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

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K 

For the fiscal year ended December 31, 2023

or

For the transition period from ________ to _________

Commission File No. 001-41487

9925 Airway Road, San Diego, CA 92154

(Address of Principal Executive Office and Zip Code)

+1 (619) 779-0715

(Registrant’s Telephone Number, including Area Code)

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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐     No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐     No ☒

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, 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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

As of June 30, 2023, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $3.8 million based on the closing sale price as reported on the NASDAQ National Market System. As of July 31, 2024, there were 4,332,006 shares of common stock outstanding.

HEMPACCO CO., INC.

2023 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PART I 

ITEM 1. BUSINESS 

Forward Looking Statements

This Annual Report on Form 10-K 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 impact of the COVID-19 pandemic (including the emergence of vaccine resistant COVID-19 variants), 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 Annual Report on Form 10-K. 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 for the years ended December 31, 2023, and 2022.included in Item 8 of this Annual Report on Form 10-K.

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

Overview

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 also offer nutritional supplement and beauty product manufacturing services through our recently acquired subsidiary, Green Star Labs, Inc.

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 in-house brands using patented counter displays. Our inhouse brands are currently sold in over 200 retail locations located in the San Diego, California, area, 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 and manufacturing facility, located in San Diego, California, has the capacity to produce up to 10 million cigarettes monthly. From our facility, we can ship 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.

We believe that our manufacturing technologies will be a critical component of our success. We plan to continue to invest in research and development, and we currently have one approved patent and one patent pending with respect to our critical manufacturing processes. Our approved patent is an exclusivity patent to spray hemp with terpenes for flavoring or to add cannabidiol, which we refer to as CBD, or cannabigerol, which we refer to as CBG, and our pending patent relates to our flavored filter infusion technology. We also have several ready-to-file patent applications with respect to hemp manufacturing, hemp processing, design patents for hemp machines and merchandisers, and customized manufacturing equipment.

We believe that we are positioned to rapidly grow our customer and product footprint through increasing marketing efforts, reaching agreements with master distributors who will sell to a broad network of retail establishments, and aggressively targeting additional distributors throughout the United States. We plan to drive and increase customer traffic with internet marketing to or with the clients that carry our products.

Our Products

We have launched the production and sale of our own in-house brand of hemp-based cigarettes, The Real Stuff Smokables, in three presentations: the twenty pack, the ten pack, and the Solito™ single pack, all of which are sold in our patented counter displays in convenience stores through master distributors.

We have also entered into several joint ventures to launch multiple smokables brands: Hemp Hop Smokables, a joint venture with rapper Rick Ross and Rap Snack's CEO James Lindsay; a joint venture with StickIt Ltd., an Israeli corporation, to manufacture cannabinoid sticks for insertion into other cigarettes; a joint venture to launch Cheech & Chong-branded hemp smokables; Hempacco Paper Co., Inc., a joint venture with Sonora Paper Co., Inc. focused on rolling papers; Organipure, Inc., a joint venture with High Sierra Technologies, Inc. focused on hemp smokables; and HPDG, LLC, a joint venture to launch smokables products with Alfalfa Holdings, LLC.

We have launched a brand of flavored hemp rolling papers, we manufacture private label hemp rolling papers for third parties, and through our recently acquired subsidiary, Green Star Labs, Inc., we provide nutritional supplement and beauty product manufacturing services to customers as well. We are currently manufacturing hemp rolling papers for HBI International, one of the leading smoking paper producers in the world, and in the fall of 2021, we received an estimated value of potential purchase orders for the following twelve months amounting to approximately $9.2 million from HBI International's Skunk and Juicy brand to manufacture hemp rolling papers for it. Due to a number of business issues outside the control of the company, we have only supplied approximately $2m worth of orders to HBI in the calendar years 2022 and 2023.

Recent Developments

In December 2021, we sold 130,000 shares of common stock at $10.00 per share to 24 investors, and in April 2022, we sold 20,800 shares of common stock at $20.00 per share to 9 investors.

In July 2022, we launched sales of our Hemp Hop Smokables joint venture products, as well as our Cheech & Chong-branded joint venture products.

On or about June 10, 2022, we issued 5,659 shares of common stock to our lender, Mario Taverna, in conversion of $50,000 in principal and $6,592 of accrued interest due to Mr. Taverna under a convertible promissory note.

On July 15, 2022, we settled two vendor accounts payable balances totaling $100,000 by issuing 5,000 shares of common stock to the vendors.

On or about July 15, 2022, we acquired two cigarette equipment and machinery lines, as well as a suite of trademarks described below, from the seller, Nery’s Logistics, Inc., in consideration of the issuance of 200,000 shares of our common stock to the seller. The trademarks we acquired include multiple smokables product trademarks in Mexico for smokable brands including “Tijuana,” “Gladiator,” “Anchor,” “Black Cat,” and “Solitos.” The acquired equipment and trademarks will be used in connection with our hemp smokables products and will not be used for tobacco smokables products.

On August 29, 2022, we entered into an underwriting agreement with Boustead Securities, LLC (“Boustead”), in connection with the initial public offering of our common stock (the “IPO”), pursuant to which we (i) sold 100,000 shares of our common stock at a price to the public of $60.00 per share, (ii) issued Boustead 70,000 warrants to purchase shares of common stock, exercisable from September 1, 2022, through August 29, 2027, and initially exercisable at $9.00 per share (the “Boustead Warrants”), and (iii) granted Boustead an option for a period of 45 days to purchase up to an additional 150,000 shares of common stock.

On August 30, 2022, our common stock was listed and began trading on the Nasdaq Capital Market, and on September 1, 2022, the IPO closed. At the closing, we (i) issued 100,000 shares of common stock for total gross proceeds of $6,000,000, and (ii) issued Boustead the Boustead Warrants. After deducting underwriting commission and expenses, we received net proceeds of $5,468,812 from the IPO. On September 6, 2022, Boustead exercised the Boustead Warrants in full on a cashless basis, and on September 7, 2022, we issued 5,493 shares of common stock to Boustead for their warrant exercise.

On September 6, 2022, we entered into a settlement agreement with Titan General Agency Ltd. (“Titan”), our creditor equipment financier which was owed approximately $1,450,000 by us as of September 6, 2022 (the “Titan Debt”), pursuant to our prior purchase of cigarette manufacturing machinery and equipment, pursuant to which we agreed to pay Titan $250,000 in cash (the “Settlement Cash Payment”) and issue Titan 26,667 shares of our common stock (the “Settlement Shares”), in full satisfaction of the Titan Debt. On or about September 8, 2022, we made the Settlement Payment to Titan and issued Titan the Settlement Shares, extinguishing the Titan Debt.

On October 4, 2022, we issued North Equities USA Ltd. (“North”) 4,149 shares of Company common stock for six months of marketing services to be rendered by North to us, commencing on September 19, 2022, and including content management for our YouTube channel, establishment of a brand ambassador, and social media services.

On October 12, 2022, we 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, and as compensation, FMW was issued 6,329 shares of Company common stock.

In October 2022, we entered into a joint venture agreement with Sonora Paper Co., Inc., a California corporation (“Sonora”), to form a joint venture entity in Delaware, Hempacco Paper Co., Inc., which will market and sell hemp rolling papers. Pursuant to the agreement, the joint venture entity will be owned 80% by us and 20% by Sonora, we are required to manufacture and package joint venture product and provide accounting, inventory management, staff training, and trade show and marketing services for the joint venture entity, and Sonora is required to provide its patented and patent-pending technologies for the joint venture’s use, with the joint venture obligated to pay royalties of $0.0025 per paper cone manufactured by the joint venture entity and provide lodging for Sonora’s director, Daniel Kempton.

In November 2022, we entered into a joint venture agreement with High Sierra Technologies, Inc. (“High Sierra”), a Nevada corporation and subsidiary of High Sierra Technologies, Inc., a Colorado corporation, to form a joint venture entity in Nevada, Organipure, Inc., which will market and sell hemp smokables products. Pursuant to the agreement, the joint venture entity will be owned 50% by each of us and High Sierra, with each of us contributing $1,000 to the joint venture initially, we are required to manufacture joint venture product, High Sierra is required to process raw hemp biomass initially, and each of us is required to provide joint accounting, inventory management, staff training, and trade show and marketing services for the joint venture entity.

In January 2023, we entered into a joint venture agreement with Alfalfa Holdings, LLC (“Alfalfa”), a California limited liability company, to operate a joint venture entity in California, HPDG, LLC (the “Joint Venture”), which will market and sell hemp smokables products. Pursuant to the agreement, the Joint Venture will be owned 50% by each of us and Alfalfa, we are required to fund $10,000 to the Joint Venture, we are required to manufacture Joint Venture product and provide accounting, inventory management, staff training, and trade show and marketing services for the Joint Venture, and Alfalfa is required to provide online marketing and promotion, design and branding, and brand management and development services to the Joint Venture, as well as Snoop Dogg attendance and appearances at Joint Venture events subject to professional availability, and subject to a services agreement between Alfalfa, the Joint Venture, and Spanky’s Clothing, Inc., and Calvin Broadus, Jr. p/k/a “Snoop Dogg” (collectively “Talent”). Pursuant to that services agreement, the Joint Venture was required to cause us to issue (i) to Talent a fully vested warrant to acquire 45,000 shares of Company common stock at a strike price of $10.00 per share, and (ii) to Talent’s designee a fully vested warrant to acquire 5,000 shares of Company common stock at a strike price of $10.00 per share, and we issued those warrants to Talent and Talent’s designee as of January 30, 2023.

On February 9, 2023, we entered into an underwriting agreement with Boustead and EF Hutton, a division of Benchmark Investments, LLC (the “Representatives”) in connection with the public offering of additional shares of our common stock. The offering closed on February 11, 2023, and (i) we sold an aggregate of 483,000 shares of our common stock for total gross proceeds of $7,245,000, and (ii) we issued the Representatives 33,810 warrants to purchase shares of our common stock, exercisable from February 14, 2023, through February 10, 2028, and initially exercisable at $15.00 per share. After deducting underwriter commissions and offering expenses, the Company received net proceeds of $6,610,400 in the offering.

In collaboration with our joint-venture partner Alfalfa and its Talent, Snoop Dogg, we recently launched plans to manufacture and distribute several new product lines containing hemp derived CBD, starting with the “Dogg lbs” brand of CBD gummies. On or about June 26, 2024, we entered into a Product Supply Agreement with Sprouts Holdings, LLC (“Sprouts”), an affiliate of Alfalfa and Talent, which superseded the prior Joint Venture and services agreement with them, and pursuant to which we will manufacture and supply products to the affiliate, including the “Dogg lbs” brand of CBD gummies.

On November 6, 2023, we entered into agreements with Ispire North America, LLC, to, under license, manufacture and distribute vaporizer products under our joint venture celebrity brands.

On March 13, 2024, we effected a reverse stock split of the Company’s common stock in a ratio of 1 post-split share for 10 pre-split shares.

Recent Acquisitions

Effective July 24, 2023, we acquired from Viva Veritas LLC (“Veritas”) its 50% ownership interest in Green Star Labs, Inc., a Delaware corporation (“Green Star Labs”), together with additional equipment and inventory related to bottling and gummy production, for total consideration of $3,500,000, with $300,000 paid in cash (which was deemed previously paid by the Company), and $3,200,000 paid by the issuance of a convertible promissory note to the Seller (the “Veritas Note”).

The Veritas Note matures twelve months after issuance, and unpaid principal accrues interest at 10% per annum. The Veritas Note is convertible at the election of the holder into shares of Common Stock at any time six months following issuance at a conversion price equal to 95.238% multiplied by the average of the closing bid prices during the three trading days prior to conversion; provided, however, that the holder may not convert the Veritas Note into Common Stock to the extent that such conversion would result in the holder’s beneficial ownership of Common Stock being in excess of 4.99% of issued and outstanding Common Stock. Additionally, the Veritas Note contains a maximum issuance limitation such that the Veritas Note will no longer be convertible after we have issued an aggregate of 557,200 shares upon conversion of the Veritas Note.

The other 50% ownership interest in Green Star Labs was owned by our majority shareholder, Green Globe International, Inc., a Delaware corporation (“GGII”). Effective December 31, 2023, we acquired from GGII the remaining 50% ownership interest in Green Star Labs for a purchase price of $2,500,000, paid by the issuance of a $2,500,000 promissory note to GGII (the “GGII Note”), resulting in Green Star becoming a wholly owned subsidiary of the Company.

Recent Financings

Beginning on October 19, 2023, the Company entered into the first of several securities purchase agreements for the sale of, in the aggregate, (i) up to $3,000,000 in convertible promissory notes, (ii) warrants to purchase up to 130,000 shares of common stock, and (iii) up to 30,000 shares of common stock (the “2023 Financing Transactions”). Beginning on March 26, 2024, the Company entered into the first of several securities purchase agreements for the sale of, in the aggregate, (i) up to $1,226,000 in convertible promissory notes, and (ii) warrants to purchase up to 36,780 shares of common stock (the “2024 Financing Transactions”). These transactions consist of the following:

October 19^th Financing Transaction

Effective October 19, 2023, we entered into a securities purchase agreement (the “FirstFire October 19^th SPA”) with FirstFire Global Opportunities Fund, LLC, a Delaware limited liability company (“FirstFire”), pursuant to which we sold, and FirstFire purchased, (i) a convertible promissory note in the principal amount of $277,777.78 (the “FirstFire October 19^th Note”), (ii) warrants to purchase 12,037 shares of Common Stock (the “FirstFire October 19^th Warrants”), and (iii) 27,777 shares of Common Stock (the “FirstFire October 19^th Shares”), for an aggregate purchase price of $250,000 (the “FirstFire October 19^th Transaction”), and we also entered into a registration rights agreement with FirstFire (the “FirstFire October 19^th RRA”). The FirstFire October 19^th Transaction closed on October 19, 2023, and on such date pursuant to the FirstFire October 19^th SPA, FirstFire’s legal expenses of $10,000 were paid from the gross purchase price, our broker-dealer in connection with the transaction was paid $20,000 from the gross purchase price, we received net funding of $220,000, and the FirstFire October 19^th Note, FirstFire October 19^th Warrants, and FirstFire October 19^th Shares were issued to FirstFire.

The FirstFire October 19^th Note matures 12 months following the issue date, accrues guaranteed interest of 10% per annum (with the first 12 months of interest guaranteed and earned in full as of issuance of the note), is unsecured, and is required to be repaid $46,300/month for 6 months beginning February 18, 2024, with additional payments of $9,300/month due on August 18, 2024, and September 18, 2024, and all other amounts under the note due on October 18, 2024. The FirstFire October 19^th Note is convertible into shares of Common Stock at the election of the holder at a conversion price equal to $15.00/share subject to adjustment as provided in the FirstFire October 19^th Note (the “Conversion Price”).

The Conversion Price shall be adjusted if an Event of Default (as such term is defined in the FirstFire October 19^th Note, and which includes any failure to pay monthly amortization payments as required by the FirstFire October 19^th Note) has occurred, in which case the Conversion Price shall mean the lesser of (i) 75% of $15.00/share (which percentage shall be reduced by 10% for each 30 calendar day period that passes after the Event of Default, but shall not be reduced lower than 50%), or (ii) 90% of the lowest volume-weighted average price on any trading day (any day that shares of Common Stock are listed for trading or quotation on any exchange or trading market is listed or traded, or if the Common Stock is not listed or traded, any calendar day) during the 5 trading days prior to the conversion date (which percentage shall be reduced to 87.5% if the Company has failed to make a required monthly payment); provided, however, that the holder may not convert the FirstFire October 19^th Note to the extent that such conversion would result in the holder’s beneficial ownership of Common Stock being in excess of 4.99% of the issued and outstanding Common Stock. In addition, if at any time while the convertible note remains outstanding, we grant any option to purchase, sell or grant any right to reprice, or otherwise dispose of, issue or sell any shares of our Common Stock or securities or rights convertible into or exercisable for shares of our Common Stock, at a price below the then-applicable conversion price of the convertible note, the holder of the convertible note shall have the right to reduce the conversion price to such lower price. Finally, the holder is entitled to deduct $1,750 from the conversion amount in each note conversion to cover the holder’s fees associated with the conversion, provided that the gross conversion amount in that conversion is at least $25,000.

The FirstFire October 19^th Warrants have a 5-year term, are exercisable on a cashless basis, and have an exercise price of $15.00, subject to customary anti-dilution adjustments. In addition, subject to certain limited exceptions, if at any time while the FirstFire October 19^th Warrants remain outstanding, we grant any option to purchase, sell or grant any right to reprice, or otherwise dispose of, issue or sell any shares of our Common Stock or securities or rights convertible into or exercisable for shares of our Common Stock, at a price below the then-applicable exercise price of the FirstFire October 19^th Warrants, the holder shall have the right to reduce the exercise price to such lower price. At any time when the market price (the highest traded price of our Common Stock during the 30 trading days prior to the exercise notice), is in excess of the exercise price, the holder of the FirstFire October 19^th Warrants shall have the right to exercise the FirstFire October 19^th Warrants by means of a “cashless exercise” in accordance with the formula provided in the FirstFire October 19^th Warrants.

October 20^th Financing Transaction

Effective October 20, 2023, we entered into a securities purchase agreement (the “Mast Hill October 20^th SPA”) with Mast Hill Fund, L.P., a Delaware limited partnership (“Mast Hill”), pursuant to which we sold, and Mast Hill purchased, (i) a convertible promissory note in the principal amount of $835,000 (the “Mast Hill October 20^th Note”), (ii) warrants to purchase 36,183 shares of Common Stock (the “Mast Hill October 20^th Warrants”), and (iii) 8,350 shares of Common Stock (the “Mast Hill October 20^th Shares”), for an aggregate purchase price of $751,500 (the “Mast Hill October 20^th Transaction”), and we also entered into a registration rights agreement with Mast Hill (the “Mast Hill October 20^th RRA”). The Mast Hill October 20^th Transaction closed on October 20, 2023, and on such date pursuant to the Mast Hill October 20^th SPA, Mast Hill’s legal expenses of $7,500 were paid from the gross purchase price, our broker-dealer in connection with the transaction was paid $57,240 from the gross purchase price, we received net funding of $686,760, and the Mast Hill October 20^th Note, Mast Hill October 20^th Warrants, and Mast Hill October 20^th Shares were issued to Mast Hill.

The Mast Hill October 20^th Note matures 12 months following the issue date, accrues guaranteed interest of 10% per annum (with the first 12 months of interest guaranteed and earned in full as of issuance of the note), is unsecured, and is required to be repaid $139,177.80/month for 6 months beginning February 19, 2024, with additional payments of $27,955.80/month due on August 19, 2024, and September 19, 2024, and all other amounts under the note due on October 19, 2024. The Mast Hill October 20^th Note is convertible into shares of Common Stock at the election of the holder at a conversion price equal to $15.00/share subject to adjustment as provided in the Mast Hill October 20^th Note (the “Conversion Price”).

The Conversion Price shall be adjusted if an Event of Default (as such term is defined in the Mast Hill October 20^th Note, and which includes any failure to pay monthly amortization payments as required by the Mast Hill October 20^th Note) has occurred, in which case the Conversion Price shall mean the lesser of (i) 75% of $15.00/share (which percentage shall be reduced by 10% for each 30 calendar day period that passes after the Event of Default, but shall not be reduced lower than 50%), or (ii) 90% of the lowest volume-weighted average price on any trading day (any day that shares of Common Stock are listed for trading or quotation on any exchange or trading market is listed or traded, or if the Common Stock is not listed or traded, any calendar day) during the 5 trading days prior to the conversion date (which percentage shall be reduced to 87.5% if the Company has failed to make a required monthly payment); provided, however, that the holder may not convert the Mast Hill October 20^th Note to the extent that such conversion would result in the holder’s beneficial ownership of Common Stock being in excess of 4.99% of the issued and outstanding Common Stock. In addition, if at any time while the convertible note remains outstanding, we grant any option to purchase, sell or grant any right to reprice, or otherwise dispose of, issue or sell any shares of our Common Stock or securities or rights convertible into or exercisable for shares of our Common Stock, at a price below the then-applicable conversion price of the convertible note, the holder of the convertible note shall have the right to reduce the conversion price to such lower price. Finally, the holder is entitled to deduct $1,750 from the conversion amount in each note conversion to cover the holder’s fees associated with the conversion, provided that the gross conversion amount in that conversion is at least $25,000.

The Mast Hill October 20^th Warrants have a 5-year term, are exercisable on a cashless basis, and have an exercise price of $15.00, subject to customary anti-dilution adjustments. In addition, subject to certain limited exceptions, if at any time while the Mast Hill October 20^th Warrants remain outstanding, we grant any option to purchase, sell or grant any right to reprice, or otherwise dispose of, issue or sell any shares of our Common Stock or securities or rights convertible into or exercisable for shares of our Common Stock, at a price below the then-applicable exercise price of the Mast Hill October 20^th Warrants, the holder shall have the right to reduce the exercise price to such lower price. At any time when the market price (the highest traded price of our Common Stock during the 30 trading days prior to the exercise notice), is in excess of the exercise price, the holder of the Mast Hill October 20^th Warrants shall have the right to exercise the Mast Hill October 20^th Warrants by means of a “cashless exercise” in accordance with the formula provided in the Mast Hill October 20^th Warrants.

December 12^th Financing Transaction

Effective December 12, 2023, we entered into another securities purchase agreement (the “Mast Hill December 12^th SPA”) with Mast Hill, pursuant to which we sold, and Mast Hill purchased, (i) a convertible promissory note in the principal amount of $835,000 (the “Mast Hill December 12^th Note”), (ii) warrants to purchase 36,183 shares of Common Stock (the “Mast Hill December 12^th Warrants”), and (iii) 8,350 shares of Common Stock (the “Mast Hill December 12^th Shares”), for an aggregate purchase price of $751,500 (the “Mast Hill December 12^th Transaction”), and we also entered into a registration rights agreement with Mast Hill (the “Mast Hill December 12^th RRA”). The Mast Hill December 12^th Transaction closed on December 12, 2023, and on such date pursuant to the Mast Hill December 12^th SPA, Mast Hill’s legal expenses of $15,000 were paid from the gross purchase price, our broker-dealers in connection with the transaction were paid $63,000 from the gross purchase price, we received net funding of $673,500, and the Mast Hill December 12^th Note, Mast Hill December 12^th Warrants, and Mast Hill December 12^th Shares were issued to Mast Hill.

The Mast Hill December 12^th Note matures 12 months following the issue date, accrues guaranteed interest of 10% per annum (with the first 12 months of interest guaranteed and earned in full as of issuance of the note), is unsecured, and is required to be repaid $139,177.80/month for 6 months beginning April 11, 2024, with additional payments of $27,955.80/month due on October 11, 2024, and November 11, 2024, and all other amounts under the note due on December 11, 2024. The Mast Hill December 12^th Note is convertible into shares of Common Stock at the election of the holder at a conversion price equal to $15.00/share subject to adjustment as provided in the Mast Hill December 12^th Note (the “Conversion Price”).

The Conversion Price shall be adjusted if an Event of Default (as such term is defined in the Mast Hill December 12^th Note, and which includes any failure to pay monthly amortization payments as required by the Mast Hill December 12^th Note) has occurred, in which case the Conversion Price shall mean the lesser of (i) 75% of $15.00/share (which percentage shall be reduced by 10% for each 30 calendar day period that passes after the Event of Default, but shall not be reduced lower than 50%), or (ii) 90% of the lowest volume-weighted average price on any trading day (any day that shares of Common Stock are listed for trading or quotation on any exchange or trading market is listed or traded, or if the Common Stock is not listed or traded, any calendar day) during the 5 trading days prior to the conversion date (which percentage shall be reduced to 87.5% if the Company has failed to make a required monthly payment); provided, however, that the holder may not convert the Mast Hill December 12^th Note to the extent that such conversion would result in the holder’s beneficial ownership of Common Stock being in excess of 4.99% of the issued and outstanding Common Stock. In addition, if at any time while the convertible note remains outstanding, we grant any option to purchase, sell or grant any right to reprice, or otherwise dispose of, issue or sell any shares of our Common Stock or securities or rights convertible into or exercisable for shares of our Common Stock, at a price below the then-applicable conversion price of the convertible note, the holder of the convertible note shall have the right to reduce the conversion price to such lower price. Finally, the holder is entitled to deduct $1,750 from the conversion amount in each note conversion to cover the holder’s fees associated with the conversion, provided that the gross conversion amount in that conversion is at least $25,000.

The Mast Hill December 12^th Warrants have a 5-year term, are exercisable on a cashless basis, and have an exercise price of $15.00, subject to customary anti-dilution adjustments. In addition, subject to certain limited exceptions, if at any time while the Mast Hill December 12^th Warrants remain outstanding, we grant any option to purchase, sell or grant any right to reprice, or otherwise dispose of, issue or sell any shares of our Common Stock or securities or rights convertible into or exercisable for shares of our Common Stock, at a price below the then-applicable exercise price of the Mast Hill December 12^th Warrants, the holder shall have the right to reduce the exercise price to such lower price. At any time when the market price (the highest traded price of our Common Stock during the 30 trading days prior to the exercise notice), is in excess of the exercise price, the holder of the Mast Hill December 12^th Warrants shall have the right to exercise the Mast Hill December 12^th Warrants by means of a “cashless exercise” in accordance with the formula provided in the Mast Hill December 12^th Warrants.

December 19^th Financing Transaction

Effective December 19, 2023, we entered into another securities purchase agreement (the “FirstFire December 19^th SPA”) with FirstFire, pursuant to which we sold, and FirstFire purchased, (i) a convertible promissory note in the principal amount of $277,777.78 (the “FirstFire December 19^th Note”), (ii) warrants to purchase 12,037 shares of Common Stock (the “FirstFire December 19^th Warrants”), and (iii) 2,778 shares of Common Stock (the “FirstFire December 19^th Shares”), for an aggregate purchase price of $250,000 (the “FirstFire December 19^th Transaction”), and we also entered into a registration rights agreement with FirstFire (the “FirstFire December 19^th RRA”). The FirstFire December 19^th Transaction closed on December 19, 2023, and on such date pursuant to the FirstFire December 19^th SPA, FirstFire’s legal expenses of $2,500 were paid from the gross purchase price, our broker-dealers in connection with the transaction were paid $20,000 from the gross purchase price, we received net funding of $227,500, and the FirstFire December 19^th Note, FirstFire December 19^th Warrants, and FirstFire December 19^th Shares were issued to FirstFire.

The FirstFire December 19^th Note matures 12 months following the issue date, accrues guaranteed interest of 10% per annum (with the first 12 months of interest guaranteed and earned in full as of issuance of the note), is unsecured, and is required to be repaid $46,300/month for 6 months beginning April 18, 2024, with additional payments of $9,300/month due on October 18, 2024, and November 18, 2024, and all other amounts under the note due on December 18, 2024. The FirstFire December 19^th Note is convertible into shares of Common Stock at the election of the holder at a conversion price equal to $15.00/share subject to adjustment as provided in the FirstFire December 19^th Note (the “Conversion Price”).

The Conversion Price shall be adjusted if an Event of Default (as such term is defined in the FirstFire December 19^th Note, and which includes any failure to pay monthly amortization payments as required by the FirstFire December 19^th Note) has occurred, in which case the Conversion Price shall mean the lesser of (i) 75% of $15.00/share (which percentage shall be reduced by 10% for each 30 calendar day period that passes after the Event of Default, but shall not be reduced lower than 50%), or (ii) 90% of the lowest volume-weighted average price on any trading day (any day that shares of Common Stock are listed for trading or quotation on any exchange or trading market is listed or traded, or if the Common Stock is not listed or traded, any calendar day) during the 5 trading days prior to the conversion date (which percentage shall be reduced to 87.5% if the Company has failed to make a required monthly payment); provided, however, that the holder may not convert the FirstFire December 19^th Note to the extent that such conversion would result in the holder’s beneficial ownership of Common Stock being in excess of 4.99% of the issued and outstanding Common Stock. In addition, if at any time while the convertible note remains outstanding, we grant any option to purchase, sell or grant any right to reprice, or otherwise dispose of, issue or sell any shares of our Common Stock or securities or rights convertible into or exercisable for shares of our Common Stock, at a price below the then-applicable conversion price of the convertible note, the holder of the convertible note shall have the right to reduce the conversion price to such lower price. Finally, the holder is entitled to deduct $1,750 from the conversion amount in each note conversion to cover the holder’s fees associated with the conversion, provided that the gross conversion amount in that conversion is at least $25,000.

The FirstFire December 19^th Warrants have a 5-year term, are exercisable on a cashless basis, and have an exercise price of $15.00, subject to customary anti-dilution adjustments. In addition, subject to certain limited exceptions, if at any time while the FirstFire December 19^th Warrants remain outstanding, we grant any option to purchase, sell or grant any right to reprice, or otherwise dispose of, issue or sell any shares of our Common Stock or securities or rights convertible into or exercisable for shares of our Common Stock, at a price below the then-applicable exercise price of the FirstFire December 19^th Warrants, the holder shall have the right to reduce the exercise price to such lower price. At any time when the market price (the highest traded price of our Common Stock during the 30 trading days prior to the exercise notice), is in excess of the exercise price, the holder of the FirstFire December 19^th Warrants shall have the right to exercise the FirstFire December 19^th Warrants by means of a “cashless exercise” in accordance with the formula provided in the FirstFire December 19^th Warrants.

January 9^th Financing Transaction

Effective January 9, 2024, we entered into another securities purchase agreement (the “Mast Hill January 9^th SPA”) with Mast Hill, pursuant to which we sold, and Mast Hill purchased, (i) a convertible promissory note in the principal amount of $774,444.44 (the “Mast Hill January 9^th Note”), (ii) warrants to purchase 33,559 shares of Common Stock (the “Mast Hill January 9^th Warrants”), and (iii) 7,744 shares of Common Stock (the “Mast Hill January 9^th Shares”), for an aggregate purchase price of $696,999.99 (the “Mast Hill January 9^th Transaction”), and we also entered into a registration rights agreement with Mast Hill (the “Mast Hill January 9^th RRA”). The Mast Hill January 9^th Transaction closed on January 9, 2024, and on such date pursuant to the Mast Hill January 9^th SPA, Mast Hill’s legal expenses of $13,500 were paid from the gross purchase price, our broker-dealers in connection with the transaction were paid $55,758 from the gross purchase price, we received net funding of $627,741.99, and the Mast Hill January 9^th Note, Mast Hill January 9^th Warrants, and Mast Hill January 9^th Shares were issued to Mast Hill.

The Mast Hill January 9^th Note matures 12 months following the issue date, accrues guaranteed interest of 10% per annum (with the first 12 months of interest guaranteed and earned in full as of issuance of the note), is unsecured, and is required to be repaid $129,084.40/month for 6 months beginning May 8, 2024, with additional payments of $25,928.40/month due on November 8, 2024, and December 8, 2024, and all other amounts under the note due on January 8, 2025. The Mast Hill January 9^th Note is convertible into shares of Common Stock at the election of the holder at a conversion price equal to $15.00/share subject to adjustment as provided in the Mast Hill January 9^th Note (the “Conversion Price”).

The Conversion Price shall be adjusted if an Event of Default (as such term is defined in the Mast Hill January 9^th Note, and which includes any failure to pay monthly amortization payments as required by the Mast Hill January 9^th Note) has occurred, in which case the Conversion Price shall mean the lesser of (i) 75% of $15.00/share (which percentage shall be reduced by 10% for each 30 calendar day period that passes after the Event of Default, but shall not be reduced lower than 50%), or (ii) 90% of the lowest volume-weighted average price on any trading day (any day that shares of Common Stock are listed for trading or quotation on any exchange or trading market is listed or traded, or if the Common Stock is not listed or traded, any calendar day) during the 5 trading days prior to the conversion date (which percentage shall be reduced to 87.5% if the Company has failed to make a required monthly payment); provided, however, that the holder may not convert the Mast Hill January 9^th Note to the extent that such conversion would result in the holder’s beneficial ownership of Common Stock being in excess of 4.99% of the issued and outstanding Common Stock. In addition, if at any time while the convertible note remains outstanding, we grant any option to purchase, sell or grant any right to reprice, or otherwise dispose of, issue or sell any shares of our Common Stock or securities or rights convertible into or exercisable for shares of our Common Stock, at a price below the then-applicable conversion price of the convertible note, the holder of the convertible note shall have the right to reduce the conversion price to such lower price. Finally, the holder is entitled to deduct $1,750 from the conversion amount in each note conversion to cover the holder’s fees associated with the conversion, provided that the gross conversion amount in that conversion is at least $25,000.

The Mast Hill January 9^th Warrants have a 5-year term, are exercisable on a cashless basis, and have an exercise price of $15.00, subject to customary anti-dilution adjustments. In addition, subject to certain limited exceptions, if at any time while the Mast Hill January 9^th Warrants remain outstanding, we grant any option to purchase, sell or grant any right to reprice, or otherwise dispose of, issue or sell any shares of our Common Stock or securities or rights convertible into or exercisable for shares of our Common Stock, at a price below the then-applicable exercise price of the Mast Hill January 9^th Warrants, the holder shall have the right to reduce the exercise price to such lower price. At any time when the market price (the highest traded price of our Common Stock during the 30 trading days prior to the exercise notice), is in excess of the exercise price, the holder of the Mast Hill January 9^th Warrants shall have the right to exercise the Mast Hill January 9^th Warrants by means of a “cashless exercise” in accordance with the formula provided in the Mast Hill January 9^th Warrants.

The Mast Hill January 9^th Transaction was the final transaction that was part of the 2023 Financing Transactions, on January 9, 2024, we filed a registration statement registering up to 666,030 shares of Common Stock issued or issuable to Mast Hill and FirstFire in the 2023 Financing Transactions, and that registration statement was declared effective by the SEC on February 6, 2024.

March 26^th Financing Transaction

Effective March 26, 2024, we entered into another securities purchase agreement (the “Mast Hill March 26^th SPA”) with Mast Hill, pursuant to which we sold, and Mast Hill purchased, (i) a convertible promissory note in the principal amount of $379,288.88 (the “Mast Hill March 26^th Note”), and (ii) warrants to purchase 113,786 shares of Common Stock (the “Mast Hill March 26^th Warrants”), for an aggregate purchase price of $341,360 (the “Mast Hill March 26^th Transaction”), and we also entered into a registration rights agreement with Mast Hill (the “Mast Hill March 26^th RRA”). The Mast Hill March 26^th Transaction closed on March 26, 2024, and on such date pursuant to the Mast Hill March 26^th SPA, Mast Hill’s legal expenses of $6,000 were paid from the gross purchase price, our broker-dealers in connection with the transaction were paid $27,308.80 from the gross purchase price, we received net funding of $308,051.20, and the Mast Hill March 26^th Note and Mast Hill March 26^th Warrants were issued to Mast Hill.

The Mast Hill March 26^th Note matures 12 months following the issue date, accrues guaranteed interest of 10% per annum (with the first 12 months of interest guaranteed and earned in full as of issuance of the note), is unsecured, and is generally required to be repaid 1/6th each month ($63,219.87/month for six months, and $12,698,59/month for the following two months), with such repayments beginning 4 months after the issue date (July 25, 2024).

The Mast Hill March 26^th Note is convertible into shares of Common Stock at the election of the holder at a conversion price equal to $2.30/share subject to adjustment as provided in the Mast Hill March 26^th Note (the “Conversion Price”). The Conversion Price shall be adjusted if an Event of Default (as such term is defined in the Mast Hill March 26^th Note, and which includes any failure to pay monthly amortization payments as required by the Mast Hill March 26^th Note) has occurred, in which case the Conversion Price shall mean the lesser of (i) 75% of $23.00/share (which percentage shall be reduced by 10% for each 30 calendar day period that passes after the Event of Default, but shall not be reduced lower than 50%), or (ii) 90% of the lowest volume-weighted average price on any trading day (any day that shares of Common Stock are listed for trading or quotation on any exchange or trading market is listed or traded, or if the Common Stock is not listed or traded, any calendar day) during the 5 trading days prior to the conversion date (which percentage shall be reduced to 87.5% if the Company has failed to make a required monthly payment); provided, however, that the holder may not convert the Mast Hill March 26^th Note to the extent that such conversion would result in the holder’s beneficial ownership of Common Stock being in excess of 4.99% of the issued and outstanding Common Stock. In addition, if at any time while the convertible note remains outstanding, we grant any option to purchase, sell or grant any right to reprice, or otherwise dispose of, issue or sell any shares of our Common Stock or securities or rights convertible into or exercisable for shares of our Common Stock, at a price below the then-applicable conversion price of the convertible note, the holder of the convertible note shall have the right to reduce the conversion price to such lower price. Finally, the holder is entitled to deduct $1,750 from the conversion amount in each note conversion to cover the holder’s fees associated with the conversion, provided that the gross conversion amount in that conversion is at least $25,000.

The Mast Hill March 26^th Warrants have a 5-year term, are exercisable on a cashless basis, and have an exercise price of $2.30, subject to customary anti-dilution adjustments. In addition, subject to certain limited exceptions, if at any time while the Mast Hill March 26^th Warrants remain outstanding, we grant any option to purchase, sell or grant any right to reprice, or otherwise dispose of, issue or sell any shares of our Common Stock or securities or rights convertible into or exercisable for shares of our Common Stock, at a price below the then-applicable exercise price of the Mast Hill March 26^th Warrants, the holder shall have the right to reduce the exercise price to such lower price. At any time when the market price (the highest traded price of our Common Stock during the 30 trading days prior to the exercise notice), is in excess of the exercise price, the holder of the Mast Hill March 26^th Warrants shall have the right to exercise the Mast Hill March 26^th Warrants by means of a “cashless exercise” in accordance with the formula provided in the Mast Hill March 26^th Warrants.

The Mast Hill March 26^th RRA requires the Company to file with the SEC a registration statement registering for resale by Mast Hill the shares of Company common stock issued or issuable to it under the Mast Hill March 26^th Transaction within 90 days of closing and have such registration statement effective within 120 days.

March 29^th Financing Transaction

Effective March 29, 2024, we entered into another securities purchase agreement (the “FirstFire March 29^th SPA”) with FirstFire, pursuant to which we sold, and FirstFire purchased, (i) a convertible promissory note in the principal amount of $111,111.11 (the “FirstFire March 29^th Note”), and (ii) warrants to purchase 33,333 shares of Common Stock (the “FirstFire March 29^th Warrants”), for an aggregate purchase price of $100,000 (the “FirstFire March 29^th Transaction”), and we also entered into a registration rights agreement with FirstFire (the “FirstFire March 29^th RRA”). The FirstFire March 29^th Transaction closed on March 29, 2024, and on such date pursuant to the FirstFire March 29^th SPA, our broker-dealers in connection with the transaction were paid $8,000 from the gross purchase price, we received net funding of $92,000, and the FirstFire March 29^th Note and FirstFire March 29^th Warrants were issued to FirstFire.

The FirstFire March 29^th Note matures 12 months following the issue date, accrues guaranteed interest of 10% per annum (with the first 12 months of interest guaranteed and earned in full as of issuance of the note), is unsecured, and is generally required to be repaid 1/6th each month ($18,520/month for six months, and $3,720/month for the following two months), with such repayments beginning 4 months after the issue date (July 29, 2024). The FirstFire March 29^th Note is convertible into shares of Common Stock at the election of the holder at a conversion price equal to $2.30/share subject to adjustment as provided in the FirstFire March 29^th Note (the “Conversion Price”). The Conversion Price shall be adjusted if an Event of Default (as such term is defined in the FirstFire March 29^th Note, and which includes any failure to pay monthly amortization payments as required by the FirstFire March 29^th Note) has occurred, in which case the Conversion Price shall mean the lesser of (i) 75% of $2.30/share (which percentage shall be reduced by 10% for each 30 calendar day period that passes after the Event of Default, but shall not be reduced lower than 50%), or (ii) 90% of the lowest volume-weighted average price on any trading day (any day that shares of Common Stock are listed for trading or quotation on any exchange or trading market is listed or traded, or if the Common Stock is not listed or traded, any calendar day) during the 5 trading days prior to the conversion date (which percentage shall be reduced to 87.5% if the Company has failed to make a required monthly payment); provided, however, that the holder may not convert the FirstFire March 29^th Note to the extent that such conversion would result in the holder’s beneficial ownership of Common Stock being in excess of 4.99% of the issued and outstanding Common Stock. In addition, if at any time while the convertible note remains outstanding, we grant any option to purchase, sell or grant any right to reprice, or otherwise dispose of, issue or sell any shares of our Common Stock or securities or rights convertible into or exercisable for shares of our Common Stock, at a price below the then-applicable conversion price of the convertible note, the holder of the convertible note shall have the right to reduce the conversion price to such lower price. Finally, the holder is entitled to deduct $1,750 from the conversion amount in each note conversion to cover the holder’s fees associated with the conversion, provided that the gross conversion amount in that conversion is at least $25,000.

The FirstFire March 29^th Warrants have a 5-year term, are exercisable on a cashless basis, and have an exercise price of $2.30, subject to customary anti-dilution adjustments. In addition, subject to certain limited exceptions, if at any time while the FirstFire March 29^th Warrants remain outstanding, we grant any option to purchase, sell or grant any right to reprice, or otherwise dispose of, issue or sell any shares of our Common Stock or securities or rights convertible into or exercisable for shares of our Common Stock, at a price below the then-applicable exercise price of the FirstFire March 29^th Warrants, the holder shall have the right to reduce the exercise price to such lower price. At any time when the market price (the highest traded price of our Common Stock during the 30 trading days prior to the exercise notice), is in excess of the exercise price, the holder of the FirstFire March 29^th Warrants shall have the right to exercise the FirstFire March 29^th Warrants by means of a “cashless exercise” in accordance with the formula provided in the FirstFire March 29^th Warrants.

The FirstFire March 29^th RRA requires the Company to file with the SEC a registration statement registering for resale by FirstFire the shares of Company common stock issued or issuable to it under the FirstFire March 29^th Transaction within 90 days of closing and have such registration statement effective within 120 days.

April 23rd Financing Transaction

Effective April 23, 2024, we entered into another securities purchase agreement (the “Mast Hill April 23rd SPA”) with Mast Hill, pursuant to which we sold, and Mast Hill purchased, (i) a convertible promissory note in the principal amount of $379,288.88 (the “Mast Hill April 23rd Note”), and (ii) warrants to purchase 113,786 shares of Common Stock (the “Mast Hill April 23^rd Warrants”), for an aggregate purchase price of $341,360 (the “Mast Hill April 23rd Transaction”), and we also entered into a registration rights agreement with Mast Hill (the “Mast Hill April 23rd RRA”). The Mast Hill April 23^rd Transaction closed on April 23, 2024, and on such date pursuant to the Mast Hill April 23rd SPA, our broker-dealers in connection with the transaction were paid $27,309 from the gross purchase price, we received net funding of $308,051, and the Mast Hill April 23rd Note and Mast Hill April 23rd Warrants were issued to Mast Hill.

The Mast Hill April 23rd Note matures 12 months following the issue date, accrues guaranteed interest of 10% per annum (with the first 12 months of interest guaranteed and earned in full as of issuance of the note), is unsecured, and is generally required to be repaid 1/6th each month ($63,220/month for six months, and $12,699/month for the following two months), with such repayments beginning 4 months after the issue date (August 23, 2024). The Mast Hill April 23rd Note is convertible into shares of Common Stock at the election of the holder at a conversion price equal to $2.30/share subject to adjustment as provided in the Mast Hill April 23rd Note (the “Conversion Price”). The Conversion Price shall be adjusted if an Event of Default (as such term is defined in the Mast Hill April 23rd Note, and which includes any failure to pay monthly amortization payments as required by the Mast Hill April 23rd Note) has occurred, in which case the Conversion Price shall mean the lesser of (i) 75% of $2.30/share (which percentage shall be reduced by 10% for each 30 calendar day period that passes after the Event of Default, but shall not be reduced lower than 50%), or (ii) 90% of the lowest volume-weighted average price on any trading day (any day that shares of Common Stock are listed for trading or quotation on any exchange or trading market is listed or traded, or if the Common Stock is not listed or traded, any calendar day) during the 5 trading days prior to the conversion date (which percentage shall be reduced to 87.5% if the Company has failed to make a required monthly payment); provided, however, that the holder may not convert the Mast Hill April 23rd Note to the extent that such conversion would result in the holder’s beneficial ownership of Common Stock being in excess of 4.99% of the issued and outstanding Common Stock. In addition, if at any time while the convertible note remains outstanding, we grant any option to purchase, sell or grant any right to reprice, or otherwise dispose of, issue or sell any shares of our Common Stock or securities or rights convertible into or exercisable for shares of our Common Stock, at a price below the then-applicable conversion price of the convertible note, the holder of the convertible note shall have the right to reduce the conversion price to such lower price. Finally, the holder is entitled to deduct $1,750 from the conversion amount in each note conversion to cover the holder’s fees associated with the conversion, provided that the gross conversion amount in that conversion is at least $25,000.

The Mast Hill April 23rd Warrants have a 5-year term, are exercisable on a cashless basis, and have an exercise price of $2.30, subject to customary anti-dilution adjustments. In addition, subject to certain limited exceptions, if at any time while the Mast Hill April 23^rd Warrants remain outstanding, we grant any option to purchase, sell or grant any right to reprice, or otherwise dispose of, issue or sell any shares of our Common Stock or securities or rights convertible into or exercisable for shares of our Common Stock, at a price below the then-applicable exercise price of the Mast Hill April 23rd Warrants, the holder shall have the right to reduce the exercise price to such lower price. At any time when the market price (the highest traded price of our Common Stock during the 30 trading days prior to the exercise notice), is in excess of the exercise price, the holder of the Mast Hill April 23rd Warrants shall have the right to exercise the Mast Hill April 23rd Warrants by means of a “cashless exercise” in accordance with the formula provided in the Mast Hill April 23rd Warrants.

The Mast Hill April 23rd RRA requires the Company to file with the SEC a registration statement registering for resale by Mast Hill the shares of Company common stock issued or issuable to it under the Mast Hill April 23rd Transaction within 90 days of closing and have such registration statement effective within 120 days.

Going Concern

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 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 the possibility that we may not continue to operate as a going concern in the long term. 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.

We do not know of any trends, demands, commitments, events or uncertainties that will result in, or that are reasonable likely to result in, our liquidity increasing or decreasing in any material way.

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 do not have any commitments or arrangements from any person to provide us with any equity capital.

Off-Balance Sheet Arrangements

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.

Critical Accounting Policies

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.

Recent Accounting Pronouncements

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.

ITEM 1A. RISK FACTORS

An investment in our common stock involves a high degree of risk. Before deciding to purchase, hold, or sell our common stock, you should consider carefully the risks described below in addition to the cautionary statements and risks described elsewhere in this Annual Report and in our other filings with the SEC, including our registration statements and subsequent reports on Forms 10-K, 10-Q and 8-K. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of these known or unknown risks or uncertainties actually occur, our business, financial condition, results of operations or cash flows could be seriously harmed. This could cause the trading price of our common stock to decline, resulting in a loss of all or part of your investment.

Risks Related to our Financial Condition and Capital Requirements

Since inception, we have experienced operating losses and negative cash flows from operating activities and anticipate that we will continue to incur operating losses in the near future.

We have experienced operating losses to date and negative cash flows from operating activities. We expect to continue to incur significant expenses related to our expanding operations and to generate operating losses in the near future. The size of our losses will depend, in part, on the rate of future expenditures and our ability to generate revenues.

We may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may adversely affect our financial condition. Our prior losses and expected future losses have had, and will continue to have, an adverse effect on our financial condition. If our products do not achieve sufficient market acceptance and our revenues do not increase significantly, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, expand our business, diversify our product offerings or continue our operations. A decline in the value of our company could cause you to lose all or part of your investment.

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.

It is critical that we meet our sales goals and increase sales going forward as our operating plan already reflects prior significant cost containment measures and may make it difficult to achieve top-line growth if further significant reductions become necessary. If we do not meet our sales goals, our available cash and working capital will decrease and our financial condition will be negatively impacted.

We may be unable to effectively manage future growth.

We may be subject to growth-related risks, including capacity constraints and pressure on our internal systems and controls. Our ability to manage growth effectively will require us to continue to implement and improve our operational and financial systems and to expand, train and manage our employee base. Rapid growth of our business may significantly strain our management, operations and technical resources. If we are successful in obtaining large orders for its products, we will be required to deliver large volumes of products to our customers on a timely basis and at a reasonable cost. We may not obtain large-scale orders for our products and if we do, we may not be able to satisfy large-scale production requirements on a timely and cost-effective basis. Our inability to deal with this growth may have a material adverse effect on our business, financial condition, results of operations and prospects.

We will need additional financing in the future, which may not be available when needed or may be costly and dilutive.

We will require additional financing to support our working capital needs in the future. The amount of additional capital we may require, the timing of our capital needs and the availability of financing to fund those needs will depend on a number of factors, including our strategic initiatives and operating plans, the performance of our business and the market conditions for debt or equity financing. Additionally, the amount of capital required will depend on our ability to meet our sales goals and otherwise successfully execute our operating plan. We believe it is imperative that we meet these sales objectives in order to lessen our reliance on external financing in the future. We intend to continually monitor and adjust our operating plan as necessary to respond to developments in our business, our markets and the broader economy. Although we believe various debt and equity financing alternatives will be available to us to support our working capital needs, financing arrangements on acceptable terms may not be available to us when needed.

Additionally, these alternatives may require significant cash payments for interest and other costs or could be highly dilutive to our existing shareholders. Any such financing alternatives may not provide us with sufficient funds to meet our long-term capital requirements. If necessary, we may explore strategic transactions that we consider to be in the best interest of the Company and our shareholders, which may include, without limitation, public or private offerings of debt or equity securities, a rights offering, and other strategic alternatives; however, these options may not ultimately be available or feasible when needed.

If we are unable to continue as a going concern, our securities will have little or no value.

Although our financial statements have been prepared under the assumption that we would continue our operations as a going concern, there is substantial doubt about our ability to continue as a going concern, based on our financial statements and results of operations at that time. Specifically, as noted above, we have experienced losses from operations and negative cash flows from operating activities due primarily to relatively high general and administrative expenses associated with launching our business, as well as an inventory obsolescence allowance expense. An inventory obsolescence allowance was created as a precautionary measure with regard to a large quantity of hemp biomass that is currently being used in production of our products, which we expect will be consumed within 6 to 12 months. All or a portion of the allowance is expected to be credited back as other income as the biomass is used, but there is no guarantee that the biomass will be used, and that the allowance will be credited back as other income.

Although our audited financial statements for the years ended December 31, 2023 and 2022, were prepared under the assumption that we would continue our operations as a going concern, the report of our independent registered public accounting firm that accompanies our financial statements for the years ended December 31, 2023 and 2022, contains a going concern qualification in which such firm expressed substantial doubt about our ability to continue as a going concern, based on our financial statements and results at that time, including our net loss of $13,442,221 during the year ended December 31, 2023, and our accumulated deficit of $23,588,666 as of December 31, 2023.

We expect to continue to incur significant expenses and operating losses for the foreseeable future. These prior losses and expected future losses have had, and will continue to have, an adverse effect on our financial condition. In addition, as noted above, continued operations and our ability to continue as a going concern may be dependent on our ability to obtain additional financing in the near future and thereafter, and there are no assurances that such financing will be available to us at all or will be available in sufficient amounts or on reasonable terms. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty. If we are unable to generate additional funds in the future through sales of our products, financings or from other sources or transactions, we will exhaust our resources and will be unable to continue operations. If we cannot continue as a going concern, our shareholders would likely lose most or all of their investment in us.

We may incur significant debt to finance our operations.

There is no assurance that we will not incur additional debt in the future, that we will have sufficient funds to repay our indebtedness, or that we will not be in default on any of our debt, jeopardizing our business viability. Furthermore, we may not be able to borrow or raise additional capital in the future to meet the Company's needs or to otherwise provide the capital necessary to conduct our business.

Risk Factors Relating to Our Business and Industry

We compete in an industry that is brand-conscious, so brand name recognition and acceptance of our products are critical to our success.

Our business is substantially dependent upon awareness and market acceptance of our products and brands by our target market: trendy, young consumers looking for a distinctive product tonality and/or the perceived benefits of hemp, CBD and CBG in their smokables as compared to nicotine or tobacco-based smokables. In addition, our business depends on acceptance by our independent distributors and retailers of our brands that have the potential to provide incremental sales growth. If we are not successful in the growth of our brand and product offerings, we may not achieve and maintain satisfactory levels of acceptance by independent distributors and retail consumers. In addition, we may not be able to effectively execute our marketing strategies . Any failure of our brands to maintain or increase acceptance or market penetration would likely have a material adverse effect on our revenues and financial results.

Our brand and image are keys to our business and any inability to maintain a positive brand image could have a material adverse effect on our results of operations.

Our success depends on our ability to maintain brand image for our existing products and effectively build up brand image for new products and brand extensions. We cannot predict whether our advertising, marketing and promotional programs will have the desired impact on our products' branding and on consumer preferences. In addition, negative public relations and product quality issues, including negative perceptions regarding the hemp industry, whether real or imagined, could tarnish our reputation and image of the affected brands and could cause consumers to choose other products. Our brand image can also be adversely affected by unfavorable reports, studies and articles, litigation, or regulatory or other governmental action, whether involving our products or those of our competitors.

Competition from traditional and large, well-financed tobacco or nicotine cigarette manufacturers or distributors may adversely affect our distribution relationships and may hinder development of our existing markets, as well as prevent us from expanding our markets.

The smokables industry is highly competitive. We compete with other smokables companies, including with "Big Tobacco" manufacturers and distributors, not only for consumer acceptance but also for shelf space in retail outlets and for marketing focus by our distributors, many of whom also distribute other smokables brands. Our products compete with both tobacco-based and hemp-based smokables, many of which are marketed by companies with substantially greater financial resources than ours. Some of these competitors are placing severe pressure on independent distributors not to carry competitive hemp brands such as ours. We also compete with regional hemp smokables producers and "private label" smokables suppliers.

Our direct competitors in the smokables industry include large domestic and international traditional tobacco companies and distributors as well as regional or niche smokables companies. These national and international competitors have advantages such as lower production costs, larger marketing budgets, greater financial and other resources and more developed and extensive distribution networks than ours. We may not be able to increase our volumes or maintain our selling prices, whether in existing markets or as we enter new markets.

Increased competitor consolidations, market-place competition, particularly among branded hemp smokables products, and competitive product and pricing pressures could impact our earnings, market share and volume growth. If, due to such pressure or other competitive threats, we are unable to sufficiently maintain or develop our distribution channels, we may be unable to achieve our current revenue and financial targets. As a means of maintaining and expanding our distribution network, we intend to introduce additional brands.

We may not be successful in doing this, or it may take us longer than anticipated to achieve market acceptance of these new products and brands, if at all. Other companies may be more successful in this regard over the long term. Competition, particularly from companies with greater financial and marketing resources than ours, could have a material adverse effect on our existing markets, as well as on our ability to expand the market for our products.

We compete in an industry characterized by rapid changes in consumer preferences and public perception, so our ability to continue developing new products to satisfy our consumers' changing preferences will determine our long-term success.

Failure to introduce new brands, products or product extensions into the marketplace as current ones mature and to meet our consumers' changing preferences could prevent us from gaining market share and achieving long-term profitability. Product lifecycles can vary, and consumers' preferences and loyalties change over time. We may not succeed at innovating new products to introduce to our consumers. Customer preferences also are affected by factors other than taste, such as health and nutrition considerations and obesity concerns, shifting consumer needs, changes in consumer lifestyles, increased consumer information and competitive product and pricing pressures. Sales of our products may be adversely affected by the negative publicity associated with these issues. In addition, there may be a decreased demand for our products as a result of general economic conditions. If we do not adequately anticipate or adjust to respond to these and other changes in customer preferences, we may not be able to maintain and grow our brand image and our sales may be adversely affected.

We may be unable to respond effectively to technological changes in our industry, which could reduce the demand for our products.

Our future business success will depend upon our ability to maintain and enhance our product portfolio with respect to advances in technological improvements for certain products and market products that meet customer needs and market conditions in a cost-effective and timely manner. Maintaining and enhancing our product portfolio may require significant investments in licensing fees and royalties. We may not be successful in gaining access to new products that successfully compete or are able to anticipate customer needs and preferences, and our customers may not accept one or more of our products. If we fail to keep pace with evolving technological innovations or fail to modify our products and services in response to customers' needs or preferences, then our business, financial condition and results of operations could be adversely affected.

We may experience a reduced demand for some of our products due to health concerns and legislative initiatives against smokables products.

Consumers are concerned about health and wellness; public health officials and government officials are increasingly vocal about smoking, vaping, and their adverse consequences. There has been a trend among many public health advocates to pursue generalized reduction in consumption of smokables products, as well as increased public scrutiny, new taxes on smokables products, and additional governmental regulations concerning the marketing and labeling/packing of smokable products. Additional or revised regulatory requirements, whether labeling, tax or otherwise, could have a material adverse effect on our financial condition and results of operations. Further, increasing public concern with respect to smokables could reduce demand for our hemp smokables products.

Legislative or regulatory changes that affect our products, including new taxes, could reduce demand for products or increase our costs.

Taxes imposed on the sale of certain of our products by federal, state, and local governments in the United States, or other countries in which we operate could cause consumers to shift away from purchasing our hemp smokables products. These taxes could materially affect our business and financial results.

Our ability to develop, commercialize and distribute hemp smokables products and comply with laws and regulations governing cannabis, hemp or related products will affect our operational results.

As of December 31, 2023, more than 40 states had enacted legislation to establish hemp production programs pursuant to the 2018 farm bill (the Agricultural Improvement Act of 2018, the "2018 Farm Bill"), which legalized the regulated production of hemp.

The 2018 Farm Bill was signed into law on December 20, 2018. The 2018 Farm Bill removed hemp from the U.S. Controlled Substances Act (the "CSA") and established a federal regulatory framework for hemp production in the United States. Among other provisions, the 2018 Farm Bill: (a) explicitly amends the CSA to exclude all parts of the cannabis plant (including its cannabinoids, derivatives, and extracts) containing a delta-9 THC concentration of not more than 0.3% on a dry weight basis from the CSA's definition of "marihuana"; (b) permits the commercial production and sale of hemp; (c) precludes states, territories, and Indian tribes from prohibiting the interstate transport of lawfully-produced hemp through their borders; and (d) establishes the USDA as the primary federal agency regulating the cultivation of hemp in the United States, while allowing states, territories, and Indian tribes to obtain (or retain) primary regulatory authority over hemp activities within their borders after receiving approval of their proposed hemp production plan from the USDA. Any such plan submitted by a state, territory, or Indian tribe to the USDA must meet or exceed minimum federal standards and receive USDA approval. Any state, territory, or Indian tribe that does not submit a plan to the USDA, or whose plan is not approved by the USDA, will be regulated by the USDA; provided that, states retain the ability to prohibit hemp production within their borders.

Marijuana continues to be classified as a Schedule I substance under the CSA. As a result, any cannabinoids (including CBD) derived from marijuana, as opposed to hemp, or any products derived from hemp containing in excess of 0.3% THC on a dry-weight basis, remain Schedule I substances under U.S. federal law. Cannabinoids derived from hemp are indistinguishable from those derived from marijuana, and confusion surrounding the nature of our smokables products containing hemp or CBD, inconsistent interpretations of the definition of "hemp", inaccurate or incomplete testing, farming practices and law enforcement vigilance or lack of education could result in our products being intercepted by federal and state law enforcement as marijuana and could interrupt and/or have a material adverse impact on the Company's business. The Company could be required to undertake processes that could delay shipments, impede sales or result in seizures, proper or improper, that would be costly to rectify or remove and which could have a material adverse effect on the business, prospects, results of operations or financial condition of the Company. If the Company makes mistakes in processing or labeling, and THC in excess of 0.3% on a dry-weight basis is found in our products, the Company could be subject to enforcement and prosecution under local, state, and federal laws which would have a negative impact on the Company's business and operations.

Under the 2018 Farm Bill, states have authority to adopt their own regulatory regimes, and as such, regulations will likely continue to vary on a state-by-state basis. States take varying approaches to regulating the production and sale of hemp and hemp-derived products under state food and drug laws. The variance in state law and that state laws governing hemp production are rapidly changing may increase the chance of unfavorable law enforcement interpretation of the legality of Company's operations as they relate to the cultivation of hemp. Further, such variance in state laws that may frequently change increases the Company's compliance costs and risk of error.

While some states explicitly authorize and regulate the production and sale of hemp products or otherwise provide legal protection for authorized individuals to engage in commercial hemp activities, other states maintain outdated drug laws that do not distinguish between marijuana, hemp and/or hemp-derived CBD, resulting in hemp being classified as a controlled substance under state law. In these states, sale of CBD, notwithstanding origin, is either restricted to state medical or adult-use marijuana program licensees or remains otherwise unlawful under state criminal laws. Variance in hemp regulation across jurisdictions is likely to persist. This patchwork of state laws may, for the foreseeable future, materially impact the Company's business and financial condition, limit the accessibility of certain state markets, cause confusion amongst regulators, and increase legal and compliance costs.

On October 6, 2021, the California Assembly Bill Number 45 (“AB 45”) was passed into law. Despite the fact that industrial hemp is federally legal and not a controlled substance, this bill prohibits the sale of “inhalable” hemp products in California. However, the manufacture of inhalable hemp products for the sole purpose of sale in other states is not prohibited. This ban on any kind of smokable flower will remain in force until such time as the California Legislature enact a bill to tax the product. It is also legal to manufacture Delta-8 products containing less than 0.3% THC for sale in another state.

There are no express protections in the United States under applicable federal or state law for possessing or processing hemp biomass derived from lawful hemp not exceeding 0.3% THC on a dry weight basis and intended for use in finished product, but that may temporarily exceed 0.3% THC during the interim processing stages. While it is a common occurrence for hemp biomass to have variance in THC content during interim processing stages after cultivation but prior to use in finished products, there is risk that state or federal regulators or law enforcement could take the position that such hemp biomass is a Schedule I controlled substance in violation of the CSA and similar state laws. Further, there is a risk that state regulators and/or law enforcement may interpret provisions of state law prohibiting unlawful marijuana activity to apply to in-process hemp at any facility where we manufacture our hemp smokables products so that such activity is considered unlawful under state law.

In the event that the Company's operations are deemed to violate any laws or if we are deemed to be assisting others to violate a state or federal law, the Company could be subject to enforcement actions and penalties, and any resulting liability could cause the Company to modify or cease its operations.

Continued development of the industrial hemp and cannabis industries will be dependent upon new legislative authorization of industrial hemp and cannabis at the state level, and further amendment or supplementation of legislation at the federal level. Any number of events or occurrences could slow or halt progress all together in this space. While progress within the industrial hemp and cannabis industries is currently encouraging, growth is not assured. While there appears to be ample public support for favorable legislative action, numerous factors may impact or negatively affect the legislative process(es) within the various states where we have business interests. Any one of these factors could slow or halt use of industrial hemp and cannabis, which could negatively impact our business and financial results.

In addition, the general manufacture, labeling and distribution of our hemp smokables products is regulated by various federal, state, and local agencies. These governmental authorities may commence regulatory or legal proceedings, which could restrict the permissible scope of our product claims or the ability to sell products in the future.

The shifting compliance environment and the need to build and maintain robust systems to comply with different compliance in multiple jurisdictions increases the possibility that we may violate one or more of the requirements. If our operations are found to be in violation of any of such laws or any other governmental regulations that apply to our business, we may be subject to penalties, including, without limitation, civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, any of which could adversely affect the ability to operate our business and its financial results.

International expansion efforts would likely significantly increase our operational expenses.

We may in the future expand into other geographic areas, which could increase our operational, regulatory, compliance, reputational and foreign exchange rate risks. The failure of our operating infrastructure to support such expansion could result in operational failures and regulatory fines or sanctions. Future international expansion could require us to incur a number of up-front expenses, including those associated with obtaining regulatory approvals, as well as additional ongoing expenses, including those associated with infrastructure, staff and regulatory compliance. We may not be able to successfully identify suitable acquisition and expansion opportunities or integrate such operations successfully with our existing operations.

Our reliance on distributors, retailers and brokers could affect our ability to efficiently and profitably distribute and market our products, maintain our existing markets and expand our business into other geographic markets.

Our ability to maintain and expand our existing markets for our products, and to establish markets in new geographic distribution areas, is dependent on our ability to establish and maintain successful relationships with reliable distributors, retailers and brokers strategically positioned to serve those areas. Most of our distributors, retailers and brokers sell and distribute competing products, including tobacco-based or nicotine-based smokables products, and our products may represent a small portion of their businesses. The success of our distribution network will depend on the performance of the distributors, retailers, and brokers in our network. There is a risk they may not adequately perform their functions within the network by, without limitation, failing to distribute to sufficient retailers or positioning our products in localities that may not be receptive to our product. Our ability to incentivize and motivate distributors to manage and sell our products is affected by competition from other hemp smokables companies who have greater resources than we do. To the extent that our distributors, retailers and brokers are distracted from selling our products or do not employ sufficient efforts in managing and selling our products, including re-stocking the retail shelves with our products, our sales and results of operations could be adversely affected. Furthermore, such third parties' financial position or market share may deteriorate, which could adversely affect our distribution, marketing and sales activities.

Our ability to maintain and expand our distribution network and attract additional distributors, retailers and brokers will depend on a number of factors, some of which are outside our control. Some of these factors include:

We may not be able to successfully manage all or any of these factors in any of our current or prospective geographic areas of distribution. Our inability to achieve success with regards to any of these factors in a geographic distribution area will have a material adverse effect on our relationships in that particular geographic area, thus limiting our ability to maintain or expand our market, which will likely adversely affect our revenues and financial results.

We incur significant time and expense in attracting and maintaining key distributors, and loss of distributors or retails accounts would harm our business.

Our marketing and sales strategy depends in large part on the availability and performance of our independent distributors. We currently do not have, nor do we anticipate in the future that we will be able to establish, long-term contractual commitments from some of our distributors. We may not be able to maintain our current distribution relationships or establish and maintain successful relationships with distributors in new geographic distribution areas. Moreover, there is the additional possibility that we may have to incur additional expenditures to attract and maintain key distributors in one or more of our geographic distribution areas in order to profitably exploit our geographic markets.

We currently have approximately ten distributors who service numerous retail accounts. If we were to lose any of our distributors, or if they were to lose national, regional or larger retail accounts, our financial condition and results of operations could be adversely affected. While we continually seek to expand and upgrade our distributor network, we may not be able to maintain our distributor or retailer base. The loss of any of our distributors, or their significant retail accounts, could have adverse effects on our revenues, liquidity and financial results, could negatively impact our ability to retain our relationships with our other distributors and our ability to expand our market, and would place increased dependence on our other independent distributors and national accounts.

The COVID-19 pandemic has and could continue to negatively affect various aspects of our business, make it more difficult for us to meet our obligations to our customers, and result in reduced demand for our products and services, which could have a material adverse effect on our business, financial condition, results of operations, or cash flows.

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, and it then spread throughout other parts of the world, including the United States. Any outbreak of contagious diseases or other adverse public health developments could have a material adverse effect on our business operations. These impacts to our operations have included and could again in the future include disruptions or restrictions on the ability of our employees and customers to travel or our ability to pursue collaborations and other business transactions, travel to customers and/or promote our products at conferences or other live events, oversee the activities of our third-party manufacturers and suppliers. We may also be impacted by the temporary closure of the facilities of suppliers, manufacturers or customers.

In an effort to halt the outbreak of COVID-19, a number of countries, including the United States, placed significant restrictions on travel and many businesses announced extended closures. These travel restrictions and business closures had, and similar pandemic restrictions in the future may have, an adverse impact on our operations locally and worldwide, including our ability to manufacture, market, sell or distribute our products. Such restrictions and closure have caused or may cause temporary closures of the facilities of our suppliers, manufacturers or customers. A disruption in the operations of our employees, suppliers, customers, manufacturers or access to customers would likely impact our sales and operating results. We plan to continue to monitor and assess the effects of the COVID-19 pandemic and similar health-related geopolitical developments on our commercial operations; however, we cannot at this time accurately predict what effects these conditions will ultimately have on our operations due to uncertainties relating to the ultimate geographic spread of viruses, the severity of the diseases arising from these viruses, the duration of the outbreaks and speed of vaccinations, and the length of the travel restrictions and business closures imposed by the governments of impacted countries. In addition, a significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect demand for our products and likely impact our operating results.

We rely on suppliers, manufacturers and contractors, and events adversely affecting them would adversely affect us.

The Company intends to maintain a full supply chain for the provision of its hemp-based smokables products. Due to the novel and variable regulatory landscape for hemp and CBD production in the United States, the Company's third-party hemp and hemp smokables suppliers, manufacturers and contractors may elect, at any time, to decline or withdraw services necessary for the Company's operations. Loss of these suppliers, manufacturers and contractors, including for non-hemp-based ingredients in the Company's hemp smokables products, may have a material adverse effect on the Company's business, financial condition, results of operations and prospects.

In addition, any significant interruption, negative change in the availability or economics of the supply chain or increase in the prices for the ingredients in the Company's products provided by any such third-party suppliers, manufacturers and contractors could materially impact the Company's business, financial condition, results of operations and prospects. Any inability to secure required supplies or to do so on appropriate terms could have a materially adverse impact on the Company's business, financial condition, results of operations and prospects.

We have five customers that account for a substantial portion of our revenues, and our business would be harmed were we to lose these customers.

Sales to five of the Company’s largest customers made up approximately 55% and 28% of our revenues for the year ended December 31, 2023, and 2022, respectively, and represents approximately 25% and 15%, respectively, of the total accounts receivable balances (before deduction of allowance) of $316,700 and $478,680, respectively, as of those dates. As a result of a legal dispute during 2022 and 2023. between one of these customers and a third party unconnected with the Company, we experienced a significant reduction in our projected revenues and cash flow from paper products for the year ended December 31, 2023.

Wholesale price volatility may adversely affect operations.

The hemp smokables industry is margin-based with gross profits typically dependent on the excess of sales prices over costs. Consequently, profitability is sensitive to fluctuations in wholesale and retail prices caused by changes in supply (which itself depends on other factors such as weather, fuel, equipment and labor costs, shipping costs, economic situation and demand), taxes, government programs and policies for the hemp smokables and hemp industries (including price controls and wholesale price restrictions that may be imposed by government agencies responsible for the regulation of hemp and/or smokables products), and other market conditions, all of which are factors beyond the control of the Company. The Company's operating income will be sensitive to changes in the price of hemp and other product ingredients, and the overall condition of the hemp and smokables industries, as the Company's profitability is directly related to the price of hemp and our other smokables ingredients. There is currently not an established market price for hemp, and the price of hemp is affected by numerous factors beyond the Company's control. Ingredient price volatility may have a material adverse effect on the Company's business, financial condition, and results of operations.

The Company may sustain losses that cannot be recovered through insurance or other preventative measures.

There is no assurance that the Company will not incur uninsured liabilities and losses as a result of the conduct of its business. While the Company currently has some liability insurance coverage, it does not have broad coverage at high levels. The Company plans to continue to review its liability coverage in the light of its expanding operations in order to insure against potential major insurable liabilities. Should uninsured losses occur, shareholders could lose their invested capital.

The Company may be subject to product liability claims and other claims of our customers and partners.

The sale of hemp smokables products to consumers involves a certain level of risk of product liability claims and the associated adverse publicity. Because use of the Company's hemp smokables products could cause injury to consumers if packaging or ingredients are defective, we are subject to a risk of claims for such injuries and damages. We could also be named as co-parties in product liability suits that are brought against manufacturing partners that produce our hemp smokables products, packaging for those products, or the ingredients in those products.

In addition, our customers and partners may bring suits against us alleging damages for the failure of our products to meet stated specifications or other requirements. Any such suits, even if not successful, could be costly, disrupt the attention of our management and damage our negotiations with distributors and/or customers. Any attempt by us to limit our product liability in our contracts may not be enforceable or may be subject to exceptions. While we do have product liability insurance, our amounts of coverage may be inadequate to cover all potential liability claims. Insurance coverage, particularly as it relates to products relating to the hemp industry, is expensive, and additional coverage may be difficult to obtain.

Also, additional insurance coverage may not be available in the future on acceptable terms and may not be sufficient to cover potential claims. We cannot be sure that our contract manufacturers or manufacturing partners who produce our hemp smokables products, packaging and ingredients will have adequate insurance coverage themselves to cover against potential claims. If we experience a large insured loss, it may exceed any insurance coverage limits we have at that time, or our insurance carrier may decline to cover us or may raise our insurance rates to unacceptable levels, any of which could impair our financial position and potentially cause us to go out of business.

If we encounter product recalls or other product quality issues, our business may suffer.

Product quality issues, real or imagined, or allegations of product contamination, even when false or unfounded, could tarnish our image and could cause consumers to choose other products. In addition, because of changing government regulations or implementation thereof, or allegations of product contamination, we may be required from time to time to recall products entirely or from specific markets. Product recalls could affect our profitability and could negatively affect brand image.

It is difficult to predict the timing and amount of our sales, and as a result our sales forecasts are uncertain.

Many of our white label clients (clients who we manufacture product for, and which product is labeled with the clients' own branding and then sold by the clients) are required to place minimum orders with us, but we cannot accurately predict what our sales will be. As to our own brand of smokables, The Real Stuff, the number of stores where our product is available continues to increase each month, providing a major indicator of future product demand. However, such an indicator is not dispositive, and our sales forecasts are uncertain.

Our independent distributors and national accounts are not generally required to place mini mum monthly orders for our products. In order to reduce their inventory costs, independent distributors typically order products from us on a "just in time" basis in quantities and at such times based on the demand for the products in a particular distribution area. Accordingly, we cannot accurately predict the timing or quantity of purchases by any of our independent distributors or whether any of our distributors will continue to purchase products from us in the same frequencies and volumes as they may have done in the past. Additionally, our larger distributors and regional partners may make orders that are larger than we have historically been required to fill. Shortages in inventory levels, supply of raw materials or other key supplies could also negatively affect us.

If we do not adequately manage our inventory levels, our operating results could be adversely affected.

We need to maintain adequate inventory levels to be able to deliver products to distributors on a timely basis. Our inventory supply depends on our ability to correctly estimate demand for our products. Our ability to estimate demand for our products is imprecise, particularly for new products, seasonal promotions and new markets. If we materially underestimate demand for our products or are unable to maintain sufficient inventory of raw materials, we might not be able to satisfy demand on a short-term basis. If we overestimate distributor or retailer demand for our products, we may end up with too much inventory, resulting in higher storage costs, increased trade spend and the risk of inventory spoilage. If we fail to manage our inventory to meet demand, we could damage our relationships with our distributors and retailers and could delay or lose sales opportunities, which would unfavorably impact our future sales and adversely affect our operating results. In addition, if the inventory of our products held by our distributors and retailers is too high, they will not place orders for additional products, which would also unfavorably impact our sales and adversely affect our operating results.

Increases in costs or shortages of raw materials could harm our business and financial results.

In addition to the primary ingredient, the hemp blend, other principal ingredients we use include (but are not limited to) paper wrappers, filters, glue, terpenes, labels and cardboard cartons. These manufacturing and ingredient costs are subject to fluctuation. Substantial increases in the prices of ingredients, raw materials and packaging materials, used to produce our products, to the extent that they cannot be recouped through increases in the prices of finished hemp smokables products, would increase our operating costs and could reduce our profitability. If the supply of these raw materials is impaired or if prices increase significantly, it could affect the affordability of our products and reduce sales.

If we or any contract manufacturers we may use are unable to secure sufficient ingredients or raw materials including hemp, the various paper products and filters, and other key supplies, we might not be able to satisfy demand for our hemp smokables products on a short-term basis. Moreover, in the past there have been industry-wide shortages of hemp, papers and other ingredients in our products, and these shortages could occur again from time to time in the future, which could interfere with and delay production of our products and could have a material adverse effect on our business and financial results.

In addition, suppliers could fail to provide ingredients or raw materials on a timely basis, or fail to meet our performance expectations, for a number of reasons, including, for example, disruption to the global supply chain as a result of the COVID-19 pandemic, which could cause a serious disruption to our business, increase our costs, decrease our operating efficiencies and have a material adverse effect on our business, results of operations and financial condition.

Increases in costs of energy and increased regulations may have an adverse impact on our gross margin.

Over the past few years, volatility in the global oil markets has resulted in high fuel prices, which many shipping companies have passed on to their customers by way of higher base pricing and increased fuel surcharges. If fuel prices increase, we expect to experience higher shipping rates and fuel surcharges, as well as energy surcharges on our raw materials. It is hard to predict what will happen in the fuel markets in 2024 and beyond. Due to the price sensitivity of our products, we may not be able to pass such increases on to our customers.

Disruption within our supply chain, contract manufacturing or distribution channels could have an adverse effect on our business, financial condition and results of operations.

Our ability, through our suppliers, business partners, contract manufacturers, independent distributors and retailers, to make, move and sell products is critical to our success. Damage or disruption to our suppliers or to manufacturing or distribution capabilities due to weather, natural disaster, fire or explosion, terrorism, pandemics such as COVID-19, influenza, and other viruses, labor strikes or other reasons, could impair the manufacture, distribution and sale of our products. Many of these events are outside of our control. Failure to take adequate steps to protect against or mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, could adversely affect our business, financial condition and results of operations.

If we are unable to attract and retain key personnel, our efficiency and operations would be adversely affected; in addition, staff turnover causes uncertainties and could harm our business.

Our success depends on our ability to attract and retain highly qualified employees in such areas as finance, sales, marketing and product development and distribution. We compete to hire new employees, and, in some cases, must train them and develop their skills and competencies. We may not be able to provide our employees with competitive salaries, and our operating results could be adversely affected by increased costs due to increased competition for employees, higher employee turnover or increased employee benefit costs.

Recently, we have experienced significant changes in our sales personnel, and more could occur in the future. Changes to operations, policies and procedures, which can often occur with the appointment of new personnel, can create uncertainty, may negatively impact our ability to execute quickly and effectively, and may ultimately be unsuccessful. In addition, transition periods are often difficult as the new Company personnel gain detailed knowledge of our operations, and friction can result from changes in strategy and management style. Employee turnover inherently causes some loss of institutional knowledge, which can negatively affect strategy and execution. Until we integrate new personnel, and unless they are able to succeed in their positions, we may be unable to successfully manage and grow our business, and our financial condition and profitability may suffer.

Further, to the extent we experience additional personnel turnover, our operations, financial condition and employee morale could be negatively impacted. If we are unable to attract and retain qualified management and sales personnel, our business could suffer. Moreover, our operations could be negatively affected if employees are quarantined as the result of exposure to a contagious illness such as COVID-19.

If we lose the services of our Chief Executive Officer, our future operations could be impaired until such time as a qualified replacement can be found.

Our business plan relies significantly on the continued services of Sandro Piancone, our Chief Executive Officer. If we were to lose the services of Mr. Piancone, our ability to obtain new business and new strategic partners, as well as our ability to manage our operations, could be materially impaired.

We are required to indemnify our directors and officers.

Our Articles of Incorporation and Bylaws provide that we will indemnify our officers and directors to the maximum extent permitted by Nevada law, provided that the officer or director did not act in bad faith or breach his or her duty to us or our stockholders, or that it is more likely than not that it will ultimately be determined that the officer or director has met the standards of conduct which make it permissible for under Nevada law for the Company to indemnify the officer or director. If we were called upon to indemnify an officer or director, then the portion of its assets expended for such purpose would reduce the amount otherwise available for the Company's business.

If we fail to protect our trademarks and trade secrets, we may be unable to successfully market our products and compete effectively.

We rely on a combination of trademark and trade secrecy laws, confidentiality procedures and contractual provisions to protect our intellectual property rights. Failure to protect our intellectual property could harm our brand and our reputation, and adversely affect our ability to compete effectively. Further, enforcing or defending our intellectual property rights, including our trademarks and trade secrets, could result in the expenditure of significant financial and managerial resources. We regard our intellectual property, particularly our trademarks and trade secrets, as crucial to our business and our success. However, the steps taken by us to protect these proprietary rights may not be adequate and may not prevent third parties from infringing or misappropriating our trademarks, trade secrets or similar proprietary rights. In addition, other parties may seek to assert infringement claims against us, and we may have to pursue litigation against other parties to assert our rights. Any such claim or litigation could be costly. In addition, any event that would jeopardize our proprietary rights or any claims of infringement by third parties could have a material adverse effect on our ability to market or sell our brands, profitably exploit our products or recoup our associated research and development costs.

Disruptions to our information technology systems due to cyber-attacks or our failure to upgrade and adjust our information technology systems, may materially impair our operations, hinder our growth and materially and adversely affect our business and results of operations.

We believe that an appropriate information technology, or IT, infrastructure is important in order to support our daily operations and the growth of our business. If we experience difficulties in implementing new or upgraded information systems or experience significant system failures, or if we are unable to successfully modify our management information systems or respond to changes in our business needs, we may not be able to effectively manage our business, and we may fail to meet our reporting obligations. Additionally, if our current arrangements and plans are not operated as planned, we may not be able to effectively recover our information system in the event of a crisis, which may materially and adversely affect our business and results of operations.

In the current environment, there are numerous and evolving risks to cybersecurity and privacy, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage, employee malfeasance and human or technological error. High-profile security breaches at other companies and in government agencies have increased in recent years, and security industry experts and government officials have warned about the risks of hackers and cyber-attacks targeting businesses such as ours. Computer hackers and others routinely attempt to breach the security of technology products, services and systems, and to fraudulently induce employees, customers, or others to disclose information or unwittingly provide access to systems or data. We can provide no assurance that our current IT system or any updates or upgrades thereto and the current or future IT systems of our potential distributors use or may use in the future, are fully protected against third-party intrusions, viruses, hacker attacks, information or data theft or other similar threats. Legislative or regulatory action in these areas is also evolving, and we may be unable to adapt our IT systems or to manage the IT systems of third parties to accommodate these changes. We have experienced and expect to continue to experience actual or attempted cyber-attacks of our IT networks. Although none of these actual or attempted cyber-attacks has had a material adverse impact on our operations or financial condition, we cannot guarantee that any such incidents will not have such an impact in the future.

Our business is subject to many regulations and noncompliance is costly.

The production, marketing and sale of our hemp smokables products, including contents, labels, and containers, are subject to the rules and regulations of various federal, provincial, state and local health agencies. If a regulatory authority finds that a current or future product or production batch or "run" is not in compliance with any of these regulations, we may be fined, or production may be stopped, which would adversely affect our financial condition and results of operations. Similarly, any adverse publicity associated with any noncompliance may damage our reputation and our ability to successfully market our products. Furthermore, the rules and regulations are subject to change from time to time and while we closely monitor developments in this area, we cannot anticipate whether changes in these rules and regulations will impact our business adversely. Additional or revised regulatory requirements, whether labeling, environmental, tax or otherwise, could have a material adverse effect on our financial condition and results of operations.

Significant additional labeling or warning requirements may inhibit sales of affected products.

Various jurisdictions may seek to adopt significant additional product labeling or warning requirements relating to the chemical content or perceived adverse health consequences of our hemp smokables products. These types of requirements, if they become applicable to one or more of our products under current or future environmental or health laws or regulations, may inhibit sales of such products. In California, a law requires that a specific warning appear on any product that contains a component listed by the state as having been found to cause cancer or birth defects.

This law recognizes no generally applicable quantitative thresholds below which a warning is not required. If a component found in one of our products is added to the list, or if the increasing sensitivity of detection methodology that may become available under this law and related regulations as they currently exist, or as they may be amended, results in the detection of an infinitesimal quantity of a listed substance in one of our hemp smokables products produced for sale in California, the resulting warning requirements or adverse publicity could affect our sales.

Our industry may become subject to expanded regulation and increased enforcement by the Food and Drug Administration (FDA) and the Federal Trade Commission (FTC).

The FDA under the Federal Food, Drug, and Cosmetic Act regulates the formulation, manufacturing, packaging, labeling, and distribution of food, dietary supplements, drugs, cosmetic, medical devices, biologics, and tobacco products. Our products are subject to law and regulation by the FDA. Moreover, the regulatory status of our products is currently in a state of flux as the FDA attempts to determine the appropriate manner in which to regulate these products. Thus, the regulatory approach is still evolving, and we may be required to seek the FDA's approval to market our products. It is also possible that the FDA may simply issue a regulation setting forth the conditions in which such products may be marketed, or it may simply prohibit these products. However, because the FDA's regulatory process is subject to change, we cannot predict the likely outcome. In addition, the FTC under the Federal Trade Commission Act ("FTC Act") requires that product advertising be truthful, substantiated and not misleading. We believe that our advertising meets these requirements. However, the FTC may bring a challenge at any time to evaluate our compliance with the FTC Act. In addition, most states where our products are legal provide their own regulatory guidelines and regulations in connection with cigarette or other smokable product sales. Any failure by us to remain current on state regulatory changes could negatively affect our ability to operate our business.

Litigation or legal proceedings could expose us to significant liabilities and damage our reputation.

We may become party to litigation claims and legal proceedings. Litigation involves significant risks, uncertainties and costs, including distraction of management attention away from our business operations. We evaluate litigation claims and legal proceedings to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential losses. Based on these assessments and estimates, we establish reserves and disclose the relevant litigation claims or legal proceedings, as appropriate. These assessments and estimates are based on the information available to management at the time and involve a significant amount of management judgment. Actual outcomes or losses may differ materially from those envisioned by our current assessments and estimates. Our policies and procedures require strict compliance by our employees and agents with all U.S. and local laws and regulations applicable to our business operations, including those prohibiting improper payments to government officials. Nonetheless, our policies and procedures may not ensure full compliance by our employees and agents with all applicable legal requirements. Improper conduct by our employees or agents could damage our reputation or lead to litigation or legal proceedings that could result in civil or criminal penalties, including substantial monetary fines, as well as disgorgement of profits.

Climate change may negatively affect our business.

There is growing concern that a gradual increase in global average temperatures may cause an adverse change in weather patterns around the globe resulting in an increase in the frequency and severity of natural disasters. Changing weather patterns could have a negative impact on agricultural productivity, which may limit availability or increase the cost of certain key ingredients such as hemp, natural flavors and other ingredients used in our products. Also, increased frequency or duration of extreme weather conditions may disrupt the productivity of our facilities, the operation of our supply chain or impact demand for our products. In addition, the increasing concern over climate change may result in more regional, federal and global legal and regulatory requirements and could result in increased production, transportation and raw material costs. As a result, the effects of climate change could have a long-term adverse impact on our business and results of operations.

Our business and operations would be adversely impacted in the event of a failure or interruption of our information technology infrastructure or as a result of a cybersecurity attack.

The proper functioning of our own information technology (IT) infrastructure is critical to the efficient operation and management of our business. We may not have the necessary financial resources to update and maintain our IT infrastructure, and any failure or interruption of our IT system could adversely impact our operations. In addition, our IT is vulnerable to cyberattacks, computer viruses, worms and other malicious software programs, physical and electronic break-ins, sabotage and similar disruptions from unauthorized tampering with our computer systems. We believe that we have adopted appropriate measures to mitigate potential risks to our technology infrastructure and our operations from these IT-related and other potential disruptions. However, given the unpredictability of the timing, nature and scope of any such IT failures or disruptions, we could potentially be subject to downtimes, transactional errors, processing inefficiencies, operational delays, other detrimental impacts on our operations or ability to provide products to our customers, the compromising of confidential or personal information, destruction or corruption of data, security breaches, other manipulation or improper use of our systems and networks, financial losses from remedial actions, loss of business or potential liability, and/or damage to our reputation, any of which could have a material adverse effect on our cash flows, competitive position, financial condition or results of operations.

Our results of operations may fluctuate from quarter to quarter for many reasons, including seasonality.

Our sales may be seasonal, and we experience fluctuations in quarterly results as a result of many factors. We expect to generate a greater percentage of our revenues during the warm weather months of April through September. Timing of customer purchases will vary each year, and sales can be expected to shift from one quarter to another. As a result, management believes that period-to-period comparisons of results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance or results expected for the fiscal year.

In addition, our operating results may fluctuate due to a number of other factors including, but not limited to:

Due to these and other factors, our results of operations have fluctuated from period to period and may continue to do so in the future, which could cause our operating results in a particular quarter to fail to meet market expectations.

Changes in our effective tax rate may impact our results of operations.

We are subject to taxes in the U.S. and other jurisdictions. Tax rates in these jurisdictions may be subject to significant change due to economic and/or political conditions. A number of other factors may also impact our future effective tax rate including:

Although we believe our income tax liabilities are reasonably estimated and accounted for in accordance with applicable laws and principles, an adverse resolution by one or more taxing authorities could have a material impact on the results of our operations. Further, we may be unable to utilize our net operating losses in the event a change in control is determined to have occurred.

Global economic, political, social and other conditions, including the COVID-19 pandemic, may continue to adversely impact our business and results of operations.

The hemp smokables industry can be affected by macro-economic factors, including changes in national, regional, and local economic conditions, unemployment levels and consumer spending patterns, which together may impact the willingness of consumers to purchase our products as they adjust their discretionary spending. Adverse economic conditions may adversely affect the ability of our distributors to obtain the credit necessary to fund their working capital needs, which could negatively impact their ability or desire to continue to purchase products from us in the same frequencies and volumes as they have done in the past. If we experience similar adverse economic conditions in the future, sales of our products could be adversely affected, collectability of accounts receivable may be compromised, and we may face obsolescence issues with our inventory, any of which could have a material adverse impact on our operating results and financial condition.

Additionally, while the extent of the continued impact on our business and financial condition is unknown at this time, we may continue to be negatively affected by COVID-19 and actions taken to address and limit the spread of COVID-19, such as travel restrictions, event cancellations, and limitations affecting the supply of labor and the movement of raw materials and finished products. If available manufacturing capacity is reduced as a result of COVID-19, it could negatively affect the timely supply, pricing and availability of finished products. Moreover, we will also be negatively impacted by current and future closures of retail locations and independent accounts, will likely negatively affect our revenues and cash flows. Although the current status of retail and convenience chains remains unknown at this time, the future closure of these types of establishments will also likely adversely impact our business and financial condition.

Overall, the Company does not yet know the full extent of potential delays or impacts on its business, financing activities, or the global economy as a whole. However, these effects could have a material impact on the Company's liquidity, capital resources, operations and business and those of third parties on which we rely.

We are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability due to the ongoing military conflict between Russia and Ukraine, as well as the current armed conflict in Israel and the Gaza Strip. Our business may be materially adversely affected by any negative impact on the global economy and capital markets resulting from these conflicts or any other geopolitical tensions.

U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the on-going military conflict between Russia and Ukraine, as well as the current armed conflict in Israel and the Gaza Strip. Although the length and impact of these conflicts are highly unpredictable, they could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions. We are continuing to monitor the situations in Ukraine and Israel, and globally and assessing its potential impact on our business.

Additionally, Russia's prior annexation of Crimea, recent recognition of two separatist republics in the Donetsk and Luhansk regions of Ukraine and subsequent military interventions in Ukraine have led to sanctions and other penalties being levied by the United States, European Union and other countries against Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People’s Republic, and the so-called Luhansk People's Republic, including agreement to remove certain Russian financial institutions from the Society for Worldwide Interbank Financial Telecommunication (“SWIFT”) payment system, expansive ban on imports and exports of products to and from Russia and ban on exportation of U.S denominated banknotes to Russia or persons located there. Additional potential sanctions and penalties have also been proposed and/or threatened. Russian military actions and the resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets, potentially making it more difficult for us to obtain additional funds and sell the shares we are offering. The extent and duration of the military action, sanctions and resulting market disruptions are impossible to predict, but could be substantial. Any such disruptions may also magnify the impact of other risks described herein.

Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial results.

The United States generally accepted accounting principles and related pronouncements, implementation guidelines and interpretations with regard to a wide variety of matters that are relevant to our business, such as, but not limited to, stock-based compensation, inventory, revenue recognition, trade spend and promotions, and income taxes are highly complex and involve many subjective assumptions, estimates and judgments by our management. Changes to these rules or their interpretation or changes in underlying assumptions, estimates or judgments by our management could adversely affect our reported financial results.

Risks Related to Owning Our Stock

We may not be able to satisfy the continued listing requirements of Nasdaq or obtain or maintain a listing of our common stock on Nasdaq.

We must meet certain financial and liquidity criteria to maintain the listing of our common stock on the Nasdaq Capital Market. If we violate Nasdaq's listing requirements, or if we fail to meet any of Nasdaq's listing standards, our common stock may be delisted. In addition, our board of directors may determine that the cost of maintaining our listing on a national securities exchange outweighs the benefits of such listing. A delisting of our common stock from Nasdaq may materially impair our shareholders' ability to buy and sell our common stock and could have an adverse effect on the market price of, and the efficiency of the trading market for, our common stock. The delisting of our common stock could significantly impair our ability to raise capital and the value of your investment.

We are not currently in compliance with Nasdaq’s Listing Rules for not having filed Form 10-K for the year ended December 31, 2023. Subject to Nasdaq’s approval of the Company’s plan to cure this non-compliance, the Company has until October 14, 2024, to regain compliance. In addition, we are not currently incompliance with Nasdaq’s Audit Committee Requirement and Nasdaq’s Annual Shareholder Meeting Requirement; if we are not able to regain compliance with those requirements by June 28, 2024, our common stock may be delisted, which would likely impair our ability to raise capital.

On November 15, 2023, the Company received a written notice from Nasdaq indicating that the Company was not in compliance with Nasdaq’s audit committee requirements as set forth in Listing Rule 5605 (the “Audit Committee Requirement”). The Nasdaq listing rules require the Company to have an audit committee comprised of at least three independent directors, and as of October 26, 2023, the Company no longer complied with that requirement upon Dr. Stuart Titus’s resignation as a director of the Company. The Nasdaq rules provide the Company a cure period of until the earlier of (i) the Company’s next annual shareholders’ meeting or October 26, 2024; or (ii) if the next annual shareholders’ meeting is held before April 23, 2024, then no later than April 23, 2024.

On January 9, 2024, the Company received a written notice from Nasdaq indicating that the Company was not in compliance with Nasdaq’s annual shareholder meeting requirement as set forth in Listing Rules 5620(a) and 5810(c)(2)(G) (the “Annual Shareholder Meeting Requirement”). The Nasdaq listing rules require the Company to have an annual meeting of shareholders within twelve months of the end of the Company’s fiscal year end, and the Company has not had an annual meeting within twelve months of the Company’s 2022 fiscal year end as required. The Nasdaq rules provide the Company 45 calendar days to submit a plan to regain compliance with Annual Shareholder Meeting Requirement, and if Nasdaq accepts that plan, up to 180 calendar days from the recent fiscal year end, or until June 28, 2024, to regain compliance.

On March 5, 2024, the Company received a notification from Nasdaq referencing their prior notification of January 9, 2024, in which the Company was advised that due to its not having held an Annual General Meeting for the fiscal year 2022, it no longer complied with Nasdaq listing rules for continued listing. The Company was granted a 180-day extension to June 28, 2024, to hold this meeting. As of June 28, 2024, the Company had failed to hold the required Annual General Meeting for the fiscal year ended December 31, 2022, and consequently has not regained compliance with Nasdaq rules.

On April 18, 2024, the Company received a written notice from Nasdaq indicating that the Company was not in compliance with Nasdaq’s Listing Rules with regard to filing our annual report on Form 10-K for the year ended December 31, 2023. We have 60 days to submit our plan for regaining compliance, which, if accepted by Nasdaq, will provide us with a 180-day extension until October 14, 2024, to regain compliance.

On July 1, 2024, The Company received the expected Notification of delisting from Nasdaq, primarily for not meeting the annual meeting requirement by the deadline date of June 28, 2024.is also delinquent in filing Form 10-K for the year ended December 31, 2023, and Form 10-Q for the quarter ended March 31, 2024. The Company was also reminded of its continued delinquencies in not filing its annual report on Form 10-K and its quarterly report for the 3-months ended March 31, 2024, on Form 10-Q.The Company has until July 8, 2024, to file a request for an appeal hearing and a stay of of the suspension pending this hearing. The hearings are typically held within 30 – 45 days from the date of application. The Company plans to request a hearing by the designated due date and also plans to be compliant with all Nasdaq listing rules before the scheduled hearing date.

On July 7, 2024, the Company made an application for a hearing and a stay of the delisting until a determination is received from the hearing panel. On July 8, 2024, the Company received an official confirmation letter of our request for a hearing, and advised that the hearing date would be August 13, 2024, at 9:00 a.m. Eastern Time. The letter explained the various written submission that should be sent to the hearing panel prior to the hearing date. The oral hearing will be held via videoconference. The Company anticipates that all outstanding SEC filings will be completed by the hearing date, and that a shareholders meeting will have been scheduled, where additional independent Directors will be appointed.

On July 16, 2024, the Company received a notification from Nasdaq in which the Company was advised that due to its share price having closed at less than $1.00 for 30 consecutive business days, that the Company is no longer in compliance with Nasdaq rules on this topic. The Company has received an automatic 180-day period in which to regain compliance. This matter will be included in the Company’s written plan of compliance that will be submitted to Nasdaq prior to the scheduled hearing on August 13, 2024.

If the Company’s common stock ultimately were to be delisted for any reason, it could negatively impact the Company by (i) reducing the liquidity and market price of the Company’s common stock; (ii) reducing the number of investors willing to hold or acquire the Company’s common stock, which could negatively impact the Company’s ability to raise equity financing; (iii) limiting the Company’s ability to use a registration statement to offer and sell freely tradable securities, thereby preventing the Company from accessing the public capital markets; and (iv) impairing the Company’s ability to provide equity incentives to its employees.

The recent listing of our common stock on Nasdaq has increased our regulatory burden.

Our common stock was listed on the Nasdaq Capital Market under the symbol "HPCO" on August 30, 2022, and we became subject to the continuous and timely disclosure requirements of Nasdaq’s exchange rules, regulations and policies. We are working with our legal, accounting and financial advisors to identify those areas in which changes should be made to our financial management control systems to manage our obligations as a public company listed on Nasdaq. These areas include corporate governance, corporate controls, disclosure controls and procedures and financial reporting and accounting systems. We have made, and will continue to make, changes in these and other areas, including our internal controls over financial reporting. However, we cannot assure holders of our shares that these and other measures that we might take will be sufficient to allow us to satisfy our obligations as a public company listed on Nasdaq on a timely basis and that we will be able to maintain compliance with applicable listing requirements. In addition, compliance with reporting and other requirements applicable to public companies listed on Nasdaq increases our operational costs and requires the time and attention of management. We cannot predict the amount of the additional costs that we will incur as a result of being a publicly traded company, the timing of such costs or the effects that management's attention to these matters will have on our business.

The market price of our common stock may fluctuate, and you could lose all or part of your investment.

The market price of our common stock may fluctuate significantly in response to several factors, most of which we cannot control, including:

We do not intend to pay any cash dividends on our shares of common stock in the near future, so our shareholders will not be able to receive a return on their shares unless they sell their shares.

We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. There is no assurance that future dividends will ever be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend. Unless we pay dividends, our shareholders will not be able to receive a return on their shares unless they sell their shares, and they may be unable to sell their shares on favorable terms or at all.

We are majority-owned by Green Globe International, Inc. ("GGII"), and a small group of Company officers and directors hold a majority of the control of GGII.

As of December 31, 2023, the Company was a majority-owned subsidiary of GGII with GGII owning approximately 56% of our outstanding shares of common stock. The Company's key officers and directors beneficially owned a significant portion of GGII's outstanding common stock and a majority of GGII's outstanding preferred stock. By virtue of such stock ownership, those principal GGII shareholders are able to control the election of the members of GGII's Board of Directors. In turn, GGII, by virtue of its majority ownership of the Company, is able to control the election of the members of our Board of Directors. As a result, those principal GGII shareholders can generally exercise control over the affairs of the Company, including the election and removal of members of our board of directors, amending our Articles of Incorporation and Bylaws, and adopting measures that could delay or prevent a change of control.

Such concentration of ownership and control could have the effect of delaying, deterring or preventing a change in control of the Company that might otherwise be beneficial to stockholders. There can be no assurance that conflicts of interest will not arise with respect to our key officers and directors, or that such conflicts will be resolved in a manner favorable to the Company.

Our executive officers and the majority of our directors are also officers and directors of our majority owner, GGII, and conflicts of interest may arise as a result.

Because our executive officers and a majority of our directors are also officers and directors of GGII, conflicts of interest between us and GGII may arise, including with respect to how our management evaluates acquisition and other business development opportunities, hiring opportunities, and financing opportunities. There can be no assurance that conflicts of interest will be resolved in a manner favorable to the Company.

We are a “controlled company” within the meaning of the listing rules of Nasdaq and, as a result, can rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.

Because GGII owns a majority of our common stock, we are a “controlled company” as defined under the listing rules of Nasdaq. Under Nasdaq listing rules, controlled companies are companies of which more than 50% of the voting power for the election of directors is held by an individual, a group, or another company. For as long as we remain a controlled company, we are permitted to elect to rely on certain exemptions from Nasdaq’s corporate governance rules, including the following:

As a result, a majority of the members of our board of directors are not independent directors, our nominating and corporate governance and compensation committees do not consist entirely of independent directors, and you do not have the same protection afforded to shareholders of companies that are subject to all of Nasdaq’s corporate governance rules.

On April 29, 2024, the Company ceased to be a “controlled company” due to GGII’s ownership of the Company’s common stock falling to 49.65%.

If securities industry analysts do not publish research reports on us, or publish unfavorable reports on us, the trading of our common stock could be negatively affected.

If securities industry analysts do not publish research reports on us, or publish unfavorable reports on us, then the market price and market trading volume of our common stock could be negatively affected.

Any trading market for our common stock may be influenced in part by any research reports that securities industry analysts publish about us. We do not currently have and may never obtain significant research coverage by securities industry analysts. If no securities industry analysts commence coverage of us, the market price and market trading volume of our common stock could be negatively affected. In the event we are covered by analysts, and one or more of such analysts downgrade our securities, or otherwise reports on us unfavorably, or discontinues coverage of us, the market price and market trading volume of our common stock could be negatively affected.

Future issuances of our common stock or securities convertible into, or exercisable or exchangeable for, our common stock could cause the market price of our common stock to decline and would result in the dilution of your holdings.

Future issuances of our common stock or securities convertible into, or exercisable or exchangeable for, our common stock could cause the market price of our common stock to decline. We cannot predict the effect, if any, of future issuances of our securities on the price of our common stock. In all events, future issuances of our common stock would result in the dilution of your holdings. In addition, the perception that new issuances of our securities could occur could adversely affect the market price of our common stock.

Future issuances of debt securities, which would rank senior to our common stock upon our bankruptcy or liquidation, and future issuances of preferred stock, which could rank senior to our common stock for the purposes of dividends and liquidating distributions, may adversely affect the level of return you may be able to achieve from an investment in our common stock.

In the future, we may attempt to increase our capital resources by offering debt securities. Upon bankruptcy or liquidation, holders of our debt securities, and lenders with respect to other borrowings we may make, would receive distributions of our available assets prior to any distributions being made to holders of our common stock. Moreover, if we issue preferred stock, the holders of such preferred stock could be entitled to preferences over holders of common stock in respect of the payment of dividends and the payment of liquidating distributions. Because our decision to issue debt or preferred stock in any future offering, or borrow money from lenders, will depend in part on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any such future offerings or borrowings.

Holders of our common stock must bear the risk that any future offerings we conduct or borrowings we make may adversely affect the level of return, if any, they may be able to achieve from an investment in our common stock.

We are authorized to issue "blank check" preferred stock without stockholder approval, which could adversely impact the rights of holders of our common stock.

Our articles of incorporation authorize us to issue up to 5,000,000 shares of "blank check" preferred stock, meaning our board of directors can designate the rights and preferences of classes or series of such preferred stock without shareholder approval. Any preferred stock that we issue in the future may rank ahead of our common stock in terms of dividend priority or liquidation premiums and may have greater voting rights than our common stock. In addition, such preferred stock may contain provisions allowing those shares to be converted into shares of common stock, which could dilute the value of common stock to current stockholders and could adversely affect the market price, if any, of our common stock. In addition, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of our company. Although we have no present intention to issue any shares of authorized preferred stock, there can be no assurance that we will not do so in the future. On March 25, 2024, the authorized share capital was amended to 5,000,000 shares of preferred stock and 100,000,000 shares of common stock.

If our shares of common stock become subject to the penny stock rules, it would become more difficult to trade our shares.

The Securities and Exchange Commission, or the SEC, has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. If we do not retain a listing on Nasdaq or another national securities exchange and if the price of our common stock is less than $5.00, our common stock could be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser's written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock, and therefore shareholders may have difficulty selling their shares.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 1C. CYBERSECURITY

Our board of directors and senior management recognize the critical importance of maintaining the trust and confidence of our clients, business partners and employees. Our management, led by our Chief Executive Officer and Chief Financial Officer, are actively involved in oversight of our risk management efforts, and cybersecurity represents an important component of the Company’s overall approach to enterprise risk management (“ERM”). Our cybersecurity processes and practices are fully integrated into the Company’s ERM efforts. In general, we seek to address cybersecurity risks through a cross-functional approach that is focused on preserving the confidentiality, security and availability of the information that we collect and store by identifying, preventing and mitigating cybersecurity threats and effectively responding to cybersecurity incidents when they occur.

In addition, we regularly review cybersecurity trends and, partially as a result of our prior cybersecurity exposure, have moved some of our internal servers to off-site locations.

Risk Management and Strategy

As one of the critical elements of our overall ERM approach, our cybersecurity efforts are focused on the following key areas:

Third parties also play a role in our cybersecurity. We engage third-party service providers to conduct evaluations of our security controls, independent audits or consulting on best practices to address new challenges.

While we have experienced cybersecurity threats in the past in the normal course of business and expect to continue to experience such threats from time to time, to date, none have had a material adverse effect on our business, financial condition, results of operations or cash flows. Even with the approach we take to cybersecurity, we may not be successful in preventing or mitigating a cybersecurity incident that could have a material adverse effect on us.

ITEM 2. PROPERTIES

As of December 31, 2023, and 2022, we leased two office, manufacturing, and storage facilities of approximately 53,844 square feet in aggregate for our corporate headquarters and cGMP manufacturing facility in San Diego, California. The smaller 6,300 sf property is leased from a related party, and the 6-year lease will expire on December 31, 2025. The lease on the 47,544-sf facility expired on December 31, 23, and a new lease was signed on October 26, 2023, which is effective from January 1, 2024. Full details and terms of this lease can be found in Note 15 to the Financial Statements.

Subsequent to the date of this report, the Company’s subsidiary, Hempacco paper Co., Inc. entered into a one-year lease for approximately 43,000 sf of manufacturing space in Tijuana, Mexico. The landlord, US Tobacco de Mexico is a related party, and the Company has also guaranteed the master lease on this building.

We believe our facilities are adequate and suitable for our current needs and that suitable additional or alternative space will be available to accommodate our operations if needed.

ITEM 3. LEGAL PROCEEDINGS

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.

As a result of the Court’s September 29, 2023, dismissal of Hempacco Co., Inc., Pearson, Halamuda and Titus from the litigation, the Company has decided to discontinue it’s defense of this lawsuit.

Accordingly on June 11, 2024, Richard Weingarten, Partner in the law firm of Slarskey LLC filed a motion to withdraw their representation of Hempacco, MFOF, Piancone, Pearson, Halamuda, Titus and Olson.. The Defendants remaining in this action following the Court’s September 29, 2023 Opinion are not currently in default of any pending obligations.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is listed on the Nasdaq Capital Market tier of The Nasdaq Stock Market, LLC, under the symbol “HPCO” and has been publicly traded since August 30, 2022. Prior to that date, there was no public market for our stock.

Stockholders

As of June 15, 2024, there were 23 stockholders of record of our common stock. The number of record holders does not include the number of stockholders that hold shares in “street name” through banks, brokers and other financial institutions.

Securities Authorized for Issuance Under Equity Compensation Plans

We do not have any securities authorized for issuance under equity compensation plans.

Recent Sales of Unregistered Securities and Use of Proceeds

During the three months ended December 31, 2023, we issued 10,814 common shares to Tactic LLC for consulting services rendered. We also issued 12,351 common shares to two lenders and our investment bankers as compensation for the 2023 Financing Transactions described in Item 1 above. See Note 15 of the Notes to the Financial Statements for details regarding securities issued from January 1, 2024, to the date of issuance of this report.

The above-described shares were issued to Tactic, the lenders and our investment bankers 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.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

ITEM 6. [RESERVED]

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

This Annual Report on Form 10-K 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 impact of the COVID-19 pandemic (including the emergence of vaccine resistant COVID-19 variants), the ongoing war in Ukraine and the conflict in Israel and their 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 Annual Report on Form 10-K.

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 Annual Report on Form 10-K.

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

Overview

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 also offer nutritional supplement and beauty product manufacturing services through our recently acquired subsidiary, Green Star Labs, Inc.

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 inhouse brands are currently sold in over 200 retail locations located in the San Diego, California, area, our private label customers include well-known and established companies in the cannabis and tobacco-alternatives industries, and we currently own approximately 580 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 and manufacturing facility, located in San Diego, California, has the capacity to produce up to 30 million cigarettes monthly. From our facility, we can ship 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.

Results of Operations

For the Year ended December 31, 2023, Compared to the Year ended December 31, 2022

As a result of the acquisition of an additional 50% equity interest in Green Star Labs, Inc. from on December 31, 2023, from GGII, and in order to comply with ASC 805-50-05-5, the Company has consolidated the operating activity of Green Star Labs effective July 1, 2023, the deemed date of common control.

Revenue

During the year ended December 31, 2023, the Company generated revenues of $4,045,637, compared to $3,967,340 in revenue during the year ended December 31, 2022.

During the year ended December 31, 2023, $4,045,637 of our revenue was from product sales to third parties, $0 was from sales to related parties, $0 was from manufacturing services to third parties, and $0 was from consulting services to related parties, as compared to $3,861,205 in product sales to third parties, $60,626 in product sales to related parties, and $43,409 in manufacturing services to third parties and $2,100 in consulting services to related parties during the year ended December 31, 2022.

The increase in revenues during 2023, as compared to 2022, was as a result of the incorporation of the operating results of Green Star labs, Inc. for the 6-month period ended December 31, 2023, offset by the temporary loss of a major customer for our smoking paper products for several months during 2023 as compared to 2022.

Operating Costs and Expenses

The Company had total cost of goods sold of $5,261,470 and $3,728,294, during the year ended December 31, 2023, and 2022, respectively. The increase in relative total cost of goods sold is primarily due to the increased sales provided by Green Star Labs, Inc. during the second half of 2023.    

The Company incurred general and administrative expenses of $5,636,166 during the year ended December 31, 2023, compared to general and administrative expenses of $2,639,285 during the year ended December 31, 2022. The 2023 expenses included talent license and royalty expenses of $335,484, research and development costs of $186,552 and the additional insurance and administrative costs associated with being a Nasdaq reporting company for a full year, compared to $2,639,285 during the year ended December 31, 2022. In addition, the assumption of the lease and payroll expenses of Green Star Labs, Inc. Added considerably to our fixed overhead expenses.

The Company also incurred related party general and administrative expenses of $541,886 during the year ended December 31, 2023, consisting of senior management consulting fees and rent payable on our premises leased in San Diego, California, compared to related party general and administrative expenses of $606,842 during the year ended December 31, 2022, for 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 increased to $1,301,995, during the year ended December 31, 2023, compared to sales and marketing expenses of $858,296 during the year ended December 31, 2022, as a result of us significantly expanding sales and marketing activities during the 2022 and 2023 fiscal years as we expanded our operations. The Company also incurred related party sales and marketing expense of $116,402 during the year ended December 31, 2023, compared to $26,660 during the twelve-months ended December 31, 2022.

The Company incurred a one-time net loss of $864,151 as a result of a re-evaluation of its impairment allowances as of December 31, 2023 and 2022 with regard to related party receivables. The Company incurred a one-time impairment allowance of $4,874,917 in respect of its long-lived assets, in particular against the book value of the Company’s vending kiosks and its cigarette production lines based in Otay Mesa, California, which was sold in May 2024 and the two similar production lines in Tijuana, Mexico which were leased to a related party in May 2024.

Net Loss

The Company had a net loss of $13,442,221 and $7,134,957 respectively, for the year ended December 31, 2023, and 2022. The increase in net losses of $6,307,264 for the year ended December 31, 2023, was due primarily to significant additional one-off charges of $4,874,917 resulting from the creation of impairment allowances on the Company’s cigarette production lines and vending kiosk inventory, compared to significant one-off losses incurred during the year ended December 31, 2022, for bad debt allowances and the write down of impaired equipment and trademarks, amounting to $3,192,185. Additionally, an increase in the gross loss of $1,454,879 combined with increases in the operations of the Company resulted in additional operating and overhead expenses.

Assets & Liabilities

The following table sets forth key components of our balance sheet as of December 31, 2023, and 2022.

* Does not include the ROU assets and liabilities

As of December 31, 2023, current assets increased to $3,279,296, from $1,907,806 as of December 31, 2022. This increase was primarily due to the significant increase in inventories of $1,897,497 from Green Star Labs, offset by a reduction in cash on hand of $438,505, both of these increases being due to the expansion of our product lines and the signing of several major distributor agreements. As of December 31, 2023, current liabilities increased to $12,333,500 from $1,520,433 as of December 31, 2022. The increase of $10,813,067 is due primarily to an increase in notes and loans payable of $5,717,472 resulting from the acquisition of 100% of the equity interests in Green Star Labs and the acquisition of additional manufacturing equipment. In addition, accounts payable, accrued liabilities and deferred revenues increased by $3,723,494 as a result of the increased volume of production.

Liquidity and Capital Resources

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

Cash Flows from Operating Activities

We had cash used in operating activities of $5,844,807 in the year ended December 31, 2023, as compared to cash used in operating activities of $4,370,476 during the year ended December 31, 2022. The increase in cash used in operating activities of $1,474,331 for the year ended December 31, 2023, is primarily attributable to the increase in inventory of $1,193,534, plus the increase in net operating loss of $1,432,347 (excluding non-cash impairment costs).

Cash Flows from Investing Activities

We had cash used in investing activities of $3,612,065 for the year ended December 31, 2023, as compared to cash used in investing activities of $63,868 for the year ended December 31, 2022. The increase of $3,548,197 was primarily due to the acquisition of the assets and the goodwill of Green Star Labs, Inc. In July of 2023 the Company acquired a 50% interest and certain manufacturing equipment from the joint venture partner for $300,000 in cash and a promissory note for $3,200,000, and in December 2023 acquired the remaining 50% interest from GGII in exchange for a promissory note in the amount of $2,500,000.

Cash Flows from Financing Activities

We had cash provided by financing activities of $9,018,366 in the year ended December 31, 2023, as compared to cash provided by financing activities of $4,049,206 in the comparative period in 2022, with this increase of $4,969,160 primarily due to the increase in cash received from the sale of common stock in the amount of $6,610,400 net of offering expenses, compared to $5,730,228 in the year ended December 31, 2022. The $880,172 increase was augmented by the proceeds from short-term promissory notes of $2,031,582. A $150,000 outflow from advances repaid to related parties compared to a cash outflow of $1,480,122 in the year ended December 31, 2022, accounts for the major part of the $4,969,160 difference.

We anticipate that our cash needs for the next twelve months for working capital and capital expenditures will be approximately $5,000,000. As of December 31, 2023, we had $109,825 in cash, and we believe that our current cash and cash flow from operations will be insufficient to meet anticipated cash needs for the next six months for working capital and capital expenditures. We will likely 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 483,000 shares of common stock in a registered underwritten offering at a price to the public of $15.00 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.

Going Concern

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 the possibility that we may not continue to operate as a going concern in the long term. 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.

Off-Balance Sheet Arrangements

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.

Critical Accounting Policies

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.

Recent Accounting Pronouncements

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.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial Statements 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Hempacco Co., Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Hempacco Co., Inc. (the “Company”) as of December 31, 2023, and 2022, the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows, for the years then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has used cash in operating activities, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Emphasis of Matter

During the year ended December 31, 2022, and subsequent, the Company had provided a total of approximately $2.7 million in loans to its parent company and a subsidiary controlled by the parent company. At December 31, 2023, and subsequently the Company has extinguished these inter-company loans and the accompanying reserves through the consolidation and acquisition of the aforementioned entities. However, the Company still has advanced monies to other related entities.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Related Party Transactions including Revenue Recognition

Description of the Matter:

As discussed in Notes 1, 2, 3, 6, 11, 14 and 15 to the financial statements, the Company has significant related party transactions involving revenue, accounts receivable, accounts payable, prepaids, loans receivable/payable, advances, and expenses paid by and to multiple related parties. Our auditing of management’s identification of related parties and the related transactions was complex and is based on a thorough understanding the Company’s related party relationships, contracts, and business activities. These were the principal considerations that led us to determine this as a critical audit matter.

How We Addressed the Matter in our Audit:

We obtained an understanding of controls over the Company’s identification of, and recording of related party transactions, and of the revenue recognition process, including walkthroughs of internal controls. To evaluate the related party’s satisfaction of performance obligations, our audit procedures included, among others, reviewing contracts and evaluating management’s assumptions used to determine the distinct performance obligations, and the attainment of such was performed by the Company for various products. In addition, to identify undisclosed related party transactions we performed the following: 1) made inquiries of management and other individuals throughout the Company; 2) obtained a selection of disbursements and reviewed for related party indicators; 3) reviewed public filings and other online information available; 4) confirmed with the transfer agent regarding significant shareholders; and 5) related procedures performed in other parts of the audit engagement

/s/ dbbmckennon

PCAOB #3501

We have served as the Company’s auditors since 2021

San Diego, California

August 9, 2024

HEMPACCO CO., INC.

CONSOLIDATED BALANCE SHEETS

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

HEMPACCO CO., INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

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

HEMPACCO CO., INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)