10-K: Endexx Corporation Reports Increased Revenue but Continues to Face Losses in Fiscal Year 2023

Endexx Corporation, a consumer products company specializing in plant-based formulations, saw an 83% increase in revenue in fiscal year 2023, but also experienced a net loss of $7.4 million.

Summary

• Endexx Corporation, a CPG company focused on plant-based products, reported its financial results for the fiscal year ended September 30, 2023.
• The company experienced a significant revenue increase of 83%, reaching $3,908,385, compared to $2,138,010 in the previous year.
• Despite the revenue growth, Endexx reported a gross loss of $765,523, a decrease from the $1,193,110 gross profit in 2022, due to increased cost of revenues and inventory impairment.
• Operating expenses decreased by $1,168,457 to $3,941,467, primarily due to reductions in advertising, payroll, professional fees, and impairment expenses.
• Other expenses increased by $1,477,417 to $3,705,163, driven by losses from the fair value of derivative liabilities, financing costs, and interest expenses.
• The company's net loss for the year was $7,412,153, compared to a net loss of $5,144,560 in the previous year.
• Endexx had a stockholders deficit of $17,331,610 and a working capital deficit of $25,643,895 as of September 30, 2023.
• The company's independent auditor has raised substantial doubt about its ability to continue as a going concern.
• Endexx is actively seeking additional debt or equity financing to continue operations.

Sentiment

Score: 3

Explanation: The document presents a mixed picture with strong revenue growth offset by significant losses, a going concern warning, and material weaknesses in internal controls. The overall sentiment is negative due to the financial instability and operational risks.

Positives

• The company experienced a substantial 83% increase in revenue, indicating strong market demand for its products.
• Operating expenses decreased by $1,168,457, showing improved cost management.
• The company is actively expanding its sales channels and marketing efforts.

Negatives

• The company reported a gross loss of $765,523, a significant decrease from the previous year's gross profit.
• The net loss increased to $7,412,153, indicating ongoing financial challenges.
• The company has a substantial stockholders deficit of $17,331,610 and a working capital deficit of $25,643,895.
• The independent auditor has raised concerns about the company's ability to continue as a going concern.

Risks

• The company's ability to continue as a going concern is dependent on securing additional financing.
• The company faces significant competition in the hemp-derived product and vape industries.
• Regulatory changes and enforcement actions could negatively impact the company's operations.
• The company's reliance on third-party suppliers and distributors poses a risk to its supply chain.
• The company's products are subject to product liability claims and potential recalls.
• The company's stock is categorized as a penny stock, which may make it difficult for investors to sell their shares.
• The company has identified material weaknesses in its internal controls over financial reporting.

Future Outlook

The company plans to expand Hyla's distribution and sales channels, increase retail and e-commerce sales for CBD Unlimited, and seek additional distribution partners and strategic alliances. They also expect to continue to operate at a loss through fiscal 2023, but expect the adverse impact of COVID-19 on their business to abate.

Management Comments

• Management expects an increase in commercial revenue over the next 12 months as the business model is implemented and expanded.
• Management will continue to focus on the development of both current and new products while continuing to commercialize existing product lines.
• Management expects operating expenses to remain consistent over the next 12 months, offset by increased research and development expenses.

Industry Context

The hemp-derived product industry is experiencing significant growth, with projections indicating a market size of $59.3 billion by 2030. The vape industry is also evolving, with consumers seeking healthier alternatives. Endexx is positioned to capitalize on these trends with its plant-based products.

Comparison to Industry Standards

• The document mentions that Endexx competes with small-to-mid-sized manufacturers with annual revenues between $2 million and $20 million.
• It also notes that if successful, Endexx would compete with larger companies generating over $50 million in annual revenue.
• The document lists several competitors including Medterra CBD, Kadenwood, LLC, and Charlottes Web Holdings, Inc., indicating a competitive landscape.
• The document states that Endexx believes its products are superior due to controlled dosing and delivery systems, tested within the healthcare industry, which is a differentiator from many competitors.

Management Changes

Legal Proceedings

• Serious Promotions, Inc. has filed an arbitration claim against Khode, LLC, seeking $6,250,000 in damages for alleged non-payment of fees.
• Khode, LLC, joined by Endexx, has filed counterclaims against Serious Promotions, Khaled, and Impact Brokers, seeking damages of no less than $100,000,000 for breach of contract and related violations.

Related Party Transactions

• Todd Davis, the CEO, has a consulting agreement with the company through Rayne Forecast Inc., which has received compensation and shares.
• Black Mountain Botanicals, owned by the spouse of the company's President, was a contractor for sales and procurement and received payments for services and credit card processing.

Stakeholder Impact

• Shareholders face the risk of significant or complete loss of investment due to the company's financial instability and going concern issues.
• Employees may be impacted by potential cost-cutting measures or restructuring due to the company's financial challenges.
• Customers may be affected by potential supply chain disruptions or changes in product availability.
• Creditors face the risk of non-payment due to the company's financial difficulties.

Next Steps

• The company plans to expand Hyla's distribution and sales channels both internationally and domestically.
• The company plans to expand retail and e-commerce sales channels for CBD Unlimited and its brand lines.
• The company plans to seek additional distribution partners and evaluate strategic alliances and potential acquisitions.

Key Dates

Keywords

hemp-derived products, vape products, CBD, cannabinoids, plant-based, consumer products, financial results, revenue, net loss, operating expenses, going concern, Hyla, CBD Unlimited