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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2023

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from ______ to ______

 

Commission File No. 000-31267

 

  HUMBL, Inc.  
(Exact name of Registrant as specified in its charter)

 

Delaware   27-1296318

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

 

600 B Street, Suite 300, San Diego, CA 92101

(Address of principal executive offices) (Zip Code)

 

(786) 738-9012

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

None.

 

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

 

Title of each class   Trading Symbol   Name of each exchange on which registered
Common Stock, par value $0.00001 per share   HMBL   OTCQB 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least 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 (§232.405 of this chapter) 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.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
  Emerging growth company

 

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

 

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

 

There were 3,405,024,529 shares of the Registrant’s $0.00001 par value common stock outstanding as of May 12, 2023.

 

 

 

 

 

 

HUMBL, Inc.

 

INDEX

 

    Page No.
Part I. Financial Information 1
     
Item 1. Consolidated Financial Statements (Unaudited) 1
  Consolidated Balance Sheets (Unaudited) 2
  Consolidated Statements of Operations (Unaudited) 3
  Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (Unaudited) 4
  Consolidated Statements of Cash Flows (Unaudited) 5
  Notes to Consolidated Financial Statements (Unaudited) 6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 41
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 53
     
Item 4. Controls and Procedures 53
     
Part II. Other Information 54
     
Item 1. Legal Proceedings 54
     
Item 1A. Risk Factors 54
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 54
     
Item 3. Default Upon Senior Securities 54
     
Item 4. Mine Safety Disclosures 54
     
Item 5. Other Information 54
     
Item 6. Exhibits 55
     
Signatures 56

 

i

 

  

PART I — FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

  

CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2023

 

Table of Contents

 

Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6

 

1
 

 

HUMBL, INC

CONSOLIDATED BALANCE SHEETS (IN US$)

MARCH 31, 2023 (UNAUDITED) AND DECEMBER 31, 2022

 

   MARCH 31,   DECEMBER 31, 
   2023   2022 
   (UNAUDITED)     
ASSETS          
Current Assets:          
Cash  $301,050   $616,950 
Assets related to user cryptocurrencies safeguarding obligation   181,872    665,738 
Accounts receivable   339,811    298,248 
Inventory, net   1,012,042    1,038,816 
Intangible assets - digital assets, current portion   4,279    6,609 
Prepaid expenses and other current assets   20,763    29,476 
Current assets of discontinued operations   -    194,472 
           
Total Current Assets   1,859,817    2,850,309 
           
Non-Current Assets:          
Fixed assets, net of depreciation   22,058    24,485 
Intangible assets, net of amortization   766,297    803,380 
Intangible assets - digital assets, net of current portion   147,823    147,823 
           
Total Non-Current Assets   936,178    975,688 
           
TOTAL ASSETS  $2,795,995   $3,825,997 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
LIABILITIES          
Current Liabilities:          
Accounts payable and accrued expenses  $2,753,423   $4,175,984 
Obligation to issue common shares   -    903,936 
User cryptocurrencies safeguarding obligation   181,872    665,738 
Contingent consideration   2,263,260    2,829,075 
Due to seller   314,619    314,619 
Derivative liabilities   261,791    - 
Current portion of notes payable - bank   5,978    4,380 
Current portion of notes payable   488,676    440,000 
Current portion of notes payable - related parties   940,559    10,689,511 
Convertible notes payable - related parties, net of current portion   3,450,000    7,500,000 
Current portion of convertible notes payable, net of discount   2,918,822    2,636,411 
Current liabilities of discontinued operations   -    99,342 
           
Total Current Liabilities   13,579,000    30,258,996 
           
Long-Term Liabilities:          
Notes payable - bank, net of current portion   4,110    6,569 
Notes payable related parties, net of current portion   8,700,000    8,700,000 
Non-current liabilities of discontinued operations   -    150,000 
           
Total Long-Term Liabilities   8,704,110    8,856,569 
           
Total Liabilities   22,283,110    39,115,565 
           
Commitments and contingency   -    - 
           
STOCKHOLDERS’ DEFICIT          
Preferred stock, 7,000,000 shares Series A Preferred stock authorized, and 570,000 Series B Preferred stock authorized (Series C Preferred stock was cancelled October 29, 2021)          
           
Series A Preferred, par value $0.00001, 7,000,000 and 7,000,000 shares issued and outstanding, respectively   70    70 
Series B Preferred, par value $0.00001, 400,175 and 416,159 shares issued and outstanding, respectively   4    4 
Common stock, par value, $0.00001, 7,450,000,000 shares authorized 3,005,310,839 and 2,182,343,775 issued and outstanding, respectively   30,053    21,823 
Additional paid in capital   72,833,825    63,887,828 
Accumulated deficit   (92,315,713)   (99,218,747)
Accumulated other comprehensive income (loss)   (35,354)   19,454 
          
Total Stockholders’ Deficit   (19,487,115)   (35,289,568)
           
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT  $2,795,995   $3,825,997 

 

The accompanying notes are an integral part of these financial statements.

 

2
 

 

HUMBL, INC

CONSOLIDATED STATEMENTS OF OPERATIONS (IN US$) (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2023 AND 2022

 

   2023   2022 
         
REVENUES  $402,824   $856,990 
           
COST OF REVENUES   162,800    437,990 
           
GROSS PROFIT   240,024    419,000 
           
OPERATING EXPENSES          
Development costs   66,845    1,263,992 
Professional fees   409,837    919,822 
Settlement   -    1,120,400 
Impairment - intangible assets including goodwill   -    1,008,642 
Impairment - digital assets   1,995    45,318 
General and administrative expenses   3,607,132    6,625,984 
           
Total Operating Expenses   4,085,809    10,984,158 
           
OPERATING LOSS   (3,845,785)   (10,565,158)
           
NON-OPERATING INCOME (EXPENSE)          
Interest expense   (272,187)   (401,272)
Change in fair value of derivative liabilities   35,253    - 
Derivative expense   (70,218)   - 
Amortization of debt discounts   (12,408)   (1,590,897)
Gain on sale of digital assets   24    29,551 
Loss on conversion of convertible notes payable   (427,740)   - 
           
Total Non-Operating Income (Expenses)   (747,276)   (1,962,618)
           
NET LOSS FROM CONTINUING OPERATIONS BEFORE DISCONTINUED          
OPERATIONS AND PROVISION FOR INCOME TAXES   (4,593,061)   (12,527,776)
           
DISCONTINUED OPERATIONS:          
(Loss) income from discontinued operations   (81,152)   62,431 
Gain on disposal of discontinued operations   11,577,247    - 
Total discontinued operations   11,496,095    62,431 
           
NET INCOME (LOSS) FROM OPERATIONS BEFORE          
PROVISION FOR INCOME TAXES   6,903,034    (12,465,345)
           
Provision for income taxes   -    - 
           
NET INCOME (LOSS)  $6,903,034   $(12,465,345)
           
Other comprehensive income (loss)          
Foreign currency translations adjustment   (54,808)   3,042 
Comprehensive income (loss)  $6,848,226   $(12,462,303)
           
Net income (loss) per share - basic          
Continuing operations  $(0.00)  $(0.01)
Discontinued operations  $0.00   $0.00 
           
Net income (loss) per share - basic  $0.00   $(0.01)
           
Net income (loss) per share - diluted          
Continuing operations  $(0.00)  $(0.01)
Discontinued operations  $0.00   $0.00 
           
Net income (loss) per share - diluted  $0.00   $(0.01)
           
Weighted average common shares outstanding - basic   2,609,263,343    1,176,805,694 
           
Weighted average common shares outstanding - diluted   6,966,503,147    1,176,805,694 

 

The accompanying notes are an integral part of these financial statements.

 

3
 

 

HUMBL, INC

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (IN US$) (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

 

   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Income (Loss)   Deficit   Total 
                          Accumulated         
   Series A Preferred   Series B Preferred   Common Stock   Additional Paid-In   Other Comprehensive   Accumulated     
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Income (Loss)   Deficit   Total 
                                         
Balance - January 1, 2022   7,000,000   $70    544,759   $5    1,023,039,433   $10,230   $34,182,004   $-   $(50,650,809)  $(16,458,500)
                                                   
Stock issued for:                                                  
Cancellation of shares   -    -    -    -    (825,000)   (9)   (187,241)   -    -    (187,250)
Settlement   -    -    -    -    4,000,000    40    1,120,360    -    -    1,120,400 
Services   -    -    -    -    675,000    7    190,586    -    -    190,593 
Acquisition -Ixaya   -    -    -    -    8,962,036    90    1,499,910    -    -    1,500,000 
Acquisition -BizSecure   -    -    -    -    13,200,000    132    2,229,348    -    -    2,229,480 
Exercise of warrants   -    -    -    -    10,000,000    100    1,999,900    -    -    2,000,000 
Exchange of notes payable and accrued interest   -    -    -    -    37,374,170    374    3,176,430    -    -    3,176,804 
Conversion of Series B Preferred to common shares   -    -    (22,064)   -    220,640,000    2,206    (2,206)   -    -    - 
Shares canceled for no consideration   -    -    (4,900)   -    -    -    -    -    -    - 
Stock-based compensation - warrants   -    -    -    -    -    -    3,270,349    -    -    3,270,349 
Stock-based compensation - options   -    -    -    -    -    -    36,750    -    -    36,750 
Stock-based compensation - restricted stock grants   -    -    -    -    -    -    1,440,464    -    -    1,440,464 
Change in comprehensive income (loss)   -    -    -    -    -    -    -    3,042    -    3,042 
Net loss for the period   -    -    -    -    -    -    -    -    (12,465,345)   (12,465,345)
                                                   
Balance - March 31, 2022   7,000,000   $70    517,795   $5    1,317,065,639   $13,170   $48,956,654   $3,042   $(63,116,154)  $(14,143,213)
                                                   
Balance - January 1, 2023   7,000,000   $70    416,159   $4    2,182,343,775   $21,823   $63,887,828   $19,454   $(99,218,747)  $(35,289,568)
                                                   
Stock issued for:                                                  
Services (including settlement of obligation to issue common shares)   -    -    -    -    40,418,750    404    383,532    -    -    383,936 
Acquisition -BM Authentics (to settle obligation to issue common shares)   -    -    -    -    90,000,000    900    899,100    -    -    900,000 
Settlement of Tickeri sale   -    -    -    -    5,433,656    54    47,762    -    -    47,816 
Conversion of convertible notes   -    -    -    -    527,274,658    5,273    4,849,868    -    -    4,855,141 
Conversion of Series B Preferred to common shares   -    -    (15,984)   -    159,840,000    1,599    (1,599)   -    -    - 
Contribution of capital   -    -    -    -    -    -    50,000    -    -    50,000 
Stock-based compensation - warrants   -    -    -    -    -    -    956,620    -    -    956,620 
Stock-based compensation - options   -    -    -    -    -    -    59,320    -    -    59,320 
Stock-based compensation - restricted stock grants   -    -    -    -    -    -    1,135,579    -    -    1,135,579 
Amortization of contingent consideration - restricted stock units   -    -    -    -    -    -    565,815    -    -    565,815 
Change in comprehensive income   -    -    -    -    -    -    -    (54,808)   -    (54,808)
Net income for the period   -    -    -    -    -    -    -    -    6,903,034    6,903,034 
                                                   
Balance - March 31, 2023   7,000,000   $70    400,175   $4    3,005,310,839   $30,053   $73,039,857   $(35,354)  $(92,315,713)  $(19,487,115)

 

The accompanying notes are an integral part of these financial statements.

 

4
 

 

HUMBL, INC

CONSOLIDATED STATEMENTS OF CASH FLOWS (IN US$) (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2023 AND 2022

 

   2023   2022 
CASH FLOW FROM OPERTING ACTIVIITES FROM CONTINUING OPERATIONS          
Net income (loss)  $6,903,034   $(12,465,345)
Adjustments to reconcile net income (loss) to net cash used in operating activities          
Depreciation   2,427    5,851 
Amortization   37,083    91,716 
Impairment expense - intangible assets including goodwill   -    1,008,642 
Impairment expense - digital assets   1,995    45,318 
(Gain) on sale of digital assets   (24)   (29,551)
Loss on conversion of convertible notes payable   427,740    - 
Expenses paid for by digital assets   359    41,420 
Fee added to convertible notes   9,250    - 
Sales commission received in digital assets   -    (1,063)
Amortization of debt discounts   12,408    1,590,897 
Foreign currency adjustment   (54,808)   3,042 
Stock-based compensation   2,531,519    4,074,497 
Gain on disposal of Tickeri   (11,577,247)   - 
Derivative expense   70,218    - 
Change in fair value of derivative liabilities   (35,253)   - 
Settlement   -    1,120,400 
Obligation to issue common shares for services rendered   -    26,831 
           
Changes in assets and liabilities, net of acquired amounts          
Accounts receivable   (41,563)   (211,895)
Intangible assets - digital assets   -    (271,800)
Inventory   26,774    - 
Prepaid expenses and other assets   8,713    15,368 
Accounts payable and accrued expenses   438,482    951,808 
Total adjustments   (8,150,729)   8,461,481 
           
Net cash used in operating activities of continuing operations   (1,238,893)   (4,003,864)
Net cash provided by (used in) operating activities of discontinued operations   81,152    (70,377)
Net cash used in operating activities   (1,157,741)   (4,074,241)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Purchase of fixed assets   -    (8,510)
Cash paid in purchase of Ixaya, net of amounts received   -    (148,675)
Net cash used in investing activities   -    (157,185)
           
CASH FLOWS FROM FINANCING ACTIVITES          
Proceeds from the exercise of warrants   -    2,000,000 
Proceeds from related party notes payable   251,048    4,500,837 
Payments of notes payable - bank   (861)   - 
Payments of notes payable   (5,596)   - 
Contribution of capital CEO   50,000    - 
Proceeds from notes payable   50,000    - 
Proceeds from convertible notes payable   497,250    - 
Net cash provided by financing activities   841,841    6,500,837 
           
NET (DECREASE) INCREASE IN CASH AND RESTRICTED CASH   (315,900)   2,269,411 
           
CASH AND RESTRICTED CASH - BEGINNING OF PERIOD   616,950    3,173,103 
           
CASH AND RESTRICTED CASH - END OF PERIOD  $301,050   $5,442,514 
           
CASH PAID DURING THE PERIOD FOR:          
Interest expense  $990   $- 
           
Income taxes  $-   $- 
           
SUPPLEMENTAL INFORMATION - NON-CASH INVESTING AND FINANCING ACTIVITIES:          
           
Settlement with Tickeri in disposal  $11,496,095   $- 
Conversion of preferred stock into common stock  $1,599   $2,206 
Conversion of obligation to issue common stock into common stock  $903,936   $449,950 
Conversion of convertible notes payable and accrued interest to common stock  $4,427,399   $- 
Exchange of convertible notes payable and accrued interest into common stock  $-   $3,176,805 
Reclassification of deferred revenue to additional paid in capital  $-   $43,243 
Recognition of discounts at inception of convertible notes payable  $-   $2,055,219 
Vesting of contingent consideration  $565,815   $- 
Reclassification of convertible notes payable to derivative liability  $297,044   $- 
           
Acquisition of Ixaya:          
Accounts receivable  $-   $24,446 
Goodwill   -    1,008,642 
Intellectual property - software   -    650,000 
Accounts payable and accrued expenses   -    (10,700)
Note payable - bank   -    (13,879)
Related party advances   -    (9,834)
Total   -    1,648,675 
Common shares issued   -    (1,500,000)
Net cash paid in acquisition of Ixaya  $-   $148,675 
           
Acquisition of BizSecure:          
Customer relationship  $-   $275,000 
Intellectual property - software   -    2,500,000 
Goodwill   -    3,981,000 
Total   -    6,756,000 
Common shares issued   -    (2,229,480)
Contingent consideration   -    (4,526,520)
Net cash paid in acquisition of BizSecure  $-   $- 

 

The accompanying notes are an integral part of these financial statements.

 

5
 

 

HUMBL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN US$) (UNAUDITED)

MARCH 31, 2023 AND 2022

 

NOTE 1: NATURE OF OPERATIONS

 

HUMBL, Inc. (“Company” or “HUMBL”) was incorporated in the state of Oklahoma on November 12, 2009. The Company was redomiciled on November 30, 2020 to the state of Delaware.

 

On December 3, 2020, HUMBL, LLC (“HUMBL LLC”) merged into the Company in what is accounted for as a reverse merger. Under the terms of the Merger Agreement, HUMBL LLC exchanged 100% of their membership interests for 552,029 shares of newly created Series B Preferred Stock. The Series B Preferred shares were issued to the respective members of HUMBL LLC following the approval by FINRA of a one-for-four reverse stock split of the common shares and the increase in the authorized common shares to 7,450,000,000 shares, and 10,000,000 preferred shares.

 

The FINRA approval for both the increase in the authorized common shares and reverse stock split occurred on February 26, 2021. To assume control of the Company, the former CEO, Henry Boucher assigned his 7,000,000 shares of Series A Preferred Stock as well as 550,000,000 shares of common stock to Brian Foote, the President and CEO of HUMBL LLC for a $40,000 note payable. The Series A Preferred Stock is not convertible into common stock; however, it has voting rights of 10,000 votes per 1 share of stock. After the reverse merger was completed, HUMBL LLC ceased doing business, and all operations were conducted under Tesoro Enterprises, Inc. which later changed its name to HUMBL, Inc. (“HUMBL” or the “Company”).

 

On June 3, 2021 we acquired Tickeri, Inc. (“Tickeri”) in a debt and stock transaction totaling $20,000,000 following which Tickeri became a subsidiary of HUMBL. On January 31, 2023, the Company sold Tickeri back to the former owners and reflected the loss on disposal in the Consolidated Statement of Operations. For the full description of these transactions, refer to the Form 10-K filed April 6, 2023.

 

On June 30, 2021, we acquired Monster Creative, LLC (“Monster”). Monster is a Hollywood production studio that specializes in producing movie trailers and other related content. As part of the acquisition we entered into certain debt instruments with the founders of Monster that are in default as they were due December 31, 2022. For the full description of this transaction, refer to the Form 10-K filed April 6, 2023.

 

On February 12, 2022, the Company entered into an asset purchase agreement with BizSecure, Inc. (“BizSecure”). The Company determined this was an acquisition of a business pursuant to the guidance provided in both ASC 805 and Rule 11-01(d) of Regulation S-X. BizSecure is not considered a significant subsidiary under Regulation S-X Rule 1-02(w). The Company acquired a customer relationship with the US Air Force and BizSecure’s Mobile ID technology. The Company had issued 13,200,000 common shares and 26,800,000 restricted stock units (“RSUs”) that vest quarterly commencing April 1, 2022 for a period of two years as part of this acquisition. On December 30, 2022, as a result of the Company’s failure to timely register the 13,200,000 shares of common stock issued February 12, 2022 BizSecure requested the cancellation of such shares and the 10,050,000 RSUs that vested during 2022. Pursuant to BizSecure’s request, the 13,200,000 shares of common stock and the 10,050,000 RSUs were rescinded effective December 30, 2022. The remaining 16,750,000 RSUs will continue to vest in accordance with the original terms. For the full description of this transaction, refer to the Form 10-K filed April 6, 2023.

 

6
 

 

On March 3, 2022, the Company acquired Ixaya Business SA de CV, a Mexican corporation (“Ixaya”), under a Stock Purchase Agreement (“Ixaya SPA”). The acquisition of Ixaya was for $150,000 and 8,962,036 shares of common stock (a value of $1,500,000) for a total of $1,650,000. The Company accounted for this acquisition as a business combination under ASC 805, and Ixaya is not considered a significant subsidiary under Regulation S-X Rule 1-02(w).

 

On November 2, 2022, the Company acquired BM Authentics (“BM”), a provider of sports merchandise ranging from autographed jerseys, bats, balls, helmets, and photos for $110,000 in cash and 90,000,000 shares of common stock. These shares were issued on January 10, 2023.

 

On November 15, 2022 we entered into a Settlement Agreement and Mutual Release of Claims (the “Release Agreement”) with Forwardly, Inc. (“Forwardly”) under which we agreed to pay Forwardly $2,200,000 in five equal monthly payments of $440,000 commencing November 15, 2022 and ending March 15, 2023. The Company and Forwardly, amended the terms of the payments whereby the Company paid the January and February 2023 payments in December 2022, and Forwardly agreed to extend the last payment to June 15, 2023. The payment is being made in connection with a warrant (the “Warrant”) that Forwardly purchased from us for $200,000 in 2020 that provided for the purchase of up to 125 million shares of our common stock of which Forwardly purchased 10 million shares for $2,000,000 in 2021. Forwardly retained the 10 million shares under the Warrant in lieu of interest on the $2,000,000 it paid to exercise that number of our shares of common stock under the Warrant.

 

HUMBL is a Web 3, digital commerce platform built to connect consumers, businesses and governments in the digital economy. HUMBL provides simple tools and packaging for complex new technologies such as blockchain, in the same way that previous cycles of e-commerce and the cloud were more simply packaged by companies such as Facebook, Apple, Amazon and Netflix over the past several decades. The Company through their product offerings are looking to simplify and package the digital economy for consumers, corporations and government.

 

The goal of HUMBL is to provide ready built tools, and platforms for consumers and merchants to seamlessly participate in the digital economy. HUMBL is built on a patent-pending, decentralized technology stack that utilizes both core and partner technologies, to provide faster connections to the digital economy and each other.

 

The Company is organized into two divisions: a) HUMBL Consumer and b) HUMBL Commercial. These two divisions incorporate and expand the Company’s core products and services. The majority of the Company’s operations prior to 2022 were focused on the Consumer division.

 

HUMBL – A Web 3 Commerce Platform

 

HUMBL was founded to deliver an integrated, Web 3 digital commerce platform for consumers, merchants and governments. HUMBL has delivered one of the first integrated technology environments in which a digital wallet, search engine, social media and marketplace listings can be used together by consumers in one place. The HUMBL platform is comprised of the following key components described below.

 

HUMBL Consumer Division

 

  HUMBL Wallet
  HUMBL Search Engine
  HUMBL Tickets
  HUMBL Marketplace
  HUMBL Social
  HUMBL Metaverse Stores

 

HUMBL Commercial Division

 

  HUMBL Blockchain Services

 

7
 

 

HUMBL Wallet

 

The HUMBL Wallet is the centerpiece of the Web 3 consumer experience on the HUMBL platform. The HUMBL Wallet is self-custodied by the individual; ensuring that they have full control over their digital assets and private keys.

 

Customers can use the HUMBL Wallet to send and receive digital assets, interact on the HUMBL Social platform, perform web searches on the HUMBL Search Engine, store and manage their NFTs, consume content via MP4 multimedia player and more.

 

The HUMBL Wallet drives revenue through: a) digital asset swaps, in which the customer can use the self-custodied HUMBL digital wallet to swap from one digital asset to another on the Ethereum blockchain, and b) purchasing crypto through Sardine, a third-party service that allows customers to buy digital assets with credit cards.

 

The HUMBL Wallet is also connected to the BLOCKS Registry, a decentralized blockchain registry that allows customers to authenticate digital items, such as NFTs, and track the chain of custody to ensure reduced fraud, forgery and theft in the digital markets.

 

HUMBL Wallet customers have the obligation to perform their own tax record keeping and tracking of assets and swaps in the self-custodied wallet; as well as backup of their private keys, to ensure the recoverability, data security and storage of their digital assets.

 

The HUMBL Wallet is equipped with 2-factor authentication; as well as biometric security features, which are handled by the handset and its manufacturer. HUMBL does not store or have access to any biometric information related to its verified users.

 

The HUMBL Wallet uses SumSub, a third-party service provider, to perform KYC / KYB and authenticate customers. HUMBL does not capture or store consumers’ information on HUMBL’s servers, except for their corresponding name, wallet address and email address for basic communications with the verified user. HUMBL does not resell its customers data.

 

The HUMBL Wallet is available in over 130 countries and is not available in any OFAC Countries.

 

HUMBL Search Engine

 

The HUMBL Search Engine is available via the HUMBL Wallet and the HUMBL website. The HUMBL Search Engine allows customers to search for standard Web 2 content such as news, images and video. The company also recently completed the development of its HUMBL Ads portal, which can be used to customize advertising programs for clients. This includes traditional search advertising such as display ads, location targeting and cost-per-click performance advertising.

 

The HUMBL Search Engine also offers Web 3 blockchain-based search features such as the ability to search major NFTs across Ethereum, Polygon, BLOCKS, Gnosis and Solana. Consumers are able to confirm that certain NFTs have been “Verified by BLOCKS” to protect against the fraud and forgery in the NFT market. The search engine also shows customers where certain NFTs are available for purchase across various marketplaces.

 

HUMBL Tickets

 

HUMBL Tickets is initially focused on the offering of secondary (resale) tickets to thousands of live events across North America. HUMBL Tickets inventory listings and ticket fulfillment are provided by Ticket Evolution and HUMBL earns a commission for each sale through its website.

 

The ticketing content provided on HUMBL Tickets spans across major live music, sports, festivals and events in multiple countries. HUMBL Tickets advertises its services primarily across social media, including its own HUMBL Social platform.

 

HUMBL is also exploring the development of primary ticketing and peer-to-peer ticketing sales via blockchain technology and dynamic QR codes, with ticket storage inside the HUMBL Wallet as future digital collectibles; along with authenticated content, ratings and reviews from ticketed events on the HUMBL Social platform via verified profiles, commemorative icons and attendance badges.

 

8
 

 

HUMBL Marketplace

 

The HUMBL Marketplace was designed to pair authenticated buyers and sellers in verified, digital commerce. The HUMBL Marketplace currently works with clients such as professional athletes, brands, and marketing and talent agencies, to provide sports merchandise ranging from autographed jerseys, bats, balls, helmets, photos and more.

 

The HUMBL Marketplace mitigates forgeries by pairing physical merchandise with digital certificates of registration. Merchandise is made available on the HUMBL platform and is verified, registered, and cataloged on the blockchain.

 

The HUMBL Marketplace also allows for the minting and listing of non-fungible tokens (NFTs) as digital collectibles, that allow pre-approved individuals to monetize their digital images, multimedia content and catalogues on the blockchain.

 

HUMBL is a software platform and does not act as a broker, financial institution, or creditor for digital collectibles. We facilitate transactions between the buyer and seller in the auction/sale process, but we are not a party to any agreement between the buyer and seller or between any users.

 

HUMBL Social

 

HUMBL Social is one of the world’s first user-verified social media platforms. The social media platform is available via web browser and the HUMBL Wallet. The goal of HUMBL Social is to provide real people, real profiles and real merchants with a place to connect on the worldwide web.

 

HUMBL Social supports only verified user profiles, to ensure authenticity of the platform. This helps to reduce the fake profiles, product ratings and reviews that have plagued major Web 2 social media platforms due to the allowance of anonymous profiles and non-verified sellers. The HUMBL Social platform is available in over 130+ countries via the HUMBL Wallet and web browser.

 

HUMBL Metaverse Stores

 

HUMBL has created technology to build customized metaverse stores for brands, athletes, entertainers and celebrities. HUMBL’s first metaverse store was created for Major League Baseball player Ke’Bryan Hayes and his father Charlie Hayes, a retired Major League Baseball player. The brand metaverse store is called the “House of Hayes” and supports the development of an immersive player experience, in which customers can navigate a simulated environment of historical artwork and current digital collectibles. Custom artwork was provided by Topps “Sports Artist of the Year” Lauren Taylor, in the form of digital collectibles that rotated on screens throughout the environment. Endorsement sporting goods brands of Ke’Bryan Hayes, such as Wilson, Franklin and Old Hickory, also supported product placement and sell-through environments for products such as authentic baseball bats and gloves. An immersive Wilson Amphitheatre was also created for multimedia press conferences or media interactions with Ke’Bryan Hayes’ avatar.

 

HUMBL Blockchain Services

 

HUMBL Blockchain Services (“HBS”) was formed as part of the Company’s asset acquisition of BizSecure on February 12, 2022. Recognizing the opportunities for governments and commercial enterprises to incorporate blockchain and distributed ledger technologies (“DLT”), HBS is focused on working with clients to identify problems and develop solutions that build upon the various capabilities the Company has and continues to develop.

 

Our solutions enable municipalities, government agencies, and other commercial entities the ability to offer mobile IDs and other credential verification services to their constituents. We continue to make significant investments to leverage our existing technologies and further expand our DLT capabilities.

 

9
 

 

Components of the HUMBL Wallet can be used by HBS to white label a “Powered By” environment for local, state or national government clients that may want to move to digital or blockchain-based registry formats of their transactions, record keeping and / or payments from citizens, corporations, or government departments.

 

An example of this is a pilot program that HUMBL is currently developing with the County of Santa Cruz (CA), in which HUMBL and the County are working to scope the development of a digital wallet in which citizens can more easily and effectively receive government services access via digital technologies.

 

HUMBL Financial

 

HUMBL Financial was developed to package step-function technologies such as blockchain into “several clicks” for the customer.

 

In 2021, HUMBL Financial created BLOCK ETX products to simplify digital asset investing for customers and institutions seeking exposure to a new, 24/7 digital asset class. We have launched this product in 100 countries outside the United States. HUMBL Financial has developed proprietary, multi-factor blockchain indexes, trading algorithms and financial services for the new digital asset trading markets to accommodate index, active and thematic investment strategies. BLOCK ETXs are completely non-custodial, algorithmically driven software services that allow customers to purchase and hold digital assets in pre-set allocations through their own digital asset exchange accounts. BLOCK ETXs are compatible for United States customers who have accounts with Coinbase Pro, Bittrex US or Binance US and for non-US customers who have accounts with Bittrex Global. BLOCK ETXs were served first on the desktop and web version of the HUMBL platform, with the goal of future applications inside the HUMBL mobile application. HUMBL Financial is open to the licensing of the BLOCK ETXs to institutions and exchanges. HUMBL Financial also plans to offer trusted, third-party financial services in areas such as payments, investments, credit card services and lending across the HUMBL platform over time.

 

In February 2022, the Company elected to suspend offering the BLOCK ETX products pending further legal analysis regarding how to offer the BLOCK ETXs in a fully compliant manner with the evolving laws and regulatory treatment of such novel products. The Company will continue to monitor the regulatory environment with respect to these products. In accordance with ASC 205-20-50-1(a), the timing of the disposal was February 28, 2022. The Company met the criteria for the BLOCK ETX operations to be classified as held for sale at that time.

 

Going Concern

 

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.

 

During the past two years, we devoted a substantial amount of capital to build out our platform and as a result our working capital deficit and accumulated deficit have increased significantly. In addition, we have incurred significant debt from both unrelated and related parties to assist in supporting our operations.

 

As of March 31, 2023, we had $301,050 in cash. During the last two years we built our platform and grew our operations by acquiring companies to support what we have just recently consolidated into HUMBL.com. The acquisitions increased our debt and our common shares issued as we spent very little cash in these acquisitions. The impact of COVID-19, supply chain issues, challenges in the cryptocurrency market and recent bank failures have had a minimal impact on the Company’s operations.

 

We had a working capital deficit of $11,719,183 and $27,408,687 as of March 31, 2023 and December 31, 2022, respectively. The majority of our current liabilities is in the form of both related and unrelated party notes, and accounts payable and accrued expenses. The decrease in working capital is the direct result of the settlement with Tickeri resulting in over $11,400,000 in reductions of notes payable, accrued interest and accrued expenses. This reduction was offset by some increases in accounts payable as we continue the development of our mobile wallet. A majority of the Company’s operating expenses in the past two years was the result of non-cash charges such as impairment of intangible assets including goodwill, settlement and stock-based compensation. The actual monthly cash burn of the Company is approximately $386,000 per month at this time and as our core products come online, this is likely to decrease upon our technology being completed. The Company in the three months ended March 31, 2023 received net proceeds of approximately $800,000 from various debt financings and has received $1,190,000 in purchases of common stock and warrants, $2,000,000 in additional warrant exercises and $8,700,000 in related party debt proceeds in the year ended December 31, 2022. However, as a result of the operating losses and working capital deficit, management has determined that there is substantial doubt about the Company’s ability to continue as a going concern.

 

10
 

 

In January 2023, we recognized a gain on disposal of $11,577,247 when we settled all claims with the former owners of Tickeri and sold them back their company. We expect that the consolidation of our platform into HUMBL.com will bring about revenue producing operations to improve the liquidity of the Company moving forward. However, going forward, the effect of our industry on the capital markets may limit our ability to raise additional capital on the terms acceptable to us at the time we need it, if at all. The additional post-COVID challenges related to remote work and travel restrictions that we as a smaller company have faced in striving to meet our disclosure obligations in a timely manner while taking the steps to protect the health and safety of our employees have impacted, and may continue to further impact, our ability to raise additional capital.

 

The consolidated financial statements of the Company have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable period. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of the uncertainties.

 

Impact of COVID-19

 

The COVID-19 pandemic previously had a profound effect on the U.S. and global economy and may continue to affect the economy and the industries in which we operate, depending on the vaccine rollouts and the emergence of virus mutations.

 

COVID-19 did not have a material effect on the Consolidated Statements of Operations or the Consolidated Balance Sheets.

 

Our ability to access the capital markets and maintain existing operations is unknown during the COVID-19 pandemic. Any such limitation on available financing and how we conduct business with our customers and vendors would adversely affect our business.

 

Because the federal government and some state and local authorities are reacting to the many variants of COVID-19, it is creating uncertainty on whether these actions could disrupt the operation of the Company’s business and have an adverse effect on the Company. The extent to which the COVID-19 outbreak may impact the Company’s results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.

 

Impact of Cryptocurrency Bankruptcies

 

In November 2022, both FTX Trading and BlockFi filed for bankruptcy protection under Chapter 11. These bankruptcies have impacted several companies either directly or indirectly. Customers of the HUMBL Wallet use our platform to hold their cryptocurrency. Assets related to user cryptocurrencies safeguarding obligation and the user cryptocurrencies safeguarding obligation represent the Company’s obligation to safeguard customers’ crypto assets in digital wallets on the Company’s platform. The Company safeguards these assets for customers and is obligated to safeguard them from loss, theft, or other misuse. The Company recognizes the users cryptocurrencies liabilities and corresponding assets related to the users cryptocurrencies, on initial recognition and at each reporting date, at fair value of the crypto assets. Any loss, theft, or misuse would impact the measurement of users crypto assets. We removed the HUMBL Pay app from the Apple App Store and Google Play store on January 31, 2023 and are in the process of migrating all customers from HUMBL Pay to the HUMBL Wallet. HUMBL Wallet users maintain their own private digital wallets where the cryptocurrency is held and HUMBL has no access to those wallets.

 

The majority of the cryptocurrency obligation is comprised of Bitcoin, Ethereum and BLOCKS.

 

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We do not, nor have we ever used either of these exchanges to conduct business. We have not been impacted by these bankruptcies. And we continue to monitor the industry and protect our customers’ assets.

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (the “Commission” or the “SEC”). It is management’s opinion that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of HUMBL, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. HUMBL, Inc. holds 100% of Monster, Ixaya and BM Authentics. The Company formed additional subsidiaries that are inactive and have no activity for future use. All operations of Tickeri are reflected in discontinued operations as this entity was sold back to the original owners on January 31, 2023.

 

The Company applies the guidance of Topic 805 Business Combinations of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).

 

For Monster, BizSecure, Ixaya and BM Authentics, the Company accounted for these acquisitions as business combinations and the difference between the consideration paid and the net assets was applied to goodwill as there were no identifiable intangible assets acquired.

 

Reclassification

 

The Company has reclassified certain amounts in the 2022 financial statements to comply with the 2023 presentation. These principally relate to classification of certain expenses and liabilities. The reclassifications had no impact on total net loss or net cash flows for the three months ended March 31, 2022.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. These estimates include, but are not limited to, management’s estimate of provisions required for permanent and temporary differences related to income taxes, liabilities to accrue, estimates of the fair value of goodwill and determination of the fair value of stock awards. Actual results could differ from those estimates.

 

Cash

 

Cash consists of cash and demand deposits with an original maturity of three months or less. The Company holds no cash equivalents as of March 31, 2023 and December 31, 2022, respectively. The Company maintains cash balances in excess of the FDIC insured limit at a single bank.

 

In 2022, the Company established a service to their HUMBL Pay app users. The service enables HUMBL Pay app users the ability through a Company maintained digital asset wallet with Wyre (“Wyre”) to purchase digital assets (cryptocurrency). As it can take 5 to 8 business days to physically settle funds in the Wyre wallet, there may be delays in digital assets being received by customers and the delivery of BLOCKS in a BitGo wallet (“BitGo”). BitGo is a third-party custodian service that provides the custody for the customers’ BLOCKS.

 

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The BitGo account is not the Company’s account; however it represents the pool of all BLOCKS held by and allocated to HUMBL Pay users accounts. The users may choose to transfer the purchased BLOCKS to their individual wallets outside of HUMBL.

 

Safeguarding Obligation

 

Assets related to user cryptocurrencies safeguarding obligation and the user cryptocurrencies safeguarding obligation represent the Company’s obligation to safeguard customers’ crypto assets in digital wallets on the Company’s platform. The Company safeguards these assets for customers and is obligated to safeguard them from loss, theft, or other misuse. The Company recognizes the users cryptocurrencies liabilities and corresponding assets related to the users cryptocurrencies, on initial recognition and at each reporting date, at fair value of the crypto assets. Any loss, theft, or misuse would impact the measurement of users crypto assets.

 

The majority of the cryptocurrency obligation is comprised of Bitcoin, Ethereum and BLOCKS.

 

Fixed Assets and Long-Lived Assets

 

ASC 360 requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company has adopted Accounting Standard Update (“ASU”) 2017-04 Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment.

 

The Company reviews recoverability of long-lived assets on a periodic basis whenever events and changes in circumstances have occurred which may indicate a possible impairment. The assessment for potential impairment is based primarily on the Company’s ability to recover the carrying value of its long-lived assets from expected future cash flows from its operations on an undiscounted basis. If such assets are determined to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets.

 

Fixed assets and intangible assets with finite useful lives are stated at cost less accumulated amortization and impairment. Intangible assets with infinite lives, such as digital currency are valued at costs and reviewed for indicators of impairment at least annually, or more depending on circumstances.

 

The Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers to be important which could trigger an impairment review include the following:

 

1. Significant underperformance relative to expected historical or projected future operating results;

 

2. Significant changes in the manner of use of the acquired assets or the strategy for the overall business; and

 

3. Significant negative industry or economic trends.

 

When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows.

 

Revenue Recognition

 

The Company accounts for a contract with a customer that is within the scope of this Topic only when the five steps of revenue recognition under ASC 606 are met.

 

The five core principles will be evaluated for each service provided by the Company and is further supported by applicable guidance in ASC 606 to support the Company’s recognition of revenue.

 

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The Company accounts for revenues based on the verticals in which they were earned. The three principal verticals in which the Company operates today are HUMBL Mobile Wallet, HUMBL Marketplace, and HUMBL Blockchain Services.

 

HUMBL Mobile Wallet (formerly HUMBL Pay)

 

The Company is anticipated to earn transaction revenues primarily from fees charged to consumers and merchants on a transaction basis through the Company’s mobile application. These fees may have a fixed and/or variable component. The variable component is generally a percentage of the value of the payment amount and is known at the time the transaction is processed. For a portion of our transactions, the variable component of the fee is eligible for reimbursement when the underlying transaction is approved for a refund. The Company may estimate the amount of fee refunds that will be processed each quarter and record a provision against the net revenues. The volume of activity processed on the platform, which results in transaction revenue, is referred to as Total Payment Volume (“TPV”).

 

The Company will earn additional fees on transactions where currency conversion is performed via on ramping and off ramping via digital currencies, when swaps are performed on digital currencies, and when cross-border transactions are enabled (i.e., transactions where the merchant and consumer are in different countries), to facilitate the instant transfer of funds for customers from their HUMBL account to their debit card or bank account, and other miscellaneous fees. The Company will rely on third party partners to perform all money transmission services.

 

The Company may earn revenues from other value-added services, which are comprised primarily of revenue earned through partnerships, referral fees, subscription fees, gateway fees, ticketing, peer-to-peer payments, and other services that will be provided to merchants and consumers. These contracts typically have one performance obligation which is provided and recognized over the term of the contract.

 

The transaction price is generally fixed and known at the end of each reporting period; however, for some agreements, it may be necessary to estimate the transaction price using the expected value method. The Company is expected to record revenue earned in revenues from other value-added services on a net basis when they are considered the agent with respect to processing transactions.

 

HUMBL Search Engine

 

Revenues are derived principally from the sale of advertisements, classifieds fees, and revenue sharing arrangements. Advertising revenue is derived principally from the sale of online advertisements which are based on “impressions” (i.e., the number of times that an advertisement appears in pages viewed by users of our platforms) or “clicks” (which are generated each time users on our platforms click through our advertisements to an advertiser’s designated website) delivered to advertisers.

 

The Company uses the output method and apply the practical expedient to recognize advertising revenue in the amount to which they have a right to invoice. For contracts with target advertising commitments with rebates, estimated payout is accounted for as a variable consideration to the extent it is probable that a significant reversal of revenue will not occur.

 

HUMBL Tickets

 

The Company recognizes revenues from HUMBL Tickets primarily from service fees. Revenue is recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration we receive in exchange for those goods or services. For service fees and payment processing fees, revenue is recognized when the ticket is sold.

 

We evaluate whether it is appropriate to recognize revenue on a gross or net basis based upon our evaluation of whether we obtain control of the specified goods or services by considering if we are primarily responsible for fulfillment of the promise, have inventory risk, and have the latitude in establishing pricing and selecting suppliers, among other factors.

 

14
 

 

For the payment processing service, we determined that we are the principal in providing the service as we responsible for fulfilling the promise to process the payment and we have discretion and latitude in establishing the price of our service. Based on our assessment, we record revenue on a net basis related to our ticketing service and on a gross basis related to our payment processing service. As a result, costs incurred for processing the transactions are included in cost of net revenues in the consolidated statements of operations.

 

Revenue is presented net of indirect taxes, value-added taxes, creator royalties and reserves for customer refunds, payment chargebacks and estimated uncollectible amounts. If an event is cancelled by a creator, then any obligations to provide refunds to event attendees are the responsibility of that creator.

 

If a creator is unwilling or unable to fulfill their refund obligations, we may, at our discretion, provide attendee refunds. Revenue is also presented net of the amortization of creator signing fees when applicable. The benefit we receive by securing exclusive ticketing and payment processing rights with certain creators from creator signing fees is inseparable from the customer relationship with the creator and accordingly these fees are recorded as a reduction of revenue in the consolidated statements of operations.

 

HUMBL Marketplace

 

The Company recognizes revenue when they transfer control of promised goods or services to customers in an amount that reflects the consideration to which is expected to be entitled in exchange for those goods or services. Revenue is recognized net of any taxes collected, which are subsequently remitted to governmental authorities.

 

Net transaction revenues

 

The net transaction revenues will primarily include final value fees, feature fees, including fees to promote listings, and listing fees from sellers in our Marketplace. The net transaction revenues will also include store subscription and other fees often from large enterprise sellers. The net transaction revenues are reduced by incentives provided to customers.

 

The Company has identified one performance obligation to sellers on the Marketplace platform, which is to connect buyers and sellers on the secure and trusted Marketplace platforms. Final value fees are recognized when an item is sold on a Marketplace platform, satisfying this performance obligation. There may be additional services available to Marketplace sellers, mainly to promote or feature listings, that are not distinct within the context of the contract.

 

Accordingly, fees for these additional services are recognized when the single performance obligation is satisfied. Promoted listing fees are recognized when the item is sold and feature and listing fees are recognized when an item is sold, or when the contract expires.

 

Further, to drive traffic to the platform, the Company will provide incentives to buyers and sellers in various forms including discounts on fees, discounts on items sold, coupons and rewards. Evaluating whether a promotion or incentive is a payment to a customer may require significant judgment. Promotions and incentives which are consideration payable to a customer are recognized as a reduction of revenue at the later of when revenue is recognized or when the incentive is paid or promise to be paid. Promotions and incentives to most buyers on our Marketplace platforms, to whom there is no performance obligation, are recognized as sales and marketing expense. In addition, there may be credits provided to customers when certain fees are refunded. Credits are accounted for as variable consideration at contract inception when estimating the amount of revenue to be recognized when a performance obligation is satisfied to the extent that it is probable that a significant reversal of revenue will not occur and updated as additional information becomes available.

 

HUMBL Blockchain Services

 

The Company disaggregates revenue from contracts with customers into product revenues and services revenues.

 

Product revenue related contracts with customers begin upon contract inception when a purchase order for a specific customer order of a product to be delivered in the near term. These purchase orders are short-term in nature. Product revenue is recognized at a point in time upon shipment or upon customer receipt of the product, depending on shipping terms. The Company determined that this method best represents the transfer of goods as transfer of control typically occurs upon shipment or upon customer receipt of the product.

 

15
 

 

Service revenues primarily consist of revenues derived from maintenance support and the use of the Company’s service platforms and application programming interface (“APIs”) on a subscription basis. The Company generates this revenue from fees for maintenance and support, monthly active user fees, SaaS fees, and hosting and storage fees. In most cases, the subscription or transaction arrangement is a single performance obligation comprised of a series of distinct services that are substantially the same and that have the same pattern of transfer (i.e., distinct days of service). The Company applies a time-based measure of progress to the total transaction price, which results in ratable recognition over the term of the contract. The Company determined that this method best represents the transfer of services as the customer obtains equal benefit from the service throughout the service period.

 

The Company accounts for individual goods and services separately if they are distinct performance obligations, which often requires significant judgment based upon knowledge of the products and/or services, the solution provided and the structure of the sales contract. In SaaS agreements, the Company provides a service to the customer that combines the software functionality, maintenance and hosting into a single performance obligation. In product-related contracts, a purchase order may cover different products, each constituting a separate performance obligation.

 

HUMBL Financial

 

In February 2022, the Company elected to suspend offering the BLOCK ETX products pending further legal analysis regarding how to offer the BLOCK ETXs in a fully compliant manner with the evolving laws and regulatory treatment of such novel products. The Company will continue to monitor the regulatory environment with respect to these products. In accordance with ASC 205-20-50-1(a), the timing of the disposal was February 28, 2022.

 

Accounts Receivable and Concentration of Credit Risk

 

An allowance is based on management’s estimate of the overall collectability of accounts receivable, considering historical losses. Based on these same factors, individual accounts are charged off against the allowance when management determines those individual accounts are uncollectible. Credit extended to customers is generally uncollateralized. Past-due status is based on contractual terms. The Company does not charge interest on accounts receivable. As of March 31, 2023 and December 31, 2022, there was no allowance necessary.

 

Inventory

 

Inventory is valued at the lower of cost or net realizable value, with cost determined using the first-in first-out method. The carrying value of inventory is evaluated periodically for excess quantities and obsolescence. Management evaluates quantities on hand and physical condition as these characteristics may be impacted by anticipated customer demand for current products. The allowance is adjusted based on such evaluation, with a corresponding provision included in cost of sales.

 

Income Taxes

 

Income taxes are accounted under the asset and liability method. The current charge for income tax expense is calculated in accordance with the relevant tax regulations applicable to the entities. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

 

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Differences between statutory tax rates and effective tax rates relate to permanent tax differences.

 

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Uncertain Tax Positions

 

The Company follows ASC 740-10 Accounting for Uncertainty in Income Taxes. This requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. Management evaluates their tax positions on an annual basis.

 

The Company files income tax returns in the U.S. federal tax jurisdiction and various state tax jurisdictions. The federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they were filed.

 

Share-Based Compensation

 

The Company follows ASC 718 Compensation – Stock Compensation and has adopted ASU 2017-09 Compensation – Stock Compensation (Topic 718) Scope of Modification Accounting. The Company calculates compensation expense for all awards granted, but not yet vested, based on the grant-date fair values. Share-based compensation expense for all awards granted is based on the grant-date fair values. The Company policy is to recognize these compensation costs, on a pro rata basis over the requisite service period of each vesting tranche of each award for service-based grants, and as the criteria is achieved for performance-based grants, when such grants are made. For stock options and warrants, the Company uses the Black-Scholes model to estimate the value of those grants. The Company has not had any forfeitures of these grants, and these estimates of value will include a percentage of forfeitures when that percentage is able to be estimated.

 

The Company adopted ASU 2016-09 Improvements to Employee Share-Based Payment Accounting. Cash paid when shares are directly withheld for tax withholding purposes will be classified as a financing activity in the statement of cash flows.

 

Fair Value of Financial Instruments

 

ASC 825 Financial Instruments requires the Company to disclose estimated fair values for its financial instruments. Fair value estimates, methods, and assumptions are set forth below for the Company’s financial instruments: The carrying amount of cash, accounts receivable, prepaid and other current assets, accounts payable and accrued liabilities, and amounts payable to related parties, approximate fair value because of the short-term maturity of those instruments. The Company does not utilize derivative instruments.

 

Leases

 

The Company follows ASC 842 Leases in accounting for leased properties, when they exceed a one-year term. When the Company enters into leases with a term in excess of one year, they will recognize a lease liability and right of use asset in accordance with the provisions of ASC 842.

 

Earnings (Loss) Per Share of Common Stock

 

Basic net income (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share (“EPS”) include additional dilution from common stock equivalents, such as convertible notes, preferred stock, stock issuable pursuant to the exercise of stock options and warrants.

 

Common stock equivalents are not included in the computation of diluted earnings per share when the Company reports a loss because to do so would be anti-dilutive for periods presented, so only the basic weighted average number of common shares are used in the computations.

 

Currency Translation

 

Ixaya’s functional currency is the Mexican Peso and its reporting currency is the United States dollar. Transactions denominated in the functional currency are converted into United States dollars using the exchange rate in effect at the date of the transaction or the average rate for the period in the case of revenue and expense transactions. Monetary assets and liabilities are re-valued into the reporting currency at each balance sheet date using the exchange rate in effect at the balance sheet date, with any resulting exchange gains or losses being credited or charged to accumulated other comprehensive income (loss). Non-monetary assets and liabilities are recorded in the reporting currency using the exchange rate in effect at the date of the transaction and are not revalued for subsequent changes in exchange rates.

 

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Derivative Financial Instruments

 

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. Management evaluates all of the Company’s financial instruments, including convertible notes and warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives.

 

The Company generally uses a Black-Scholes model, as applicable, to value the derivative instruments at inception and subsequent valuation dates when needed. The classification of derivative instruments, including whether such instruments should be recorded as liabilities, is remeasured at the end of each reporting period.

 

Digital Assets

 

Digital assets, including non-fungible tokens and cryptocurrencies, are included in the consolidated balance sheets. We have ownership of and control over our digital assets and may use third party custodial services to secure them. Digital assets are initially recorded at cost and are subsequently remeasured at cost, net of any impairment losses on our consolidated balance sheets. We assign costs to digital asset transactions on a first-in, first-out basis. Gains or losses are not recorded until realized upon sale(s).

 

We determine the fair value of our digital assets on a nonrecurring basis, based on quoted prices on the active exchange(s) that we have determined is the principal market for such assets (Level 1 inputs). We perform a quarterly, or more frequent review to identify whether events or changes in circumstances, principally decreases in the quoted prices on active exchanges on any day during the quarter, indicate that it is more likely than not that our digital assets are impaired.

 

The cost basis of digital assets will not be adjusted upward for subsequent increases in fair value. Such impairment in the value of digital assets is recorded as a component of other operating expenses in our consolidated statements of operations. We recorded an impairment loss of approximately $1,995 and $45,318 related to digital assets during the three months ended March 31, 2023 and 2022, respectively.

 

Fair Value Measurements

 

ASC 820 Fair Value Measurements defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosure about fair value measurements. ASC 820 classifies these inputs into the following hierarchy:

 

Level 1 inputs: Quoted prices for identical instruments in active markets.

 

Level 2 inputs: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

 

Level 3 inputs: Instruments with primarily unobservable value drivers.

 

Segment Reporting

 

The Company follows the provisions of ASC 280-10 Segment Reporting. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making internal operating decisions.

 

Commencing January 1, 2022, the Company simplified their business model to segment their business into two distinct divisions: Consumer and Commercial.

 

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All of the Company’s sales are from North America, therefore the Company has determined that segment reporting by geographic location was not necessary. In the future, the Company will continue to monitor their activity by region to determine if it is feasible to report segment information by location.

 

Recent Accounting Pronouncements

 

The ASU is effective for annual and interim periods beginning after December 31, 2021, and early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company does not believe that this new guidance will have a material impact on its financial statements.

 

On March 31, 2022, the SEC added Staff Accounting Bulletin (“SAB”) No. 121 (“SAB 121”) into Section FF to Topic 5. The interpretations in this SAB express views of the staff regarding the accounting for entities that have obligations to safeguard crypto-assets held for their platform users. In connection with these services, these entities and/or their agents may safeguard the platform users’ crypto-assets and also maintain the cryptographic key information necessary to access the crypto-asset. The obligations associated with these arrangements involve unique risks and uncertainties not present in arrangements to safeguard assets that are not crypto-assets, including technological, legal, and regulatory risks and uncertainties.

 

These risks can have a significant impact on the entity’s operations and financial condition. The staff believes that the recognition, measurement, and disclosure guidance in this SAB will enhance the information received by investors and other uses of financial statements about these risks, thereby assisting them in making investment and other capital allocation decisions.

 

This guidance should be applied no later than the financial statements covering the first interim or annual report ending after June 15, 2022, with retroactive application as of the beginning of the fiscal year to which the interim or annual period relates. Upon adoption of this guidance, the Company has reflected the asset and liability related to the user cryptocurrencies safeguarded on the Company’s platform. We do not have any ownership or custody of the digital assets maintained on our platform. We engage the services of Wyre and BitGo to act as the custodians of the digital assets held on our platform.

 

The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

 

NOTE 3: DISCONTINUED OPERATIONS

 

BLOCK ETX

 

Effective February 28, 2022, the Company elected to suspend offering the BLOCK ETX products pending further legal analysis regarding how to offer the BLOCK ETXs in a fully compliant manner with the evolving laws and regulatory treatment of such novel products. The Company will continue to monitor the regulatory environment with respect to these products. Per ASC 205-20-50-1(a), the timing of the disposal was February 28, 2022. The Company met the criteria for the BLOCK ETX operations to be classified as held for sale at that time.

 

All subscription revenues recognized in January and February 2022, were refunded to the subscribers. The only amounts reflected as discontinued operations in 2022 relate to the direct expenses attributable to the BLOCK ETX product line that include direct payroll and direct subcontractor costs. These amounts are reflected in the loss for discontinued operations as noted in the chart below.

  

   2022 
Revenue  $- 
Cost of revenue   - 
Gross (loss)   - 
      
Operating and non-operating expenses   7,945 
Loss from discontinued operations  $(7,945)

 

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The Company paid the refunds to the subscribers in the three months ended March 31, 2022, and had no expenses related to the BLOCK ETX product line after February 28, 2022. For a full description of the BLOCK ETX/HUMBL Financial, refer to the Form 10-K for the year ended December 31, 2022 filed April 6, 2023.

 

NON-RESIDENTIAL PROPERTY

 

On June 30, 2022, the Company determined to sell their non-residential property, and listed this property for sale in July 2022. This represented a strategic shift for future operations and the Company as a result reclassified the net value on this property of $328,222 as a non-current asset held for sale in accordance with ASC 205-20-45-1E. On September 16, 2022, the Company sold the property for $270,905 and recognized a loss of $57,318 on disposal. There was no adjustments made for this during the three months ended March 31, 2022.

 

TICKERI

 

On January 31, 2023, the Company entered into a Settlement Agreement (the “Settlement Agreement”) with Javier Gonzalez (“Javier”) and Juan Luis Gonzalez (“Juan”). Under the terms of the Settlement Agreement, Tickeri was transferred back to Javier and Juan, free of any encumbrances and including all of Tickeri’s intellectual property, since the Company was in default of the promissory notes for $5,000,000 to each of them with a maturity date of December 3, 2022 (the “Notes”) owed to Javier and Juan as a portion of the consideration paid by the Company under the agreement to acquire Tickeri. Javier and Juan will receive 4,672,897 shares of the Company’s common stock owed to them under the acquisition agreement. Under the terms of the Settlement Agreement, the Notes were cancelled, and the parties agreed to a mutual release of claims. As a result of this settlement, the Company has reclassified the assets, and liabilities of Tickeri as held for sale, and the operations as discontinued operations as of and for the year ended December 31, 2022.

 

Per ASC 205-20-50-1(a), the timing of the disposal was January 31, 2023, but the Company had made the decision to dispose of this business in December 2022, and it represented a strategic shift in the business of the Company. The Company met the criteria for the Tickeri operations to be classified as held for sale at that time. In addition to the assets and liabilities reflected as discontinued operations, the settlement with Tickeri resulted in the forgiveness of the two promissory notes totaling $10,000,000, accrued interest of $789,041 (as of January 31, 2023) and accrued liabilities of $700,000 that are part of the Company’s liabilities as of January 31, 2023.

 

Current assets as of March 31, 2023 and December 31, 2022 – Discontinued Operations:

  

  

March 31,

2023

  

December 31,

2022

 
Cash  $-   $154,159 
Accounts receivable   -    40,313 
           
Total current assets  $   -   $194,472 

 

Current liabilities as of March 31, 2023 and December 31, 2022 – Discontinued Operations:

 

  

March 31,

2023

  

December 31,

2022

 
Accounts payable and accrued expenses  $-   $99,342 
           
Total Current liabilities  $   -   $42,568 

 

20
 

 

Non-current liabilities as of March 31, 2023 and December 31, 2022 – Discontinued Operations:

 

  

March 31,

2023

  

December 31,

2022

 
Long-term debt  $-   $150,000 
           
Total Non-current liabilities  $      -   $150,000 

 

The Company reclassified the following operations to discontinued operations for the three months ended March 31, 2023 and 2022, respectively.

 

   2023   2022 
Revenue  $59,180   $290,143 
Operating expenses   137,934    226,180 
Other non-operating expenses   2,398    1,532 
Net (loss) income from discontinued operations  $(81,152)  $62,431 

 

The Company reflected the following gain on disposal for the three months ended March 31, 2023 related to the sale of Tickeri:

 

   2023   2022 
Common shares issued  $(47,816)  $- 
Forgiveness of related party notes   10,000,000    - 
Forgiveness of accrued expenses   1,489,041    - 
Cash   (163,879)   - 
Accounts receivable   (39,457)   - 
Accounts payable and accrued expenses   189,358    - 
Other (income) loss   150,000    - 
Net gain on disposal  $11,577,247   $    - 

 

NOTE 4: BUSINESS COMBINATIONS

 

For all acquisitions prior to January 1, 2022, refer to the Form 10-K for the year ended December 31, 2022 filed April 6, 2023.

 

BizSecure

 

On February 12, 2022, the Company entered into an asset purchase agreement with BizSecure, Inc. (“BizSecure”). The Company determined this was an acquisition of a business pursuant to the guidance provided in both ASC 805 and Rule 11-01(d) of Regulation S-X. BizSecure is not considered a significant subsidiary under Regulation S-X Rule 1-02(w). The Company acquired a customer relationship with the US Air Force and BizSecure’s Mobile ID technology. The Company had issued 13,200,000 common shares and 26,800,000 restricted stock units (“RSUs”) that vest quarterly commencing April 1, 2022 for a period of two years as part of this acquisition. On December 30, 2022, as a result of the Company’s failure to timely register the 13,200,000 shares of common stock issued February 12, 2022 BizSecure requested the cancellation of such shares and the 10,050,000 RSUs that vested during 2022. Pursuant to BizSecure’s request, the 13,200,000 shares of common stock and the 10,050,000 RSUs were cancelled effective December 30, 2022. The remaining 16,750,000 RSUs will continue to vest in accordance with the original terms. For the full description of this transaction, refer to the Form 10-K filed April 6, 2023.

 

      
Customer relationships  $275,000 
Intellectual property - software   2,500,000 
Goodwill   3,981,000 
   $6,756,000 

 

21
 

 

The consideration paid for the acquisition of assets of BizSecure was as follows:

  

      
Common stock  $2,229,480 
Contingent consideration (RSUs)   4,526,520 
Total consideration  $6,756,000 

 

The Acquisition has been accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the total acquisition consideration price was allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair values. The fair value measurements utilize estimates based on key assumptions of the Acquisition, and historical and current market data. The excess of the purchase price over the total of the estimated fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed is recognized as goodwill. The Company has estimated the preliminary purchase price allocations based on historical inputs and data as of February 12, 2022.

 

The preliminary allocation of the purchase price is based on the best information available and is pending, amongst other things: (i) the finalization of the valuation of the fair values and useful lives of tangible assets acquired; (ii) the finalization of the valuations and useful lives for the intangible assets acquired; and (iii) finalization of the fair value of non-cash consideration.

 

The Company has up to one-year from the date of acquisition to adjust any of the acquired assets and liabilities for information obtained during this measurement period. If new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of additional assets or liabilities as of the acquisition date or a re-allocation of assets and liabilities is necessary, the Company will adjust these figures.

 

The Company has determined that the preliminary purchase price allocation did not need to be revised.

 

Effective December 31, 2022, the Company impaired the $3,981,000 in goodwill and the remaining $2,256,618 in intellectual property and customer relationships, for total impairment of $6,237,618.

 

The goodwill is not expected to be deductible for tax purposes.

 

Ixaya

 

On March 3, 2022, the Company acquired the assets and liabilities of Ixaya noted below in in accordance with ASC 805. Based on the fair values at the effective date of acquisition the purchase price was recorded as follows:

  

      
Cash  $1,325 
Accounts receivables   24,446 
Goodwill   1,008,642 
Intellectual property - software   650,000 
Accounts payable and accrued expenses   (10,700)
Payable – officer   (9,834)
Note payable - bank   (13,879)
   $1,650,000 

 

The consideration paid for the acquisition of Ixaya was as follows:

  

      
Cash  $150,000 
Common stock   1,500,000 
Total consideration  $1,650,000 

 

22
 

 

The Acquisition has been accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the total acquisition consideration price was allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair values. The fair value measurements utilize estimates based on key assumptions of the Acquisition, and historical and current market data. The excess of the purchase price over the total of the estimated fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed is recognized as goodwill. The Company has estimated the preliminary purchase price allocations based on historical inputs and data as of March 3, 2022. The preliminary allocation of the purchase price is based on the best information available and is pending, amongst other things: (i) the finalization of the valuation of the fair values and useful lives of tangible assets acquired; (ii) the finalization of the valuations and useful lives for the intangible assets acquired; (iii) finalization of the valuation of accounts payable and accrued expenses; and (iv) finalization of the fair value of non-cash consideration.

 

The Company has up to one-year from the date of acquisition to adjust any of the acquired assets and liabilities for information obtained during this measurement period. If new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of additional assets or liabilities as of the acquisition date or a re-allocation of assets and liabilities is necessary, the Company will adjust these figures. The Company has performed an analysis on the purchase price allocation and has determined that there are no adjustments to be made from the original allocation. During the three months ended March 31, 2022, the Company impaired $1,008,642 of the goodwill.

 

The Company has determined that the preliminary purchase price allocation did not need to be revised.

 

The goodwill was not expected to be deductible for tax purposes.

 

BM Authentics

 

On November 2, 2022, the Company acquired the assets and liabilities of BM Authentics noted below in accordance with ASC 805. Based on the fair values at the effective date of acquisition the purchase price was recorded as follows:

  

Inventory  $1,010,000 

 

The consideration paid for the acquisition of BM Authentics was as follows:

  

      
Cash  $110,000 
Common stock   900,000 
Total consideration  $1,010,000 

 

The Acquisition has been accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the total acquisition consideration price was allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair values. The fair value measurements utilize estimates based on key assumptions of the Acquisition, and historical and current market data. The excess of the purchase price over the total of the estimated fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed is recognized as goodwill. The Company has estimated the preliminary purchase price allocations based on historical inputs and data as of November 2, 2022. The preliminary allocation of the purchase price is based on the best information available and is pending, amongst other things: (i) the finalization of the valuations and useful lives for the intangible assets acquired; (ii) finalization of the valuation of accounts payable and accrued expenses; (iii) finalization of the valuation of the inventory; and (iv) finalization of the fair value of non-cash consideration.

 

The Company has up to one-year from the date of acquisition to adjust any of the acquired assets and liabilities for information obtained during this measurement period. If new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of additional assets or liabilities as of the acquisition date or a re-allocation of assets and liabilities is necessary, the Company will adjust these figures. The Company has performed an analysis on the purchase price allocation and has determined that there are no adjustments to be made from the original allocation.

 

The Company has determined that the preliminary purchase price allocation did not need to be revised. The Company issued the shares owed (90,000,000 common shares) on January 10, 2023.

 

The goodwill was not expected to be deductible for tax purposes.

 

23
 

 

The following table shows the unaudited pro-forma results for the three months ended March 31, 2022 as if the acquisitions had occurred on January 1, 2022. These unaudited pro forma results of operations are based on the historical financial statements and related notes of BizSecure, Ixaya, BM Authentics and the Company for 2022.

  

  

Three Months

Ended

March 31,

2022

 
   (Unaudited) 
Revenues  $1,074,412 
Net loss  $(12,509,707)
Net loss per share  $(0.01)

 

NOTE 5: REVENUE

 

The following table disaggregates the Company’s revenue by major source for the three months ended March 31, 2023 and 2022:

 

   2023   2022 
  

Three Months Ended

March 31,

 
   2023   2022 
Revenue:          
Services - Production  $132,139   $826,901 
Services - Ixaya   191,610    18,384 
Merchandise   75,359    1,373 
Tickets   3,497    5,199 
NFTs   -    1,063 
Rental income   -    2,842 
Other   219    1,228 
Total revenue  $402,824   $856,990 

 

There were no significant contract asset or contract liability balances for all periods presented. The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

 

Collections of the amounts billed are typically paid by the customers within 30 to 60 days.

 

NOTE 6: INVENTORY

 

On November 2, 2022, in the acquisition of BM Authentics, the Company acquired $1,010,000 in inventory. Inventory consisted of sports merchandise and memorabilia ranging from autographed jerseys, bats, balls, helmets, and photos. As of March 31, 2023 and December 31, 2022, inventory is valued at $1,012,042 and $1,038,816, respectively. Inventory includes write-downs for excess and obsolete inventory of $155,736 as of March 31 and December 31, 2022.

 

NOTE 7: FIXED ASSETS

 

As of March 31, 2023 and December 31, 2022, the Company has the following fixed assets:

 

   2023   2022 
Equipment – 5 year-life  $19,344   $19,344 
Furniture and fixtures – 5 year-life   16,307    16,307 
Accumulated depreciation   (13,593)   (11,166)
Fixed assets, net  $22,058   $24,485 

 

24
 

 

In June 2021, the Company purchased some equipment and furniture as well as a commercial property in the form of a suite at a luxury hotel. The Company is the owner of this suite and entered into a long-term rental agreement with the hotel to manage the property. The Company has use of the suite for 28 calendar days a year and will receive their proportionate income for the other days the suite is being used. The suite with a net value of $328,222 was reclassified to a non-current asset held for sale on June 30, 2022.

 

Depreciation expense for the three months ended March 31, 2023 and 2022 was $2,427 and $5,851, respectively, as the property was placed into service on July 1, 2021.

 

NOTE 8: INTANGIBLE ASSETS AND GOODWILL

 

As of March 31, 2023 and December 31, 2022, the Company has the following intangible assets:

 

   2023   2022 
Intellectual property - software – 5 year-life  $3,150,000   $3,150,000 
Customer relationship – 5 year-life   275,000    275,000 
Domain names – 15 year-life   275,020    275,020 
Accumulated amortization - software   (2,640,833)   (2,608,333)
Accumulated amortization – customer relationship   (275,000)   (275,000)
Accumulated amortization - domain names   (17,890)   (13,307)
Intangible assets, net  $766,297   $803,380 

 

In February 2022, the Company acquired intangible assets from BizSecure valued at $2,775,000, in March 2022 in the acquisition of Ixaya acquired intangible assets valued at $650,000. On December 31, 2022, the Company impaired $2,256,618 in intellectual property related to BizSecure.

 

Amortization expense for the three months ended March 31, 2023 and 2022 was $37,083 and $91,716, respectively.

 

Amortization expense for the next five years and in the aggregate is as follows:

 

      
2024  $148,335 
2025   148,335 
2026   148,335 
2027   137,502 
2028   40,002 
Thereafter   143,788 
Total  $766,297 

 

As of March 31, 2023 and December 31, 2022, the Company has recorded goodwill as follows for our continuing operations:

 

   March 31, 2023   March 31, 2022 
Balance – beginning of the period  $-   $3,177,954 
Acquisition of Monster   -    - 
Acquisition of BizSecure   -    3,981,000 
Acquisition of Ixaya   -    1,008,642 
Impairment for the period   -    (1,008,642)
Balance - ending of the Period  $    -   $7,158,954 

 

As of March 31, 2023 and December 31, 2022, the Company had no remaining goodwill recorded.

 

The Company evaluated ASC 350-20-50 for the goodwill associated with their acquisitions.

 

25
 

 

NOTE 9: INTANGIBLE ASSETS – DIGITAL ASSETS

 

In 2022, the Company established a service to their HUMBL Pay app users. The “Buy Crypto, Earn Rewards” service enables HUMBL Pay app users the ability through a Company maintained digital asset wallet with Wyre to purchase digital assets (cryptocurrency) and earn rewards. These rewards are not paid by the Company, but by Wyre itself. As it can take 5 to 8 business days to physically settle funds in the Wyre wallet, there may be delays in digital assets being received by customers and the delivery of BLOCKS to BitGo. BitGo is a third-party custodian service that provides the custody for the customers’ BLOCKS. These timing differences occur, and as of December 31, 2022, the BitGo account has been settled and no unfunded liabilities exist. The BitGo account is not the Company’s account; however, represents the pool of all BLOCKS held by and allocated to HUMBL Pay users accounts. The users may choose to transfer the purchased BLOCKS to their individual wallets outside of HUMBL.

 

In March 2022, the Company purchased an NFT for $406,046. The Company had evaluated the fair value of this NFT for impairment and recognized impairment of $258,217 through March 31, 2023. The value of the NFT as of March 31, 2023 is $147,823. The NFT will not be amortized as it is considered a non-statutory based digital asset. The NFT is considered a non-current asset while the other digital assets held by the Company are considered current assets. On May 3, 2022, the Company’s CEO contributed capital to pay for this NFT.

 

In the year ended December 31, 2022, the Company purchased $1,010,934 in digital currency expensed $458,162 in the digital currency for future endeavors and for payment of expenses, received commissions on sales of NFTs of $1,814, reflected $1,348,567 in impairment of the intangible asset for digital currency, and recognized a gain on sale of digital assets of $297,895. The Company’s CEO contributed $500,000 worth of BLOCKS to the Company that is included in the digital assets owned by HUMBL.

 

In the three months ended March 31, 2023, the Company expensed $359 in the digital currency for future endeavors and for payment of expenses, reflected $1,995 in impairment of the intangible asset for digital currency, and recognized a gain on sale of digital assets of $24.

 

The value of the digital assets as of March 31, 2023 and December 31, 2022 is $152,102 (of which the value of the non-fungible token of $147,823 is considered a non-current asset) and $154,432 (of which the value of the non-fungible token of $147,823 is considered a non-current asset), respectively.

 

The following table presents additional information about the Company’s digital asset holdings during the three months ended March 31, 2023:

Digital Assets Owned By HUMBL:

 

Three Months Ended March 31, 2023  ETH   BLOCKS   BTC   WETH   DAI   USDC/USDT   Total 
Balance – January 1, 2023  $114   $6,064   $201   $-   $-   $230   $6,609 
Advertising expenses   (132)   -   -   -    -    (227)   (359)
Impairment – digital assets   -   (1,971)   (24)   -   -   -   (1,995)
Gain (loss) on disposal of digital assets   24    -    -    -    -    -    24 
Balance – March 31, 2023  $6   $4,093   $177   $-   $-   $3   $4,279 
Digital Assets held at March 31, 2023   0.005302    28,402,357    0.011343    -    0.422881    2.648397      

 

Digital Assets Owned By HUMBL Pay Users (SAB 121 disclosure):

 

Under SAB 121, companies are required to present the asset and liability at fair value for any crypto-assets and obligations to safeguard crypto-assets. The Company earns no revenue from providing this service to their customers. It is simply an added benefit that HUMBL Pay customers receive for using the app. The “Buy Crypto, Earn Rewards” service enables HUMBL Pay app users the ability through a Company maintained digital asset wallet with Wyre to purchase digital assets (cryptocurrency) and earn rewards. These rewards are not paid by the Company, but by Wyre itself. As it can take 5 to 8 business days to physically settle funds in Wyre, there may be delays in digital assets being received by customers and the delivery of BLOCKS to a BitGo. BitGo is a third-party custodian service that provides the custody for the customers’ BLOCKS These timing differences occur, and as of December 31, 2022, the BitGo account has been settled and no unfunded liabilities exist.

 

26
 

 

Upon adoption of this guidance, the Company has reflected the asset and liability related to the user cryptocurrencies safeguarded on the Company’s platform. We do not have any ownership or custody of the digital assets maintained on our platform. We engage the services of Wyre and BitGo to act as the custodians of the digital assets held on our platform.

 

NOTE 10: NOTE PAYABLE - BANK

 

On March 3, 2022 with the acquisition of Ixaya, the Company assumed a loan with Citibanamex. The loan is due in monthly payments of $7,110 MXN (approximately $350 US$) inclusive of interest and matures in July 2025. As of March 31, 2023 and December 31, 2022, the Company has $10,088 and $10,949 outstanding under the loan. As of March 31, 2023, the Company has included $5,978 in current liabilities, and the balance of $4,110 in long-term liabilities.

 

NOTE 11: NOTES PAYABLE

 

The Company entered into notes payable as follows as of March 31, 2023 and December 31, 2022. The chart below does not include notes payable that were repaid or converted during 2022, or notes payable that were reclassified to liabilities of discontinued operations or disposed of. Refer to the Form 10-K for the year ended December 31, 2022 filed April 6, 2023 for a full description of those notes:

   March 31, 2023   December 31, 2022 
         
Note payable entered into February 8, 2023 with a maturity date of February 8, 2023 at 12% interest per annum  $53,204   $- 
Note payable entered into November 15, 2022 with a company pursuant to a settlement agreement and mutual release of claims, payments due in 5 equal payments on November 15, 2022, December 15, 2022, January 15, 2023, February 15, 2023 and June 15, 2023 (previously March 15, 2023) (January 2023 and February 2023 payments were made on December 30, 2022 to extend the final payment to June 15, 2023); upon satisfaction of the note payable, the Company will receive back 115,000,000 warrants. In lieu of interest, the company will keep 10,000,000 shares previously issued in exercise of warrants   440,000    440,000 
           
Total   493,204    440,000 
Less: Discounts   (4,528)   - 
Less: Current portion   (488,676)   (440,000)
Long-term debt  $-   $- 

 

All of the notes payable as of March 31, 2023 are due in the next fiscal year, and therefore all current.

 

Interest expense for the three months ended March 31, 2023 and 2022 was $990 and $3,853, respectively. There was no in accrued interest as of March 31, 2023.

 

27
 

 

NOTE 12: NOTES PAYABLE – RELATED PARTIES

 

The Company entered into notes payable – related parties as follows as of March 31, 2023 and December 31, 2022. The chart below does not include notes payable that were repaid or converted during 2022, or notes payable that were reclassified to liabilities of discontinued operations or disposed of. Refer to the Form 10-K for the year ended December 31, 2022 filed April 6, 2023 for a full description of those notes:

 

   March 31, 2023   December 31, 2022 
         
Notes payable ($435,000 and $65,000), at 5% interest, originally maturing April 1, 2022, extended to October 1, 2022 for the acquisition of Monster (see Note 4) with the two principals of Monster; payments due at maturity (increased note balance by $18,000 to the two noteholders for the extension which did not constitute a material modification of a debt instrument) (in default)  $333,000   $333,000 
           
Notes payable to the sellers of Tickeri ($5,000,000 each for a total of $10,000,000) at 5% interest due December 3, 2022 (not considered in default by noteholders as this was settled on January 31, 2023)   -    10,000,000 
           
Notes payable ($271,250 and $215,000), at 3% interest, maturing December 31, 2022, with family relatives of the two principals of Monster; payments due at maturity (in default)   348,191    348,191 
           
Note payable with a company whose managing member is related to an officer and director of the Company, at 4% interest, maturing February 22, 2025, payment due at maturity   3,000,000    3,000,000 
           
Note payable with a company whose managing member is related to an officer and director of the Company, at 4% interest, maturing March 31, 2025, payment due at maturity   1,500,000    1,500,000 
           
Note payable with a company whose managing member is related to an officer and director of the Company, at 5% interest, maturing July 26, 2025, payment due at maturity   2,000,000    2,000,000 
           
Note payable with a company whose managing member is related to an officer and director of the Company, at 5% interest, maturing November 15, 2024, payment due at maturity (represents four draws of the line of credit ($440,000 each) entered into on November 15, 2022)   2,200,000    2,200,000 
           
Note payable with a company whose managing member is related to an officer and director of the Company, at 6% interest, maturing March 23, 2024, payment due at maturity   250,000    - 
           
Advance – officer – Ixaya, on demand, no interest   9,368    8,320 
           
Total   9,640,559    19,389,511 
Less: Current portion   (940,559)   (10,689,511)
Long-term debt  $8,700,000   $8,700,000 

 

Maturities of notes payable – related parties as of March 31 is as follows:

 

      
2024  $940,559 
2025   6,700,000 
2026   2,000,000 
Total  $9,640,559 

 

Interest expense for the three months ended March 31, 2023 and 2022 was $103,174 and $145,049, respectively. Accrued interest at March 31, 2023 was $333,979.

 

On January 31, 2023, in the sale back to the former owners of Tickeri, the $10,000,000 in related party notes along with $789,041 in accrued interest were included in the settlement and are no longer payable.

 

28
 

 

NOTE 13: CONVERTIBLE PROMISSORY NOTES

 

The Company entered into notes payable – related parties as follows as of March 31, 2023 and December 31, 2022. The chart below does not include notes payable – related parties that were repaid or converted during 2022. Refer to the Form 10-K for the year ended December 31, 2022 filed April 6, 2023 for a full description of those notes:

 

   March 31, 2023   December 31, 2022 
         
Convertible note at 10% interest, maturing July 14, 2022, extended to June 30, 2023 convertible into common shares  $99,746   $1,410,146 
           
Convertible note at 8% interest, maturing March 17, 2023 convertible into common shares at $1.00 per share   1,020,000    1,020,000 
           
Convertible note at 2.5% interest, maturing March 1, 2024 convertible into common shares at $0.012 per share   1,305,000    - 
           
Convertible note at 9% interest, maturing February 8, 2024 convertible into common shares at 70% of the Market Price as defined in the convertible note agreement (this note is reclassified to “Derivative Liabilities”)   -    - 
           
Convertible note at 9% interest, maturing March 6, 2024 convertible into common shares at 70% of the Market Price as defined in the convertible note agreement (a portion of this note is reclassified to “Derivative Liabilities”)   

11,331

    - 
           
Convertible note at 8% interest, maturing October 25, 2023, net of discount convertible into common shares at $0.0099 per share   138,750    - 
           
Convertible note due November 23, 2023 convertible into shares at 70% of the Market Price as defined in the convertible note agreement in an amount up to $1,100,000. Company received the first tranche of $110,000, net of discount on February 23, 2023. No interest unless there is an event of default (this note is reclassified to “Derivative Liabilities”)   -    - 
           
Convertible note due March 31, 2024, net of discount convertible into common shares at $0.008 per share   150,000    - 
           
Convertible note at 8% interest, maturing September 8, 2023 convertible into common shares at $0.012 per share, net of discount   222,000    222,000 
Total   2,946,827    2,652,146 
Less: Current portion   (2,918,822)   (2,636,411)
Less: Discounts   (28,005)   (15,735)
Long-term debt  $-   $- 

 

On April 14, 2021 we received bridge financing in the form of a loan in the principal amount of $3,300,000 from Brighton Capital Partners, LLC (“Brighton Capital” or “BCP”) for which we issued them a convertible promissory note due originally on July 14, 2022. The note has since been extended to June 30, 2023 for no consideration and thus it was deemed to not be a material modification to the debt instrument.

 

BCP has been converting this note and accrued interest since August 16, 2022. In addition, they sold a portion of the note ($300,000) to a third-party, which has also been converted. As of March 31, 2023, there remains a total of $312,816 in principal and interest. The Company issued 326,000,000 shares of common stock, which includes 86,000,000 issued to a third party that purchased $300,000 of this note in the three months ended March 31, 2023 in conversions of the BCP note. The Company recognized a loss on conversions of BCP (and third parties that purchased portions of this note) in the amount of $1,518,300.

 

29
 

 

On May 17, 2021, the Company issued a convertible promissory note to an investor for $1,020,000 with an original issue discount of $20,000, for a term of twenty-two months maturing March 17, 2023. The Company recognized a $20,000 original issue discount at inception of this convertible note. This note has not been repaid or converted, and is currently past due as the maturity date has passed. This is reflected in our current portion of convertible notes payable as of March 31, 2023.

 

On December 8, 2022, the Company entered into an 8% convertible redeemable note in the amount of $222,000 with an original issue discount of $14,500, for a term of nine months due September 8, 2023. From the $207,500 in proceeds received, $7,500 was deducted to pay for legal fees of the issuer. The Company received net proceeds of $200,000. The note is convertible into shares of common stock at $0.012 per share. Should the Company be in default of this note, the conversion price would be equal to the lower of (a) $0.012 or (b) 70% of the lowest trading price for the fifteen prior trading days including the day upon which a conversion notice is received by the Company. In addition, the Company was required to reserve with the transfer agent, 74,000,000 shares of common stock for this note.

 

On January 25, 2023, the Company entered into an 8% convertible redeemable note in the amount of $138,750 with an original issue discount of $9,000, for a term of nine months due October 25, 2023. From the $129,750 in proceeds received, $4,750 was deducted to pay for legal fees of the issuer. The Company received net proceeds of $125,000. The note is convertible into shares of common stock at $0.0099 per share, as long as the note is not in default. Should the Company be in default of this note, the conversion price would be equal to the lower of (a) $0.0099 or (b) 70% of the lowest trading price for the fifteen prior trading days including the day upon which a conversion notice is received by the Company. In addition, the Company was required to reserve with the transfer agent, 57,000,000 shares of common stock for this note.

 

On February 8, 2023, the Company entered into a 9% convertible promissory note in the amount of $77,500 with an original issue discount of $9,000, for a term of twelve months due February 8, 2024. From the $77,500 in proceeds received, $2,500 was deducted to pay for legal fees of the issuer. The Company received net proceeds of $75,000. The note is convertible into shares of common stock at 70% of the lowest trading price for the twenty prior trading days ending on the latest complete Trading Day prior to the Conversion Date. In addition, the Company was required to reserve with the transfer agent, 76,884,920 shares of common stock for this note. This note was reclassified to Derivative Liabilities, See Note 15, as the conversion option qualified as a derivative instrument under ASC 815.

 

On February 23, 2023, the Company entered into a convertible promissory note in the amount up to $1,100,000. On February 23, 2023, the Company received the first tranche of this note in the amount of $110,000, including $10,000 in original issue discount for net proceeds of $100,000. On April 4, 2023, the Company received the second tranche of this note of $55,000, with a $5,000 original issue discount. The note is convertible into shares of common stock at 70% of the lowest trading price for the twenty prior trading days. In addition, the Company was required to reserve with the transfer agent, the amount of common shares equal to three times the number of common shares needed to convert any of the outstanding amounts received. At March 31, 2023, the reserve equals 175,000,000 shares of common stock for this note. This note was reclassified to Derivative Liabilities, See Note 15, as the conversion option qualified as a derivative instrument under ASC 815.

 

On March 1, 2023, a noteholder sold $2,925,000 of their outstanding related party note to a third party. Of the amount sold, $1,620,000 was converted into 135,000,000 shares of common stock. This conversion resulted in a gain of $553,500.

 

On March 6, 2023, the Company entered into a 9% convertible promissory note in the amount of $59,250, for a term of twelve months due March 6, 2024. From the $59,250 in proceeds received, $4,250 was deducted to pay for legal fees of the issuer. The Company received net proceeds of $55,000. The note is convertible into shares of common stock at 70% of the lowest trading price for the twenty prior trading days ending on the latest complete Trading Day prior to the Conversion Date. In addition, the Company was required to reserve with the transfer agent, 61,335,403 shares of common stock for this note. This note was reclassified to Derivative Liabilities, See Note 15, as the conversion option qualified as a derivative instrument under ASC 815.

 

On March 31, 2023, the Company entered into a Convertible Promissory Note in the amount of $150,000 with an original issue discount of $12,500 and a $12,500 interest charge assessed at closing, and a term of twelve months due March 31, 2024. The Company received net proceeds of $125,000. The note is convertible into shares of common stock at $0.008 per share. Beginning on September 31, 2022, the investor has the right to cause note in cash or common stock. If the Company pays in common stock, it may do so at 70% of the lowest trading price for the twenty prior trading days ending on the latest complete Trading Day prior to the Conversion Date. In addition, the Company was required to reserve with the transfer agent, 50,000,000 shares of common stock for this note.

 

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On April 10, 2023, the Company entered into a Promissory Note in the amount of $59,675, with a term of twelve months due April 10, 2024, and an original issue discount of $5,425. From the $54,250 in proceeds received, $4,250 was deducted to pay for legal and due diligence fees. The Company received net proceeds of $50,000. Following an event of default, the note is convertible into shares of common stock at 70% of the lowest trading price for the twenty prior trading days ending on the latest complete Trading Day prior to the Conversion Date. A one-time interest charge of $7,757 was added upon the issuance of the note. Beginning on May 30, 2023 and for the next nine months thereafter, the Company is required to make monthly amortization payments of $6,743.20. In addition, the Company was required to reserve with the transfer agent, 52,346,491 shares of common stock for this note.

 

In order to have sufficient common shares to convert the debt and enable the transfer agent to have the reserves necessary, the Company’s CEO has committed to not to convert 200,000 of his Series B Preferred shares until after the Company increases their authorized common shares in amount sufficient to provide for sufficient reserves the outstanding obligations.

 

All of the convertible promissory notes as of March 31, 2023 and December 31, 2022 are due in the next fiscal year, and therefore all current.

 

The Company evaluated the terms of the convertible notes and determined that there were derivative liabilities to be recorded at inception of the notes as there were sufficient shares to net share settle the notes at the discounted values.

 

Interest expense for the three months ended March 31, 2023 and 2022 was $87,515 and $159,654, respectively. Amortization of debt discount, and original issue discount was $12,408 and $340,370 for the three months ended March 31, 2023 and 2022, respectively. Accrued interest at March 31, 2023 was $377,157.

 

On March 31, 2022, the Company entered into exchange agreements with most of their convertible note holders to exchange $2,979,000 of notes payable and $197,804 of accrued interest on those notes into 37,374,170 shares of common stock. The exchange agreements resulted in a $1,250,527 adjustment for the unvested debt discount at the time of the convertible note exchanges to common stock. This amount is reflected in the amortization of debt discounts in other income (expense) in the consolidated statement of operations for the three months ended March 31, 2022. The then unamortized debt discount of $1,250,527 represented the loss on these exchange transactions.

 

NOTE 14: CONVERTIBLE PROMISSORY NOTES – RELATED PARTIES

 

The Company entered into convertible notes payable – related parties as follows as of March 31, 2023 and December 31, 2022. The chart below does not include convertible notes payable – related parties that were repaid or converted during 2022. Refer to the Form 10-K for the year ended December 31, 2022 filed April 6, 2023 for a full description of those notes:

   March 31, 2023   December 31, 2022 
Convertible note at 5% interest, maturing December 31, 2022 convertible into common shares at $1.20 per share (two notes – one for $6,525,000 and one for $975,000) for the acquisition of Monster Creative, LLC (see Note 4) with the two principals of Monster; payments due at maturity (currently in default)  $3,450,000   $7,500,000 
Long term debt, gross   3,450,000    7,500,000 
Less: Current portion   (3,450,000)   (7,500,000)
Long-term debt  $-   $- 

 

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All of the convertible promissory notes – related parties are in default and reflected in current liabilities as of March 31, 2023.

 

On June 30, 2021, the Company acquired Monster Creative, LLC. The Monster Purchase Price included: (a) a convertible note to Phantom Power, LLC in the amount of $6,525,000 that bears interest at 5% per annum, and was to mature December 31, 2022, convertible into the Company’s common stock; and (b) a convertible note to Kevin Childress in the amount of $975,000 that bears interest at 5% per annum, and was to mature December 31, 2022, convertible into the Company’s common stock. These notes are currently in default. The convertible promissory note to Kevin Childress was satisfied in full on April 20, 2023.

 

The Company evaluated the terms of the convertible notes and determined that there were no terms that would necessitate the recognition of any derivative liabilities.

 

In the three months ended March 31, 2023, the convertible noteholders sold $4,050,000 of these convertible notes to third-parties, and the third parties converted the $2,745,000 into 66,274,658 shares of common stock. These transactions resulted in a gain on conversion of notes payable in the amount of $537,060, which is reflected in the consolidated statements of operations for the three months ended March 31, 2023.

 

Interest expense for the three months ended March 31, 2023 and 2022 was $75,421 and $92,466, respectively, and accrued interest as of March 31, 2023 was $639,462.

 

NOTE 15: DERIVATIVE LIABILITIES

 

The Company entered into several convertible notes payable during the three months ended March 31, 2023, that terms include variable conversion prices (see Note 13). The Company evaluated these terms and determined that the conversion option on the convertible notes payable contained characteristics that required the Company to classify them as derivative liabilities. The Derivative Instruments have been accounted for utilizing ASC 815 “Derivatives and Hedging.” The Company has incurred a liability for the estimated fair value of Derivative Instruments. The estimated fair value of the Derivative Instruments has been calculated using the Black-Scholes fair value option-pricing model with key input variables provided by management, as of the date of issuance, with changes in fair value recorded as gains or losses on revaluation in other income (expense).

 

The Company identified embedded features in some of the agreements which were classified as liabilities. These embedded features included a variable conversion price that would convert those instruments into a variable number of common shares. The accounting treatment of derivative financial instruments requires that the Company treat the instrument as liability and record the fair value of the instrument as derivatives as of the inception date of the instrument and to adjust the fair value of the instrument as of each subsequent balance sheet date.

 

The Company determined the derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of March 31, 2023. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate.

 

Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each warrant is estimated using the Black-Scholes valuation model. The following assumptions were used on March 31, 2023 and at inception:

 SCHEDULE OF FAIR VALUE ASSUMPTIONS OF WARRANTS

  

Three

Months Ended
March 31,
2023

   Inception 
Expected term   0.70 0.83 years    0.751.00 years 
Expected volatility   118 - 125%   120% – 125%
Expected dividend yield   -    - 
Risk-free interest rate   4.85%   4.85%
Market price  $0.006 – $0.013   $0.0078 - $0.013 

 

The Company’s derivative liabilities as of March 31, 2023 and inception associated with the offerings are as follows.

 

   March 31,
2023
(unaudited)
   December 31,
2022
   Inception 
Fair value of conversion option on February 8, 2023 note (see Note 13)  $75,246    -   $122,025 
Fair value of conversion option on February 23, 2023 note (see Note 13)   127,783    -    127,100 
Fair value of conversion option on March 6, 2023 note (see Note 13)   58,762    -    47,919 
Derivative liabilities  $261,791   $-    - 

 

Activity related to the derivative liabilities for the three months ended March 31, 2023 is as follows:

 

Beginning balance as of December 31, 2022  $- 
Bifurcation of conversion option on convertible note payable   297,044 
Change in fair value of derivative liabilities (restated)   (35,253)
Ending balance as of March 31, 2023  $261,791 

 

There were no derivative liabilities in the three months ended March 31, 2022.

 

NOTE 16: STOCKHOLDERS’ EQUITY (DEFICIT)

 

Preferred Stock

 

As of March 31, 2023 and December 31, 2022, the Company has 10,000,000 shares of Preferred Stock authorized, designated as follows: 7,000,000 shares of Series A Preferred Stock authorized, and 570,000 shares of Series B Preferred Stock authorized. All shares of preferred stock have a par value of $0.00001.

 

Series A Preferred Stock

 

Dividends. Shares of Series A Preferred Stock shall be entitled to receive, out of funds legally available for that purpose, on the same terms and conditions as that of holders of common stock, as may be declared by the Board of Directors.

 

Conversion. There are no conversion rights.

 

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Redemption. Subject to certain conditions set forth in the Series A Certificate of Designation, in the event of a Change of Control (defined in the Series A Certificate of Designation as the time at which as a third party not affiliated with the Company or any holders of the Series A Preferred Stock shall have acquired, in one or a series of related transactions, equity securities of the Company representing more than fifty percent 50% of the outstanding voting securities of the Company), the Company, at its option, will have the right to redeem all or a portion of the outstanding Series A Preferred Stock in cash at a price per share of Series A Preferred Stock equal to 100% of the liquidation value.

 

Voting Rights. Holders of Series A Preferred Stock are entitled to vote on all matters, together with the holders of common stock, and have the equivalent of one thousand (1,000) votes for every share of Series A Preferred Stock held.

 

Liquidation. Upon any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary, the holders of Series A Preferred Stock shall be entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to the liquidation value of the Series A Preferred Stock before any distribution or payment shall be made to the holders of any junior securities, and if the assets of the Company is insufficient to pay in full such amounts, then the entire assets to be distributed to the holders of the Series A Preferred Stock shall be ratably distributed among the holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.

 

The 7,000,000 shares were issued to a former officer of the Company and assigned to the new CEO at the time of the reverse merger of HUMBL.

 

Series B Preferred Stock

 

Prior to the amendment of the Certificate of Incorporation on October 29, 2021, the criteria established for the Series B Preferred Stock was as follows:

 

Dividends. Shares of Series B Preferred Stock shall be entitled to receive, out of funds legally available for that purpose, on the same terms and conditions as that of holders of common stock, as may be declared by the Board of Directors.

 

Conversion. Each share of Series B Preferred Stock shall be convertible at the option of the holder thereof at any time after December 3, 2021 at the office of the Company or any transfer agent for such stock, into ten thousand (10,000) fully paid and nonassessable shares of common stock subject to adjustment for any stock split or distribution of securities or subdivision of the outstanding shares of common stock.

 

Redemption. Subject to certain conditions set forth in the Series B Certificate of Designation, in the event of a Change of Control (defined in the Series B Certificate of Designation as the time at which as a third party not affiliated with the Company or any holders of the Series B Preferred Stock shall have acquired, in one or a series of related transactions, equity securities of the Company representing more than fifty percent 50% of the outstanding voting securities of the Company), the Company, at its option, will have the right to redeem all or a portion of the outstanding Series B Preferred Stock in cash at a price per share of Series B Preferred Stock equal to 100% of the liquidation value.

 

Voting Rights. Holders of Series B Preferred Stock are entitled to vote on all matters, together with the holders of common stock, and have the equivalent of ten thousand (10,000) votes for every share of Series B Preferred Stock held.

 

Liquidation. Upon any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary, the holders of Series B Preferred Stock shall be entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to the liquidation value of the Series B Preferred Stock before any distribution or payment shall be made to the holders of any junior securities, and if the assets of the Company is insufficient to pay in full such amounts, then the entire assets to be distributed to the holders of the Series B Preferred Stock shall be ratably distributed among the holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.

 

HUMBL exchanged 100% of their membership interests for 552,029 shares of newly created Series B Preferred Stock. The Series B Preferred shares were issued to the respective members of HUMBL following the approval by FINRA of the one-for-four reverse stock split of the common shares and the increase in the authorized common shares to 7,450,000,000 shares. The FINRA approval for both the increase in the authorized common shares and reverse stock split occurred on February 26, 2021. These shares that were issued in the reverse merger had a value of $39,967.

 

These shares have a lock-up provision that prevents the holders to convert into common stock for a period of one-year from the date of the merger of December 3, 2020, with the exception of those held by the CEO who had a two-year lock up provision. In addition, officers and directors that received these shares are subject to strict selling limitations, where the number of shares sold within the preceding three months cannot exceed the greater of: (a) 1% of the total outstanding common shares; and (b) the average weekly reported trading volume for the previous four weeks.

 

On February 26, 2021, the Company issued 493 shares of Series B Preferred Stock for services rendered that were cancelled. On April 15, 2021, the Company revised their issuances and issued with an effective date of March 31, 2021, 2,272 Series B Preferred shares for services rendered. Of the 2,272 shares issued, 528 are vested immediately, 1,219 are vested over one year, and 525 are vested over two years. The vesting period commenced January 1, 2021. All of the Series B Preferred Shares issued have one-year lock up provisions to convert into common stock from the date of the merger of December 3, 2020. These shares have been fully expensed as of December 31, 2022.

 

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Between May 3 and May 6, 2021, the Company’s CEO converted 79,625,000 shares of common stock into 7,962 Series B Preferred shares. These shares are subject to a lock-up provision whereby the CEO has agreed not to convert these Series B shares to common for a period of two years.

 

On July 6, 2021, the CEO of the Company cancelled 9,350 shares of Series B Preferred Stock (93,500,000 if converted into common stock) for no consideration.

 

On November 19, 2021, the Company paid $215, to redeem 215 Series B Preferred Shares.

 

In December 2021, there were 7,939 Series B Preferred shares converted into 79,390,000 common shares.

 

On March 17, 2022, the CEO of the Company cancelled 4,900 shares of Series B Preferred Stock (49,000,000 if converted into common stock) and on September 21, 2022, the Company’s CEO cancelled 45,000 Series B Preferred shares (the equivalent of 450,000,000 common shares) for no consideration.

 

During the year ended December 31, 2022, there were 79,762 shares of Series B Preferred Stock converted into 797,620,000 common shares.

 

For the three months ended March 31, 2023, there were 15,984 shares of Series B Preferred Stock converted into 159,840,000 common shares.

 

As of March 31, 2023, the Company has 400,175 shares of Series B Preferred Stock issued and outstanding.

 

On October 29, 2021, the Company by Board consent approved an amendment to their Certificate of Amendment for the Series B Preferred Stock to (a) reduce the number of authorized shares of Series B Preferred stock to 570,000 and (b) for Series B Preferred shareholders holding greater than 750 shares of Series B Preferred Stock, for the calendar months of December 2021 and January 2022, Series B Preferred shareholders shall not have the right, whether by election, operation of law, or otherwise, to convert into Common Stock shares of Series B Preferred stock constituting more than 5% of the total number of Series B Preferred shares held by them; and for each of the calendar months from February 2022 to May 2023, the percentage that the Series B Preferred shareholder may convert is 3% of the total number of Series B Preferred shares held by them. This action was approved by Series B Shareholder consent.

 

Common Stock

 

The Company has 7,450,000,000 shares of common stock, par value $0.00001, authorized. The Company has 3,005,310,839 and 2,182,343,775 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively. The Company on February 26, 2021 increased its authorized shares from 5,000,000,000 to 7,450,000,000 shares.

 

In the three months ended March 31, 2022, the Company: (a) issued 4,000,000 shares in a settlement; (b) 10,000,000 shares in the exercise of warrants; (c) 13,200,000 shares in the asset purchase of BizSecure (also granted 26,800,000 restricted stock units in this acquisition); (d) 8,962,036 shares in the acquisition of Ixaya; (e) 675,000 shares for services rendered; (f) 37,374,170 shares issued for the exchange of notes payable and accrued interest; and (g) 220,640,000 shares issued in conversion of 22,064 Series B Preferred stock. In addition, the Company cancelled 825,000 shares.

 

During the three months ended March 31, 2022, the Company expensed $1,440,464 related to shares issued to consultants and advisors for services as noted above, leaving $4,626,417 of stock-based compensation yet to be expensed as of March 31, 2022. The Company has reduced their obligation to issue common stock by 1,120,176 shares and as of March 31, 2022 has an obligation to issue 198,750 shares valued at $26,831. These shares were issued in April 2022.

 

In the three months ended June 30, 2022, the Company: (a) issued 198,750 shares for services rendered; and (b) issued 224,510,000 shares in conversion of 22,451 Series B Preferred stock.

 

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During the three months ended June 30, 2022, the Company expensed $1,216,115 related to shares issued to consultants and advisors for services as noted above, leaving $3,410,302 of stock-based compensation yet to be expensed as of June 30, 2022. The Company has reduced their obligation to issue common stock by 198,750 shares and as of June 30, 2022 has an obligation to issue 198,750 shares valued at $10,236. These shares were issued in July 2022.

 

In the three months ended September 30, 2022, the Company: (a) issued 11,698,750 shares for services rendered; (b) issued 208,010,000 shares in conversion of 20,801 Series B Preferred stock; (c) 30,338,978 shares for conversion of notes payable valued at $800,000, and recognized a loss on conversion of these shares in the amount of $305,967; and (d) the Company redeemed 1,000,000 shares of common stock in a settlement. In September 2022, the Company received $425,000 from three investors as part of a total of $575,000 for 38,333,333 shares and 76,666,666 warrants with a strike price of $0.03 and $0.04 (38,333,333 each). The remaining $150,000 was received in October 2022 and the shares were issued in October 2022. The Company has included the $425,000 in additional paid in capital as of September 30, 2022.

 

During the three months ended September 30, 2022, the Company expensed $1,192,808 related to shares issued to consultants and advisors for services as noted above, leaving $2,217,494 of stock-based compensation yet to be expensed as of September 30, 2022. The Company has reduced their obligation to issue common stock by 198,750 shares and as of September 30, 2022 has an obligation to issue 198,750 shares valued at $4,969. These shares were issued in October 2022.

 

In the three months ended December 31, 2022, the Company: (a) issued 168,750 shares for services rendered; (b) issued 144,460,000 shares in conversion of 14,446 Series B Preferred stock; (c) 111,073,302 shares for conversion of notes payable valued at $1,537,745, and recognized a loss on conversion of these shares in the amount of $753,858; and (d) the Company issued 72,352,940 shares of common stock with 11 different investors for $615,000, and issued 76,666,666 shares of common stock for $575,000.

 

During the three months ended December 31, 2022, the Company expensed $1,032,748 related to shares issued to consultants and advisors for services as noted above, leaving $1,184,746 of stock-based compensation yet to be expensed as of December 31, 2022. The Company has reduced their obligation to issue common stock by 198,750 shares and as of December 31, 2022 has an obligation to issue 168,750 shares valued at $1,585. These shares were issued in January 2023.

 

In the three months ended March 31, 2023, the Company: (a) issued 40,418,750 shares for services rendered; (b) issued 159,840,000 shares in conversion of 15,984 Series B Preferred stock; (c) 527,274,658 shares for conversion of notes payable valued at $4,855,141, and recognized a loss on conversion of these shares in the amount of $427,740; (d) the Company issued 90,000,000 shares of common stock in the acquisition of BM Authentics; and (e) 5,433,656 shares of common stock in settlement with Tickeri on the disposal of that entity.

 

During the three months ended March 31, 2023, the Company expensed $1,135,579 related to shares issued to consultants and advisors for services as noted above, leaving $49,167 of stock-based compensation yet to be expensed as of March 31, 2023. The Company has reduced their obligation to issue common stock by 90,418,750 shares and as of March 31, 2023 has no obligation to issue shares. In addition, the Company recognized $206,032 in BCF discounts on convertible notes and the Company’s CEO contributed $50,000 during the three months ended March 31, 2023.

 

Stock Incentive Plan

 

On July 21, 2021, the Company established the HUMBL, Inc. 2021 Stock Incentive Plan (the “Plan”) for a total issuance not to exceed 20,000,000 shares of common stock. The purpose of the Plan is to promote the long-term growth and profitability of the Company by (i) providing key people with incentives to improve stockholder value and to contribute to the growth and financial success of the Company, and (ii) enabling the Company to attract, retain and reward the best-available persons.

 

The Plan permits the granting of Stock Options (including incentive stock options qualifying under Code Section 422 and nonqualified stock options), Stock Appreciation Rights, restricted or unrestricted Stock Awards, Restricted Stock Units, Performance Awards, other stock-based awards, or any combination of the foregoing.

 

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Warrants

 

Warrants issued in 2023 and 2022 consisted of the following:

 

On September 29, 2022, the Company entered into subscription agreements with investors whereby the Company issued 38,333,333 shares of common stock (issued in October 2022) and granted three-year warrants expiring September 29, 2025 for 38,333,333 warrants at $0.03 per share and 38,333,333 warrants at $0.04 per share. The Company received $425,000 in proceeds as of September 30, 2022 with the remaining $150,000 in proceeds received in October 2022. These warrants were cancelled on December 14, 2022.

 

Between November 7, 2022 and ending November 13, 2022 with 11 different investors issued warrants to purchase