Exhibit 10.5
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 of | (I.R.S. Employer | |
| 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 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 16, 2021, there were shares of common stock outstanding.
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net of allowance of
$ | ||||||||
| Accounts receivable - related
parties, net of allowance of $ | ||||||||
| Subscription receivable | - | |||||||
| Advances to employees | ||||||||
| Inventory | ||||||||
| Real estate lots held for sale | ||||||||
| Operating lease right-of-use asset, current portion | - | |||||||
| Investment | ||||||||
| Deposits, current | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Long Term Assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use asset, non-current portion | - | |||||||
| Prepaid foreign taxes, net | ||||||||
| Investment - related parties | ||||||||
| Deferred offering costs | ||||||||
| Deposits, non-current | - | |||||||
| Total Assets | $ | $ | ||||||
See notes to the condensed consolidated financial statements.
| 1 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (unaudited) | ||||||||
| Liabilities, Temporary Equity and Stockholders’ Equity (Deficiency) | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses, current portion | ||||||||
| Deferred revenue | ||||||||
| Operating lease liabilities, current portion | - | |||||||
| Loans payable, current portion | ||||||||
| Debt obligations | ||||||||
| Investor deposits | ||||||||
| 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 | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 13) | ||||||||
| Series B convertible
redeemable preferred stock, par value $ per share; shares authorized; and issued and outstanding at June 30, 2021 and December 31, 2020, respectively | - | |||||||
| Stockholders’ Equity (Deficiency) | ||||||||
| Preferred stock, shares authorized: | ||||||||
| Series A convertible
preferred stock, par value $ per share; shares authorized; shares are available for issuance | ||||||||
| Common stock, par value
$ per share; shares authorized; and shares issued and and shares outstanding as of June 30, 2021 and December 31, 2020, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Treasury stock, at cost, shares at June 30, 2021 and December 31, 2020 | ( | ) | ( | ) | ||||
| Total Gaucho Group Holdings, Inc. Stockholders’ Equity (Deficiency) | ( | ) | ||||||
| Non-controlling interest | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity (Deficiency) | ( | ) | ||||||
| Total Liabilities, Temporary Equity and Stockholders’ Equity (Deficiency) | $ | $ | ||||||
See notes to the condensed consolidated financial statements.
| 2 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| 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 expense, net | ||||||||||||||||
| Forgiveness of PPP Loan | - | - | ( | ) | - | |||||||||||
| Gains from foreign currency translation | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other expense (income) | ( | ) | ||||||||||||||
| Net Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to non-controlling interest | ||||||||||||||||
| Series B preferred stock dividends | - | ( | ) | - | ( | ) | ||||||||||
| Net Loss Attributable to Common Stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net Loss per Common Share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted Average Number of Common Shares Outstanding: | ||||||||||||||||
| Basic and Diluted | ||||||||||||||||
See notes to the condensed consolidated financial statements.
| 3 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited)
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive income: | ||||||||||||||||
| Foreign currency translation adjustments | ||||||||||||||||
| Comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive loss attributable to non-controlling interests | ||||||||||||||||
| Comprehensive loss attributable to controlling interests | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
See notes to the condensed consolidated financial statements.
| 4 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN TEMPORARY EQUITY AND
STOCKHOLDERS’ EQUITY (DEFICIENCY)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021
(unaudited)
| Series
B Convertible | Accumulated | Gaucho Group | Total | |||||||||||||||||||||||||||||||||||||||||||||
| Redeemable | Additional | Other | Holdings | Non- | Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Treasury Stock | Paid-In | Comprehensive | Accumulated | Stockholders’ | controlling | (Deficiency) | ||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Deficiency | Interest | Equity | |||||||||||||||||||||||||||||||||||||
| Balance - January 1, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Stock-based compensation: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Options and warrants | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Common stock and warrants issued for cash, in public offering, net of offering costs [1] | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Common stock and warrants issued for cash | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Common stock and warrants issued to underwriter in public offering | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||
| Common stock and warrants issued upon exchange of debt and accrued interest | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Common stock issued upon conversion of Series B Convertible Preferred Stock | ( | ) | ( | ) | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||
| Effect of reverse stocksplit | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||
| Comprehensive loss: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||
| Balance - March 31, 2021 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Options and warrants | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued to placement agent as commitment fees | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Common stock issued for cash, net of offering costs [2] | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Comprehensive loss: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||
| Balance - June 30, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||
| [1] |
| [2] |
See Notes to the Condensed Consolidated Financial Statements
| 5 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN TEMPORARY EQUITY AND
STOCKHOLDERS’ DEFICIENCY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020
(unaudited)
| Series B Convertible | Accumulated | Gaucho Group | ||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable | Additional | Other | Holdings | Non | Total | |||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Treasury Stock | Paid-In | Comprehensive | Accumulated | Stockholders’ | controlling | Stockholders’ | ||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Deficiency | Interest | Deficiency | |||||||||||||||||||||||||||||||||||||
| Balance - January 1, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||||||||
| Options and warrants | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive loss: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Balance - March 31, 2020 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Options and warrants | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of preferred stock | ( | ) | ( | ) | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Comprehensive loss: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Balance - June 30, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
See Notes to the 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, | ||||||||
| 2021 | 2020 | |||||||
| 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 | ||||||||
| Options | ||||||||
| Gain on foreign currency translation | ( | ) | ( | ) | ||||
| Unrealized investment losses (gains) | ( | ) | ||||||
| Depreciation and amortization | ||||||||
| Amortization of right-of-use asset | ||||||||
| Amortization of debt discount | - | |||||||
| Provision for (recovery of) uncollectible assets | ( | ) | ||||||
| Loss on derecognition of right-of-use asset and lease liabilities | - | |||||||
| Forgiveness of PPP Loan | ( | ) | - | |||||
| Decrease (increase) in assets: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| 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 Flows from Investing Activities | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Purchase of investment - related parties | ( | ) | - | |||||
| Net Cash Used in Investing Activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from loans payable | - | |||||||
| Proceeds from loans payable - related parties | - | |||||||
| Repayments of loans payable | ( | ) | ( | ) | ||||
| Repayments of loans payable - related parties | - | ( | ) | |||||
| Proceeds from convertible debt obligations | - | |||||||
| Repayments of debt obligations | ( | ) | - | |||||
| Proceeds from underwritten public offering, net of offering costs [1] | - | |||||||
| Payment of offering costs | ( | ) | - | |||||
| Proceeds from common stock issued for cash | - | |||||||
| Proceeds from sale of common stock and warrants | - | |||||||
| Proceeds from PPP Loan | - | |||||||
| Proceeds from SBA Economic Injury Disaster Loan | - | |||||||
| Repurchase of preferred stock | - | ( | ) | |||||
| Net Cash Provided by Financing Activities | ||||||||
| Effect of Exchange Rate Changes on Cash | ||||||||
| Net Increase in Cash | ||||||||
| Cash - Beginning of Period | ||||||||
| Cash - End of Period | $ | $ | ||||||
| [1] |
See notes to the condensed consolidated financial statements.
| 7 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
| For the Six Months Ended | ||||||||
| June 30, | ||||||||
| 2021 | 2020 | |||||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Non-Cash Investing and Financing Activity | ||||||||
| Common stock and warrants issued upon exchange of debt and accrued interest | $ | $ | ||||||
| Series B Preferred stock converted to common stock | $ | $ | ||||||
| Reclassification of deferred offering cost to additional paid in capital | $ | $ | ||||||
| Common stock and warrants issued to underwriter in public offering | $ | $ | ||||||
| Common stock issued for subscription receivable | $ | $ | ||||||
| Accrual of offering costs | $ | $ | ||||||
| Common stock issued to placement agent as commitment fees | $ | $ | ||||||
| Right-of-use assets obtained in exchange for lease obligations | $ | $ | ||||||
See notes to the condensed consolidated financial statements.
| 8 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BUSINESS ORGANIZATION, NATURE OF OPERATIONS, RISKS AND UNCERTAINTIES AND REVERSE STOCK SPLIT
Organization and Operations
Through its subsidiaries, Gaucho Group Holdings, Inc. (“Company”, “GGH”), a Delaware corporation that was incorporated on April 5, 1999, currently invests in, develops, and operates a collection of luxury assets, including real estate development, fine wines, and a boutique hotel in Argentina, as well as an e-commerce platform for the sale of high-end fashion and accessories.
As
wholly owned subsidiaries of GGH, InvestProperty Group, LLC (“IPG”) and Algodon Global Properties, LLC (“AGP”)
operate as holding companies that invest in, develop and operate global real estate and other lifestyle businesses such as wine production
and distribution, golf, tennis, and restaurants. GGH operates its properties through its ALGODON® brand. IPG and AGP have invested
in two ALGODON® brand projects located in Argentina. The first project is Algodon Mansion, a Buenos Aires-based luxury boutique hotel
property that opened in 2010 and is owned by the Company’s subsidiary, The Algodon – Recoleta, SRL (“TAR”). The
second project is the redevelopment, expansion and repositioning of a Mendoza-based winery and golf resort property now called Algodon
Wine Estates (“AWE”), the integration of adjoining wine producing properties, and the subdivision of a portion of this property
for residential development. GGH also holds a
Risks and Uncertainties
In December 2019, the 2019 novel coronavirus (“COVID-19”) surfaced in Wuhan, China. The World Health Organization declared the outbreak as a global pandemic in March 2020. Recently, we temporarily closed our corporate office, as well as our hotel, restaurant, winery operations, and golf and tennis operations. Further, the outsourced factories which Gaucho ordered products have closed, borders for importing product have been impacted and the Gaucho fulfillment center is also closed. In response, we have reduced costs by negotiating out of our New York lease, renegotiating with our vendors, and implementing salary reductions. We have also created an e-commerce platform for our wine sales in response to the pandemic. On October 19, 2020, we re-opened our winery and golf and tennis facilities with COVID-19 measures implemented. Most recently, we reopened the Algodon Mansion as of November 11, 2020 with COVID-19 measures implemented. Additionally, the construction on homes were temporarily halted from March to September but has since resumed. The Company is continuing to monitor the outbreak of COVID-19 and the related business and travel restrictions, and changes to behavior intended to reduce its spread, and the related impact on the Company’s operations, financial position and cash flows, as well as the impact on its employees. Due to the rapid development and fluidity of this situation, the magnitude and duration of the pandemic and its impact on the Company’s future operations and liquidity is uncertain as of the date of this report. While there could ultimately be a material impact on operations and liquidity of the Company, at the time of issuance, the impact could not be determined. Our Buenos Aires hotel remains closed because Argentina’s international airport is closed to international flights. The San Rafael hotel and restaurant is closed for refurbishment.
| 9 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Reverse Stock Split
A
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
There have been no material changes to the significant accounting policies included in the audited consolidated financial statements as of December 31, 2020, and for the years then ended, which were included the Annual Report filed on Form 10-K on April 12, 2021, except as disclosed in this note.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company as of June 30, 2021 and for the three and six months ended June 30, 2021 and 2020. The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the operating results for the full year. It is suggested that these unaudited condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission (“SEC”) on April 12, 2021.
Liquidity
As
of June 30, 2021, the Company had cash and working capital of $
The Company expects that its cash on hand plus additional cash from the sales of common stock under the Purchase Agreement (see Note 10 – Temporary Equity and Stockholders’ Equity) will fund its operations for a least 12 months after the issuance date of these financial statements.
Since inception, the Company’s operations have primarily been funded through proceeds received in equity and debt financings. The Company believes it has access to capital resources and continues to evaluate additional financing opportunities. There is no assurance that the Company will be able to obtain funds on commercially acceptable terms, if at all. There is also no assurance that the amount of funds the Company might raise will enable the Company to complete its development initiatives or attain profitable operations.
The Company’s operating needs include the planned costs to operate its business, including amounts required to fund working capital and capital expenditures. The Company’s future capital requirements and the adequacy of its available funds will depend on many factors, including the Company’s ability to successfully commercialize its products and services, competing technological and market developments, and the need to enter into collaborations with other companies or acquire other companies or technologies to enhance or complement its product and service offerings.
Highly Inflationary Status in Argentina
The
Company recorded gains on foreign currency transactions during the three and six months ended June 30, 2021, of $
| 10 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Concentrations
The
Company maintains cash with major financial institutions. Cash held in US bank institutions is currently insured by the Federal Deposit
Insurance Corporation (“FDIC”) up to $
Revenue Recognition
The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. ASC Topic 606 provides a single comprehensive model to use in accounting for revenue arising from contracts with customers, and gains and losses arising from transfers of non-financial assets including sales of property and equipment, real estate, and intangible assets.
The Company earns revenues from the sale of real estate lots and sales of food and wine as well as hospitality, food & beverage, other related services, and from the sale of clothing and accessories. The Company recognizes revenue when goods or services are transferred to customers in an amount that reflects the consideration which it expects to receive in exchange for those goods or services. In determining when and how revenue is recognized from contracts with customers, the Company performs the following five-step analysis: (i) identification of contract with customer; (ii) determination of performance obligations; (iii) measurement of the transaction price; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
The following table summarizes the revenue recognized in the Company’s condensed consolidated statements of operations:
| For The Three Months Ended | For The Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Hotel rooms and events | $ | $ | $ | $ | ||||||||||||
| Restaurants | ||||||||||||||||
| Winemaking | ||||||||||||||||
| 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 recognize revenue for the portion of gift card values that is not expected to be redeemed (“breakage”) due to the lack of historical data. Revenue from real estate lot sales is recorded when the lot is deeded, and legal ownership of the lot is transferred to the customer.
| 11 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The timing of the Company’s revenue recognition may differ from the timing of payment by its customers. A receivable is recorded when revenue is recognized prior to payment and the Company has an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, the Company records deferred revenue until the performance obligations are satisfied. Deferred revenues associated with real estate lot sale deposits are recognized as revenues (along with any outstanding balance) when the lot sale closes, and the deed is provided to the purchaser. Other deferred revenues primarily consist of deposits accepted by the Company in connection with agreements to sell barrels of wine, advance deposits received for grapes and other agricultural products, and hotel deposits. Wine barrel and agricultural product advance deposits are recognized as revenues (along with any outstanding balance) when the product is shipped to the purchaser. Hotel deposits are recognized as revenue upon occupancy of rooms, or the provision of services.
Contracts related to the sale of wine, agricultural products and hotel services have an original expected length of less than one year. The Company has elected not to disclose information about remaining performance obligations pertaining to contracts with an original expected length of one year or less, as permitted under the guidance.
As
of June 30, 2021 and December 31, 2020, the Company had deferred revenue of $
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.
| June 30, | ||||||||
| 2021 | 2020 | |||||||
| Options | ||||||||
| Warrants | ||||||||
| Series B convertible preferred stock | ||||||||
| Convertible debt | [1] | |||||||
| Total potentially dilutive shares | ||||||||
| [1] |
New Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. The Company adopted ASU 2019-12 effective January 1, 2021, which did not have a material effect on the Company’s condensed consolidated financial statements.
| 12 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. The update also requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share. The new guidance is effective for annual periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. This update can be adopted on either a fully retrospective or a modified retrospective basis. The Company adopted ASU 2020-06 effective January 1, 2021, which did not have a material effect on the Company’s condensed consolidated financial statements.
In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which updates various codification topics by clarifying or improving disclosure requirements to align with the SEC’s regulations. The guidance is effective for the Company beginning in the first quarter of fiscal year 2022 with early adoption permitted. The Company adopted ASU 2020-10 effective January 1, 2021, which did not have a material effect on the Company’s condensed consolidated financial statements.
On May 3, 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. This standard is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Issuers should apply the new standard prospectively to modifications or exchanges occurring after the effective date of the new standard. Early adoption is permitted, including adoption in an interim period. If an issuer elects to early adopt the new standard in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The Company is evaluating this new standard but does not expect it to have a material impact on the Company’s condensed consolidated financial statements or disclosures.
3. INVENTORY
Inventory at June 30, 2021 and December 31, 2020 was comprised of the following:
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Vineyard in process | $ | $ | ||||||
| Wine in process | ||||||||
| Finished wine | ||||||||
| Clothes and accessories | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
| 13 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
4. 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.
Investments at Fair Value:
| As of June 30, 2021 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Warrants - Affiliates | $ | $ | $ | $ | ||||||||||||
| Government Bond | ||||||||||||||||
| As of December 31, 2020 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Warrants - Affiliates | $ | $ | $ | $ | ||||||||||||
| Government Bond | ||||||||||||||||
A reconciliation of Level 3 assets is as follows:
| Warrants - Affiliates | ||||
| Balance - January 1, 2021 | $ | |||
| Unrealized loss | ( | ) | ||
| Balance - June 30, 2021 | $ | |||
Investment
at June 30, 2021, consisted of the Company’s investment in an Argentine government bond, purchased by the Company on December 3,
2019. The bond had an effective interest of
| 14 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The
Company recorded unrealized losses on the affiliate warrants of $
5. ACCRUED EXPENSES
Accrued expenses were comprised of the following as of:
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| 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 | $ | $ | ||||||
6. LOANS PAYABLE
The Company’s loans payable are summarized below:
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| PPP Loan | $ | $ | ||||||
| EIDL | ||||||||
| 2020 Demand Loan | ||||||||
| 2018 Loan | ||||||||
| 2017 Loan | ||||||||
| Land Loan | ||||||||
| Total Loans Payable | ||||||||
| Less: current portion | ||||||||
| Loans Payable, non-current | $ | $ | ||||||
During
the six months ended June 30, 2021, the Company made principal payments on loans payable in the aggregate of $
The
Company incurred interest expense related to the loans payable in the amount of $
| 15 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
7. DEBT OBLIGATIONS
The Company’s debt obligations are summarized below:
| June 30, 2021 | December 31, 2020 | |||||||||||||||||||||||
| Principal | Interest [1] | Total | Principal | Interest [1] | Total | |||||||||||||||||||
| 2010 Debt Obligations | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| 2017 Notes | ||||||||||||||||||||||||
| Gaucho Notes | ||||||||||||||||||||||||
| Total Debt Obligations | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| [1] |
Each
of the debt obligations listed above are past due and are payable on demand. The Company incurred interest expense of $
The
Company repaid principal and interest of $
On
January 8, 2021, the Company issued shares of common stock and warrants to purchase
8. RELATED PARTY TRANSACTIONS
Assets
Accounts
receivable – related parties in the amounts of $
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 six months ended June 30, 2021, the Company recorded a contra-expense
of $
| 16 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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
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
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 $
Subsequently,
on July 16, 2021, the Company made an additional capital contribution to LVH in the amount of $
Additional required contributions by GVI are as follows:
| ● | Simultaneously
with or after a subsequent capital contribution by SLVH and sixty (60) days after the date of the LLC Agreement (the “Second
Outside Date”), GVI shall make an additional capital contribution of $ | |
| ● | On
or before thirty (30) days after the Second Outside Date (the “Third Outside Date”), GVI shall make an additional capital
contribution to LVH, in cash, in the amount of $ | |
| ● | On
or before the date that is ninety (90) days after the Third Outside Date (the “Fourth Outside Date”), GVI shall make
an additional capital contribution to LVH, in cash, in the amount of $ | |
| ● | On
or before the date that is ninety (90) days after the Fourth Outside Date (the “Fifth Outside Date”), GVI shall make
an additional capital contribution to the Company, in cash, in the amount of $ |
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.
| 17 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
9. 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 three and six months ended June
30, 2021, the Company recorded a charge associated with its contribution of $
Series B Preferred Stock
The
Series B stockholders are entitled to cumulative cash dividends at an annual rate of
Effective February 16, 2021, as a result of the listing of the Common Stock on Nasdaq, all outstanding shares of Series B preferred stock were converted into shares of Common Stock. As of June 30, 2021, there were $0 of cumulative unpaid cash dividends.
Common Stock
Effective
February 16, 2021, the Company filed an Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”)
with
There were no fractional shares issued as a result of the Reverse Split. All fractional shares as a result of the Reverse Split were rounded up to the nearest whole number. The total number of the Company’s authorized shares of Common Stock or preferred stock was not be affected by the foregoing. As a result, after giving effect to the Reverse Split, the Company remains authorized to issue a total of shares of Common Stock.
Units
See Note 7 – Debt Obligations for details of additional issuances of units.
On
January 8, 2021, the Company issued an aggregate of shares of common stock and warrants to purchase
| 18 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Public Offering
On
February 19, 2021, the Company closed an underwritten public offering of Units at an offering price of $ per Unit. The Company sold
and issued an aggregate of shares of common stock and warrants at an exercise price of $
Due
to the successful closing of the public offering, shares of the Company’s common stock previously issued to Kingswood Capital
Markets became fully vested on February 19, 2021. As a result, the Company recognized the fair value of $
Common Stock Purchase Agreement and Registration Rights Agreement
On
May 6, 2021, the Company entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) and a Registration Rights
Agreement (the “Registration Rights Agreement”) with Tumim Stone Capital LLC (“Tumim Stone Capital”). Pursuant
to the Purchase Agreement, the Company has the right to sell to Tumim Stone Capital up to $
Although
the Purchase Agreement provides that the Company may sell up to an aggregate of $
| 19 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The
purchase price of the shares of common stock that the Company elects to sell to Tumim Stone Capital pursuant to a Fixed Purchase under
the Purchase Agreement will be determined by reference to the market prices of the common stock during the applicable Fixed Purchase
Valuation Period for such Fixed Purchase as set forth in the Purchase Agreement, less a fixed
In
connection with the Tumim Stone Capital transaction, the Company engaged Kingswood Capital Markets, division of Benchmark Investments,
Inc. (“Kingswood”), as a placement agent to help raise capital. The Company has agreed to pay Kingswood a fee of
Between
June 10, 20201 and June 30, 2021, the Company sold an aggregate of shares of the Company’s common stock to Tumim Stone
Capital for gross proceeds of $
Warrants
See Note 7 – Debt Obligations and elsewhere in Note 10 – Temporary Equity and Stockholders’ Equity for details on the issuances of warrants.
| Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Life in Years | Intrinsic Value | |||||||||||||
| Outstanding, January 1, 2021 | $ | |||||||||||||||
| Issued | ||||||||||||||||
| Exercised | ||||||||||||||||
| Cancelled | ||||||||||||||||
| Expired | ( | ) | ||||||||||||||
| Outstanding, June 30, 2021 | $ | $ | ||||||||||||||
| Exercisable, June 30, 2021 | $ | $ | ||||||||||||||
| 20 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
| Warrants Outstanding | Warrants Exercisable | |||||||||||||||
| Exercise Price | Exercisable Into | Outstanding Number of Warrants | Weighted Average Remaining Life in Years | Exercisable Number of Warrants | ||||||||||||
| $ | ||||||||||||||||
| $ | ||||||||||||||||
| $ | ||||||||||||||||
| $ | ||||||||||||||||
| Total | ||||||||||||||||
Stock Options
During the three and six months ended June 30, 2021, the Company recorded stock-based compensation expense of $ and $, respectively, and during the three and six months ended June 30, 2020, the Company recorded stock-based compensation expense of $ and $, respectively related to the amortization of stock option grants, which is reflected in general and administrative expenses in the accompanying condensed consolidated statements of operations. As of June 30, 2021, there was $ of unrecognized stock-based compensation expense related to stock option grants that will be amortized over a weighted average period of years.
11. LEASES
On
April 8, 2021, GGI entered into a lease agreement to lease a retail space in Miami, Florida for
As of June 30, 2021, the Company had no leases that were classified as a financing lease. As of June 30, 2021, the Company did not have additional operating and financing leases that have not yet commenced.
Total
operating lease expenses were $
| 21 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Supplemental cash flows information related to leases was as follows:
| For the Six Months Ended | ||||||||
| June 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | $ | $ | ||||||
| Right-of-use assets obtained in exchange for lease obligations: | ||||||||
| Operating leases | $ | $ | ||||||
| Weighted Average Remaining Lease Term: | ||||||||
| Operating leases | | | ||||||
| Weighted Average Discount Rate: | ||||||||
| Operating leases | % | % | ||||||
12. SEGMENT DATA
The
Company’s financial position and results of operations are classified into
| ● | Real Estate Development, through AWE, TAR, and GVI, 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. |
| 22 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The Company has recast its financial information and disclosures for the prior period to reflect the segment disclosures as if the current presentation had been in effect throughout all periods presented. The following tables present segment information for the three and six months ended June 30, 2021 and 2020:
| For the Three Months Ended June 30, 2021 | For the Six Months Ended June 30, 2021 | |||||||||||||||||||||||||||||||
| Real Estate Development | Fashion (e-commerce) | Corporate(1) | TOTAL | Real Estate Development | Fashion (e-commerce) | Corporate(1) | TOTAL | |||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Revenues
from Foreign Operations | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Loss
from Operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||
| For the Three Months Ended June 30, 2020 | For the Six Months Ended June 30, 2020 | |||||||||||||||||||||||||||||||
| Real Estate Development | Fashion (e-commerce) | Corporate(1) | TOTAL | Real Estate Development | Fashion (e-commerce) | Corporate(1) | TOTAL | |||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Revenues
from Foreign Operations | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Loss
from Operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||
| (1) |
The following tables present segment information for June 30, 2021 and December 31, 2020:
| As of June 31, 2021 | As of December 31, 2020 | |||||||||||||||||||||||||||||||
| Real Estate Development | Fashion (e-commerce) | Corporate(1) | TOTAL | Real Estate Development | Fashion (e-commerce) | Corporate(1) | TOTAL | |||||||||||||||||||||||||
| Total Property and Equipment, net | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Total Property and Equipment, net in Foreign Countries | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Total Assets | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
13. COMMITMENTS AND CONTINGENCIES
Legal Matters
The Company is involved in litigation and arbitrations from time to time in the ordinary course of business. After consulting legal counsel, the Company does not believe that the outcome of any such pending or threatened litigation will have a material adverse effect on its financial condition or results of operations. However, as is inherent in legal proceedings, there is a risk that an unpredictable decision adverse to the Company could be reached. The Company records legal costs associated with loss contingencies as incurred. Settlements are accrued when, and if, they become probable and estimable.
14. SUBSEQUENT EVENTS
Management has evaluated all subsequent events to determine if events or transactions occurring through the date the condensed consolidated financial statements were issued, require adjustment to or disclosure in the accompanying condensed consolidated financial statements.
Foreign Currency Exchange Rates
The
Argentine peso to United States dollar exchange rate was 97.0398,
The
British pound to United States dollar exchange rate was 0.7228,
| 23 |
GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Employment Agreement
On July 5, 2021, all of the independent members of the Board of Directors approved the extension of Scott Mathis’ employment agreement with the Company, dated September 28, 2015 (the “Employment Agreement”) until October 31, 2021. All other terms of the Employment Agreement remain the same.
Common Stock
On July 5, 2021, the Company issued shares of common stock at $ per share in settlement of its matching obligations for the year ended December 31, 2020 under the Company’s 401(k) profit sharing plan.
On
July 12, 2021, the Company issued shares of common stock for gross proceeds of $
On July 21, 2021, the Company issued shares of common stock at $ per share pursuant to a service agreement with TraDigital Marketing Group.
Investment – Related Party
On
July 16, 2021, the Company made an additional capital contribution to LVH in the amount of $
Subscription Receivable
On July 6, 2021, the Company collected subscription receivable of $1,377,150.
| 24 |
Item 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included herein. In connection with, and because we desire to take advantage of, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain forward looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on our behalf. Words such as “anticipate,” “estimate,” “plan,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions are used to identify forward-looking statements. We disclaim any obligation to update forward-looking statements.
A 15:1 reverse stock split of the Company’s common stock was effected on February 16, 2021 (the “Reverse Stock Split”). All share and per share information has been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented, unless otherwise indicated.
Unless the context requires otherwise, references in this document to “GGH”, “we”, “our”, “us” or the “Company” are to Gaucho Group Holdings, Inc. and its subsidiaries.
Please note that because we qualify as an emerging growth company and as a smaller reporting company, we have elected to follow the smaller reporting company rules in preparing this Quarterly Report on Form 10-Q.
Overview
Gaucho Group Holdings, Inc. (“GGH” or the “Company”) positions its e-commerce leather goods, accessories, and fashion brand, Gaucho – Buenos Aires™, as one of luxury, creating a platform for the global consumer to access their piece of Argentine style and high-end products. With a concentration on leather goods, ready-to-wear and accessories, this is the luxury brand in which Argentina finds its contemporary expression. By the end of the third quarter of 2021, the Company anticipates launching Gaucho Casa, a Home & Living line of luxury textiles and home accessories, which will be marketed and sold on the Gaucho – Buenos Aires e-commerce platform and at the flagship retail location in Miami’s Design District shopping mall. Gaucho Casa challenges traditional lifestyle collections with its luxury textiles and home accessories rooted in the singular spirit of the gaucho aesthetic. GGH seeks to grow its direct-to-consumer online products to global markets in the United States, Asia, the United Kingdom, Europe, and Argentina. We intend to focus on e-commerce and scalability of the Gaucho – Buenos Aires and Gaucho Casa brands, as real estate in Argentina is politically sensitive.
GGH’s goal is to become recognized as the LVMH (“Louis Vuitton Moët Hennessy”) of South America’s leading luxury brands. Through one of its wholly owned subsidiaries, GGH also owns and operates legacy investments in the boutique hotel, hospitality and luxury vineyard property markets. This includes a golf, tennis and wellness resort, as well as an award winning, wine production company concentrating on Malbecs and Malbec blends. Utilizing these wines as its ambassador, GGH seeks to further develop its legacy real estate, which includes developing residential vineyard lots located within its resort.
Due to COVID-19, we have terminated the corporate office lease and senior management works remotely. GGH’s local operations are managed by professional staff with substantial hotel, hospitality and resort experience in Buenos Aires and San Rafael, Argentina.
| 25 |
Recent Developments and Trends
In January 2021, Wine Enthusiast rated and reviewed our Algodon 2012 PIMA Red Blend Mendoza and awarded it 91 points.
Public Offering
On February 19, 2021, we closed an underwritten public offering of Units at an offering price of $6.00 per Unit. We sold and issued an aggregate of 1,333,334 shares of common stock and 1,533,333 warrants at an exercise price of $6.00 per share for approximate gross and net proceeds of $8.0 million and $6.5 million, respectively, which includes offering costs of $1.5 million that include underwriting discounts and commissions and other offering expenses. In connection with the public offering, we issued the representative of such underwriters a common stock purchase warrant exercisable for up to 15,333 shares of common stock at an exercise price of $7.50 per share.
Due to the successful closing of the public offering, 54,154 shares of GGH’s common stock previously issued to Kingswood Capital Markets became fully vested on February 19, 2021.
Common Stock Purchase Agreement and Registration Rights Agreement
On May 6, 2021, the Company entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) and a Registration Rights Agreement (the “Registration Rights Agreement”) with Tumim Stone Capital LLC (“Tumim Stone Capital”). Pursuant to the Purchase Agreement, the Company has the right to sell to Tumim Stone Capital up to $50,000,000 (the “Total Commitment”) in shares of the Company’s common stock, subject to certain limitations and conditions set forth in the Purchase Agreement. The Company has the right, but not the obligation, from time to time at the Company’s sole discretion over a 36-month period from and after the commencement (the “Commencement Date”), to direct Tumim Stone Capital to purchase up to a fixed maximum amount of shares of Common Stock as set forth in the Purchase Agreement (each, a “Fixed Purchase”), on any trading day, so long as, in addition to other requirements set forth in the Purchase Agreement. In consideration for entering into the Purchase Agreement, the Company issued 120,337 shares of common stock (the “Commitment Shares”) to Tumim Stone Capital with an issuance date fair value of $500,000, which such issuance being recognized as a debit to additional paid-in capital.
Although the Purchase Agreement provides that the Company may sell up to an aggregate of $50,000,000 of the Company’s common stock to Tumim Stone Capital, only 1,494,404 shares of the Company’s common stock (representing the maximum number of shares the Company may issue and sell under the Purchase Agreement under the Exchange Cap limitation) have been registered for resale to-date, which includes the 120,337 Commitment Shares. If it becomes necessary for the Company to issue and sell to Tumim Stone Capital under the Purchase Agreement more shares than are being registered for resale under this prospectus in order to receive aggregate gross proceeds equal to the Total Commitment of $50,000,000 under the Purchase Agreement, the Company must first (i) obtain stockholder approval to issue shares of common stock in excess of the Exchange Cap under the Purchase Agreement in accordance with applicable Nasdaq rules, unless the average per share purchase price paid by Tumim Stone Capital for all shares of common stock sold under the Purchase Agreement equals or exceeds $4.002, in which case the Exchange Cap limitation will not apply under applicable Nasdaq rules, and (ii) file with the SEC one or more additional registration statements to register under the Securities Act the resale by Tumim Stone Capital of any such additional shares of the Company’s common stock the Company wishes to sell from time to time under the Purchase Agreement, which the SEC must declare effective, in each case before the Company may elect to sell any additional shares of the Company’s common stock to Tumim Stone Capital under the Purchase Agreement. The Purchase Agreement limits the sale of shares of the Company’s common stock to Tumim Stone Capital, and Tumim Stone Capital’s purchase or acquisition of common stock from the Company, to an amount of common stock that, when aggregated with all other shares of the Company’s common stock then beneficially owned by Tumim Stone Capital would result in Tumim Stone Capital having beneficial ownership, at any single point in time, of more than 4.99% of the then total outstanding shares of the Company’s common stock.
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The purchase price of the shares of common stock that the Company elects to sell to Tumim Stone Capital pursuant to a Fixed Purchase under the Purchase Agreement will be determined by reference to the market prices of the common stock during the applicable Fixed Purchase Valuation Period for such Fixed Purchase as set forth in the Purchase Agreement, less a fixed 7% discount. The purchase price of the shares of common stock that the Company elects to sell to Tumim Stone Capital pursuant to a VWAP Purchase under the Purchase Agreement will be determined by reference to the lowest daily volume weighted average price of the common stock during the three consecutive trading day-period immediately following the date on which we timely deliver the applicable VWAP Purchase notice for such VWAP Purchase to Tumim Stone Capital (the “VWAP Purchase Valuation Period”) as set forth in the Purchase Agreement, less a fixed 5% discount.
In connection with the Tumim Stone Capital transaction, the Company engaged Kingswood Capital Markets, division of Benchmark Investments, Inc. (“Kingswood”), as a placement agent to help raise capital. The Company has agreed to pay Kingswood a fee of 8% of the amount of the funds raised pursuant to the Purchase Agreement.
Between June 10, 20201 and June 30, 2021, the Company sold an aggregate of 489,400 shares of the Company’s common stock to Tumim Stone Capital for gross proceeds of $2,303,211 (of which, $1,377,150 is included in subscription receivable as of June 30, 2021 and was collected by the Company subsequent to June 30, 2021), less cash offering costs of $216,251 and non-cash offering costs of $500,000 related to the Commitment Shares.
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.
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. As of June 30, 2021, such $1,000,000 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 June 30, 2021, the Company did not recognize a gain or loss on its equity method investment in LVH.
Subsequently, 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.
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Additional required contributions by GVI are as follows:
| ● | Simultaneously with or after a subsequent capital contribution by SLVH and sixty (60) days after the date of the LLC Agreement (the “Second Outside Date”), GVI shall make an additional capital contribution of $6 million and shall receive an additional 339.4 Units; | |
| ● | On or before thirty (30) days after the Second Outside Date (the “Third Outside Date”), GVI shall make an additional capital contribution to LVH, in cash, in the amount of $5.5 million and shall receive an additional 311.2 Units; | |
| ● | On or before the date that is ninety (90) days after the Third Outside Date (the “Fourth Outside Date”), GVI shall make an additional capital contribution to LVH, in cash, in the amount of $10 million and shall receive an additional 565.7 Units; and | |
| ● | On or before the date that is ninety (90) days after the Fourth Outside Date (the “Fifth Outside Date”), GVI shall make an additional capital contribution to the Company, in cash, in the amount of $10 million and shall receive an additional 565.7 Units. |
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.
Restrictions on transfer
Unitholders generally may not transfer, sell, assign, pledge, hypothecate, give, grant or create a security interest in or lien on, place in trust (voting or otherwise), assign an interest in or in any other way encumber or dispose of, directly or indirectly and whether or not by operation of law or for value, any Units without the prior written consent of the Manager and Unitholders holding a majority of the issued and outstanding Units or in certain limited circumstances pursuant to the LLC Agreement.
The foregoing description of the LLC Agreement does not purport to be complete and is qualified in its entirety by reference to the complete text of the LLC Agreement.
Series B Preferred Stock Conversion
Effective February 16, 2021, as a result of the listing of the Common Stock on Nasdaq, all outstanding shares of Series B preferred stock were converted into 600,713 shares of Common Stock.
Unit Issuances
On January 8, 2021, we issued an aggregate of 73,167 shares of common stock and warrants to purchase 73,167 shares of common stock at an exercise price of $6.00 per share to accredited investors with a substantive pre-existing relationship with GGH for aggregate gross proceeds of $439,000.
Initiatives
We have implemented a number of initiatives designed to expand revenues and control costs. Revenue enhancement initiatives include expanding marketing, investment in additional winery capacity and developing new real estate development revenue sources. Our goal for 2021 and 2022 is to focus on actions that can result in immediate revenues, such as e-commerce sales, continued deeding of lots and real estate sales and greater distribution of our wines by supporting our importer and their network partners.
Cost reduction initiatives include investment in equipment that will decrease our reliance on subcontractors, plus outsourcing and restructuring of certain functions. Further, we have begun to reduce operational expenses by approximately $800,000 per year by reducing administrative costs including non-renewal of the lease in August 2020 for our New York headquarters and reduction in workforce hours and marketing expenses. Some of these significant savings will be immediate, others will be unfolding throughout time. Our goal is ultimately to reduce expenses of between $1-2 million in 2021. Our goal is to become more self-sufficient and less dependent on outside financing.
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In July 2021, Gaucho Holdings announced in a shareholder update the implementation of a complete beautification renovation and quality upgrades for numerous existing amenities and features at Algodon Wine Estates. These enhancements range from improved roads and entrance facades to guest experiences, the introduction of new products such as artisanal wine salts, as well as the continuation of Algodon’s olive oil program. Plans were also announced to build an artisanal distillery using Algodon’s estate grown fruits, and to cultivate a 10-hectare truffle forest giving Algodon’s guests and homeowners more unique experiences, among other improvements. Furthermore, the Company stated that it anticipates in Q3 it can deed and therefore recognize approximately $4-$6 million from the sale of between 20-30 lots at Algodon Wine Estates. Many of these sales began late in the second quarter of 2021 despite the reduced economic activity caused by the pandemic. The company also announced the engagement of the architectural planning and design firm, EDSA to enhance and further develop the existing masterplan of Algodon Wine Estates Private Estancias 4,138 acre luxury vineyard and golf development. This initiative includes laying the foundation for a partnership with a branded luxury name in hospitality to co-develop a boutique hotel and associated residences. The Masterplan expansion could potentially add an additional 500 homesites to the residential development.
In July 2021, Gaucho Holdings also announced it made a $2.5 million milestone payment to LVH Holdings LLC to advance a previously announced agreement to develop a project in Las Vegas, Nevada. The payment of $2.5 million is an installment in what is expected to be a total commitment of $35 million for a 40% ownership in a project that is expected to expand Gaucho Holdings’ brands in ways that could include opportunities in lodging, hospitality, retail, and gaming. SB Architects, an international architecture and design practice with offices in San Francisco, Miami and Shenzhen, leads the design of this project. Mark Advent, a partner in LVH holdings, and the creator of the highly popular New York New York hotel and casino, is the creative visionary working directly with SB Architects.
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Consolidated Results of Operations
Three months ended June 30, 2021 compared to three months ended June 30, 2020
Overview
We reported net losses of approximately $1.3 million and $1.5 million for the three months ended June 30, 2021 and 2020, respectively.
Revenues
Revenues from operations were approximately $340,000 and $117,000 during the three months ended June 30, 2021 and 2020, respectively, reflecting an increase of approximately $223,000 or 191%. Increases in real estate lot revenues of approximately $235,000, increase in agricultural revenues of approximately $65,000 resulting from the sale of grapes during the quarter, and increase in hotel, restaurant, and wine sales of approximately $75,000 resulting from the hotels reopening with COVID-19 measures implemented as a result of the COVID-19 pandemic and the Argentine government’s efforts to promote tourism and revitalize local businesses by subsidizing a portion of sales, which was partially offset by a decrease of approximately $177,000 resulting from the impact of the decline in the value of the Argentine peso vis-à-vis the U.S. dollar.
Gross profit
We generated a gross profit of approximately $60,000 for the three months ended June 30, 2021 as compared to a gross loss of approximately $124,000 for the three months ended June 30, 2020, representing an increase of $184,000 or 148%.
Cost of sales, which consists of real estate lots, raw materials, direct labor and indirect labor associated with our business activities, increased by approximately $39,000 from $241,000 for the three months ended June 30, 2020 to $280,000 for the three months ended June 30, 2021. The increase in cost of sales resulted from the increase in hotel, restaurant, real estate lot, and grape costs of approximately $152,000 which correspond to the increase in the related revenues as discussed above, partially offset by the decrease of approximately $135,000 resulting from the impact of the decline in the value of the Argentine peso vis-à-vis the U.S. dollar.
Selling and marketing expenses
Selling and marketing expenses were approximately $119,000 and $12,000 for the three months ended June 30, 2021 and 2020, respectively, representing an increase of $107,000 or 892% in 2021, primarily resulting from entering into new contracts during the three months ended June 30, 2021 related to investor and public relations.
General and administrative expenses
General and administrative expenses were approximately $1,206,000 and $1,253,000 for the three months ended June 30, 2021 and 2020, respectively, representing a decrease of $47,000 or 4%.
Depreciation and amortization expense
Depreciation and amortization expense was approximately $31,000 and $46,000 during the three months ended June 30, 2021 and 2020, respectively, representing a decrease of $15,000 or 33%.
Interest expense, net
Interest expense, net was approximately $33,000 and $91,000 during the three months ended June 30, 2021 and 2020, respectively, representing a decrease of $58,000 or 64%. The decrease is primarily related to the decrease in the average balance of debt outstanding during the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.
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Six months ended June 30, 2021 compared to six months ended June 30, 2020
Overview
We reported net losses of approximately $2.5 million and $2.8 million for the six months ended June 30, 2021 and 2020, respectively.
Revenues
Revenues from operations were approximately $615,000 and $414,000 during the six months ended June 30, 2021 and 2020, respectively, reflecting an increase of approximately $201,000 or 49%. Increases in real estate lot revenues of approximately $235,000, increase in agricultural revenues of approximately $65,000 resulting from the sale of grapes during the quarter, and increase in hotel, restaurant, and wine sales of approximately $179,000 resulting from the hotels reopening with COVID-19 measures implemented as a result of the COVID-19 pandemic and the Argentine government’s efforts to promote tourism and revitalize local businesses by subsidizing a portion of sales, which was partially offset by a decrease of approximately $304,000 resulting from the impact of the decline in the value of the Argentine peso vis-à-vis the U.S. dollar.
Gross profit
We generated a gross profit of approximately $176,000 for the six months ended June 30, 2021 as compared to a gross loss of approximately $76,000 for the six months ended June 30, 2020, representing an increase of $252,00 or 332%.
Cost of sales, which consists of real estate lots, raw materials, direct labor and indirect labor associated with our business activities, decreased by approximately $51,000 from $491,000 for the six months ended June 30, 2020 to $440,000 for the three months ended June 30, 2021. The decrease in cost of sales resulted from the decrease of approximately $211,000 resulting from the impact of the decline in the value of the Argentine peso vis-à-vis the U.S. dollar, which was partially offset by the increase in hotel, restaurant, real estate lot, and grape costs of approximately $155,000 which correspond to the increase in the related revenues as discussed above.
Selling and marketing expenses
Selling and marketing expenses were approximately $235,000 and $50,000 for the six months ended June 30, 2021 and 2020, respectively, representing an increase of $185,000 or 370% in 2021, primarily resulting from entering into new contracts during the six months ended June 30, 2021 related to investor and public relations.
General and administrative expenses
General and administrative expenses were approximately $2,564,000 and $2,482,000 for the six months ended June 30, 2021 and 2020, respectively, representing an increase of $82,000 or 3%.
Depreciation and amortization expense
Depreciation and amortization expense was approximately $68,000 and $93,000 during the six months ended June 30, 2021 and 2020, respectively, representing a decrease of $25,000 or 27%.
Interest expense, net
Interest expense, net was approximately $39,000 and $121,000 during the six months ended June 30, 2021 and 2020, respectively, representing a decrease of $82,000 or 68%. The decrease is primarily related to the decrease in the average balance of debt outstanding during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.
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Forgiveness of PPP Loan
We recognized a gain on forgiveness of PPP Loan of approximately $242,000 during the six months ended June 30, 2021.
Liquidity and Capital Resources
We measure our liquidity a variety of ways, including the following:
| June 30, 2021 | December 31, 2020 | |||||||
| (unaudited) | ||||||||
| Cash | $ | 3,215,580 | $ | 134,536 | ||||
| Working Capital (Deficiency) | $ | 4,948,342 | $ | (2,573,099 | ) | |||
| Loans Payable | $ | 375,006 | $ | 748,322 | ||||
| Debt Obligations | $ | 7,000 | $ | 1,270,354 | ||||
During the six months ended June 30, 2021 and 2020, we financed our activities from proceeds derived from debt and equity financings occurring in prior periods. A significant portion of the funds have been used to cover working capital needs and personnel, office expenses and various consulting and professional fees.
Net cash used in operating activities for the six months ended June 30, 2021 and 2020 amounted to approximately $3,965,000 and $2,036,000, respectively. During the six months ended June 30, 2021, the net cash used in operating activities was primarily attributable to the net loss of approximately $2,458,000 adjusted for approximately $195,000 of net non-cash expenses, and approximately $1,702,000 of cash used to fund changes in the levels of operating assets and liabilities. During the six months ended June 30, 2020, the net cash used in operating activities was primarily attributable to the net loss of approximately $2,802,000, adjusted for approximately $407,000 of net non-cash expenses, partially offset by approximately $359,000 of cash provided by changes in the levels of operating assets and liabilities.
Cash used in investing activities for the six months ended June 30, 2021 and 2020 amounted to approximately $1,224,000 and $17,000, respectively, which resulted from the purchase of property and equipment of $224,000 and $17,000, respectively, and, $1,000,000 and $0, respectively, related to the purchase of investment – related parties.
Net cash provided by financing activities for the six months ended June 30, 2021 and 2020 amounted to approximately $8,034,00 and $1,745,000, respectively. For the six months ended June 30, 2021, the net cash provided by financing activities resulted from approximately $7,287,000 of proceeds provided by the sale of common stock and warrants in a public offering, approximately $926,000 of proceeds provided by the sales of common stock to the placement agent under the Common Stock Purchase Agreement, and $439,000 from the proceeds from the sale of common stock and warrants to accredited investors, partially offset by debt and loan repayments of approximately $228,000 and payments of offering costs related to the public offering and the Common Stock Purchase Agreement of approximately $390,000. For the six months ended June 30, 2020, the net cash provided by financing activities resulted primarily from approximately $1,358,000 of proceeds from convertible debt obligations, approximately $267,000 and $28,000 from the proceeds from the issuance of related party loans and non-related party loans payable, respectively, approximately $242,000 of proceeds from the PPP Loan, and $94,000 of proceeds from the EIDL, partially offset by loan repayments of approximately $229,000 and the repurchase of preferred stock of $16,000 from a shareholder.
As of June 30, 2021, we had cash and working capital of $3,215,580 and $4,948,342, respectively. During the six months ended June 30, 2021, we incurred a net loss of $2,458,146.
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Subsequent to June 30, 2021, the Company collected subscription receivable of $1,377,150 and raised gross proceeds of $1,169,550 from the sale of its common stock. See Note 14 – Subsequent Events for details.
We expect that the cash on hand plus additional cash from the sales of common stock under the Purchase Agreement (see Note 10 – Temporary Equity and Stockholders’ Equity) will fund our operations for a least 12 months after the issuance date of these financial statements.
Since inception, our operations have primarily been funded through proceeds received in equity and debt financings. We believe we have access to capital resources and continue to evaluate additional financing opportunities. There is no assurance that we will be able to obtain funds on commercially acceptable terms, if at all. There is also no assurance that the amount of funds we might raise will enable us to complete our development initiatives or attain profitable operations.
Availability of Additional Funds
As a result of the above developments, we have been able to sustain operations. However, we will need to raise additional capital in order to meet our future liquidity needs for operating expenses and capital expenditures, including GGI inventory production, development of the GGI e-commerce platform, expansion of our winery and additional investments in real estate development. If we are unable to obtain adequate funds on reasonable terms, we may be required to significantly curtail or discontinue operations.
Off-Balance Sheet Arrangements
None.
Contractual Obligations
As a smaller reporting company, we are not required to provide the information requested by paragraph (a)(5) of this Item.
Critical Accounting Policies and Estimates
There are no material changes from the critical accounting policies, estimates and new accounting pronouncements set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in our Annual Report on Form 10-K filed with the SEC on April 12, 2021. Please refer to that document for disclosures regarding the critical accounting policies related to our business.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide the information required by this Item.
Item 4: Controls and Procedures
Disclosure Controls and Procedures
Our management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer (who is our Principal Executive Officer) and our Chief Financial Officer (who is our Principal Financial Officer and Principal Accounting Officer), of the effectiveness of the design of our disclosure controls and procedures (as defined by Exchange Act Rules 13a-15(e) or 15d-15(e)) as of June 30, 2021, pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2021.
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Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended June 30, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations of Controls
Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. Controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or deterioration in the degree of compliance with the policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time-to-time GGH and its subsidiaries and affiliates are subject to litigation and arbitration claims incidental to its business. Such claims may not be covered by its insurance coverage, and even if they are, if claims against GGH and its subsidiaries are successful, they may exceed the limits of applicable insurance coverage. After consulting legal counsel, we are not involved in any litigation that we believe is likely, individually or in the aggregate, to have a material adverse effect on our condensed consolidated financial condition, results of operations or cash flows.
Item 1A. Risk Factors
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item. However, our current risk factors are set forth in Item 1A of the Company’s Annual Report on Form 10-K as filed with the SEC on April 12, 2021 and from Item 1A of the Company’s Quarterly Report on Form 10-Q as filed with the SEC on May 17, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following is a summary of all securities that we have sold since April 1, 2021 without registration under the Securities Act of 1933, as amended (the “Securities Act”).
On May 6, 2021, the Company entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) and a Registration Rights Agreement (the “Registration Rights Agreement”) with Tumim Stone Capital LLC (“Tumim Stone Capital”). Pursuant to the Purchase Agreement, the Company has the right to sell to Tumim Stone Capital up to the lesser of (i) $50,000,000 of newly issued shares (the “Shares”) of the Company’s common stock, par value $0.01 per share, and (ii) the Exchange Cap (as defined below) (subject to certain conditions and limitations), from time to time during the term of the Purchase Agreement. Sales of common stock pursuant to the Purchase Agreement, and the timing of any sales, are solely at the option of the Company and the Company is under no obligation to sell securities pursuant to this arrangement.
Under the applicable rules of The Nasdaq Stock Market LLC (“Nasdaq”), in no event may the Company issue to Tumim Stone Capital under the Purchase Agreement more than 1,949,404 shares of its common stock (including the Commitment Shares), which represents 19.99% of the shares of the common stock outstanding immediately prior to the execution of the Purchase Agreement (the “Exchange Cap”), unless (i) the Company obtains stockholder approval to issue shares of common stock in excess of the Exchange Cap or (ii) the average price of all applicable sales of common stock to Tumim Stone Capital under the Purchase Agreement equals or exceeds $4.002, such that the transactions contemplated by the Purchase Agreement are exempt from the Exchange Cap limitation under applicable Nasdaq rules.
As consideration for Tumim Stone Capital’s irrevocable commitment to purchase shares of common stock upon the terms of and subject to satisfaction of the conditions set forth in the Purchase Agreement, concurrently with the execution and delivery of the Purchase Agreement, the Company issued to Tumim Stone Capital 120,337 shares of Common Stock (the “Commitment Shares”). No general solicitation was used, no commission was paid for the issuance of the Commitment Shares, and the Company relied on the exemption from registration available under Section 4(a)(2) and Rule 506(b) of Regulation D of the Securities Act, in connection with the sales. A Form D was filed with the SEC on May 17, 2021.
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In addition, the Company requested draw-downs pursuant to the Purchase Agreement and issued shares of common stock and received gross proceeds of the following: (i) June 10, 2021, the Company issued 20,000 shares of common stock to Tumim for gross proceeds of $77,138; (ii) June 15, 2021, the Company issued 20,000 shares of common stock to Tumim for gross proceeds of $78,124; (iii) June 22, 2021, the Company issued 74,700 shares of common stock to Tumim for gross proceeds of $386,953; (iv) June 25, 2021, the Company issued 74,700 shares of common stock to Tumim for gross proceeds of $383,846; (v) June 30, 2021, the Company issued 300,000 shares of common stock to Tumim for gross proceeds of $1,377,150; and (vi) July 12, 2021, the Company issued 300,000 shares of common stock to Tumim for gross proceeds of $1,169,550. No general solicitation was used, and a commission of 8% of the total gross proceeds was paid to Benchmark Investments, Inc. pursuant to the Underwriting Agreement between the Company and Kingswood Capital Markets, a division of Benchmark Investments, Inc. dated February 16, 2021. The Company relied on the exemptions from registration available under Section 4(a)(2) and/or Rule 506(b) of Regulation D of the Securities Act, in connection with the sales. A Form D was filed with the SEC on May 17, 2021.
On July 21, 2021, the Company issued 30,000 shares of common stock at $3.53 per share pursuant to a service agreement with TraDigital Marketing Group. For this sale of securities, no general solicitation was used, no commissions were paid, and the Company relied on the exemption from registration available under Section 4(a)(2) and/or Rule 506(b) of Regulation D promulgated under the Securities Act with respect to transactions by an issuer not involving any public offering. A Form D was filed with the SEC on August 12, 2021.
Item 3. Defaults upon Senior Securities
On March 31, 2017, the Company received a bank loan in the amount of $519,156 (ARS $8,000,000) (the “2017 Loan”). The loan bears interest at 24.18% per annum and became due on March 1, 2021. Due to the COVID-19, the bank extended the maturity date to March 31, 2021. Principal and interest will be paid in forty-two monthly installments beginning on October 1, 2017 and ending on March 1, 2021. During 2018, the Company defaulted on certain 2017 Loan payments, and as a result, the 2017 Loan is currently payable upon demand.
On January 25, 2018, the Company received a bank loan in the amount of $525,000 (the “2018 Loan”), denominated in U.S. dollars. The loan bears interest at 6.75% per annum and is due on January 25, 2023. Principal and interest will be paid in 60 equal monthly installments of $10,311, beginning on February 23, 2018. During 2018, the Company defaulted on certain 2018 Loan payments, and as a result, the 2018 Loan is currently payable upon demand.
As previously reported on the Company’s Annual Reports on Forms 10-K for the years ending December 31, 2017, December 31, 2018, and December 31, 2019, the Company sold convertible promissory notes in the aggregate principal amount of $2,046,730 (together, the “2017 Notes”). The 2017 Notes matured 90 days from the date of issuance, bear interest at 8% per annum and were convertible into the Company’s common stock at $0.63 per share, which represented a 10% discount to the price used for the sale of the Company’s common stock at the commitment date. During the six months ended principal and interest of $1,163,354 and $258,714 were exchanged for common stock and warrants with an aggregate fair value of $1,422,068. As of June 30, 2021, principal of $7,000 and interest of $4,546 outstanding on the 2017 Notes is past due and is payable on demand. The 2017 Notes are no longer convertible.
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As disclosed previously in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, the Company’s subsidiary, Gaucho Group, Inc. (“GGI”) sold convertible promissory notes in the total amount of $2,266,800 to accredited investors (the “GGI Notes”). The maturity date of the notes was March 31, 2019, and at the option of the holder, the principal amount of the note plus accrued interest could be converted into GGI common stock at a 20% discount to the share price in a future offering of common stock by GGI. During the six months ended June 30, 2021, the Company repaid the promissory note in full.
Item 4. Mine and Safety Disclosure
Not applicable.
Item 5. Other Information
On July 5, 2021, the Company issued 8,254 shares of common stock at $4.79 per share in settlement of its matching obligations for the year ended December 31, 2020 under the Company’s 401(k) profit sharing plan.
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Item 6. Exhibits
The following is a complete list of exhibits filed as part of this Form 10-Q. Exhibit numbers correspond to the numbers in the Exhibit Table of Item 601 of Regulation S-K.
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: August 16, 2021 | GAUCHO GROUP HOLDINGS, INC. | |
| By: | /s/ Scott L. Mathis | |
| Scott L. Mathis | ||
| Chief Executive Officer | ||
| By: | /s/ Maria Echevarria | |
| Maria Echevarria | ||
| Chief Financial Officer and Chief Operating Officer | ||
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Exhibit 10.5
Exhibit 31.1
CERTIFICATION
PURSUANT TO RULE 13a-14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
I, Scott L. Mathis, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Gaucho Group Holdings, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| August 16, 2021 | /s/ Scott L. Mathis | |
| Name: | Scott L. Mathis | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
PURSUANT TO RULE 13a-14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
I, Maria Echevarria, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Gaucho Group Holdings, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| August 16, 2021 | /s/ Maria Echevarria | |
| Name: | Maria I. Echevarria | |
| Title: | Chief Financial Officer | |
| (Principal Accounting Officer) |
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Gaucho Group Holdings, Inc. (the “Company’s Quarterly Report”) on Form 10-Q for the period ended June 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Scott L. Mathis, as Chief Executive Officer and principal executive officer and Maria I. Echevarria, as Chief Financial Officer and principal financial officer of the Company hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of the undersigned’s knowledge and belief, that:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and | |
| 2. | Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report. |
| /s/ Scott L. Mathis | |
| Scott L. Mathis | |
| Chief Executive Officer and Principal Executive Officer | |
| Dated: August 16, 2021 | |
| /s/ Maria I. Echevarria | |
| Maria I. Echevarria | |
| Chief Financial Officer and Principal Financial Officer | |
| Dated: August 16, 2021 |
This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
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