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MarketScreener Homepage  >  Equities  >  OTC Bulletin Board - Other OTC  >  Gaucho Group Holdings, Inc.    VINO

GAUCHO GROUP HOLDINGS, INC.

(VINO)
  Report
Delayed Quote. Delayed OTC Bulletin Board - Other OTC - 08/04 09:30:07 am
0.39 USD   -2.01%
07/31GAUCHO GROUP HOLDINGS, INC. : Other Events (form 8-K)
AQ
07/29GAUCHO : Change in Directors or Principal Officers (form 8-K/A)
AQ
07/29GAUCHO GROUP HOLDINGS, INC. : Other Events (form 8-K)
AQ
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News SummaryMost relevantAll newsPress ReleasesOfficial PublicationsSector news

Gaucho : 2. GOING CONCERN AND MANAGEMENT'S LIQUIDITY PLANS

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07/06/2020 | 03:12pm EDT
The accompanying condensed consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The condensed
consolidated financial statements do not include any adjustments relating to the
recoverability and classification of asset amounts or the classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern. The Company incurred losses of $1,295,492 and $1,400,957 during
the three months ended March 31, 2020 and 2019, respectively. The Company has an
accumulated deficit of $89,139,154 at March 31, 2020. Cash used in operating
activities was $1,059,997 and $1,582,720 for the three months ended March 31,
2020 and 2019, respectively. Further, as of March 31, 2020, principal and
interest in the amount of $1,270,354 and $510,157, respectively, owed in
connection with the Company's debt obligations are past due and are payable on
demand, and principal and interest in the amount of $725,000 and $3,361 owed in
connection with the Company's convertible debt matures on December 31, 2020.



Based upon projected revenues and expenses, the Company believes that it may not
have sufficient funds to operate for the next twelve months from the date these
financial statements are made available. Further, while the Company plans to
apply to NASDAQ later this year to uplist its common stock, should that effort
not be successful, the Company would be required, on December 31, 2020, to
redeem all Series B Shares that have not been previously converted to common
stock. The cost to redeem these shares would likely have a materially adverse
effect on the Company's financial position and would likely require either the
liquidation of certain Company assets or an effort to raise new equity or debt
financing. Whether the Company would be able to consummate any such transaction,
should it need to do so, on economically beneficial terms or otherwise, cannot
be presently known. The aforementioned factors raise substantial doubt about the
Company's ability to continue as a going concern. During the three months ended
March 31, 2020 the Company funded its operations with the net proceeds of debt
financing of $1,100,299.



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, the Company temporarily closed its hotel, restaurant as
well as golf and tennis operations and has created an e-commerce platform for
its wine sales in response to the pandemic. 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.



  8






                  GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                  (unaudited)


The Company presently has enough cash on hand to sustain its operations on a
month to month basis. If the Company is not able to obtain additional sources of
capital, it may not have sufficient funds to continue to operate the business
for twelve months from the date these financial statements are issued.
Historically, the Company has been successful in raising funds to support its
capital needs. Management believes that it will be successful in obtaining
additional financing; however, no assurance can be provided that the Company
will be able to do so. Further, there is no assurance that these funds will be
sufficient to enable the Company to attain profitable operations or continue as
a going concern. To the extent that the Company is unsuccessful, the Company may
need to curtail its operations and implement a plan to extend payables, reduce
overhead and possibly sell certain Company assets until sufficient additional
capital is raised to support further operations. There can be no assurance that
such a plan will be successful. Such a plan could have a material adverse effect
on the Company's business, financial condition and results of operations, and
ultimately the Company could be forced to discontinue its operations, liquidate
and/or seek reorganization in bankruptcy.



These condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



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 March 31, 2020, and for
the three months ended March 31, 2020 and 2019. The results of operations for
the three months ended March 31, 2020 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, 2019, filed with the
Securities and Exchange Commission ("SEC") on March 30, 2020. The condensed
consolidated balance sheet as of December 31, 2019 has been derived from the
Company's audited consolidated financial statements.



Non-Controlling Interest



As a result of the conversion of certain convertible debt into shares of GGI
common stock, GGI investors obtained a 21% ownership interest in GGI, which is
recorded as a non-controlling interest. The profits and losses of GGI are
allocated between the controlling interest and the non-controlling interest in
the same proportions as their ownership interest. (See Note 8 - Debt
Obligations)



Use of Estimates



To prepare financial statements in conformity with accounting principles
generally accepted in the United States of America, the Company must make
estimates and assumptions. These estimates and assumptions affect the reported
amounts in the financial statements, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. The significant estimates and assumptions of the Company
include the valuation of equity and liability instruments, the value of
right-of-use assets and related lease liabilities, the useful lives of property
and equipment and reserves associated with the realizability of certain assets.



  9






                  GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                  (unaudited)



Segment Information



The Financial Accounting Standards Board ("FASB") has established standards for
reporting information on operating segments of an enterprise in interim and
annual financial statements. The Company currently operates in three segments
which are the (i) business of real estate development and manufacture, (ii) the
sale of high-end fashion and accessories through an e-commerce platform and
(iii) its corporate operations. This classification is consistent with how the
Company's chief operating decision maker makes decisions about resource
allocation and assesses the Company's performance.



Highly Inflationary Status in Argentina




The International Practices Task Force ("IPTF") of the Center for Audit Quality
discussed the inflationary status of Argentina at its meeting on May 16, 2018
and categorized Argentina as a country with a projected three-year cumulative
inflation rate greater than 100%. Therefore, the Company has transitioned its
Argentine operations to highly inflationary status as of July 1, 2018.



For operations in highly inflationary economies, monetary asset and liabilities
are translated at exchange rates in effect at the balance sheet date, and
non-monetary assets and liabilities are translated at historical exchange rates.
Under highly inflationary accounting, the Company's Argentina subsidiaries'
functional currency became the United States dollar. Nonmonetary assets and
liabilities existing on July 1, 2018 (the date that the Company adopted highly
inflationary accounting) were translated using the Argentina Peso ("ARS") to
United States Dollar exchange rate in effect on June 30, 2018, which was 28.880.
Since the adoption of highly inflationary accounting, activity in nonmonetary
assets and liabilities is translated using historical exchange rates, monetary
assets and liabilities are translated using the exchange rate at the balance
sheet date, and income and expense accounts are translated at the weighted
average exchange rate in effect during the period. Translation adjustments are
reflected in income (loss) on foreign currency translation on the accompanying
statements of comprehensive loss. During the three months ended March 31, 2020
and 2019, the Company recorded gains on foreign currency transactions of $465
and $47,523, respectively, as a result of the net monetary liability position of
its Argentine subsidiaries.



Foreign Currency Translation




The Company's functional and reporting currency is the United States dollar. The
functional currencies of the Company's operating subsidiaries are their local
currencies (United States dollar, Argentine peso and British pound) except for
the Company's Argentine subsidiaries since July 1, 2018, as described above. The
assets and liabilities of Algodon Europe, LTD are translated from its local
currency (British Pound) to the Company's reporting currency using period end
exchange rates while income and expense accounts were translated at the average
rates in effect during the during the period. The assets, liabilities and income
and expense accounts of the Company's Argentine subsidiaries are translated as
described above. The resulting translation adjustment is recorded as part of
other comprehensive loss, a component of stockholders' deficit. The Company
engages in foreign currency denominated transactions with customers and
suppliers, as well as between subsidiaries with different functional currencies.
Gains and losses resulting from transactions denominated in non-functional
currencies are recognized in earnings.



Cash and Cash Equivalents



Cash and cash equivalents are carried at cost and represent cash on hand, demand
deposits placed with banks or other financial institutions and all highly liquid
investments with an original maturity of three months or less as of the purchase
date of such investments.



  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 $250,000 at each institution. No similar insurance or
guarantee exists for cash held in Argentina bank accounts. There were aggregate
uninsured cash balances of $30,862 and $29,027 at March 31, 2020 and December
31, 2019, respectively, which represents cash held in Argentine bank accounts.



Revenue Recognition



The Company recognizes revenue in accordance with Accounting Standards
Codification ("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 adopted ASC Topic 606 on January
1, 2018 for all applicable contracts using the modified retrospective method.



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
                                     March 31,
                                2020              2019

Hotel rooms and events    $     206,255$  259,620
Restaurants                      59,516           65,923
Winemaking                        1,043           90,542
Golf, tennis and other           29,423           24,410
Clothes and accessories             749                -
Total revenues            $     296,986$  440,495




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.



For the three months ended March 31, 2020, the Company did not recognize any
revenue related to performance obligations satisfied in previous periods.
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 March 31, 2020 and December 31, 2019, the Company had deferred revenue of
$837,492 and $838,471, respectively, associated with real estate lot sale
deposits, and had $59,716 and $61,449, respectively, of deferred revenue related
to hotel deposits. Sales taxes and value added ("VAT") taxes collected from
customers and remitted to governmental authorities are excluded from revenues in
the condensed consolidated statements of operations.



Convertible Debt


The Company evaluates for the existence of a beneficial conversion feature
("BCF") related to the issuance of convertible notes, if such instruments are
not deemed to be derivative financial instruments, by comparing the commitment
date fair value to the effective conversion price of the instrument. The Company
records a BCF as debt discount which is amortized to interest expense over the
life of the respective note using the effective interest method. BCFs that are
contingent upon the occurrence of a future event are recognized when the
contingency is resolved.



Derivative Financial Instruments




The Company evaluates its convertible instruments to determine if those
contracts or embedded components of those contracts qualify as derivative
financial instruments to be separately accounted for in accordance with FASB ASC
815 "Derivatives and Hedging" ("ASC 815"). Embedded derivatives are valued
separately from the host instrument and are recognized as derivative liabilities
in the Company's balance sheet. Fair value accounting requires measurement of
embedded derivatives at fair value. Changes in the fair value of derivative
instruments are recognized in results of operation during the period of change.



Sequencing Policy


Under ASC 815, the Company has adopted a sequencing policy, whereby, in the
event that reclassification of contracts from equity to assets or liabilities is
necessary pursuant to ASC 815 due to the Company's inability to demonstrate it
has sufficient authorized shares as a result of certain securities with a
potentially indeterminable number of shares or the Company's total potentially
dilutive shares exceed the Company's authorized share limit, shares will be
allocated on the basis of the earliest issuance date of potentially dilutive
instruments, with the earliest grants receiving the first allocation of shares.
Pursuant to ASC 815, issuances of securities granted as compensation in a
share-based payment arrangement are not subject to the sequencing policy.



  12






                  GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                  (unaudited)



Net Loss per Common Share



Basic loss per common share is computed by dividing net loss 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.



The following securities are excluded from the calculation of weighted average
dilutive common shares because their inclusion would have been anti-dilutive:



                                                         March 31,
                                                  2020               2019
       Options                                   9,331,890         10,549,265
       Warrants                                    538,342          1,132,609

Series B convertible preferred stock 9,026,700 9,026,700

       Convertible debt                          2,511,590 [1]     

1,987,070 [2]

Total potentially dilutive shares 21,408,522 22,695,644

[1] As of March 31, 2020, certain of the convertible notes had variable conversion prices and the potentially dilutive shares were estimated based on market conditions. See Note 9 - Convertible Debt Obligations.

[2] Excludes 5,667,000 shares of GGI common stock issuable upon the conversion of the Gaucho Notes (see Note 8 - Debt obligations.

New Accounting Pronouncements




In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement - Disclosure
Framework (Topic 820). The updated guidance improves the disclosure requirements
on fair value measurements. The updated guidance if effective for fiscal years,
and interim periods within those fiscal years, beginning after December 15,
2019. Early adoption is permitted for any removed or modified disclosures. The
Company adopted ASU 2018-13, effective January 1, 2020, which did not have a
material effect on the Company's unaudited condensed consolidated financial
statements.



In March 2020, the FASB issued ASU 2020-03, "Codification Improvements to
Financial Instruments" ("ASU 2020-03"). ASU 2020-03 improves and clarifies
various financial instruments topics. ASU 2020-03 includes seven different
issues that describe the areas of improvement and the related amendments to
GAAP, intended to make the standards easier to understand and apply by
eliminating inconsistencies and providing clarifications. The Company adopted
ASU 2020-03 upon issuance, which did not have a material effect on the Company's
unaudited condensed consolidated financial statements.



13






                  GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                  (unaudited)



4. INVENTORY



Inventory at March 31, 2020 and December 31, 2019 was comprised of the
following:



                                          March 31,       December 31,
                                            2020              2019

               Vineyard in process       $   391,144$      304,067
               Wine in process               497,901            539,380
               Finished wine                   1,094             23,467
               Clothes and accessories       217,799            224,965
               Other                          68,770             71,381
               Total                     $ 1,176,708$    1,163,260

5. INVESTMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS

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



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



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



Level 3 - Valued based on valuation techniques in which one or more significant inputs is not readily observable. Included in this category are certain corporate debt instruments, certain private equity investments, and certain commitments and guarantees.




Investments at Fair Value:



           As of March 31, 2020    Level 1      Level 2      Level 3       Total

           Warrants - Affiliates   $      -     $      -     $  2,513$  2,513
           Government Bond           69,368            -            -       69,368




         As of December 31, 2019     Level 1       Level 2       Level 3   

Total

Warrants - Affiliates $ - $ - $ 3,470

  $  3,470
         Government Bond              74,485             -             -       74,485




14






                  GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                  (unaudited)


A reconciliation of Level 3 assets is as follows:



                             Warrants -
                             Affiliates

Balance - January 1, 2020   $      3,470
Unrealized loss                     (957 )

Balance - March 31, 2020$ 2,513





Investment at March 31, 2020, 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 rate of 48% per annum and matures on December 31,
2020. The decrease in the government bond value was a result from the effects of
fluctuations in the foreign currency exchange rate during the period.



Investment - related parties at March 31, 2020, consisted of retained certain
affiliate warrants which are marked to market at each reporting date using the
Black-Scholes option pricing model. The Company recorded unrealized losses on
the affiliate warrants of $957 and $707 during the quarter ended March 31, 2020
and 2019, respectively, which are included in revenues on the accompanying
unaudited condensed consolidated statements of operations.



The fair value of the Company's derivative liabilities as of March 31, 2020 was de minimis (see Note 9 - Convertible Debt Obligations).



6. ACCRUED EXPENSES


Accrued expenses were comprised of the following as of:



                                                    March 31,       December 31,
                                                      2020              2019

Accrued compensation and payroll taxes $ 207,391$ 210,900

    Accrued taxes payable - Argentina                  210,681            170,873
    Accrued interest                                   525,420            484,026
    Other accrued expenses                             240,011            256,546
    Accrued expenses, current                        1,183,503          1,122,345
    Accrued payroll tax obligations, non-current        74,430             86,398
    Total accrued expenses                         $ 1,257,933$    1,208,743




15






                  GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                  (unaudited)



7. LOANS PAYABLE



The Company's loans payable are summarized below:




                                           March 31, 2020                               December 31, 2019
                                                              Loans                                          Loans
                               Gross                        Payable,          Gross                        Payable,
                             Principal        Debt         Net of Debt      Principal        Debt         Net of Debt
                               Amount       Discount        Discount          Amount       Discount        Discount

2020 Demand Loan             $   27,641     $       -     $      27,641     $        -     $       -     $           -
2018 Demand Loan                  6,219             -             6,219          6,678             -             6,678
2018 Loan                       344,038             -           344,038        352,395             -           352,395
2017 Loan                        59,601             -            59,601         67,491             -            67,491
Land Loan                       459,500       (13,437 )         446,063        468,500       (16,762 )         451,738
Total Loans Payable             896,999       (13,437 )         883,562        895,064       (16,762 )         878,302
Less: current portion           796,999       (11,378 )         785,621        795,064       (13,345 )         781,719
Loans Payable, non-current   $  100,000$  (2,059 )$      97,941$  100,000$  (3,417 )$      96,583

On March 1, 2020, the Company received a loan in the amount of $27,641 (ARS $1,777,778) (the" 2020 Demand Loan") which bears interest at 10% per month and is due upon demand of the lender (the "Demand Loan"). Interest is paid monthly.




During the three months ended March 31, 2020, the Company made principal
payments on loans payable in the aggregate of $20,677, of which $8,355 was paid
on the 2018 Loan, $3,322 was paid on the 2017 Loan and $9,000 was paid on the
Land Loan. The remaining decrease in principal balances are the result of the
impact of the change in exchange rates during the period.



The Company incurred interest expense related to the loans payable in the amount
of $22,530 and $40,822 during the three months ended March 31, 2020 and 2019,
respectively, of which $3,325 and $6,495 represented amortization of debt
discount.



8. DEBT OBLIGATIONS


The Company's debt obligations are summarized below:



                                         March 31, 2020                                   December 31, 2019
                          Principal       Interest [1]         Total         Principal       Interest [1]         Total

2010 Debt Obligations    $         -     $      311,505$   311,505     $         -     $      305,294$   305,294
2017 Notes                 1,170,354            190,649       1,361,003       1,170,354            167,341       1,337,695
Gaucho Notes                 100,000              8,003         108,003         100,000              6,260         106,260

Total Debt Obligations $ 1,270,354$ 510,157$ 1,780,511$ 1,270,354$ 478,895$ 1,749,249

[1] Accrued interest is included as a component of accrued expenses on the accompanying condensed consolidated balance sheets.

Each of the debt obligations listed above are past due and are payable on demand. The Company incurred interest expense of $31,262 and $68,017 in connection with its debt obligations during the three months ended March 31, 2020 and 2019, respectively.



16






                  GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                  (unaudited)


9. CONVERTIBLE DEBT OBLIGATIONS

The Company's convertible debt obligations are summarized below:



                                       March 31, 2020                                December 31, 2019
                         Principal      Interest [1]        Total      

Principal Interest [1] Total

Convertible Notes        $  725,000$       3,361$ 728,361     $        -     $            -     $       -
Total Debt Obligations   $  725,000$       3,361$ 728,361     $        -     $            -     $       -



[1] Accrued interest is included as a component of accrued expenses on the

      accompanying condensed consolidated balance sheets.




During the three months ended March 31, 2020, the Company sold unsecured
convertible promissory notes ("Convertible Notes") in an aggregate amount of
$725,000 to accredited investors who are all stockholders of the Company. The
Convertible Notes mature on December 31, 2020 and bear interest at 7% per annum.
Principal and interest outstanding under the Convertible Notes are convertible
(i) automatically upon the closing of a firm commitment underwritten public
offering registered pursuant to the Securities Act of 1933, as amended (a
"Public Offering", at a conversion price equal to 85% of the price per share of
the Company's common stock sold in the Public Offering (the "Mandatory
Conversion Option"), or (ii) at the option of the holder at any time prior to
the Public Offering at a conversion price equal to the closing price of the
Company's common stock on the day prior to conversion (the "Holder's Conversion
Option"). The Company incurred total interest expense of $3,361 related to this
debt during the three months ended March 31, 2020.



The Company determined that the Holder's Conversion Option represented a
variable conversion feature with no floor. Accordingly, the Company has adopted
a sequencing policy in accordance with ASC 815-40-35-12 whereby the Holder's
Conversion Option and all future instruments may be classified as a derivative
liability with the exception of instruments related to share-based compensation
issued to employees or directors.



As of March 31, 2020, the value of Holders' Conversion Option was de minimis.
The contingently adjustable, non-bifurcated beneficial conversion feature
associated with the Mandatory Conversion Option of the Convertible Notes will be
accounted for, if necessary, at the time the contingency is resolved upon the
occurrence of the Public Offering.



10. RELATED PARTY TRANSACTIONS



Assets


Accounts receivable - related parties in the amount of $39,837 at March 31, 2020
and December 31, 2019, represented the net realizable value of advances made to
separate entities under common management.



See Note 5 - Investments and Fair Value of Financial Instruments, for a discussion of the Company's investment in warrants of a separate entity under common management.



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 months ended March 31, 2020 and 2019, the Company recorded a
contra-expense of $139,915 and $69,829, respectively, related to the
reimbursement of general and administrative expenses as a result of the
agreement.



17






                  GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                  (unaudited)


During 2019, the Related Party prepaid approximately $566,132 of its future
obligations under the Related Party ESA, in exchange for a 15% reduction in the
Related Party's expense obligations under the Related Party ESA until the
prepayment has been reduced to $0. During the three months ended March 31, 2020,
the Related Party prepaid an additional $368,335 of its future obligations under
the Related Party ESA. The prepaid amount is reflected as loans payable -
related parties on the accompanying condensed consolidated balance sheet. The
Related Party prepaid all of its obligations due to the Company as of March 31,
2020 and December 31, 2019, pursuant to the Related Party ESA.



The Company had an expense sharing agreement with a different related entity to
share expenses such as office space and other clerical services which was
terminated in August 2017. The owners of more than 5% of that entity include (i)
GGH's chairman, and (ii) a more than 5% owner of GGH. The entity owed $396,116
to the Company under the expense sharing agreement at each of March 31, 2020 and
December 31, 2019, of which the entire balance is deemed unrecoverable and
reserved.



11. 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 months ended March 31, 2020 and 2019, the Company
recorded a charge associated with its contribution of $8,507 and $13,312,
respectively. This charge has been included as a component of general and
administrative expenses in the accompanying condensed consolidated statements of
operations. The Company issues shares of its common stock to settle these
obligations based on the fair market value of its common stock on the date the
shares are issued (shares were issued at $0.35 per share during 2019). As of
March 31, 2020, shares have not yet been issued in satisfaction of the previous
year's 401(k) obligation.


12. TEMPORARY EQUITY AND STOCKHOLDERS' DEFICIENCY



Series B Preferred Stock


On March 29, 2020, the Company's Board of Directors as well as the holders of
the Series B Convertible Preferred Stock approved an Amendment to the
Certificate of Designation of the Series B Convertible Preferred Stock (the
"Third Amendment") which extends the period in which holders of the Series B
Shares may voluntarily elect to convert such shares into shares of common stock
of the Company to December 31, 2020. In addition, the Series B Amendment extends
the date upon which the Company shall redeem all then-outstanding Series B
Shares and all unpaid accrued and accumulated dividends to December 31, 2020.



The Series B stockholders are entitled to cumulative cash dividends at an annual
rate of 8% of the Series B liquidation value (equal to face value of $10 per
share), as defined, payable when, as and if declared by the Board of Directors.
Cumulative dividends earned by the Series B stockholders were $179,770 and
$177,795 for the three months ended March 31, 2020 and 2019, respectively.
Dividends payable of $85,223 are included in the current portion of other
liabilities at March 31, 2020. Cumulative unpaid and undeclared dividends in
arrears related to the Series B totaled $1,444,131 and $1,264,361 as of March
31, 2020 and December 31, 2019, respectively.



18






                  GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                  (unaudited)


Accumulated Other Comprehensive Income




For three months ended March 31, 2020 and 2019, the Company recorded $128,051
and $8,339, respectively, of foreign currency translation adjustments as
accumulated other comprehensive income, primarily related to fluctuations in the
Argentine peso to United States dollar exchange rates (see Note 3 - Summary of
Significant Accounting Policies, Highly Inflationary Status in Argentina).


Warrants



A summary of warrants activity during the three months ended March 31, 2020 is
presented below:



                                                              Weighted
                                               Weighted        Average
                                               Average        Remaining
                               Number of       Exercise        Life in        Intrinsic
                                Warrants        Price           Years           Value

Outstanding, January 1, 2020 566,742 $ 2.11 Issued

                                  -              -
Exercised                               -              -
Cancelled                               -              -
Expired                           (28,400 )         2.00
Outstanding, March 31, 2020       538,342     $     2.12             1.0   

$ -

Exercisable, March 31, 2020       538,342     $     2.12             1.0   
 $         -




A summary of outstanding and exercisable warrants as of March 31, 2020 is
presented below:



                  Warrants Outstanding                                  Warrants Exercisable
                                                                  Weighted
                                            Outstanding            Average              Exercisable
                                             Number of            Remaining              Number of
  Exercise Price       Exercisable Into      Warrants           Life in
Years             Warrants

$             2.00     Common Stock               412,051                   1.1                412,051
$             2.50     Common Stock               126,291                   1.0                126,291
                       Total                      538,342                                      538,342




Stock Options



On January 31, 2019, the Company granted five-year options for the purchase of
1,350,000 shares of the Company's common stock under the 2018 Plan, of which
options for the purchase of 1,100,000 shares of the Company's common stock were
granted to certain employees of the Company, options for the purchase of 100,000
shares of the Company's common stock were granted to certain members of the
Board of Directors and options for the purchase of 150,000 shares of the
Company's common stock were granted to consultants. The options had an exercise
price of $0.385 per share and vest 25% at the first anniversary of date of
grant, with the remaining shares vesting ratably on a quarterly basis over the
following three years. The options had an aggregate grant date fair value of
$200,092, which will be recognized ratably over the vesting period. No options
were granted during the three months ended March 31, 2020.



19






                  GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                  (unaudited)


The Company has computed the fair value of options granted during the three months ended March 31, 2019 using the Black-Scholes option pricing model, with the following assumptions used:



Risk free interest rate          2.43 %
Expected term (years)       3.6 - 5.0
Expected volatility             52.00 %
Expected dividends               0.00 %



During the three months ended March 31, 2020 and 2019, the Company recorded
stock-based compensation expense of $103,581 and $157,994, 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 March 31, 2020, there was $964,345 of unrecognized stock-based
compensation expense related to stock option grants that will be amortized over
a weighted average period of 2.50 years.



A summary of GGH stock options activity during the three months ended March 31,
2020 is presented below:



                                                                       Weighted
                                                   Weighted             Average
                                Number of          Average             Remaining
                                 Options        Exercise Price       Life in Years       Intrinsic Value

Outstanding, January 1, 2020     9,550,640     $           0.78
Granted                                  -                    -
Exercised                                -                    -
Expired                           (218,750 )               2.11
Forfeited                                -                    -
Outstanding, March 31, 2020      9,331,890     $           0.75                 3.3     $               -

Exercisable, March 31, 2020      3,173,287     $           1.23            
    2.4     $               -




The following table presents information related to GGH stock options at March
31, 2020:



   Options Outstanding                Options Exercisable
                                  Weighted
              Outstanding          Average          Exercisable
Exercise       Number of          Remaining          Number of
  Price         Options         Life in Years         Options

$    0.39        4,439,890                 3.8           325,000
$    0.54        1,500,000                 3.5           562,506
$    0.77        1,320,000                 2.9           660,006
$    1.10        1,020,000                 2.6           573,775
$    2.20        1,042,000                 1.1         1,042,000
$    3.30           10,000                 0.2            10,000
                 9,331,890                 2.4         3,173,287




20






                  GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                  (unaudited)


Gaucho Group, Inc. Stock Options

As of December 31, 2019, options to purchase 6,595,000 shares of GGI common stock have been issued and are outstanding under the 2018 Gaucho Plan, with a weighted average estimated fair value of approximately $0.14 per share.



13. LEASES



The Company leases one corporate office through an operating lease agreement.
The Company has an obligation for its corporate office located in New York, New
York, which expires August 31, 2020. As of March 31, 2020, the lease had a
remaining term of approximately 0.4 years. See Note 16 - Subsequent Events for
details regarding the termination of such lease.



As of March 31, 2020, the Company had no leases that were classified as a financing lease and did not have any additional operating and financing leases that have not yet commenced.




Total operating lease expenses were $57,816 for each of the three months ended
March 31, 2020 and 2019, and is recorded in general and administrative expenses
on the condensed consolidated statements of operations.



Supplemental cash flows information related to leases was as follows:



                                                         For the three months ended
                                                                  March 31,
                                                           2020              2019

Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases

             $      61,284     $  

59,499

Right-of-use assets obtained in exchange for lease obligations: Operating leases

                                       $           -     $  

361,020


Weighted Average Remaining Lease Term:
Operating leases                                          0.42 years       

1.42 years


Weighted Average Discount Rate:
Operating leases                                                 8.0 %             8.0 %




14. SEGMENT DATA


Prior to the commencement of GGI operations, the Company's chief operating
decision-maker (CODM) reviewed the operating results of the Company on an
aggregate basis and managed the Company's operations as a single operating
segment. As a result of the commencement of GGI operations in the fourth quarter
of 2019, the Company's financial position and results of operations are
classified into three reportable segments, consistent with how the CODM makes
decisions about resource allocation and assesses the Company's performance. :



? Real Estate Development, through AWE and TAR, including hospitality and winery

operations, which support the ALGODON® brand.

? Fashion (e-commerce), through GGI, including the manufacture and sale of

high-end fashion and accessories sold through an e-commerce platform.

? Corporate, consisting of general corporate overhead expenses not directly

    attributable to any one of the business segments.




21






                  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 months ended March 31, 2020 and 2019:



                                                     For the Three Months Ended March 31, 2020                                    For the Three 

Months Ended March 31, 2019

                                       Real Estate          Fashion                                                 Real Estate          Fashion
                                       Development        (e-commerce)        Corporate(1)          TOTAL           Development        (e-commerce)        Corporate(1)          TOTAL
Revenues                              $     296,237      $          749      $            -      $    296,986$     440,495      $            -      $            -      $    440,495
Revenues from Foreign Operations      $     296,237      $            -      $            -      $    296,237$     440,495      $            -      $            -      $    440,495
Loss from Operations                  $    (297,955 )$     (317,613 )
 $     (650,155 )$ (1,265,724 )$     (22,655 )$     (335,408 )$     (968,794 )$ (1,326,857 )

(1) Unallocated corporate operating losses resulting from general corporate overhead expenses not directly attributable to any one of the business segments.

15. 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.



Employment Agreement



On September 28, 2015, the Company entered into an employment agreement with
Scott Mathis, the Company's CEO (the "Employment Agreement"). Among other
things, the agreement provided for a three-year term of employment at an annual
salary of $401,700 (subject to a 3% cost-of-living adjustment per year), bonus
eligibility, paid vacation and specified business expense reimbursements. The
agreement sets limits on Mr. Mathis' annual sales of GGH common stock. Mr.
Mathis is subject to a covenant not to compete during the term of the agreement
and following his termination for any reason, for a period of twelve months.
Upon a change of control (as defined by the agreement), all of Mr. Mathis'
outstanding equity-based awards will vest in full and his employment term resets
to two years from the date of the change of control. Following Mr. Mathis's
termination for any reason, Mr. Mathis is prohibited from soliciting Company
clients or employees for one year and disclosing any confidential information of
GGH for a period of two years. The agreement may be terminated by the Company
for cause or by the CEO for good reason, in accordance with the terms of the
agreement. The Board of Directors extended the Employment Agreement on various
dates such that as of March 29, 2020 the Employment Agreement, as amended,
expires on December 31, 2020. See Note 16 - Subsequent Events for additional
details.



Due to economic circumstances related to the global coronavirus outbreak 2019
(COVID-19), on March 13, 2020, Mr. Mathis voluntarily deferred payment of 85% of
his salary. The Company is accruing all compensation not paid to Mr. Mathis
pursuant to his employment agreement until the Company has sufficient funds to
pay his full compensation.



22






                  GAUCHO GROUP HOLDINGS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                  (unaudited)



16. 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 68.9952, 64.3664 and 59.8979 at July 4, March 31, 2020 and December 31, 2019, respectively.

The British pound to United States dollar exchange rate was 0.8906, 0.8080 and 0.7541 at July 4, March 31, 2020 and December 31, 2019, respectively.



Convertible Notes


Between April 1, 2020 and July 6, 2020, the Company sold Convertible Notes in an
aggregate amount of $664,214 to accredited investors who are all stockholders of
the Company. The Convertible Notes mature on December 31, 2020 and bear interest
at 7% per annum. Principal and interest outstanding under the Convertible Notes
are convertible (i) automatically upon the Public Offering, at a conversion
price equal to 85% of the price per share of the Company's common stock sold in
the Public Offering (the "Mandatory Conversion Option", or (ii) at the option of
the holder at any time prior to the Public Offering at a conversion price equal
to the closing price of the Company's common stock on the day prior to
conversion (the "Holder's Conversion Option").



Leases



Effective May 31, 2020, the Company terminated its corporate office lease
located in New York, New York, which provided for an expiration date of August
31, 2020. As consideration of the termination, the landlord shall be entitled to
retain and apply the full amount of the $61,284 security deposit as a partial
payment of the rent and the additional rent due and payable under the lease. The
Company shall be obligated to pay the landlord the following additional amounts:
(i) $5,683, representing the additional amount of unpaid rent and additional
rent due and payable under the lease through the termination date, and (ii)
$11,860, representing the landlord's cost for the post-termination date cleaning
of the premises.



Forgivable Loan


On May 6, 2020, Gaucho Group Holdings, Inc. (the "Company") entered into a
potentially forgivable loan from the U.S. Small Business Administration ("SBA")
resulting in net proceeds of $242,487 pursuant to the Paycheck Protection
Program ("PPP") enacted by Congress under the Coronavirus Aid, Relief, and
Economic Security Act (15 U.S.C. 636(a)(36)) (the "CARES Act") administered by
the SBA (the "PPP Loan"). To facilitate the PPP Loan, the Company entered into a
Note Payable Agreement with Santander Bank, N.A. as the lender (the "Lender")
(the "PPP Loan Agreement").



Under the terms of the CARES Act, as amended by the Paycheck Protection Program
Flexibility Act of 2020, the Company is eligible to apply for and receive
forgiveness for all or a portion of their respective PPP Loans. Such forgiveness
will be determined, subject to limitations, based on the use of the loan
proceeds for certain permissible purposes as set forth in the PPP, including,
but not limited to, payroll costs (as defined under the PPP) and mortgage
interest, rent or utility costs (collectively, "Qualifying Expenses") incurred
during the 24 weeks subsequent to funding, and on the maintenance of employee
and compensation levels, as defined, following the funding of the PPP Loan. The
Company intends to use the proceeds of the PPP Loan for Qualifying Expenses.
However, no assurance is provided that the Company will be able to obtain
forgiveness of the PPP Loans in whole or in part. Any amounts that are not
forgiven incur interest at 1.0% per annum and monthly repayments of principal
and interest are deferred until the Small Business Administration makes a
determination on forgiveness. While the PPP Loans currently have a two-year
maturity, the amended law permits the borrower to request a five-year maturity
from its lender.



23





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.



The independent registered public accounting firm's report on the Company's
consolidated financial statements as of December 31, 2019, and for each of the
years in the two-year period then ended, includes a "going concern" explanatory
paragraph, that describes substantial doubt about the Company's ability to
continue as a going concern.



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



We are an integrated, lifestyle related real estate development company,
capitalizing on our unique brand of affordable luxury, branded as "Algodon", to
create a diverse set of interrelated products and services. Our wines, hotels
and real estate ventures and fashion sales, currently concentrated in Argentina,
offer a blend of high-end, luxury and adventures products. We hope to further
broaden the reach and depth of our services to strengthen and cement the reach
of our brand. Ultimately, we intend to further expand and grow our business by
combining unique and promising opportunities with our brand and clientele.



Through our subsidiaries, we currently operate Algodon Mansion, a Buenos
Aires-based luxury boutique hotel property and we have redeveloped, expanded and
repositioned a winery and golf resort property called Algodon Wine Estates for
subdivision of a portion of this property for residential development. We have
also established an e-commerce platform for the sale of high-end luxury fashion
and accessories.



Investment in foreign real estate requires consideration of certain risks
typically not associated with investing in the United States. Such risks
include, trade balances and imbalances and related economic policies,
unfavorable currency exchange rate fluctuations, imposition of exchange control
regulation by the United States or foreign governments, United States and
foreign withholding taxes, limitations on the removal of funds or other assets,
policies of governments with respect to possible nationalization of their
industries, political difficulties, including expropriation of assets,
confiscatory taxation and economic or political instability in foreign nations
or changes in laws which affect foreign investors.



24





Recent Developments and Trends




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 hotel, restaurant as well as
golf and tennis operations and have created an e-commerce platform for our wine
sales in response to the pandemic. We are continuing to monitor the outbreak of
COVID-19 and the related business and travel restrictions, and the changes to
behavior intended to reduce its spread, and the related impact on our
operations, financial position and cash flows, as well as the impact on our
employees. Due to the rapid development and fluidity of this situation, the
magnitude and duration of the pandemic and its impact on our future operations
and liquidity is uncertain as of the date of this report. While there could
ultimately be a material impact on our operations and liquidity, this impact
cannot currently be determined.



Financings


During the three months ended March 31, 2020, we raised, net of repayments, approximately $1.1 million of new capital through the issuance of convertible and non-convertible debt. We used the net proceeds from these issuances for general working capital and capital expenditures.



Liquidity



As reflected in our accompanying condensed consolidated financial statements, we
have generated significant losses which have resulted in a total accumulated
deficit of approximately $89 million, raising substantial doubt that we will be
able to continue operations as a going concern. Our independent registered
public accounting firm included an explanatory paragraph in their report for the
years ended December 31, 2019 and 2018, stating that we have incurred
significant losses and need to raise additional funds to meet our obligations
and sustain our operations. Our ability to execute our business plan is
dependent upon our generating cash flow and obtaining additional debt or equity
capital sufficient to fund operations. If we are able to obtain additional debt
or equity capital (of which there can be no assurance), we hope to acquire
additional management as well as increase the marketing of our products and
continue the development of our real estate holdings.



Our business strategy may not be successful in addressing these issues and there
can be no assurance that we will be able to obtain any additional capital. If we
cannot execute our business plan on a timely basis (including acquiring
additional capital), our stockholders may lose their entire investment in us,
because we may have to delay vendor payments and/or initiate cost reductions and
possibly sell certain company assets, which would have a material adverse effect
on our business, financial condition and results of operations, and we could
ultimately be forced to discontinue our operations, liquidate and/or seek
reorganization under the U.S. bankruptcy code.



Consolidated Results of Operations

Three months March 31, 2020 compared to three months ended March 31, 2019



Overview


We reported net losses of approximately $1.3 and $1.4 million for the three months ended March 31, 2020 and 2019, respectively.



Revenues



Revenues were approximately $297,000 and $440,000 during the three months ended
March 31, 2020 and 2019, respectively, representing a decrease of $143,000 or
33%. Decreases in revenues are primarily due to approximately $171,000 resulting
from the impact of the decline in the value of the Argentine peso vis-à-vis the
U.S. dollar for the three months ended March 31, 2020 compared to the three
months ended March 31, 2019, decreases in wine sales of approximately $89,000,
partially offset by an increase in hotel and restaurant revenues of
approximately $93,000.



25






Gross profit



We generated a gross profit of approximately $48,000 for the three months ended
March 31, 2020 as compared to a gross profit of approximately $212,000 for the
three months ended March 31, 2019, representing a decrease of $164,000 or 77%.
Cost of sales, which consists of real estate lots, raw materials, direct labor
and indirect labor associated with our business activities, increased by
approximately $20,000 from $229,000 for the three months ended March 31, 2019 to
$249,000 for the three months ended March 31, 2020. The increase in cost of
sales results from the increase in hotel and restaurant costs of approximately
$146,000, as a result of salary increases in response to high inflation during
the period, which was partially offset by the impact of the decline in the value
of the Argentine peso vis-à-vis the U.S. dollar of approximately $131,000
during
the period.


Selling and marketing expenses

Selling and marketing expenses were approximately $38,000 and $111,000 for the
three months ended March 31, 2020 and 2019, respectively, representing a
decrease of $73,000 or 66% in 2020, primarily resulting from the Gaucho Group
marketing event held in the first quarter of 2019.



General and administrative expenses




General and administrative expenses were approximately $1,229,000 and $1,378,000
for the three months ended March 31, 2020 and 2019, respectively, representing a
decrease of $149,000 or 11%. The decrease results primarily from the impact of
the decline in the value of the Argentine peso vis-à-vis the U.S. dollar for the
three months ended March 31, 2020 compared to the three months ended March
31,
2019.


Depreciation and amortization expense

Depreciation and amortization expense was approximately $46,000 and $50,000 during the three months ended March 31, 2020 and 2019, respectively, representing a decrease of $4,000 or 8%.



Interest expense, net



Interest expense, net was approximately $30,000 and $122,000 during the three
months ended March 31, 2020 and 2019, respectively, representing a decrease of
$92,000 or 76%. The decrease is primarily related to the decrease in the average
balance of debt outstanding during the three months ended March 31, 2020 as
compared to the three months ended March 31, 2019, as a result of principal
payments on loans payable and debt obligations of approximately $174,000 and
$65,500, respectively, as well as the conversion of approximately $2,107,000 of
debt principal and related interest payable into equity of GGI and the
conversion of approximately $103,000 of debt and related interest payable into
GGH common stock during the period since March 31, 2019.



Liquidity and Capital Resources

We measure our liquidity a variety of ways, including the following:



                                       March 31, 2020       December 31, 2019

       Cash                           $        191,942     $            40,378

Working Capital (Deficiency) $ (4,302,614 )$ (3,309,206 )

Based upon our working capital deficiency as of March 31, 2020, we require additional equity and/or debt financing in order to sustain operations. These conditions raise substantial doubt about our ability to continue as a going concern.



26






During the three months ended March 31, 2020 and 2019, we have relied primarily
on debt and equity offerings to third party independent, accredited investors,
and related parties to sustain operations. During the three months ended March
31, 2020, we received proceeds of $725,000 from the issuance of convertible
debt, proceeds from related party loans payable of approximately $368,000, and
proceeds from loans payable of approximately $28,000.



The proceeds from these financing activities were used to fund our existing operating deficits, legal and accounting expenses associated with being a public company and the general working capital needs of the business.

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.



Sources and Uses of Cash for the Three months ended March 31, 2020 and 2019

Net Cash Used in Operating Activities

Net cash used in operating activities for the three months ended March 31, 2020
and 2019 amounted to approximately $1,060,000 and $1,583,000, respectively.
During the three months ended March 31, 2020, the net cash used in operating
activities was primarily attributable to the net loss of approximately
$1,295,000, adjusted for approximately $227,000 of net non-cash expenses, and
approximately $8,000 of cash provided by changes in the levels of operating
assets and liabilities. During the three months ended March 31, 2019, the net
cash used in operating activities was primarily attributable to the net loss of
approximately $1,401,000, adjusted for approximately $234,000 of net non-cash
expenses, and approximately $416,000 of cash used for changes in the levels of
operating assets and liabilities.



Cash Used in Investing Activities

Cash used in investing activities for the three months ended March 31, 2020 and
2019 amounted to approximately $17,000 and $18,000, respectively. Cash used in
investing activities during the three months ended March 31, 2020 and 2019
resulted entirely from the purchase of property and equipment.



Net Cash Provided by Financing Activities

Net cash provided by financing activities for the three months ended March 31,
2020 and 2019 amounted to approximately $1,100,000 and $1,598,000, respectively.
For the three months ended March 31, 2020, the net cash provided by financing
activities resulted from $725,000 of proceeds from convertible debt obligations
and approximately $368,000 and $28,000, respectively, from the proceeds from the
issuance of related party loans payable and non-related party loans payable,
partially offset by loan repayments of approximately $21,000. For the three
months ended March 31, 2019, the net cash provided by financing activities
resulted primarily from approximately $786,000 of proceeds from convertible debt
obligations and approximately $885,000 of proceeds from common stock offerings,
partially offset by debt and loan repayments of approximately $73,000.



27





Going Concern and Management's Liquidity Plans




The accompanying condensed consolidated financial statements have been prepared
assuming that we will continue as a going concern, which contemplates the
realization of assets and satisfaction of liabilities and commitments in the
normal course of business. As discussed in Note 2 to the accompanying condensed
consolidated financial statements, we have not achieved a sufficient level of
revenues to support our business and development activities and have suffered
substantial recurring losses from operations since our inception. Further, while
the Company plans to apply to NASDAQ later this year to uplist its common stock
following a public offering of equity, should that effort not be successful, the
Company would be required, on December 31, 2020, to redeem all Series B Shares
that have not been previously converted to common stock. The cost to redeem
these shares would likely have a materially adverse effect on the Company's
financial position and would likely require either the liquidation of certain
Company assets or an effort to raise new equity or debt financing. Whether the
Company would be able to consummate any such transaction, should it need to do
so, on economically beneficial terms or otherwise, cannot be presently known.
These conditions raise substantial doubt that we will be able to continue
operations as a going concern. The accompanying condensed consolidated financial
statements do not include any adjustments that might be necessary if we were
unable to continue as a going concern.



We are continuing to monitor the outbreak of COVID-19, as described above, and
the related impact on our operations, financial position and cash flows, as well
as the impact on our employees. Recently, we have temporarily closed our hotel,
restaurant as well as golf and tennis operations and have created an e-commerce
platform for our wine sales in response to the pandemic. Due to the rapid
development and fluidity of this situation, the magnitude and duration of the
pandemic and its impact on our future operations and liquidity are uncertain as
of the date of this report. While there could ultimately be a material impact on
our operations and liquidity, this impact cannot currently be determined.



Based on current cash on hand and subsequent activity as described herein, our
cash-on-hand only allows us to operate our business operations on a
month-to-month basis. Because of our limited cash availability, we have scaled
back our operations to the extent possible. While we are exploring opportunities
with third parties and related parties to provide some or all of the capital we
need, we have not entered into any agreement to provide us with the necessary
capital. Historically, we have been successful in raising funds to support our
capital needs. However, if we are unable to obtain additional financing on a
timely basis, we may have to delay vendor payments and/or initiate cost
reductions, which would have a material adverse effect on our business,
financial condition and results of operations, and ultimately, we could be
forced to discontinue our operations, liquidate assets and/or seek
reorganization under the U.S. bankruptcy code. As a result, our auditors have
issued a report which includes an explanatory paragraph relating to our ability
to continue as a going concern in conjunction with their audit of our December
31, 2019 and 2018 consolidated financial statements.



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 March 30, 2020. Please refer to
that document for disclosures regarding the critical accounting policies related
to our business.



28

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Financials (USD)
Sales 2019 1,28 M - -
Net income 2019 -6,66 M - -
Net Debt 2019 2,76 M - -
P/E ratio 2019 -2,74x
Yield 2019 -
Capitalization 23,5 M 23,5 M -
EV / Sales 2018 6,49x
EV / Sales 2019 19,1x
Nbr of Employees 65
Free-Float 82,6%
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Managers
NameTitle
Scott L. Mathis Chairman, President & Chief Executive Officer
Maria I. Echevarria COO, CFO, Secretary & Treasurer
Peter J. L. Lawrence Independent Director
Marc Dumont Independent Director
Steven A. Moel Independent Director