UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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☒ 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 filer,” “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 | ☒ | Smaller reporting company | ☒ | |
| Emerging growth company | ☒ |
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 ☒
As of August 16, 2021, there were 8,698,249 shares of common stock outstanding.
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | 3,215,580 | $ | 134,536 | ||||
| Accounts receivable, net of allowance of $196,837 and $180,941 as of June 30, 2021 and December 31, 2020, respectively | 292,245 | 255,720 | ||||||
| Accounts receivable - related parties, net of allowance of $339,503 and $332,130 as of June 30, 2021 and December 31, 2020, respectively | 545,960 | 252,852 | ||||||
| Subscription receivable | 1,377,150 | - | ||||||
| Advances to employees | 314,350 | 282,508 | ||||||
| Inventory | 1,189,745 | 1,172,775 | ||||||
| Real estate lots held for sale | 132,629 | 139,492 | ||||||
| Operating lease right-of-use asset, current portion | 318,106 | - | ||||||
| Investment | 46,615 | 53,066 | ||||||
| Deposits, current | 15,269 | 35,854 | ||||||
| Prepaid expenses and other current assets | 358,331 | 196,539 | ||||||
| Total Current Assets | 7,805,980 | 2,523,342 | ||||||
| Long Term Assets | ||||||||
| Property and equipment, net | 3,015,983 | 2,860,222 | ||||||
| Operating lease right-of-use asset, non-current portion | 1,471,233 | - | ||||||
| Prepaid foreign taxes, net | 569,977 | 519,499 | ||||||
| Investment - related parties | 1,000,000 | 457 | ||||||
| Deferred offering costs | 39,000 | 67,016 | ||||||
| Deposits, non-current | 56,130 | - | ||||||
| Total Assets | $ | 13,958,303 | $ | 5,970,536 | ||||
See notes to the condensed consolidated financial statements.
| 1 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (unaudited) | ||||||||
| Liabilities, Temporary Equity and Stockholders’ Equity (Deficiency) | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 484,233 | $ | 891,168 | ||||
| Accrued expenses, current portion | 509,839 | 1,401,402 | ||||||
| Deferred revenue | 967,433 | 933,941 | ||||||
| Operating lease liabilities, current portion | 263,292 | - | ||||||
| Loans payable, current portion | 281,006 | 437,731 | ||||||
| Debt obligations | 7,000 | 1,270,354 | ||||||
| Investor deposits | 29,950 | 29,950 | ||||||
| Other current liabilities | 314,885 | 131,895 | ||||||
| Total Current Liabilities | 2,857,638 | 5,096,441 | ||||||
| Long Term Liabilities | ||||||||
| Accrued expenses, non-current portion | 136,432 | 169,678 | ||||||
| Operating lease liabilities, non-current portion | 1,535,869 | - | ||||||
| Loans payable, non-current portion | 94,000 | 310,591 | ||||||
| Total Liabilities | 4,623,939 | 5,576,710 | ||||||
| Commitments and Contingencies (Note 13) | - | |||||||
|
Series B convertible
redeemable preferred stock, par value $0.01 per share;
902,670 shares authorized; 0 and 901,070 issued and outstanding at June 30, 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 |
- | - | ||||||
|
Preferred stock, 11,000,000 shares authorized: Series A convertible
preferred stock, par value $0.01 per share;
|
- | - | ||||||
|
Common stock, par value
$0.01 per share; 150,000,000 shares authorized;
8,088,864 and 5,234,406 shares issued and 8,085,495 and 5,231,037 shares outstanding as of June 30, 2021 and December 31, 2020, respectively |
80,888 | 52,344 | ||||||
| Additional paid-in capital | 116,984,958 | 96,951,440 | ||||||
| Accumulated other comprehensive loss | (11,697,161 | ) | (11,932,801 | ) | ||||
| Accumulated deficit | (95,895,413 | ) | (93,534,828 | ) | ||||
| Treasury stock, at cost, 3,369 shares at June 30, 2021 and December 31, 2020 | (46,355 | ) | (46,355 | ) | ||||
| Total Gaucho Group Holdings, Inc. Stockholders’ Equity (Deficiency) | 9,426,917 | (8,510,200 | ) | |||||
| Non-controlling interest | (92,553 | ) | (106,798 | ) | ||||
| Total Stockholders’ Equity (Deficiency) | 9,334,364 | (8,616,998 | ) | |||||
| Total Liabilities, Temporary Equity and Stockholders’ Equity (Deficiency) | $ | 13,958,303 | $ | 5,970,536 | ||||
See notes to the condensed consolidated financial statements.
| 2 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Sales | $ | 340,360 | $ | 117,332 | $ | 615,399 | $ | 414,318 | ||||||||
| Cost of sales | (280,100 | ) | (241,205 | ) | (439,566 | ) | (490,626 | ) | ||||||||
| Gross profit (loss) | 60,260 | (123,873 | ) | 175,833 | (76,308 | ) | ||||||||||
| Operating Expenses | ||||||||||||||||
| Selling and marketing | 118,695 | 12,106 | 235,211 | 49,999 | ||||||||||||
| General and administrative | 1,205,633 | 1,253,038 | 2,563,630 | 2,482,273 | ||||||||||||
| Depreciation and amortization | 30,992 | 46,342 | 67,922 | 92,503 | ||||||||||||
| Total operating expenses | 1,355,320 | 1,311,486 | 2,866,763 | 2,624,775 | ||||||||||||
| Loss from Operations | (1,295,060 | ) | (1,435,359 | ) | (2,690,930 | ) | (2,701,083 | ) | ||||||||
| Other Expense (Income) | ||||||||||||||||
| Interest expense, net | 32,584 | 90,903 | 38,563 | 121,136 | ||||||||||||
| Forgiveness of PPP Loan | - | - | (242,486 | ) | - | |||||||||||
| Gains from foreign currency translation | (9,858 | ) | (20,025 | ) | (28,861 | ) | (20,490 | ) | ||||||||
| Total other expense (income) | 22,726 | 70,878 | (232,784 | ) | 100,646 | |||||||||||
| Net Loss | (1,317,786 | ) | (1,506,237 | ) | (2,458,146 | ) | (2,801,729 | ) | ||||||||
| Net loss attributable to non-controlling interest | 70,052 | 52,872 | 97,561 | 95,517 | ||||||||||||
| Series B preferred stock dividends | - | (182,353 | ) | - | (362,123 | ) | ||||||||||
| Net Loss Attributable to Common Stockholders | $ | (1,247,734 | ) | $ | (1,635,718 | ) | $ | (2,360,585 | ) | $ | (3,068,335 | ) | ||||
| Net Loss per Common Share | $ | (0.16 | ) | $ | (0.41 | ) | $ | (0.34 | ) | $ | (0.76 | ) | ||||
| Weighted Average Number of Common Shares Outstanding: | ||||||||||||||||
| Basic and Diluted | 7,565,530 | 4,018,101 | 6,957,709 | 4,018,101 | ||||||||||||
See notes to the condensed consolidated financial statements.
| 3 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited)
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net loss | $ | (1,317,786 | ) | $ | (1,506,237 | ) | $ | (2,458,146 | ) | $ | (2,801,729 | ) | ||||
| Other comprehensive income: | ||||||||||||||||
| Foreign currency translation adjustments | 136,660 | 290,472 | 235,640 | 418,523 | ||||||||||||
| Comprehensive loss | (1,181,126 | ) | (1,215,765 | ) | (2,222,506 | ) | (2,383,206 | ) | ||||||||
| Comprehensive loss attributable to non-controlling interests | 70,052 | 52,872 | 97,561 | 95,517 | ||||||||||||
| Comprehensive loss attributable to controlling interests | $ | (1,111,074 | ) | $ | (1,162,893 | ) | $ | (2,124,945 | ) | $ | (2,287,689 | ) | ||||
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’ EQUITY (DEFICIENCY)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021
(unaudited)
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Deficiency | Interest | Equity | |||||||||||||||||||||||||||||||||||||
|
Series
B
Convertible |
Accumulated | Gaucho Group | Total | |||||||||||||||||||||||||||||||||||||||||||||
| Redeemable | Additional | Other | Holdings | Non- | Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Treasury Stock | Paid-In | Comprehensive | Accumulated | Stockholders’ | controlling | (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 issued to placement agent as commitment fees | ||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued to placement agent as commitment fees, share | ||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for cash, net of offering costs [2] | ||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for cash, net of offering costs, share | ||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of preferred stock | ||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of preferred stock, shares | ||||||||||||||||||||||||||||||||||||||||||||||||
| 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, in public offering, net of offering costs | - | - | 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 stocksplit | - | - | 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 | ||||||||||||||||||||||||||||||||
| Stock-based compensation: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Options and warrants | - | - | - | - | - | - | 101,453 | - | - | 101,453 | 44,610 | 146,063 | ||||||||||||||||||||||||||||||||||||
| Common stock issued to placement agent as commitment fees | - | - | 120,337 | 1,208 | - | - | 498,792 | - | - | 500,000 | - | 500,000 | ||||||||||||||||||||||||||||||||||||
| Common stock issued for cash, net of offering costs [2] | - | - | 489,400 | 4,894 | - | - | 1,582,066 | - | - | 1,586,960 | - | 1,586,960 | ||||||||||||||||||||||||||||||||||||
| Common stock issued for cash, net of offering costs | - | - | 489,400 | 4,894 | - | - | 1,582,066 | - | - | 1,586,960 | - | 1,586,960 | ||||||||||||||||||||||||||||||||||||
| Comprehensive loss: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | (1,247,734 | ) | (1,247,734 | ) | (70,052 | ) | (1,317,786 | ) | ||||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | - | - | 136,660 | - | 136,660 | - | 136,660 | ||||||||||||||||||||||||||||||||||||
| Balance - June 30, 2021 | - | $ | - | 8,088,864 | $ | 80,888 | 3,369 | $ | (46,355 | ) | $ | 116,984,958 | $ | (11,697,161 | ) | $ | (95,895,413 | ) | $ | 9,426,917 | $ | (92,553 | ) | $ | 9,334,364 | |||||||||||||||||||||||
| [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). |
| [2] | Includes gross proceeds of $2,303,211, less offering costs of $716,251 ($216,251 of cash and $500,000 of non-cash). As of June 30, 2021, the Company had not received gross proceeds of $1,377,150 related to the sale of 300,000 shares of common stock and, accordingly, such amount was included in subscription receivable on the condensed consolidated balance sheet. |
See Notes to the Condensed Consolidated Financial Statements
| 5 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN TEMPORARY EQUITY AND
STOCKHOLDERS’ DEFICIENCY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020
(unaudited)
| Series B Convertible | Accumulated | Gaucho Group | ||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable | Additional | Other | 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 | ) | ||||||||||||||||||||||||||||||
| Balance | 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 | ) | ||||||||||||||||||||||||||||||
| Options and warrants | — | — | — | — | — | — | 102,675 | — | — | 102,675 | — | 102,675 | ||||||||||||||||||||||||||||||||||||
| Repurchase of preferred stock | (1,600 | ) | (16,000 | ) | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Comprehensive loss: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | (1,453,365 | ) | (1,453,365 | ) | (52,872 | ) | (1,506,237 | ) | ||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | — | 290,472 | — | 290,472 | — | 290,472 | ||||||||||||||||||||||||||||||||||||
| Balance - June 30, 2020 | 901,070 | $ | 9,010,824 | 4,021,470 | $ | 40,215 | 3,369 | $ | (46,355 | ) | $ | 91,444,774 | $ | (11,981,310 | ) | $ | (90,592,519 | ) | $ | (11,135,195 | ) | $ | (69,153 | ) | $ | (11,204,348 | ) | |||||||||||||||||||||
| Balance | 901,070 | $ | 9,010,824 | 4,021,470 | $ | 40,215 | 3,369 | $ | (46,355 | ) | $ | 91,444,774 | $ | (11,981,310 | ) | $ | (90,592,519 | ) | $ | (11,135,195 | ) | $ | (69,153 | ) | $ | (11,204,348 | ) | |||||||||||||||||||||
See Notes to the Condensed Consolidated Financial Statements
| 6 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| 2021 | 2020 | |||||||
| For the Six Months Ended | ||||||||
| June 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | (2,458,146 | ) | $ | (2,801,729 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation: | ||||||||
| 401(k) stock | 20,437 | 18,433 | ||||||
| Stock-based compensation: 401(k) stock | 20,437 | 18,433 | ||||||
| Options | 314,712 | 206,256 | ||||||
| Stock-based compensation: Options and warrants | 314,712 | 206,256 | ||||||
| Gain on foreign currency translation | (28,861 | ) | (20,490 | ) | ||||
| Unrealized investment losses (gains) | 457 | (448 | ) | |||||
| Depreciation and amortization | 67,922 | 92,503 | ||||||
| Amortization of right-of-use asset | 53,704 | 92,862 | ||||||
| Amortization of debt discount | - | 7,102 | ||||||
| Provision for (recovery of) uncollectible assets | 9,338 | (28,897 | ) | |||||
| Loss on derecognition of right-of-use asset and lease liabilities | - | 39,367 | ||||||
| Forgiveness of PPP Loan | (242,486 | ) | - | |||||
| Decrease (increase) in assets: | ||||||||
| Accounts receivable | (420,996 | ) | (54,914 | ) | ||||
| Inventory | (10,107 | ) | 156,670 | |||||
| Deposits | (35,545 | ) | 18,451 | |||||
| Prepaid expenses and other current assets | (206,396 | ) | (27,075 | ) | ||||
| Increase (decrease) in liabilities: | - | |||||||
| Accounts payable and accrued expenses | (1,017,085 | ) | 348,537 | |||||
| Operating lease liabilities | (43,882 | ) | (98,641 | ) | ||||
| Deferred revenue | 33,492 | (15,405 | ) | |||||
| Other liabilities | (1,261 | ) | 31,241 | |||||
| Total Adjustments | (1,506,557 | ) | 765,552 | |||||
| Net Cash Used in Operating Activities | (3,964,703 | ) | (2,036,177 | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Purchase of property and equipment | (223,651 | ) | (17,203 | ) | ||||
| Purchase of investment - related parties | (1,000,000 | ) | - | |||||
| Net Cash Used in Investing Activities | (1,223,651 | ) | (17,203 | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from loans payable | - | 27,641 | ||||||
| Proceeds from loans payable - related parties | - | 267,397 | ||||||
| Repayments of loans payable | (127,573 | ) | (102,756 | ) | ||||
| Repayments of loans payable - related parties | - | (126,000 | ) | |||||
| Proceeds from convertible debt obligations | - | 1,358,420 | ||||||
| Repayments of debt obligations | (100,000 | ) | - | |||||
| Proceeds from underwritten public offering, net of offering costs [1] | 7,287,004 | - | ||||||
| Payment of offering costs | (390,684 | ) | - | |||||
| Proceeds from common stock issued for cash | 926,061 | - | ||||||
| Proceeds from sale of common stock and warrants | 439,000 | - | ||||||
| Proceeds from PPP Loan | - | 242,487 | ||||||
| Proceeds from SBA Economic Injury Disaster Loan | - | 94,000 | ||||||
| Repurchase of preferred stock | - | (16,000 | ) | |||||
| Net Cash Provided by Financing Activities | 8,033,808 | 1,745,189 | ||||||
| Effect of Exchange Rate Changes on Cash | 235,590 | 418,523 | ||||||
| Net Increase in Cash | 3,081,044 | 110,332 | ||||||
| Cash - Beginning of Period | 134,536 | 40,378 | ||||||
| Cash - End of Period | $ | 3,215,580 | $ | 150,710 | ||||
| [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)
| 2021 | 2020 | |||||||
| For the Six Months Ended | ||||||||
| June 30, | ||||||||
| 2021 | 2020 | |||||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Interest paid | $ | 359,451 | $ | 125,561 | ||||
| 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 | $ | - | ||||
| Common stock issued for subscription receivable | $ | 1,377,150 | $ | - | ||||
| Accrual of offering costs | $ | 74,085 | $ | - | ||||
| Common stock issued to placement agent as commitment fees | $ | 500,000 | $ | - | ||||
| Right-of-use assets obtained in exchange for lease obligations | $ | 1,843,043 | $ | - | ||||
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. 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 publicly 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. Then on July 22, 2021 Gaucho Group Holdings, Inc. announced it made a $2.5 million milestone payment to LVH Holdings LLC to advance the previously announced agreement to develop a project in Las Vegas, Nevada.
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 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. Our Buenos Aires hotel remains closed because Argentina’s international airport is closed to international flights. The San Rafael hotel and restaurant is closed for refurbishment.
| 9 |
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 June 30, 2021 and for the three and six months ended June 30, 2021 and 2020. The results of operations for the three and six months ended June 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 June 30, 2021, the Company had cash and working capital of $3,215,580 and $4,948,342, respectively. During the six months ended June 30, 2021, the Company incurred a net loss of $2,458,146 and used cash in operating activities of $3,964,703. Subsequent to June 30, 2021, the Company collected subscription receivable of $1,377,150 and raised gross proceeds of $1,169,550 from the sale of its common stock. 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.
Highly Inflationary Status in Argentina
The Company recorded gains on foreign currency transactions during the three and six months ended June 30, 2021, of $9,858 and $28,861, respectively, and during the three and six months ended June 30, 2020, of $20,025 and $20,490, 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 $2,954,928 and $54,681 at June 30, 2021 and December 31, 2020, respectively, of which, $577,897 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-DELIVERABLE ARRANGEMENTS
| For The Three Months Ended | For The Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Hotel rooms and events | $ | 16,500 | $ | 3,507 | $ | 121,679 | $ | 209,762 | ||||||||
| Restaurants | 175,477 | 5,864 | 303,495 | 65,380 | ||||||||||||
| Winemaking | 28,385 | 20,844 | 47,050 | 21,887 | ||||||||||||
| Golf, tennis and other | 104,989 | 87,117 | 121,607 | 116,540 | ||||||||||||
| Clothes and accessories | 15,009 | - | 21,568 | 749 | ||||||||||||
| Total revenues | $ | 340,360 | $ | 117,332 | $ | 615,399 | $ | 414,318 | ||||||||
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 June 30, 2021 and December 31, 2020, the Company had deferred revenue of $918,172 and $849,828, respectively, associated with real estate lot sale deposits and had $49,261 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:
SCHEDULE OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE
| June 30, | ||||||||
| 2021 | 2020 | |||||||
| Options | 601,033 | 598,659 | ||||||
| Warrants | 2,813,485 | 31,642 | ||||||
| Series B convertible preferred stock | - | 600,713 | ||||||
| Convertible debt | - | 229,563 | [1] | |||||
| Total potentially dilutive shares | 3,414,518 | 1,460,577 | ||||||
| [1] | As of June 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.
| 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.
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 June 30, 2021 and December 31, 2020 was comprised of the following:
SCHEDULE OF INVENTORY
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Vineyard in process | $ | 222,990 | $ | 286,491 | ||||
| Wine in process | 552,390 | 576,801 | ||||||
| Finished wine | 45,113 | 39,549 | ||||||
| Clothes and accessories | 279,174 | 215,951 | ||||||
| Other | 90,078 | 53,983 | ||||||
| Total | $ | 1,189,745 | $ | 1,172,775 | ||||
| 13 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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.
Investments at Fair Value:
SCHEDULE OF INVESTMENTS AT FAIR VALUE
| As of June 30, 2021 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Warrants - Affiliates | $ | - | $ | - | $ | - | $ | - | ||||||||
| Government Bond | 46,615 | - | - | 46,615 | ||||||||||||
| 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 - June 30, 2021 | $ | - | ||
Investment at June 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 six months ended June 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 June 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.
| 14 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The Company recorded unrealized losses on the affiliate warrants of $58 and $457 during the three and six months ended June 30, 2021, respectively, and $1,405 and $488 during the three and six months ended June 30, 2019, 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
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Accrued compensation and payroll taxes | $ | 205,588 | $ | 169,164 | ||||
| Accrued taxes payable - Argentina | 227,726 | 201,704 | ||||||
| Accrued interest | 22,975 | 609,725 | ||||||
| Other accrued expenses | 53,550 | 420,809 | ||||||
| Accrued expenses, current | 509,839 | 1,401,402 | ||||||
| Accrued payroll tax obligations, non-current | 136,432 | 169,678 | ||||||
| Total accrued expenses | $ | 646,271 | $ | 1,571,080 | ||||
6. LOANS PAYABLE
The Company’s loans payable are summarized below:
SCHEDULE OF LOANS PAYABLE
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| PPP Loan | $ | - | $ | 242,486 | ||||
| EIDL | 94,000 | 94,000 | ||||||
| 2020 Demand Loan | - | 14,749 | ||||||
| 2018 Loan | 275,495 | 301,559 | ||||||
| 2017 Loan | 5,511 | 15,115 | ||||||
| Land Loan | - | 80,413 | ||||||
| Total Loans Payable | 375,006 | 748,322 | ||||||
| Less: current portion | 281,006 | 437,731 | ||||||
| Loans Payable, non-current | $ | 94,000 | $ | 310,591 | ||||
During the six months ended June 30, 2021, the Company made principal payments on loans payable in the aggregate of $127,573, of which, $13,234 was paid on the 2020 Demand Loan, $26,058 was paid on the 2018 Loan, $7,868 was paid on the 2017 Loan and $80,413 was paid on the Land Loan. During the six months ended June 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 $11,687 and $17,655 during the three and six months ended June 30, 2021, respectively, and incurred interest expense of $16,087 and $38,707 during the three and six months ended June 30, 2020, respectively, of which, $3,777 and $7,102, 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:
SCHEDULE OF DEBT OBLIGATIONS
| June 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 six months ended June 30, 2021, respectively, and incurred interest expense of $31,261 and $62,523 in connection with its debt obligations during the three and six months ended June 30, 2020, respectively.
The Company repaid principal and interest of $100,000 and $332,364, respectively, during the six months ended June 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 $545,960 and $252,852 at June 30, 2021 and December 31, 2020, respectively, represent the net realizable value of advances made to separate entities under common management.
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 six months ended June 30, 2021, the Company recorded a contra-expense of $152,783 and $245,804, respectively, and during the three and six months ended June 30, 2020, the Company recorded a contra-expense of $203,941 and $343,857, respectively, related to the reimbursement of general and administrative expenses as a result of the agreement. As of June 30, 2021 and December 31, 2020, the Company had accounts receivable – related parties, net of allowance of $545,960 and $252,852.
| 16 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 June 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.
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. As of June 30, 2021, such $1,000,000 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 June 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.
Subsequently, 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.
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.
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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 and six months ended June 30, 2021, the Company recorded a charge associated with its contribution of $3,975 and $20,437, respectively, and for the three and six months ended June 20, 2020, the Company recorded a charge associated with its contribution of $9,925 and $18,433, 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 $182,360 and $361,987 for the three and six months ended June 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 June 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 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.
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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 $6.5 million, respectively, which includes offering costs of $1.5 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 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.
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GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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.
In connection with the Tumim Stone Capital transaction, the Company engaged Kingswood Capital Markets, division of Benchmark Investments, Inc. (“Kingswood”), as a placement agent to help raise capital. The Company has agreed to pay Kingswood a fee of 8% of the amount of the funds raised pursuant to the Purchase Agreement.
Between June 10, 20201 and June 30, 2021, the Company sold an aggregate of 489,400 shares of the Company’s common stock to Tumim Stone Capital for gross proceeds of $2,303,211 (of which, $1,377,150 is included in subscription receivable as of June 30, 2021 and was collected by the Company subsequent to June 30, 2021), less cash offering costs of $216,251 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 of warrants.
A summary of warrants activity during the six months ended June 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 | - | - | ||||||||||||||
| Cancelled | - | - | ||||||||||||||
| Expired | (15,187 | ) | 33.84 | |||||||||||||
| Outstanding, June 30, 2021 | 2,813,485 | $ | 5.81 | 0.8 | $ | 27,161 | ||||||||||
| Exercisable, June 30, 2021 | 2,813,485 | $ | 5.81 | 0.8 | $ | 27,161 | ||||||||||
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GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A summary of outstanding and exercisable warrants as of June 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 | 905,362 | 0.2 | 905,362 | |||||||||||
| $ | 6.00 | Common Stock | 1,881,850 | 1.0 | 1,881,850 | |||||||||||
| $ | 7.50 | Common Stock | 15,333 | 4.6 | 15,333 | |||||||||||
| $ | 30.00 | Common Stock | 10,940 | 0.3 | 10,940 | |||||||||||
| Total | 2,813,485 | 0.7 | 2,813,485 | |||||||||||||
Stock Options
During the three and six months ended June 30, 2021, the Company recorded stock-based compensation expense of $146,063 and $314,712, respectively, and during the three and six months ended June 30, 2020, the Company recorded stock-based compensation expense of $102,675 and $206,256, 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 June 30, 2021, there was $617,191 of unrecognized stock-based compensation expense related to stock option grants that will be amortized over a weighted average period of 2.24 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 June 30, 2021, the lease had a remaining term of approximately 6.8 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 June 30, 2021, the Company had no leases that were classified as a financing lease. As of June 30, 2021, the Company did not have additional operating and financing leases that have not yet commenced.
Total operating lease expenses were $55,310, for the three and six months ended June 30, 2021, and were $96,361 and $154,177, for the three and six months ended June 30, 2020, respectively. Lease expenses are recorded in general and administrative expenses on the unaudited condensed consolidated statements of operations.
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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 Six Months Ended | ||||||||
| June 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | $ | 56,041 | $ | 78,827 | ||||
| Right-of-use assets obtained in exchange for lease obligations: | ||||||||
| Operating leases | $ | 1,843,043 | $ | - | ||||
| Weighted Average Remaining Lease Term: | ||||||||
| Operating leases | 6.83 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, through AWE, TAR, and GVI, 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. |
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GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)