PART I FINANCIAL INFORMATION Financial Statements The company's financial statements for the period ended September 30, 2020, reflect a challenging financial position with significant deficits and net losses, raising substantial doubt about its going concern ability Condensed Consolidated Balance Sheets As of September 30, 2020, the company reported total assets of $6.88 million and total liabilities of $7.37 million, resulting in a $9.50 million stockholders' deficiency and a $3.45 million working capital deficit Condensed Consolidated Balance Sheet Highlights (unaudited) | Balance Sheet Items | Sep 30, 2020 (unaudited, in USD) | Dec 31, 2019 (in USD) | | :--- | :--- | :--- | | Assets | | | | Cash | $1,210,668 | $40,378 | | Total Current Assets | $3,566,856 | $2,428,747 | | Total Assets | $6,882,950 | $5,920,360 | | Liabilities & Stockholders' Deficiency | | | | Total Current Liabilities | $7,018,676 | $5,737,953 | | Total Liabilities | $7,370,082 | $5,920,934 | | Total Stockholders' Deficiency | $(9,497,956) | $(9,027,398) | Condensed Consolidated Statements of Operations For the nine months ended September 30, 2020, sales decreased by 49% to $474,546, resulting in a net loss of $3.74 million, an improvement from the prior year due to reduced operating expenses Statement of Operations Summary (unaudited) | Metric | Nine Months Ended Sep 30, 2020 (unaudited, in USD) | Nine Months Ended Sep 30, 2019 (in USD) | | :--- | :--- | :--- | | Sales | $474,546 | $940,459 | | Gross Loss | $(97,075) | $(7,251) | | Loss from Operations | $(3,708,170) | $(4,669,929) | | Net Loss | $(3,736,028) | $(4,819,585) | | Net Loss Attributable to Common Stockholders | $(4,147,890) | $(5,203,381) | | Net Loss per Common Share | $(0.07) | $(0.10) | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2020, operations used $3.68 million in cash, offset by $4.49 million from financing activities, leading to a net cash increase of $1.17 million and an ending balance of $1.21 million Cash Flow Summary (unaudited) | Cash Flow Activity | Nine Months Ended Sep 30, 2020 (unaudited, in USD) | Nine Months Ended Sep 30, 2019 (in USD) | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | $(3,682,663) | $(5,136,444) | | Net Cash Used in Investing Activities | $(39,859) | $(147,944) | | Net Cash Provided by Financing Activities | $4,492,126 | $5,138,085 | | Net Increase in Cash | $1,170,290 | $449,884 | | Cash at End of Period | $1,210,668 | $508,372 | - Non-cash financing activities for the nine months ended September 30, 2020, included the conversion of $1,260,314 in debt and interest to equity and the issuance of $140,600 in common stock for a subscription receivable29 Notes to Unaudited Condensed Consolidated Financial Statements The notes highlight a going concern warning due to significant losses and deficits, detail the impact of the COVID-19 pandemic on operations across its Real Estate, Fashion, and Corporate segments, and disclose various debt defaults and equity transactions - The company's financial condition raises substantial doubt about its ability to continue as a going concern, reporting a working capital deficit of $3.45 million, a net loss of $3.74 million, and $3.68 million cash used in operations for the nine-month period3435 - The COVID-19 pandemic caused temporary closures of the company's hospitality and corporate operations, leading to cost-cutting measures including lease termination and salary reductions36 - The company operates in Real Estate Development, Fashion, and Corporate segments; for the nine months ended September 30, 2020, Real Estate generated $473,797 in revenue with an operating loss of $894,842, while Fashion had $749 in revenue and an operating loss of $723,92143124126 - Subsequent to quarter-end, the company issued common stock to settle 401(k) obligations, pay for consulting services, and pay $1.63 million in accrued preferred stock dividends, also selling an additional $75,000 in Units131133134 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, liquidity challenges, and the significant impact of the COVID-19 pandemic, emphasizing substantial doubt about its going concern ability due to deficits and reliance on continuous financing Recent Developments and Trends The company's operations were significantly impacted by the COVID-19 pandemic, leading to temporary closures, cost-cutting measures like lease termination and salary reductions, and the development of an e-commerce platform - The company mitigated COVID-19 financial impact by closing corporate and hospitality operations, terminating its New York lease, and implementing salary reductions144 Consolidated Results of Operations For the nine months ended September 30, 2020, revenues decreased by 49% to $475,000, while a 23% reduction in general and administrative expenses helped narrow the net loss to $3.7 million from $4.8 million in 2019 Comparison of Operations for the Three Months Ended September 30 | Metric | 2020 (in USD) | 2019 (in USD) | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $60,000 | $231,000 | -74% | | Gross Loss | $(21,000) | $(86,000) | -76% | | General & Administrative Expenses | $860,000 | $1,411,000 | -39% | | Net Loss | $(900,000) | $(1,400,000) | -36% | Comparison of Operations for the Nine Months Ended September 30 | Metric | 2020 (in USD) | 2019 (in USD) | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $475,000 | $940,000 | -49% | | Gross Loss | $(97,000) | $(7,000) | +1,286% | | General & Administrative Expenses | $3,342,000 | $4,340,000 | -23% | | Net Loss | $(3,700,000) | $(4,800,000) | -23% | Liquidity and Capital Resources The company faces severe liquidity constraints with a $3.45 million working capital deficiency, relying on continuous financing, and management warns that current cash is only sufficient for month-to-month operations, necessitating additional capital for survival Liquidity Metrics | Metric | Sep 30, 2020 (in USD) | Dec 31, 2019 (in USD) | | :--- | :--- | :--- | | Cash | $1,210,668 | $40,378 | | Working Capital (Deficiency) | $(3,451,820) | $(3,309,206) | - During the nine months ended September 30, 2020, the company relied on financing, securing $3.2 million from convertible debt, $1.2 million from common stock offerings, and approximately $336,000 from government loans174 - Management explicitly states substantial doubt about the company's going concern ability, noting that current cash reserves only support month-to-month operations181183 Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is not required to provide quantitative and qualitative disclosures about market risk - As a "smaller reporting company," the company is exempt from providing the information required by this item187 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting during the quarter - The Principal Executive Officer and Principal Financial Officer concluded the company's disclosure controls and procedures were effective as of September 30, 2020189 - No material changes to internal control over financial reporting occurred during the quarter190 PART II OTHER INFORMATION Legal Proceedings The company is not involved in any litigation expected to have a material adverse effect on its financial condition, results of operations, or cash flows - The company is subject to incidental litigation but does not anticipate any pending claims will have a material adverse effect194 Risk Factors As a smaller reporting company, the company updates its COVID-19 related risks, highlighting significant business disruptions including lease termination, production delays, and reduced marketing, all negatively impacting sales - The company faces significant business disruption from the COVID-19 pandemic, leading to early termination of its New York office lease196 - Significant delays in product development and shipping from manufacturing partners, some of whom closed permanently, forced the company to seek new vendors198 - Disruptions in order fulfillment led to reduced email marketing, significantly decreasing web traffic and sales199 Unregistered Sales of Equity Securities and Use of Proceeds During 2020, the company conducted multiple private placements of unsecured convertible promissory notes and units to accredited investors under Section 4(a)(2) and Rule 506(b) of Regulation D - The company sold unsecured convertible promissory notes to accredited investors through private placements exempt from registration under Rule 506(b)201 - The company sold "New Convertible Notes" totaling $1,259,000 that mandatorily converted into Units at $0.34 per Unit in late August and early September 2020205 Defaults Upon Senior Securities The company is in default on several senior securities, including 2017 and 2018 bank loans, 2017 Notes totaling approximately $1.4 million, and a $100,000 subsidiary note, all now payable on demand - The company has defaulted on multiple loans, including the 2017 and 2018 Loans, which are now payable on demand206207 - As of September 30, 2020, 2017 convertible promissory notes with $1,170,354 principal and $237,521 interest are past due, payable on demand, and no longer convertible208 - A convertible note from the company's subsidiary GGI, with $100,000 principal and $11,508 interest, is past due and payable on demand209 Mine Safety Disclosures This item is not applicable to the company - Not applicable210 Other Information Subsequent to the reporting period, in October 2020, the company continued financing activities by selling $75,000 in Units and issuing common stock to settle 401(k) obligations, pay for consulting services, and fulfill advisory agreements - Between October 14 and October 29, 2020, the company sold an additional $75,000 in Units to accredited investors211 - On October 3, 2020, the company issued 142,597 shares of common stock to settle its 2019 401(k) profit-sharing plan obligations212 - In October 2020, the company issued 125,000 shares for consulting services and 1,011,643 shares as part of an advisory agreement with Kingswood Capital Markets213214 Exhibits This section lists all exhibits filed as part of the Form 10-Q, including corporate governance documents, securities designations, material contracts, and Sarbanes-Oxley certifications
Gaucho (VINO) - 2020 Q3 - Quarterly Report