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. On June 14, 2021, the Company formed a wholly-owned
subsidiary, Gaucho Ventures I – Las Vegas, LLC (“GVI”), to develop a project in Las Vegas, Nevada, that may
include opportunities in lodging, hospitality, retail, and gaming. On June 10, 2021, the Company announced the signing
of a Letter of Intent to create a new strategic partnership with retail, hospitality, lifestyle, entertainment, leisure and gaming
visionaries, Mark Advent, A. William (“Bill”) Allen, Timberline Real Estate Partners and Open Realty Properties for the
purpose of creating a Gaucho Group Holdings development and Gaucho Group Holdings brand extensions in Las Vegas, Nevada. On June 17, 2021,
Gaucho Group Holdings, Inc announced the signing of an agreement with LVH Holdings LLC to develop a project in Las Vegas, Nevada,
expanding the Gaucho brand in ways that could include opportunities in lodging, hospitality, retail, and gaming. As of September
30, 2021, the Company had made a total of $3.5 million in capital contributions and received 198 limited liability company interests
which represents 6.25% equity interest. The Company is currently renegotiating the agreement with LVH on the future capital
contribution plans described in Note 8 – Related Party Transactions. Subsequently, On November 10, 2021, the Company made an
additional capital contribution to LVH in the amount of $3.5 million and received an additional 198 Units.
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, some outsourced factories from which Gaucho ordered products had closed, borders for importing product
had been impacted and the Gaucho fulfillment center had also closed for several weeks. 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 since 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. On November 1, 2021, the Argentinian Government
opened the border for fully vaccinated international travelers. After more than one year and a half, people have been able to travel
back to Argentina. Algodon’s San Rafael hotel is currently under renovation, and is working at 50% capacity. We anticipate the
hotel will fully reopen in December 2021. The San Rafael restaurant (Chez Gaston) is also currently closed for renovation. We anticipate
the restaurant to fully reopen in January 2022. Algodon’s Buenos Aires hotel is currently open and operational.
GAUCHO
GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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.
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 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 September
30, 2021 and for the three and nine months ended September 30, 2021 and 2020. The results of operations for the three and nine months
ended September 30, 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 September 30, 2021, the Company had cash and working capital of $2,836,500
and $4,314,355,
respectively. During the nine months ended September 30, 2021, the
Company incurred a net loss of $1,526,939 and
used cash in operating activities of $5,661,611.
Subsequent to September 30, 2021, the Company raised gross proceeds
of $1,096,561
from the sale of its common stock and
net proceeds of $5,573,187
from the sale of convertible notes to
its investors. See Note 14 – Subsequent Events for details.
The
Company expects that its cash on hand plus additional cash from the sales of common stock under the Purchase Agreement (see Note 10 –
Temporary Equity and Stockholders’ Equity) 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.
GAUCHO
GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Highly
Inflationary Status in Argentina
The
Company recorded gains on foreign currency transactions during the three and nine months ended September 30, 2021, of $6,130 and $34,991,
respectively, and during the three and nine months ended September 30, 2020, of $14,826 and $35,316, respectively, as a result of the
net monetary liability position of its Argentine subsidiaries.
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 $2,547,482 and $54,681 at September 30, 2021 and December
31, 2020, respectively, of which, $357,553 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:
SCHEDULE
OF REVENUE RECOGNIZED MULTIPLE-DELIEVERABLE ARRANGEMENT
|
|
For
The Three Months Ended
|
|
|
For
The Nine Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate sales
|
|
$
|
2,500,001
|
|
|
$
|
-
|
|
|
$
|
2,647,257
|
|
|
$
|
-
|
|
Hotel
rooms and events
|
|
|
46,803
|
|
|
|
2,946
|
|
|
|
168,482
|
|
|
|
212,708
|
|
Restaurants
|
|
|
3,482
|
|
|
|
22,331
|
|
|
|
159,721
|
|
|
|
87,711
|
|
Winemaking
|
|
|
34,943
|
|
|
|
23,212
|
|
|
|
81,993
|
|
|
|
45,099
|
|
Golf,
tennis and other
|
|
|
18,528
|
|
|
|
11,739
|
|
|
|
152,952
|
|
|
|
128,279
|
|
Clothes
and accessories
|
|
|
1,401
|
|
|
|
-
|
|
|
|
10,152
|
|
|
|
749
|
|
Total
revenues
|
|
$
|
2,605,158
|
|
|
$
|
60,228
|
|
|
$
|
3,220,557
|
|
|
$
|
474,546
|
|
GAUCHO
GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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.
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 September 30, 2021 and December 31, 2020, the Company had deferred revenue of $706,033 and $849,828, respectively, associated with
real estate lot sale deposits and had $47,269 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
earnings per share data for each period presented is computed using the weighted-average number of shares of common stock outstanding
during each such period. Diluted earnings per share data is computed using the weighted-average number of common and dilutive common-equivalent
shares outstanding during each period. Dilutive common-equivalent shares consist of: (i) shares that would be issued upon the exercise
of stock options and warrants, computed using the treasury stock method; and (ii) shares of nonvested restricted stock. The Company calculated
the potential diluted earnings per share in accordance with ASC 260, as follows:
SCHEDULE
OF EARNINGS PER SHARE
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
For
the Three Months Ended
September 30,
|
|
|
For
the Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (numerator for basic and diluted earnings per share)
|
|
$
|
976,293
|
|
|
$
|
(1,079,555
|
)
|
|
$
|
(1,384,292
|
)
|
|
$
|
(4,147,890
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding (denominator for basic earnings per share)
|
|
|
8,658,395
|
|
|
|
4,110,303
|
|
|
|
7,530,833
|
|
|
|
4,049,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed
exercise of stock options, treasury stock method
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Assumed
exercise of warrants, treasury stock method
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Dilutive
potential common shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for diluted earnings per share - weighted average shares and assumed potential common shares
|
|
|
8,658,395
|
|
|
|
4,110,303
|
|
|
|
7,530,833
|
|
|
|
4,049,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
0.11
|
|
|
$
|
(0.26
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(1.02
|
)
|
Diluted
earnings per share
|
|
$
|
0.11
|
|
|
$
|
(0.26
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(1.02
|
)
|
GAUCHO
GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The
following securities were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive:
SCHEDULE OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE
|
|
As
of September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Options
|
|
|
587,699
|
|
|
|
613,972
|
|
Warrants
|
|
|
2,026,478
|
|
|
|
537,415
|
|
Series
B convertible preferred stock
|
|
|
-
|
|
|
|
600,713
|
|
Convertible
debt
|
|
|
-
|
|
|
|
252,336
|
[1]
|
Total
potentially dilutive shares
|
|
|
2,614,177
|
|
|
|
2,004,436
|
|
[1]
|
|
As of September
30, 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 Financial Accounting Standards Board (“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.
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.
GAUCHO
GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
On
May 3, 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50),
Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This
new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding
equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. This standard
is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Issuers should
apply the new standard prospectively to modifications or exchanges occurring after the effective date of the new standard. Early adoption
is permitted, including adoption in an interim period. If an issuer elects to early adopt the new standard in an interim period, the
guidance should be applied as of the beginning of the fiscal year that includes that interim period. The Company is evaluating this new
standard but does not expect it to have a material impact on the Company’s condensed consolidated financial statements or disclosures.
3.
INVENTORY
Inventory
at September 30, 2021 and December 31, 2020 was comprised of the following:
SCHEDULE
OF INVENTORY
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Vineyard
in process
|
|
$
|
376,975
|
|
|
$
|
286,491
|
|
Wine
in process
|
|
|
530,646
|
|
|
|
576,801
|
|
Finished
wine
|
|
|
40,542
|
|
|
|
39,549
|
|
Clothes
and accessories
|
|
|
285,023
|
|
|
|
215,951
|
|
Other
|
|
|
94,386
|
|
|
|
53,983
|
|
Total
|
|
$
|
1,327,572
|
|
|
$
|
1,172,775
|
|
4.
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.
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.
GAUCHO
GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Investments
at Fair Value:
SCHEDULE OF INVESTMENTS AT FAIR VALUE
As
of September 30, 2021
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
Bond
|
|
$
|
45,182
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
45,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
SCHEDULE OF FAIR VALUE, ASSETS MEASURED ON RECURRING BASIS
|
|
Warrants
- Affiliates
|
|
|
|
|
|
Balance
- January 1, 2021
|
|
$
|
457
|
|
Unrealized
loss
|
|
|
(457
|
)
|
Balance
– September 30, 2021
|
|
$
|
-
|
|
Investment
at September 30, 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 and nine months ended September 30, 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 September 30, 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.
The
Company recorded unrealized losses on the affiliate warrants of $0 and $457 during the three and nine months ended September 30, 2021,
respectively, and $2,187 and $1,739 during the three and nine months ended September 30, 2020, respectively, which are included in revenues
on the accompanying unaudited condensed consolidated statements of operations.
5.
ACCRUED EXPENSES
Accrued
expenses were comprised of the following as of:
SCHEDULE OF ACCRUED EXPENSES
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Accrued
compensation and payroll taxes
|
|
$
|
163,989
|
|
|
$
|
169,164
|
|
Accrued
taxes payable - Argentina
|
|
|
182,114
|
|
|
|
201,704
|
|
Accrued
interest
|
|
|
10,444
|
|
|
|
609,725
|
|
Other
accrued expenses
|
|
|
94,731
|
|
|
|
420,809
|
|
Accrued
expenses, current
|
|
|
451,278
|
|
|
|
1,401,402
|
|
Accrued
payroll tax obligations, non-current
|
|
|
126,103
|
|
|
|
169,678
|
|
Total
accrued expenses
|
|
$
|
577,381
|
|
|
$
|
1,571,080
|
|
GAUCHO
GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
6.
LOANS PAYABLE
The
Company’s loans payable are summarized below:
SCHEDULE OF LOANS PAYABLE
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
PPP
Loan
|
|
$
|
-
|
|
|
$
|
242,486
|
|
EIDL
|
|
|
94,000
|
|
|
|
94,000
|
|
2020
Demand Loan
|
|
|
-
|
|
|
|
14,749
|
|
2018
Loan
|
|
|
249,000
|
|
|
|
301,559
|
|
2017
Loan
|
|
|
-
|
|
|
|
15,115
|
|
Land
Loan
|
|
|
-
|
|
|
|
80,413
|
|
Total
Loans Payable
|
|
|
343,000
|
|
|
|
748,322
|
|
Less:
current portion
|
|
|
249,000
|
|
|
|
437,731
|
|
Loans
Payable, non-current
|
|
$
|
94,000
|
|
|
$
|
310,591
|
|
During
the nine months ended September 30, 2021, the Company made principal payments on loans payable in the aggregate of $159,441, of which,
$13,234 was paid on the 2020 Demand Loan, $52,559 was paid on the 2018 Loan, $13,235 was paid on the 2017 Loan and $80,413 was paid on
the Land Loan. During the nine months ended September 30, 2021, the Company 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 $7,079 and $24,734 during the three and nine months ended
September 30, 2021, respectively, and incurred interest expense of $11,855 and $50,562 during the three and nine months ended September
30, 2020, respectively, of which, $2,233 and $9,335, respectively represented amortization of debt discount.
7.
DEBT OBLIGATIONS
The
Company’s debt obligations are summarized below:
SCHEDULE OF DEBT OBLIGATIONS
|
|
September
30, 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
|
|
|
|
13,270
|
|
|
|
113,270
|
|
Total
Debt Obligations
|
|
$
|
7,000
|
|
|
$
|
17,963
|
|
|
$
|
24,963
|
|
|
$
|
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 $0 and $4,158 in
connection with its debt obligations during the three and nine months ended September 30, 2021, respectively, and incurred interest expense
of $31,732 and $94,255 in connection with its debt obligations during the three and nine months ended September 30, 2020, respectively.
GAUCHO
GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The
Company repaid principal and interest of $100,000 and $332,364, respectively, during the nine months ended September 30, 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 $741,495
and $252,852
at September 30, 2021 and December 31, 2020,
respectively, represent the net realizable value of advances made to related, but independent, entities under common management. See
Expense Sharing below.
See
Note 4 – Fair Value of Financial Instruments, for a discussion of the Company’s investment in warrants of a related, but
independent, entity. See Note 13 – Commitments and Contingencies - Amended and Restated Limited Liability Company Agreement for
details surrounding the related party transaction involving a Company director.
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 and nine months ended September 30, 2021, the Company recorded a contra-expense
of $193,801 and $439,605, respectively, and during the three and nine months ended September 30, 2020, the Company recorded a contra-expense
of $145,777 and $489,634, respectively, related to the reimbursement of general and administrative expenses as a result of the agreement.
As of September 30, 2021 and December 31, 2020, the Company had accounts receivable – related parties, net of allowance of $741,495
and $252,852, respectively.
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 September 30, 2021 is $339,503, of which,
the entire balance is deemed unrecoverable and is reserved.
Amended
and Restated Limited Liability Company Agreement
On
June 16, 2021, the Company, through its wholly owned subsidiary, GVI, entered into the Amended and Restated Limited Liability Company
Agreement (the “LLC Agreement”) of LVH Holdings LLC (“LVH”). LVH was organized on May 24, 2021 pursuant to the
Delaware Limited Liability Act (the “Delaware Act”) with a sole member of SLVH LLC, a Delaware limited liability company
(“SLVH”).
William
Allen, a director of the Company, is the managing member of SLVH and holds a 20% membership interest in SLVH. Pursuant to the Company’s
Related Party Transactions Policy, adopted as amended on March 25, 2021 by the Board of Directors of the Company (the “Board”),
Mr. Allen is considered a related party with respect to this transaction and provided notice of his interest to the Board. The disinterested
members of the Board unanimously approved the transaction pursuant to such Related Party Transactions Policy and the Code of Business
Conduct and Ethics and Whistleblower Policy, also adopted by the Board on March 25, 2021.
GAUCHO
GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Capital
contributions
Concurrently
with the execution and delivery of the LLC Agreement, GVI shall make an initial capital contribution to LVH, in cash, in the amount of
exactly $1
million and receive 56.6
limited liability company interests (the “Units”)
in LVH. On July 16, 2021, the Company made an additional capital contribution to LVH in the amount of $2.5
million and received additional 141.4
Units. As of September 30, 2021, such $3,500,000
capital contribution was included within investment
– related parties on the condensed consolidated balance sheet. The Company has applied equity method accounting to its investment
in LVH. During the period ended September 30, 2021, the Company did not recognize a gain or loss on its equity method investment in LVH
as the activity during the period was de minimis. As of September 30, 2021, the Company is currently renegotiating the agreement
with LVH on the capital contribution plan described below. Subsequently, on November 10, 2021, the Company made an additional capital
contribution to LVH in the amount of $3.5 million and received an additional 198 Units.
Additional
required contributions by GVI are as follows:
|
●
|
Simultaneously
with or after a subsequent capital contribution by SLVH and sixty (60) days after the date
of the LLC Agreement (the “Second Outside Date”), GVI shall make an additional
capital contribution of $6 million and shall receive an additional 339.4 Units;
|
|
●
|
On
or before thirty (30) days after the Second Outside Date (the “Third Outside Date”),
GVI shall make an additional capital contribution to LVH, in cash, in the amount of $5.5
million and shall receive an additional 311.2 Units;
|
|
●
|
On
or before the date that is ninety (90) days after the Third Outside Date (the “Fourth
Outside Date”), GVI shall make an additional capital contribution to LVH, in cash,
in the amount of $10 million and shall receive an additional 565.7 Units; and
|
|
●
|
On
or before the date that is ninety (90) days after the Fourth Outside Date (the “Fifth
Outside Date”), GVI shall make an additional capital contribution to the Company, in
cash, in the amount of $10 million and shall receive an additional 565.7 Units.
|
Failure
to make timely capital contributions
If
GVI does not timely make any of the required contributions on or prior to the applicable dates, then GVI will be a passive investor in
the Company with no rights except as expressly required by applicable law.
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 and nine months ended
September 30, 2021, the Company recorded a charge associated with its contribution of $3,408 and $23,845, respectively, and for the three
and nine months ended September 30, 2020, the Company recorded a charge associated with its contribution of $6,512 and $24,945 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. See Note 10 – Temporary Equity and Stockholders’ Equity for details on the issuance
of common stock in period.
GAUCHO
GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
10.
TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY
Equity
Incentive Plans
On
August 26, 2021, the stockholders approved the amendment to the 2018 Equity Incentive Plan (the “2018 Plan”) thereby increasing
the number of shares available for awards under the plan to 15%
of the Company’s common stock outstanding
on a fully diluted basis as of the date of stockholder approval, from 868,172 to 2,641,902. As of September 30, 2021, 2,204,885
shares remain available to be issued under the
2018 Plan.
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 $181,281 and $540,217 for the three and nine months ended September 30, 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. As of September 30, 2021, there were $0 of cumulative unpaid cash dividends.
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
to 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.
On
July 6, 2021, the Company issued 8,254 shares of common stock at $4.79 per share with a fair value of $39,537 in settlement of its matching
obligations for the year ended December 31, 2020 under the Company’s 401(k) profit sharing plan.
On
July 2, 2021, the Company issued 274,500 shares of common stock upon exercise of warrants to purchase 274,500 shares of common stock
with an exercise price of $6.00 per share and received aggregate proceeds of $1,647,000.
On
July 21, 2021, the Company issued 30,000 shares of common stock at $3.53 per share with a fair value of $105,900 pursuant to a service
agreement with TraDigital Marketing Group.
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.
GAUCHO
GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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.
Due
to the successful closing of the public offering, 54,154
shares of the Company’s common stock previously
issued to Kingswood Capital Markets, n/k/a EF Hutton, division of Benchmark Investments, Inc. 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.
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 $50,000,000 (the “Total Commitment”)
in shares of the Company’s common stock, subject to certain limitations and conditions set forth in the Purchase Agreement. The
Company has the right, but not the obligation, from time to time at the Company’s sole discretion over a 36-month period from and
after the commencement (the “Commencement Date”), 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, in addition to other requirements set forth in the Purchase Agreement. In consideration for entering into the Purchase Agreement,
the Company issued 120,337 shares of common stock (the “Commitment Shares”) to Tumim Stone Capital with an issuance date
fair value of $500,000, which such issuance being recognized as a debit to additional paid-in capital.
Although
the Purchase Agreement provides that the Company may sell up to an aggregate of $50,000,000 of the Company’s common stock to Tumim
Stone Capital, only 1,494,404 shares of the Company’s common stock (representing the maximum number of shares the Company may issue
and sell under the Purchase Agreement under the Exchange Cap limitation) have been registered for resale to-date, which includes the
120,337 Commitment Shares. If it becomes necessary for the Company to issue and sell to Tumim Stone Capital under the Purchase Agreement
more shares than are being registered for resale under this prospectus in order to receive aggregate gross proceeds equal to the Total
Commitment of $50,000,000 under the Purchase Agreement, the Company must first (i) obtain stockholder approval to issue shares of common
stock in excess of the Exchange Cap under the Purchase Agreement in accordance with applicable Nasdaq rules, unless the average per share
purchase price paid by Tumim Stone Capital for all shares of common stock sold under the Purchase Agreement equals or exceeds $4.002,
in which case the Exchange Cap limitation will not apply under applicable Nasdaq rules, and (ii) file with the SEC one or more additional
registration statements to register under the Securities Act the resale by Tumim Stone Capital of any such additional shares of the Company’s
common stock the Company wishes to sell from time to time under the Purchase Agreement, which the SEC must declare effective, in each
case before the Company may elect to sell any additional shares of the Company’s common stock to Tumim Stone Capital under the
Purchase Agreement. The Purchase Agreement limits the sale of shares of the Company’s common stock to Tumim Stone Capital, and
Tumim Stone Capital’s purchase or acquisition of common stock from the Company, to an amount of common stock that, when aggregated
with all other shares of the Company’s common stock then beneficially owned by Tumim Stone Capital would result in Tumim Stone
Capital having beneficial ownership, at any single point in time, of more than 4.99% of the then total outstanding shares of the Company’s
common stock. On August 26, 2021, the stockholders approved the issuance of an additional 10,000,000 shares of the Company’s common
stock.
The
purchase price of the shares of common stock that the Company elects to sell to Tumim Stone Capital pursuant to a Fixed Purchase under
the Purchase Agreement will be determined by reference to the market prices of the common stock during the applicable Fixed Purchase
Valuation Period for such Fixed Purchase as set forth in the Purchase Agreement, less a fixed 7% discount. The purchase price of the
shares of common stock that the Company elects to sell to Tumim Stone Capital pursuant to a VWAP Purchase under the Purchase Agreement
will be determined by reference to the lowest daily volume weighted average price of the common stock during the three consecutive trading
day-period immediately following the date on which we timely deliver the applicable VWAP Purchase notice for such VWAP Purchase to Tumim
Stone Capital (the “VWAP Purchase Valuation Period”) as set forth in the Purchase Agreement, less a fixed 5% discount.
GAUCHO
GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
In
connection with the Tumim Stone Capital transaction, the Company engaged Kingswood Capital Markets, n/k/a EF Hutton, division
of Benchmark Investments, Inc. (“EF Hutton”), as a placement agent to help raise capital. The Company has agreed to
pay EF Hutton a fee of 8%
of the amount of the funds raised pursuant to the Purchase Agreement.
During
the nine months ended September 30, 2021, the Company sold
an aggregate of 872,400 shares of the Company’s common stock
to Tumim Stone Capital for gross proceeds of $3,746,454,
less cash offering costs of $346,710
and non-cash offering costs of $500,000
related to the Commitment Shares.
Warrants
See
Note 7 – Debt Obligations and elsewhere in Note 10 – Temporary Equity and Stockholders’ Equity for details on the issuances
and exercise of warrants.
A
summary of warrants activity during the nine months ended September 30, 2021 is presented below:
SCHEDULE
OF WARRANTS
|
|
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
|
|
|
(274,500
|
)
|
|
|
6.00
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(527,694
|
)
|
|
|
6.03
|
|
|
|
|
|
|
|
|
|
Outstanding,
September 30, 2021
|
|
|
2,026,478
|
|
|
$
|
5.94
|
|
|
|
0.6
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
September 30, 2021
|
|
|
2,026,478
|
|
|
$
|
5.94
|
|
|
|
0.6
|
|
|
$
|
-
|
|
GAUCHO
GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A
summary of outstanding and exercisable warrants as of September 30, 2021 is presented below:
SCHEDULE OF WARRANTS OUTSTANDING AND EXERCISABLE
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
|
|
|
395,136
|
|
|
|
-
|
|
|
|
395,136
|
|
$
|
6.00
|
|
|
Common
Stock
|
|
|
1,607,350
|
|
|
|
0.7
|
|
|
|
1,607,350
|
|
$
|
7.50
|
|
|
Common
Stock
|
|
|
15,333
|
|
|
|
4.4
|
|
|
|
15,333
|
|
$
|
30.00
|
|
|
Common
Stock
|
|
|
8,659
|
|
|
|
0.1
|
|
|
|
8,659
|
|
|
|
|
|
Total
|
|
|
2,026,478
|
|
|
|
0.7
|
|
|
|
2,026,478
|
|
Stock
Options
During
the three and nine months ended September 30, 2021, the Company recorded stock-based compensation expense of $112,664 and $427,376, respectively,
and during the three and nine months ended September 30, 2020, the Company recorded stock-based compensation expense of $56,413 and $262,670,
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 September 30, 2021, there was $515,737 of unrecognized stock-based compensation
expense related to stock option grants that will be amortized over a weighted average period of 2.13 years.
11.
LEASES
On
April 8, 2021, GGI entered into a lease agreement to lease a retail space in Miami, Florida for 7 years, which expires May 1, 2028. As
of September 30, 2021, the lease had a remaining term of approximately 6.58 years. Over the duration of the lease, payments will escalate
3% every year. The Company was required to pay a $56,130 security deposit.
As
of September 30, 2021, the Company had no leases that were classified as a financing lease. As of September 30, 2021, the Company did
not have additional operating and financing leases that have not yet commenced.
Total
operating lease expenses were $82,965 and $138,276, for the three and nine months ended September 30, 2021, respectively, and were $0
and $154,177, for the three and nine months ended September 30, 2020, respectively. Lease expenses are recorded in general and administrative
expenses on the unaudited condensed consolidated statements of operations.
GAUCHO
GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Supplemental
cash flows information related to leases was as follows:
SCHEDULE OF SUPPLEMENTAL CASH FLOWS INFORMATION RELATED TO LEASE
|
|
For
the Nine Months Ended
|
|
|
|
September
30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Cash
paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
|
Operating
cash flows from operating leases
|
|
$
|
139,874
|
|
|
$
|
78,827
|
|
|
|
|
|
|
|
|
|
|
Right-of-use
assets obtained in exchange for lease obligations:
|
|
|
|
|
|
|
|
|
Operating
leases
|
|
$
|
1,843,043
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Remaining Lease Term:
|
|
|
|
|
|
|
|
|
Operating
leases
|
|
|
6.58
years
|
|
|
|
0.00
years
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Discount Rate:
|
|
|
|
|
|
|
|
|
Operating
leases
|
|
|
7.0
|
%
|
|
|
8.0
|
%
|
12.
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, 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.
|
GAUCHO
GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 and
nine months ended September 30, 2021 and 2020:
SCHEDULE
OF SEGMENT INFORMATION
|
|
For
the Three Months Ended September 30, 2021
|
|
|
For
the Nine Months Ended September 30, 2021
|
|
|
|
Real
Estate Development
|
|
|
Fashion
(e-commerce)
|
|
|
Corporate(1)
|
|
|
TOTAL
|
|
|
Real
Estate Development
|
|
|
Fashion
(e-commerce)
|
|
|
Corporate(1)
|
|
|
TOTAL
|
|
Revenues
|
|
$
|
2,603,757
|
|
|
$
|
1,401
|
|
|
$
|
-
|
|
|
$
|
2,605,158
|
|
|
$
|
3,210,405
|
|
|
$
|
10,152
|
|
|
$
|
-
|
|
|
$
|
3,220,557
|
|
Revenues
from Foreign Operations
|
|
$
|
2,603,757
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,603,757
|
|
|
$
|
3,210,405
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,210,405
|
|
Income (Loss)
from Operations
|
|
$
|
2,107,400
|
|
|
$
|
(311,853
|
)
|
|
$
|
(908,324
|
)
|
|
$
|
887,223
|
|
|
$
|
1,856,015
|
|
|
$
|
(685,744
|
)
|
|
$
|
(2,973,978
|
)
|
|
$
|
(1,803,707
|
)
|
|
|
For
the Three Months Ended September 30, 2020
|
|
|
For
the Nine Months Ended September 30, 2020
|
|
|
|
Real
Estate Development
|
|
|
Fashion
(e-commerce)
|
|
|
Corporate(1)
|
|
|
TOTAL
|
|
|
Real
Estate Development
|
|
|
Fashion
(e-commerce)
|
|
|
Corporate(1)
|
|
|
TOTAL
|
|
Revenues
|
|
$
|
60,228
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
60,228
|
|
|
$
|
473,797
|
|
|
$
|
749
|
|
|
$
|
-
|
|
|
$
|
474,546
|
|
Revenues from Foreign
Operations
|
|
$
|
60,228
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
60,228
|
|
|
$
|
473,797
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
473,797
|
|
Loss from Operations
|
|
$
|
(48,463
|
)
|
|
$
|
(154,612
|
)
|
|
$
|
(804,012
|
)
|
|
$
|
(1,007,087
|
)
|
|
$
|
(894,842
|
)
|
|
$
|
(723,921
|
)
|
|
$
|
(2,089,407
|
)
|
|
$
|
(3,708,170
|
)
|
The
following tables present segment information for September 30, 2021 and December 31, 2020:
|
|
As
of September 30, 2021
|
|
|
As
of December 31, 2020
|
|
|
|
Real
Estate Development
|
|
|
Fashion
(e-commerce)
|
|
|
Corporate(1)
|
|
|
TOTAL
|
|
|
Real
Estate Development
|
|
|
Fashion
(e-commerce)
|
|
|
Corporate(1)
|
|
|
TOTAL
|
|
Total Property
and Equipment, net
|
|
$
|
3,392,127
|
|
|
$
|
4,350
|
|
|
$
|
473
|
|
|
$
|
3,396,950
|
|
|
$
|
2,855,444
|
|
|
$
|
4,538
|
|
|
$
|
240
|
|
|
$
|
2,860,222
|
|
Total
Property and Equipment, net in Foreign Countries
|
|
$
|
3,392,127
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,392,127
|
|
|
$
|
2,855,444
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,855,444
|
|
Total
Assets
|
|
$
|
11,889,707
|
|
|
$
|
2,219,086
|
|
|
$
|
3,505,100
|
|
|
$
|
17,613,893
|
|
|
$
|
5,064,401
|
|
|
$
|
238,491
|
|
|
$
|
667,644
|
|
|
$
|
5,970,536
|
|
(1)
|
|
Unallocated corporate
operating losses resulting from general corporate overhead expenses not directly attributable to any one of the business segments.
|
13.
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.
GAUCHO
GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Employment
Agreement
On
July 5, 2021, the Compensation Committee of the Board of Directors approved the extension of Scott Mathis’ employment agreement
with the Company, dated September 28, 2015 (the “Employment Agreement”) until October 31, 2021. All other terms of the Employment
Agreement remain the same. Subsequently, the employment agreement was extended to December 31, 2021. See Note 14 – Subsequent
Events for details.
14.
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 100.1951, 98.6749,
and 84.0747
at November 12, September 30, 2021 and
December 31, 2020, respectively.
The
British pound to United States dollar exchange rate was 0.7467, 0.7429,
and 0.7325
at November 12, September 30, 2021 and
December 31, 2020, respectively.
Common
Stock
Between
October 13, 2021 and November 10, 2021, the Company issued an aggregate of 393,000
shares of common stock for gross proceeds
of $1,096,561.
Employment
Agreement
On
October 26, 2021, all of the independent members of the Board of Directors approved the extension of Scott Mathis’ employment
agreement with the Company, dated September 28, 2015 (the “Employment Agreement”) until December 31, 2021. All other
terms of the Employment Agreement remain the same.
Securities
Purchase Agreement
On
November 3, 2021, the Company entered into a Securities Purchase Agreement with certain institutional investors, pursuant to which
on November 9, 2021, the Company sold to the investors a series of senior secured convertible notes of the Company, in the aggregate
original principal amount of $6,480,000 (the
“Notes”), which Notes shall be convertible into shares of common stock of the Company at a conversion price of $3.50 (subject
to adjustment). The Notes are due and payable on the first anniversary of the Issuance Date and bear interest at a rate of 7%
per annum, which shall be payable in cash quarterly in arrears on each Amortization Date (as defined in the Notes) or otherwise in
accordance with the terms of the Notes. The investors are entitled to convert any portion of the outstanding and unpaid Conversion
Amount (as defined in the Notes) at any time or times on or after the Issuance Date, but we may not effect the conversion of any
portion of the Notes if it would result in either of the investors beneficially owning more than 4.99% of the common stock.
Under
the applicable rules of The Nasdaq Stock Market LLC (“Nasdaq”), in no event may the Company issue any shares of common
stock upon conversion of the Notes or otherwise pursuant to the terms of this Notes if the issuance of such shares of common stock
would exceed 19.99% of the shares of the common stock outstanding immediately prior to the execution of the Securities Purchase
Agreement and Notes (the “Exchange Cap”), unless the Company (i) obtains stockholder approval to issue shares of common
stock in excess of the Exchange Cap or (ii) obtains a written opinion from the Company’s counsel that such approval is not
required. In any event, The Company may not issue any shares of its common under the Securities Purchase Agreement or Notes if such
issuance or sale would breach any applicable rules or regulations of the Nasdaq.
The
Notes will rank senior to all outstanding and future indebtedness of the Company and its subsidiaries and will be secured by all
existing and future assets of the Company, as evidenced by the Security and Pledge Agreement entered into between the Company and
the investors on November 9, 2021 (the “Security Agreement”). Additionally, Scott L. Mathis, President and CEO of the
Company, pledged 275,600 of his shares of common stock and 66,667 options to purchase common stock of the Company as
additional collateral under the Notes, as evidenced by the Stockholder Pledge Agreement between the Company, Mr. Mathis and the
investors, dated on November 9, 2021 (the “Pledge Agreement”).
In
connection with the foregoing, the Company entered into a Registration Rights Agreement with the investors on November 9, 2021 (the
“Registration Rights Agreement”), pursuant to which the Company has agreed to provide certain registration rights with
respect to the Registrable Securities (as defined in the Registration Rights Agreement) under the Securities Act of 1933 (the
“1933 Act”) and the rules and regulation promulgated thereunder, and applicable state securities laws. The Securities
Purchase Agreement and the Registration Rights Agreement contain customary representations, warranties, conditions and
indemnification obligations of the parties. The representations, warranties and covenants contained in such agreements were made
only for purposes of such agreements and as of specific dates, were solely for the benefit of the parties to such agreements and may
be subject to limitations agreed upon by the contracting parties.
EF
Hutton, division of Benchmark Investments, Inc. (“EF Hutton”) acted as the exclusive placement agent in connection with
the transactions contemplated by the Securities Purchase Agreement, for which the Company will pay to EF Hutton a cash placement fee
equal to 6.0%
of the amount of capital raised, invested or committed under the Securities Purchase Agreement and Notes.
On
November 11, 2021, in connection with the Securities Purchase Agreement, the Company issued 596,165 shares of common stock to the holders
of the Notes (the “Pre-Delivery Shares”).
Investment
– Related Party
On
November 10, 2021, the Company made an additional capital contribution to LVH in the amount of $3.5 million and received
an additional 198 Units.