Overview
This Management's Discussion and Analysis or Plan of Operations includes a number of forward-looking statements that reflect Management's current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as "may" "will," "expect," "anticipate," "believe," "estimate" and "continue," or similar words. Those statements include statements regarding the intent, belief or current expectations of us and members of our management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with theSecurities and Exchange Commission . Important factors currently known to management could cause actual results to differ materially from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions. Factors that could cause differences include, but are not limited to, expected market demand for our products, fluctuations in pricing for our products, and competition. Unless the context indicates or suggests otherwise, references to "we," "our," "us," the "Company," or "GSRX" refer toGSRX Industries Inc. , aNevada corporation, individually, or as the context requires, collectively with its consolidated subsidiaries.
GSRX Industries Inc. was incorporated inNevada under the name "Cyberspace Vita, Inc. " onNovember 7, 2006 . The Company's original business plan was to create and conduct an online business for the sale of vitamins and supplements; however, Cyberspace never generated any meaningful revenues. OnMay 5, 2008 , Cyberspace discontinued its prior business and changed its business plan. Following discontinuation of its initial business plan, the Company's business plan was to seek, investigate, and, if warranted, acquire one or more properties or businesses, and to pursue other related activities intended to enhance stockholder value. The acquisition of a business opportunity may be made by purchase, merger, exchange of stock, or otherwise, and may encompass assets or a business entity, such as a corporation, joint venture, or partnership. OnMay 11, 2017 , the Company entered into an Exchange Agreement with Project 1493, and the sole member of 1493, pursuant to which the member transferred all of the outstanding membership interests of 1493 to the Company in exchange for 16,690,912 of its restricted shares of common stock and warrants to purchase up to 3,000,000 shares of common stock at an exercise price of$0.50 per share. As a result of the Exchange Agreement, 1493 became a wholly-owned subsidiary of the Company, and the business of 1493 became the business of the Company. The Company, together with its wholly-owned subsidiary, is in the business of acquiring, developing and operating medical cannabis dispensaries inPuerto Rico . OnMay 12, 2017 , the Company changed its name from "Cyberspace Vita, Inc. " to "Green Spirit Industries Inc. " OnJune 22, 2018 , the Company changed its name from "Green Spirit Industries Inc. " to "GSRX Industries Inc. " EffectiveAugust 28, 2019 , eight shareholders of the Company entered into a Share Exchange Agreement (the "Share Exchange Agreement") with Chemesis International, Inc. ("Chemesis"), pursuant to which the shareholders exchanged 42,534,454 common shares and 1,000 shares of preferred stock of the Company for 14,880,705 shares of Chemesis. As a result and as of the date hereof, Chemesis owns 54,151,035 common shares or 67.03% of the Company. 23 As of the date of this Report, we have financed operations through a combination of equity financings including net proceeds from the private placements of stock. Although it is difficult to predict our liquidity requirements, based upon our current operating plan, as of the date of this Report, we believe we will have sufficient cash to meet our projected operating requirements until the end of 2019, at which point we anticipate nearing or reaching cash-flow breakeven. See "Liquidity and Capital Resources." RESULTS OF OPERATIONS
Three Months Ended
The following table summarizes the results of our operations during the three months endedSeptember 30, 2019 and 2018, respectively, and provides information regarding the dollar and percentage increase or (decrease) from the current three-month period to the prior three-month period: Percentage 9/30/2019 9/30/2018 Increase Increase Line Item (unaudited) (unaudited) (Decrease) (Decrease) Revenues 2,757,158 664,400 2,092,758 314.98 % Cost of Goods Sold 1,431,656 409,348 1,022,308 249.74 % Operating expenses 17,765,423 2,198,056 15,567,367 708.23 % Net loss (22,816,790 ) (1,655,745 ) (21,161,045 ) 1278.03. % Loss per share of common stock$ (0.31 ) $ (0.04 ) $
(.27 ) (675.00 )%
We recorded a net loss of
Revenue. Total revenue for the three months endedSeptember 30, 2019 and 2018 was$2,757,158 and$664,400 , respectively. The increase of$2,092,758 , or 314.98%, was due to the revenues generated by operations of the five (5) Green Spirit RX dispensaries inPuerto Rico , andThe Green Room dispensary, CBD sales from Pure and Natural and retail sales from the Pure and Natural One kiosk during the third quarter. Cost of Goods Sold. Total cost of revenue for the three months endedSeptember 30, 2019 and 2018 was$1,431,656 and$409,348 , respectively. The increase of$1,022,308 , or 249.74%, was due to an increase in inventory purchases of cannabis products, including flowers, cream, oils and edibles, and cannabis-related accessories, including cartridges and pipes, related to the retail operations of the six dispensaries and CBD products purchased during the third quarter necessary for the increase in revenues. Total Operating Expenses Selling, general, administrative and operating expenses for the three months endedSeptember 30, 2019 and 2018 was$17,765,423 and$2,198,056 , respectively. The increase of$15,567,367 , or 708.23%, was primarily due to a significant increase of the stock-based compensation; and an increase in operating expenses of the six dispensaries, labor, taxes, store supplies, marketing and security expenses, professional fees and consulting fees. Net Loss. Net loss for the three months endedSeptember 30, 2019 and 2018 was$22,816,790 and$1,655,745 , respectively. The increase of$21,161,045 , or 1278.03%, was primarily due to an increase in revenues offset by the increase of stock-based compensation, increases in cost of goods sold, operating expenses related to retail operations of the six dispensaries and CBD location.
Nine Months Ended
We recorded a net loss of
Revenue. Total revenue for the nine months endedSeptember 30, 2019 and 2018 was$9,062,462 and$1,020,026 , respectively. The increase of$8,042,436 , or 788.45%, was primarily due to operations increasing from four to six retail dispensaries, website and retail sales of CBD products. Cost of Goods Sold. Total cost of revenue for the nine months endedSeptember 30, 2019 and 2018 was$4,910,120 and$610,526 , respectively. The increase of$4,299,594 or 704.45%, was due to operations increasing from four to six retail dispensaries, website and retail sales of CBD products. 24 Total Operating Costs. Selling, general, administrative and operating expenses for the nine months endedSeptember 30, 2019 and 2018 was$25,609,037 and$14,517,450 , respectively. The increase of$11,091,587 , or 76.40%, was primarily due to significant increase in stock based compensation paid to officers, directors and consultants for services rendered and increase in overhead expenses incurred to operate the business as additional locations opened. Net Loss. Net Loss for the nine months endedSeptember 30, 2019 and 2018 was$28,099,596 and$13,647,636 , respectively. The increase of$14,451,960 , or 105.89%, was primarily due to stock based compensation paid to officers, directors and consultants for services rendered and overhead expenses incurred to operate the business as additional locations opened.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that are material to an investor
in our securities. Seasonality
Our operating results were not affected by seasonality.
Inflation
Our business and operating results are not affected in any material way by inflation.
Critical Accounting PoliciesThe Securities and Exchange Commission issued Financial Reporting Release No. 60, "Cautionary Advice Regarding Disclosure About Critical Accounting Policies" suggesting that companies provide additional disclosure and commentary on their most critical accounting policies. In Financial Reporting Release No. 60, theSecurities and Exchange Commission has defined the most critical accounting policies as the ones that are most important to the portrayal of a company's financial condition and operating results, and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. The nature of our business generally does not call for the preparation or use of estimates. Due to the fact that the Company does not have any operating business, we do not believe that we have any such critical accounting policies. 25
LIQUIDITY AND CAPITAL RESOURCES
We have never reported net income. We incurred net losses for the nine months endedSeptember 30, 2019 and 2018 of$28,099,596 and$13,647,636 , respectively, and have an accumulated deficit of$70,421,832 as ofSeptember 30, 2019 .
As of
Sources of Liquidity We have not been able to generate sufficient cash from operating activities to fund our ongoing operations. SinceMay 2017 , we have raised capital through private sales of our securities and joint ventures. Our future success is dependent upon our ability to achieve profitable operations and generate cash from operating activities. There is no guarantee that we will be able to generate sufficient revenue and/or raise capital to support our operations. During the nine months endedSeptember 30, 2019 , we financed our operations through the remaining proceeds from various private placement offerings conducted by the Company during 2018 and the first, second and third quarters of 2019. OnMarch 8, 2019 , the Company conducted a private placement, pursuant to which sold 621,600 shares of the Company's common stock at a purchase price of$1.25 per share, resulting in net proceeds to the Company of$777,000 . OnJune 4, 2019 , the Company conducted a private placement, pursuant to which it sold 400,000 shares of the Company's common stock at purchase price of$0.50 per share, resulting in net proceeds to the Company of$200,000 . OnJuly 5, 2019 , the Company conducted a private placement, pursuant to which it sold 412,000 shares of the Company's common stock at purchase price of$0.50 per share, resulting in net proceeds to the Company of$206,000 . We anticipate requiring additional capital for the continued development and implementation of our business plan, including the remaining build-out of our facilities inCalifornia , completing construction on our dispensaries inPuerto Rico , and working capital for our retail dispensary operations. We will be required to raise additional cash through public or private financing, additional collaborative relationships or other arrangements until we are able to raise revenues to a point of positive cash flow. We believe our existing and available capital resources will be sufficient to satisfy our funding requirements through the fourth quarter of 2019. However, we continue to evaluate various options to further reduce our cash requirements to operate at a reduced rate, as well as options to raise additional funds, including obtaining loans for real estate purchases and selling common stock. There is no guarantee that we will be able to generate enough revenue and/or raise capital to support our operations, or if we are able to raise capital, that it will be available to us on acceptable terms, on an acceptable schedule, or at all. The issuance of additional securities may result in a significant dilution in the equity interests of our current stockholders. Obtaining loans, assuming these loans would be available, will increase our liabilities and future cash commitments. There is no assurance that we will be able to obtain further funds required for our continued operations or that additional financing will be available for use when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will not be able to meet our other obligations as they become due and we will be forced to scale down or perhaps even cease our operations.
Operating Cash Flows. Net cash used in operating activities for the nine months
ended
Investing Cash Flows. Net cash used in investing activities for the nine months endedSeptember 30, 2019 was$918,411 , which was due to increase of deposits, purchase of leasehold improvements and equipment; legal fees on patent application costs; investments in closely held businesses and construction on facilities still not put into service. Financing Cash Flows. Net cash provided by financing activities for the nine months endedSeptember 30, 2019 was$2,687,363 , which was due to our March, June andJuly 2019 capital raises, sale of equity investments inCalifornia subsidiaries and contributions by non-controlling interests.
Material Capital Expenditure Commitments
The Company has upcoming capital commitments:
Remaining construction of three remaining dispensaries in
$
600,000
Purchase of equipment, furniture and fixtures and finish out of
$
600,000
Purchase of equipment inPoint Arena $
80,000 26 The capital committed is for construction of existing leased units inPuerto Rico , which are currently in different phases of construction. The Company estimates construction to be completed byMarch 31, 2020 . However, no assurance can be given. The Company plans to use current funds to complete construction of its dispensary locations inPuerto Rico . The Company estimates construction ofPalm Springs dispensary to be completed in the second quarter 2020. However, no assurance can be given. The Company estimates purchase of equipment and beginning of operations of manufacturing inPoint Arena to begin in the fourth quarter 2019. However, no assurance can be given. The Company has capital raises open for thePalm Springs dispensary andPoint Arena manufacturing operation. As ofSeptember 30, 2019 , approximately$1,070,341 has been raised.
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