loans payable are the result of the impact of the change in exchange rates during the period.

 

The Company incurred interest expense related to the loans payable in the amount of $5,968 and $22,530 during the three months ended March 31, 2021 and 2020, respectively, of which, $0 and $3,325, respectively represented amortization of debt discount.

 

15

 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

7. DEBT OBLIGATIONS

 

The Company’s debt obligations are summarized below:

 

    March 31, 2021   December 31, 2020
    Principal   Interest [1]   Total   Principal   Interest [1]   Total
                         
2010 Debt Obligations   $ -     $      13,416     $ 13,416     $ -     $     330,528     $ 330,528  
2017 Notes     7,000       4,547       11,547       1,170,354       261,085       1,431,439  
Gaucho Notes     100,000       14,994       114,994       100,000       13,270       113,270  
Total debt obligations   $ 107,000     $ 32,957     $ 139,957     $ 1,270,354     $ 604,883     $ 1,875,237  

 

  [1] Accrued interest is included as a component of accrued expenses on the accompanying condensed consolidated balance sheets.

 

Each of the debt obligations listed above are past due and are payable on demand. The Company incurred interest expense of $4,158 and $31,262 in connection with its debt obligations during the three months ended March 31, 2021 and 2020, respectively, and repaid interest of $317,371 during the three months ended March 31, 2021.

 

On January 8, 2021, the Company issued 237,012 shares of common stock and warrants to purchase 237,012 shares of common stock to Mr. Griffin and JLAL Holdings Ltd with an aggregate issuance date fair value of $1,422,068 in exchange for notes payable with an aggregate of $1,163,354 in principal and $258,714 in accrued interest.

 

8. RELATED PARTY TRANSACTIONS

 

Assets

 

Accounts receivable – related parties in the amounts of $362,589 and $252,852 at March 31, 2021 and December 31, 2020, respectively, represent the net realizable value of advances made to related, but independent, entities under common management.

 

See Note 4 – Investments and Fair Value of Financial Instruments, for a discussion of the Company’s investment in warrants of a related, but independent, entity.

 

Expense Sharing

 

On April 1, 2010, the Company entered into an agreement with a Related Party to share expenses such as office space, support staff and other operating expenses (the “Related Party ESA”). The agreement was amended on January 1, 2017 to reflect the current use of personnel, office space, professional services. During the three months ended March 31, 2021 and 2020, the Company recorded a contra-expense of $93,021 and $139,915, respectively, related to the reimbursement of general and administrative expenses as a result of the agreement.

 

The Company had an expense sharing agreement with a different related entity to share expenses such as office space and other clerical services which was terminated in August 2017. The owners of more than 5% of that entity include (i) GGH’s chairman, and (ii) a more than 5% owner of GGH. The balance owed to the Company under this expense sharing agreement as of March 31, 2021 is $339,503, of which, the entire balance is deemed unrecoverable and is reserved.

 

16

 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

9. BENEFIT CONTRIBUTION PLAN

 

The Company sponsors a 401(k) profit-sharing plan (“401(k) Plan”) that covers substantially all of its employees in the United States. The 401(k) Plan provides for a discretionary annual contribution, which is allocated in proportion to compensation. In addition, each participant may elect to contribute to the 401(k) Plan by way of a salary deduction.

 

A participant is always fully vested in their account, including the Company’s contribution. For the three months ended March 31, 2021 and 2020, the Company recorded a charge associated with its contribution of $16,462 and $8,507, respectively. This charge has been included as a component of general and administrative expenses in the accompanying condensed consolidated statements of operations. The Company issues shares of its common stock to settle these obligations based on the fair market value of its common stock on the date the shares are issued.

 

10. TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY

 

Series B Preferred Stock

 

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 when, as and if declared by the Board of Directors. Dividends earned by the Series B stockholders were $0 and $179,770 during the three months ended March 31, 2021 and 2020, respectively.

 

Effective February 16, 2021, as a result of the listing of the Common Stock on Nasdaq, all outstanding shares of Series B preferred stock were converted into 600,713 shares of Common Stock.

 

Common Stock

 

Effective February 16, 2021, 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 effect a reverse stock split of the Common Stock at a ratio of 15-for-1 (the “Reverse Split”).

 

There were no fractional shares issued as a result of the Reverse Split. All fractional shares as a result of the Reverse Split were rounded up to the nearest whole number. The total number of the Company’s authorized shares of Common Stock or preferred stock was not be affected by the foregoing. As a result, after giving effect to the Reverse Split, the Company remains authorized to issue a total of 150,000,000 shares of Common Stock.

 

Units

 

See Note 7 – Debt Obligations for details of additional issuances of units.

 

On January 8, 2021, the Company issued an aggregate of 73,167 shares of common stock and warrants to purchase 73,167 shares of common stock at an exercise price of $6.00 per share to accredited investors with a substantive pre-existing relationship with the Company for aggregate gross proceeds of $439,000.

 

Public Offering

 

On February 19, 2021, the Company closed an underwritten public offering of Units at an offering price of $6.00 per Unit. The Company sold and issued an aggregate of 1,333,334 shares of common stock and 1,533,333 warrants at an exercise price of $6.00 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 common stock purchase warrant exercisable for up to 15,333 shares of common stock at an exercise price of $7.50 per share, having a fair value of $29,899.

 

17

 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Due to the successful closing of the public offering, 54,154 shares of the Company’s common stock previously issued to Kingswood Capital Markets 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.

 

Warrants

 

See Note 7 – Debt Obligations and elsewhere in Note 10 – Temporary Equity and Stockholders’ Equity for details on the issuances of warrants.

 

A summary of warrants activity during the three months ended March 31, 2021 is presented below:

 

    Number of Warrants   Weighted Average Exercise Price   Weighted Average Remaining Life in Years   Intrinsic Value
                 
Outstanding, January 1, 2021     969,827     $ 5.87                  
Issued     1,858,845       6.01                  
Exercised     -       -                  
Cancelled     -       -                  
Expired     (3,832 )     37.50                  
Outstanding, March 31, 2021     2,824,840     $ 5.92       1.0     $ -  
                                 
Exercisable, March 31, 2021     2,809,507     $ 5.91       1.0     $ -  

 

A summary of outstanding and exercisable warrants as of March 31, 2021 is presented below:

 

Warrants Outstanding   Warrants Exercisable
Exercise Price   Exercisable Into   Outstanding Number of Warrants   Weighted Average Remaining Life in Years   Exercisable Number of Warrants
                                 
$ 5.10     Common Stock     905,362       0.5       905,362  
$ 6.00     Common Stock     1,881,850       1.3       1,881,850  
$ 7.50     Common Stock     15,333       -       -  
$ 30.00     Common Stock     18,345       0.4       18,345  
$ 37.50     Common Stock     3,950       0.1       3,950  
        Total     2,824,840       0.7       2,809,507  

 

18

 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Stock Options

 

During the three months ended March 31, 2021 and 2020, the Company recorded stock-based compensation expense of $101,453 and $103,581, respectively, related to the amortization of stock option grants, which is reflected in general and administrative expenses in the accompanying condensed consolidated statements of operations. As of March 31, 2021, there was $718,646 of unrecognized stock-based compensation expense related to stock option grants that will be amortized over a weighted average period of 2.39 years.

 

11. SEGMENT DATA

 

The Company’s financial position and results of operations are classified into three reportable segments, consistent with how the Chief Operating Decision Maker (“CODM”) makes decisions about resource allocation and assesses the Company’s performance.

 

  Real Estate Development, through AWE and TAR, including hospitality and winery operations, which support the ALGODON® brand.
  Fashion (e-commerce), through GGI, including the manufacture and sale of high-end fashion and accessories sold through an e-commerce platform.
  Corporate, consisting of general corporate overhead expenses not directly attributable to any one of the business segments.

 

The Company has recast its financial information and disclosures for the prior period to reflect the segment disclosures as if the current presentation had been in effect throughout all periods presented. The following tables present segment information for the three months ended March 31, 2021 and 2020:

 

    For the Three Months Ended March 31, 2021     For the Three Months Ended March 31, 2020  
    Real Estate Development     Fashion (e-commerce)     Corporate(1)     TOTAL     Real Estate Development     Fashion (e-commerce)     Corporate(1)     TOTAL  
Revenues   $ 268,481     $ 6,558     $ -     $ 275,039     $ 296,237     $ 749     $ -     $ 296,986  
Revenues from Foreign Operations   $ 268,481     $ -     $ -     $ 268,481     $ 296,237     $ -     $ -     $ 296,237  
Loss from Operations   $ (103,125 )   $ (125,751 )   $ (1,166,994 )   $ (1,395,870 )   $ (297,956 )   $ (317,613 )   $ (650,155 )   $ (1,265,724 )

 

(1) Unallocated corporate operating losses resulting from general corporate overhead expenses not directly attributable to any one of the business segments.

 

12. COMMITMENTS AND CONTINGENCIES

 

Legal Matters

 

The Company is involved in litigation and arbitrations from time to time in the ordinary course of business. After consulting legal counsel, the Company does not believe that the outcome of any such pending or threatened litigation will have a material adverse effect on its financial condition or results of operations. However, as is inherent in legal proceedings, there is a risk that an unpredictable decision adverse to the Company could be reached. The Company records legal costs associated with loss contingencies as incurred. Settlements are accrued when, and if, they become probable and estimable.

 

19

 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

13. SUBSEQUENT EVENTS

 

Management has evaluated all subsequent events to determine if events or transactions occurring through the date the condensed consolidated financial statements were issued, require adjustment to or disclosure in the accompanying condensed consolidated financial statements.

 

Foreign Currency Exchange Rates

 

The Argentine peso to United States dollar exchange rate was 94.0062, 91.9605, and 84.0747 at May 14, March 31, 2021 and December 31, 2020, respectively.

 

The British pound to United States dollar exchange rate was 0.7104, 0.7264, and 0.7325 at May 14, March 31, 2021 and December 31, 2020, respectively.

 

Employment Agreement

 

On April 7, 2021, the Company paid a total of $58,001 to Mr. Mathis in connection with his deferred compensation. (See Note 17 – Commitments and Contingencies)

 

Lease Agreement

 

On April 8, 2021, GGI entered into a lease agreement to lease a retail space in Miami, Florida for 7 years at $26,758 per month, plus applicable sales tax. The base rent is subject to increase at the beginning of the second and each subsequent lease year during the term by an amount equal to 3% of the base rent.

 

  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 Tumim Stone Capital LLC (“Tumim Stone Capital”). Pursuant to the Purchase Agreement, the Company has the right to sell to Tumim Stone Capital up to the lesser of (i) $50,000,000 of newly issued shares (the “Shares”) of the Company’s common stock, par value $0.01 per share (the “Common Stock”), and (ii) the Exchange Cap (as defined below) (subject to certain conditions and limitations), from time to time during the term of the Purchase Agreement. Sales of Common Stock pursuant to the Purchase Agreement, and the timing of any sales, are solely at the option of the Company and the Company is under no obligation to sell securities pursuant to this arrangement. Shares of Common Stock may be sold by the Company pursuant to this arrangement over a period of up to 36 months after Commencement (as defined below).

 

20

 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Upon the satisfaction of the conditions in the Purchase Agreement, including that a registration statement that we agreed to file with the Securities and Exchange Commission (the “SEC”) pursuant to the Registration Rights Agreement is declared effective by the SEC and a final prospectus in connection therewith is filed with the SEC (such event, the “Commencement”), we will have the right, but not the obligation, from time to time at our sole discretion over the 36-month period from and after the Commencement, to direct Tumim Stone Capital 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, so long as, (i) the daily volume weighted average price for the Common Stock for such trading day is not the lowest daily volume weighted average price for the Common Stock during the 10-consecutive trading day period ending on and including such trading day (the “Valuation Period”), (ii) the closing sale price of the Common Stock on such trading day is greater than each of (A) the specified threshold price set forth in the Purchase Agreement and (B) the arithmetic average of the 10-daily volume weighted average prices for the Common Stock during the Valuation Period, (iii) at least three trading days shall have elapsed since the trading day on which the most recent prior notice to purchase Common Stock under the Purchase Agreement was delivered by the Company to Tumim Stone Capital, and (iv) all shares of Common Stock subject to all prior purchases by Tumim Stone Capital under the Purchase Agreement have theretofore been received by Tumim Stone Capital electronically as set forth in the Purchase Agreement. The purchase price of the shares of Common Stock that we elect to sell to Tumim Stone Capital pursuant to the Purchase Agreement will be determined by reference to the market prices of the Common Stock during the Valuation Period at the time of such purchases as set forth in the Commitment Purchase Agreement, less a fixed 7% discount.

 

In addition to Fixed Purchases, as described above, we will have the right, but not the obligation, from time to time at our sole discretion over the 36-month period from and after the Commencement, to direct Tumim Stone Capital to purchase additional amounts of our Common Stock as VWAP purchases as set forth in the Purchase Agreement (each, a “VWAP Purchase”) on any trading day, so long as, (i) the closing sale price of the Common Stock on such trading day is greater than the specified threshold price set forth in the Purchase Agreement, (ii) at least three trading days shall have elapsed since the trading day on which the most recent prior notice to purchase Common Stock under the Purchase Agreement was delivered by the Company to Tumim Stone Capital, and (iii) all shares of Common Stock subject to all prior purchases by Tumim Stone Capital under the Purchase Agreement have theretofore been received by Tumim Stone Capital electronically as set forth in the Purchase Agreement. The Company may not deliver a notice for a Fixed Purchase and a notice for a VWAP Purchase to Tumim Stone Capital on the same trading day.

 

From and after Commencement, the Company will control the timing and amount of any sales of Common Stock to Tumim Stone Capital. Actual sales of shares of our Common Stock to Tumim Stone Capital under the Purchase Agreement will depend on a variety of factors to be determined by the Company from time to time, including, among other things, market conditions, the trading price of the Common Stock and determinations by the Company as to the appropriate sources of funding for the Company and its operations.

 

As consideration for Tumim Stone Capital’s irrevocable commitment to purchase shares of Common Stock upon the terms of and subject to satisfaction of the conditions set forth in the Purchase Agreement, concurrently with the execution and delivery of the Purchase Agreement, the Company issued to Tumim Stone Capital 120,337 shares of Common Stock (the “Commitment Shares”). The Company has also agreed to reimburse Tumim Stone Capital for the fees and expenses of its counsel, up to a maximum of $35,000.

 

Under the applicable rules of The Nasdaq Stock Market LLC (“Nasdaq”), in no event may we issue to Tumim Stone Capital under the Purchase Agreement more than 1,949,404 shares of our Common Stock (including the Commitment Shares), which represents 19.99% of the shares of the Common Stock outstanding immediately prior to the execution of the Purchase Agreement (the “Exchange Cap”), unless (i) we obtain stockholder approval to issue shares of Common Stock in excess of the Exchange Cap or (ii) the average price of all applicable sales of Common Stock to Tumim Stone Capital under the Purchase Agreement equals or exceeds the lower of (i) the Nasdaq official closing price immediately preceding the execution of the Purchase Agreement or (ii) the arithmetic average of the five Nasdaq official closing prices for the Common Stock immediately preceding the execution of the Purchase Agreement, plus an incremental amount of $0.322, such that the transactions contemplated by the Purchase Agreement are exempt from the Exchange Cap limitation under applicable Nasdaq rules. In any event, the Purchase Agreement specifically provides that we may not issue or sell any shares of our Common Stock under the Purchase Agreement if such issuance or sale would breach any applicable rules or regulations of the Nasdaq.

 

In all instances, we may not sell shares of our Common Stock to Tumim Stone Capital under the Purchase Agreement if it would result in Tumim Stone Capital beneficially owning more than 4.99% of the Common Stock.

 

Kingswood Capital Markets, division of Benchmark Investments, Inc. acted as the exclusive placement agent in connection with the transactions contemplated by the Purchase Agreement, for which the Company will pay to Kingswood a cash placement fee equal to 8.0% of the amount of the Total Commitment actually paid by Tumim Stone Capital to the Company pursuant to the Purchase Agreement.

 

The Purchase Agreement will automatically terminate on the earliest to occur of (i) the first day of the month next following the 36-month anniversary after Commencement (which term may not be extended by the parties), (ii) the date on which Tumim Stone Capital shall have purchased the Total Commitment worth of shares of Common Stock, (iii) the date on which the Common Stock shall have failed to be listed or quoted on The Nasdaq Capital Market or any other “Eligible Market” (as defined in the Purchase Agreement), and (iv) the date on which the Company commences a voluntary bankruptcy proceeding or any Person commences a proceeding against the Company, a Custodian is appointed for the Company or for all or substantially all of its property, or the Company makes a general assignment for the benefit of its creditors. The Company has the right to terminate the Purchase Agreement at any time after Commencement, at no cost or penalty, upon 10 trading days’ prior written notice to Tumim Stone Capital. Neither the Company nor Tumim Stone Capital may assign or transfer its rights and obligations under the Purchase Agreement or the Registration Rights Agreement, and no provision of the Purchase Agreement or the Registration Rights Agreement may be modified or waived by the parties.

 

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Item 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included herein. In connection with, and because we desire to take advantage of, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain forward looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on our behalf. Words such as “anticipate,” “estimate,” “plan,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions are used to identify forward-looking statements. We disclaim any obligation to update forward-looking statements.

 

A 15:1 reverse stock split of the Company’s common stock was effected on February 16, 2021 (the “Reverse Stock Split”). All share and per share information has been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented, unless otherwise indicated.

 

Unless the context requires otherwise, references in this document to “GGH”, “we”, “our”, “us” or the “Company” are to Gaucho Group Holdings, Inc. and its subsidiaries.

 

Please note that because we qualify as an emerging growth company and as a smaller reporting company, we have elected to follow the smaller reporting company rules in preparing this Quarterly Report on Form 10-Q.

 

Overview

 

Gaucho Group Holdings, Inc. (“GGH” or the “Company”) positions its e-commerce leather goods, accessories, and fashion brand, Gaucho – Buenos Aires™, as one of luxury, creating a platform for the global consumer to access their piece of Argentine style and high-end products. With a concentration on leather goods, ready-to-wear and accessories, this is the luxury brand in which Argentina finds its contemporary expression. By the end of the second quarter of 2021, the Company anticipates launching Gaucho Casa, a Home & Living line of luxury textiles and home accessories, which will be marketed and sold on the Gaucho – Buenos Aires e-commerce platform and at the flagship retail location in Miami’s Design District shopping mall. Gaucho Casa challenges traditional lifestyle collections with its luxury textiles and home accessories rooted in the singular spirit of the gaucho aesthetic. GGH seeks to grow its direct-to-consumer online products to global markets in the United States, Asia, the United Kingdom, Europe, and Argentina. We intend to focus on e-commerce and scalability of the Gaucho – Buenos Aires and Gaucho Casa brands, as real estate in Argentina is politically sensitive.

 

GGH’s goal is to become recognized as the LVMH (“Louis Vuitton Moët Hennessy”) of South America’s leading luxury brands. Through one of its wholly owned subsidiaries, GGH also owns and operates legacy investments in the boutique hotel, hospitality and luxury vineyard property markets. This includes a golf, tennis and wellness resort, as well as an award winning, wine production company concentrating on Malbecs and Malbec blends. Utilizing these wines as its ambassador, GGH seeks to further develop its legacy real estate, which includes developing residential vineyard lots located within its resort.

 

Due to COVID-19, we have terminated the corporate office lease and senior management works remotely. GGH’s local operations are managed by professional staff with substantial hotel, hospitality and resort experience in Buenos Aires and San Rafael, Argentina.

 

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Recent Developments and Trends

 

In January 2021, Wine Enthusiast rated and reviewed our Algodon 2012 PIMA Red Blend Mendoza and awarded it 91 points.

 

PPP Loan Forgiveness

 

On May 6, 2020, we entered into a potentially forgivable loan from the U.S. Small Business Administration (“SBA”) pursuant to the Paycheck Protection Program (“PPP”) enacted by Congress under the Coronavirus Aid, Relief, and Economic Security Act (15 U.S.C. 636(a)(36)) (the “CARES Act”), resulting in net proceeds of $242,487 (the “PPP Loan”). To facilitate the PPP Loan, we entered into a note payable agreement with Santander Bank, N.A. as the lender. On March 26, 2021, the SBA forgave the PPP Loan in full

 

Public Offering

 

On February 19, 2021, we closed an underwritten public offering of Units at an offering price of $6.00 per Unit. We sold and issued an aggregate of 1,333,334 shares of common stock and 1,533,333 warrants at an exercise price of $6.00 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, we issued the representative of such underwriters a common stock purchase warrant exercisable for up to 15,333 shares of common stock at an exercise price of $7.50 per share.

 

Due to the successful closing of the public offering, 54,154 shares of GGH’s common stock previously issued to Kingswood Capital Markets became fully vested on February 19, 2021.

 

Series B Preferred Stock Conversion

 

Effective February 16, 2021, as a result of the listing of the Common Stock on Nasdaq, all outstanding shares of Series B preferred stock were converted into 600,713 shares of Common Stock.

 

Unit Issuances

 

On January 8, 2021, we issued an aggregate of 73,167 shares of common stock and warrants to purchase 73,167 shares of common stock at an exercise price of $6.00 per share to accredited investors with a substantive pre-existing relationship with GGH for aggregate gross proceeds of $439,000.

 

Initiatives

 

We have implemented a number of initiatives designed to expand revenues and control costs. Revenue enhancement initiatives include expanding marketing, investment in additional winery capacity and developing new real estate development revenue sources. Our goal for 2021 is to focus on actions that can result in immediate revenues, such as e-commerce sales, continued deeding of lots and real estate sales and greater distribution of our wines by supporting our importer and their network partners.

 

Cost reduction initiatives include investment in equipment that will decrease our reliance on subcontractors, plus outsourcing and restructuring of certain functions. Further, we have begun to reduce operational expenses by approximately $800,000 per year by reducing administrative costs including non-renewal of the lease in August 2020 for our New York headquarters and reduction in workforce hours and marketing expenses. Some of these significant savings will be immediate, others will be unfolding throughout time. Our goal is ultimately to reduce expenses of between $1-2 million in 2021. Our goal is to become more self-sufficient and less dependent on outside financing.

 

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Consolidated Results of Operations

 

Three months March 31, 2021 compared to three months ended March 31, 2020

 

Overview

 

We reported net losses of approximately $1.1 million and $ 1.3 million for the three months ended March 31, 2021 and 2020, respectively.

 

Revenues

 

Revenues from operations were approximately $275,000 and $297,000 during the three months ended March 31, 2021 and 2020, respectively, reflecting a decrease of approximately $22,000 or 7%. Decreases in revenues are primarily due to approximately $116,000 resulting from the impact of the decline in the value of the Argentine peso vis-à-vis the U.S. dollar and decreases in hotel revenues of approximately $55,000 resulting from the hotels reopening with COVID-19 measures implemented as a result of the COVID-19 pandemic, which were partially offset by an increase in restaurant revenues of approximately $125,000 and an increase in wine sales of approximately $23,000 resulting from the Argentine government’s efforts to promote tourism and revitalize local businesses by subsidizing a portion of sales.

 

Gross profit

 

We generated a gross profit of approximately $116,000 for the three months ended March 31, 2021 as compared to a gross profit of approximately $48,000 for the three months ended March 31, 2020, representing an increase of $68,000 or 142%. Cost of sales, which consists of real estate lots, raw materials, direct labor and indirect labor associated with our business activities, decreased by approximately $90,000 from $249,000 for the three months ended March 31, 2020 to $159,000 for the three months ended March 31,2021. The decrease in cost of sales resulted from the decrease in hotel costs of approximately $21,000, and a decrease of approximately $69,000 resulting from the impact of the decline in the value of the Argentine peso vis-à-vis the U.S. dollar.

 

Selling and marketing expenses

 

Selling and marketing expenses were approximately $117,000 and $38,000 for the three months ended March 31, 2021 and 2020, respectively, representing an increase of $79,000 or 208% in 2021, primarily resulting from entering into new contracts during the three months ended March 31, 2021 related to investor and public relations.

 

General and administrative expenses

 

General and administrative expenses were approximately $1,358,000 and $1,229,000 for the three months ended March 31, 2021 and 2020, respectively, representing an increase of $129,000 or 10%. The increase results primarily from the increases of approximately $193,000 in professional fees, partially offset by a decrease of approximately $87,000 resulting from the impact of the decline in the value of the Argentine peso vis-à-vis the U.S. dollar.

 

Depreciation and amortization expense

 

Depreciation and amortization expense was approximately $37,000 and $46,000 during the three months ended March 31, 2021 and 2020, respectively, representing a decrease of $9,000 or 20%.

 

Interest expense, net

 

Interest expense, net was approximately $6,000 and $30,000 during the three months ended March 31, 2021 and 2020, respectively, representing a decrease of $24,000 or 80%. The decrease is primarily related to the decrease in the average balance of debt outstanding during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

 

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Forgiveness of PPP Loan

 

We recognized a gain on forgiveness of PPP Loan of approximately $242,000 during the three months ended March 31, 2021.

 

Liquidity and Capital Resources

 

We measure our liquidity a variety of ways, including the following:

 

    March 31, 2021     December 31, 2020  
    (unaudited)        
             
Cash   $ 5,467,448     $ 134,536  
                 
Working Capital (Deficiency)   $ 5,149,806     $ (2,573,099 )
                 
Loans Payable   $ 422,853     $ 748,322  
                 
Debt Obligations   $ 107,000     $ 1,270,354  

 

During the three months ended March 31, 2021 and 2020, we financed our activities from proceeds derived from debt and equity financings occurring in prior periods. A significant portion of the funds have been used to cover working capital needs and personnel, office expenses and various consulting and professional fees.

 

Net cash used in operating activities for the three months ended March 31, 2021 and 2020 amounted to approximately $2,075,000 and $1,060,000, respectively. During the three months ended March 31, 2021, the net cash used in operating activities was primarily attributable to the net loss of approximately $1,140,000, adjusted for approximately $45,000 of net non-cash income, and approximately $890,000 of cash used to fund changes in the levels of operating assets and liabilities. During the three months ended March 31, 2020, the net cash used in operating activities was primarily attributable to the net loss of approximately $1,295,000, adjusted for approximately $227,000 of net non-cash expenses, partially offset by approximately $8,000 of cash provided by changes in the levels of operating assets and liabilities.

 

Cash used in investing activities for the three months ended March 31, 2021 and 2020 amounted to approximately $17,000, which resulted entirely from the purchase of property and equipment.

 

Net cash provided by financing activities for the three months ended March 31, 2021 and 2020 amounted to approximately $7,326,000 and $1,100,000, respectively. For the three months ended March 31, 2021, the net cash provided by financing activities resulted from approximately $7,287,000 of proceeds provided by the sale of common stock and warrants in a public offering and $439,000 from the proceeds from the sale of common stock and warrants to accredited investors, partially offset by payments of offering costs related to the public offering of approximately $320,000 and loan repayments of approximately $80,000. For the three months ended March 31, 2020, the net cash provided by financing activities resulted primarily from approximately $725,000 of proceeds from convertible debt obligations and approximately $368,000 and $28,000 from the proceeds from the issuance of related party loans and non-related party loans payable, respectively, partially offset by loan repayments of approximately $21,000.

 

As of March 31, 2021, we had cash and working capital of $5,467,448 and $5,149,806, respectively. During the three months ended March 31, 2021, we incurred a net loss of $1,005,360.

 

See Note 13 - Subsequent Events for details associated with a common stock purchase agreement that the Company entered into with Tumum Stone Capital LLC.

 

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We expect that the cash on hand as well as the forecasted cash generated from operating activities which includes projected increases in revenues, will fund our operations for a least 12 months after the issuance date of these financial statements.

 

Since inception, our operations have primarily been funded through proceeds received in equity and debt financings. We believe we have access to capital resources and continue to evaluate additional financing opportunities. There is no assurance that we will be able to obtain funds on commercially acceptable terms, if at all. There is also no assurance that the amount of funds we might raise will enable us to complete our development initiatives or attain profitable operations.

 

Availability of Additional Funds

 

As a result of the above developments, we have been able to sustain operations. However, we will need to raise additional capital in order to meet our future liquidity needs for operating expenses and capital expenditures, including GGI inventory production, development of the GGI e-commerce platform, expansion of our winery and additional investments in real estate development. If we are unable to obtain adequate funds on reasonable terms, we may be required to significantly curtail or discontinue operations.

 

Off-Balance Sheet Arrangements

 

None.

 

Contractual Obligations

 

As a smaller reporting company, we are not required to provide the information requested by paragraph (a)(5) of this Item.

 

Critical Accounting Policies and Estimates

 

There are no material changes from the critical accounting policies, estimates and new accounting pronouncements set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in our Annual Report on Form 10-K filed with the SEC on April 12, 2021. Please refer to that document for disclosures regarding the critical accounting policies related to our business.

 

Item 3. Quantitative and Qualitative Disclosure About Market Risk

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide the information required by this Item.

 

Item 4: Controls and Procedures

 

Disclosure Controls and Procedures

 

Our management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer (who is our Principal Executive Officer) and our Chief Financial Officer (who is our Principal Financial Officer and Principal Accounting Officer), of the effectiveness of the design of our disclosure controls and procedures (as defined by Exchange Act Rules 13a-15(e) or 15d-15(e)) as of March 31, 2021, pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2021.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended March 31, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

  Inherent Limitations of Controls

 

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. Controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or deterioration in the degree of compliance with the policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time GGH and its subsidiaries and affiliates are subject to litigation and arbitration claims incidental to its business. Such claims may not be covered by its insurance coverage, and even if they are, if claims against GGH and its subsidiaries are successful, they may exceed the limits of applicable insurance coverage. We are not involved in any litigation that we believe is likely, individually or in the aggregate, to have a material adverse effect on our condensed consolidated financial condition, results of operations or cash flows.

 

Item 1A. Risk Factors

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item. However, our current risk factors are set forth in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on April 12, 2021.

 

We face significant business disruption and related risks resulting from the COVID-19 pandemic, which could have a material adverse effect on our business and results of operations.

 

We temporarily closed our hotel, restaurant, winery operations, and golf and tennis operations. On October 19, 2020, we re-opened our winery and golf and tennis facilities with COVID-19 measures implemented. Most recently, we reopened the Algodon Mansion as of November 11, 2020 with COVID-19 measures implemented. However, on March 15, 2020, the Argentine government announced the closing of its borders to foreigners. As of May 10, 2021, Argentina’s borders continue to be closed to non-resident foreign nationals. Due to COVID-19, construction on homes was temporarily halted from March to September but has resumed. On April 30, 2021, Argentina announced that COVID restrictions would be extended until May 21, 2021.

 

The Company reduced expenses by negotiating an early termination of our office lease at 135 Fifth Avenue in New York City, and all employees and contractors are currently working from home. In addition, we are reviewing our labor needs to run the administrative side of the Company in New York.

 

Throughout the pandemic, we also experienced significant delays in product development, production, and shipping from our overseas manufacturing partners, many of whom have been on complete lockdown for the safety of their workers. Some of our manufacturing partners have even had to close permanently. Because of this, we are in the process of pursuing new vendors.

 

Due to the events stated above, it was necessary for us to reduce our email marketing efforts to our customer database, as we were not able to fulfill orders. This resulted in a significant reduction in our web traffic and sales.

 

Although the Company presently has enough cash on hand to sustain its operations on a month to month basis, we are continuing to explore opportunities with third parties and related parties to provide some or all of the capital that we need. However, if we are unable to obtain additional financing on a timely basis, we may have to delay vendor payments and/or initiate cost reductions, which would have a material adverse effect on our business, financial condition and results of operations, and ultimately, we could be forced to discontinue our operations, liquidate assets and/or seek reorganization under the U.S. bankruptcy code.

 

The Company is continuing to monitor the outbreak of COVID-19 and the related business and travel restrictions, and changes to behavior intended to reduce its spread, and the related impact on the Company’s operations, financial position and cash flows, as well as the impact on its employees. Due to the rapid development and fluidity of this situation, the magnitude and duration of the pandemic and its impact on the Company’s future operations and liquidity is uncertain. While there could ultimately be a material impact on operations and liquidity of the Company, as of the date of this annual report, the impact cannot be determined at this time.

 

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

The following is a summary of all securities that we have sold since January 1, 2021 without registration under the Securities Act of 1933, as amended (the “Securities Act”).

 

As part of the Company’s convertible note financing in early 2018, the Company sold promissory notes totaling $1,163,354 to John I. Griffin and his wholly owned company JLAL Holdings Ltd. The notes have a 90-day maturity, bear interest at 8% per annum and were convertible into the Company’s common stock at a 10% discount to the price used for the sale of the Company’s common stock in the Company’s next private placement offering. These notes matured on June 30, 2019. On January 8, 2021, the Company issued 237,012 shares of common stock and warrants to purchase 237,012 shares of common stock in total to Mr. Griffin and JLAL Holdings Ltd., reflecting a conversion of $1,163,354 in principal and $258,714 in interest. No general solicitation was used, no commissions were paid, and the Company relied on the exemption from registration available under Section 4(a)(2) and Rule 506(b) of Regulation D of the Securities Act, in connection with the sales. A Form D was filed with the SEC on May 23, 2018.

 

As part of the Unit offering that commenced in October 2020, the Company received $439,000 between January 1, 2021 and terminating on January 8, 2021 from accredited investors with a substantive pre-existing relationship with the Company. No general solicitation was used, no commissions were paid, and the Company relied on the exemption from registration available under Section 4(a)(2) and Rule 506(b) of Regulation D of the Securities Act, in connection with the sales. A Form D for this offering was filed with the Securities and Exchange Commission on December 7, 2020, and amended Form D filings for this offering were filed on January 5, 2021, January 14, 2021, and February 22, 2021.

 

Item 3. Defaults upon Senior Securities

 

On March 31, 2017, the Company received a bank loan in the amount of $519,156 (ARS $8,000,000) (the “2017 Loan”). The loan bears interest at 24.18% per annum and became due on March 1, 2021. Due to the COVID-19, the bank extended the maturity date to March 31, 2021. Principal and interest will be paid in forty-two monthly installments beginning on October 1, 2017 and ending on March 1, 2021. During 2018, the Company defaulted on certain 2017 Loan payments, and as a result, the 2017 Loan is currently payable upon demand.

 

On January 25, 2018, the Company received a bank loan in the amount of $525,000 (the “2018 Loan”), denominated in U.S. dollars. The loan bears interest at 6.75% per annum and is due on January 25, 2023. Principal and interest will be paid in 60 equal monthly installments of $10,311, beginning on February 23, 2018. During 2018, the Company defaulted on certain 2018 Loan payments, and as a result, the 2018 Loan is currently payable upon demand.

 

As previously reported on the Company’s Annual Reports on Forms 10-K for the years ending December 31, 2017, December 31, 2018, and December 31, 2019, the Company sold convertible promissory notes in the aggregate principal amount of $2,046,730 (together, the “2017 Notes”). The 2017 Notes matured 90 days from the date of issuance, bear interest at 8% per annum and were convertible into the Company’s common stock at $0.63 per share, which represented a 10% discount to the price used for the sale of the Company’s common stock at the commitment date. During the three months ended principal and interest of $1,163,354 and $258,714 were exchanged for common stock and warrants with an aggregate fair value of $1,422,068. As of March 31, 2021, principal of $7,000 and interest of $4,546 outstanding on the 2017 Notes is past due and is payable on demand. The 2017 Notes are no longer convertible.

 

As disclosed previously in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, the Company’s subsidiary, Gaucho Group, Inc. (“GGI”) sold convertible promissory notes in the total amount of $2,266,800 to accredited investors (the “GGI Notes”). The maturity date of the notes was March 31, 2019, and at the option of the holder, the principal amount of the note plus accrued interest could be converted into GGI common stock at a 20% discount to the share price in a future offering of common stock by GGI. One GGI Note representing $100,000 of principal and $14,994 of interest is past due as of March 31, 2021 and payable on demand. GGI Notes are no longer convertible since the notes are past their maturity date.

 

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Item 4. Mine and Safety Disclosure

 

Not applicable.

 

Item 5. Other Information

 

On February 16, 2021, 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 effect a reverse stock split of the Company’s common stock at a ratio of 15-for-1 (the “Reverse Split”). There were no fractional shares issued as a result of the Reverse Split. All fractional shares as a result of the Reverse Split were rounded up to the nearest whole number. The total number of the Company’s authorized shares of common stock or preferred stock was not affected by the foregoing. As a result, after giving effect to the Reverse Split, the Company remains authorized to issue a total of 150,000,000 shares of common stock.

 

On February 16, 2021, as a result of the listing of the Company’s common stock on Nasdaq, all outstanding shares of Series B were converted into 600,713 shares of common stock.

 

On March 26, 2021, the Company received notice that the U.S. Small Business Administration forgave the Paycheck Protection Program loan to the Company in full. However, the Company may be subject to tax on the debt forgiveness under state law.

 

On April 7, 2021, the Company paid a total of $58,001 to Mr. Mathis in connection with his voluntarily deferred compensation between March 13, 2020 and August 21, 2020.

 

On April 8, 2021, GGI entered into a seven-year lease for retail space located at 112 N.E. 41st Street, Suite 106, in Miami, Florida to sell its Gaucho – Buenos Aires™ products.

 

On May 6, 2021, in connection with entering into a Common Stock Purchase Agreement (the “Purchase Agreement”) and a Registration Rights Agreement (the “Registration Rights Agreement”) with Tumim Stone Capital LLC (“Tumim Stone Capital”), the Company issued 120,337 shares of common stock to Tumim Stone Capital. The details of the Purchase Agreement and the Registration Rights Agreement are available in the notes to our financial statements herein and in our Current Report on Form 8-K filed on May 7, 2021. No general solicitation was used, no commissions were paid, and the Company relied on the exemption from registration available under Section 4(a)(2) and Rule 506(b) of Regulation D of the Securities Act, in connection with the sales. A Form D will be filed with the SEC shortly after the filing of this Quarterly Report.

 

Use of Proceeds from Registered Offering

 

On February 16, 2021, the SEC declared effective our registration statement on Form S-1 (File No. 333-233586), as amended, filed in connection with an underwritten public offering (the “Offering”) of units (“Units”) at an offering price of $6.00 per Unit, each consisting of one share of common stock, par value $0.01 per share (“Common Stock”), and one common stock purchase warrant to purchase one share of Common Stock (the “Warrant”) pursuant to that certain underwriting agreement, dated February 16, 2021, between the Company and the underwriters named therein. We filed a prospectus with the SEC on February 18, 2021 (the “Prospectus”).

 

On February 19, 2021, the Company closed the Offering and sold and issued an aggregate of 1,333,334 shares of Common Stock and 1,533,333 Warrants, for approximate gross proceeds of $8,002,004, before deducting underwriting discounts and commissions and estimated offering expenses of $1,399,663, for net proceeds of $6,602,341. No offering expenses were paid directly or indirectly to any of our directors or officers (or their associates) or persons owning ten percent or more of any class of our equity securities or to any other affiliates. We issued the representative of such underwriters a five-year common stock purchase warrant exercisable at $7.50 per share for up to 15,333 shares of Common Stock, exercisable as of August 19, 2021.

 

The sole book-running managing underwriter of the offering was Kingswood Capital Markets, a division of Benchmark Investments, Inc. R.F. Lafferty Co., Inc. also participated in the offering.

 

Upon receipt, the net proceeds from the Offering were held in cash and cash equivalents, primarily bank deposits and money market funds. Through March 30, 2021, we have used a portion of the net proceeds from our Offering for working capital and for general corporate purposes, which include, but are not limited to, inventory production and marketing for the Company’s subsidiary, Gaucho Group, Inc., costs of this Offering, and operating expenses. There has been no material change in the planned use of proceeds from our Offering from those disclosed in the Prospectus.

 

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Item 6. Exhibits

 

The following is a complete list of exhibits filed as part of this Form 10-Q. Exhibit numbers correspond to the numbers in the Exhibit Table of Item 601 of Regulation S-K.

 

Exhibit   Description
1.1   Underwriting Agreement, dated February 16, 2021 (10)
1.2   Warrant Agreement, including the form of Warrant, made as of February 19, 2021, between the Company and Continental. (11)
3.1   Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State effective February 16, 2021(10)
3.2   Amended and Restated Bylaws (1)
3.3   Amendment to the Company’s Amended and Restated Bylaws as approved on July 8, 2019 (5)
4.1   Amended and Restated Certificate of Designation of the Series A Preferred filed September 30, 2013(1)
4.2   Amendment No. 1 to the Amended and Restated Certificate of Designation of Series A Convertible Preferred Stock, dated February 28, 2017 (2)
4.3   Certificate of Designation of Series B Convertible Preferred Stock, dated February 28, 2017 (2)
4.4   Amendment to the Company’s Certificate of Designation of the Series B Convertible Preferred Stock as approved by the Board of Directors and the Series B Preferred stockholders on December 3, 2019 and filed with the Delaware Secretary of State.(6)
4.5   Amendment to the Company’s Certificate of Designation of the Series B Convertible Preferred Stock as approved by the Board of Directors and the Series B Preferred stockholders on January 30, 2020 and filed with the Delaware Secretary of State. (7)
4.6   2016 Stock Option Plan. (3)
4.7   First Amendment to 2016 Stock Option Plan as adopted by the Board of Directors on October 20, 2016. (3)
4.8   2018 Equity Incentive Plan. (4)
4.9   Amendment to the Company’s 2018 Equity Incentive Plan as approved by the Board of Directors on May 13, 2019 and the stockholders on July 8, 2019 (5)
4.10   Amendment to the Company’s 2018 Equity Incentive Plan effective July 8, 2019 as approved by the Board of Directors (8)
4.11   Form of Unit Warrant (9)
10.1   Retention Bonus Agreement by and between the Company and Scott L. Mathis dated March 29, 2020 (12)
10.2   Commercial Lease Agreement between Gaucho Group, Inc. and Design District Development Partners, LLC, dated April 8, 2021(13)
10.3   Common Stock Purchase Agreement by and between Gaucho Group Holdings, Inc. and Tumim Stone Capital LLC, dated May 6, 2021(14)
10.4   Registration Rights Agreement by and between Gaucho Group Holdings, Inc. and Tumim Stone Capital LLC, dated May 6, 2021(14)
31.1   Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2   Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32   Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
99.1   Algodon Wine Estates Property Map(13)
101.INS   XBRL Instance Document
101.SCH   XBRL Schema Document
101.CAL   XBRL Calculation Linkbase Document
101.DEF   XBRL Definition Linkbase Document
101.LAB   XBRL Label Linkbase Document
101.PRE   XBRL Presentation Linkbase Document
     
1.   Incorporated by reference from the Company’s Registration of Securities Pursuant to Section 12(g) on Form 10 dated May 14, 2014.
2.   Incorporated by reference from the Company’s Current Report on Form 8-K, filed on March 2, 2017.
3.   Incorporated by reference from the Company’s Annual Report on Form 10-K, filed on March 31, 2017.
4.   Incorporated by reference from the Company’s Quarterly Report on Form 10-Q, filed on November 19, 2018.
5.   Incorporated by reference to the Company’s Current Report on Form 8-K filed on July 9, 2019.
6.   Incorporated by reference to the Company’s Current Report on Form 8-K filed on December 4, 2019.
7.   Incorporated by reference to the Company’s Current Report on Form 8-K filed on January 31, 2020.
8.   Incorporated by reference to the Company’s Registration Statement on Form S-1 filed on August 30, 2019.
9.   Incorporated by reference to the Company’s Amended Registration Statement on Form S-1 filed on December 8, 2020.
10.   Incorporated by reference to the Company’s Current Report on Form 8-K filed on February 18, 2021.
11.   Incorporated by reference to the Company’s Current Report on Form 8-K filed on February 22, 2021.
12.   Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 1, 2020.
13.   Incorporated by reference to the Company’s Annual Report on Form 10-K filed on April 12, 2021.
14.   Incorporated by reference to the Company’s Current Report on Form 8-K filed on May 7, 2021.
*   Filed herewith.
**   Furnished, not filed herewith.

 

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SIGNATURES

 

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: May 17, 2021 GAUCHO GROUP HOLDINGS, INC.
     
  By: /s/ Scott L. Mathis
    Scott L. Mathis
    Chief Executive Officer
     
  By: /s/ Maria Echevarria
    Maria Echevarria
    Chief Financial Officer and Chief Operating Officer

 

31

 

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