UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM
For
the quarterly period ended
OR
For the transition period from _____________ to ___________________.
Commission
file number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction | (I.R.S. Employer | |
| of incorporation or organization) | Identification No.) |
(Address of principal executive offices)
(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 | ||
| The
|
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.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
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 | ☐ | |
| ☒ | 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 ☐
As of August 14, 2023, there were shares of common stock outstanding.
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
| i |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net of allowance of $ and $ at June 30, 2023 and December 31, 2022, respectively | ||||||||
| Accounts receivable - related parties, net of allowance of $ | ||||||||
| Mortgages receivable, net of allowance $ | ||||||||
| Inventory | ||||||||
| Real estate lots held for sale | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Long Term Assets | ||||||||
| Mortgages receivable, non-current portion, net of allowance of $ | ||||||||
| Advances to employees | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use asset | ||||||||
| Prepaid foreign taxes, net | ||||||||
| Intangible assets, net | ||||||||
| Deposits, non-current | ||||||||
| Total Assets | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 1 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS, CONTINUED
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (unaudited) | ||||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses, current portion | ||||||||
| Deferred revenue | ||||||||
| Operating lease liabilities, current portion | ||||||||
| Loans payable, current portion | ||||||||
| Convertible debt obligations, net, current portion | ||||||||
| Derivative liability, current portion | ||||||||
| Other current liabilities | ||||||||
| Total Current Liabilities | ||||||||
| Long Term Liabilities | ||||||||
| Accrued expenses, non-current portion | ||||||||
| Operating lease liabilities, non-current portion | ||||||||
| Loans payable, non-current portion | ||||||||
| Convertible debt obligations, net, non-current portion | ||||||||
| Derivative liability | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 15) | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred stock, shares authorized | ||||||||
| Common stock, par value $ per share; shares authorized; and shares issued and and shares outstanding as of June 30, 2023 and December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Treasury stock, at cost, shares at June 30, 2023 and December 31, 2022 | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 2 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Sales | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gross profit (loss) | ( | ) | ||||||||||||||
| Operating Expenses | ||||||||||||||||
| Selling and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Expense (Income) | ||||||||||||||||
| Interest income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense | ||||||||||||||||
| Other income, related party | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on extinguishment of debt | ||||||||||||||||
| Gains from foreign currency translation | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Change in fair value of derivative liability | ||||||||||||||||
| Inducement expense | ||||||||||||||||
| Total other expense | ||||||||||||||||
| Net Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to non-controlling interest | ||||||||||||||||
| Net Loss Attributable to Common Stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net Loss per Common Share | ||||||||||||||||
| Basic and Diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted Average Number of Common Shares Outstanding: | ||||||||||||||||
| Basic and Diluted | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(unaudited)
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive (loss) income : | ||||||||||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ||||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER’S EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023
(unaudited)
| Common Stock | Treasury Stock | Additional Paid-In | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Equity | |||||||||||||||||||||||||
| Balance - January 1, 2023 | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
| Cumulative effect of change upon adoption of ASU 2016-13 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Stock-based compensation: | ||||||||||||||||||||||||||||||||
| Options | - | - | ||||||||||||||||||||||||||||||
| Restricted stock units | - | |||||||||||||||||||||||||||||||
| Common stock issued for 401(k) employer matching | - | |||||||||||||||||||||||||||||||
| Shares issued under the New ELOC, net of offering costs [1] | - | |||||||||||||||||||||||||||||||
| Relative fair value of warrants issued with 2023 Note, net of issuance costs [2] | - | - | ||||||||||||||||||||||||||||||
| Warrants issued for modification of GGH Notes | - | - | ||||||||||||||||||||||||||||||
| Reduction of warrant exercise price on new debt issuance | - | - | ||||||||||||||||||||||||||||||
| Shares issued upon conversion of debt and interest | - | |||||||||||||||||||||||||||||||
| Common stock issued for cash in private placement | - | |||||||||||||||||||||||||||||||
| Cashless warrant exercise | - | ( | ) | |||||||||||||||||||||||||||||
| True-up adjustment | - | |||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Other comprehensive loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance - March 31, 2023 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Stock-based compensation: | ||||||||||||||||||||||||||||||||
| Options | - | - | ||||||||||||||||||||||||||||||
| Restricted stock units | - | - | ||||||||||||||||||||||||||||||
| Shares issued under the New ELOC, net of offering costs [3] | - | |||||||||||||||||||||||||||||||
| Shares issued upon conversion of debt and interest | - | |||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Other comprehensive loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance - June 30, 2023 | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
| [1] |
| [2] |
| [3] |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER’S EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022
(unaudited)
| Common Stock | Treasury Stock | Additional Paid-In | Accumulated Other Comprehensive | Accumulated | Gaucho Group Holdings Stockholders’ | Non- controlling | Total Stockholders’ | |||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Deficiency | Interest | Equity | |||||||||||||||||||||||||||||||
| Balance - January 1, 2022 | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | | |||||||||||||||||||||||
| Stock-based compensation: | ||||||||||||||||||||||||||||||||||||||||
| Options | - | - | ||||||||||||||||||||||||||||||||||||||
| Common stock issued for 401(k) employer matching | - | |||||||||||||||||||||||||||||||||||||||
| Common stock issued for purchase of minority interest | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Common stock issued for acquisition of GDS | - | |||||||||||||||||||||||||||||||||||||||
| Common stock issued for purchase of domain name | - | |||||||||||||||||||||||||||||||||||||||
| Warrants issued for modification of convertible debt principal | - | - | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | ||||||||||||||||||||||||||||||||||||||
| Balance - March 31, 2022 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Stock-based compensation: | ||||||||||||||||||||||||||||||||||||||||
| Options | - | - | ||||||||||||||||||||||||||||||||||||||
| Common stock | - | |||||||||||||||||||||||||||||||||||||||
| Shares issued upon conversion of debt and interest | - | |||||||||||||||||||||||||||||||||||||||
| Inducement loss on debt conversions | - | - | ||||||||||||||||||||||||||||||||||||||
| Substantial premium on convertible debt | - | - | ||||||||||||||||||||||||||||||||||||||
| Common stock issued for cash, net of offering costs | - | |||||||||||||||||||||||||||||||||||||||
| Common stock issued upon exchange of subsidiary stock options | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| True up adjustment | - | |||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | ||||||||||||||||||||||||||||||||||||||
| Balance - June 30, 2022 | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 6 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| For the Six Months Ended | ||||||||
| June 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation: | ||||||||
| 401(k) stock | ||||||||
| Common stock | ||||||||
| Stock options and warrants | ||||||||
| Restricted stock units | ||||||||
| Noncash lease expense | ||||||||
| Gain on foreign currency translation | ( | ) | ( | ) | ||||
| Depreciation and amortization | ||||||||
| Amortization of debt discount | ||||||||
| Provision for credit losses | ||||||||
| Provision for obsolete inventory | ||||||||
| Change in fair value of derivative liability | ||||||||
| Loss on extinguishment of debt | ||||||||
| Inducement expense | ||||||||
| Decrease (increase) in assets: | ||||||||
| Accounts receivable and mortgages receivable | ( | ) | ( | ) | ||||
| Employee advances | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Deposits | ||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Increase (decrease) in liabilities: | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Deferred revenue | ( | ) | ||||||
| Other liabilities | ( | ) | ( | ) | ||||
| Total Adjustments | ||||||||
| Net Cash Used in Operating Activities | ( | ) | ( | ) | ||||
| Cash Flow from Investing Activities | ||||||||
| Cash paid to acquire Gaucho Development S.R.L., net of cash acquired | ( | ) | ||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Purchase of intangible asset | ( | ) | ( | ) | ||||
| Net Cash Used in Investing Activities | ( | ) | ( | ) | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 7 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(unaudited)
| For the Six Months Ended | ||||||||
| June 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flow from Financing Activities | ||||||||
| Proceeds from loans payable | ||||||||
| Repayments of loans payable | ( | ) | ( | ) | ||||
| Proceeds from common stock issued for cash | ||||||||
| Proceeds from the issuance of convertible debt | ||||||||
| Financing costs in connection with the issuance of convertible debt | ( | ) | ||||||
| Repayments of convertible debt obligations | ( | ) | ||||||
| Redemption premiums paid on convertible debt obligations | ( | ) | ||||||
| Proceeds from issuance of shares under the New ELOC, net of offering costs [1] | ||||||||
| Net Cash Provided by Financing Activities | ||||||||
| Effect of Exchange Rate Changes on Cash | ( | ) | ||||||
| Net (Decrease) Increase in Cash | ( | ) | ||||||
| Cash - Beginning of Period | ||||||||
| Cash - End of Period | $ | $ | ||||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Non-Cash Investing and Financing Activity | ||||||||
| Equity issued to satisfy accrued stock-based compensation obligation | $ | $ | ||||||
| Equity issued as consideration for intangible assets | $ | $ | ||||||
| Equity issued for purchase of non-controlling interest | $ | $ | ||||||
| Equity issued for acquisition of Gaucho Development, S.R.L. | $ | $ | ||||||
| Warrants issued and debt principal exchanged upon modification of convertible debt | $ | $ | ||||||
| Shares issued upon conversion of debt and interest | $ | $ | ||||||
| Common stock and restricted stock units in GGH issued upon exchange of GGI options | $ | $ | ||||||
| Cashless warrant exercise | $ | $ | ||||||
| Relative fair value of warrants issued with 2023 Note, net of allocable issuance costs [2] | $ | $ | ||||||
| Warrants issued and debt principal exchanged upon modification of convertible debt | $ | $ | ||||||
| [1] |
| [2] |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 8 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BUSINESS ORGANIZATION AND NATURE OF OPERATIONS
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”), Algodon Global Properties, LLC (“AGP”) and Gaucho Ventures I – Las Vegas, LLC (“GVI”) 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. (“GDS”). GVI is a party to an agreement with LVH Holdings (“LVH”) to develop a project in Las Vegas, Nevada.
On
February 3, 2022, the Company acquired additional real estate through the acquisition of
GGH
also manufactures, distributes, and sells high-end luxury fashion and accessories through its subsidiary, Gaucho Group, Inc. (“GGI”).
GGH held a
Non-Controlling interest
As
a result of a 2019 conversion of certain convertible debt into shares of Gaucho Group, Inc. (“GGI”) common stock, GGI investors
obtained a
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
There have been no material changes to the Company’s significant accounting policies as set forth in the Company’s audited consolidated financial statements included in the annual report on Form 10-K for the year ended December 31, 2022, except as disclosed below.
| 9 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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, 2023 and for the three and six months ended June 30, 2023 and 2022. The results of operations for the three and six months ended June 30, 2023 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, 2022, filed with the Securities and Exchange Commission (“SEC”) on April 17, 2023.
On November 4, 2022, the Company effected a reverse stock split in a ratio of 1 share of common stock for 12 issued shares of common stock. As a result of the reverse stock split, prior period shares and per share amounts appearing in the accompanying condensed consolidated financial statements and all references in this Quarterly Report to our common stock, as well as amounts per share of our common stock, have been retroactively restated as if the reverse stock split occurred at the beginning of the period presented.
Going Concern and Management’s Liquidity Plans
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The condensed financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the company be unable to continue as a going concern.
As
of June 30, 2023, the Company had cash and a working capital deficit of approximately $
| 10 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The Company’s operating needs include the planned costs to operate its business, including amounts required to fund working capital and capital expenditures. Based upon projected revenues and expenses, the Company believes that it may not have sufficient funds to operate for the next twelve months from the date these financial statements are made available. Since inception, the Company’s operations have primarily been funded through proceeds received from 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 aforementioned factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements.
Highly Inflationary Status in Argentina
The
Company recorded gains on foreign currency transactions of approximately $
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 $
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, as well as hospitality, food and 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.
| 11 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Real estate sales | $ | $ | $ | $ | ||||||||||||
| Hotel rooms and events | ||||||||||||||||
| Restaurants | ||||||||||||||||
| Winemaking | ||||||||||||||||
| Agricultural | ||||||||||||||||
| Golf, tennis and other | ||||||||||||||||
| Clothes and accessories | ||||||||||||||||
| Total revenues | $ | $ | $ | $ | ||||||||||||
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 adjust revenue for the portion of gift card values that is not expected to be redeemed (“breakage”) due to the lack of historical data. Revenue from real estate lot sales is recorded when the lot is deeded, and legal ownership of the lot is transferred to the customer.
The timing of the Company’s revenue recognition may differ from the timing of payment by its customers. A receivable is recorded when revenue is recognized prior to payment and the Company has an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, the Company records deferred revenue until the performance obligations are satisfied. Deferred revenues associated with real estate lot sale deposits are recognized as revenues (along with any outstanding balance) when the lot sale closes, and the deed is provided to the purchaser. Other deferred revenues primarily consist of deposits accepted by the Company in connection with agreements to sell barrels of wine, advance deposits received for grapes and other agricultural products, and hotel deposits. Wine barrel and agricultural product advance deposits are recognized as revenues (along with any outstanding balance) when the product is shipped to the purchaser. Hotel deposits are recognized as revenue upon occupancy of rooms, or the provision of services.
Contracts related to the sale of wine, agricultural products and hotel services have an original expected length of less than one year. The Company has elected not to disclose information about remaining performance obligations pertaining to contracts with an original expected length of one year or less, as permitted under the guidance.
| 12 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
As
of June 30, 2023 and December 31, 2022, the Company had deferred revenue of $
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.
| As of June 30, | ||||||||
| 2023 | 2022 | |||||||
| Options | ||||||||
| Warrants | ||||||||
| Unvested restricted stock units | ||||||||
| Convertible debt | [1] | [2] | ||||||
| Total potentially dilutive shares | ||||||||
| [1] | ||
| [2] |
Sequencing Policy
Under ASC 815, the Company has adopted a sequencing policy, whereby, in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities with a potentially indeterminable number of shares or the Company’s total potentially dilutive shares exceed the Company’s authorized share limit, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares. Pursuant to ASC 815, issuances of securities granted as compensation in a share-based payment arrangement are not subject to the sequencing policy.
| 13 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Derivative Instruments
The Company evaluates its convertible instruments to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately accounted for in accordance with Topic 815 “Derivatives and Hedging” (“ASC 815”) of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). The accounting treatment of derivative financial instruments requires that the Company record any bifurcated embedded features at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded in earnings each period as non-operating, non-cash income or expense. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. Bifurcated embedded features are recorded upon note issuance at their initial fair values which create additional debt discount to the host instrument.
Recently Adopted Accounting Pronouncements
In
June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments – Credit Losses (Topic 326)” and also issued subsequent
amendments to the initial guidance under ASU 2018-19, ASU 2019-04, ASU 2019-05 and ASU 2020-02 (collectively Topic 326). Topic 326 requires
the measurement and recognition of expected credit losses for financial assets held at amortized cost. This replaces the existing incurred
loss model with an expected loss model and requires the use of forward-looking information to calculate credit loss estimates. The Company
adopted the provisions of this ASU on January 1, 2023 using the modified retrospective method for all financial assets measured at amortized
cost. Results for reporting periods beginning after December 31, 2022 are presented under Topic 326 while prior period amounts continue
to be reported in accordance with previously applicable GAAP. The Company recorded an adjustment to accumulated deficit of $
Reclassifications
Certain reclassifications have been made to prior period amounts to conform to the current period financial statement presentation.
3. MORTGAGES RECEIVABLE
The
Company offers loans to purchasers in connection with the sale of real estate lots. The loans bear interest at
Management
evaluates each loan individually on a quarterly basis, to assess collectability and estimate a reserve for past due amounts. Management
recorded an additional provision for uncollectible accounts in the amount of $
| 14 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following represents the maturities of mortgages receivable as of June 30, 2023:
| July 1 through December 31, 2023 | $ | |||
| For the years ended December 31, | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Gross Receivable | ||||
| Less: Allowance | ( | ) | ||
| Net Receivable | $ |
As
of June 30, 2023 and December 31, 2022, no single borrower had loans outstanding representing more than
The
Company recorded interest income from mortgages receivable of $
4. INVENTORY
Inventory at June 30, 2023 and December 31, 2022 was comprised of the following:
June 30, 2023 | December 31, 2022 | |||||||
| Vineyard in process | $ | $ | ||||||
| Wine in process | ||||||||
| Finished wine | ||||||||
| Clothes and accessories | ||||||||
| Other | ||||||||
| Less: Reserve for obsolescence | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
The
Company recorded a provision for obsolete inventory in the amount of $
| 15 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
5. INTANGIBLE ASSETS
On
February 3, 2022, the Company purchased the domain name Gaucho.com, in exchange for cash consideration of $
On
June 15, 2023, the Company purchased a music video to be used in certain marketing mediums for $
The
Company recognized $
| July 1 through December 31, 2023 | $ | |||
| For the years ended December 31, | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| $ |
6. 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.
The carrying amounts of the Company’s short-term financial instruments including cash, accounts receivable, advances and loans to employees, prepaid taxes and expenses, accounts payable, accrued expenses and other liabilities approximate fair value due to the short-term nature of these instruments. The carrying value of the Company’s loans payable, debt obligations, convertible debt obligations and derivative liability approximate fair value, as they bear terms and conditions comparable to market for obligations with similar terms and maturities.
| 16 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
7. ACCRUED EXPENSES
Accrued expenses are comprised of the following:
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Accrued compensation and payroll taxes | $ | $ | ||||||
| Accrued taxes payable - Argentina | ||||||||
| Accrued interest | ||||||||
| Other accrued expenses | ||||||||
| Accrued expenses, current | ||||||||
| Accrued payroll tax obligations, non-current | ||||||||
| Total accrued expenses | $ | $ | ||||||
On
November 27, 2020, the Company entered into various payment plans, pursuant to which it agreed to pay its Argentine payroll tax obligations
over a period of
8. DEFERRED REVENUE
Deferred revenue is comprised of the following:
June 30, 2023 | December 31, 2022 | |||||||
| Real estate lot sales deposits | $ | $ | ||||||
| Prepaid management fees | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
| 17 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The
Company accepts deposits in conjunction with agreements to sell real estate building lots at Algodon Wine Estates in the Mendoza wine
region of Argentina. These lot sale deposits are generally denominated in U.S. dollars. The Company received deposits for eleven additional
lots and recorded deferred revenues in the amount of $
9. LOANS PAYABLE
The Company’s loans payable are summarized below:
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| EIDL | $ | $ | ||||||
| 2018 Loan | ||||||||
| 2022 Loan | ||||||||
| 2023 Loan | ||||||||
| Total Loans Payable | ||||||||
| Less: current portion | ||||||||
| Loans Payable, non-current | $ | $ | ||||||
On
January 9, 2023, the Company received $
The
Company incurred interest expense related to the loans payable in the amount of $
| 18 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
10. CONVERTIBLE DEBT OBLIGATIONS
Amounts owed pursuant to the Company’s convertible debt obligations are as follows:
| GGH Notes | 2023 Note | Total Principal | Debt Discount | Convertible debt, net of discount | ||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Note issued | ( | ) | ||||||||||||||||||
| Debt principal converted to common stock: | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Principal repayments | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Amortization of debt discount | ||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Less: current portion | ( | ) | ||||||||||||||||||
| Equals: convertible debt, non-current | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
GGH Convertible Notes
On
February 2, 2023, the Company and the holders of the remaining GGH Notes entered into a fourth letter agreement (“Letter Agreement
#4). Pursuant to Letter Agreement #4, the parties agreed to reduce the conversion price of the GGH Notes to the lower of: (i) the closing
sale price on the trading day immediately preceding the conversion date; and (ii) the average closing sale price of the common stock
for the five trading days immediately preceding the conversion date. The conversion price is not subject to a floor price. Between February
3 and February 15, 2023, the holders elected to convert $
On February 8, 2023, the Company and the holders of the remaining GGH Notes entered into a fifth letter agreement (“Letter Agreement #5). Pursuant to Letter Agreement #5, the parties agreed to extend the maturity date of the notes from February 9, 2023 to February 28, 2023.
On
February 20, 2023, the Company entered into another exchange agreement (the “Exchange Agreement #4”) with the remaining holders
of the GGH Notes, pursuant to which warrants for the purchase up to an aggregate of
On
February 21, 2023, the Company redeemed the remaining GGH Notes for $
| 19 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
2023 Convertible Note
On
February 21, 2023, the Company entered into a securities purchase agreement (the “SPA”) with an institutional investor,
(the “Investor”) pursuant to which the Company received proceeds of $
Pursuant
to the SPA, the exercise price of certain warrants for the purchase of
The
2023 Note is convertible into shares of common stock of the Company at a conversion price equal to the lower of (i) $
The
2023 Note matures on the first anniversary of the issuance date (the “Maturity Date”) and bears interest at a rate of
The
2023 Note is redeemable at the Company’s election, so long as the Company is not in default, at the greater of (a)
Upon
an event of default on the 2023 Note, the Conversion Price is reduced to the lesser of (a) $1.34 (subject to adjustment as described
above); (b) 80% of the volume-weighted average price on the day preceding receipt of the conversion notice; or (c) 80% of the average
of the three lowest volume-weighted average prices over the fifteen trading days which precede receipt of the conversion notice, subject
to a floor price of $
The Event of Default Conversion Price represents a redemption feature, which was bifurcated from the debt host and recorded as a derivative liability. As of the date of issuance of the 2023 Note, management had estimated that the probability of an event of default was negligible; accordingly, the fair value of the derivative liability was de minimis at the date of issuance.
| 20 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Pursuant
to the terms of the 2023 Note, the Company must pay, convert or redeem one quarter of the initial principal, plus any outstanding interest
and make-whole amount by each three-month anniversary of the issuance date. As of June 30, 2023, the Company is in default on the 2023
Note as a result of not making the required quarterly payment due on May 21, 2023. Consequently, the Company remeasured the derivative
liability and recorded a change in fair value of the derivative liability of $
The following table sets forth a summary of the changes in the fair value of the derivative liability that are measured at fair value on a recurring basis:
| Balance as of January 1, 2023 | $ | |||
| Fair value of derivative liability upon issuance of 2023 Note | ||||
| Change in fair value of derivative liability | ||||
| Balance as of June 30, 2023 | ||||
| Less: current portion of derivative liability | ||||
Equals: derivative liability, non-current portion | $ |
The
Company incurred financing costs of $
Upon
the issuance of the 2023 Note, the Company recorded a debt discount at issuance in the aggregate amount $
During
the six months ended June 30, 2023, the Company made redemption payments in the aggregate amount of $
During
the three and six months ended June 30, 2023, a total of $
Interest Expense on Convertible Debt Obligations
The
Company incurred total interest expense of $
Interest
expense during the three months ended June 30, 2023 and 2022 consists of (i) $
Interest
expense during the six months ended June 30, 2023 and 2022 consists of (i) $
See Note 17 - Subsequent Events.
| 21 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
11. SEGMENT DATA
The Company’s financial position and results of operations are classified into three reportable segments, consistent with how the CODM makes decisions about resource allocation and assesses the Company’s performance.
| ● | Real Estate Development, through AWE and TAR, including hospitality and winery operations, which support the ALGODON® brand. | |
| ● | Fashion (e-commerce), through GGI, including the manufacture and sale of high-end fashion and accessories sold through an e-commerce platform. | |
| ● | Corporate, consisting of general corporate overhead expenses not directly attributable to any one of the business segments. |
The following tables present segment information for the three months ended June 30, 2023 and 2022:
| For the Three Months Ended June 30, 2023 | For the Six Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||
Real Estate Development | Fashion (e-commerce) | Corporate | TOTAL | Real Estate Development | Fashion (e-commerce) | Corporate | TOTAL | |||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Revenues from Foreign Operations | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Loss from Operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||
| For the Three Months Ended June 30, 2022 | For the Six Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||
Real Estate Development | Fashion (e-commerce) | Corporate | TOTAL | Real Estate Development | Fashion (e-commerce) | Corporate | TOTAL | |||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Revenues from Foreign Operations | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Loss from Operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||
| 22 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following tables present segment information as of June 30, 2023 and December 31, 2022:
| As of June 30, 2023 | As of December 31, 2022 | |||||||||||||||||||||||||||||||
Real Estate Development | Fashion (e-commerce) | Corporate | TOTAL | Real Estate Development | Fashion (e-commerce) | Corporate | TOTAL | |||||||||||||||||||||||||
| Total Property and Equipment, net | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Total Property and Equipment, net in Foreign Countries | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Total Assets | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
12. RELATED PARTY TRANSACTIONS
Accounts Receivable – Related Parties
As
of June 30, 2023 and December 31, 2022 the Company had accounts receivable – related parties of $
The
Company recorded credit losses related to accounts receivable, related parties of $
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, professional
services, and other operating expenses (the “Related Party ESA”). During the six months ended June 30, 2023 and 2022, the
Company recorded a contra-expense of $
| 23 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Management Fee Income
The
Company earns management fees of $
Amendment to LVH Limited Liability Company Agreement
On June 30, 2023, the Company through its wholly owned subsidiary, GVI, executed a Fourth Amendment to the Amended and Restated Limited Liability Company Agreement of LVH to extend the outside date for execution of the ground lease from June 30, 2023 to December 29, 2023.
13. 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 six months ended June 30, 2023
and 2022, the Company recorded a charge associated with its contribution of $
14. STOCKHOLDERS’ EQUITY
Common Stock
On
February 2, 2023, the Company issued shares of common stock upon the cashless exercise of
On
February 10, 2023, the Company sold shares of common stock and warrants to purchase
During
the six months ended June 30, 2023, the Company sold an aggregate of shares of the Company’s common stock for gross proceeds
of $
See Note 10 – Convertible Debt Obligations for additional details regarding common shares issued during the three and six months ended June 30, 2023.
Accumulated Other Comprehensive Loss
For
the three and six months ended June 30, 2023, the Company recorded a loss of $
| 24 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Warrants
A summary of warrant activity during the six months ended June 30, 2023 is presented below:
| Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Life in Years | Intrinsic Value |
||||||||||||||
| Outstanding, January 1, 2023 | $ | ||||||||||||||||
| Issued | |||||||||||||||||
| Exercised | ( |
) | |||||||||||||||
| Expired | |||||||||||||||||
| Canceled | |||||||||||||||||
| Outstanding, June 30, 2023 | $ | $ | |||||||||||||||
| Exercisable, June 30, 2023 | $ | $ | |||||||||||||||
See Common Stock, above, and Note 10 – Convertible Debt Obligations for additional details regarding warrants issued during the six months ended June 30, 2023.
| Warrants Outstanding | Warrants Exercisable | |||||||||||||||
| Exercise Price | Exercisable Into | Outstanding Number of Warrants |
Weighted Average Remaining Life in Years |
Exercisable Number of Warrants |
||||||||||||
| $ | ||||||||||||||||
| $ | ||||||||||||||||
| $ | ||||||||||||||||
| $ | ||||||||||||||||
| $ | ||||||||||||||||