6. 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.

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Investments at Fair Value:

SCHEDULE OF INVESTMENTS AT FAIR VALUE 

A reconciliation of Level 3 assets is as follows:

SCHEDULE OF FAIR VALUE, ASSETS MEASURED ON RECURRING BASIS 

Investment at December 31, 2020 consists of the Company’s investment in an Argentine government bond, purchased by the Company on December 3, 2019. The bond had an effective interest rate of 48% per annum and matured on December 31, 2020. There were no material unrealized gains or losses related to the Argentine government bond during the year ended December 31, 2020. The bond was purchased to settle specific Argentine taxes with interest and penalties, of which the majority of the amount was used on the date of purchase. During 2020, the Company issued a legal claim with the government to seek a resolution to apply the remaining amount to another debt or to receive a refund. As of December 31, 2021, this claim has not been resolved, and management has deemed the carrying value of the bond to be unrecoverable and has recorded a reserve for the full amount of the bond.

Investment – related parties at December 31, 2020, consisted of retained certain affiliate warrants which are marked to market at each reporting date using the Black-Scholes option pricing model. The Company recorded unrealized losses on the affiliate warrants of $457 and $3,013 during the twelve months ended December 31, 2021 and 2020, respectively, which are included in revenues on the accompanying consolidated statements of operations.

The carrying amounts of the Company’s short-term financial instruments including cash, accounts receivable, advances and loans to employees, accounts payable, accrued expenses and other liabilities fair value due to the short-term nature of these instruments. The carrying value of the Company’s loans payable, debt obligations and convertible debt obligations approximate fair value, as they bear terms and conditions comparable to market, for obligations with similar terms and maturities.

See Note 14, Related Party Transactions for details regarding the balance of Investment – Related Parties as of December 31, 2021.

GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS