SEC Info - Hempacco Co., Inc. - ‘10-Q’ for 6/30/23

Page	(sequential)		(alphabetic)	↑Top
		Alternative Formats (Word, et al.) Condensed Consolidated Balance Sheets at June 30, 2023 and December 31, 2022 (unaudited) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 (unaudited) Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2023, and 2022 (unaudited) Condensed Consolidated Statements of Stockholders' Equity for the three and six months ended June 30, 2023, and 2022 (unaudited) Controls and Procedures Defaults Upon Senior Securities Exhibits Financial Information Financial Statements Item 1 Item 2 Item 3 Item 4 Item 5 Item 6 Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations Mine Safety Disclosures Notes to Condensed Consolidated Financial Statements (unaudited) Other Information Part I -- Financial Information Part II -- Other Information Quantitative and Qualitative Disclosures about Market Risk Table of Contents Unregistered Sales of Equity Securities and Use of Proceeds
1	1st Page – Filing Submission
"	Table of Contents
"	Part I -- Financial Information
"	Item 1
"	Financial Statements
"	Condensed Consolidated Balance Sheets at June 30, 2023 and December 31, 2022 (unaudited)
"	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2023, and 2022 (unaudited)
"	Condensed Consolidated Statements of Stockholders' Equity for the three and six months ended June 30, 2023, and 2022 (unaudited)
"	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 (unaudited)
"	Notes to Condensed Consolidated Financial Statements (unaudited)
"	Item 2
"	Management's Discussion and Analysis of Financial Condition and Results of Operations
"	Item 3
"	Quantitative and Qualitative Disclosures about Market Risk
"	Item 4
"	Controls and Procedures
"	Part II -- Other Information
"	Legal Proceedings
"	Unregistered Sales of Equity Securities and Use of Proceeds
"	Defaults Upon Senior Securities
"	Mine Safety Disclosures
"	Item 5
"	Item 6
"	Exhibits

i 0001892480 i false i --12-31 i Q2 i 2023 i 0.001 i 0.001 i 50000000 i 10000000 i 0.001 i 200000000 i 0 i 23436505 i 0 i 28343728 i 0 i 0 i 0 i 0 i 0.049900018924802023-01-012023-06-300001892480hpco:PurchaseAgreementMemberhpco:GreenStarLabsMemberus-gaap:SubsequentEventMembersrt:MaximumMember2023-07-012023-07-100001892480hpco:PurchaseAgreementMemberhpco:GreenStarLabsMemberus-gaap:SubsequentEventMembersrt:MinimumMember2023-07-012023-07-100001892480hpco:PurchaseAgreementMemberhpco:GreenStarLabsMemberus-gaap:SubsequentEventMember2023-07-012023-07-100001892480hpco:PurchaseAgreementMemberhpco:GreenStarLabsMemberus-gaap:SubsequentEventMember2023-07-100001892480hpco:FMWMediaWorksLLCMember2022-10-012022-10-120001892480hpco:NorthEquitiesCorpMember2022-09-012022-09-170001892480hpco:BousteadSecuritiesLLCMember2022-09-012022-09-0600018924802022-01-012022-12-3100018924802022-07-1500018924802022-07-012022-07-150001892480hpco:HempaccoSharesMember2022-04-012022-04-070001892480hpco:SeptemberOneTwoZeroTwentyTwoMemberhpco:BousteadSecuritiesLLCMember2023-01-012023-06-300001892480hpco:BousteadSecuritiesLLCMember2022-09-060001892480hpco:SeptemberOneTwoZeroTwentyTwoMemberhpco:BousteadSecuritiesLLCMember2023-06-300001892480hpco:HempaccoSharesMember2022-04-070001892480hpco:USTMexicoIncMember2022-01-012022-06-300001892480hpco:USTMexicoIncMember2022-04-012022-06-300001892480hpco:USTMexicoIncMember2023-04-012023-06-300001892480hpco:USTMexicoIncMember2023-01-012023-06-300001892480hpco:GreenStarLabsMember2022-12-310001892480hpco:GreenStarLabsMember2023-04-012023-06-300001892480hpco:GreenGlobeInternationalIncMember2023-04-012023-06-300001892480hpco:GreenStarLabsMember2023-06-010001892480hpco:GreenStarLabsMember2023-01-012023-06-300001892480hpco:AlfalfaHoldingsLLCMember2023-06-300001892480hpco:HempaccoPaperCompanyMember2023-06-300001892480hpco:GreenStarLabsMember2023-06-300001892480hpco:GreenGlobeInternationalIncMember2023-06-300001892480hpco:GreenGlobeInternationalIncMember2023-01-012023-06-300001892480hpco:USTMexicoIncMember2022-12-310001892480hpco:USTMexicoIncMember2023-06-300001892480hpco:PrimusLogisticsMember2022-12-310001892480hpco:PrimusLogisticsMember2022-01-012022-06-300001892480hpco:PrimusLogisticsMember2023-01-012023-06-300001892480hpco:PrimusLogisticsMember2023-06-300001892480hpco:CMOMember2023-01-012023-06-300001892480hpco:CEOMember2022-01-012022-06-300001892480hpco:CEOMember2023-01-012023-06-3000018924802021-07-012021-07-310001892480hpco:ThirdPartyLoanAgreementMember2022-12-310001892480hpco:ThirdPartyLoanAgreementMember2023-06-300001892480hpco:ThirdPartyLoanAgreementMember2021-01-012021-01-150001892480hpco:ThirdPartyLoanAgreementMember2020-06-012020-06-150001892480hpco:GGIIWarrantsMember2021-08-012021-08-110001892480hpco:CompensationWarrantsMember2023-01-012023-06-300001892480hpco:CompensationWarrantsMember2023-01-012023-01-250001892480hpco:CompensationWarrantsMember2023-01-250001892480srt:MaximumMemberhpco:WarrantsMember2023-01-012023-06-300001892480srt:MinimumMemberhpco:WarrantsMember2023-01-012023-06-300001892480srt:MaximumMemberhpco:WarrantsMember2022-01-012022-12-310001892480srt:MinimumMemberhpco:WarrantsMember2022-01-012022-12-310001892480srt:MaximumMemberhpco:WarrantsMember2022-12-310001892480srt:MinimumMemberhpco:WarrantsMember2022-12-310001892480srt:MaximumMemberhpco:WarrantsMember2023-06-300001892480srt:MinimumMemberhpco:WarrantsMember2023-06-300001892480hpco:WarrantsMember2022-01-012022-12-310001892480hpco:WarrantsMember2023-01-012023-06-300001892480hpco:TalentDesigneeWarrantsMember2023-06-300001892480hpco:TalentWarrantsMember2023-06-300001892480hpco:CompensationWarrantsMember2023-06-300001892480hpco:RepresentativesWarrantsMember2023-06-300001892480hpco:ConvertiblePromissoryNotesMember2022-06-012022-06-070001892480hpco:ConvertiblePromissoryNotesMember2023-06-300001892480hpco:ConvertiblePromissoryNotesMember2022-03-1800018924802023-08-010001892480hpco:ConvertiblePromissoryNotesMember2023-01-012023-06-3000018924802021-05-012021-06-210001892480hpco:ConvertiblePromissoryNotesMember2022-03-012022-03-180001892480srt:MaximumMember2023-01-012023-06-300001892480srt:MinimumMember2023-01-012023-06-300001892480hpco:ErnieSparksMember2023-06-300001892480hpco:MiguelCamberoMember2023-06-300001892480hpco:ConvertiblePromissoryNotesMember2021-05-012021-06-210001892480us-gaap:ShortTermDebtMember2022-09-012022-09-060001892480us-gaap:ShortTermDebtMember2022-09-060001892480us-gaap:ShortTermDebtMember2023-06-300001892480us-gaap:ShortTermDebtMember2022-12-310001892480us-gaap:ShortTermDebtMember2022-01-012022-01-060001892480us-gaap:ShortTermDebtMember2019-12-012019-12-110001892480us-gaap:ShortTermDebtMember2019-12-110001892480hpco:OperatingLeaseMember2022-01-012022-06-300001892480hpco:OperatingLeaseMember2022-04-012022-06-300001892480hpco:OperatingLeaseMember2023-04-012023-06-300001892480hpco:OperatingLeaseMember2022-12-310001892480hpco:OperatingLeaseMember2023-06-300001892480hpco:OperatingLeaseMember2023-01-012023-06-300001892480hpco:KiosksPlusImprovementsMember2022-12-310001892480hpco:KiosksPlusImprovementsMember2023-06-300001892480us-gaap:LeaseholdImprovementsMember2022-12-310001892480us-gaap:LeaseholdImprovementsMember2023-06-300001892480hpco:ProductionEquipmentMember2022-12-310001892480hpco:ProductionEquipmentMember2023-06-300001892480hpco:CustomerMember2023-04-012023-06-300001892480hpco:CustomerTwoMember2023-04-012023-06-300001892480hpco:CustomersOneMember2023-04-012023-06-300001892480hpco:CustomerMember2022-04-012022-06-300001892480hpco:CustomerTwoMember2023-01-012023-06-300001892480hpco:CustomerMember2023-01-012023-06-300001892480hpco:CustomerMember2022-06-300001892480hpco:CustomerMember2023-06-300001892480hpco:CustomerMember2022-01-012022-06-300001892480us-gaap:ConvertibleNotesPayableMember2022-01-012022-06-300001892480us-gaap:ConvertibleNotesPayableMember2023-01-012023-06-300001892480hpco:GoingConcernMattersMember2023-04-012023-06-300001892480hpco:GoingConcernMattersMember2023-01-012023-06-300001892480hpco:GoingConcernMattersMember2023-06-300001892480hpco:AlfalfaMember2023-01-012023-06-300001892480hpco:HVIAndWeedsiesMember2023-01-012023-06-300001892480hpco:CuratedNutraLLCMember2023-05-012023-05-030001892480hpco:UnderwritersMember2023-02-012023-02-140001892480hpco:UnderwritersMember2023-02-140001892480hpco:UnderwritersMember2023-01-012023-06-300001892480hpco:UnderwritersMember2023-02-090001892480us-gaap:CorporateJointVentureMember2023-05-012023-05-0700018924802023-03-012023-03-3100018924802023-02-012023-02-080001892480us-gaap:NoncontrollingInterestMember2023-04-012023-06-300001892480us-gaap:RetainedEarningsMember2023-04-012023-06-300001892480us-gaap:AdditionalPaidInCapitalMember2023-04-012023-06-300001892480us-gaap:CommonStockMember2023-04-012023-06-3000018924802023-03-310001892480us-gaap:NoncontrollingInterestMember2023-03-310001892480us-gaap:RetainedEarningsMember2023-03-310001892480us-gaap:AdditionalPaidInCapitalMember2023-03-310001892480us-gaap:CommonStockMember2023-03-310001892480us-gaap:NoncontrollingInterestMember2023-06-300001892480us-gaap:RetainedEarningsMember2023-06-300001892480us-gaap:AdditionalPaidInCapitalMember2023-06-300001892480us-gaap:CommonStockMember2023-06-300001892480us-gaap:NoncontrollingInterestMember2023-01-012023-06-300001892480us-gaap:RetainedEarningsMember2023-01-012023-06-300001892480us-gaap:AdditionalPaidInCapitalMember2023-01-012023-06-300001892480us-gaap:CommonStockMember2023-01-012023-06-300001892480us-gaap:NoncontrollingInterestMember2022-12-310001892480us-gaap:RetainedEarningsMember2022-12-310001892480us-gaap:AdditionalPaidInCapitalMember2022-12-310001892480us-gaap:CommonStockMember2022-12-310001892480us-gaap:NoncontrollingInterestMember2022-04-012022-06-300001892480us-gaap:RetainedEarningsMember2022-04-012022-06-300001892480us-gaap:AdditionalPaidInCapitalMember2022-04-012022-06-300001892480us-gaap:CommonStockMember2022-04-012022-06-3000018924802022-03-310001892480us-gaap:NoncontrollingInterestMember2022-03-310001892480us-gaap:RetainedEarningsMember2022-03-310001892480us-gaap:AdditionalPaidInCapitalMember2022-03-310001892480us-gaap:CommonStockMember2022-03-3100018924802022-06-300001892480us-gaap:NoncontrollingInterestMember2022-06-300001892480us-gaap:RetainedEarningsMember2022-06-300001892480us-gaap:AdditionalPaidInCapitalMember2022-06-300001892480us-gaap:CommonStockMember2022-06-300001892480us-gaap:NoncontrollingInterestMember2022-01-012022-06-300001892480us-gaap:RetainedEarningsMember2022-01-012022-06-300001892480us-gaap:AdditionalPaidInCapitalMember2022-01-012022-06-300001892480us-gaap:CommonStockMember2022-01-012022-06-3000018924802021-12-310001892480us-gaap:NoncontrollingInterestMember2021-12-310001892480us-gaap:RetainedEarningsMember2021-12-310001892480us-gaap:AdditionalPaidInCapitalMember2021-12-310001892480us-gaap:CommonStockMember2021-12-3100018924802022-01-012022-06-3000018924802022-04-012022-06-3000018924802023-04-012023-06-300001892480us-gaap:SeriesAPreferredStockMember2022-12-310001892480us-gaap:SeriesAPreferredStockMember2023-06-3000018924802022-12-3100018924802023-06-3000018924802023-08-11iso4217:USDxbrli:sharesiso4217:USDxbrli:sharesutr:sqftxbrli:pure

i ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

i ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. i Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). i Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act. Yes i ☐ No ☒

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

In connection with the Operating Agreement, effective January 24, 2023, HPDG, LLC entered into the Services Agreement with Spanky’s Clothing, Inc., and Calvin Broadus, Jr. p/k/a “Snoop Dogg” (collectively “Talent”), pursuant to which Talent will endorse the HDPG, LLC’s smokable hemp products and serve as a spokesperson for the products in the United States. HDPG, LLC shall (i) i pay Talent’s legal expenses of $7,500 in connection with entering into the Operating Agreement and Services Agreement; (ii) cause the Company to issue to Talent a fully vested warrant to acquire 450,000 shares of Company common stock at a strike price of $1.00 per share (the “Talent Warrants”); (iii) cause the Company to issue to Talent’s designee a fully vested warrant to acquire 50,000 shares of the Company’s common stock at a strike price of $1.00 per share (the “Talent Designee Warrants”); and (iv) pay Talent royalties of 10% of HDPG, LLC’s gross revenue, with minimum annual royalty payments of $450,000 by the end of the first two years of the initial term of the Services Agreement, an additional $600,000 by the end of the third year of the initial term, and an additional $1,200,000 by the end of the fourth year of the initial term. As of June 30, 2023, the company has accrued $ i 41,956 of the minimum annual royalty payment of $450,000 which will be due and payable on i April 10, 2025.On or about January 30, 2023, the Company issued the Talent Warrants and Talent Designee Warrants as required by the Services Agreement (See Note 9).

On February 8, 2023, the Company signed, as guarantor, a lease agreement between US Tobacco de Mexico S.A. de C.V. (“US Tobacco de Mexico,” a related party), which is 100% owned by UST Mexico, Inc. (“UST Mexico,” a related party), and Grupo Fimher, S. de R.I. de C.V. (“Fimher”) for the lease of i 43,000 sf of manufacturing space located in Tijuana, Mexico. The term of the lease is three years, commencing on March 1, 2023. The first year’s rent payment is $ i 18,622 per month, with i 3.5% inflation increases on the first and second anniversaries of the lease. The estimated total contingent liability at lease inception will be $ i 694,159. Hempacco Co., Inc. and Hempacco Paper Co., Inc. are sub-tenants of US Tobacco de Mexico and will manufacture products at this facility. A liability for the guarantee has not been recorded as of June 30, 2023 as the amount is not probable.

On February 8, 2023, the Company’s subsidiary, Hempacco Paper Co., Inc., leased the above-referenced space for an initial period of one year for a monthly rental of $ i 2,500. Hempacco Paper will use this facility for the manufacture of all its paper products.

Effective February 1, 2023, the Company through its representative in Warsaw, Poland, filed the equivalent of Articles of Incorporation with the court to create Hempacco Europe Sp.z.o.o. (an LLC equivalent), the corporate entity through which the Company will distribute its smokable products throughout the EU. Ownership of the entity rests 99% with the Company, and 1% with Jakub Duda, an individual.

On February 9, 2023, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Boustead Securities, LLC, and EF Hutton, a division of Benchmark Investments, LLC, as representatives (the “Representatives”) of the underwriters (the “Underwriters”) in connection with the public offering of additional shares of common stock of the Company. The Underwriting Agreement provides for the offer and sale of i 4,200,000 shares of the Company’s common stock, par value $ i 0.001 (the “Common Stock”) at a price to the public of $ i 1.50 per share (the “Offering”). In connection therewith, the Company agreed to issue to the Representatives and/or their designees i 338,100 warrants to purchase shares of Common Stock, exercisable from February 14, 2023, through February 10, 2028, at $1.50 per share subject to adjustment as provided therein (the “Representatives’ Warrants”, see Note 9). The Company also granted the Underwriters an option (the “Option”) for a period of 45 days to purchase up to an additional i 630,000 shares of Common Stock. The Offering is being made pursuant to a Registration Statement on Form S-1 (File No. 333-269566) (the “Registration Statement”), which was declared effective by the Securities and Exchange Commission on February 9, 2023.

On February 11, 2023, the Underwriters exercised the Option in full, and on February 14, 2023, the Offering was completed. At the closing of the Offering, the Company (i) sold an aggregate of i 4,830,000 shares of Common Stock for total gross proceeds of $ i 7,245,000, and (ii) issued the Representatives’ Warrants as directed by the Representatives. After deducting underwriter commissions and Offering expenses, the Company received net proceeds of $ i 6,610,400.

The Underwriting Agreement includes customary representations, warranties, and covenants by the Company. It also provides that the Company will indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”), or contribute to payments the Underwriter may be required to make because of these liabilities.

On April 6, 2023, i Hempacco Co. received a letter notification from the Nasdaq Capital Market (“Nasdaq”) advising of its non-compliance with Nasdaq listing rules because Hempacco had failed to maintain its stock price at above $1.00 for a period of 30-days. The Nasdaq rules provide for a period of 180 days in which Hempacco must restore compliance. This period expires on October 3, 2023.

On April 20, 2023, Hempacco received a further letter notification from Nasdaq advising of its non-compliance with Nasdaq listing rules because Hempacco had failed to file its Annual Report on Form 10-K (for the 2022 fiscal year) with the Securities and Exchange Commission by the required due date. The deficiency was cured by Hempacco by the filing of the Annual Report on Form 10-K on May 15, 2023.

On May 3, 2023, Hempacco paid $ i 300,000 to Curated Nutra, LLC, the 50% partner in Green Star Labs, Inc., (“GSL”) for the purchase of additional manufacturing equipment. This equipment is required to fulfill product orders from Hempacco’s Snoop Dogg JV entity. This equipment will remain the property of Hempacco Inc., until such time that an agreement is reached with Curated Nutra for the transfer of its ownership interest in GSL. On July 10, 2023, Hempacco signed a Purchase Agreement and an accompanying Assignment Agreement with Viva Veritas LLC (“Veritas”) (the successor to Curated Nutra, LLC) whereby Veritas agreed to assign its 50% interest in GSL to Hempacco together with additional equipment lines related to bottling and gummy production (see Note 14).

On May 7, 2023, Hempacco entered into a joint venture agreement with Nasir Ghesani, a New York distribution company doing business as “Reliable Distributor,” with each party to own i 50% of the joint venture and working capital needs to be paid by Hempacco. The joint venture is intended to enter new master distributor agreements for Hempacco smokable products to be placed in New York area convenience stores, gas stations and specialty smoke shops. On May 16, 2023. the Company formed a new Nevada Corporation, RD-HPCO, Inc. as the joint venture entity between the Company and Nasir Ghesani.

On May 23, 2023, Hempacco received a letter notification from Nasdaq advising of its non-compliance with Nasdaq listing rules because Hempacco had failed to file its Quarterly Report on Form 10-Q (for the quarter ended March 31, 2023) with the Securities and Exchange Commission by the required due date. The deficiency was cured by the filing of the Quarterly Report on Form 10-Q on July 5, 2023.

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“GAAP”), which contemplates the Company’s continuation as a going concern. The Company incurred a net loss of $ i 3,989,904 during the six months ended June 30, 2023, and has an accumulated deficit of $ i 14,405,058 as of June 30, 2023. During the three months ended June 30, 2023, the Company’s net cash used in operations was $ i 3,821,709.

Management intends to raise additional operating funds through equity and/or debt offerings. However, there can be no assurance management will be successful in its endeavors. Due to uncertainties related to these matters, there exists a substantial doubt about the ability of the Company to continue as a going concern. The accompanying financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern. If we are not able to successfully execute our future operating plans, our financial condition and results of operation may be materially adversely affected, and we may not be able to continue as a going concern.

For the six months ended June 30, 2023, and 2022, the following outstanding dilutive securities were excluded from the computation of diluted net loss per share as the result of the computation was anti-dilutive.

Base monthly rent commenced at $ i 10,000 per month, with subsequent defined annual increases. All operating expenses are borne by the lessee. Amounts payable to the related party for rent as of June 30, 2023, and December 31, 2022, were $0 and $ i 5,163 respectively. On June 30, 2023, and December 31, 2022, the amounts of $ i 155,465 and $ i 25,000 respectively, of prepaid rent were included in the deposits and prepayments account.

Operating lease right of use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Generally, the implicit rate of interest in arrangements is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The operating lease ROU asset includes any lease payments made and excludes lease incentives. Our variable lease payments primarily consist of maintenance and other operating expenses from our real estate leases. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

The following are the expected lease payments as of June 30, 2023, including the total amount of imputed interest/present value discount.

Rent expenses were $ i 32,779 and $ i 65,558 during the three and six months ended June 30, 2023, respectively, and $ i 31,827 and $ i 63,654 during the three and six months ended June 30, 2022, respectively.

See Note 1 for information on a new lease between Hempacco Paper Co., Inc., and UST Mexico.

The Black-Scholes model uses the following variables to calculate the value of an option or warrant for the six months ended June 30, 2023, and the twelve months ended December 31, 2022:

As of June 30, 2023, UST Mexico owned i 947,200,000 shares of common stock of Green Globe International, Inc. UST Mexico is a related party by virtue of the CEO’s i 25% interest in UST Mexico.

On or about March 1, 2022, the Company entered into a mutual line of credit agreement with its parent company, Green Globe International, Inc. (“GGII”). The purpose of the credit agreement is to facilitate short-term borrowing needs on an interest-free basis, with advances being subject to repayment within 90 days with a maximum of $ i 500,000 allowed to be outstanding within any 90-day period. On December 1, 2022, the maximum amount was increased to $ i 1,500,000. During the twelve months ended December 31, 2022, the Company loaned GGII a net amount of $ i 692,119. As of June 30, 2023, the balance owed to the Company by GGII was $ i 1,614,027. The Company recorded a reserve against the entire balance as of June 30, 2023. The Company concluded that collection of the loan balance is not probable. Thus, during the three and six months ended June 30, 2023, the Company recorded a reserve of $ i 195,775 and $ i 1,320,775, respectively, which is included in expensing of related party advances and loans on the statement of operations. Subsequent to June 30, 2023, the Company made additional loans of $ i 50,500 to GGII.

During 2023 and 2022, the Company made short term cash advances directly to Green Star Labs, Inc., a subsidiary joint venture of the Company’s parent, Green Globe International, Inc. As of June 30, 2023 and December 31, 2022, the balance owed by Green Star Labs, Inc. to the Company was $ i 1,200,400 and $ i 605,994, respectively. The Company concluded that collection of a portion of the loan balance is not probable. Thus, the three and six months ended June 30, 2023, the Company recorded a reserve of $ i 0 and $ i 479,000, respectively, which is included in expensing of related party advances and loans on the statement of operations. During the six-month period ended June 30, 2023, the Company made payments of approximately $ i 737,397 (net of repayments) as pre-payment against purchase orders for new products primarily related to the Alfalfa Holdings LLC joint venture (“Snoop Dogg”). During the six months ended June 30, 2023, the Company received approximately $ i 170,000 in inventory from Green Star Labs, Inc. On June 1, 2023, the Company issued a purchase order to Green Star Labs in the amount of $ i 604,000, and in the same period Green Star Labs shipped $ i 0 of product to the Company. Management anticipates that the remaining outstanding loan balance will be eliminated by additional product shipments in the third quarter of 2023. Subsequent to June 30, 2023, the Company made loans of $ i 266,000 to Green Star Labs, Inc.

On September 6, 2022, Boustead exercised its warrants to purchase the Company’s common stock issued to it in connection with IPO, pursuant to paragraph 1.3.1 of the Underwriting Agreement. Boustead elected to convert its right to purchase i 70,000 common shares at $9.00 per share using the cashless basis formula in the warrants. The exercise resulted in the issuance of i 54,928 shares of common stock to Boustead. The market price of these shares on the issue date was $ i 4.74 per share, resulting in an increase of $ i 55 in common stock and an increase in additional paid in capital of $ i 260,303 as well as additional underwriting expenses of $ i 260,358, which was a decrease to additional paid in capital.

On September 17, 2022, the Company entered a Marketing Services Agreement with North Equities Corp. of Toronto, Canada, effective as of September 19, 2022, for an initial period of 6-months. Compensation for the initial period will be the issuance of i 41,494 restricted shares of the Company’s common stock under SEC Rule 144. This amount represents a market value of approximately $ i 100,000 as of the effective date. The shares were issued to North Equities Corp. of Toronto on October 4, 2022. The Company will also reimburse North Equities for all direct, pre-approved and reasonable expenses incurred in performing the marketing services.

On October 12, 2022, the Company entered a Broadcasting and Billboard Agreement with FMW Media Works LLC (“FMW”) of Hauppauge, New York, for a period of three months. FMW will produce an informative TV show which will discuss the Company and its business. Total compensation will be made through the issuance of i 63,292 restricted common shares of Hempacco under SEC Rule 144. The market value of the issued shares was $ i 148,103 and was expensed in full in 2022.

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, adopted pursuant to the Private Securities Litigation Reform Act of 1995. Statements that are not purely historical may be forward-looking. For example, statements in this Annual Report regarding our plans, strategy and focus areas are forward-looking statements. You can identify some forward-looking statements by the use of words such as “believe,” “anticipate,” “expect,” “intend,” “goal,” “plan,” and similar expressions. Forward-looking statements involve inherent risks and uncertainties regarding events, conditions and financial trends that may affect our future plans of operation, business strategy, results of operations and financial position. A number of important factors could cause actual results to differ materially from those included within or contemplated by such forward-looking statements, including, but not limited to risks relating to the continuing impacts of the COVID-19 pandemic (including supply chain disruption), the ongoing war in Ukraine and its impact on the global economy, our history of losses since inception, our dependence on a limited number of customers for a significant portion of our revenue, the demand for hemp smokables products, our dependence on key members of our management and development team, and our ability to generate and/or obtain adequate capital to fund future operations. For a discussion of these and other factors that could cause actual results to differ from those contemplated in the forward-looking statements, please see the discussion under “Risk Factors” in our other publicly available filings with the Securities and Exchange Commission. Forward-looking statements reflect our analysis only as of the date of this Quarterly Report on Form 10-Q. Because actual events or results may differ materially from those discussed in or implied by forward-looking statements made by us or on our behalf, you should not place undue reliance on any forward-looking statement. We do not undertake responsibility to update or revise any of these factors or to announce publicly any revision to forward-looking statements, whether as a result of new information, future events or otherwise.

The following discussion and analysis should be read in conjunction with the consolidated financial statements and the notes thereto included in Item 8 of this Quarterly Report on Form 10-Q.

Hempacco Co., Inc., collectively with its subsidiaries, is referred to in this Form 10-Q as “Hempacco”, “we”, “us”, “our”, “registrant”, or “Company”.

We are focused on Disrupting Tobacco™ by manufacturing and selling nicotine-free and tobacco-free alternatives to traditional cigarettes. We utilize a proprietary, patented spraying technology for terpene infusion and patent-pending flavored filter infusion technology to manufacture hemp- and herb-based smokable alternatives.

We have conducted research and development in the smokables space and are engaged in the manufacturing and sale of smokable hemp and herb products, including The Real Stuff™ Hemp Smokables. Our operational segments include private label manufacturing and sales, intellectual property licensing, and the development and sales of inhouse brands using patented counter displays. Our private label customers include well-known and established companies in the cannabis and tobacco-alternatives industries, and we currently own approximately 600 kiosk vending machines which we plan to refurbish and use to distribute our products in a wider fashion under our HempBox Vending brand.

Our hemp cigarette production facility, located in San Diego, California, has the capacity to produce up to 30 million cigarettes monthly. From our facility, we can small-to-large quantities of product—from single displays of product to targeted retail locations to truckloads of product to private label customers—with in-house processing, packing, and shipping capabilities.

For the Three and Six Months Ended June 30, 2023, compared to the Three and Six Months Ended June 30, 2022

For the three and six months ended June 30, 2023 and 2022, revenues were as follows:

The decrease in revenues during the three and six months ended June 30, 2023, as compared to the three and six months ended June 30, 2022, was a result of a temporary decline in orders from one of our largest customers due to a legal dispute, as well as the passing of AB 45 by the State of California, which banned the sale of smokable hemp products in California until such time as the legislature decided on a tax policy with regard to these products.

For the three and six months ended June 30, 2023 and 2022, cost of goods sold were as follows:

The decrease in relative total cost of goods sold is primarily due to decreasing sales and production in the three and six months ended June 30, 2023, as compared to the same periods in 2022.

For the three and six months ended June 30, 2023 and 2022, operating expenses were as follows:

The increase in general and administrative expenses during the three and six months ended June 30, 2023, compared to the same periods in 2022 was mainly due to accounting, legal and insurance costs related to compliance as a result of the IPO closing.

During the three and six months ended June 30, 2023, related party general and administrative expenses consisted of senior management consulting fees, write offs of related party receivables and rent payable on our premises leased in San Diego, California. During the three and six months ended June 30, 2022, related party general and administrative expenses consisted of related party fees and rent. The landlord, Primus Logistics, is 90%-owned by Sandro Piancone, the Company’s CEO.

The Company’s sales and marketing expenses decreased during the three and six months ended June 30, 2023, compared to sales and marketing expenses during the three and six months ended June 30, 2022 due to scaling back our expansion efforts in the current year compared to the same period of the prior year. Related party sales and marketing expenses for the three and six months ended June 30, 2023 include costs of services provided by the CMO.

During the three and six months ended June 30, 2023, the Company recorded an allowance for the potential non-payment of certain inter-company receivables in the amount of $195,775 and $1,320,775, respectively, compared to an allowance of $0 and $0, respectively, during the three and six months ended June 30, 2022.

The Company had net losses of $1,611,320 and $3,989,904, respectively, during the three and six months ended June 30, 2023 compared to net losses of $97,350 and $974,566, respectively, during the three and six months ended June 30, 2022. The increase in net loss for the three months ended June 30, 2023, was due primarily to increases in operations of the Company that resulted in additional overhead expenses. The increase in net loss for the six months ended June 30, 2023 was due primarily to significant additional one-off expenses incurred in connection with the provision for impairment of inter-company loans receivable.

The table below, for the periods indicated, provides selected cash flow information:

We had cash used in operating activities of $3,821,709 in the six months ended June 30, 2023, as compared to cash used in operating activities of $1,122,470 during the six months ended June 30, 2022. The increase in cash used in operating activities of $2,699,239 for the six months ended June 30, 2023, is primarily attributable to the increase in net operating loss of $3,056,678, adjusted by a reserve for related party loans of $1,320,775 as well as increases attributable to increases in prepaid expenses and inventory.

We had cash used in investing activities of $148,186 for the six months ended June 30, 2023, as compared to cash provided by investing activities of $32,989 for the six months ended June 30, 2022. The change of $181,175 was primarily due to the purchase of plant and equipment of $148,186 during the six months ended June 30, 2023.

We had cash provided by financing activities of $4,807,675 in the six months ended June 30, 2023, as compared to cash provided by financing activities of $223,698 in the comparative period in 2022, with this increase primarily due to the receipt of $7,245,000 of gross proceeds from the sale of 4,830,000 shares of common stock in our second IPO, partially offset by advances to related parties of $1,583,957 and the costs of the offering of $634,600 in the six months ended June 30, 2023, as compared to the six months ended June 30, 2022.

We anticipate that our cash needs for the next twelve months for working capital and capital expenditures will be approximately $2,000,000. As of June 30, 2023, we had $1,386,111 in cash, and we believe that our current cash and cash flow from operations will be not sufficient to meet anticipated cash needs for the next twelve months for working capital and capital expenditures. We will likely also require additional cash resources due to possible changed business conditions or other future developments. We plan to seek to sell additional equity securities to generate additional cash to continue operations. We may also sell debt securities to generate additional cash. The sale of equity securities, or of debt securities that are convertible into our equity, could result in additional dilution to our shareholders. The incurrence of additional indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity.

Our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties, including the following: investors’ perception of, and demand for, securities of cigarette and hemp companies; conditions of the U.S. and other capital markets in which we may seek to raise funds; future results of operations, financial condition and cash flow. Therefore, our management cannot assure that financing will be available in amounts or on terms acceptable to us, or if at all. Any failure by us to raise additional funds on terms favorable to us could have a material adverse effect on our liquidity and financial condition.

On February 11, 2023, the Company sold an additional 4,830,000 shares of common stock in a registered underwritten offering at a price to the public of $1.50 per share. Gross offering proceeds of $7,245,000 were reduced by commission and offering costs of $634,600, with net proceeds of $6,610,400 being received by the Company on February 11, 2023.

In the event we are not successful in reaching our sustained revenue targets, we anticipate that depending on market conditions and our plan of operations, we will likely incur, for the next few months, continued operating losses. We base this expectation, in part, on the fact that we may not be able to generate enough gross profit to cover our operating expenses. Consequently, there remains substantial doubt about the Company’s ability to continue as a going concern. We are subject to many factors which could detrimentally affect us. Many of these risk factors are outside management’s control, including demand for our products, our ability to hire and retain talented and skilled employees and service providers, as well as other factors.

The accompanying financial statements have been prepared on a going concern basis, which assumes the Company will be able to realize its assets and settle its liabilities in the normal course of business for the foreseeable future.

We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Our financial statements are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue, and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience 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 or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.

Our significant accounting policies are summarized in Note 2 to our financial statements. While these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause an effect on our results of operations, financial position or liquidity for the periods presented in this report.

From time to time, new accounting pronouncements are issued by FASB that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.

As a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, the Company is not required to provide the information under this item.

The Company does not currently maintain sufficient controls and procedures designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified by the Commission’s rules and forms. Disclosure controls and procedures would include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of management, including the Company’s Chief Executive Officer, the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2023, have been evaluated, and, based upon this evaluation, the Company’s Chief Executive Officer has concluded that these controls and procedures are not effective in providing reasonable assurance of compliance.

A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Our independent registered accounting firm determined that we did not maintain effective internal controls over financial reporting and the following material weaknesses existed as of June 30, 2023:

These material weaknesses resulted in material misstatements to the financial statements, which were corrected. There were no changes to previously released financial results. We are in the process of remediating these material weaknesses.

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this report that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

From time to time, the Company may be involved in litigation relating to claims arising out of commercial operations in the normal course of business. As of June 30, 2023, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the Company’s results of operations except as set forth below.

On or about October 7, 2022, the Company accepted service in a suit filed in the United States District Court for the Southern District of New York by Long Side Ventures LLC, R & T Sports Marketing Inc., Sierra Trading Corp., Taconic Group LLC, KBW Holdings LLC, Robert Huebsch and Ann E. Huebsch, Joseph Camberato, Joseph Crook, Sachin Jamdar, Michael Matilsky, Gerard Scollan, and Daisy Arnold (collectively “Plaintiffs”) against Hempacco Co., Inc., Mexico Franchise Opportunity Fund, LP, Sandro Piancone, Jorge Olson, Neville Pearson, Stuart Titus, Jerry Halamuda, Retail Automated Concepts, Inc. f/k/a Vidbox Mexico Inc., and Vidbox Mexico S.A. De C.V. (collectively “Defendants”) (Case No. 1:22-cv-08152 (ALC)), alleging that (i) Plaintiffs previously received a judgment (the “Judgment”) in a New York state court action (the “State Action”) against Retail Automated Concepts, Inc. (“RAC”) and Vidbox Mexico S.A. De C.V. (“Vidbox Mexico”), for breach of promissory notes issued by RAC to Defendants in 2018 and guaranteed by Vidbox Mexico, and (ii) prior to the filing of the State Action, Defendants fraudulently transferred and commingled assets, specifically 600 retail kiosks, in order to avoid enforcement of the Judgment, with Plaintiffs seeking monetary damages from Defendants. On or about November 29, 2022, the court granted Defendants’ request to file a motion to dismiss the suit, and on December 30, 2022, Defendants filed the motion to dismiss the suit for failure to state a claim and lack of personal jurisdiction. The court has not yet ruled upon the motion to dismiss. Defendants believe the suit is without merit and intend to defend the matter vigorously.

As a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, the Company is not required to provide information under this item.

During the three months ended June 30, 2023, the Company did not issue any unregistered equity securities except as set forth below.

On or about May 16, 2023, the Company issued 62,223 shares of its common stock to Ernest Sparks upon conversion of a convertible note and accrued interest.

The above-described shares were issued pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506(b) promulgated thereunder, as there was no general solicitation, the shareholders were accredited and/or financially sophisticated, and the transactions did not involve a public offering.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

i Nevada		i 83-4231457
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

Title of Each Class		Trading Symbol		Name of Each Exchange on Which Registered
i Common Stock, par value $0.001 per share		i HPCO		The i Nasdaq Stock Market LLC

As of	June 30, 2023			December 31, 2022

ASSETS
Current Assets
Cash and cash equivalents	$	i 1,386,111		$	i 548,331
Accounts receivable		i 230,171			i 231,269
Accounts receivable, related parties		i -			i 5,100
Loans receivable, related parties		i 263,182			i -
Inventory		i 1,181,531			i 645,132
Prepaid expenses and other current assets		i 405,894			i 442,366
Prepaid expenses, related parties		i 957,871			i 35,609
Total Current Assets		i 4,424,760			i 1,907,807

Property and equipment		i 7,307,564			i 7,220,565
Right of use asset, related party		i 297,235			i 351,146
Other intangible assets, net of amortization		i -			i 2,661
Other assets		i 568,357			i -

TOTAL ASSETS	$	i 12,597,916		$	i 9,482,179

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Current Liabilities
Accounts payable	$	i 342,545		$	i 335,605
Accounts payable, related parties		i 30,169			i 42,831
Accrued liabilities		i 64,015			i -
Customer prepaid invoices and deposits		i 861,314			i 838,164
Line of credit		i 100,000			i -
Notes payable, related parties		i 50,000			i 69,282
Convertible promissory notes payable		i 100,000			i 125,000
Other short term loans		i 138,252			i -
Right of use liability, related party – current		i 113,091			i 109,552
Total Current Liabilities		i 1,799,386			i 1,520,434

Long Term Liabilities
Long-term debt		i -			i 142,770
Right of use liability, related party		i 200,450			i 258,776
Total Liabilities		i 1,999,836			i 1,921,980

Stockholders’ Equity
Preferred stock, $ i 0.001 par value as of June 30, 2023 and December 31, 2022; i 50,000,000 shares authorized as of June 30, 2023 and December 31, 2022, respectively.		i -			i -
Series A Preferred Stock, $ i 0.001 par value as of June 30, 2023 and December 31, 2022, respectively; i 10,000,000 Shares authorized as of June 30, 2023 and December 31, 2022, respectively. i 0 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively.		i -			i -
Common stock, $ i 0.001 par value as of June 30, 2023 and December 31, 2022, respectively; i 200,000,000 shares authorized as of June 30, 2023 and December 31, 2022, respectively. i 28,343,728 and i 23,436,505 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively.		i 28,343			i 23,436
Additional paid-in capital		i 25,118,062			i 18,095,184
Accumulated deficit		( i 14,405,058	)		( i 10,463,048	)
Total Stockholders’ Equity		i 10,741,347			i 7,655,572
Non-controlling interests		( i 143,267	)		( i 95,373	)
Total Equity Attributable to Hempacco Co., Inc.		i 10,598,080			i 7,560,199

LIABILITIES AND STOCKHOLDERS’ EQUITY	$	i 12,597,916		$	i 9,482,179

	Six Months Ended June 30,
	2023			2022
Cash flows from operating activities
Net loss	$	( i 3,989,904	)	$	( i 974,566	)
Adjustments to reconcile net loss to cash used in operating activities
Depreciation and amortization		i 63,848			i 45,217
Non-cash warrant valuation expense		i 31,205			i 437,375
Reserving of related party loans		i 1,320,775			i -
Gain on disposal of assets		i -			i 10,690
Stock based compensation for services		i 12,900			i -
Changes in operating assets and liabilities
Trade receivables, net		i 1,098			( i 19,549	)
Accounts receivable, related parties		i 5,100			i 5,934
Prepaid expenses and other current assets		i 111,363			i 482,948
Prepaid expenses, related parties		( i 922,262	)		i -
Inventories		( i 536,399	)		( i 321,390	)
Accounts payable		i 6,940			i 265,340
Accounts payable, related parties		( i 12,662	)		( i 17,972	)
Accrued liabilities		i 64,015			i 10,423
Customer deposits		i 23,150			( i 1,046,920	)
Right of use assets and liabilities		( i 876	)		i -
Net cash used in operating activities		( i 3,821,709	)		( i 1,122,470	)

Cash flows from investing activities
Purchases of property, plant and equipment		( i 148,186	)		( i 7,011	)
Proceeds from disposal of equipment		i -			i 40,000
Net cash provided by (used in) investing activities		( i 148,186	)		i 32,989

Cash flows from financing activities
Equipment loan repayment		i -			( i 50,000	)
Long term loan repayment		( i 4,518	)		i -
Loans to related parties		( i 1,583,957	)		( i 115,777	)
Proceeds from short-term promissory note, related parties		i -			i 50,000
Proceeds from line of credit		i 100,000			i -
Investment in joint venture		( i 300,000	)		i -
Proceeds from the sale of common stock		i 7,230,750			i 416,000
Offering costs paid in connection with sale of common stock		( i 634,600	)		( i 76,525	)
Cash flows provided by financing activities		i 4,807,675			i 223,698

Increase (decrease) in cash and cash equivalents		i 837,780			( i 865,783	)
Cash and cash equivalents at beginning of period		i 548,331			i 933,469
Cash and cash equivalents at end of period	$	i 1,386,111		$	i 67,686

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest	$	i 6,762		$	i -
Cash paid for taxes	$	i 132		$	i 2,770

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Warrants recorded as prepaid and other assets	$	i 374,453		$	i -
Conversion of convertible notes payable and accrued interest to common stock	$	i 29,032		$	i 56,592

	June 30,		June 30,
	2023		2022
	(Shares)		(Shares)
Warrants		i 838,100		-
Promissory Notes convertible to shares		i 100,000		i 50,000
TOTAL		i 938,100		i 50,000

Hempacco Co., Inc. – ‘10-Q’ for 6/30/23

On: Monday, 8/14/23, at 6:04am ET · For: 6/30/23 · Accession #: 1477932-23-5955 · File #: 1-41487

Previous ‘10-Q’: ‘10-Q’ on 7/5/23 for 3/31/23 · Next & Latest: ‘10-Q’ on 11/20/23 for 9/30/23 · 9 References:

Quarterly Report — Form 10-Q

Filing Table of Contents

‘10-Q’ — Quarterly Report

Document Table of Contents

This is an HTML Document rendered as filed. [ Alternative Formats ]

Dates Referenced Herein and Documents Incorporated by Reference

2 Subsequent Filings that Reference this Filing

7 Previous Filings that this Filing References

Large accelerated filer	☐	Accelerated filer	☐
i Non-accelerated Filer	☒	Smaller reporting company	i ☒
		Emerging growth company	i ☐

Part I – Financial Information

Item 1	Financial Statements	3
	Condensed Consolidated Balance Sheets at June 30, 2023 and December 31, 2022 (unaudited)	3
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2023, and 2022 (unaudited)	4
	Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2023, and 2022 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 (unaudited)	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	8
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3	Quantitative and Qualitative Disclosures about Market Risk	24
Item 4	Controls and Procedures	24

Part II – Other Information

Item 1	Legal Proceedings	25
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3	Defaults Upon Senior Securities	25
Item 4	Mine Safety Disclosures	25
Item 5	Other Information	25
Item 6	Exhibits	26

	·	Level 1—Quoted market prices for identical assets or liabilities in active markets or observable inputs.
	·	Level 2—Significant other observable inputs that can be corroborated by observable market data; and
	·	Level 3—Significant unobservable inputs that cannot be corroborated by observable market data.

	June 30,			December 31,
	2023			2022

Accounts receivable	$	i 263,891		$	i 478,680
Accounts receivable, related parties		i -			i 5,100
Allowance for doubtful accounts		( i 33,720	)		( i 247,411	)
Total accounts receivable	$	i 230,171	)	$	i 236,369

Year Ending December 31	Operating Leases
2023	$	i 65,558
2024		i 135,049
2025		i 139,100
Total lease payments		i 339,707
Less: Imputed interest/present value discount		( i 26,166	)
Total	$	i 313,541

Talent Warrants (see Note 1)			i 450,000
Talent Designee Warrants (see Note 1)			i 50,000
Compensation Warrants			i 500,000
Representatives’ Warrants (see Note 1)			i 338,100
			i 938,100

	Input Range	Input Range
	June 30,	December 31,
Description	2023	2022
a) Price of the Issuer’s Security	$ i 0.75-$ i 1.25	$ i 1.00 - $ i 7.00
b) Exercise (strike) price of Security	$ i 1.00	$ i 0.75 - $ i 1.50
c) Time to Maturity in years	i 5 years	i 3 to i 5 years
d) Annual Risk-Free Rate	i 5-year T-Bill	i 2-year T-Bill
e) Annualized Volatility (Beta)	i 90% - i 100%	i 59% - i 100%

	Three Months Ended June 30,				Change
	2023		2022		$			%
Revenues
Product sales	$	223,188	$	1,853,996	$	(1,630,808	)		(88	)%
Product sales, related parties		13,760		5,000		8,760			175	%
Manufacturing service revenue		1,386		13,995		(12,609	)		(90	)%
Kiosk revenue		16,267		2,066		14,201			687	%
Total Revenues	$	254,601	$	1,875,057	$	(1,620,456	)		(86	)%

	Six Months Ended June 30,				Change
	2023		2022		$			%
Revenues
Product sales	$	628,187	$	2,811,562	$	(2,183,375	)		(78	)%
Product sales, related parties		20,319		6,000		14,319			239	%
Manufacturing service revenue		13,438		26,595		(13,157	)		(49	)%
Kiosk revenue		17,017		2,066		14,951			724	%
Total Revenues	$	678,961	$	2,846,223	$	(2,167,262	)		(76	)%

	Six Months Ended June 30, 2023			Six Months Ended June 30, 2022

Net cash used in operating activities	$	(3,821,709	)	$	(1,122,470	)
Net cash provided by (used in) investing activities		(148,186	)		32,989
Net cash provided by financing activities		4,807,675			223,698
Net change in cash	$	837,780		$	(865,783	)

	June 30,			December 31,
	2023			2022
Production equipment	$	i 4,033,172		$	i 3,837,236
Leasehold improvements		i 12,431			i 12,431
Kiosks		i 3,583,529			i 3,631,279
		i 7,629,132			i 7,480,946
Accumulated depreciation		( i 321,568	)		( i 260,381	)
Total property and equipment	$	i 7,307,564		$	i 7,220,565

	·	We did not design and maintain adequate controls over the documentation of accounting and financial reporting policies and procedures. Specifically, we did not design and maintain a manual of policies and procedures and we did not maintain a sufficient complement of accounting personnel to ensure proper procedures were executed and transactions were reviewed by management.

	·	We failed to identify and disclose certain related party transactions and certain related party transactions were not formally authorized. We have not properly segregated duties related to cash disbursements.

	·	Our revenue recognition procedures did not prevent us from recording revenue for which the earnings process was not complete.

	·	We failed to obtain written documentation of significant agreements related to joint ventures.

Exhibit No.		Description
1.1		Underwriting Agreement, between Hempacco Co., Inc. and Boustead Securities, LLC, dated August 29, 2022 (incorporated by reference to Exhibit 1.1 to Current Report on Form 8-K filed on September 2, 2022)
1.2		Underwriting Agreement, dated February 9, 2023, by and between Hempacco Co., Inc. and Boustead Securities, LLC (incorporated by reference to Exhibit 1.1 to Current Report on Form 8-K filed on February 15, 2023)
3.1		Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Registration Statement on Form S-1 filed on March 24, 2022)
3.2		Amended and Restated Articles of Incorporation dated April 23, 2021 (incorporated by reference to Exhibit 3.2 to Registration Statement on Form S-1 filed on March 24, 2022)
3.3		Amended and Restated Articles of Incorporation dated September 28, 2021 (incorporated by reference to Exhibit 3.3 to Registration Statement on Form S-1 filed on March 24, 2022)
3.4		Bylaws of Hempacco Co., Inc. (incorporated by reference to Exhibit 3.4 to Registration Statement on Form S-1 filed on March 24, 2022)
10.1		Agreement for Share Exchange between Hempacco Co., Inc. and Green Globe International, Inc., dated May 21, 2021 (incorporated by reference to Exhibit 10.1 to Registration Statement on Form S-1 filed on March 24, 2022)
10.2		Patent License Agreement between Hempacco Co., Inc., and Old Belt Extracts, LLC d/b/a Open Book Extracts, dated April 1, 2021 (incorporated by reference to Exhibit 10.2 to Registration Statement on Form S-1 filed on March 24, 2022)
10.3		Limited Liability Company Agreement of Cali Vibes D8 LLC, dated April 20, 2021 (incorporated by reference to Exhibit 10.3 to Registration Statement on Form S-1 filed on March 24, 2022)
10.4		Joinder Agreement between Cali Vibes D8 LLC, Hempacco Co., Inc., and BX2SD Hospitality, LLC, dated June 3, 2021 (incorporated by reference to Exhibit 10.4 to Registration Statement on Form S-1 filed on March 24, 2022)
10.5		Assignment Agreement between Hempacco Co., Inc. and Green Globe International, Inc., dated December 14, 2021 (incorporated by reference to Exhibit 10.5 to Registration Statement on Form S-1 filed on March 24, 2022)
10.6		Joinder Agreement of Hemp Hop Smokables LLC, by Hempacco Co., Inc., dated December 14, 2021 (incorporated by reference to Exhibit 10.6 to Registration Statement on Form S-1 filed on March 24, 2022)
10.7		Joint Venture Agreement between Hempacco Co., Inc. and Cheech and Chong’s Cannabis Company, dated January 1, 2022 (incorporated by reference to Exhibit 10.7 to Registration Statement on Form S-1 filed on March 24, 2022)
10.8		Joint Venture Agreement between Hempacco Co., Inc. and StickIt Ltd., dated January 19, 2022 (incorporated by reference to Exhibit 10.8 to Registration Statement on Form S-1 filed on March 24, 2022)
10.9		Purchase Finance Agreement between Hempacco Co., Inc., and Titan General Agency Ltd., dated December 3, 2019 (incorporated by reference to Exhibit 10.9 to Registration Statement on Form S-1 filed on March 24, 2022)
10.10		Loan Agreement between Hempacco Co., Inc. and Courier Labs, LLC, dated June 15, 2020 (incorporated by reference to Exhibit 10.10 to Registration Statement on Form S-1 filed on March 24, 2022)
10.11		Security Agreement between Hempacco Co., Inc. and Courier Labs, LLC, dated June 15, 2020 (incorporated by reference to Exhibit 10.11 to Registration Statement on Form S-1 filed on March 24, 2022)
10.12		Side Letter Agreement & Loan Extension between Hempacco Co., Inc. and Courier Labs, LLC (incorporated by reference to Exhibit 10.12 to Registration Statement on Form S-1 filed on March 24, 2022)
10.13		12% 6 Month Note issued to Mario Taverna, dated May 4, 2021 (incorporated by reference to Exhibit 10.13 to Registration Statement on Form S-1 filed on March 24, 2022)
10.14		Note Extension Agreement between Hempacco Co., Inc. and Mario Taverna, dated November 5, 2021 (incorporated by reference to Exhibit 10.14 to Registration Statement on Form S-1 filed on March 24, 2022)
10.15		Convertible Promissory Note issued to Miguel Cambero Villasenor, dated May 6, 2021 (incorporated by reference to Exhibit 10.15 to Registration Statement on Form S-1 filed on March 24, 2022)
10.16		Convertible Promissory Note issued to Miguel Cambero Villasenor, dated June 7, 2021 (incorporated by reference to Exhibit 10.16 to Registration Statement on Form S-1 filed on March 24, 2022)
10.17		Convertible Promissory Note issued to Ernest Sparks and Julee A. Sparks, Joint Tenants, dated May 10, 2021 (incorporated by reference to Exhibit 10.17 to Registration Statement on Form S-1 filed on March 24, 2022)
10.18		12% One Year Note issued to Dennis Holba & Raffaella Marsh, dated November 12, 2019 (incorporated by reference to Exhibit 10.18 to Registration Statement on Form S-1 filed on March 24, 2022)
10.19		Secured Promissory Note issued to Jerry Halamuda, dated February 17, 2020 (incorporated by reference to Exhibit 10.19 to Registration Statement on Form S-1 filed on March 24, 2022)
10.20		Promissory Note issued to Jerry Halamuda, dated February 16, 2021 (incorporated by reference to Exhibit 10.20 to Registration Statement on Form S-1 filed on March 24, 2022)

10.21		Promissory Note Agreement Amendment 1 between Hempacco Co., Inc. and Jerry Halamuda, dated May 17, 2020 (incorporated by reference to Exhibit 10.21 to Registration Statement on Form S-1 filed on March 24, 2022)
10.22		12% One Year Note issued to Mario Taverna, dated March 5, 2021 (incorporated by reference to Exhibit 10.22 to Registration Statement on Form S-1 filed on March 24, 2022)
10.23		12% One Year Note issued to Mario Taverna, dated March 10, 2021 (incorporated by reference to Exhibit 10.23 to Registration Statement on Form S-1 filed on March 24, 2022)
10.24		12% One Year Note issued to Valentino Mordini, dated March 9, 2021 (incorporated by reference to Exhibit 10.24 to Registration Statement on Form S-1 filed on March 24, 2022)
10.25		12% One Year Note issued to Romeo Fiori, dated March 10, 2021 (incorporated by reference to Exhibit 10.25 to Registration Statement on Form S-1 filed on March 24, 2022)
10.26		12% One Year Note issued to J Lin Inc., dated March 15, 2021 (incorporated by reference to Exhibit 10.26 to Registration Statement on Form S-1 filed on March 24, 2022)
10.27		12% One Year Note issued to Sylvester Barnes, dated April 1, 2021 (incorporated by reference to Exhibit 10.27 to Registration Statement on Form S-1 filed on March 24, 2022)
10.28		12% One Year Note issued to Roger Ladd, dated April 13, 2021 (incorporated by reference to Exhibit 10.28 to Registration Statement on Form S-1 filed on March 24, 2022)
10.29		Standard Industrial/Commercial Multi-Tenant Lease Agreement between Hempacco Co., Inc. and Primus Logistics, Inc., dated January 1, 2020 (incorporated by reference to Exhibit 10.29 to Registration Statement on Form S-1 filed on March 24, 2022)
10.30*		Sales and Marketing Agreement between Hempacco Co., Inc., and Cube17, Inc., dated November 6, 2019 (incorporated by reference to Exhibit 10.30 to Registration Statement on Form S-1 filed on March 24, 2022)
10.31*		Consulting & Marketing Agreement between Hempacco Co., Inc., and Strategic Global Partners, Inc., dated January 3, 2020 (incorporated by reference to Exhibit 10.31 to Registration Statement on Form S-1 filed on March 24, 2022)
10.32*		Consulting & Marketing Agreement between Hempacco Co., Inc., and UST Mexico, Inc., dated January 3, 2020 (incorporated by reference to Exhibit 10.32 to Registration Statement on Form S-1 filed on March 24, 2022)
10.33*		Interim Consulting Agreement between Hempacco Co., Inc. and Neville Pearson, dated March 1, 2021 (incorporated by reference to Exhibit 10.33 to Registration Statement on Form S-1 filed on March 24, 2022)
10.34*		Employment Agreement between Hempacco Co., Inc. and Sandro Piancone, dated January 20, 2022 (incorporated by reference to Exhibit 10.34 to Registration Statement on Form S-1 filed on March 24, 2022)
10.35*		Employment Agreement between Hempacco Co., Inc. and Neville Pearson, dated January 20, 2022 (incorporated by reference to Exhibit 10.35 to Registration Statement on Form S-1 filed on March 24, 2022)
10.36*		Employment Agreement between Hempacco Co., Inc. and Jorge Olson, dated February 3, 2022 (incorporated by reference to Exhibit 10.36 to Registration Statement on Form S-1 filed on March 24, 2022)
10.37*		Indemnification Agreement, between Hempacco Co., Inc. and Sandro Piancone, dated August 29, 2022 (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on September 2, 2022)
10.38*		Indemnification Agreement, between Hempacco Co., Inc. and Neville Pearson, dated August 29, 2022 (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on September 2, 2022)
10.39*		Indemnification Agreement, between Hempacco Co., Inc. and Jorge Olson, dated August 29, 2022 (incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed on September 2, 2022)

10.40*		Indemnification Agreement, between Hempacco Co., Inc. and Stuart Titus, dated August 29, 2022 (incorporated by reference to Exhibit 10.4 to Current Report on Form 8-K filed on September 2, 2022)
10.41*		Indemnification Agreement, between Hempacco Co., Inc. and Jerry Halamuda, dated August 29, 2022 (incorporated by reference to Exhibit 10.5 to Current Report on Form 8-K filed on September 2, 2022)
10.42*		Indemnification Agreement, between Hempacco Co., Inc. and Miki Stephens, dated August 29, 2022 (incorporated by reference to Exhibit 10.6 to Current Report on Form 8-K filed on September 2, 2022)
10.43*		Independent Director Agreement, between Hempacco Co., Inc. and Miki Stephens, dated August 29, 2022 (incorporated by reference to Exhibit 10.7 to Current Report on Form 8-K filed on September 2, 2022)
10.44		Broker Representation Agreement between Hempacco Co., Inc. and Wizards and Kings LLC, dated November 23, 2021 (incorporated by reference to Exhibit 10.39 to Amendment No. 1 to Registration Statement on Form S-1 filed on May 3, 2022)
10.45		Asset Purchase Agreement between Hempacco Co., Inc. and Nery’s Logistics, Inc., dated July 12, 2022 (incorporated by reference to Exhibit 10.40 to Amendment No. 4 to Registration Statement on Form S-1 filed on August 5, 2022)
10.46		8% 90 Day Note issued to Jerry Halamuda, dated May 18, 2022 (incorporated by reference to Exhibit 10.41 to Amendment No. 4 to Registration Statement on Form S-1 filed on August 5, 2022)
10.47		Promissory Note Agreement Amendment 1 between Hempacco Co., Inc. and Jerry Halamuda, dated June 18, 2022 (incorporated by reference to Exhibit 10.42 to Amendment No. 4 to Registration Statement on Form S-1 filed on August 5, 2022)
10.48		Joint Venture Agreement between Hempacco Co., Inc. and Sonora Paper Co., Inc., dated October 2, 2022 (incorporated by reference to Exhibit 10.48 to Registration Statement on Form S-1 filed on February 3, 2023)
10.49		Joint Venture Agreement between Hempacco Co., Inc. and High Sierra Technologies, Inc., dated November 10, 2022 (incorporated by reference to Exhibit 10.49 to Registration Statement on Form S-1 filed on February 3, 2023)
10.50		Operating Agreement between Hempacco Co., Inc., Alfalfa Holdings, LLC, and HPDG, LLC, dated January 24, 2023 (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on February 2, 2023)
14.1		Code of Ethics and Business Conduct (incorporated by reference to Exhibit 14.1 to Registration Statement on Form S-1 filed on March 24, 2022)
31.1		Certification of Principal Executive Officer required by Rule 13a-14(1) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Principal Financial and Accounting Officer required by Rule 13a-14(1) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63
32.2		Certification of Principal Financial and Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63
99.1		Settlement Agreement and Mutual Release between Hempacco Co., Inc. and Titan General Agency Ltd., dated September 6, 2022 (incorporated by reference to Exhibit 99.2 to Registration Statement on Form S-1 filed on February 3, 2023)
101.INS**		Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
101.SCH**		Inline XBRL Taxonomy Extension Schema Document.
101.CAL**		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF**		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB**		Inline XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE**		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104**		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

	HEMPACCO CO., INC. (Registrant)

Date: August 14, 2023	By:	/s/ *Sandro Piancone*
		Sandro Piancone
		Chief Executive Officer
Date: August 14, 2023	By:	/s/ *Neville Pearson*
		Neville Pearson
		Chief Financial Officer

This ‘10-Q’ Filing	Date	Other Filings

	2/10/28
	4/10/25
	6/30/24
	12/31/23
	10/3/23
	9/18/23
	8/15/23
Filed on:	8/14/23
	8/11/23
	8/1/23
	7/10/23
	7/5/23	10-Q
	7/1/23
For Period end:	6/30/23
	6/18/23
	6/1/23
	5/23/23	8-K
	5/16/23	NT 10-Q
	5/15/23	10-K
	5/12/23	10-K
	5/7/23
	5/3/23
	4/30/23
	4/20/23	8-K
	4/6/23	8-K
	3/31/23	10-Q, NT 10-Q
	3/1/23
	2/14/23
	2/11/23
	2/9/23	8-K, CORRESP, EFFECT
	2/8/23
	2/1/23	8-K
	1/30/23	8-K
	1/25/23
	1/24/23
	1/1/23
	12/31/22	10-K, NT 10-K
	12/30/22
	12/1/22
	11/29/22
	10/23/22
	10/12/22
	10/7/22
	10/4/22
	9/19/22
	9/18/22
	9/17/22
	9/6/22
	9/1/22	3
	7/15/22
	6/30/22
	6/18/22
	6/7/22
	5/4/22	CORRESP
	4/7/22
	3/31/22
	3/18/22
	3/1/22
	1/6/22
	12/31/21
	10/6/21
	9/28/21
	8/11/21
	5/21/21
	4/23/21
	1/15/21
	12/31/20
	6/15/20
	1/1/20
	12/11/19
	4/1/19
		List all Filings