The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion and analysis contains forward-looking statements based upon current expectations that involve risks, uncertainties, and assumptions, such as our plans, objectives, expectations, and intentions. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results, or other developments. Forward-looking statements are based upon estimates, forecasts, and assumptions that are inherently subject to significant business, economic, and competitive uncertainties, and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by us, or on our behalf. We disclose any obligation to update forward-looking statements. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those discussed under "Forward-Looking Statements," "Item 1. Business," and "Item 1A. Risk Factors" sections in this Annual Report on Form 10-K. We use words such as "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could," and similar expressions to identify forward-looking statements.





Overview

We develop hemp-derived, cannabidiol-based products, each formulated to address key segments of the health and wellness market. Through our subsidiaries, we sell high-end, full-spectrum hemp-derived oils, extracts, topicals, and pet products, all with the shared purpose of supporting the potential of relief of pain and inflammation for humans and pets, through our e-commerce site www.cbdunlimited.com, as well as other online and in-store retailers. In addition to our consumer products, our Gorilla-Tek division offers a state-of the art automated dispensing system providing a secure method of distributing hemp-based products. The proprietary system enables retailers to increase sales channels without opening a physical storefront location. Complementing our retail products and Gorilla-Tek divisions, we also own and operate a number of wholly-owned subsidiaries that offer technology and consulting solutions to the hemp and CBD industry, including an easy to use "Seed-to-Shelf" compliance and inventory tracking and process management system for regulated products in a front of counter pharmacy support platform.

The Company was incorporated in the State of Nevada on September 5, 1997 as Micron Solutions in order to complete a merger with Shillelagh. In November 1997, Shillelagh merged with and into Micron Solutions, with Micron Solutions as the surviving entity. In 2002, Micron Solutions entered into the Exchange Agreement with PanaMed, Inc., and all of its shareholders, pursuant to which PanaMed, Inc. became the Company's wholly-owned subsidiary. In connection with the Exchange Agreement, Micron also changed its name to PanaMed Corporation.

In June 2005, we filed a Certificate of Amendment to Articles of Incorporation with the Secretary of State of the State of Nevada to change our name to Endexx Corporation. At that time, we adopted our current trading symbol, "EDXC." In September 2005, PanaMed Corporation acquired VBB, an SaaS provider, through a merger, whereby VBB merged with and into us, and we were the surviving entity. Subsequently, we operated as a diversified technology and SaaS and compliance and tracking systems company, until we shifted our focus to the hemp-derived product industry in August 2014. In October 2018, we changed our name to CBD Unlimited, Inc., and in May 2020, we changed our name back to Endexx Corporation, with CBD Unlimited, Inc., becoming our wholly-owned subsidiary. On January 25, 2021, we filed our Amended and Restated Articles of Incorporation.





Results of Operations

Fiscal Year Ended September 30, 2022 Compared to Fiscal Year Ended and September 30, 2021





Revenues

Revenues for the fiscal year ended September 30, 2022 were $1,277,579, as compared to $650,515 for the fiscal year ended September 30, 2021, a $627,064 (or 96.4%) increase in revenues. The improvement in revenue for fiscal 2022 is partly attributable to improved market conditions, new sales channels and improved marketing efforts in promoting the Company's products.

We expect an increase in commercial revenue over the next 12 months as our business model is implemented and expanded and our commercial and retail accounts continue to grow and expand the products being sold in each of their retail locations. Additionally, we will continue to focus on the development of both current and new products while continuing to commercialize existing products lines.





Gross Profit (Loss)

Gross profit (loss) for the fiscal year ended September 30, 2022 was a profit of $503,009, as compared to a loss of $344,078 for the fiscal year ended September 30, 2021. The gross profit in 2022 was attributable to increased revenues and decreased inventory impairment.





Operating Expenses

Operating expenses for the fiscal year ended September 30, 2022, were $3,865,244, as compared to $5,027,251for the fiscal year ended September 30, 2021, a decrease of $1,162,007. The decrease in operating expenses over the prior period can be attributed to significant decreases in advertising expenses.

We expect that operating expenses will continue to decrease over the next 12 months as our long-term growth strategy will require significant changes in personnel and facilities, offset increased research and development expenses to ensure that products nearing commercialization are brought to market as quickly and as effectively. We cannot provide any assurances that our strategy will be effective.




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Other Expense

Other expense for the fiscal year ended September 30, 2022 was $766,711, as compared to other expense of $1,436,825 for the year ended September 30, 2020, a $670,114 year-over-year decrease. This is the result of significantly lower interest expenses. Derivative liabilities are associated with loans that are convertible and have variable pricing on the equivalent shares of Common Stock. At the end of each period, these derivative liabilities are valued, and the net change is recorded as a gain or loss in other expense and income.

Loss from Operations and Total Net Loss

Loss from operations for the fiscal year ended September 30, 2022 was $3,362,235, as compared to loss from operations of $5,371,329 for the fiscal year ended September 30, 2021, an improvement in net loss from operations of $2,009,094. The decrease in loss from operations for 2022 was the result of (i) a increase in gross revenues, (ii) a marginally lower increase in cost of revenues, and (iii) a decrease in inventory impairment, and (iv) a decrease in total operating expenses. Total net loss for the fiscal year ended September 30, 2022 was $4,128,946, as compared to a total net loss of $6,808,154 for the fiscal year ended September 30, 2021, a decrease of $2,679,208 in total net loss. The decrease in total net loss for 2022 was as a result of decreased operating expenses, lower interest expenses and gains in default penalties. Derivative liabilities are associated with loans that are convertible and have variable pricing on the equivalent shares of Common Stock. At the end of each period, these derivative liabilities are valued, and the net change is recorded as a gain or loss in other expense and income.

We do not expect to realize net income in the near term as anticipated operational expenses are expected to increase as a result of increased research and development expenses, consulting fees, payroll expenses, and administrative costs as staffing increases. Despite management's focus on ensuring operating efficiencies, we expect to continue to operate at a loss through fiscal 2023 only in part due to the COVID-19 pandemic. Nevertheless, we expect that, during our current fiscal year, the adverse impact of COVID-19 on our business will slowly abate, as the positivity rate in tests for COVID-19 continues to decrease along with the new infection and mortality rates and the number of people becoming vaccinated continues to increase.

Liquidity and Capital Resources - Fiscal Year Ended September 30, 2022





Going Concern

We have incurred operating losses since inception and have negative cash flow from operations. As of September 30, 2022, we had a stockholders' deficit of $8,154,808, a working capital deficit of $8,333,828, and we incurred an accumulated deficit of $43,642,790 and incurred a net loss of $4,128,946 in fiscal year 2022. Additionally, we utilized $2,953,681 in cash during the fiscal year ended September 30, 2022, while we received $3,297,976 in cash from financing activities. As a result, our continuation as a going concern is dependent on our ability to obtain additional financing until we can generate sufficient cash flow from operations to meet our obligations. We intend to continue to seek additional debt or equity financing to continue our operations, but there can be no assurance that such financing will be available on terms acceptable to us, if at all.

Our consolidated financial statements have been prepared on a going concern basis, which implies we may not continue to meet our obligations and continue our operations for the next fiscal year. The continuation of our Company as a going concern is dependent upon our ability to obtain necessary debt or equity financing to continue operations until we begin generating positive cash flow.

As of September 30, 2022, we had a cash position of $365,162. We estimate our operating expenses for the near- and mid-term may continue to exceed the revenues that we may generate, and we may need to raise capital through either debt or equity offerings to continue operations. We are in the early stages of our business. We are required to fund growth from financing activities, and we intend to rely on a combination of equity and debt financings. Due to market conditions and the early stage of our operations, there is considerable risk that we will not be able to raise such financings at all, or on terms that are not overly dilutive to our existing stockholders. We can offer no assurance that we will be able to raise such funds. If we are unable to raise the funds we require for all of our planned operations, we may be forced to reallocate funds from other planned uses and may suffer a significant negative effect on our business plan and operations, including our ability to develop new products and continue our current operations. As a result, our business may suffer, and we may be forced to reduce or discontinue operations.

There is no assurance that we will ever be profitable or that debt or equity financing will be available to us in the amounts, on terms, and at times deemed acceptable to us, if at all. The issuance of additional equity securities by us would result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, would increase our liabilities and future cash commitments. If we are unable to obtain financing in the amounts and on terms deemed acceptable to us, we may be unable to continue our business, as planned, and as a result may be required to scale back or cease operations for our business, the result of which would be that our stockholders would lose some or all of their investment. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should we be unable to continue as a going concern.

Cash Flow - Operating Activities

For the 12 months ended September 30, 2022, our cash used in operating activities amounted to an outflow of $1,463,181, compared to cash used during the 12 months ended September 30, 2021 of $3,720,267.The decrease in cash used in our operating activities is due to changes in our inventory value, prepaid expenses, accounts receivable, and accrued interest on notes payable.

Cash Flow - Financing Activities

For the 12 months ended September 30, 2022, our cash provided by financing activities amounted to $3,297,976, which includes $0 in proceeds received from the issuances of our Common Stock and $2,064,123 in proceeds from the issuance of convertible notes, and $333,123 in proceeds from the issuance of notes payable.




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For the 12 months ended September 30, 2021, our cash provided by financing activities amounted to $3,736,484, which includes $328,000 in proceeds received from the issuances of our Common Stock and $1,614,234 in proceeds from the issuance of convertible notes, and $1,815,000 in proceeds from the issuance of notes payable.

Cash Flow - Investing Activities

Net cash used in investing activities in the 12 months ended September 30, 2022 was $1,490,500, compared to net cash used in investing activities in the 12 months ended September 30, 2021 of $0.

Accounts Receivable and Allowance for Doubtful Account Receivable

Accounts receivable are recorded at net realizable value. We determine provisions for uncollectible accounts, sales returns, and claims based upon factors including the credit risk and activity of specific distributors and resellers, historical trends, and other information. If we become aware of a specific distributor's or reseller's inability to meet its financial obligations, bad debt charges are recorded based on an overall assessment of past due accounts receivable outstanding. In the opinion of management, a provision was deemed necessary for uncollectible accounts.





Inventory

The cost of inventory using the standard cost method, which approximates actual cost based on a first-in, first-out method. Our inventories are valued at the lower of cost or net realizable value. Our inventory consists almost entirely of finished and unfinished goods, and freight, which include CBD creams, oils, capsules, and sprays. We periodically evaluate and adjust inventories for obsolescence. In the opinion of management, no provision for obsolescence is deemed necessary. The shelf life of all product inventory is two years, and as of September 30, 2022, we had approximately $777,911 of product in inventory, which was a decrease of approximately $142,901, compared to approximately $920,812 at September 30, 2021. We expect the balance of inventory to increase in direct relation to the increase in sales that we expect.

Goodwill and Intangible Assets

Goodwill arises from business combinations and is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exists that indicate that a goodwill impairment test should be performed. We have selected December 31 as the date to perform the annual impairment test.

Intangible assets represent both indefinite lived and definite lived assets. Trademarks are deemed to have definite useful lives of ten years, are amortized, and are tested annually for impairment. Intangible assets are reported on the balance sheet at cost less accumulated amortization. We have selected September 30 as the date to perform the annual impairment test.

Stock-Based Compensation

FASB's ASC Topic 718, Stock Compensation (formerly, FASB Statement 123R), prescribes accounting and reporting standards for all stock-based payment transactions in which employee and non-employee services are acquired. We measure the cost of employee and non-employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. Fair value for restricted stock awards is valued using the closing price of our Common Stock on the date of grant. For our 2022 and 2021 fiscal years, we recognized stock-based compensation expense of approximately $455,800, and $721,021, respectively.

Off Balance Sheet Arrangements

As of September 30, 2022 and on September 30, 2021, we had no 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, capital expenditures, or capital resources that is material to stockholders.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experiences and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions and conditions. We continue to monitor significant estimates made during the preparation of our financial statements. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions.

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