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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 March 31, 2024

 

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: 001-40075

 

Gaucho Group Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

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

 

112 NE 41st Street, Suite 106

Miami, FL 33137

(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 and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ 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 May 20, 2024, there were 876,763 shares of common stock outstanding.

 

 

 

 
 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 

PART I  
   
FINANCIAL INFORMATION  
   
ITEM 1. Financial Statements 1
   
Condensed Consolidated Balance Sheets as of March 31, 2024 (unaudited) and December 31, 2023 1
   
Unaudited Condensed Consolidated Statements of Operations for the Three months Ended March 31, 2024 and 2023 3
   
Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three months Ended March 31, 2024 and 2023 4
   
Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity for the Three months Ended March 31, 2024 5
   
Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2023 6
   
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023 7
   
Notes to Condensed Consolidated Financial Statements (unaudited) 9
   
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 27
   
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 33
   
ITEM 4. Controls and Procedures 33
   
PART II  
   
OTHER INFORMATION  
   
ITEM 1. Legal Proceedings 34
   
ITEM 1A. Risk Factors 34
   
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

 

i
 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   March 31,   December 31, 
   2024   2023 
   (unaudited)     
Assets          
Current Assets          
Cash  254,744   427,961 
Accounts receivable, net of allowance of $6,289 and $6,649 at March 31, 2024 and December 31, 2023, respectively   67,351    41,261 
Accounts receivable - related parties, net of allowance of $1,645,554 and $1,517,836 at March 31, 2024 and December 31, 2023, respectively   -    - 
Mortgages receivable, net of allowance of $373,863 and $369,549 at March 31, 2024 and December 31, 2023, respectively   820,299    675,512 
Inventory   2,003,377    2,031,880 
Inventory deposits   136,449    161,531 
Real estate lots held for sale   558,598    615,585 
Prepaid expenses and other current assets   539,356    343,199 
Total Current Assets   4,380,174    4,296,929 
Long Term Assets          
Mortgages receivable, non-current portion, net of allowance of $1,091,732 and $1,067,432 at March 31, 2024 and December 31, 2023, respectively   1,716,969    1,850,405 
Advances to employees   281,514    281,783 
Property and equipment, net   7,741,909    7,806,370 
Operating lease right-of-use asset   1,158,378    1,218,408 
Prepaid foreign taxes, net   942,919    953,570 
Intangible assets, net   92,737    98,147 
Deposits, non-current   54,713    54,713 
Total Assets  16,369,313   16,560,325 

 

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

 

   March 31,   December 31, 
   2024   2023 
   (unaudited)     
Liabilities and Stockholders’ Equity          
Current Liabilities          
Accounts payable  1,118,315   925,422 
Accrued expenses, current portion   3,919,584    3,719,798 
Deferred revenue   1,410,391    1,471,813 
Deferred revenue, related party   250,000    250,000 
Operating lease liabilities, current portion   266,260    250,711 
Loans payable, current portion   191,072    188,169 
Deposit for equity purchase   

260,000

    

-

 
Lot sale obligation, net   535,382    541,027 
Convertible debt obligations, net   1,595,697    1,320,902 
Derivative liability   818,730    738,140 
Other current liabilities   80,210    254,768 
Total Current Liabilities   10,445,641    9,660,750 
Long Term Liabilities          
Accrued expenses, non-current portion   24,369    35,527 
Operating lease liabilities, non-current portion   1,008,438    1,077,697 
Loans payable, non-current portion   -    90,372 
Deposit for common shares to be issued   120,000      
Other non-current liabilities   4,544    - 
Total Liabilities   11,602,992    10,864,346 
Commitments and Contingencies (Note 15)   -     -  
Stockholders’ Equity          
Preferred stock, par value $0.01 per share; 902,670 shares authorized; no shares issued and outstanding   -    - 
Common stock, par value $0.01 per share; 150,000,000 shares authorized; 774,956 and 480,794 shares issued and 774,953 and 480,791 shares outstanding at March 31, 2024 and December 31, 2023, respectively   7,750    48,079 
Additional paid-in capital   152,468,832    150,588,124 
Accumulated other comprehensive loss   (11,141,097)   (11,104,706)
Accumulated deficit   (136,522,809)   (133,789,163)
Treasury stock, at cost, 3 shares at March 31, 2024 and December 31, 2023   (46,355)   (46,355)
Total Stockholders’ Equity   4,766,321    5,695,979 
Total Liabilities and Stockholders’ Equity  16,369,313   16,560,325 

 

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)

 

   2024   2023 
   For the Three Months Ended 
   March 31, 
   2024   2023 
         
Sales  $587,378   $447,767 
Cost of sales   (367,649)   (293,299)
Gross profit   219,729    154,468 
Operating Expenses          
Selling and marketing   96,037    234,579 
General and administrative   2,264,602    1,756,688 
Depreciation and amortization   110,339    109,206 
Total operating expenses   2,470,978    2,100,473 
Loss from Operations   (2,251,249)   (1,946,005)
           
Other Expense (Income)          
Change in fair value of derivative liability   80,590    - 
Loss on extinguishment of debt   -    383,987 
Gains from foreign currency remeasurement, net   (9,983)   (111,792)
Interest income   (15,400)   (50,344)
Interest expense   427,190    602,292 
Other income, related party   -    (75,000)
Total other expense   482,397    749,143 
Net Loss  $(2,733,646)  $(2,695,148)
           
Net Loss per Common Share          
Basic and Diluted  $(4.47)  $(5.78)
           

Weighted Average Number of Common Shares Outstanding:

          
Basic and Diluted   612,208    466,164 

 

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

(unaudited)

 

   2024   2023 
   For the Three Months Ended 
   March 31, 
   2024   2023 
Net loss  $(2,733,646)  $(2,695,148)
Other comprehensive loss:          
Foreign currency translation adjustments   (36,391)   (39,799)
Comprehensive loss  $(2,770,037)  $(2,734,947)

 

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 MONTHS ENDED MARCH 31, 2024

(unaudited)

 

                       Accumulated         
                   Additional   Other       Total 
   Common Stock   Treasury Stock   Paid-In   Comprehensive   Accumulated   Stockholders’ 
   Shares   Amount   Shares   Amount   Capital   Loss   Deficit   Equity 
Balance - January 1, 2024   480,794   $4,808  -  3   $(46,355)  $150,631,395   $(11,104,706)  $(133,789,163)  $5,695,979 
Stock-based compensation:                                        
Options        -    -    -    17,911    -    -    17,911 
Restricted stock units   1,841    19    -    -    74,747    -    -    74,766 
Common stock issued for 401(k) employer matching   3,497    35    -    -    14,733    -    -    14,768 
Common stock issued for cash in private placement   288,824    2,888    -    -    1,730,046    -    -    1,732,934 
Net loss        -  -  -    -    -    -    (2,733,646)   (2,733,646)
Other comprehensive loss        -    -    -    -    (36,391)   -    (36,391)
Balance - March 31, 2024   774,956   $7,750  -  3   $(46,355)  $152,468,832   $(11,141,097)  $(136,522,809)  $4,766,321 

 

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 MONTHS ENDED MARCH 31, 2023

(unaudited)

 

                       Accumulated         
                   Additional   Other       Total 
   Common Stock   Treasury Stock   Paid-In   Comprehensive   Accumulated   Stockholders’ 
   Shares   Amount   Shares   Amount   Capital   Loss   Deficit   Equity 
Balance - January 1, 2023   36,534   $365  -  3   $(46,355)  $139,159,811   $(10,842,569)  $(117,479,571)  $10,791,681 
Cumulative effect of change upon adoption of ASU 2016-13   -    -    -    -    -    -    (111,582)   (111,582)
Stock-based compensation:                                        
Options   -    -    -    -    38,834    -    -    38,834 
Restricted stock units   39    -    -    -    79,422    -    -    79,422 
Common stock issued for 401(k) employer matching   242    3    -    -    32,614    -    -    32,617 
Shares issued under the New ELOC, net of offering costs [1]   3,644    37    -    -    441,372    -    -    441,409 
Relative fair value of warrants issued with 2023 Notes, net of issuance costs [2]   -    -    -    -    1,506,319    -    -    1,506,319 
Warrants issued for modification of GGH Notes   -    -    -    -    134,779    -    -    134,779 
Reduction of warrant exercise price on new debt issuance   -    -    -    -    63,502    -    -    63,502 
Shares issued upon conversion  of debt and interest   8,333    83    -    -    1,571,470    -    -    1,571,553 
Common stock issued for cash in private placement   5,910    59    -    -    590,941    -    -    591,000 
Cashless warrant exercise   513    5    -    -    (5)   -    -    - 
True-up adjustment   3    -    -    -    -    -    -    - 
Net loss   -    -  -  -    -    -    -    (2,695,148)   (2,695,148)
Other comprehensive loss   -    -    -    -    -    (39,799)   -    (39,799)
Balance - March 31, 2023   55,218    552  -  3    (46,355)   143,619,059    (10,882,368)   (120,286,301)   12,404,587 

 

[1]   Includes gross proceeds of $480,670, less $39,261 offering costs.
[2]   Represents $1,609,935 relative fair value of warrants, less $103,616 of allocable issuance costs.

 

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)

 

   2024   2023 
   For the Three Months Ended 
   March 31, 
   2024   2023 
Cash Flows from Operating Activities          
Net loss  $(2,733,646)  $(2,695,148)
Adjustments to reconcile net loss to net cash used in operating activities:          
Stock-based compensation:          
401(k) stock   3,408    5,908 
Options   17,911    38,834 
Restricted stock units   74,766    79,422 
Non-cash lease expense   60,030    56,449 
Gain on foreign currency translation   (9,983)   (111,792)
Depreciation and amortization   115,453    109,206 
Amortization of debt discount   294,147    362,166 
Provision for credit losses   156,332    45,272 
Provision for uncollectable assets   19,690    - 
Provision for obsolete inventory   129,784    - 
Change in fair value of derivative liability   80,590    - 
Loss on extinguishment of debt   -    383,987 
Decrease (increase) in assets:          
Accounts receivable and mortgages receivable   (199,314)   (236,674)
Employee advances   -    (7,141)
Inventory   (101,281)   (110,032)
Inventory deposits   25,082    - 
Real estate lots held for sale   56,987    - 
Prepaid expenses and other current assets   (205,196)   (181,125)
Increase (decrease) in liabilities:          
Accounts payable and accrued expenses   407,697    (690,419)
Operating lease liabilities   (53,710)   (47,895)
Deferred revenue   (61,422)   92,746 
Other liabilities   (169,034)   (33,141)
Total Adjustments   641,937    (244,229)
Net Cash Used in Operating Activities   (2,091,709)   (2,939,377)
           
Cash Flows from Investing Activities          
Purchase of property and equipment   (45,582)   (50,074)
Net Cash Used in Investing Activities   (45,582)   (50,074)

 

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)

 

   March 31, 
   2024   2023 
Cash Flows from Financing Activities          
Proceeds from loans payable   -    185,000 
Repayments of loans payable   (87,469)   (32,605)
Refund of lot sale obligation   (25,000)   - 
Proceeds from the issuance of convertible debt   -    5,000,000 
Financing costs in connection with the issuance of convertible debt   -    (321,803)
Repayments of debt obligations   -    (744,054)
Proceeds from common stock issued for cash   1,732,934    591,000 
Proceeds from deposits for equity purchases   380,000    - 
Proceeds from issuance of shares under the New ELOC, net of offering costs [1]   -    441,409 
Net Cash Provided by Financing Activities   2,000,465    5,118,947 
Effect of Exchange Rate Changes on Cash   (36,391)   (39,799)
Net (Decrease) Increase in Cash   (173,217)   2,089,697 
Cash - Beginning of Period   427,961    300,185 
Cash - End of Period  $254,744   $2,389,882 
           
Supplemental Disclosures of Cash Flow Information:          
Interest paid  $323,638   $307,635 
Income taxes paid  $-   $- 
           
Non-Cash Investing and Financing Activity          
Equity issued to satisfy accrued stock-based compensation obligation  $14,768   $32,617 
Shares issued upon conversion of debt and accrued interest  $-   $1,571,553 
Relative fair value of warrants issued with 2023 Notes, net of allocable issuance costs [2]  $-   $1,506,319 
Change in value of modified warrants  $-   $63,502 
Cashless warrant exercise  $-   $513 

 

[1] Gross proceeds of $480,670, less offering costs of $39,261, for the three months ended March 31, 2023
   
[2] Represents $1,609,935 relative fair value of warrants, less $103,616 in allocable issuance costs, for the three months ended March 31, 2023

 

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”) 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 by Guacho Development S.R.L. (“GDS”), and the subdivision of a portion of this property for residential development.

 

GGH also manufactures, distributes, and sells high-end luxury fashion and accessories through its wholly-owned subsidiary, Gaucho Group, Inc. (“GGI”).

 

Reverse Stock Splits

 

On September 25, 2023, the Company effected a reverse stock split wherein each 10 shares of common stock outstanding immediately prior to the effective date was combined and converted into one share of common stock.

 

On May 1, 2024, the Company effected another reverse stock split wherein each 10 shares of common stock outstanding immediately prior to the effective date was combined and converted into one share of common stock.

 

All share and per share amounts in this Quarterly Report have been adjusted to reflect the effect of these reverse stock splits (hereafter referred to collectively as the “Reverse Stock Splits”) as if the Reverse Stock Splits occurred as of the earliest period presented.

 

9

 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for annual consolidated financial statements. In the opinion of management, the accompanying condensed consolidated financial statements include all adjustments which are considered necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company as of March 31, 2024, and for the three months ended March 31, 2024 and 2023. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the operating results for the full year ending December 31, 2024 or any other period. These unaudited condensed consolidated financial statements have been derived from the Company’s accounting records and should 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, 2023, filed with the Securities and Exchange Commission (“SEC”) on April 30, 2024.

 

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 consolidated 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 March 31, 2024, the Company had cash of $254,744 and a working capital deficit of $6,065,467. During the three months ended March 31, 2024 and 2023, the Company incurred a net loss of $2,733,646 and $2,695,148, respectively, and used cash in operating activities of $2,091,709 and $2,939,377, respectively.

 

As of March 31, 2024, future cash requirements for current liabilities include $5,037,899 for accounts payable and accrued expenses (including cash true up obligations in connection with convertible debt in the amount of $1,484,677), $500,000 for lot sale obligations, $1,595,697 principal owed in connection with convertible debt, $191,072 for loans payable, $266,260 for future payments under an operating lease and $80,210 for other current liabilities. Further, the Company’s convertible debt matured on February 21, 2024 and the Company has subsequently received event of default notices demanding immediate payment of all balances owed in connection with the convertible debt, including cash true up obligations. Balances owed in connection with convertible debt remain outstanding as of the date of the filing of this quarterly report on Form 10-Q. Future cash requirements for long-term liabilities include $1,008,438 for future payments under an operating lease and $28,913 for accrued expenses and other liabilities.

 

On February 27, 2024, the Company’s equity line of credit was terminated.

 

10

 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

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.

 

During April 2024, the Company sold a total of 16,667 shares of common stock pursuant to a private placement for gross proceeds of $100,000. During May 2024, the Company issued 120-day promissory notes in in the aggregate amount of $1,185,000, of which promissory notes in the aggregate amount of $925,000 were issued for cash, and a promissory note in the amount of $260,000 was issued satisfaction of a deposit for the purchase of equity. The notes bear interest at 8.5% per annum.

 

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 condensed consolidated financial statements are issued. The aforementioned factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

Highly Inflationary Status in Argentina

 

During the three months ended March 31, 2024 and 2023, the Company recorded gains of $9,983 and $111,792 respectively, resulting from foreign currency remeasurement of the Company’s Argentine subsidiaries’ net monetary liability position of its Argentine subsidiaries.

 

Concentrations

 

The Company maintains cash with major financial institutions. Cash held in US bank institutions is currently insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 at each institution. No similar insurance or guarantee exists for cash held in Argentina bank accounts. There were aggregate uninsured cash balances of $145,600 and $93,878 at March 31, 2024 and December 31, 2023, respectively, which 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, 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:

 

 

   2024   2023 
   For the Three Months Ended 
   March 31 
   2024   2023 
         
Real estate sales  $104,143   $- 
Hotel rooms and events   313,388    245,687 
Clothes and accessories   54,941    65,382 
Restaurants   54,681    79,018 
Winemaking   40,357    29,823 
Golf, tennis and other   19,868    27,857 
Total Revenues  $587,378   $447,767 

 

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. See Note 7, Deferred Revenue.

 

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)

 

Net Loss per Common Share

 

Basic loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted loss per common share is computed by dividing net loss 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:

 

  

   2024   2023 
   As of March 31, 
   2024   2023 
         
Options   302    348 
Warrants   39,627    48,393 
Unvested restricted stock units   7,491    5,176 
Convertible debt   497,922[1]   58,278[2]
Total potentially dilutive shares   545,342    112,195 

 

[1] Represents shares issuable upon conversion of $1,595,697 in convertible debt, $251,992 of redemption premium and $84,247 of related accrued interest outstanding as of March 31, 2024 at a conversion price of $3.88 per share, which represents the conversion price in effect as of March 31, 2024. The conversion price of such debt is variable (see Note 10, Convertible Debt Obligations).
   
[2] Represents shares issuable upon conversion of $5,536,394 in convertible debt outstanding as of March 31, 2023 at a conversion price of $95.00 per share, which represents the conversion price in effect as of March 31, 2023. The conversion price of such debt is variable (see Note 10, Convertible Debt Obligations).

 

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.

 

13

 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Recently Issued Accounting Pronouncements

 

In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segments Disclosures (Topic 280), which updates reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses on both an annual and interim basis. The guidance becomes effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. Since this new ASU addresses only disclosures, the Company does not expect the adoption of this ASU to have any material effects on its financial condition, results of operations or cash flows. The Company is currently evaluating any new disclosures that may be required upon adoption of ASU 2023-07.

 

3. MORTGAGES RECEIVABLE

 

The Company offers loans to purchasers in connection with the sale of real estate lots. The loans bear interest at 7.2% per annum and terms generally range from eight to ten years. Principal and interest for each loan is billed and receivable on a monthly basis. The loans are secured by a first mortgage lien on the property purchased by the borrower. Mortgages receivable include the related interest receivable and are presented at amortized cost, less bad debt allowances, in the accompanying condensed consolidated financial statements.

 

Management evaluates each loan individually on a quarterly basis, to assess collectability and estimate a reserve for past due amounts. The total allowance for uncollectable mortgages are $1,465,595 and $1,436,981 as of March 31, 2024 and December 31, 2023, respectively. Past due principal amounts of $597,575 and $497,588 are included in mortgages receivable, current as of March 31, 2024 and December 31, 2023, respectively.

 

The following represents the maturities of mortgages receivable as of March 31, 2024:

 

 

         

For the period from April 1, 2024 through December 31, 2024

  $ 1,094,422  
For the year ended December 31,        
2025     409,927  
2026     440,436  
2027     473,215  
2028     480,227  
2029     495,135  
Thereafter     609,501  
Gross Receivable     4,002,863  
Less: Allowance     (1,465,595 )
Net receivable     2,537,268  
Less: current portion     (820,299 )
Mortgages receivable, non-current portion   $ 1,716,969  

 

As of each of March 31, 2024 and December 31, 2023, two borrowers had loans outstanding representing 11% and 10% of the total balance of mortgages receivable.

 

The Company recorded interest income from its mortgages receivable of $10,426 and $50,344 for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024 and December 31, 2023, there is $226,146 and $190,967, respectively, of interest receivable included in mortgages receivable on the accompanying consolidated balance sheets.

 

14

 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

4. INVENTORY

 

Inventory at March 31, 2024 and December 31, 2023 was comprised of the following:

 

   March 31,   December 31, 
   2024   2023 
         
Vineyard in process  $853,814   $713,104 
Wine in process   619,842    622,167 
Finished wine   39,940    37,636 
Clothes and accessories   638,493    638,023 
Other   167,808    207,685 
Inventory gross   2,319,897    2,218,615 
Less: Reserve for obsolescence   (316,520)   (186,736)
Total  $2,003,377   $2,031,880 

 

The Company had deposits for inventory purchases in the amount of $136,449 and $161,531 as of March 31, 2024 and December 31, 2023, respectively.

 

The Company recorded a provision for obsolete inventory in the amount of $129,784 and $0 during the three months ended March 31, 2024 and 2023, respectively, related to its clothing and accessories inventory.

 

5. INVESTMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS

 

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

 

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

 

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

 

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.

 

15

 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

The carrying amounts of the Company’s short-term financial instruments including cash, accounts receivable, prepaid commissions on lot sales, 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 the market for obligations with similar terms and maturities.

 

6. ACCRUED EXPENSES

 

Accrued expenses are comprised of the following:

 

   March 31,   December 31, 
   2024   2023 
         
Accrued compensation and payroll taxes  $1,728,218   $1,803,869 
Accrued taxes payable - Argentina   112,603    84,494 
Accrued insurance expense   18,176    36,352 
Accrued consulting fees   74,512    74,512 
Accrued commissions   66,267    66,267 
Accrued interest   239,241    130,280 
Accrued cash true up obligation (see Note 10)   1,484,677    1,484,677 
Other accrued expenses   195,890    39,347 
Accrued expenses, current   3,919,584    3,719,798 
Accrued payroll tax obligations, non-current   24,369    30,003 
Other long term accruals   -    5,524 
Total accrued expenses  $3,943,953   $3,755,325 

 

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 60 to 120 months. The current portion of payments due under the plan is $106,152 and $75,769 as of March 31, 2024 and December 31, 2023, respectively, which is included in accrued taxes payable – Argentina, above. The non-current portion of accrued payroll tax obligations represents payments under the plan that are scheduled to be paid after twelve months. The Company incurred interest expense of $7,905 and $17,304 during the three months ended March 31, 2024 and 2023, respectively, related to these payment plans.

 

16

 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

7. DEFERRED REVENUE

 

Deferred revenue is comprised of the following:

  

   March 31,   December 31, 
   2024   2023 
Real estate lot sales deposits  $1,336,958   $1,436,758 
Hotel deposits   55,952    32,657 
Other   17,481    2,398 
Total   1,410,391    1,471,813 
Real estate lot sales deposits from related party   

250,000

    250,000 
Deferred revenue  $

1,660,391

   $

1,721,813

 

 

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. Revenue is recorded when the sale closes, and the deeds are issued. No lot sale deposits were recorded during the three months ended March 31, 2024. The Company recorded revenue upon the closing of the sale of real estate lots in the amount of $104,143 and $0 during the three months ended March 31, 2024 and 2023, respectively.

 

8. LOT SALE OBLIGATIONS

 

The following table summarizes the activity in connection with the Company’s lot sale obligations during the three months ended March 31, 2024:

 

             
   Lot Sale Obligations 
   Lot Sale Obligations   Debt Discount   Lot Sale Obligations, net of discount 
Balance at December 31, 2023  $605,096   $(64,068)  $541,027 
Portion of lot deposits refunded   (25,000)   -    (25,000)
Amortization of debt discount   -    19,355    19,355 
Balance at March 31, 2024  $580,096   $(44,713)  $535,382 

 

Lot Sale Obligations

 

During the fourth quarter of 2023, the Company entered into agreements (each, a “Lot Deposit Agreement”) with five investors in the Company (each, a “Purchaser”) , pursuant to which (1) each Purchaser agreed to purchase either two or three real estate lots at a purchase price of $50,000 per lot and pay the full purchase price (the “Purchase Amount”) for the purchased lots, (2) each Purchaser has the right to rescind the Lot Deposit Agreement at any time between twelve months from the date of the Lot Deposit Agreement but prior to the closing of the lot sale. In the event of such rescission, the Company agrees to refund the deposit amount plus interest at a rate of 8.5% compounded quarterly and agrees to transfer title to one residential lot of the Purchaser’s choosing within 30 calendar days of receiving the Purchaser’s written notice to rescind.

 

17

 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

During the fourth quarter of 2023, the Company entered into Lot Deposit Agreements for the purchase of eleven real estate lots and received Purchase Amounts in the aggregate amount of $525,000, which is recorded as lot sale obligations on the accompanying consolidated balance sheet. A Purchase Amount of $25,000 is receivable as of March 31, 2024, and will be recorded as additional Lot Sale Obligation when received. The $80,096 aggregate cost of the lots to be transferred in the event of rescission of the Lot Deposit Agreements was recorded as a discount to the lot sale obligations and is being amortized over twelve months using the effective interest method.

 

Interest Expense on Lot Sale Obligations

 

The Company recorded interest expense in the amount of $29,943 related to lot sale obligations during the three months ended March 31, 2024, which consisted of $10,589 interest accrued at the stated rate of 8.5%, plus amortization of debt discount in the amount of $19,355. As of March 31, 2024 and December 31, 2023, there is accrued interest of $10,589 and $9,059, respectively, related to the Company’s lot sale obligations.

 

9. LOANS PAYABLE

 

The Company’s loans payable are summarized below:

 

   March 31,   December 31, 
   2024   2023 
         
EIDL  $89,612   $93,541 
2023 Loan   101,460    185,000 
Total Loans Payable   191,072    278,541 
Less: current portion   191,072    188,169 
Loans Payable, non-current  $-   $90,372 

 

2023 Loan

 

On January 9, 2023, the Company received $185,000 in proceeds on the issuance of a one-year, non-convertible promissory note with a January 9, 2024 maturity date. The note bears interest at a rate of 8% per annum. On February 22, 2024, the Company repaid principal and interest on the 2023 Loan in the amount of $83,540 and $16,460, respectively. The Company is in default with respect to the $101,460 principal that remains outstanding on the note.

 

EIDL Loan

 

On May 22, 2020, the Company received a loan in the principal amount of $94,000 (the “EIDL Loan”) pursuant to the Economic Injury Disaster Loan (“EIDL”) assistance program offered by the SBA in response to the impact of the COVID-19 pandemic on the Company’s business, which bears interest at 3.75% per annum. As of March 31, 2024, the balance on the EIDL Loan is $89,612. The Company is currently in default on the EIDL Loan, and the loan is payable upon demand.

 

18

 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Interest Expense on Loans Payable

 

The Company incurred interest expense related to the loans payable in the amount of $17,595 and $16,486 during the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024 and December 31, 2023, there is accrued interest of $43,851 and $38,787, respectively, related to the Company’s loans payable.

 

10. CONVERTIBLE DEBT OBLIGATIONS

 

2023 Convertible Note

 

Effective February 5, 2024, the Investor in the 2023 Convertible Note (the “2023 Note”) elected to increase the cap on its beneficial ownership of the Company from 4.99% to 9.99% effective on the sixty-first day after such notice was delivered to the Company, pursuant to the terms of the 2023 Note.

 

The 2023 Convertible Note is convertible at the Event of Default conversion price, equal to the lessor of a) $13.40 (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 $2.70. If the conversion price in effect on the date of conversion is less than $2.70, the Investor is entitled to a cash true up payment equal to the difference between the conversion dollar amount and the value of shares issued upon conversion. As of March 31, 2024 and December 31, 2023, the Company has accrued $1,484,677 of cash true up payments as the result of 2023 Convertible Note principal and interest converted at the floor price in effect at the date of conversion.

 

On February 21, 2024, the Company received an Event of Default Redemption Notice from the Investor, demanding immediate payment of principal, interest and redemptions premiums owed under the 2023 Note equal to a minimum of $3,437,646. On February 28, 2024, the Company received a second Event of Default Redemption Notice from the Investor providing notice of an additional Event of Default in connection with the 2023 Note demanding immediate payment of principal interest and redemption premiums equal to a minimum of $3,450,711. On March 6, 2024, the Company received an Event of Default notice from the Investor demanding immediate payment of principal, interest and redemptions premiums owed under the 2023 Note equal to a minimum of $3,460,510.

 

There were no repayments or conversions of the 2023 Note during the three months ended March 31, 2024.

 

Derivative Liability

 

The Event of Default Conversion Price represents a redemption feature, which was bifurcated from the 2023 Note host and recorded as a derivative liability. During the three months ended March 31, 2024, the Company has recorded $80,590 in connection with the change in fair value of the derivative liability, which represents the difference between shares issuable upon conversion with no event of default, and the value of shares issuable upon conversion of debt at the Event of Default Conversion Price.

 

19

 

 

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

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 at January 1, 2024  $738,140 
Add: fair value of derivative associated with convertible interest accrued during the period   80,590 
Balance at March 31, 2024  $818,730 

 

Interest Expense on Convertible Debt Obligations

 

The Company incurred total interest expense of approximately $359,042 and $566,041 related to its convertible debt obligations during the three months ended March 31, 2024 and 2023, respectively.

 

Interest expense during the three months ended March 31, 2024 consisted of (i) $84,247 of interest and make-whole interest accrued at stated interest rates and (ii) $274,795 of amortization of debt discount. Interest expense during the three months ended March 31, 2023 consisted of approximately (i) $203,875 of interest and make-whole interest accrued at stated interest rates; and (ii) $362,166 of amortization of debt discount. As of March 31, 2024 and December 31, 2023, there is accrued interest of $175,740 and $91,494, respectively, related to the Company’s convertible debt obligations.

 

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 table presents segment information for the three months ended March 31, 2024 and 2023:

 

                                 
   For the Three Months Ended March 31, 2024   For the Three Months Ended March 31, 2023 
   Real               Real             
   Estate   Fashion           Estate   Fashion         
   Development   (e-commerce)   Corporate   TOTAL   Development   (e-commerce)   Corporate   TOTAL 
Revenues  $532,437   $            54,941   $-   $587,378   $382,385   $            65,382   $-   $447,767 
Revenues from Foreign Operations  $532,437   $-   $-   $