Gaucho (VINO) - 2019 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements, management's discussion and analysis of financial condition, and disclosures on market risk and internal controls Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Gaucho Group Holdings, Inc. as of March 31, 2019, and for the three months then ended, revealing a net loss, significant stockholders' deficiency, and a going concern uncertainty Condensed Consolidated Balance Sheets The balance sheet as of March 31, 2019, shows an increase in total assets to $6.26 million from $5.65 million at year-end 2018, with total liabilities also increasing to $7.61 million, resulting in a larger total stockholders' deficiency of $(10.38) million Condensed Consolidated Balance Sheet Highlights (unaudited) | Metric | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total Current Assets | $2,745,328 | $2,236,413 | | Total Assets | $6,255,276 | $5,647,491 | | Total Current Liabilities | $7,226,036 | $6,425,337 | | Total Liabilities | $7,612,158 | $6,717,914 | | Total Stockholders' Deficiency | $(10,383,706) | $(10,097,247) | Condensed Consolidated Statements of Operations For the three months ended March 31, 2019, the company reported a significant 65.5% year-over-year decrease in sales, leading to a 70% drop in gross profit, with net loss remaining stable at approximately $(1.4) million Condensed Consolidated Statements of Operations (unaudited) | Metric | Three Months Ended Mar 31, 2019 | Three Months Ended Mar 31, 2018 | | :--- | :--- | :--- | | Sales | $440,495 | $1,277,923 | | Gross Profit | $211,885 | $701,961 | | Loss from Operations | $(1,326,857) | $(1,354,955) | | Net Loss | $(1,400,957) | $(1,425,114) | | Net Loss Attributable to Common Stockholders | $(1,578,752) | $(1,580,905) | | Net loss per common share | $(0.03) | $(0.04) | Condensed Consolidated Statements of Cash Flows For the first quarter of 2019, net cash used in operating activities increased to $(1.58) million from $(1.19) million in the prior year, with financing activities providing $1.60 million primarily from convertible debt and common stock offerings Condensed Consolidated Statements of Cash Flows (unaudited) | Cash Flow Activity | Three Months Ended Mar 31, 2019 | Three Months Ended Mar 31, 2018 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | $(1,582,720) | $(1,191,886) | | Net Cash Used in Investing Activities | $(17,772) | $(233,544) | | Net Cash Provided by Financing Activities | $1,597,524 | $1,718,651 | | Net Increase (Decrease) in Cash | $5,424 | $(37,735) | Notes to Unaudited Condensed Consolidated Financial Statements The notes provide critical context to the financial statements, highlighting the company's business in Argentine real estate and lifestyle ventures, a significant 'going concern' warning, and key accounting policies including highly inflationary accounting - The company's business focuses on international real estate projects, primarily two ALGODON® brand projects in Argentina: a luxury hotel and a winery/golf resort with residential development, alongside a high-end fashion e-commerce platform[26][27] - There is substantial doubt about the Company's ability to continue as a going concern due to recurring losses ($1.4 million in Q1 2019), a large accumulated deficit ($82.6 million), and significant cash used in operations ($1.58 million in Q1 2019), indicating insufficient funds for the next twelve months without additional capital[28][30] - Effective July 1, 2018, the company transitioned its Argentine operations to highly inflationary accounting status, requiring remeasurement of monetary assets and liabilities at current exchange rates, with translation adjustments reflected in the statements of operations[36][39] Revenue by Source (unaudited) | Revenue Source | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Real estate sales | $ - | $799,854 | | Hotel room and events | $259,620 | $223,568 | | Restaurants | $65,923 | $90,097 | | Winemaking | $90,542 | $139,396 | | Golf, tennis and other | $24,410 | $25,008 | | Total | $440,495 | $1,277,923 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's Q1 2019 financial performance, highlighting a 66% revenue decrease primarily due to a lack of real estate sales and the Argentine peso's devaluation, reiterating the substantial doubt about the company's ability to continue as a going concern without additional capital - The company's independent auditors' report for the year ended December 31, 2018, included a 'going concern' explanatory paragraph, indicating substantial doubt about the company's ability to continue operations[103][110] - Revenues for Q1 2019 decreased by 66% year-over-year to approximately $440,000 from $1,278,000, driven by an $800,000 drop in real estate lot revenue and a $516,000 negative impact from the decline of the Argentine peso[113] - The company has a working capital deficiency of $(4.48) million as of March 31, 2019, and requires additional equity or debt financing to sustain operations[120] - To fund operations in Q1 2019, the company raised approximately $1.6 million through $786,000 in convertible debt and $885,000 from the sale of common stock[109][122] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a 'smaller reporting company,' Gaucho Group Holdings, Inc. is not required to provide the information for this item - The company is not required to provide information for this item as it qualifies as a 'smaller reporting company' under Regulation S-K[134] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2019, with changes made to internal controls to accommodate the adoption of the new lease accounting standard, ASC 842 - Based on an evaluation as of March 31, 2019, the Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective[135] - Changes were implemented to internal controls during the quarter due to the adoption of the new lease accounting standard, ASC 842, which required significant judgments and estimates[137] PART II OTHER INFORMATION This section covers legal proceedings, risk factors, unregistered sales of equity securities, defaults on senior securities, and a list of exhibits Item 1. Legal Proceedings The company is subject to litigation and arbitration claims from time to time in the ordinary course of business, but management does not believe any pending litigation will have a material adverse effect on its financial condition - The company and its subsidiaries are subject to incidental litigation and arbitration claims in the normal course of business[141] Item 1A. Risk Factors As a 'smaller reporting company,' the company is not required to provide risk factors in its quarterly report and refers to the risk factors set forth in its Annual Report on Form 10-K for the year ended December 31, 2018 - As a 'smaller reporting company,' the company is not required to provide this information, with current risk factors detailed in the Form 10-K filed on April 1, 2019[141] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2019, the company engaged in several unregistered sales of securities, including issuing $786,000 in convertible 'Gaucho Notes', selling 2,527,857 shares of common stock for $884,750, and granting options for 1,350,000 shares, relying on exemptions from registration - Between January 1 and March 12, 2019, the company sold $786,000 in convertible promissory notes ('Gaucho Notes') to accredited investors[142] - Between February 8 and March 27, 2019, the company sold 2,527,857 shares of common stock for gross proceeds of $884,750 to accredited investors[143] - On January 31, 2019, the company granted options to purchase 1,350,000 shares of common stock at an exercise price of $0.385 per share to employees and consultants[145] Item 3. Defaults Upon Senior Securities The company reports defaults on several senior securities, including its 2017 and 2018 Loans, which are now payable on demand, and the past due principal balance of $1,221,854 on its Convertible Notes, with its 'Gaucho Notes' also maturing on March 31, 2019 - The company defaulted on payments for its 2017 Loan (originally $519,156) and its 2018 Loan ($525,000), resulting in both loans being currently payable upon demand[149][150] - The remaining principal balance of $1,221,854 on the 'Convertible Notes' is past due as of March 31, 2019[151] - The 'Gaucho Notes' matured and became due as of March 31, 2019[152] Item 6. Exhibits This section lists the exhibits filed as part of the Form 10-Q, including corporate governance documents, certifications by the CEO and CFO as required by the Sarbanes-Oxley Act, and XBRL data files - The report includes a list of exhibits filed, such as the Certificate of Incorporation, Bylaws, and Certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[156][157]