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 the Securities 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 to GSRX Industries Inc., a Nevada
corporation, individually, or as the context requires, collectively with its
consolidated subsidiaries.
GSRX Industries Inc. was incorporated in Nevada under the name "Cyberspace Vita,
Inc." on November 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. On May 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.
On May 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 in Puerto
Rico.
On May 12, 2017, the Company changed its name from "Cyberspace Vita, Inc." to
"Green Spirit Industries Inc." On June 22, 2019, the Company changed its name
from "Green Spirit Industries Inc." to "GSRX Industries Inc."
Effective August 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.
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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 2021, at which point we anticipate nearing or reaching cash-flow
breakeven. See "Liquidity and Capital Resources."
A novel strain of coronavirus ("COVID-19") was first identified in December
2019, and subsequently declared a global pandemic by the World Health
Organization on March 11, 2020. As a result of the outbreak, many companies have
experienced disruptions in their operations, workforce and markets served,
including a significant reduction in the demand for petroleum-based products.
The market for the Company's cannabis operations began being adversely impacted
by the effects of COVID-19 in March of 2020 when circumstances surrounding, and
responses to, the pandemic, including stay-at-home orders, began to materialize
in North America. However, the full extent of the COVID-19 outbreak and changes
in cannabis and the impact on the Company's operations is uncertain. A prolonged
disruption could have a material adverse impact on the financial results and
business operations of the Company.
On January 21, 2021 the Board of Directors approved a rebranding of the GSRX
corporate identity, the opening of a new business vertical in the restaurant
industry focusing on the growing opportunities in underserved markets and the
relocation of its corporate headquarters to Pennsylvania. The rebranding of the
GSRX corporate identity is part of the Company's ongoing strategy to evolve its
business and create a foundation for new opportunities, entering the restaurant
industry in underserved rural markets with a beginning focus on delivery,
drive-up, and curbside provisions. The Company believes there is a demand for
these services due to the disruptive Covid-19 pandemic in rural markets.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2020 and March 31, 2019
The following table summarizes the results of our operations during the three
months ended March 31, 2020 and 2019, 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
3/31/2020 3/31/2019 Increase Increase
Line Item (unaudited) (unaudited) (Decrease) (Decrease)
Revenues 2,839,287 2,866,079 (26,792 ) (0.94 )%
Cost of Goods Sold 1,477,862 1,380,620 97,242 7.04 %
Operating expenses 1,185,313 4,723,783 (3,538,470 ) (74.91 )%
Net income (loss) 248,228 (3,087,201 ) 3,335,429 100.00 %
Income (loss) per share of
common stock $ 0.00 $ (0.07 ) $ .07 100.00 %
We recorded a net income of $248,228 for the three months ended March 31, 2020.
Revenue. Total revenue for the three months ended March 31, 2020 and 2019 was
$2,839,287 and $2,866,079, respectively. The decrease of $26,792, or 0.94%, was
due to the revenues generated by operations of the five (5) Green Spirit RX
dispensaries in Puerto Rico, and The Green Room dispensary, CBD sales from Pure
and Natural and retail sales from the Pure and Natural One kiosk during the
first quarter, with a small decrease due to COVID-19.
Cost of Goods Sold. Total cost of revenue for the three months ended March 2020
and 2019 was $1,477,862 and $1,380,620, respectively. The increase of $97,242,
or 7.04%, 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 first quarter.
Total Operating Expenses Selling, general, administrative and operating expenses
for the three months ended March 31, 2020 and 2019 was $1,185,313 and
$4,723,783, respectively. The decrease of $3,538,470, or 74.91%, was due to
decreases in all operating expense categories, including labor, taxes, store
supplies, marketing, security expenses, professional fees, consulting fees and a
significant reduction of stock-based compensation as none was paid in the first
quarter of 2020.
Net Income (Loss). Net income (loss) for the three months ended March 31, 2020
and 2019 was $248,228 and ($3,087,201) respectively. The increase of $3,335,429,
or 100.00%, was due to a substantial decrease in operating expenses of the
stores, lower consulting fees and no stock-based compensation paid out, offset
by slightly lower revenues and increase in cost of goods sold.
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.
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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 Policies
The 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, the
Securities 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.
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LIQUIDITY AND CAPITAL RESOURCES
This is the first quarter the Company has reported net income since beginning
operations in 2017. We are reporting net income $248,228 for the three months
ended March 31, 2020 and a net loss of $3,087,201 for the quarter ended March
31, 2019 and have an accumulated deficit of $78,331,011 as of March 31, 2020.
As of March 31, 2020, the Company had $768,697 cash on hand as compared to
$604,274 as of December 31, 2019. For the three months ended March 31, 2020, the
Company reported income from operations of $248,228 and net cash increase of
$164,423.
Sources of Liquidity
We have not been able to generate sufficient cash from operating activities to
fund our ongoing operations. Since May 2017, we have raised capital through
private sales of our securities. 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 three months ended March 31, 2020, we financed our operations through
the remaining proceeds from various private placement offerings of $1,183,000
conducted by the Company during 2019 and its first quarterly net operating
income.
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 2021. 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 from operating activities for the three months
ended March 31, 2020 was $104,210 which was due to the net income from
operations, the increase of accounts payable and lease liability, decrease of
accounts receivable, prepaid inventory, and offset by the increase of inventory
and decrease in accounts receivable and accrued expenses.
Investing Cash Flows. Net cash used in investing activities for the three months
ended March 31, 2020 was $60,213, which was due to net proceeds received from
the parent and affiliate.
Financing Cash Flows. There were no financing activities for the three months
ended March 31, 2020.
Material Capital Expenditure Commitments
The Company has no upcoming capital commitments.
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GSRX INDUSTRIES INC. 
