Gaucho (VINO) - 2023 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements, highlighting increased assets, rising liabilities from new convertible debt, and persistent net losses Condensed Consolidated Balance Sheets Total assets increased to $19.2 million, while total liabilities surged to $10.9 million due to new convertible debt, resulting in a working capital deficit Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | June 30, 2023 (unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Total Current Assets | $5,504 | $5,019 | | Total Assets | $19,219 | $18,693 | | Liabilities & Equity | | | | Total Current Liabilities | $9,332 | $4,424 | | Total Liabilities | $10,854 | $7,901 | | Total Stockholders' Equity | $8,365 | $10,792 | - Current liabilities more than doubled, driven by $3.4 million in current convertible debt obligations and a $2.1 million derivative liability, which were not present at year-end 2022[14] Condensed Consolidated Statements of Operations Sales increased significantly for both the three and six-month periods, but a substantial derivative liability charge led to persistent net losses Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | Change | H1 2023 | H1 2022 | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Sales | $711 | $405 | +75.6% | $1,159 | $831 | +39.5% | | Gross Profit (Loss) | $42 | $(128) | N/A | $197 | $59 | +233.9% | | Loss from Operations | $(1,986) | $(2,439) | -18.6% | $(3,932) | $(4,215) | -6.7% | | Net Loss | $(4,982) | $(5,293) | -5.9% | $(7,677) | $(7,565) | +1.5% | | Net Loss per Share | $(0.80) | $(4.80) | N/A | $(1.41) | $(7.59) | N/A | - A significant non-cash expense of $2,141,117 related to the change in fair value of a derivative liability was recorded in Q2 2023, heavily impacting the net loss[17] Condensed Consolidated Statements of Cash Flows Net cash used in operations increased, while financing activities, primarily from convertible debt, significantly boosted cash provided, resulting in a net cash increase Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | $(4,033) | $(2,755) | | Net Cash Used in Investing Activities | $(489) | $(1,720) | | Net Cash Provided by Financing Activities | $5,110 | $458 | | Net Increase (Decrease) in Cash | $510 | $(3,395) | - The company's operations were heavily funded by financing activities in the first half of 2023, with $5.0 million in proceeds from new convertible debt and over $1.3 million from stock sales[32] Notes to Financial Statements Notes detail accounting policies, business segments, and financial instruments, including a 'going concern' warning, revenue breakdowns, and convertible debt specifics - The company's financial statements are prepared on a going concern basis, but management has substantial doubt about its ability to continue for one year due to recurring net losses, a working capital deficit, and upcoming debt maturities[41][42][45] Revenue by Source for the Six Months Ended June 30 (in thousands) | Revenue Source | 2023 | 2022 | | :--- | :--- | :--- | | Real estate sales | $155 | $185 | | Hotel rooms and events | $465 | $283 | | Restaurants | $136 | $58 | | Winemaking | $76 | $60 | | Agricultural | $163 | $181 | | Clothes and accessories | $108 | $11 | | Total Revenues | $1,159 | $831 | - In February 2023, the company issued a $5.6 million senior secured convertible note, and as of June 30, 2023, the company was in default on this note, triggering a remeasurement of a derivative liability and a $2.1 million loss[92][101] - Subsequent to the quarter's end, on August 11, 2023, the company entered into a forbearance agreement with the 2023 Note holder, waiving the default and certain payment requirements through December 31, 2023[143] Management's Discussion and Analysis (MD&A) Management discusses financial performance, highlighting increased revenues, persistent net losses, and expresses substantial doubt about the company's ability to continue as a going concern - The company's goal is to become recognized as the 'LVMH of South America's leading luxury brands,' focusing on its e-commerce fashion brand Gaucho – Buenos Aires™ and legacy investments in hospitality and wine[147][148] Results of Operations Comparison (Q2 2023 vs Q2 2022) | Metric | Q2 2023 | Q2 2022 | Change | Reason for Change | | :--- | :--- | :--- | :--- | :--- | | Revenues | $711k | $405k | +76% | Increased tourism, Miami store opening, partially offset by peso devaluation | | Gross Profit (Loss) | $42k | ($128k) | +133% | Profits from real estate lot sales | | G&A Expenses | $1.71M | $1.93M | -11% | Lower compensation and favorable currency impact, offset by higher consulting fees | | Net Loss | ($5.0M) | ($5.3M) | -6% | Improved operations offset by a $2.1M derivative liability charge | - The company has a working capital deficit of $3.8 million as of June 30, 2023, a sharp decline from a working capital surplus of $0.6 million at the end of 2022[185] - Management states there is substantial doubt about the company's ability to continue as a going concern, as it may not have sufficient funds to operate for the next twelve months without raising additional capital[192] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Gaucho Group Holdings, Inc. is not required to provide market risk disclosures - The company has opted out of providing disclosures about market risk, as permitted for a 'smaller reporting company'[200] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective due to a lack of segregation of duties and insufficient testing - The Principal Executive Officer and Principal Financial Officer concluded that disclosure controls and procedures were not effective as of June 30, 2023[201] - The ineffectiveness is attributed to a lack of segregation of duties due to the company's small size and insufficient testing of control effectiveness[201] PART II - OTHER INFORMATION Legal Proceedings The company is not currently involved in any litigation expected to have a material adverse effect on its financial condition or operations - The company is not involved in any litigation expected to have a material adverse effect[207] Risk Factors Significant risks include potential Nasdaq delisting, default on a convertible note, and the risk of total loss for the LVH Las Vegas project investment - The company received a deficiency notice from Nasdaq on June 1, 2023, for its stock trading below the $1.00 minimum bid price requirement and has until November 28, 2023, to regain compliance[210] - The company is in default on its 2023 convertible note for failure to meet a payment/conversion milestone, though a forbearance agreement is in place until December 31, 2023[215] - The company's $7.0 million investment is at risk in the LVH Las Vegas project, as LVH will be liquidated if a ground lease is not executed by December 29, 2023, which could result in the loss of the entire investment[216][217] Unregistered Sales of Equity Securities and Use of Proceeds In Q2 2023, the company issued 458,768 shares under an Equity Line of Credit, raising $316,953 through unregistered offerings - In Q2 2023, the company issued 458,768 shares for gross proceeds of $316,953 via its equity line of credit with Tumim Capital[219] Defaults Upon Senior Securities The company defaulted on its 2023 senior secured convertible note, but a forbearance agreement was reached, deferring action until December 31, 2023 - The company defaulted on its 2023 convertible note as of May 21, 2023[220] - A forbearance agreement was reached with the noteholder on August 11, 2023, preventing an event of default notice through December 31, 2023[220] Mine Safety Disclosures This item is not applicable to the company - Not applicable[221] Other Information This section details corporate actions including shareholder approval for a reverse stock split, an extended LVH ground lease deadline, and a forbearance agreement with warrant price adjustment - The company is seeking shareholder approval for a reverse stock split (from 1-for-2 up to 1-for-10) to regain compliance with Nasdaq's minimum bid price rule[223] - The deadline for the LVH Holdings LLC project to execute a ground lease was extended from June 30, 2023, to December 29, 2023[225] - As part of the August 11, 2023 forbearance agreement, the exercise price of the warrant associated with the 2023 Note was reduced from $1.34 to $0.45[231] Exhibits This section lists all exhibits filed with the Form 10-Q, including various agreements, certifications, and interactive data files - Lists all exhibits filed with the report, including underwriting agreements, incentive plans, debt agreements, and officer certifications[235]