8-K: Hempacco Secures $774,444.44 in Funding via Convertible Note and Warrants

Hempacco Co., Inc. has finalized a securities purchase agreement with Mast Hill Fund, L.P., securing $774,444.44 through a convertible promissory note, warrants, and shares.

Summary

• Hempacco Co., Inc. entered into a securities purchase agreement with Mast Hill Fund, L.P. on January 8, 2024.
• The agreement includes a convertible promissory note with a principal amount of $774,444.44, warrants to purchase 335,591 shares of common stock, and 77,441 shares of common stock.
• The aggregate purchase price for these securities was $696,999.99.
• After deducting legal and broker fees, Hempacco received net funding of $627,741.99.
• The promissory note accrues interest at 10% per annum and matures in 12 months.
• The note is convertible into common stock at a price of $1.50 per share, subject to adjustments.
• The warrants have a 5-year term and are exercisable at $1.50 per share, also subject to adjustments.
• The company is required to use the proceeds first to fulfill purchase order No. 213420187, and then for business development and operating capital.
• The company must file a registration statement for the resale of shares by Mast Hill within 90 days and have it effective within 120 days.

Sentiment

Score: 5

Explanation: The document indicates a necessary capital raise for the company, but also highlights potential risks such as dilution and a Nasdaq non-compliance notice. The sentiment is neutral to slightly negative due to the mixed signals.

Positives

• The company has successfully secured additional funding to support its operations and business development.
• The convertible note provides a potential source of equity financing in the future.
• The warrants offer additional potential for future capital raising.
• The funding is earmarked for specific purposes, including fulfilling a purchase order and business development.

Negatives

• The company incurred significant legal and broker fees, reducing the net funding received.
• The convertible note includes a guaranteed interest of 10% per annum, which is a cost to the company.
• The conversion price of the note and exercise price of the warrants are subject to adjustments, which could lead to dilution.
• The company is obligated to repay the note in monthly installments beginning 4 months after closing.

Risks

• The company may face challenges in meeting its repayment obligations on the promissory note.
• The conversion of the note and exercise of warrants could lead to significant dilution of existing shareholders.
• Failure to meet the registration requirements could impact the resale of shares by Mast Hill.
• The company is subject to a beneficial ownership limitation, which may restrict the conversion of the note.
• The company received a notice from Nasdaq for not holding an annual meeting within 12 months of the fiscal year end, which could lead to delisting.

Future Outlook

The company is required to file a registration statement for the resale of shares by Mast Hill within 90 days and have it effective within 120 days. The company is also required to use the proceeds from the financing for specific purposes, including fulfilling a purchase order and business development.

Industry Context

This funding agreement is part of a series of transactions by Hempacco to raise capital. The use of convertible notes and warrants is a common practice for companies seeking growth capital, particularly in the small-cap market. The company's focus on fulfilling purchase orders and business development suggests a growth-oriented strategy.

Comparison to Industry Standards

• The use of convertible notes and warrants is a common financing method for small-cap companies, particularly those in the early stages of growth.
• The 10% interest rate on the convertible note is relatively high, which is typical for unsecured debt in the small-cap market, reflecting the higher risk associated with such investments.
• The conversion price of $1.50 per share and the warrant exercise price of $1.50 per share are common for companies at this stage, but the potential for adjustments introduces uncertainty.
• The requirement to file a registration statement within 90 days and have it effective within 120 days is a standard practice to ensure the liquidity of the securities for the investors.
• The use of proceeds for specific purposes, such as fulfilling purchase orders and business development, is a positive sign for investors, indicating a clear plan for growth.

Stakeholder Impact

• Shareholders may experience dilution due to the conversion of the note and exercise of warrants.
• Employees may benefit from the company's ability to fund operations and business development.
• Customers may benefit from the company's ability to fulfill purchase orders.
• Creditors may be impacted by the company's increased debt obligations.

Next Steps

• Hempacco needs to file a registration statement for the resale of shares by Mast Hill within 90 days.
• Hempacco needs to ensure the registration statement is effective within 120 days.
• Hempacco needs to use the proceeds from the financing for the specified purposes.
• Hempacco needs to submit a plan to Nasdaq to regain compliance with the annual meeting requirement.

Key Dates

Keywords

convertible note, warrants, securities purchase agreement, funding, common stock, registration rights, dilution, promissory note, capital raise, Mast Hill Fund