hpco_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the fiscal quarter ended September 30, 2023

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

For the transition period from ________ to _________

Commission File Number: 001-41487

HEMPACCO CO., INC.

(Exact name of Registrant as specified in its charter)

Nevada

83-4231457

(State or Other Jurisdiction

of Incorporation or Organization)

(I.R.S. Employer

Identification Number)

9925 Airway Road, San Diego, CA 92154

(Address of Principal Executive Office and Zip Code)

(619) 779-0715

(Registrant’s Telephone Number, including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading

Symbol

Name of Each Exchange

on Which Registered

Common Stock, par value $0.001 per share

HPCO

The Nasdaq Stock Market LLC

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. 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). 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.

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

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 ☐ No ☒

The number of shares of the registrant’s common stock outstanding as of November 20, 2023, was 29,145,537.

HEMPACCO CO., INC.

2023 QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

Part I – Financial Information

Item 1	Financial Statements	3
	Condensed Consolidated Balance Sheets at September 30, 2023, and December 31, 2022 (unaudited)	3
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023, and 2022 (unaudited)	4
	Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2023, and 2022 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 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	23
Item 3	Quantitative and Qualitative Disclosures about Market Risk	30
Item 4	Controls and Procedures	30

Part II – Other Information

Item 1	Legal Proceedings	31
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3	Defaults Upon Senior Securities	33
Item 4	Mine Safety Disclosures	33
Item 5	Other Information	33
Item 6	Exhibits	34

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HEMPACCO CO., INC.

Condensed Consolidated Balance Sheets

(Unaudited)

As of	September 30, 2023			December 31, 2022

ASSETS
Current Assets
Cash and cash equivalents	$	17,076		$	548,331
Accounts receivable		554,344			231,269
Accounts receivable, related parties		-			5,100
Loans receivable, related parties		286,174			-
Inventory		909,750			645,132
Prepaid expenses and other current assets		673,522			442,366
Prepaid expenses, related parties		736,941			35,609
Total Current Assets		3,177,807			1,907,807

Property and equipment		8,993,603			7,220,565
Right of use asset, related party		269,634			351,146
Other intangible assets, net of amortization		-			2,661
Equity investment – related party		1,747,381			-
Other investments and Warrants		249,634			-

TOTAL ASSETS	$	14,438,059		$	9,482,179

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Current Liabilities
Accounts payable	$	665,033		$	335,605
Accounts payable, related parties		87,412			42,831
Accrued liabilities		374,444			-
Customer prepaid invoices and deposits		806,029			838,164
Line of credit		100,000			-
Loans and notes payable, related parties		-			69,282
Convertible promissory notes payable		3,200,000			125,000
Other short-term loans		137,173			-
Right of use liability, related party – current		114,926			109,552
Total Current Liabilities		5,485,017			1,520,434

Long Term Liabilities
Long-term debt		-			142,770
Right of use liability, related party		170,576			258,776
Total Liabilities		5,655,593			1,921,980
Stockholders’ Equity
Preferred stock, $0.001 par value; 50,000,000 shares authorized as of September 30, 2023, and December 31, 2022, respectively.		-			-
Series A Preferred Stock, $0.001 par value; 10,000,000 Shares authorized as of September 30, 2023, and December 31, 2022, respectively. 0 shares issued and outstanding as of September 30, 2023, and December 31, 2022, respectively.		-			-
Common stock, $0.001; 200,000,000 shares authorized as of September 30, 2023, and December 31, 2022, respectively. 28,926,126 and 23,436,505 shares issued and outstanding as of September 30, 2023, and December 31, 2022, respectively.		28,926			23,436
Additional paid-in capital		25,563,373			18,095,184
Accumulated deficit		(16,640,974	)		(10,463,048	)
Total Stockholders’ Equity		8,951,325			7,655,572
Non-controlling interests		(168,859	)		(95,373	)
Total Equity Attributable to Hempacco Co., Inc.		8,782,466			7,560,199

LIABILITIES AND STOCKHOLDERS’ EQUITY	$	14,438,059		$	9,482,179

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

Table of Contents

HEMPACCO CO., INC.

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Revenues
Product sales	$	1,305,254		$	561,818		$	1,950,460		$	3,373,380
Product sales, related parties		11,709			16,940			32,028			22,940
Manufacturing service revenue		9,049			6,653			22,487			33,248
Kiosk revenue		-			6,824			-			8,890
Total Revenues		1,326,012			592,235			2,004,975			3,438,458

Cost of Sales
Cost of sales		1,349,631			598,627			2,227,521			2,795,661
Cost of sales, related parties		414,374			-			490,260			-
Total Cost of Sales		1,764,005			598,627			2,717,781			2,795,661
Gross Profit (Loss) from Operations		(437,993	)		(6,392	)		(712,806	)		642,797

Operating Expenses
General and administrative		1,037,790			791,562			2,770,482			1,758,561
General and administrative, related parties		135,454			45,000			403,963			195,000
Sales and marketing		306,505			200,976			668,227			685,086
Sales and marketing, related parties		29,794			-			79,881			-
Expensing of related party advances and loans		166,267			-			1,487,042			-
Total Operating Expenses		1,675,810			1,037,538			5,409,595			2,638,647

Net Operating Loss		(2,113,803	)		(1,043,930	)		(6,122,401	)		(1,995,850	)

Other Income (Expense)
Interest expense		(82,109	)		(3,684	)		(88,871	)		(13,080	)
Other income and expense		(36,977	)		(1,859	)		(11,521	)		(15,109	)
Total Other Income (Expense)		(119,086	)		(5,543	)		(100,392	)		(28,189	)

Net Loss before equity investment		(2,232,889	)		(1,049,473	)		(6,222,793	)		(2,024,039	)
Share of net losses of equity method investee		(28,619	)		-			(28,619	)		-
Net Loss	$	(2,261,508	)	$	(1,049,473	)	$	6,251,412		$	(2,024,039	)
Net loss attributable to non-controlling interests		50,995			617			73,486			2,200
Net Loss Attributable to Hempacco Co., Inc.		(2,210,513	)		(1,048,856	)		(6,177,926	)		(2,021,839	)
								5
Basic and Dilutive Loss per Share	$	(0.08	)	$	(0.05	)	$	(0.22	)	$	(0.10	)

Shares Used in Calculating Loss per Share		28,524,410			22,468,140			27,575,488			20,670,278

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

Table of Contents

HEMPACCO CO., INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

	For the Three Months Ended September 30, 2023
	Common Stock				Additional Paid-In			Accumulated			Non-controlling
	Shares		Amount		Capital			Deficit			Interests			Total
Balance as of June 30, 2023		28,343,728	$	28,343	$	25,118,062		$	(14,405,058	)	$	(143,267	)	$	10,598,080
Shares issued for consulting services		250,000		250		307,250									307,500
Common stock issued for Cambero convertible note		332,398		333		117,575			-			-			117,908
Record beneficial conversion feature discount on convertible notes.						21,486									21,486
Reversal of capital contribution related to joint venture		-		-		(1,000	)		-			-			(1,000	)
Net loss / assets attributable to non-controlling interests		-		-		-			25,592			(25,592	)		-
Net loss for the three months ended September 30, 2023		-		-		-			(2,261,508	)		-			(2,261,508	)
Balance as of September 30, 2023		28,926,126	$	28,926	$	25,563,373		$	(16,640,974	)	$	(168,859	)	$	8,782,466

	For the Nine Months Ended September 30, 2023
	Common Stock				Additional Paid-In			Accumulated			Non-controlling
	Shares		Amount		Capital			Deficit			Interests			Total
Balance as of December 31, 2022		23,436,505	$	23,436	$	18,095,184		$	(10,463,048	)	$	(95,373	)	$	7,560,199
Issuance of common stock		4,830,000		4,830		7,240,170			-			-			7,245,000
Offering costs		-		-		(634,600	)		-			-			(634,600	)
Shares issued for consulting services		265,000		265		320,135			-			-			320,400
Capitalized value of warrants		-		-		374,453			-			-			374,453
Common stock issued for convertible notes		394,621		395		146,545			-			-			146,940
Record beneficial conversion feature discount on convertible notes.						21,486									21,486
Net loss / assets attributable to non-controlling interests		-		-		-			73,486			(73,486	)		-
Net loss for the nine months ended September 30, 2023		-		-		-			(6,251,412	)		-			(6,251,412	)
Balance as of September 30, 2023		28,926,126	$	28,926	$	25,563,373		$	(16,640,974	)	$	(168,859	)	$	8,782,466

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

Table of Contents

	For the Three Months Ended September 30, 2022
					Additional						Non-
	Common Stock				Paid-In			Accumulated			controlling
	Shares		Amount		Capital			Deficit			Interests			Total
Balance as of June 30, 2022		19,960,124	$	19,960	$	7,154,605		$	(4,432,197	)	$	(15,833	)	$	2,726,535
Issuance of common stock		1,000,000		1,000		5,999,000			-			-			6,000,000
Offering costs		-		-		(531,188	)		-			-			(531,188	)
Boustead cashless warrant conversion		54,928		55		(55	)								-
Acquisition of machinery and trademarks		2,000,000		2,000		3,998,000									4,000,000
Conversion of accounts payable to common stock		50,000		50		99,950			-			-			100,000
Partner capital contribution to joint venture						52,000									52,000
Titan General Agency Ltd. Debt repayment		266,667		267		1,182,414									1,182,681
North Equities marketing services, paid with shares		41,494		41		99,959									100,000
Net loss/equity attributable to non-controlling interests		-		-		-			(8,546	)		8,546			-
Net loss for the three months ended September 30, 2022		-		-		-			(1,049,473	)		-			(1,049,473	)
Balance as of September 30, 2022		23,373,213	$	23,373	$	18,054,685		$	(5,490,216	)	$	(7,287	)	$	12,580,555

	For the Nine Months Ended September 30, 2022
					Additional						Non-
	Common Stock				Paid-In			Accumulate			controlling
	Shares		Amount		Capital			Deficit			Interests			Total
Balance as of December 31, 2021		19,695,532	$	19,696	$	6,321,428		$	(3,459,214	)	$	(14,250	)	$	2,867,660
Warrant valuation expense		-		-		437,375			-			-			437,375
Issuance of common stock		208,000		208		415,792			-			-			416,000
Offering costs paid in connection with sale of common stock		-		-		(76,525	)		-			-			(76,525	)
Common stock issued for convertible note		56,592		56		56,535			-			-			56,591
Acquisition of machinery and trademarks		2,000,000		2,000		3,998,000									4,000,000
Conversion of accounts payable to common stock		50,000		50		99,950									100,000
Partner capital contribution to joint venture						52,000									52,000
Common shares issuance – IPO 2		1,000,000		1,000		5,999,000									6,000,000
Offering costs						(531,188	)								(531,188	)
Boustead cashless warrant conversion		54,926		55		(55	)								-
Titan General Agency, Ltd. Debt repayment		266,667		267		1,182,414									1,182,681
North Equities USA Ltd. Marketing services		41,494		41		99,959									100,000
Net loss/equity attributable to non-controlling interests		-		-		-			(6,963	)		6,963			-
Net loss for the nine months ended September 30, 2022		-		-		-			(2,024,039	)		-			(2,024,039	)
Balance as of September 30, 2022		23,373,213	$	23,373	$	18,054,685		$	(5,490,216	)	$	(7,287	)	$	12,580,555

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

Table of Contents

HEMPACCO CO., INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

	Nine Months Ended September 30,
	2023			2022
Cash flows from operating activities
Net loss	$	(6,251,412	)	$	(2,024,039	)
Adjustments to reconcile net loss to cash used in operating activities
Reclassification of Organipure capital contribution		(1,000	)		-
Depreciation and amortization		116,807			171,098
Non-cash warrant valuation expense		76,249			437,375
Reserving of related party loans		1,464,475			-
Elimination of loss from equity investment		28,619			-
Gain on disposal of assets		-			10,690
Stock based compensation for services		320,400			100,000
Changes in operating assets and liabilities
Trade receivables, net		(323,075	)		(159,525	)
Accounts receivable, related parties		5,100			(16,481	)
Prepaid expenses and other current assets		(156,265	)		(202,813	)
Prepaid expenses, related parties		(

SEC Form 10-Q filed by Hempacco Co. Inc.