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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  
    Condensed Consolidated Balance Sheets as of June 30, 2021 (unaudited) and December 31, 2020 1
    Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020 3
    Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2021 and 2020 4
    Unaudited Condensed Consolidated Statement of Changes in Temporary Equity and Stockholders’ Equity (Deficiency) for the Three and Six Months Ended June 30, 2021 5
    Unaudited Condensed Consolidated Statement of Changes in Temporary Equity and Stockholders’ Deficiency for the Three and Six Months Ended June 30, 2020. 6
    Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020 7
    Notes to Unaudited Condensed Consolidated Financial Statements 9
  ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25
  ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 33
  ITEM 4. Controls and Procedures 33
PART II  
  OTHER INFORMATION  
  ITEM 1. Legal Proceedings 35
  ITEM 1A. Risk Factors 35
  ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 35
  ITEM 3. Defaults Upon Senior Securities 36
  ITEM 4. Mine Safety Disclosures 37
  ITEM 5. Other Information 37
  ITEM 6. Exhibits 38
  Signatures 39

 

 

 

 

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
   -    - 
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 and warrants issued for cash, in public offering, net of offering costs [1]   -    -    1,333,334    13,333    -    -    6,589,008    -    -    6,602,341    -    6,602,341 
Common stock and warrants issued for cash   -    -    73,167    732    -    -    438,268    -    -    439,000    -    439,000 
Common stock and warrants issued to underwriter in public offering   -    -    -    -    -    -    297,963    -    -    297,963    -    297,963 
Common stock and warrants issued upon exchange of debt and accrued interest   -    -    237,012    2,370    -    -    1,419,698    -    -    1,422,068    -    1,422,068 
Common stock issued upon conversion of Series B Convertible Preferred Stock   (901,070)   (9,010,824)   600,713    6,007    -    -    9,004,817    -    -    9,010,824    -    9,010,824 
Effect of reverse 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 
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)
                                                             
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)

 

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 
Options   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:

 

   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:

 

   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.