8. RELATED PARTY TRANSACTIONS

Assets

Accounts receivable – related parties in the amounts of $741,495 and $252,852 at September 30, 2021 and December 31, 2020, respectively, represent the net realizable value of advances made to related, but independent, entities under common management. See Expense Sharing below.

See Note 4 – Fair Value of Financial Instruments, for a discussion of the Company’s investment in warrants of a related, but independent, entity. See Note 13 – Commitments and Contingencies - Amended and Restated Limited Liability Company Agreement for details surrounding the related party transaction involving a Company director.

Expense Sharing

On April 1, 2010, the Company entered into an agreement with a Related Party to share expenses such as office space, support staff and other operating expenses (the “Related Party ESA”). The agreement was amended on January 1, 2017 to reflect the current use of personnel, office space, professional services. During the three and nine months ended September 30, 2021, the Company recorded a contra-expense of $193,801 and $439,605, respectively, and during the three and nine months ended September 30, 2020, the Company recorded a contra-expense of $145,777 and $489,634, respectively, related to the reimbursement of general and administrative expenses as a result of the agreement. As of September 30, 2021 and December 31, 2020, the Company had accounts receivable – related parties, net of allowance of $741,495 and $252,852, respectively.

The Company had an expense sharing agreement with a different related entity to share expenses such as office space and other clerical services which was terminated in August 2017. The owners of more than 5% of that entity include (i) GGH’s chairman, and (ii) a more than 5% owner of GGH. The balance owed to the Company under this expense sharing agreement as of September 30, 2021 is $339,503, of which, the entire balance is deemed unrecoverable and is reserved.

Amended and Restated Limited Liability Company Agreement

On June 16, 2021, the Company, through its wholly owned subsidiary, GVI, entered into the Amended and Restated Limited Liability Company Agreement (the “LLC Agreement”) of LVH Holdings LLC (“LVH”). LVH was organized on May 24, 2021 pursuant to the Delaware Limited Liability Act (the “Delaware Act”) with a sole member of SLVH LLC, a Delaware limited liability company (“SLVH”).

William Allen, a director of the Company, is the managing member of SLVH and holds a 20% membership interest in SLVH. Pursuant to the Company’s Related Party Transactions Policy, adopted as amended on March 25, 2021 by the Board of Directors of the Company (the “Board”), Mr. Allen is considered a related party with respect to this transaction and provided notice of his interest to the Board. The disinterested members of the Board unanimously approved the transaction pursuant to such Related Party Transactions Policy and the Code of Business Conduct and Ethics and Whistleblower Policy, also adopted by the Board on March 25, 2021.

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Capital contributions

Concurrently with the execution and delivery of the LLC Agreement, GVI shall make an initial capital contribution to LVH, in cash, in the amount of exactly $1 million and receive 56.6 limited liability company interests (the “Units”) in LVH. On July 16, 2021, the Company made an additional capital contribution to LVH in the amount of $2.5 million and received additional 141.4 Units. As of September 30, 2021, such $3,500,000 capital contribution was included within investment – related parties on the condensed consolidated balance sheet. The Company has applied equity method accounting to its investment in LVH. During the period ended September 30, 2021, the Company did not recognize a gain or loss on its equity method investment in LVH as the activity during the period was de minimis. As of September 30, 2021, the Company is currently renegotiating the agreement with LVH on the capital contribution plan described below. Subsequently, on November 10, 2021, the Company made an additional capital contribution to LVH in the amount of $3.5 million and received an additional 198 Units.

Additional required contributions by GVI are as follows:

Failure to make timely capital contributions

If GVI does not timely make any of the required contributions on or prior to the applicable dates, then GVI will be a passive investor in the Company with no rights except as expressly required by applicable law.